Thursday, March 10, 2011

CrossTalk: Saudi Arabia Immune?

From: RussiaToday | Mar 9, 2011

In this edition of Peter Lavelle's CrossTalk: Can Saudi Arabia remain immune from the Arab spring? Should the youth of Saudi Arabia have the same rights and aspirations as their Arab brothers and sisters? And does Washington have to cut another dictator loose? CrossTalking with Robert Jordan, Ali Alyami and Abdel Bari Atwan.

Libyan update - Shades of the Kuwait war

Utah to make Gold & Silver Legal Tender

Inflation...It's What's For Dinner

Gary Tanashian
8 March 2011
While NFTRH was highlighting risk leading into the initial phase of inflationary blow-ups - and surely Egypt, Libya and other strained global situations are symptomatic of chronic and disenfranchising inflation - it is important to understand that headline events do not move markets, beyond the very short term. Indeed, I saw enough last week to nudge the very short-term risk profile toward neutral; and in an age of inflation on Demand one should question a net bearish stance more often than not. Inflation ran the 2003-2007 bull market quite well until ultimately, the soufflé pancaked in 2008.

Bloomberg's top two headlines at the end of the week: "China's Wen Targets Inflation as Top Priority to Cut Risk of Social Unrest" and "US Stocks Rise as Economic Optimism Overshadows Increase in Oil Prices".

I want to spend some time breaking down these headlines, before transitioning to precious metals analysis, where we will take the macro pulse of the sector and review two core gold explorers, from a technical perspective.

Back on message, inflationary policy is what the asset spectrum feeds upon, as the 'ruling' class (including you and me ladies and gentlemen, as asset speculators) benefits to the detriment of the non-investor classes, in the US and the world over. People are suffering due to the cheapening of the money used as the medium of exchange for their wages, even as we go forth and speculate on some high potential gold explorers, uranium prospects, emerging, productive and/or resource rich markets, and other areas that offer opportunity in an inflationary world.

Enter, the first Bloomberg headline above. In the article, [edit: title since changed... hmmm] Premier Wen Jiabao states "We cannot allow price rises to affect the normal lives of low-income people" to which I would answer "Mr. Premier, you have already allowed inflation to affect the normal lives of low income (really low income) people, because you have already promoted and feasted upon an epic and ongoing policy of inflation. You now attempt to stuff the genie back in the bottle because you see some frontier markets blowing up due to global inflation dynamics and perhaps wonder how long it will take for the flames to reach your homeland."

From my vantage point in the downsized productive (i.e. manufacturing) segment of the US economy, I have watched a myopic and collective greed in the United States work in tacit partnership with China to cheapen the entire concept of free trade. The US, manufacturer of the world's reserve currency, has been able to leverage and monetize its reputation - built of sweat equity in the earlier parts of the previous century (for ref. see my first ever public article from 2004, Frankemarket Lives - in partnership with China, by selling Treasury bonds, printing money and creating a heretofore limitless inflationary drag on the US currency.

China, in pinning its currency to the dollar, and accepting massive volumes of USD denominated instruments in exchange for the work and productivity of its people, has inflated right along with the US. Typical of politicians, the Politburo now tells the people the straight deal after it is too late and presumably upon feeling an implied threat as indicated by the Egypt and Libya uprisings. China's emerging manufacturing economy has been built by direct, indirect and ongoing inflation.

A robotic talking head sums up the second article

"It's a battle between the negative geopolitical environment versus the very strong economic fundamentals," said Benjamin Pace, who helps oversee about $420 billion as the New York-based chief investment officer of Deutsche Bank Private Wealth Management. "The economic environment is very equity friendly. The current geopolitical environment and its impact on oil prices, not so much."

