Keiser Report with Alasdair Macleod

From RT

Published on Nov 26, 2013

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss WTF in the UK as RBS slaughters SMEs and then robs their still warm corpses; while over in the PRC, the PBOC has thrown a whole bunch of STFU at US Treasuries. They discuss the implications of both oil being priced in yuan on the Shanghai futures exchange and Iran being prohibited from trading oil for gold under the P5+1 deal.

In the second half, Max interviews Alasdair Macleod of GoldMoney.com about 400 ounce London .995 gold bars being sent to Switzerland from Arab holders and melted down to 1 kilo .9999 bars, thus moving gold from the London standard, to the new better Chinese standard - suggesting we may be entering a post-petrodollar world. In which case, petrodollars could be flowing back into NY in pure dollar form to cause high inflation. And, finally, Max and Alasdair suggest that unless you rig gold markets, your forex and libor rigging won't work.

Truth About Markets

Max Keiser and Stacy Herbert with the Truth About Markets on Resonance 104.4 FM in London. They discuss bitcoin, gold, silver, ponzi schemes and more.

Diwali - The festival of Lights

The Indian festival of Diwali reaches its high point this Sunday, but in the days leading up to this day there are many other rituals followed. I hope all that read this blog and the hundreds of clients that I interacted with today have a very prosperous coming year.

From WildFilmsIndia

Diwali is certainly one of the biggest, brightest and most important festivals of India. While Diwali is popularly known as the "festival of lights". The celebration of Diwali as the "victory of good over evil" refers to the light of higher knowledge dispelling all ignorance. While the story behind Diwali and the manner of celebration of the festival differ greatly depending on the region, the essence of the festival remains the same - the celebration of life, its enjoyment and goodness.

The word Diwali is derived from the Sanskrit term "Deepavali", which translates to "Rows of lamps". Based on the Hindu lunar calendar, Diwali falls between October and November on an Amavasya or moonless night. Celebrated as the victory of good over evil, the festival is associated with the legend of the Hindu god, Lord Ram's return to his kingdom Ayodhya, after 14 years in exile. The Demon king Ravan of Lanka had abducted Lord Ram's consort Sita only to invite his own death as a result. Lord Ram, along with his brother Laxman and an army of monkeys defeated and killed Ravan and returned to his kingdom with Sita. According to mythology the people of Ayodhya lit up clay lamps known as diyas to welcome him on his return from exile.

Diwali is a five-day affair and kicks of with Dhanteras. 'Dhan' means wealth, hence this day is considered auspicious for buying items related to prosperity like utensils or gold. 

Gold vs Real Estate - Why I’m not buying the housing market

By Jordan Eliseo

With the recent weakness in gold prices, and the resurgence in Australian home values, the never-ending gold vs. real estate argument has taken a turn back towards brick’s and mortar, at least in the mainstream financial media who are heavily talking up the latest property price movements. But which is the better investment?

Both are ‘real assets’, and are theoretically limited in supply. Both should, at least theoretically, over the long run, protect purchasing power, in that housing also has a reasonable track record of maintain its value versus inflation.

But I’m sticking with bullion for a number of reasons, and the recent correction has only encouraged me to top up my holdings, at a discount to boot.

First is liquidity. Gold is highly liquid, with tens of billions of dollars a day traded around the world, the bullion I own (and that you own) is easy to sell when and if I either need to, or decide to.

Second is transaction costs. Yes there is a transaction cost to purchasing and selling physical bullion, but it pales into comparison versus the stamp duty, legal and agency fees required to buy a property, as well as the fees to a sales agent you’ll pay when and if you sell.

Third is ongoing management. Gold is like a good girlfriend. Pretty and low maintenance! You can pay someone to store it (free with ABC Bullion or for a percentage management fee for our allocated/premium allocated product), or you can access a private storage vault for a couple of hundred dollars a year.

Property needs constant attention. It needs painting, gardening, you have to pay council rates and property rates, and there are repairs and maintenance. And if its tenanted, you’ve got people to manage, or a property agents fees who’ll take a decent clip of the rent to remove this headache from you.

Fourth is leverage. Physical gold can, and typically is bought without leverage. Sure the price can go down, but you can’t lose more than your original investment, and over the long run gold is the only asset no one has ever lost money in.

For most property investors, you can only access is with excessive leverage (something that will be worrying the RBA right now with the latest news that over 30% of Australian mortgages being written today have loan to value ratio’s of over 80%).

