Saturday, April 9, 2011
Eric Sprott - On Gold & Silver
Eric Sprott of Sprott Asset Management discusses the Gold & Sliver markets with Eric King, of King World News........listen here
US may send in ground troops to Libya
The United States may consider sending troops into Libya with a possible international ground force that could aid the rebels, according to the general who led the military mission until NATO took over.
Army Gen. Carter Ham also told lawmakers Thursday that added American participation would not be ideal, and ground troops could erode the international coalition and make it more difficult to get Arab support for operations in Libya.
Ham said the operation was largely stalemated now and was more likely to remain that way since America has transferred control to NATO.
Japanese economy left severely damaged
Japan also faces calls to revive its disaster-hit economy to prevent a knock-on impact on the global economy.
G20 finance leaders will ask Tokyo for a plan to resuscitate its economy as they see the economic damage from the earthquake as a risk to global growth, Takatoshi Kato, a former IMF deputy managing director, told Reuters in an interview on Friday.
The earthquake and tsunami left 28,000 people dead or missing, and damaged six nuclear reactors north of Tokyo.
The world's third largest economy is now in a "severe condition," the Japanese government said on Friday.
A major 7.1 aftershock on Thursday night rocked Japan's east coast, killing three people, injuring 141 others, and leaving four million homes without power. It also prompted a brief evacuation of workers from the damaged Fukushima Daiichi nuclear plant.
TEPCO said there had been no damage to its plant, which until two days ago was leaking highly radioactive water.
South Korea has also criticised Japan, accusing it of incompetence for failing to notify its neighbours that it would pump radioactive water into the sea.
"They should have given notice but didn't, perhaps because they just didn't get around to think of it, but it is a question of their incompetence," Prime Minister Kim Hwang-sik said in answer to a question in parliament on Thursday.....read in full
Exploring the Japanese radiation zone
Taxing Carbon based life forms
CrossTalk: Global Intervasions
Silver Is Getting Too Popular… Right?
6 April 2011
So, as an investor looking to maximize my profit, I have a natural question: is the silver trade getting too crowded, meaning we’re near the top? Have the masses finally joined the party such that we should consider exiting? After all, it’s not a profit until you take it, and you definitely want to sell near the top.
There are several ways to measure how crowded the silver market might be. I prefer to look strictly at the big picture and not get caught up in the weeds. This means I’m looking for signs of market exhaustion or the masses rushing in. Nothing says “peak” more than an investment everyone is buying.
So how crowded are silver investments right now? Let’s first look at the ETFs.
At $35 silver, all exchange-traded funds backed by the metal amount to $20.7 billion. You can see how this compares to some popular stocks. All silver ETFs combined are less than a quarter of the market cap of McDonald’s. They’re about 10% of GE, a company that still hasn’t recovered from the ’08 meltdown. Exxon Mobil is more than 20 times bigger. And this isn’t even apples-to-apples, as I’m comparing the entire silver ETF market to a few individual stocks.
This is even more interesting when you consider that it’s the ETFs where most of the public – especially those that are new to the market – first invest in silver. So while the metal has doubled in the past seven months, total investment in the funds is still far beneath many popular blue-chip stocks.
Okay, maybe all this money is instead going into silver mining stocks. How does the market cap of the silver industry compare to other industries?
While you fetch your magnifying glass, I’ll tell you thatthe market cap of the silver industry is $73.1 billion. It barely registers when compared to a number of other industries I picked mostly at random. The dying newspaper industry is over 26 times bigger. Drug manufacturers are 213 times larger. Heck, even the gold market is 19 times greater. And here’s the fun one: the market cap of the entire silver market, with all its record-setting prices and stock-screaming highs, represents just one-third of one percent of the oil and gas industry.
To be fair, there are a number of sectors that are smaller than silver. Radio broadcasters ($43.2B), video stores ($10.9B), and sporting goods stores ($2.5B) have puny market caps, too. But then again, who's buying DVDs or baseball mitts to protect their wealth from a coming inflation?
Silver hardly resembles the picture of an investment that is too crowded.
I’m not saying one should rush to buy silver right now. After all, it has doubled in seven months. Unless this is the beginning of the mania, prudence would certainly be called for at this juncture. The price will always ebb and flow in a bull market, and an ebb is overdue.
The question, of course, is from what price level it occurs. What if a correction doesn’t ensue until, say, a month from now, and the price falls back to… where it is now? I remember some articles in January that insisted silver would fall to as low as $22, and, well, they’re still waiting and have in the meantime missed out on some huge gains. For silver to fall back to $22 now would require a 40% drop; not impossible, but I wouldn’t hold my breath.
Fixating on market timing takes your focus off the ultimate goal. In my opinion, instead of worrying about what will happen next week or even next month, focus on how many ounces you have, and then buy at regular intervals until you reach your desired allocation. This has the added benefit of smoothing out your cost basis. And don’t forget to buy more as your assets and income increase.