No sir, it is a battle between the geopolitical manifestations of inflation and the seemingly strong economic fundamentals produced by said inflation as grains, clothing materials and energy costs rise right along with precious metals in a not so tacit indictment of these "strong economic fundamentals" that you speak of. During the 2003-2007 cycle, the same thing happened as a result of policy makers' refusal to allow the economy to purge itself through a hard downturn, which would have eventually set the stage for a new and lasting up cycle. No, in and around 2000, the game became inflation on Demand; inflation as economic stimulant; inflation... it's what's for dinner.

Short-term, global and especially US markets are back in the game of blaming oil for the market's ups and downs. This is similar to the ending stages of the 2003-2007 cycle. Be aware that the majority of 'Hope 09' (and 'Full Hubris 10', 'Suck-in 11', AKA the inflationary cyclical bull born 2008, died... ?) has been attended by a positive correlation to oil, copper, food prices... the stuff that people need; which brings us right back to square one of this segment... the effects of inflation are beginning to erode peoples' lives and it is becoming obvious. The actual inflation has been ongoing up to now.

Going forward, global policy makers will not be able to merrily inflate their way to bull nirvana. See Wen above; see Trichet last week talking about euro rate hikes. See Ben Bernanke... well, our Fed chief has not quite gotten the memo yet. But even in the US, the winds of change appear to be blowing. Whether our congress puts a stop to it or natural market forces do (I'll take 'b' Alex), the inflation cannot go on uninterrupted forever.

And this, my friends, is where investing and/or speculating becomes tricky. This is where the specter of deflation or more accurately, a deflationary 'event' comes into play. At the root of this dynamic is the case for the NFTRH 'gold stocks above all others' stance, because it is in gold's 'real' price that the gold mining industry finds its most positive fundamentals, with gold outperforming the things of positive economic correlation, including those that feed into gold mining cost structures.

Increases in gold's 'real' price are most pronounced during a collapse of an inflationary construct, as in 2000 and again in 2008. This is usually accompanied by deflationary hysteria and if one is prepared, epic opportunity. Silver's impulsive increase in relation to gold argues that the construct may not yet be ready to roll over since a positive silver-gold ratio (SGR) indicates that a sea liquidity continues to rise.

Gary Tanashian

A new source of buttons

Peter Souleles B. Com. LLB.
8 March 2011
Question: How do you double the value of a Russian rouble?

Answer: Put two holes in it and sell it as a button.

The above was a joke that was circulating during my school days some decades ago and little did I suspect at that time that comedy contained the seeds of truth.

Since then, time has escaped quite quickly as has the value of all our fiat dollars and currencies. The silver coin that many of us handled as children some decades ago could buy us lunch and can still buy us lunch, but the worthless successors that followed are incapable of doing so.

In an article I wrote in January 2010, titled, "Watch your Money Disappear" , I made the following observation:

Instead of realizing that governments are cannibals who have us in a slowly simmering pot, we instead wear the dopey smile of someone in a Jacuzzi. If you doubt this then you only have to consider how gold and then silver have gradually been withdrawn from circulating currency and that before long even copper and nickel will be removed from the coinage of the USA.

Well that day has come a lot closer because by press release dated March 7, 2011, the United States Mint has announced that it is requesting public comment on factors to be considered in conducting research for alternative metallic coinage materials for the production of all circulating coins.

Thousands of years of history, experimentation and logic are being put aside step by step as our political and banking masters seek to suck out the value of our labour and savings in return for a worthless coin or piece of paper that is an insult to our very existence as thinking human beings. And perhaps that is the problem - we no longer think, we just fall into line and head or look wherever the finger of big brother is pointing. I think the name that has been given to such individuals is "sheeple".

Make no mistake, coins will come to be made of worthless pieces of aluminium or brass and perhaps they might even convince the people that all coins should be scrapped and instead replaced by some sort of smart card which can track you and your purchases. Perhaps they might even issue plastic casino-like chips with embedded RFID chips that can be tracked and detected no matter where they are hidden so that they can be intercepted at airports and border crossings.

In time they will convince you that your wealth can be stored as an electronic impulse on a computer in the same way that Bernanke presses buttons in the process of propping insolvent banks with fake money.