For those investors, if the home value drops only 20%, and they are forced to sell, they’ll end up with less than zero. That’s something property spruikers don’t spend much time clarifying to investors, especially those encouraging people to set up a SMSF these days.

The fifth rule is diversification. If you have a $500k portfolio, you could easily have say 25% of your portfolio in gold, cash, shares and bonds. If you don’t like one asset class any more, or you want to rebalance, it’s easy to sell out of one or adjust your portfolio in order with how you are now comfortable.

In the case of property, chances are your $500k portfolio is just the one illiquid asset. If you decide you only want $400k in property, you can’t very well sell off 1 bedroom or the kitchen. Diversification is impossible.

All of those reasons are strong enough reasons to prefer gold over housing in my opinion, but there are two other ones that are particularly relevant for Australian investors.

The first is that the home will in all likelihood be the major asset most Australians buy throughout their life. As such, as a general rule, residential real estate is already going to be a major investment for most Australians, so the idea of concentrating more capital (and risk) in one asset class is one people should approach with appropriate suspicion.

But the final reason for being wary about investing in Australian homes, and preferring gold instead, is relative valuations at this point in the cycle.

Property has been in an incredible bull market for over 30 years. As a general rule, if an asset has gone up for 30 years uninterrupted, ask hard questions before throwing your money at it. We’ve all heard the comment about it being darkest before the dawn, but in this case it’s worth reminding readers that a star burns brightest just before it bursts.

This bull market in property has taken it to truly historic valuations, well above long term averages versus national incomes or versus rental yields. In the last decade alone they’ve grown from merely 4 to over 7 times the average annual income.

What that means is that Australians are so far in debt today, that even with interest rates at record lows, we are paying more, as a percentage of our disposable income, than what we were back in the early 1990’s when interest rates were over 15%!

That is something you don’t hear the big 4 banks talk about often.

It’s highly unlike a new house price boom will be sustainable, or will run for many years when its starting at such high valuation levels already.

Furthermore, one of the major arguments from property spruikers, and the big 4 banks (but then I repeat myself) as to why property prices will always rise is our supposed housing shortage.

Before you accept that one hook line and sinker, google the ABS Housing and Occupancy Costs report released this year. It shows over 75% of Australians reporting they have at least 1 spare bedroom in their home. With roughly 8 million households in the nation, that’s the better part of 6 million spare bedrooms already.

As times get tougher (and they are when you consider the unemployment rate is rising, as well as skyrocketing costs for utilities, insurance, health and childcare etc), Australians are going to come to the realization they don’t need all those spare rooms.

Maybe it’s a young family thinking they’ll only have 1 child, hence they only need a 2 bed house, or a graduating university student thinking they can stay with Mum and Dad a couple more years to save some rent money, or a couple of friends sharing a 3 bedroom house thinking that it might make sense to have another friend move in to save on rent.

Either way, there’s huge scope for Australians to use our existing homes more efficiently (gee that sounds like boring economist talk). And that’s exactly what we saw with the last census data, which showed that, for the first time in 100 years, the number of Australians living in each and every house actually rose between 2006-2011.

That’s a trend worth paying attention too, and it will prove a headwind for house prices.

Last but not least, the one thing you never hear property analysts talk about is the role of the ageing population. As it stands, the baby boomers, who represent 25% of the Aussie population, control 50% of the nations housing stock, and it is by far their major asset, underpinning their net worth.

Unfortunately, most are unprepared financially for retirement, with ASFA data indicating a couple between 61-64 would have only circa $300k in retirement assets. Even if they were to earn 8% per annum (won’t be easy considering the risks in the market right now), this money would run out within 7-8 years based on them spending circa $55k a year (ASFA estimate of requirements for a ‘comfortable’ retirement).

Bottom line, many are going to have no choice but to sell, so that they can unlock their existing equity in order to pay for their lifestyles.

More boomers needing to sell, coupled with less Gen-Y’s and Gen-X’s willing and able to buy. It’s hard to see prices rising sustainably with these dynamics in play.

Gold on the other hand, is ‘cheap’.

Relative to inflation, the housing, stock and bond markets, global money supply or as a percentage of total financial assets, gold is still hugely undervalued. On top of that, with interest rates at record lows around the world, and with central banks continuing to print money, we are still in the perfect macroeconomic environment for gold, despite the discomfort the current volatility is causing to some investors.

In fact, over the last 130 years, there have been 3 major cycles in relative valuations between gold and house prices. At each peak in gold (relative to housing), you’ve been able to buy an entire house in Sydney for 100 ounces of gold.

