Tuesday, January 25, 2011

How gold became politically correct

Michael J. Kosares
24 January 2011

“When the monetary history of the year coming to an end is written decades from now, the headlines of European debt crisis and Federal Reserve’s adoption of QE2 may turn out to be mere footnotes to the bigger story: 2010 could be a watershed marking the beginning of the end of the dollar-based, Western-centric monetary system.” -- Randall Forsyth, Barron’s

“We wish to highlight not all but some of the ‘fears’ that keep us awake at night, and illustrate why right now is not the final act for gold. 2011 could be an explosive year for this most illustrious of metals. . .We believe withstanding a lack of gold standardisation, gold has a firm place in modern portfolio management and in accounting procedures.”-- Hinde Capital, None Shall Sleep 2011

It all started very quietly with a little-known speech in May of 2008 by Benn Steil, a highly respected policy insider at the the Council on Foreign Relations. The CFR is generally considered the font of establisment thinking on foreign and international economic policy. Steil’s speech had to do with gold -- an unusual subject for someone so prominent in the CFR. His proposal? That gold should be restored to a central role in the international monetary system......read on

Swapping US$ for Chinese Yuan

Paul Krugman interviewed on Al Jazeera

Russia Plans to Buy 100 Tons of Gold a Year

From The Wall Street Journal:

MOSCOW—The Central Bank of Russia plans to buy from domestic banks 100 metric tons of gold a year in order to replenish the country's gold reserves, Deputy Head of the bank Georgy Luntovsky said Monday, according to the bank's press service.

In 2010 Russia's gold reserve increased 23.9% to 790 tons, or 25.4 million Troy ounces.

By Dr. Jeffrey Lewis

The prices for commodities can change quickly and wildly, and in many cases, investors can hold commodities for years without any realization of profits.

The wild cyclicality is what has kept many out of the commodities markets, and it is the reason why so many value investors choose to ignore commodities as a broad investment alternative. In respectful disagreement, making the case for a value investment in silver is a cakewalk at worst.

Securities and Commodities

Stocks and commodities are nothing alike, except when they are. The world's most popular and most highly regarded value investors (many of whom don't have a favorable opinion of commodities) have laid down investment traits that, contrary to their viewpoints on silver, make it a very attractive value investment.

Among the basic tenets of value investing are that companies are boring and operate in boring industries. Ideally, value investing companies are those that many people take objection to, and that very few investors own.

Rumors are excellent, even preferred, and it would be best if the investment were in a low-growth industry. It has to be a product that people will keep buying indefinitely, and under the best case scenario, the company is buying itself back through share purchases.

Drawing Comparisons

Compare the above commonly adopted value-investing tenets to silver.

Silver is not only boring, but mining silver is a pretty dull exercise. Most investors still take objection to silver, and few, despite the recent surge, own physical metals. There isn't a single industry with more rumors than metals production, and in fact, several organizations are dedicated to uncovering such hidden evidence of backroom deals and price manipulation.

People will continue to buy silver indefinitely, as it is in every electronic known to man, as well as prized for its beauty. While silver ounces cannot buy back other silver ounces, it is safe to say that the supply of silver is being depleted, just as shares of stock are depleted in buybacks.

Silver is the ultimate value investment because it always has intrinsic value, even if it has no intrinsic price. And where even the most unlevered companies can go belly up when the markets turn, silver can't go to zero, nor can it disappear. Where executives, auditors, and others have violated the public's trust in making their companies appear more valuable, all evidence in the silver market points to lies intended to make silver less valuable.

Commodity Similarities and Differences

Silver's commodity cousins are what keep it in check. While the world can produce a near infinite amount of corn, wheat, sugar, etc., all the silver (and gold...don't forget about gold!) is already on earth. No more can be produced, and eventually, the only silver that will be left is that which we can economically recover.

The take home here is that silver is a value play. The metal virtually defines what the world "intrinsic" really means, both in and out of the financial world. Very few own it, everyone uses it, and it is very, very limited in supply. Whether it goes to $5,000 or $25,000 per ounce isn't important. Understanding that it will not lose value in the long-term is what is important.

Gold should hit $2000 this year - John Embry

John Embry discusses gold, silver & inflation with Geoff Candy on mineweb.com.......listen here

Economic Turmoil In 2011?

By Stephen Lendman 1-23-11:

Wall Street predicts blue skies. Economic recovery will continue. Stocks will deliver double-digit gains. On January 14, the Wall Street Journal's Economic Forecast Survey headlined, "Economists Optimistic on Growth," expecting in 2011:

-- 3.3% GDP growth;

-- unemployment declining to 8.8%;

-- inflation contained at 1.9%;

-- crude oil at around $90 a barrel;

-- improved housing starts in a depressed market;

-- on average, 180,000 monthly jobs created;

-- no Fed interest rate hike until 2012 at the earliest;
-- continued QE II buying of $600 - $900 billion in government bonds; and

-- an overall upbeat sentiment for economic recovery and growth.

Others disagree, including long-time insider/market analyst Bob Chapman, calling current economic policy destabilizing enough to have profound future social costs. Sometime in 2011, he says conditions are "going to be nasty. The handwriting is on the wall," but no one's listening.