Intrinsic value and scarcity will no longer be a characteristic of circulating currency and without these, the store of value aspect will die a gradual death as well.

The "boffins" at the Mint think that they can give legitimacy to their plans by asking for public comment to shape the outcome of their "research and evaluation of potential new metallic coinage materials." Rest assured that the so-called public submissions will be nothing more than carefully orchestrated offerings that have already been prepared and which are awaiting delivery. In other words the cake has been baked.

If the ignoramuses at the United States Mint had any sense at all they would scrap the $1 note in favour of the $1 coin. There would be hundreds of millions of dollars saved annually and it is known that coins carry far fewer germs and far less bacteria. If the coins were of silver then the germicidal effects of such a coin would be a plus. Finally, what better hedge against the ravages of inflation than a silver or gold coin?

Our masters are scraping the bottom of the barrel. Our currencies are backed by debt. Our politicians are backed by moneyed interests. Our banks are backed by lousy accounting standards and clever accounting. Our bankers are backed by inept regulators who will fail to act within the five year time frame required for the prosecution of securities fraud and by central bankers who manufacture confetti masquerading as money.

I ask you, "who is backing the people?" The answer to that is gold and silver as foreseen and prescribed by the founding fathers of the United States of America.

Unless you have need of more buttons I suggest you get off your behinds and take a stand against this subtle, all embracing exercise by the United States Mint and write to the them, your Congressman and even your President. If you don't then in good time you may find that you have lost your shirt and trousers and have nothing left to button up anyway.

Peter Souleles

Sydney Australia

QE: Hyper-inflation to Oblivion

By Jim Willie:

US Fed Chairman Bernanke and the Quantitative Easing programs are caught in a negative feedback loop, the instruments at risk being the US Dollar and the US Treasury Bond. The former suffers from lost integrity and direct inflation effect. The latter suffers from direct intervention and market ruin. The next QE round is guaranteed by the failure of the previous program in an endless cycle to be recognized later this year. Leaders are confused why the recovery does not take root. It is because the entire system is insolvent, and the 0% rate assures total capital destruction, not to mention the big US banks are sacred, never to be liquidated, a primary condition for recovery. Liquidation is tantamount to abdication of power of the Purse and control of the Printing Pre$$, never to happen. The greatest hidden damage is psychological, where the US Dollar and its erstwhile trusted USTreasury Bond are no longer viewed as the safe haven. Capital destruction is the main byproduct of monetary inflation, a concept totally foreign to the inflation engineers at the USFed and its satellite central banks. They are agents of magnificent systemic devastation. In the wake of each QE round are discouraged creditors who turn away in disgust. The damage and inflation feeds upon itself in stages of intense wreckage. The motive, need, and desperation for QE3 is being formed here and now, to be announced by late summer probably. Prepare for QE to infinity, endless hyper-inflation, a process that cannot be stopped, as the urgent needs grows. Any attempt to halt the process results in almost immediate total annihilation. So continuation of QE rounds serves to manage the deterioration process and guide the financial structures gradually and orderly into oblivion.

quantitative easing

Vicious Cycle Feeds Upon Itself

Simply stated, each QE round guarantees the next round, since damage is done, nothing is remedied, and the funding needs intensify. The list of damage factors is actually growing. The main factor is capital destruction from monetary inflation, as the price of capital is declared zero, and it flees from the USEconomy. Witness the industry long gone, hardly a critical mass remaining to support the system with legitimate income. Government regulation and taxes assure the flight continues in exodus. Almost half of the US Gross Domestic Product is derived from financial paper shuffling, whose negative value has been clearly displayed in the form of mortgage bond wreckage, profound bond fraud, home foreclosure processing, absent home equity withdrawals, bankruptcy processing, and piles of debt that burden households. US economists fail to comprehend the entire concept of capital, this from the supposed leading capitalist nation. The banking and political leaders struggle to produce jobs without a clue of what capital is, instead seeking to put cash in consumer hands. They should pursue business formation, with capital investment, encourage risk taking, provide broad tax incentives, and lead the consumer spending process with job creation and income production. But no. They prefer QE, the accelerator that pushes the nation over the cliff.

The bond market has been disrupted and corrupted, as the debt monetization has driven off foreign creditors, leaving the US Fed isolated as buyer. The 0% rate slows the US Economy tremendously by removing a proper return on honest savings. Return on capital is greatly disrupted all through the USEconomy. The heavily increased monetary supply maintains the emphasis on asset bubbles, as desperation sets in to find the next asset to produce a new bubble. The answer is US Treasury Bonds. A mildly violent reaction has come to the long-term US T Bonds, while the short-term US T Bills stay near 0% but with the aid of intense leverage power of Interest Rate Swaps. The long end reacts negatively to QE, while the short end is under QE control from the big bulging bid. The entire financial structure is crumbling under the surface. The USEconomy will continue to falter at minus 3% to minus 5% growth in a powerful ongoing recession, covered up by the fraudulent quarter to quarter calculations that permit deep deceptions from adjustments. Businesses cannot justify any expansion, given the household dependence upon home equity has vanished. Businesses have been put on notice, a certain shock, that the national health care plan will place greater burden on the business models. So the US Govt deficits will perpetuate in high volume, making the supply overwhelming in US Treasury securities and making the creditors retreat in a cringe of fear, shock, and disgust. The more the US Fed buys its own paper feces with US T Bond labels, the more the securities lose their security, the more the foreign creditors refuse to participate in the next auction, the more the integrity of the US $ and US T Bond is shredded and lost. The United States has become a Weimar nation with gradual global recognition. Instead of a recovery, it slides into the Third World. Thus the need for the US Fed to cover the next US Treasury auction in full, or almost in full. It is deeply committed to monetizing the entire USGovt debt. Call it Weimar, Third World, Banana Republic, whatever!!

An encouragement has come from the QE movement to the entire world to revolt against the USDollar, to seek an alternative, to establish bilateral trade mechanisms, and to bypass the current system that enables privilege, fraud, market meddling, which permits an unwarranted standard of living to the US and its people. The bilateral accords between Russia and China, between China and Brazil, between Germany and Russia, and between India and Iran are all telltale signs of revolt. They wish not to participate in the US $-based system. The consequence is a new trend to diversify out of the US Treasurys with existing reserves, and to avoid accumulation in the future within banking systems for satisfaction of trade settlement in global commerce. The foundation on a global level is crumbling for the US Dollar. As the bilateral links build, eventually enough fabric will be woven to support a new global currency, or a new global system. Often mentioned in certain circles is a sophisticated barter system, built upon high level credits in exchange, with a vast trickle down flow of funds, within a balanced system. Nations addicted to deficits will be left out in the cold. The most deficit ridden is the United States, dragged down by endless war costs. Their location has another name, the Third World.

Furthermore, the inflation effect has crossed from the monetary side to the price systems, hitting the entire cost structure in a profound way. The moron bankers strive to cut off the process from handing higher wages to the workers, so that they can afford a higher cost of living. The leaders thus strive to bankrupt the Middle Class, hardly a pursuit in commitment of economic recovery. The cost squeeze is deeply felt by both businesses and households, businesses that cannot hold their workers as profits erode badly, and households that cannot maintain their spending patterns as incomes are devoted increasingly to food, fuel, clothing, insurance, and everything else. Tax revenues from wages and corporate profits and capital gains are descending into the gutter, not available to cover the US Govt deficits. Witness the death of the US Economy in hyper-drive, pushed by the US Fed Quantitative Easing. The impact on the worsening recession at the macro level, and the shrinking of both businesses and households, translates to larger deficits. Notice that in early 2009 when QE1 was first announced, and later when QE-Lite was announced, the US Govt minions forecasted reduced budget deficits for 2010 and 2011. The US Govt posted its largest monthly deficit in history in February, a $223 billion shortfall. Most decisions center on budget cuts, for education, welfare, projects, and more, while war spending is largely intact, priorities revealed. They have no clue how to build tax revenues. The Jackass forecast was for greater deficits due to the ravages of capital destruction and cost inflation, which both arrived with billboard attachments. The dependence therefore upon the USFed for its Printing Pre$$ buyer of US Treasury Bonds will increase with each QE round, assuring the next round.