100 ounces of gold right now will set you back the better part of $150k. That’s barely enough for a deposit on the median Sydney home which is in the $700k range today, indicating in relative sense how undervalued gold still is today.

As such, if history is any guide, those ounces of gold will appreciate far more rapidly than the average house price in the years to come.

Each and every investor needs to make their own decisions, but market cycles, if they don’t repeat, certainly do rhyme.

For me personally, I am going to continue investing my money in physical gold over housing. One day I might make the switch, but it won’t be for a while, which is no problem at all. As the Rolling Stones said: Time, its on my side!

Jordan Eliseo
Chief Economist
ABC Bullion

Brother JohnF - Silver in Scripture

From BrotherJohnF

Silver at 30 Year Highs

By David Levenstein:

In 1980, the price of silver exploded upwards and traded above $50 an ounce. I recall this very clearly because I was trading silver through the London Metals Exchange (LME). In those days, the contract offered by the LME was 10,000 ounces, and the price was quoted in pounds, shillings and pence! While it takes more than a few words to explain why the prices went parabolic in 1980, suffice to mention that many investors had no idea what was going on or how they could participate in the silver explosion. I mention this, because the scenario we see with silver now reminds me of what we saw 30 years ago. I do not mean that the driving forces behind the prices now are the same as those in 1980. Absolutely not; but, once again many investors have no idea about silver, what is going on in the market and how they can participate.

Silver is an amazing metal as it is both a monetary as well as an industrial precious metal. And, the demand for silver in industrial applications is extremely price inelastic. Despite the fact that there is a large open short position which is held by the 4 or less large commercials trading via Comex, silver is benefiting from both general optimism on industrial production in emerging markets, and the investor interest in safe-haven assets like gold. Barclays Capital recently reported that the holdings of global silver exchange traded products it tracks has topped 14,000 metric tons for the first time. "Indeed, inflows in October have already hit 311 (metric tons), surpassing total inflows for the whole of August and almost half of September's 702 (metric tons)," Barclays says.

In 1980 individuals in South Africa were not allowed to hold offshore funds, and they were prohibited from owning any bullion. Now, even that these draconian laws have been amended, the number of investors in South Africa and probably worldwide who own any silver is minuscule. Yet, silver has been one of the best performing assets over the last few years, and I believe that it will continue to out-perform most other asset classes over the next 5 years.

Unlike gold, platinum and palladium, silver still remains well below its all-time high in spite of a developing shortage of supply. One of the reasons for this is been the alleged price manipulation by large traders such as the bullion banks that have sold massive amounts of silver on the futures markets to keep prices down. Currently, the open short position held by these banks is equivalent to approximately the annual global mining supply of silver.

Now US regulators have been urged to reveal the results of a two-year-long investigation into silver and gold price manipulation allegations. Recently, Bart Chilton, a commissioner at the US Commodities Futures Trading Commission (CFTC) which is investigating the claims, said: 'I think the public deserves some answers in the very near future.' He also added. "I expect the CFTC to say something on our silver investigation within weeks. I can't pre-judge what that will be. I can't even guarantee that the agency will speak. That said, if the agency remain silent for much longer, I intend to speak out on the matter in an appropriate fashion."

No matter the results of the investigation, the prices of silver still remain much undervalued and should be added to one's investment portfolio, especially as this time around there are many instruments available to investors unlike 1980. But, I would recommend that investors accumulate the physical metal in the form of silver bullion before investing in the other silver or silver related investment instruments.

TECHNICAL ANALYSIS

The price of silver has moved from (A) $17.50/oz at the end of July to (B) $23.35/oz last week. This price move of more than 33% has put silver into a new into a new range of trading. While the 40 degree angle of ascent is not parabolic it is at an angle that suggests that it may run into some resistance. I suspect this to be between $23 and $25 an ounce.

Silver is Still a Smoking Deal

From October 2009 - Robert Kiyosaki (of Rich Dad Poor Dad fame) talks about Silver and Nixon's crime of '71. It is interesting to look back and see how insightful Robert was, he talks of silver at US$15/oz, today silver is US$23/oz. A 50% increase in US$ in the space of only 1 year. PS - sorry to those who have seen this video before but it needed to be re-posted for our RSS feed - we need to bring these facts to as many people of possible.