This is a market where you'll want to be well ahead of the pack. Someday in the not-too-distant future, average investors will be tripping over themselves to join in. That will make the market caps of our silver investments look more like some of the others in the charts above. And that will do wonderful things to our portfolio
JOHNNY APPLESEED & SENATOR DANFORTH
The above words were spoken by Senator John Danforth back in 1992 and may be interpreted either as a lament or as a confession. In any case they are a statement of an irrefutable truth which applies both across time and place. The preceding decade had seen public debt increase at a compound rate of 13% per annum. As the late Murray Rothbard said some years ago:
"'In the spring of 1981, conservative Republicans in the House of Representatives cried. They cried because, in the first flush of the Reagan Revolution that was supposed to bring drastic cuts in taxes and government spending, as well as a balanced budget, they were being asked by the White House and their own leadership to vote for an increase in the statutory limit on the federal public debt, which was then scraping the legal ceiling of one trillion dollars. They cried because all of their lives they had voted against an increase in public debt, and now they were being asked, by their own party and their own movement, to violate their lifelong principles. The White House and its leadership assured them that this breach in principle would be their last: that it was necessary for one last increase in the debt limit to give President Reagan a chance to bring about a balanced budget and to begin to reduce the debt. Many of these Republicans tearfully announced that they were taking this fateful step because they deeply trusted their President, who would not let them down."
So you can see quite clearly that nothing changes regardless of whether the President is black or white, Democrat or Republican. The words of Senator Danforth openly admit that the scourge of humanity has been the steady stream of politicians of all persuasions who can enter into agreements, impose taxes and wage war, as well borrow and spend on behalf of citizens both present and future. It is also an irrefutable fact that their behaviour invariably benefits the few at the expense of the many. Any benefits bestowed on the many are transient at best and dearly paid for in the longer term.
Politicians eventually get voted out of office or retire, but their legacy lives on because the debts they incur not only remain but continue to compound like a silent cancer that clings and spreads.
Consider the following:
1. On July 1, 1900 the debt of the U.S. government stood at just over $2.1 billion ($2,136,961,091 to be precise). If we assume a compound rate of interest at 5% per annum with no capital repayments and no further deficits, that amount on its own would exceed $480 billion by July 1, 2011.
2. Since the 1977 financial year the U.S. government has racked up over $9 trillion in interest "payments" whilst the level of indebtedness went from $698,800,000,000 ($698.8 billion) to $13,561,623,030,891 ($13.56 trillion). In effect the interest has never been paid, it just keeps on getting added to the bill, to the future, and therefore onto the backs of future generations.
4. Between 1861 and 1865 the American Civil War was fought and the debt of the nation went from just over $64 million dollars to over $2.48 billion in the space of a decade. This increase equated to a yearly compounding rate of almost 44%. The bewildering aspect of this conflict was that the cost of buying the freedom of the slaves instead of waging a civil war has been estimated at around $2.7 billion in 1860 dollars. This was deemed too expensive a proposition for government at the time, yet the ensuing increase in the national debt by $2.4 billion over the decade, plus the death, private capital destruction, misery and long term animosity created by the civil war somehow made more sense to those who preferred conflict over economic logic.
The conflicts in Iraq and Afghanistan are similarly contrary to economic logic and as I have stated previously:
"So why does a nation borrow money it can never pay back, to fight wars it cannot win, when it could spend less to secure the allegiance of every person in these nations by simply "buying their GDP" which is less than the cost of the wars?" -- (from "The Real Reason They Hate Gold")
5. Similar explosions in debt accompanied the 1940's when debt levels increased by 19.6% compounding yearly as well as the decade between 1840 and 1850 when debt growth was at the yearly rate of over 33%.
There is of course no civilized logic to all of the above from the viewpoint of the masses, but there is more than ample logic if you are a financier shovelling debt down the throat of spendthrift governments and individuals or you are a "shareholder" of the military-industrial complex. Successive governments that believed they could wage mindless wars and neglect productive infrastructure will now be haunted by the spectre of not just crumbling bridges but also a crumbling society.
As the Abbot of St Silouan Monastery said:
"The system of consumption made man a prisoner of the logic of profit. The logic of profit transformed the earth's resources into financial calculations and financial calculations loosened the reins of the passions of the soul and body....then individual freedom and self-worship caused people's aspirations to become greater than the environment's capacity to pump vital capital into them and so heaven and earth could no longer match people's wild cravings."
Compounding is indeed the eighth wonder of the world as Einstein is said to have once remarked. The real issue however is whether mankind harnesses its beauty to compound the benefits of civilization or whether humanity falls under its yolk until it is crushed by the weight of the resultant debt and the destabilizing effects of mindless consumption.