The harsh savage negative reaction to QE2 kicked into high gear the movement of funds out of the USTreasury complex and into commodities generally. The shift to financial commodities in Gold & Silver has been even greater than for crude oil, the traditional hedge. Despite not being the leading non-financial commodity in price increase, the crude oil impact is enormous, in food production, in transportation costs, and especially in industrial feedstock costs. The result is an energy tax, compounded by a systemic cost that acts like a gigantic tax. The US Fed QE program thus imposed a significant tax increase on the entire US Economy. The entire population is aware, except for the US Fed, the Wall Street master, and banking elite. Actually, they are aware, but they cannot speak about the scourge they unleashed since they would invite criticism and turn the blame onto themselves for destroying the United States financially, economically, and systemically. The moral fiber is long gone among leaders, as the US nation is being recognized as a fraud king playpen. The end result is that in the cycle, movement from US Treasuries to the US Economy is not happening during this death spiral, as it normally does. Instead, the next bubble is in the entire commodity arena. Beware that such a trend is highly destructive, since it erodes the profit margins and disposable income, thus causing deep recession if not systemic collapse. The energy and material tax renders huge harm, pushing the system into a deeper recession. It never ended.

Money is fleeing bonded paper, as all bond markets are in a severe situation. Even the stock market is supported heavily by the Working Group for Financial Markets and Flash Trading, a form of self-dealing, whereby both prop up stock share prices. Hence, the US Fed is left more isolated to purchase its own inbred cousin toxic paper securities. The US Fed must continue with QE3, the only remaining details are the securities that join the US Treasurys. My bet is state and municipal bonds, along with a bigger swath of mortgage bonds that would otherwise be put back to the Big US Banks, the dead pillars taking up space casting long shadows. Numerous are the bond candidates for official rescue, since all of them are in deep trouble. Buyers are simply vanishing. The bond markets is in ruins, propped by QE.

Last Asset Bubble

The tragedy is that the US Treasury Bond is the location of the biggest and most important asset bubble in the last 100 years. It is propped by the QE debt purchase, enforced by the USFed, made urgently necessary by the US Govt deficits, and blessed by the US Dept Treasury. The USTBond bubble is the last bubble with any semblance of positive benefit. The next bubble in commodities will be negative, harsh, and highly destruction, as they will lift costs without a corresponding rise in wages. That event has already been triggered. The key characteristic of asset bubbles is that in the late stages, they require an accelerated source of funds just to maintain their inflated condition. The QE programs will be endless because the USTBond bubble demands it, even infinite funds. Thus the mantra in criticism of QE TO INFINITY. With the heightened source and blossoming channels to fund it, the integrity of the USTreasury Bond complex will be ruined even as the reputation and prestige of the USDollar will be shattered. This is an end chapter, marked by central bank frachise model failure.

Dollar Faces the Abyss

The US$ DX index is a bad joke, but its performance is highly revealing. As preface, the DX major component is the Euro, even though the biggest trade partner of the United States is Canada, with Mexico and China close behind. The argument is old and tired. Rare is the 30-year chart offered by the Jackass, since its reliance as a tool is often evidence of shallow analysis and little insight to offer for the current year and its main events. But the historical US Dollar chart shows the great danger, since the world banking system rests on its unit of exchange. The DX index lows from 1991, 1992, 1995, and 2005 have all been breached, a major warning signal. Jesse at Cafe Americain points out the pennant flag pattern formed in the last three years. It must resolve up or down. My contention is that the pennant has already been broken on the lower barrier, a bear signal. The next QE3 announcement should send the DX index heading fast toward the 2008 critical low with a 71-72 handle. It is written; it will be done.

us dollar long term

Many technical analysts are pre-occupied with monitoring the critical support levels. Those levels are 72, 75, and 76.5, seen in the weekly chart. Instead, focus on the lower barrier of the crucial pennant. The pennant trendline has been broken on the downside, an important development. Traders in the currencies, a multi-$trillion market, will take the minor technical breakdown and push the already weak US Dollar lower. Many argue the Euro is in deep trouble, with a union in the midst of dismantlement. That might be true, but in the Reverse Beauty Pageant, the US Dollar is by far the ugliest of the coined damsels. Its deficits are on par with the PIGS of Southern Europe in percentage terms. Besides, the US is the site of QE, the greatest monetary inflation scourge in modern history. Notice that the bounce in recovery off the October and November low of 76.5 could not manage a rise about the 20-week or the 50-week moving average. Those MA series serve as current overhead resistance. The DX chart is caught in powerful downward momentum. My forecast is for a breach of 76 in the next few weeks, and a battle of paramount importance at 74, the next critical support.

us dollar

The intraday US$ DX chart shows more trouble in the very short term. The recovery off the 76 floor could not be maintained. In fact, the sudden swoon displayed its weakness if not artificial props. Be sure that the US Dept Treasury with its fascist business model trusty tagteam of JP Morgan and Goldman Sachs are trying to do the herculean feat of preventing the US Dollar from a powerful decline. The ugly truth is that JPM & GS are probably trying to manage the decline in the US Dollar down to the 50-60 range in the US$ DX index, all as part of the USGovt agenda. The plan is to weaken the US Dollar sufficiently enough to make the USEconomy competitive again with respect to export trade. The backfire in their faces is the price inflation curse and anathema. The price structures will rise first from the QE exercise in Weimar desperation, and will rise second from the US$ decline most assuredly worse than its major currency competitors. The report card will be seen in a much worse recession in the USEconomy, grander USGovt fiscal deficits, even larger US T Bond issuance, and more grotesque QE debt monetization more characterisitic of a Third World Banana Republic.

us dx index

Swirl Down Toilet in Deteriorations

Within the Jackass archives, an item was found from work done in 2005. What began as a graphic display of the grand liquidity trap emanating from the failed housing & mortgage bubble has turned out to be highly relevant in the aggressive metastasizing process from monetary inflation cancer combined with basic economic deterioration from capital destruction. Many are the ills of the US Economy and its fractured financial foundation. Take the time to note all the different powerful factors at work that slow the entire system down. Forces are shown from external shocks and internal shocks. The money supply velocity is falling, ordered slower by the short-term interest rate stuck at 0%, the Zero Interest Rate Policy described as an important chamber label of failure. Recall the empty calls for an Exit Strategy throughout 2009 and into early 2010, as vacant as the Green Shoots and Jobless Recovery basis of propaganda that unmasks the fraudulent bank leadership. The Fed Funds Rate stuck at 0% cannot rise by US Fed dictate, because the housing market would implode more quickly, because the US Economy would sink more quickly, because the US stock market would dive like a dead mallard, because the US Govt borrowing costs would bring more deficit from debt service than other major items. The US Fed has been backed in a corner for two years, no longer relying upon a temporary 0% rate to stimulate. It is stuck with 0% as a badge of dishonor, as a two ton cement block around its neck, as a Weimar membership card. The complex chart should remind the reader of a toilet, sewer drain, or even a rectum.

Some advice. As the movement swirls, as the next QE program details are revealed, as the central bank model is shattered in discredit, as the global monetary system crumbles before your eyes, as sovereign debt worldwide loses its exalted safe haven security, as your personal budget finances erode beyond your worst nightmare, invest what is left of your life savings in Gold and especially Silver. In time, they will be the primary portions of your portfolio with surviving value. Each will rise, but Silver will do a moon shot!!

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a Ph.D. in Statistics. His career has stretched over 22 years. He aspires to one day join the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at