End Of Year 12-26-2011

Gold is down around 15% since August.  The Wall Street Journal attributes it to the slowdown in India's economy.  It grew 6.9% last quarter.  In 2010 India was the biggest buyer of gold jewelry, but it dropped off significantly this year due to a weakening of the rupee.
Another reason for gold's decline is the strength of the dollar.  As the Euro falls the dollar becomes the safe haven.  There are many potential problems in the world now that could affect gold.  The banking system is stressed and there are rumors of major banks in trouble.  Stocks of Bank Of America have fallen to around $5 a share.  It is thought that they were bailed out last summer and that they are being helped again now.  Of course the Feds will not comment.  On Friday Bloomberg News released data on the Fed emergency lending of 50,000 transactions made through seven different financial mechanisms.  These programs represented 1.2 trillion dollars in loans to banks and financial institutions.
IMF Chief Christine Lagarde said "Currently the world economy stands at a very dangerous juncture."  She called it a crisis of slow growth and high unemployment.  Europe, the US, and the BRIC nations are all experiencing down turns.   The world economy is so intertwined that most countries are feeling the pain.  For us here in the US we have the added problem of gridlock in our government.  Our government can not manage their checkbook.  Our national debt amounts to around $136,000 per household and is climbing at the alarming rate of almost $1000 per household per month.  It seems that this insane spending will eventually crash the system and the only thing the Fed can do is print!
Gold should shine in this environment.  We may not be there yet, but it is a good bet it will happen.  Many economists feel the QE3 is just around the corner, possibly starting in January.  Right now gold is $300 an ounce cheaper than it was in August.  Silver is down almost 40% from the high.  Have your cash ready!

Gold's time is coming! 12-18-2011

One wonders if those responsible for our current predicament will ever pay for it.  On December 16th the SEC filed civil suits on 6 former Freddie and Fanny executives.  Of course Barney Frank wasn't included even though it was his job to oversee them.  It will be interesting to see if anyone goes to jail.

Four co-authors on a website of the Federal Reserve Bank of New York presented some findings from a recent study.  According to the study, more than a third of the homes purchased in 2006 at the peak of the housing boom, were by people who already owned a home.  In some of the biggest bubble states like California, Nevada, Florida and Arizona it was almost half.  Almost 20% owned more than two.  Many of these people simply walked away from the properties when they saw no more appreciation in the future.  More unintended consequences from government policies.

What about Europe?  Senator Bob Corker, a Republican from Tennessee, said Bernanke made it very clear that no additional aid will be given to the region's sovereign debt crisis in a meeting with law makers. Lindsey Graham, a South Carolina Republican said Bernanke told lawmakers the he doesn't have the intention or authority to bail out countries or banks.

Question:  A Greek, and Italian and a Spaniard walk into a bar.  who picks up the tab?
Answer:  The Americans!

Reuters reported that Fitch Ratings, the third biggest credit rating agency, downgraded Goldman Sachs, Deutsche Bank, Barclays Pic, Credit Suisse AG, B of A,BNP Paribas, and Citigroup.  This is the  result of economic developments and regulatory changes they said.  They also cited a policy momentum against using tax payer money to support banks.

French President Sarkozy said the legal basis for a new accord on debt and deficit rules in the 17 nation euro area will be put together by Christmas and hopes to have a treaty by March.  Sarkozy also said, "you have to understand this is the birth of a different Europe.  The Europe of the euro zone in which the watchwords will be the convergence of economies, budget rules and fiscal policy.

What is hard to get your head around is that we are in worse shape and we are trying to tell the rest of the world how to respond to this crisis.  We have to borrow 40 cents on every dollar the government spends.  Not a shining example!  In fact we fully expect the printing presses to be unleashed in the new year and the European Central Bank will most likely buy more bonds to keep interest rates low.  

This brings us to our point of this article.  Gold and silver.  When the Fed and the ECB start "easing", gold and silver will shine again.  They have shined since the start of the financial crisis and there is no reason to believe that will change.  This latest downturn has created a potentially great buying opportunity.  Many pundits are predicting gold at well over $2000 in 2012.  In addition the gold and silver stocks have been hammered and are oversold giving extra leverage to any uptrend in the metals.  Below is the spot gold chart.

Here is the chart for the gold stocks.

Both may have some downside to go but we are getting close to a place where we should be accumulating.

Safe Market? 12-11-11

After all the dust settles it looks like the UK is the odd man out.  They are refusing to join in the fix.  They may be the smart ones.  Not too many good options for the other 26 countries.  The one difference between them and the US is we have control of the printing presses basically for the world.  How long that will continue is the question.  It looks like the UK doesn't want to give that option up for themselves.  Being in the union limits your choices.  The smart move for some of the countries might have been to get out of the union and default.

There are some other big problems for the markets to digest.  Hedge Fund Research says " the average fund lost 4.3% this year.  They report that 213 of them have gone under this year.  Jeff Holland managing director of Liongate Capitol says "It is sentiment, rather than fundamentals, that has driven markets this year."  "Markets have been dominated by high correlations and continue to behave based on political decisions,"  "The biggest risk is investing in a market that is uncertain. Guys who have tried to predict the political events in Europe are the guys who have got their fingers burned this year,"  


At EconIntersect we have always said sentiment trumps all else.  If you perceive there is no fix for the problem, facts and charts don't always matter.  Sentiment and trend are your friend!  Neither is going our way at the moment.


The next big problem: corruption in the market place.  Why have no Wall Streeters gone to jail for the corruption?   Could it be the perpetrators are in bed with the politicians and bureaucracy? In a recent interview with Jim Puplava, Ann Barnhardt, who recently closed her brokerage business, Barnhardt Capital Management, because she believes her clients money is not safe there anymore had this to say.   "The actions, specifically by the Merc after the MF Global collapse were unprecedented, unfathomable and completely and totally intolerable. The Merc itself basically did the equivalent of sticking a nine millimeter in their mouth and pulling the trigger by not stepping forward, backstopping the MF Global client accounts and at the very least, the Merc should have allowed the MF Global customers to liquidate their accounts and then transfer to other firms. What the Merc did was the worst possible thing, they froze those people out of their accounts and did not allow them to liquidate while the markets continued to trade.  This has never happened before. This was a complete breach of fiduciary duty by the Chicago Mercantile Exchange itself to the point that it literally has destroyed the entire paradigm."   How could those customer funds be missing. They are not missing. They were stolen. They were stolen by Jon Corzine and his cadre of associates at MF Global.  Nothing even close to this has ever even happened before and it is the function of the Mercantile Exchange itself, the reason why the exchanges exist is that they stand in the middle of every transaction and they act as the de facto counterparty to every single transaction so that, for example, my clients never had to worry about the credit worthiness of the other individual, whoever it might be, who is on the other side of any trade that they did."


We have reported on this in the past.  If Ann's assessment of this problem is correct there may not be many places to hide.  She goes on to say:  We are now living in a lawless, Marxist, Communist, usurped, what used to be a representative republic but is no more. This is no longer a nation of laws. This has now transformed into a nation of men. It does not matter what crime you commit. In the case of Jon Corzine, this man has stolen in excess of a billion dollars."  Why would a man like that even engage in a nefarious plot like this? Because he knew going into it he could get away with it. And the reason he could get away with it is he is in tight with the Obama regime. He is a crony of the regime. This is Marxist Communism. There is no rule of law. And these people, these poor MF customers are just sitting out here helpless to do anything because there is no law enforcement because this is no longer a nation of laws. The rule of law no longer exists. "  "The only lesson that these criminal degenerates learned from the 2008 situation was that they could do anything they want and that pimp daddy government would bail them out."  "And we now know that the government is absolutely stuffed to the gills almost exclusively with this same type of moral degenerate culture. These people that are in the government not just the Congress and Executive Branch but also in the bureaucracy, they are in it for themselves."  "These people are nefariously trying to destroy everything in this country. It is called the Cloward-Piven strategy. Go in and destroy and collapse the entire economy, everything and then rebuild a new Marxist, Socialist, fascist state out of the burning rubble of this destruction. This is intentional. This is nefarious. This is not a function of incompetence. It is a function of malice of forethought and conscientious theft and destruction."

According to Ann we could be on the verge of a total collapse of our financial system.  Europe is too big to solve, the government is corrupt, and nobody is doing anything about it.  There is no integrity in the system anymore.  If this is the case what can we do to protect ourselves?

Get out of all paper and not just the commodities markets. This is going to cascade through everything. It is going to get into the equities. It is going to get into 401ks and IRAs, it is going to get into pension plans and so on and so forth. Total systemic collapse. Get out!"  "Anything that is on paper anything that involves a promise or a commitment is no longer valid because as we said there is no rule of law anymore. People can steal from you. Your money can be confiscated. And think how easy now it is to confiscate wealth. Most of our wealth in this society exists as zeroes and ones on a computer server. It takes no effort whatsoever to steal zeros and ones on a computer server. So what I have been telling people is you need to get into physical commodities. And the rule of thumb is if you can stand in front of it with an assault rifle and physically protect it, then it's real, it is a real commodity. That includes food, that includes water, that includes long guns and ammunition. That includes fuel. That includes precious metals, gold and silver coinage. Most especially silver coinage because silver is the metal of barter and transaction and currency. Gold is the storage metal because it's so valuable per ounce. And also, silver is extremely undervalued relative to gold because that market has been synthetically suppressed for the last several years by again, these nefarious actors. So yeah, reallocate into physical commodities.


At EconIntersect we have been advocates of the commodities for some time.  Wheather Ann is right or wrong we feel you can't go wrong with physical gold and silver.  The whole world is going through a metamorphosis and we believe safety is paramount.  The Aden Sisters who write the Aden Forecast agree.  "We recommend staying put for the time being. The market is volatile, mixed and risk remains high.  We are far safer staying on the sidelines. Maintain caution, be patient and let the market tell the story.

Crisis? 12-4-11

Europe's debt crisis is hopefully coming to a head this week.  Emma Marcegaglia, the head of Italy's industrial lobby says the coming days "will decide if the euro will survive or not"  If the summit is a failure, France's  Sarkozy warned last week, "the world will not wait for Europe."  "What will remain of Europe if the euro disappears?"  "Nothing."


Here is part of the FOMC press release last week.  
"The Bank of Canada, the Bank of England, The Bank of Japan, The European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system.  The purpose of these actions is to ease the strains in financial markets and thereby mitigate the effect of such strains on the supply of credit to households and businesses and so help foster economic activity."
  
Expectations are high.  How high?  Look at the market last week.  Nothing has really changed except the bank rate, yet the market surged.  Imagine if they actually make some progress! 


Jack Crooks of The Weiss Research Investment Newsletter says "This is only the third instance of this particular type of announced collusion.  He points out the first was in December 2007, the second in September 2008.  You can see the results in his 2 graphs below.

QE2 and QE3 had these results.


You can see from the charts what the market likes and dislikes. From our point of view neither option solves the problem, only kicks the can farther down the road. However, the market certainly likes the easing.

Steven Hansen of EconIntersect says "The timing of the beginning of a new financial crisis might be tomorrow or never (because of change of policy, regulation or direction before the crisis could begin).  There is almost zero chance that the status quo can remain for any extended period of time."  
George Soros "The world financial system is on the brink of collapse, with developed markets running full speed ahead toward disintegration."


Our take is the markets will not be happy very long no matter what happens this week, or next.  There are too many problems to be solved with the flip of a switch, no matter how big the switch.  


On a more positive note, the Green Bay Packers are offering their first stock sale in 14 years.  They are tying to raise $130 million to renovate Lambeau Field.  These stocks do not go up in value, there are no dividends and has virtually no resale value.  You do get voting rights and invitations to annual meetings.  Might be a good Christmas gift.