Silver - There is Very Little Left and we Need it for Everything

Whilst on the topic of Silver I thought I would show you a video from early 2010. The legendary Stephen Leeb, or as one fan nicknamed him "Leeb the Dweeb" discusses the compelling case for silver, dweeb or not this guy knows his silver. PS - sorry to those who have seen this video before but it needed to be re posted for our RSS feed - we need to bring these facts to as many people of possible.

Investors see silver lining in economic gloom

From the UK Telegraph:

Forget gold. Silver, the yellow metal's poor cousin, has been the investment of the year.

Silver prices have risen 31pc in 2010 to a 30-year high, outperforming gold, equities and most base metals. On Tuesday, the gold-silver ratio dropped below 60 for the first time in 11 months.

The gold-silver ratio is simply the number of ounces of silver it takes to buy one ounce of gold. The silver price is currently $22.11 and the gold price is $1,317, so the silver ratio now stands at 59.6. The ratio varies wildly. In 1970, it was about 20 and it peaked at just under 100 in 1991. The average is around about 40 – and that is the key to any silver bull's argument. Historically, it appears that silver is undervalued in relation to gold, they argue. In 2010, the ratio has been as high as 72, recorded in February, and is now just below 60. Many believe it could have further to fall.

The reasons for gold's outperformance are well documented – inflationary fears, currency woes and safe-haven demand – but does the declining ratio towards its average mean that silver is going to continue with its charge forward? Most analysts are not that bullish – with a price of about $24 targeted for next year. There are some, however, that believe the silver price will become much more lustrous over the coming years.

James Turk, who founded bullion dealer GoldMoney in 2001 and manages $1.2bn (£758m) of assets, thinks prices could hit $50 by the end of next year, but accepts that there will be volatility along the way. Mr Turk believes quantitative easing will devalue currencies and send precious metals much higher. "Just pick up your newspaper to see what central banks are doing to destroy currencies," Mr Turk says. "Unlike the 1970s, there are no safe havens from currency debasement – such as the deutschemark."

Mr Turk is more bullish on silver than gold. "The problem is the volatility," Mr Turk says. "Essentially it is a cheap form of gold, but it is not for everyone because of the volatility." He says investors should always buy the physical metal and not paper and advises a portfolio of one-third silver to one-third gold.

Suki Cooper, a precious metals analyst at Barclays Capital is not so bullish. She has an average target for silver next year of $22.2, expecting the metal to peak in the second quarter at an average price of $23.7. "Silver mine supply is still growing and industrial demand – although improving – remains relatively weak. Silver is still in surplus, but it has benefited from safe-haven buying," Ms Cooper says. "The price could fall sharply if investor interest wanes." Already investor interest this year is much lower than last year, which is surprising given the recent bull run. In the current year to date investment inflows into silver have amounted to 1,377 tonnes. In the nine-months to September 2009 it was 2,942 tonnes – with full year 2009 inflows at 4,112 tonnes, Ms Cooper notes.

However, Mr Turk remains unbowed. "I expect the gold-silver ratio to fall back below 23 over the next three-to-five years," he says, despite most analysts thinking this is unlikely.

Precious metals consultancy GFMS also believes that there is a risk of a sharp fall in the silver price. Silver has risen on gold's coat-tails, but it is also used in industrial processes so it has risen on hopes of a recovery in the global economy too. Philip Klapwijk, GFMS's chairman, said last week that the absence of an improvement in the economy will be a negative for the silver price. "If you think gold will continue to advance in the medium term, then why wouldn't silver necessarily follow suit? One reason could be that if economic prospects take a bath, that side of the argument for silver becomes a lot weaker," Mr Klapwijk said. "In the current situation, silver is benefiting from both general optimism on industrial production in emerging markets, and the investor interest in safe-haven assets like gold," he added.

Scrap Metal and Paper Recyclers

By Peter Souleles:

You may find this difficult to believe, but there are over 300 million scrap metal and paper recyclers in the United States. In Japan there are over 127 million, Europe 730 million and the list goes on. The truth is that just about every human being on the planet is a scrap metal and paper recycler by virtue of his or her usage of fiat currencies.

Despite the billions of recyclers only a small percentage has actually made money in the last 10 years. They are the ones who converted their scrap into hard assets and in particular precious metals. The rest are being played for fools and the evidence is there for all to see. The majority recycled their scrap into other forms of paper called junk bonds, municipal bonds, treasuries, equities and so on. The government on the other hand also recycled the scrap paper they collected as taxes into other metal products such as tanks, jets, bombs and clunkers which inevitably also become scrap in good time.

If the onward and upward march of gold and silver prices for over a decade is not proof enough, then consider the ongoing and relentless efforts of governments the world over to devalue their currencies. What that means is that your dollar is being attacked by your own government so that it can buy less and less. Now, is that a store of value?

If currencies are truly stores of value, it begs the question as to why their owners (i.e. national governments) are intent on devaluing them.

The US is currently successfully devaluing its currency which in any case is worth zilch. The effect though, is a desperate frenzy of US dollar buying by other nations in exchange for their own currencies. So we have more dollars, less value, but an even greater number of greenback tentacles in the world's financial system. Where do they end up? Probably in short term US treasuries so as to fund more US government deficit spending at close to zero rates of interest. This might be great for some form of global monetary easing (liquidity), but of questionable benefit to solvency. Just remember that the US is more interested in the position of its dollar in the world's financial system than its value.

When President Chavez of Venezuela devalued the Bolivar against the dollar in January, the people rushed to the supermarkets and emptied the shelves of televisions and refrigerators in anticipation of inflating prices for imported goods. Once again they were only half smart because since January their refrigerators (eventual scrap metal) have lost major value while the price of gold has rocketed.

Do you want more proof?

Well in Britain the deputy governor of the Bank of England came out in the last few days and urged the country to go on a shopping spree to boost the fragile economy. The governor's name is Mr Bean. Yes that's right, Mr BEAN. This one is not the real Mr Bean, he is just an impostor who believes that the profligate spending by the Brits which got them into trouble in the first place now needs to be repeated.

There is of course some method in his madness (even though it is just madness) because it is estimated that by slamming savers he will be depriving them of £18 billion whilst putting £26 billion in the pockets of consumers. Another misguided effort at injecting an £8 billion stimulus into the economy, for which the taxpayers of Britain pay him £250,000 a year. How much of his pay will he spend? I can assure you that he will be saving more than most of us.

The government of the UK is slashing its spending to bring down its debt but encourages Brits to do the opposite despite being near record levels of mortgage and credit card debt totalling £1.456 trillion.

Dear readers the currency you hold is not a store of value. You are simply holding onto a bucket that has a hole in the bottom. Scrap metal and paper fiat should be used only for necessities, getting a real education for your kids, paying off fiat debt and buying real assets of which gold and silver are presently the safest.

If the savers of Britain want to get their message through to Mr Bean, they only need to march down to their mint and convert the bulk of their savings to gold and silver. That should work wonders in no time at all. Better still they should form their own bullion bank which is open to customer inspection unlike Fort Knox (or should it be called Fort Nix?). In fact that is what savers the world over need to do to reclaim their right to a store of value. A 347% increase in the price of gold in British pounds over the last 10 years says it all.

As reported in the British press, Mr Bean admitted the economic recovery was being hampered by what economists call the "paradox of thrift" where savings may benefit individuals but not help the economy.

What the man does not understand is that periods of idiotic profligacy MUST be followed by painful periods of thrift (i.e. deleveraging) otherwise the subsequent downturn will be a collapse. As I wrote some time ago:

"Unless this deleveraging takes place people will not be able to deleverage their life styles and this is where the crux of the problem lies. This deleveraging will cause further pain and losses, but will stop when that which is left is productive rather than seductive, deserving rather than self-serving and needed rather than wanted. This is the simple formula that should be applied at all levels."

Is Mr Bean telling us that we can lose weight by eating more even though this will lead us to further financial illness and even though an estimated 140,000 Brits become insolvent this year?

In fairness to the man, he is but one of many clueless central bankers that believe that the financial system can be detoxed with the use of more toxins just like BP is doing in the Gulf of Mexico. What do you expect from men that have only two brain cells that spend their day trying to find each other to form a synapse.

Yes, currency is valuable as a medium of exchange, but each time we exchange it for something else, that subsequent purchase or payment for services must be for something that adds value to our existence and future, otherwise we are nothing more than rats on the bankers' treadmill.

The currency attempts at devaluations we are seeing are a zero sum game that will not aid or abet the economic recovery. The only purpose they serve is for a limited number of people to make serious amounts of money as a result of volatility. You just have to remember in May this year when the Euro crisis hit, how the Euro was predicted to hit parity with the dollar. Well we now see the result of that prediction.

We have also seen the result of volatility on the world's stock markets - profit for some and disappointment for most.

For the rest of us who have no great insights into or influence over volatility, I continue to recommend gold, silver and the repayment of debt.

In the meantime, will the real Mr Bean do something about his hapless relative at the Bank of England?