The observations contained herein, are not exclusively reserved for the USA. They are equally applicable to all nations and governments. Moreover, they apply to human beings in general.
Compounding neither forgives nor forgets. It simply rewards those who understand it and punishes those who ignore it. So the question becomes, "how does one master compounding?" The answer is that it can never be really mastered because nothing can compound forever, neither wealth nor debts. Some observations may however be worth making:
1. Not even gold or silver can compound forever. These precious metals simply protect people from the total and inevitable destruction of fiat. They enable people to tread water when all else is sinking. Their portability and universal acceptance makes them outstanding choices in times of catastrophic upheaval and the recent earthquake, tsunami and nuclear disaster in Japan provide incontrovertible evidence of this.
2. Compounding is the mathematical outcome of extrapolating one's investment and consumption decisions. The cost of an extra cup of coffee from the shop, or packet of cigarettes seem almost negligible until the compounding cost is calculated. A most useful site is to be found at http://www.1728.com/compint.htm which enables calculations without the use of any special knowledge of mathematical formulas or even calculators.
Perhaps we need to turn to the life of Johnny Appleseed whose story fascinated me as a primary school student. He was a son of America and a pioneer nurseryman who introduced apple trees to large parts of Ohio, Indiana, and Illinois. In my mind he is perhaps one of the finest examples of how one man's actions compounded for the benefit of the United States. It is only enlightened visions and actions of humans that come close to the ideal of compounding benefit. Unfortunately, it is compounding theft, greed and stupidity that have driven personal, corporate and government agendas.
Instead of a Johnny Appleseed, the United States is faced with a Federal Reserve Bank and a string of governments that have long ago stepped off the edge of the economic precipice. You may ask why there has been no final impact. The reason is that they are digging a hole at the bottom which has extended the fall but which will only serve to make the inevitable impact more painful and destructive. Such is the economic grave dug by Keynesian cowboys, ignorant and easily "persuaded" politicians and depraved money men.
The current feud over the reduction of government expenditures by some paltry amount is an insult to anyone with even a solitary brain cell. Their negotiations are about as useful as a passenger on the Titanic negotiating for a cheaper fare after the collision with the iceberg. Nothing more needs to be said.
As for anyone staring at a computer screen praying for the Dow to levitate forever upwards all I can say is that they are engaging in self hypnosis. Once the Dow Jones Indstrial Average is adjusted for the devaluation of the dollar against other major currencies in the last 10 years and the efforts of the plunge protection team, the result is both telling and dismal. But hey, who cares? People are just sucked in by graphs, dollar signs with a string of zeroes and bozo politicians trying to jump start a dead horse economy that has been gutted. The only question is whether the U.S. economy is headed for the museum of dead empires or whether there are any true leaders and true patriots left to clean the mess and reinvigorate the populace.
In the midst of this mess we are left with gold and silver that require no dollar signs, no zeroes, no introductions or guidance. They are what they are and what they have always been ...........time travellers that neither age nor die and never become lost or unwelcome. My advice is to hitch a ride with these time travellers and enjoy the scenery.
My final word is to be wary of a "new" international currency made up of a basket of currencies including gold. This is nothing more than a trap and reminds me of an environmental scientist who years ago told me that "the solution to pollution is dilution.'' It is the same flawed reasoning which says that the Euro can survive despite the failing finances of the whole European periphery simply because Germany provides a strong nucleus. Any attempt to neutralise gold by bringing it into the fold will simply see a replay of Gresham's Law as good money (gold and silver) is withdrawn from circulation by the smarter players.
There is much to ponder and much to fear but even more to hope for. Perhaps galloping technological innovations will be matched one day by more noble human beings. In the meantime stick with the noble metals of gold and silver.
Marc Faber on CNBC
Portugal defaults, America on the waiting list?
Why Is NATO Really In Libya?
Arab Protests - An update
Silver will be the first element in the periodic table to become extinct
Besides Strontium (Sr), Silver (Ag) has the least amount of world reserves remaining. In a recent article on kitco commentaries, David Morgan put some highlights of what Adrian Douglas had stated in a recent interview about silver.
There’s very little left on the planet. The U.S. Geological Society said just a couple years ago that silver would be the first element in the periodic table that would become extinct. It’s incredibly bullish. The USGS said that would happen by 2020. So if we’re in the situation where we can run out of silver, the price clearly has to go up, because you can’t obviously run out of silver. What will happen is, the price will have to go to a price level where it’s economic to recycle it..
We have seen history in the making here. Normally whatever the government states, we know as of late is false. But here, we have some honesty from the USGS. Unfortunately, as energy becomes more expensive due to less net energy available due to a falling EROI ratio, even recycling will become expensive and prohibited. There will be plenty of challenges in the future for the modern technological society we live in as we transition to a world with less of everything right at the time when China and India are westernizing.