On January 20, the Financial Times headlined," US States Face a Fiscal Crunch," saying:

"Undue budget tightening will jeopardize recovery whether applied at the federal level or lower down....The squeeze is not upon them; the federal stimulus is fading away, and the gimmicks are all used up. For state finances, the year of reckoning has arrived, and the timing could hardly be worse."

Global European Anticipation Bulletin (GEAB) analysts are also expect hard times. On January 16, their latest economic assessment headlined, "Systemic global crisis - 2011: The ruthless year, at the crossroads of three roads of global chaos," predicting "entry into the terminal phase of the world before the crisis."

Since 2008, policies undertaken hid economic deterioration instead of resolving it. The present year "will mark the crucial moment when....palliative measures" no longer work, and "the consequences of systemic dislocation....dramatically surge(s) to the forefront."

In 2011, "violent shocks....will explode the faulty safety devices put in place since 2008" and will erode the "pillars" on which the "Dollar Wall" rested for decades until gold no longer backed it. Overall, 2011 will be chaotic. All bets are off. "The crisis ball rolls and everyone holds their breath so it doesn't fall" squarely on them.

Soaring food, energy and other commodity prices will continue. Inflation will rise. It's higher than reported. Tunisia is instructive. Impacted by high food and energy prices as well as unemployment, American and other "godfathers" couldn't prevent street protests collapsing a friendly regime, now struggling to reinvent itself.

America's leadership is eroding. Europe is weak, and BRIC countries (Brazil, Russia, India and China) are not ready to control the global economy so can only "quietly undermine what remains of the foundations of pre-crisis order."

Fragility defines 2011 with many nations "on the verge of socio-economic break-up," especially America and Europe where real unemployment and poverty are rising, social benefits are disappearing, and angry people are beginning to react. The incendiary mix "ha(s) the making of political time bombs."

History often signals warnings "before sweeping away the past." It came in 2008, 2011 to "do the sweeping." Only nations that have "adapt(ed) to the new conditions" will weather them. "(F)or the others, chaos is at the end of the road."

Trends forecaster Gerald Celente says 2011 will be a "wake-up call (for) how grave economic conditions have become" because of ineffective, self-serving, counterproductive solutions. As a result, he sees "crack-up" ahead based on reliable indicators like unemployment, housing, currencies and sovereign debt problems, "all border(ing) between crisis and disaster."

Teetering economies will collapse. Currency wars will continue. Trade barriers will be erected. Economic unions will splinter, and "the onset of the 'Greatest Depression' (will be) recognized by everyone." As governments "extract funds to meet fiscal obligations," working populations will be hurt most, and they'll react publicly, including by hardship-driven crimes, whatever it takes to survive. A "war on crime" will follow, everyone guilty unless proved innocent.

"The closer we get to 2012, the louder the calls will be that the 'End is Near!' " For many, it'll feel that way because of harder than ever hard times.

Economist Michael Hudson's latest article headlined, "The Specter Haunting Europe: Debt Defaults, Austerity, and Death of the 'Social Europe' Model," saying:

"EU policy seems to be for wage earners and pension savers to bail out banks for their legacy of bad mortgages and other loans that cannot be paid - except by plunging their economies into poverty."

If wages decline, high debt burdens "become even heavier....Aside from the misery and human tragedies that will multiply in (their) wake, fiscal and wage austerity is economically self-destructive."

Eventually demand is crushed, turning recessions into depressions. Instead of creditors getting hurt, however, imposed "post-modern neoserfdom....threatens to return Europe to its pre-modern state." Working Americans face the same plight under bipartisan planned austerity, heading a once prosperous country toward third world status, complete with militarized enforcement once anger erupts.

It's the debt and bad government policy stupid, a pig no amount of lipstick can hide, and when it explodes, reverberations more than ever will be felt globally. It's coming, but no one knows when, despite the above forecasts.

The tougher things become, the more deceptive MSM assessments get saying crisis has passed. Claiming better economic times ahead doesn't wash in the face of a global debt crisis, accelerating, not abating. Strapped US states are teetering on insolvency, failing to contain their own debt burdens through draconian austerity budgets on the backs of American workers, people least able to cope.

Obama's solution is less, not more regulation. His January 18 Executive Order (EO) headlined, "Improving Regulation and Regulatory Review" proposed "Flexible Approaches," requiring review of all existing regulations to ease them for powerful corporate interests. It requires federal agencies "adopt (them) only upon a reasoned determination that" benefits justify costs.

After decades of regulatory implosion, Obama plans more, no matter how destructive freewheeling freedom became, especially after global economic crisis took hold, heading for worse hard times, not resolution lifting all boats.

Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog site at sjlendman.blogspot.com

US Muni bonds fall off a cliff

From Business Insider:

Pretty much all that happened last week in the muni market was a crescendo of bearish comments from politicians and warnings from the media. That is, little that would increase the likelihood of a default.

But retails investors followed the headlines, exiting munis at a record outflow of $4 billion, according to Bond Buyer.

A clear sign of irrationality is that yields are rising similarly on triple-A and single-A bonds: People just want to get the hell out of munis.

Here's an incredible chart from Bond Buyer: