Gold World News Flash

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• Special GSR Gold Nugget: Peter Grandich & Chris Waltzek
• Seeking Collateral, Escaping Recourse
• Sean Brodrick: Bull Market for Gold and Silver
• Doug Casey: Education of a Speculator, Part Two - June 2, 2010
• In The News Today
• Gold Hurdles to New Record Highs
• Give unto Caesar - What to Pay When You're Selling
• Daily Dispatch: The Sure Thing
• Into the Abyss: The Cycle of Debt Deflation
• Leading Indicators Indicate a Lagging Economy
• Open Letter to Bill Murphy
• Not All Metals Firms Are Interested in Your Success
• Pigs-Less Euro At The Door
• The article from Bill Murphy’s website with permission
• The Ultimate Hedge in Economic Crisis
• Monthly Action In Gold From Trader Dan
• Gold in Europe Closes Over €1,000 for the First Time
• Oil and Red Ink
• LGMR: Gold Should Continue to Rise as World Stock Markets Fall Amid Volatility
• Government-Sponsored Housing Fraud
• Things
• No Escaping Deflation’s Fatal Drag on Economy
• A Primer: Sovereign Debt Defaults = Social Unrest + Much Higher Gold Prices
• Finding Gold and SP500 Low Risk Setups
• Good News for the Grandchildren, Part II
• Golden Savings
• Debating Bartlett: Would Raising Taxes Reduce Our Trade Deficits?
• Universal Display, A Standout in a Tough Tape
• Gold Seeker Closing Report: Gold and Silver Fall Slightly While Stocks Gain Over 2%
• Pricing in Uncertainty
• How Soon Might Greece Default?
• Europe’s Media Warn of Global Social Unrest
• Piigs-Less Euro at the Door
• Warren Buffett on the Housing Bubble
• Keynes For Kindergarteners
• Look how easy it is to manipulate a London futures market
• Euro-Risky Asset Decoupling Redux
• Strategic Defaults: Is It Morally Right To Decide To Simply Stop Paying Your Mortgage?
• Peter Grandich: An open letter to GATA Chairman Bill Murphy
• Sony: Help Wanted, No UNEMPLOYED CANDIDATES Will Be Considered AT ALL!
• US Mint Out Of Not Only Silver But Gold American Eagles As Well
• Fiscal and monetary tightening to crash global stock markets?
• UK Research Center Tells Greece to Quit the Euro
• WEDNESDAY Market Excerpts
• Why More Econ Majors Are Republicans Rather Than Democrats
• Four Letters To Rosie
• Jim's Mailbox
• Good News for Your Grandchildren, Part II
• 10 Reasons to Avoid Baidu.com
• Guest Post: Give Unto Caesar - What To Pay When You're Selling

Special GSR Gold Nugget: Peter Grandich & Chris Waltzek Posted: 02 Jun 2010 07:00 PM PDT Special GSR Gold Nugget: Peter Grandich & Chris Waltzek

Seeking Collateral, Escaping Recourse Posted: 02 Jun 2010 06:52 PM PDT Stacy Summary:   Well, you have savers vs speculators and you have speculators vs speculators.  This is a bit of both.  Looks like investors/lenders are trying to secure the collateral that allegedly backs the $600 trillion in debts they 'own,' while debtors are trying to escape the debts they 'owe.' Covered bond sales surge as investors seek debt backed by collateral U.S. Personal Bankruptcies Up 9%, Seeking to Escape Recourse Debts?

Sean Brodrick: Bull Market for Gold and Silver Posted: 02 Jun 2010 06:05 PM PDT Weiss Research Natural Resources Analyst Sean Brodrick expects the bull market for precious metals to run for "quite some time," with gold hitting $1,450 /oz. by year-end and silver at $25 not long after.

Doug Casey: Education of a Speculator, Part Two - June 2, 2010 Posted: 02 Jun 2010 06:04 PM PDT Conversations With Casey June 2, 2010 | Visit Online Version | www.CaseyResearch.com • About Casey • Forward this email • New? Free sign up for Conversations With Casey • CaseyResearch.com (Interviewed by Louis James, Editor, International Speculator) [Ed. Note: When we left our intrepid hero last week, he was hanging off the edge of a golden cliff...] [COLOR=#243f93]L:[/COLOR] So what did you do after cashing in, in the '80s? Doug: That's when I started getting into the mining stocks you now cover. I liked their incredible volatility. But it took me quite a while to really understand the way the game was played. Even though the third thing I wanted to be when I was a kid was a geologist, it took me years to get geologically active, so to...

In The News Today Posted: 02 Jun 2010 06:04 PM PDT View the original post at jsmineset.com... June 02, 2010 05:07 PM Dear CIGAs, Just review the 13 reasons why OTC derivative are a criminal act in the " Pocketbook of Gold." This is just like suggesting a review of naked shorting which is against both civil and criminal law. Maybe murder should be reviewed and accepted only when dirty tricksters are identified. Goldman Suit Makes Wall Street Question Derivatives Sales By Christine Harper – Jun 1, 2010 Wall Street's biggest firms are considering the suitability of selling opaque financial products to governments, endowments and not-for-profit institutions after the contracts magnified credit-market losses that plunged the U.S. into a recession. "There is no distinction among very different groups of investors, and this is where things might change," said Dino Kos, a managing director at Portales Partners LLC in New York and former head of the Federal Reserve Bank of New York's open market operations. "Wall Street...

Gold Hurdles to New Record Highs Posted: 02 Jun 2010 06:04 PM PDT FGMR - Free Gold Money Report June 1, 2010 – Numerous records continue to be broken by gold, including some longstanding ones that go back to the January 1980 peak. Gold closed the month of May at a new record high against every major world currency except the Japanese yen. Various charts of the gold price in terms of major currencies can be found by clicking this link. Here is a long-term gold chart in terms of US dollars. The important point of this chart is that gold is climbing in a major uptrend, which is denoted by the rising green trendline under gold’s price. Note too that the deep 2008 correction following the Lehman Brothers collapse did not move gold back to the uptrend line, which is a clear sign of strength. Since its correction in 2008, gold has been moving away from the trendline. This development means that gold’s upside trajectory is accelerating, which is another sign of strength. It is not difficult to understand why gold&...

Give unto Caesar - What to Pay When You're Selling Posted: 02 Jun 2010 06:04 PM PDT By: Jeff Clark, Senior Editor, Casey's Gold & Resource Report Proper planning with your finances is incomplete until you consider the endgame consequences of your investment decisions today. So, what are the tax consequences of selling gold, gold ETFs, and gold stocks? There's lots of conflicting and inaccurate tax information on the Internet about this. We know of one site that claims the sale of silver Eagles is exempt from capital gains tax due to some obscure law (not true). So, let's nail down the current tax rules for selling gold in the U.S. [The following information pertains to U.S. taxpayers only and is not intended as nor should be considered personal tax advice. Always consult a financial planner and/or tax professional before investing.] ►The IRS considers gold a "collectible" and will tax your capital gains at a 28% rate. This designation includes all forms of gold (other than jewelry), such as... • All denominations of gold bulli...

Daily Dispatch: The Sure Thing Posted: 02 Jun 2010 06:04 PM PDT June 02, 2010 | www.CaseyResearch.com The Sure Thing Dear Reader, Digging through the entrails of the fundamentals associated with the global economy and markets, it increasingly strikes me that there is really only one investment I’d now consider a “sure thing” – and that is buying gold on dips. In support of that contention, a quick review of the other primary asset classes is in order. The broader stock market. Now, I can’t speak for all the world’s stock markets, but will say that with the S&P 500 currently selling at a P/E of 18.29 and with a dividend yield of a miserly 2%, it’s hard to say that these stocks are selling on the cheap. Especially when you consider that during the depths of the deep recession lasting from 1980 to 1982, the P/Es hit below 7 (averaged 8.4) while dividend yields reached above 6% (averaged 5.4%)... levels we’ve been nowhere near hitting at any poin...

Into the Abyss: The Cycle of Debt Deflation Posted: 02 Jun 2010 06:04 PM PDT By Ron HeraJune 2, 2010 ©2010 Hera Research, LLC One of the most famous quotations of Austrian economist Ludwig von Mises is that "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved." In fact, the US economy is in a downward spiral of debt deflation despite the bold actions of the federal government and of the US Federal Reserve taken in response to the financial crisis that began in 2008 and the associated recession. Although the vicious circle of debt deflation is not widely recognized, precisely what von Mises described is happening before our eyes. A variety of positive economic data has been reported in recent months. Retail sales rose 0.4% in April 2010 as consumer spending rose and the US gross domestic product (GDP...

Leading Indicators Indicate a Lagging Economy Posted: 02 Jun 2010 06:04 PM PDT The Conference Board's Leading Economic Index for the US declined 0.1% in April, which was not too bad, especially since it followed a 1.3% gain in March, which is not to mention a 0.4% rise in February. This is, being that it is the Leading Economic Index and is supposed to forecast the future six to nine months out, not very good news, although the Coincident Index (a measure of current economic conditions) was up a paltry 0.3% in April, following a negligible 0.1 percent increase in March, and a 0.1% increase in February, which kind of zero each other out. The Conference Board's Lagging Index is the one that keeps me interested, as this is where inflations and burdens lurk, and which increased 0.1% in April, following a 0.1% increase in March, and a 0.2% rise in February, which is in a kind of continual upward pattern, as far as I can tell just by looking at three numbers and doing no more work than that. Bill Bonner here at The Daily Reckoning is apparently unimpressed with my l...

Open Letter to Bill Murphy Posted: 02 Jun 2010 06:04 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here June 02, 2010 01:46 PM Billy Boy, I look forward to seeing you and the GATA gang in Vancouver this weekend. I couldn’t help but chuckle after reading this in your daily letter today: [B]Speaking of Jeff Christian, the latest from the very visible Dennis Gartman this morning, good grief…[/B] [B]Finally, we strongly urge everyone to read a truly brilliant article listed on Kitco.com's website written by the always interesting, keenly insightful, historically well informed and inordinately wise Mr. Jeffrey Christian of the CPM Group, as he rebuts the nonsense put forth by GATA regarding gold market manipulation. Mr. Christian is far more courageous than we, for he accepted GATA's demands to debate this issue. We have long refused to do so, for although we are very good friends with Mr. Murphy, GATA's President, we have seen what GATA's supporters are like as they shout ...

Not All Metals Firms Are Interested in Your Success Posted: 02 Jun 2010 06:04 PM PDT Thanks to the surge in precious metals prices, we've seen quite a few new businesses enter the scene to either buy your gold or silver, or to sell you gold or silver. Some are reputable, honest, and actually care about what you get for your precious metals. Others are sly, overpriced, and likely riddled with salespeople far too interested in their own commission. The Buy Gold Trend Before the TV was dominated with offers wanting to sell you gold or silver, it was first overwhelmed with institutions wanting to buy your gold or silver for recycling. Of the most well known might have been Cash4Gold, a fly-by-night gold buyer that bought scrap metals through the mail. While the commercials may have been frequent (even appearing in the Super Bowl), the company is no fairer or more honest than any other gold dealer. Consumer complaints galore, most customers report that the average price Cash4Gold was willing to pay was right around 15-20% of the actual gold val...

Pigs-Less Euro At The Door Posted: 02 Jun 2010 06:04 PM PDT by Jim Willie CB June 2, 2010 home: Golden Jackass website subscribe: Hat Trick Letter Jim Willie CB, editor of the "HAT TRICK LETTER" Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. Natural forces are at work in Europe, powerful forces, in fact forces that are not evident. It is amazing how little the financial analysts notice the force...

The article from Bill Murphy’s website with permission Posted: 02 Jun 2010 06:04 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here February 26, 2010 08:21 AM Stay up to date on Grandich's MODEL PORTFOLIO. He is constantly updating it! COMEX INVENTORY DATA REVEAL AN ALARMING TREND By Adrian Douglas For more than 6 months I have been gathering data released daily by the COMEX concerning delivery notices and inventory levels of gold and silver. This data must be captured and recorded each day as there is no database of historical data available to the general public. Studying data on a daily basis is not conducive to seeing the big picture so I have just completed a study of what can be discerned by looking at the entire 6 months of data. The results are very revealing. First of all for those who are not familiar with the delivery process of the COMEX I will summarize some key information. Only a small fraction of the contracts, less than 1%, that are bought or sold on COMEX ever go into the delivery process....

The Ultimate Hedge in Economic Crisis Posted: 02 Jun 2010 06:04 PM PDT This week we have a really counter-intuitive Outside the Box. I was talking with the editor of Breakthrough Technology Alert, Patrick Cox about health care costs and he made some very interesting observations from new research about health care. It seems healthy people pay more for health care than sick people. I asked him to do a write-up for us. Despite the new health care bill that passed, health care costs are going to go up, not down. And that's a good thing, as Pat explains. You really want to read this. Some of you may not be aware that a few months ago I wrote that I was buying stocks for the first time in 12 years, and specifically smaller, transformational biotech stocks. As I wrote at the time, I think that we could see a real bubble in biotech in the latter part of this decade, and just once, please God, I want to be at the beginning of a bubble. Pat is one (and maybe the best) of my "go-to" sources for investment ideas in the biotech space. I have been very pleased w...

Monthly Action In Gold From Trader Dan Posted: 02 Jun 2010 06:04 PM PDT View the original post at jsmineset.com... June 01, 2010 10:46 PM Dear CIGAs, Click charts to enlarge in PDF format ...

Gold in Europe Closes Over €1,000 for the First Time Posted: 02 Jun 2010 06:04 PM PDT All in all, gold didn't do a lot during Tuesday's trading day... and volume wasn't very heavy, either. The low of $1,217 spot was around 2:00 p.m. in Hong Kong trading... and from there, gold rose in fits and starts to its high of the day [$1,229.90 spot] shortly before 11:00 a.m. Eastern time in New York. From that high-water mark, gold got sold off five bucks and stayed at $1,225 spot for the rest of the Tuesday trading session. However, it appeared that three mini break-out attempts during New York trading were quietly, but firmly, sold off. It didn't appear that gold was going to be allowed over $1,230 spot... and it wasn't. Here's the New York trading session on its own. Maybe I'm looking for black bears in dark rooms that aren't there? But I don't think so. Silver's path was similar to gold's... right up until the Zurich and London open at 8:00 a.m. Then silver, platinum and palladium all got it in the neck at precisely the same moment... as go...

Oil and Red Ink Posted: 02 Jun 2010 06:04 PM PDT Excerpt from the Hussman Funds' Weekly Market Comment (6/1/10):[INDENT]As we observe the recent oil spill in the Gulf of Mexico, the recent banking crisis, and the ongoing concerns about sovereign debt in Europe, one of the things that strikes me is that few analysts are much good at assessing probabilities for worst case scenarios. We typically refer to the probability of some event Y as P(Y), and write the probability of Y, given some information X, as P(Y|X). So for example, the probability of a vehicle being a school bus might be only 1%, but given some extra information, like "the vehicle is yellow and full of children," the estimated "conditional" probability would go up enormously. ... Similarly, before the housing crisis, it might have been tempting to shrug off mortgage defaults as relatively isolated events, since the price of housing had generally experienced a long upward trend over time. Indeed, historically, sustained declines in home ...

LGMR: Gold Should Continue to Rise as World Stock Markets Fall Amid Volatility Posted: 02 Jun 2010 06:04 PM PDT London Gold Market Report from Adrian Ash BullionVault 08:30 ET, Weds 2 June Gold "Should Continue to Rise" as World Stock Markets Fall Amid "Temporary Volatility" THE PRICE OF GOLD in wholesale dealing held near two-week highs against the major reserve currencies in London trade on Wednesday, creeping 0.1% higher from yesterday morning's AM Gold Fix as world stock markets fell for the eighth time in 11 sessions. US Treasury bonds eased back but German and UK debt rose again. Crude oil, base metal and silver prices were little changed. "It took 5 days of trying, but [gold] finally broke above 1218, the 61.8% retracement of the 1249 to 1167 down move," says bullion bank Scotia Mocatta in its latest note, pointing to what technical analysts call a Fibonacci level. "The break of 1218 opens up the potential for a 100% retracement to 1249." "Gold should continue to rise, provided that it stays above its two-month support line [now at] 1179.44," says...

Government-Sponsored Housing Fraud Posted: 02 Jun 2010 06:04 PM PDT Market Ticker - Karl Denninger View original article June 02, 2010 06:58 AM It just never ends, does it: [INDENT]The proposed rule would also establish a method for evaluating and rating Enterprise performance in each underserved market for 2010 and subsequent years and describes the transactions and activities that would be considered for compliance. The Enterprises would be evaluated on four statutory assessment factors: 1) the development of loan products new ways to rip people off, more flexible underwriting guidelines willful blindness to unsustainable debt-service ratios, and other innovative approaches to providing financing other ways to rob the taxpaying and homeowning public; 2) the extent of outreach to qualified loan sellers and other market participants; 3) the volume of loans purchased relative to the market opportunities available, subject to the statutory condition that FHFA not establish specific quantitative targets; and 4) the amount of investments and gra...

Things Posted: 02 Jun 2010 06:04 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here June 02, 2010 06:31 AM [LIST] [*]I’ve spoken for months about two geopolitical problems that were at the time not being priced into the market but IMHO would be. One is now staring to (Middle East) and one I expect will later his summer and fall. [*]No such thing my eye [*]Read Tokyo Rose to know what “not” to do and read Jim for some good technical analysis. [*]After 8 straight up days, gold is in need of a short pause. New all-time highs before months end IMHO. [*]The one “western” country I’ve beat the bullish drum about continues to outshine all others. But still no hope for it’s most western major city to ever see Stanley Cup in our lifetime. [*]There’s still hope for America’s greatest neglect to be fixed But how many more must died before this utter nonsense of neglect ends? [/LIST] [url]http://www.grandich.com/[/url] gr...

No Escaping Deflation’s Fatal Drag on Economy Posted: 02 Jun 2010 06:00 PM PDT Gotta love those inflationists! We enjoy getting in their faces now and then because their nutty ideas, particularly that inflation is worth worrying about at the moment, can only confuse and misdirect people who are struggling to sort out the facts for themselves.

A Primer: Sovereign Debt Defaults = Social Unrest + Much Higher Gold Prices Posted: 02 Jun 2010 05:42 PM PDT

Finding Gold and SP500 Low Risk Setups Posted: 02 Jun 2010 05:35 PM PDT

Good News for the Grandchildren, Part II Posted: 02 Jun 2010 04:48 PM PDT Excerpted from his presentation to the Ira Sohn Investment Research Conference on May 26, 2010 We should have learned by now that every credit - no matter how unthinkable its failure would be - has risk and requires capital. Just as trivial capital charges encouraged lenders and borrowers to overdo it with AAA rated CDOs, the same flawed structure in the government debt market encourages and therefore practically ensures a repeat of this behavior - leading to an even larger crisis. (Greenlight continues to hold short positions in the common stock of the rating agencies, Moody's and McGraw Hill [owners of S&P]). I remember hearing that the rating agencies would never downgrade MBIA or Fannie Mae...I don't believe a US debt default is inevitable. On the other hand, I don't see the political will to make voluntary efforts to steer the country away from crisis. If we wait until the markets force action, as they have in Greece, we might find ourselves negotiating austerity programs with foreign creditors. Some believe this could be avoided by printing money. Despite Mr. Bernanke's promises not to print money or "monetize" the debt, when push comes to shove, there is a good chance the Fed will do so, at least to the point where significant inflation shows up even in government statistics. That the recent round of money printing has not led to headline inflation may give central bankers confidence additional quantitative easing can be put in place without inflationary consequences. However, printing money can only go so far without creating inflation. Now, government statistics are about the last place one should look to find inflation, as they are designed to not show much. Over the last 35 years the government has changed the way it calculates inflation several times. For example, under the current method, when the price of chocolate bars goes up, the government assumes people substitute peanut bars. So chocolate gets a lower weighting in the index when its price rises. Even though some of the changes may be justifiable, the overall effect has been a dramatic reduction in calculated inflation. According to Shadowstats.com, using the pre-1980 method CPI would be over 9%, today compared to about 2% in the official statistics. While the truth probably lies somewhere in the middle, this doesn't even take into account inflation we ignore by using a basket of goods that does not match the real world cost of living. For example, we all now know that healthcare, which is certainly a consumer good, is about one-sixth of our economy and its cost has been growing at a rapid pace. So what is the weighting of healthcare in the CPI? About 6%. The government doesn't count the part which the consumer doesn't pay out of pocket. So, if your employer has to pay more for your health insurance, it doesn't count, even if it means you have to accept lower wages. Similarly, Medicare cost increases don't count, even though everyone has to pay higher taxes to fund them. Income and payroll taxes, which are part of the cost of living, are not counted in the CPI either. On the other hand, one-fourth of the index is comprised of something called owners'-equivalent-rent. This isn't something that anyone actually pays for. If you own your house, the government assumes you are foregoing rental income. The amount that you could receive from a hypothetical renter - the government implicitly assumes you rent it to yourself - is counted in the basket. So, rising taxes, which you do pay, don't count; the fast rising cost of healthcare, which someone else pays on your behalf, doesn't count; but hypothetical rents which you don't pay, and conveniently don't rise very quickly, have a huge weighting. The simple fact is that if your goal is to never see inflation, you won't see it until it is rampant. Low official inflation benefits the government by reducing inflation- indexed payments including Social Security and Treasury Inflation- Protected Securities. Lower official inflation means higher reported real GDP, higher reported real income and higher reported productivity. Subdued reported inflation also enables the Fed to rationalize easy money. The Fed wants to have an accommodative monetary policy to fight unemployment, which in a new trickle-down theory it believes can be addressed through higher stock prices. The Fed hopes that by keeping rates low, it will deny savers an adequate return in risk-free assets like savings deposits and force them to speculate in stocks and other "risky assets" to generate sufficient income to meet their retirement needs. This speculation drives stock prices higher, which creates a "wealth effect" where the lucky speculators decide to spend some of the gains on goods and services. The purchases increase aggregate demand and lead to job creation. Easy money also aids the banks. Arguably, we still have many inadequately capitalized or insolvent banks. There has been so much accounting forbearance and extend-and-pretend loan collection that it is difficult to get an accurate gauge on the health of the system. However, each week the FDIC seizes more failed banks and when it does so, there are very large losses to the deposit insurance fund. In most cases, the failed banks' most recent financial statements claim that they were solvent which implies that the banks' balance sheets are not stated conservatively. It probably isn't just the banks that fail that are taking advantage of accounting forbearance. As a result, the Fed prefers to keep rates extraordinarily low in an effort to help banks earn back their unacknowledged losses. However, this discourages banks from making new loans. If banks can lend to the government, with no capital charge and no perceived risk and earn an adequate spread walking down the yield curve, then they have little incentive to lend to small businesses or consumers. Higher short-term rates could very well stimulate additional lending to the private sector. Given the enormous gains in the prices of bank stocks, it might be quicker to have banks deal with their questionable assets through additional equity offerings and more aggressive loss reserving than waiting for years for profits from an easy money policy to repair the balance sheets. Easy money also helps the fiscal position of the government. Lower borrowing costs mean lower deficits. In effect, negative real interest rates are indirect debt monetization. Allowing borrowers including the government to get addicted to unsustainably low rates creates enormous solvency risks when rates eventually rise. I believe that the Japanese government has already reached the point where a normalization of rates would create a fiscal crisis. While one can debate where we are in the recovery, one thing is clear - the worst of the last crisis has passed. Nominal GDP growth is running in the mid-single digits. The emergency has passed and, yet, the Fed continues with an emergency zero-interest rate policy. Perhaps, an accommodative policy is still appropriate, but zero-rate policy creates enormous distortions in incentives and increases the likelihood of a significant crisis later. Further, it was not lost on the market that during this month's sell-off, with rates around zero, there is no room for further cuts should the economy roll over. Easy money policy has negative consequences in addition to the obvious inflation of goods and services and currency debasement risks. It can feed asset bubbles, such as the internet bubble and the housing bubble. We know that when such bubbles collapse, there are terrible consequences. Nonetheless, the Fed has a preference to inflate bubbles. Sometimes Fed officials tell us that there is no bubble or that bubbles are hard to identify. Afterwards, they tell us that monetary policy was not to blame. Earlier this year, Mr. Bernanke said that the housing bubble was not caused by monetary policy. Essentially, he did a statistical analysis which found that there are many times when extraordinarily easy monetary policy has not led to a housing bubble. As a result, he argued that one can't generalize that easy monetary policy causes housing bubbles in all circumstances. From this, he reached the dubious conclusion that easy monetary policy was not responsible for the housing bubble he presided over. He must feel it is important to disclaim responsibility for the last bubble at a time where the Fed appears to have a desire to foment a fresh asset bubble. In recent years, we have gone from one bubble and bailout to the next. Each bailout reinforces moral hazard, by rewarding those that acted imprudently. This encourages additional risky behavior feeding the creation of a succession of new, larger bubbles, which then collapse. The Fed bailed out the equity markets after the crash of 1987, which fed a boom ending with the Mexican crisis and bailout. That Treasury financed bailout seeded a bubble in emerging market debt, which ended with the Asian currency crisis and Russian default. The resulting organized rescue of LTCM's counterparties spurred the internet bubble. After that popped, the rescue led to the housing and credit bubble. The deflationary aspects of that bubble popping created a bubble in sovereign debt despite the fiscal strains created by the bailouts. The Greek crisis may be the first sign of the sovereign debt bubble popping. Our gold position reflects our concern that our fiscal and monetary policies are not sufficiently geared toward heading off a possible crisis...We own gold and some gold stocks for our investors and ourselves. We will worry about the grandchildren later. David Einhorn for The Daily Reckoning Australia Similar Posts: Good News for the Grandchildren When Gold Ruled the Earth, Part II An Insider's View of the Real Estate Train Wreck, Part II Investors Now Treating Bad News for the Dollar as Bad News Fed's Aggressive Attempts to Put More Money and Credit in Circulation and the Asset Bubbles

Golden Savings Posted: 02 Jun 2010 04:42 PM PDT Gold is still getting up. Hemlines are going down. That's all you need to know. Gold rose toward $1,230 yesterday. Why? Reports said investors were worried about Europe. Well...yes...Europe...and Asia...and North America... The problem in the world economy is debt. There's too much of it. Investors who aren't delusional know that too much debt spells trouble. And when government adds more debt it's not really going to make things better. It's going to make them worse. What kind of trouble will it cause? Well, that's what we're going to find out. Inflation...deflation...bankruptcies...defaults...bear markets...our guess is that we're going to see it all. But not necessarily in that order. Gold buyers are stocking up on insurance against trouble. They're using GLD - a gold ETF - as a kind of "people's central bank." It's a way of maintaining do-it-yourself monetary reserves. (More on the vernacular gold standard...below...) The private sector is now de-leveraging - getting itself out of debt. Banks are building up their own reserves. Corporations are cutting spending and beefing up profit margins. Households are cutting back too. Everybody wants reserves. But reserves take money out of the active economy...causing the symptoms that are so disturbing to economists and politicians - unemployment, bear markets, and deflation. Doesn't bother us. We like corrections. They wipe away mistakes and set the stage for new growth. And as near as we can tell everything is still happening as it should. The private sector went too far into debt. Now, it's straightening itself up. We were puzzled when savings rates declined earlier this year. It looked like our de-leveraging hypothesis might be wrong after all. But why shouldn't savings go down. Consumers are probably as confused as Nobel prize-winning economists, Fed chairmen and the US Treasury Secretary. They probably thought the economy really was recovering. So why not spend? But then, the savings rates rose again...and de-leveraging was back on course. The next problem is in the public sector. As expected, governments reacted to the debt problem by going deeper into debt! And now, they're in trouble too. Small sovereign governments...as well as state governments - have already begun to de-leverage too. The bond market told them to cut back; who were they to argue? Meanwhile, investors who are paying attention are selling. Alan Abelson reports that the smart money is getting out of stocks. Insiders are selling 3,933 shares for every one they buy, he says. This sends stocks lower too. Yesterday saw another 112-point drop in the Dow, for example. But investors should be more careful. When they dive into the bushes for cover, they roll right into the poison ivy. They try to protect themselves from stocks and Greek debt by buying US debt. They feel safe. For a while, they are safe. Then, they start to itch! And more thoughts... We asked Henry what he was going to do this summer. "Get a job" is the normal answer. But where? The New York Times: Job Outlook for Teenagers Worsens This year is shaping up to be even worse than last for the millions of high school and college students looking for summer jobs. Some state governments are cash poor. Kentucky has pulled back on mowing lawns at some facilities to save money. State and local governments, traditionally among the biggest seasonal employers, are knee-deep in budget woes, and the stimulus money that helped cushion some government job programs last summer is running out. Private employers are also reluctant to hire until the economy shows more solid signs of recovery. Students seeking summer jobs, generally 16 to 24 years old, are at the end of the job line, behind the jobless baby boomers who are competing with new college graduates who, in turn, are trying to elbow out undergraduates and high school students. The unemployment rate for the 16-to-24 age group reached a record 19.6 percent in April, double the national average. For those job seekers, said Heidi Shierholz, an economist at the Economic Policy Institute, "This is the worst year, definitely since the early '80s recession and very likely since the Great Depression." - If you think gold is moving up now...just wait. A dear reader from Slovenia reports: "The Greek Central Bank is selling one ounce gold equivalents as high as $1,700 (40% over spot), and prices on the black markets are even higher. The punchline, as Athens slowly returns to a forced gold standard: 'A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds.' "I've just spoken with the head of Slovenia's (historically) first and biggest bullion dealer and got the info, that demand is so big that waiting time for acquiring the physical stuff is about 3 weeks long and that reserves are at an all time low. In her words, the situation is comparable if not even more dire than the last time this happened, which was in 2008." - This is an email from yesterday from neighboring Austria: "i am sorry that i have to tell you that it is now not possible for me to order gold coins, they told me that maybe in september it is possible again. "But we have the chance that a customer will sell us the coins you would like to have! So i will give you information when i have the desired coins." - Our own ace researcher for the family office, Charles Delvalle, seems to have his eye on other things. The "Hemline Index" was first developed by technical analyst/economist George Taylor in 1926. It gained popularity around the 1929 stock market crash. The theory states that the stock market rises and falls with women's hemlines. Below is a famous graphic depicting the stock market and hemlines from 1897 to 1990 constructed by Alan Shaw's legendary technical analysis group at Smith Barney. If this theory still holds, the story below is a bearish indicator for the stock market. From The New York Times: A Long, Lean Backlash to the Mini "There is definitely a movement to a very lengthy look, especially among the young," said Nevena Borissova, a partner in Curve, a progressive retailer with stores in New York, Los Angeles and Miami. Ms. Borissova favors radically stretched-out skirts and dresses that "drag on the floor, with raw edges, and worn with combat boots," she said. And as she pointed out, these myriad calf- or ankle-grazing iterations of the milelong skirt bear no relation to "Big Love" or, for that matter, the Summer of Love. There is nothing remotely prim or saccharine about the latest interpretations of this look, with their distinctly urban overtones. Current versions, even the most languid, are likely to be toughened up with a military parka or a biker jacket and thick-soled shoes. A muted, and at times ascetic, successor to the sweet-as-a-bonbon, Hamptons-worthy maxi-dresses that first alighted on downtown streets a couple of summers ago, the new maxis are more Morticia than Ophelia. They are "darker and more sophisticated" than last summer's flounced beach dresses, said Morgan Yakus, a partner in No.6, a haven for style-setters in downtown Manhattan. Regards, Bill Bonner for The Daily Reckoning Australia Similar Posts: Rare Coins as an Informal Way of Estate Planning Less Gold is Being Sold by European Central Banks Zombies at the Fed and the Treasury Department Try to Gnaw on Survivors' Savings A Golden Vending Machine Forcing Private Sector Savings into Public Sector Debt

Debating Bartlett: Would Raising Taxes Reduce Our Trade Deficits? Posted: 02 Jun 2010 04:35 PM PDT Howard Richman submits: In a recent blog entry (The National Debt and National Security), conservative economist Bruce Bartlett advocates raising taxes in order to reduce our trade deficits so that we can stop borrowing so much money from China. Bartlett is clearly thinking about the right problems. In this blog entry he shows that he understands the negative national security implications of borrowing money from China. He also shows that he understands that trade deficits slow our economic growth. He thinks that raising taxes would balance our budgets which would cause us to borrow less money from China. His goal is to enhance domestic investment, specifically: Complete Story »

Universal Display, A Standout in a Tough Tape Posted: 02 Jun 2010 04:32 PM PDT The Inflection Point submits: I visited Universal Display (PANL) about 14 months ago when I wrote in a Seeking Alpha article that “Universal Display should ride the growth in OLED TV monitors.” In recent days, Universal Display is gaining traction but its potential is driven more by the OLED mobile market than by the OLED TV monitor market. The company’s move into the OLED TV market still might happen, but Universal may be gaining more momentum in the mobile market where its partner Samsung is expanding rapidly. According to a report June 1st from analysts Jonathon Dorsheimer and Josh Baribeau at Canaccord, “Samsung expects to ship 600 million small area mobile displays by 2015.” The analysts also noted that Samsung should play an important role for this growth as “OLED technology has become the standard” and that Universal “owns the key patent.” The analysts at Canaccord have a $22.50 price target on the stock and rate it a buy. Insider activity at Universal Display is notable since one director, Lawrence Lacerte, seems to have been especially prescient over the years, buying shares between $5 and $14, and selling some between $15 and $20. This time since the stock has moved above $15, Mr. Lacerte has not yet sold. The average analyst estimate for 2011 is for an EPS loss of $0.10 and revenues of $35.3 million. Canaccord analysts are more bullish with their 2011 EPS estimates at +$0.66 on revenues of $68 million. In 2012, Canaccord estimates EPS of $1.50 on revenues of $112 million. What is interesting to note is that the shorts have taken a fairly substantial position against the stock with about 5.5 million shares or 20% of the float short the stock. Putting myself in their shoes, they likely think that a company with small revenues and one that has lost money and continues to do so is a stock that could fall. There is some validity to these points, as the company has shown promise for years but the OLED market has not yet met its full potential. The company is burning through cash, has inconsistent revenues, and its future revenues will depend on how well companies that use Universal’s patents sell their products. Other risks include competition from Kodak (EK) and Fuji (FUJI). Universal Display also has negative trailing twelve month EBITDA of about $15 million even as trailing twelve month revenues have risen by 50% to $17 million. Universal Display has no debt and around $60 million in cash. However, the company and stock reminds me of a biotech stock: one that has decent insider ownership, with great technology, but small revenues and a cash burn. If the OLED mobile market takes off and if Universal forges financially beneficial relationships with mobile device makers like Samsung that use Universal’s OLED patents, then Universal could have strong potential. From the 2009 10-k, Universal Display “entered into license agreements with Showa Denko, Konica Minolta, Samsung SMD, DuPont Displays and Seiko Epson.” In 2009, it sold proprietary phosphorescent OLED materials to Samsung SMD, LG Display and Tohoku Pioneer for use in commercial OLED display products.” The one spoiler has always been the timing. For years, OLED technology was supposed to be a hit, but it and Universal’s day always seemed distant. Now, the potential seems closer than ever to be materializing. The mobile market, and Universal Display’s relationship with Samsung (SSNLF.PK), could be the catalyst to drive the company and the stock forward. - By Tom Henderson, Strategist JBH Capital. Information sources include the Edgar web site, SEC From 4 web site, and Yahoo Finance. Disclosure: No position Complete Story »

Gold Seeker Closing Report: Gold and Silver Fall Slightly While Stocks Gain Over 2% Posted: 02 Jun 2010 04:00 PM PDT Gold fell back off in London to as low as $1213.85 by about 10AM EST before it rallied back to almost unchanged near $1225 at around noon, but it then fell back off into the close and ended with a loss of 0.41%. Silver fell to as low as $18.075 by about 9AM before it climbed back higher for most of the rest of trade, but it still ended with a loss of 1.35%.

Pricing in Uncertainty Posted: 02 Jun 2010 03:55 PM PDT How about that? The "explosive short-term rally" we wrote about yesterday exploded overnight in New York. It's exploding here in Australia right now. The Dow was up 2.3% and Aussie stocks are already up nearly 2% before noon. Does this mean stocks are good value for money at these prices? Not according to the charts published in the Reserve Bank of Australia's most recent chart book. The first chart below shows that the price-to-earnings ratio on an index of Australian stocks actually exceeded all other peaks late last year and early this. Stocks were definitely not cheap. Now it's not clear if the P/E ratios above are based on trailing or forward earnings. It's most likely forwards earnings estimates. And if that's the case, it tells you how useless earnings estimates are. If analysts get it wrong using P/E ratios to tell you if stocks are cheap doesn't help you much. What's more, the way modern accounting works, earnings can be pretty much whatever you want them to be. What about dividends? Stocks are usually a buy when yields peak. For one, at bear market bottoms when no one wants to own stocks, companies forced to pay out more in earnings to attract equity buyers. Secondly, economic troughs are accompanied by higher interest rates. The higher interest rates in the real economy are usually matched with higher yields on corporate bonds and larger dividends. But as you can see from the second RBA chart below, yields above six percent on Aussie stocks are a kind of buy signal. Of course yields DID spike above six percent last year, but this was more a function of the crash in shares than a genuine cyclical bottom. You can also see that last year's spike in yields was much more abrupt compared to the previous peak over six percent prior to the bull run of the early 1990s. Why? In a normal economy - one without so much interest rate intervention - the economy would move from boom to bust more gradually. With GDP and earnings growth investors would pay a premium for stocks offering capital gains. During recessions or periods of slower growth, they'd shift to more defensive yield plays. But we live in an abnormal financial world. Interest rates are whipsawed up and down as central banks try to prevent deflation in asset markets and inflation in consumer prices (which would alert the public to the nature of the fiat money scam). In other words, last year's spike in yields did not indicate that stocks were cheap. What would? Well you'd have to look at something more fundamental like intrinsic value. For example, we read this paper earlier today by Societe General analyst Dylan Grice. He makes the quite compelling argument that certain risk assets are most prone to the inflationary effects of quantitative easing programs by central banks (which he assumes we'll see a lot more of). But which risk assets? Equities? You bet. But only equities that are relatively undervalued on an intrinsic value to price ratio (IVP). Without going into the mechanics of the IVP (which presumably includes price divided by something like net equity or net tangible asset value), it's worth noting that many of the stocks Grice flagged up as trading at or below intrinsic value were in oil and gas or metals and mining. Why are those stocks trading below intrinsic value? Hmm. It could be the huge uncertainty hanging over both industries as a result of new regulatory threats (the threat to offshore drilling from the BP fiasco in the Gulf of Mexico and threat to miners from other governments replicating the Rudd assault and battery on mining profits). So there is intrinsic value at a discount. And that, as our friend Greg Canavan pointed out in his latest alert, gives you some margin of safety. But it doesn't guarantee prices will go up. Grice adds that, "Buying expensive risk assets on the view that they're going to become more expensive is a dangerous game to play, but since government funding crises hammer risk assets while printing money inflates them, such funding crises should present decent value opportunities to buy into beaten up assets before the inflation ride." Grice is essentially saying stocks are a hedge against inflation. If true, certainly puts yesterday's market rally into perspective. But it also shows you the inherently speculative nature of investing in stocks when asset markets are rigged by central bank money printing policies. It also points out that gold has intrinsic value in the sense that it is intrinsically scarcer than paper money. For what it's worth, Grice's formulation does sound right. He writes that, "With government balance sheets in such a mess across the developed world (even with yields at historically unprecedentedly low levels), government funding crises are likely to be a recurring theme in the future. Since banks hold so much 'risk free' government debt, those funding crises point towards more banking crises which point towards more money printing." When and how it stops is a good question. But arguably, it's just begun. The money printing, that is. And if that's the case, equities are a theoretic but highly speculative hedge against inflation. When you think about it, though, that doesn't much sound like stocks are a fundamentally good investment now, does it? Even if they are a good trade. Meanwhile, the debate about RuddTax continues. Last night over pasta and prawns and a bottle of beer we read our friend Dr. Marc Faber's latest report in which he writes: If, indeed, the Australian government increases taxes on the mining industry it will bring down new investments in the Australian mining industry below where they would have been had higher taxes not been imposed. And unless lower future investments in the mining industry in Australia are offset by higher investments elsewhere in the world, the potential supply of industrial commodities will diminish and bring about higher commodity prices than if no tax increases had taken place. And if all the countries of the world follow the "wise" measures of Australia's Rudd government and increase taxes and royalties on the mining industry everywhere around the world, fewer commodities will be produced at higher prices, which will hurt the consumer and result in lower tax revenues for governments and lower standards of living. Mmm hmm. It makes sense intuitively that higher mining taxes will lower production, although the government has claimed the opposite. Dr. Faber's contention that higher global taxes on mining will also lead to lower production of commodities is arguably bullish for resource prices, but only for the companies that can afford to stay in business to produce them. His main point, though, is that high taxes might boost short-term government revenue. But that higher taxes - no matter how good they may feel to impose if you like sticking it to the miners in the name of the people - don't and can't increase long-term standards of living in Australia. Only wealth creation and increases in productivity can elevate standards of living. No amount of government wealth redistribution will change that. The more of present production the government consumes, the poorer it makes everyone over time. Dan Denning for The Daily Reckoning Australia Similar Posts: The Iron Ore Pricing War Between China & Australia How Mr Market Influences a Stock Price Gold's Time May Be Up Surge in Chinese Bank Lending in 2009 Leads to Fall in Bank Capital Bear Markets Do Not End With Stocks Still Trading at Nearly 20 Times Earnings

How Soon Might Greece Default? Posted: 02 Jun 2010 03:54 PM PDT Felix Salmon submits: I spent most of this afternoon attending a fascinating discussion looking at Greece from the perspective of emerging-market veterans who are used to sovereign debt default and restructurings. There was quite a lot of consensus on the panel, and not in a good way: everybody agreed that the bailout of Greece was only postponing the inevitable, and many people reckoned that it wasn’t going to postpone it very long: one pair of hedge fund managers in the audience reckoned that it would last about six months before the default finally happens. The form of the default, too, seemed pretty clear: an act of parliament in Greece would do most of the work, given that most Greek debt is issued under Greek law. It will be a par exchange — the new bonds will have the same face value as the old bonds, but with lower coupons and extended maturities — so that with a bit of accounting fudgery, no banks would need to mark their Greek debt to market and take a huge loss. And Greece, in a fiscal bind, will probably at some point start issuing its own scrip alongside the formal national currency of the euro, much as California did in 2009. Complete Story »

Europe’s Media Warn of Global Social Unrest Posted: 02 Jun 2010 03:27 PM PDT When Karl Marx wrote in the Communist Manifesto that "a spectre is haunting Europe," he did so on the eve of the revolutionary eruptions that began in Italy and France in 1848 and engulfed much of the European continent. In recent days, a number of media commentaries have predicted a similar eruption of social unrest of revolutionary dimensions as a direct result of the worsening economic crisis. These warnings are accompanied by dire predictions that Europe will suffer the return of nationalist tensions, the emergence of fascist movements and even war. Writing in the Financial Times May 24, for example, historian Simon Schama stated, "Far be it for me to make a dicey situation dicier but you can't smell the sulphur in the air right now and not think we might be on the threshold of an age of rage.… in Europe and America there is a distinct possibility of a long hot summer of social umbrage." Schama notes that there is often a "time-lag between the onset of economic disaster and the accumulation of social fury," but after an initial period of "fearful disorientation," there comes the danger of the "organised mobilisation of outrage." This outrage will be directed against the super-rich and those seen to be responsible for the crisis, he writes, comparing "our own plutocrats" with the financiers so memorably targeted during the French Revolution of 1789 as "rich egoists." In the Observer of May 30, Will Hutton, its former editor and now an advisor to the British Conservative-Liberal Democrat coalition government on cutting public sector pay, declares, "The future of Europe is in the balance. The potential disintegration of the euro will be a first-order economic and political disaster. Economically, it will plunge Europe into competitive devaluations, debt defaults, bank bailouts, frozen credit flows, trade protection and prolonged stagnation. (snippet) Celente explains, "What's happening in Greece will spread worldwide as economies decline.… We will see social unrest growing in all nations which are facing sovereign debt crisis, the most obvious being Spain, Ireland, Portugal, Italy, Iceland, the Ukraine, Hungary, followed by the United Kingdom and the United States." Calliol states, "This crisis is directly connected to the end of the world order as we know it since 1945—and even earlier since the European colonisation process. Therefore, the whole global fabric centred on the US for 60 years is slowly collapsing, generating turmoil of all sorts." Asked where social unrest will end, she replies, "War. It's as simple and as horrifying as that." More Here..

Piigs-Less Euro at the Door Posted: 02 Jun 2010 02:56 PM PDT home: Golden Jackass website subscribe: Hat Trick Letter Jim Willie CB, editor of the "HAT TRICK LETTER" Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. Natural forces are at work in Europe, powerful forces, in fact forces that are not evident. It is amazing how little the financial analysts notice the forces at all. Since the year 2007, a hidden force began to put pressure on the European Union financial underpinning. Like any fiat currency, the foundation resorts to debt. It came to my attention almost three full years ago that Spanish EuroBonds had a yield slightly higher than the benchmark German. Commentary swirled that the EuroBonds were not homogeneous, and therefore the Euro currency was badly flawed. They were identifiable by the markings on the bond IDs. German EuroBonds carry an 'X' in the ID. So the arbitrage professionals went to work, buying the German and selling the Spanish bonds. The flaw was to the structural foundation to the Euro currency, not the market that traded them, surely not the alert speculators. In time, the Greek, Italian, and Portuguese bonds, even the Irish bonds, showed significant separation from the German benchmark. Last December, the Greek bond broke first. Its arrival to the crisis was not part of evolution (natural selection) as much as European tribal leader selection. Greeks are neither Latins nor Teutonics. The bust of the EuroBond structure invites the arrival of a gold-backed currency, urgently needed to provide stability. A second natural force has arrived in the gigantic bond marketplace. While as many political analysts as financial analysts promote the wisdom of a preserved European Union, and a shared Euro currency across that union, a natural force works to separate the entire group of PIGS nations. Refer to Portugal, Italy, Greece, and Spain. As much force comes from the Nordic Core power center to push the PIGS nations away from the common European financial structure, as does the force from the PIGS nations to sever ties and go it alone. A German banker contact has repeated an important point on numerous occasions. The European Monetary Union experiment has cost the nation of Germany over $300 billion per year, all for what clearly appears to be a welfare program directed toward the benefit of wasteful inefficient nations not deserving of a low bond yield. After ten years, the cost has been $3 trillion to Germany. It is not a matter of German willingness to continue the Southern Europe Welfare Program, as much as their ability to continue. They cannot continue. They cannot afford it. My forecast made since January was that Germany would not aid Greece, but would say all the right things. Their leaders did occasionally show human tendencies, like when some critics claimed Greece possessed innate specialty in dance, drink, and song. My longer standing forecast is that all PIGS nations would revert to their former currencies, the Greeks to the Drachma, the Italians to the Lira, the Spanish to the Peseta, and the Portuguese to the Escudo. The forecast is of decentralization and increased local autonomy. However, and very importantly, the path is a very slow one with political obstacles, face saving requirements, economic pressures, and social pressures too. Notice the Germans appeared to be cooperative in aiding Greece, but when money had to be committed, arguments ensued surprisingly. Not a surprise to the Jackass. The German High Court will surely reject both the Greek aid and the Euro usage itself, all in time. ADVANTAGES OF REVERTED CURRENCY The political ideals of a unified Europe are all well and good, but might be fantasy built upon folly in ignorance of practicality. The national differences are significant in work habits, industrial efficiency, tax structure, credit practices, federal bureaucracy load, economic diversity, educational depth, native intelligence, demographic makeup, arable land & sunny climate, and more. The pursuit of a unified Europe has proved elusive for a millennium. Not gonna go there here. The pope in the Dark Ages had the most success, except that its church accumulated an outsized collection of wealth, even in the form of gold, enough to be a clandestine global player. Enter the London financial analysts and economics brain trust. They have entered the room with some interesting counsel, not the typical self-serving defense of their system. Instead, a prominent think tank suggests to Athens leaders a debt default and return to the Drachma currency. Greece is urged to leave the Euro currency. We are moving gradually toward a restructure of Greek Govt debt, and a corresponding stimulus to the Greek Economy via devalued currency. When tied to the Euro currency yoke, such a Greek stimulus is impossible. British economists advise Athens to abandon the Euro and default on its €300 billion debt under the basic motive to save its economy. The Centre for Economics & Business Research (CEBR) out of London has warned Greek Govt officials of the horrible bind. The CEBR believes Greece will be unable to escape a debt trap without devaluing their own currency to boost exports. Greece must pursue economic expansion, but cannot with the Euro straitjacket. The only workable path is for Greece to return to its own currency, the Drachma. To date, the EU Bailout is a poorly disguised rescue for German and French banks, even London banks. The dirty secret across Europe is that the major nations all own a huge raft of PIGS debt, and each nation within the PIGS pen all own a huge raft of the same debt. Any departure by Greece from the Euro would create a grand shock for banks across all of Europe, cause great disruption, and subvert the banker plan for their latest welfare program in continuation of public governmental adoption. It all ends in ruin. Doug McWilliams is chief executive of the CEBR. He said "Leaving the Euro would mean the new currency will fall by a minimum of 15%. But as the national debt is valued in Euros, this would raise the debt from its current level of 120% of GDP to 140% overnight. So part of the package of leaving the Euro must be to convert the debt into the new domestic currency unilaterally… The only question is the timing. The other issue is the extent of contagion. Spain would probably be forced to follow suit, and probably Portugal and Italy, though the Italian debt position is less serious." McWilliams called the move virtually inevitable (in his words) but he minimizes the devaluation potential. See the Business Times article (CLICK HERE). The advantages are as numerous as they are deep, all significant. Defaulted Restructured Debt: A return to the Drachma currency would enable a restructure of the Greek Govt debt. Look for at least a 50% debt reduction, but against a currency devaluation. The Athens leaders can win a very large portion of debt forgiveness, or else threaten default. European banks will choose a writedown rather than a total wipeout loss. These bankers will realize the futility of carrying full debt on their books, all too aware of the poison pill nature of the compulsory austerity programs heaped upon Greece. Economic Stimulus: A return to the Drachma currency would enable a strong stimulus to the Greek Economy. Nothing is free, however. Currency devaluation is a double-edged sword. The benefit to be realized with cheaper exports (including tourism) will be offset by higher energy costs and other import costs (like cars, cellphones, and machine equipment). The historical effective tool is for a currency devaluation, one that leads to valid stimulus but with a steady dose of price inflation. Greece, like other European nations, is no stranger to socialist solutions to spread the misery. Poison Pill Revenge: A return to the Drachma currency would enable a national rejection of the IMF/EU poison pill solution. The austerity measures have no precedent of effectiveness. They are ruinous, lead to greater federal deficits, worse unemployment, and more social disorder, yet the Banker Elite continue to push such non-solutions. Rejection of the austerity programs would incite a national rally of pride and celebration. Obviously, when Greek reverses the austerity cuts, the maneuver would ensure a second thump one year afterwards. Bloated government payrolls would remain, at a heavy cost. The Drachma would suffer a continued devaluation later on. Stimulus would be required in additional doses. The shared pain from price inflation would follow. Autonomy & Control: A return to the Drachma currency would enable a national movement for the Greek people to take control of their fate. Their population feels on the receiving end of dictums and forced solutions, complete with massive job layoffs and budget cuts. They detect duplicity, since other nations in Europe are in violation of guidelines. Nevermind that something like 11% or 12% of all Greek jobs are located within the government sector. Turn a deaf ear to the rampant tax evasion and other corruption that might be more prevalent than Italy. The psychological benefit to a reversion to the Drachma is to spit in the faces of bankers and to take the reins of national control. This has a value in national pride and spirit, which ironically would avoid most internal reform. PRECURSOR TO NEW NORTHERN EURO Prepare next for a Euro currency with a more trim look, one with the PIGS fat trimmed off. The next three big big shoes are about to hit the floor, with severe crises erupting much worse for Spain, Portugal, and Italy. Banks in those nations will suffer failures, liquidations, stock declines, CDSwap contract rises, rescue requests, mergers in desperation, and more. These three nations represent the remainder of the famed PIGS descriptor, as Greece has captured far too much news and attention. When the Greek Govt debt news broke out and was developed from February through May, was Spain deeply committed to reform? NO! Was Spain deeply involved in liquidations and bank asset writedowns? NO! They delayed. Attention turns to the other PIGS in distress. Greece has served to distract attention not just from the other PIGS nations but from the United States and United Kingdom as well. Sovereign debt default will not end as a story until the USTreasurys and UKGilts default, even if technical defaults. All four PIGS nations will be removed from formal Euro currency participation. Economics and nationalism dictate it. Prepare next for a Euro currency with a more trim look, one with the PIGS fat trimmed off. As the PIGS sovereign debt is discharged, written down, and defaulted, the demand will increase for the survivor Euro core, the healthy strong core. The new Northern Euro currency will initially be comprised of a PIGS-less Euro, which awaits on the other side of the door, here and now. The PIGS-less Euro currency will have much less debt to refinance in the short horizon. The PIGS-less Euro currency will have much stronger fundamentals with smaller annual deficits and better looking debt ratios versus economic size. The PIGS-less Euro currency will have a much healthier trade surplus picture. The PIGS-less Euro currency will realize much greater respect in a faith-based fiat world. But it is a transition vehicle. The events in the next few months regarding the European Monetary Union are set to accelerate rapidly.

Warren Buffett on the Housing Bubble Posted: 02 Jun 2010 02:34 PM PDT During today's Financial Crisis Inquiry Commission hearing on the role of the ratings agencies in the financial crisis, the Oracle of Omaha looks back at the housing bubble. Buffett: "The early Cassandras do look foolish … when your next door neighbor is making money very easily by buying a second house with a very small downpayemnt, after a while it sort of gets to you and maybe you figure you should be doing it too."

Keynes For Kindergarteners Posted: 02 Jun 2010 02:17 PM PDT The ECB has released what appears to be a manga-like brainwashing cartoon geared at kindergarteners which in 8 minutes seeks to explain "price stability" within a Keynesian framework (i.e. inflation in the 0-2% range). We assume this is a failsafe precaution, just in case the religious Keynesian teachings during Econ 101 over at Harvard and Cambridge happen to occur at the not so malleable age of 18+. After all, what better way to preempt Hayek's terrorist influence on young and tender minds than to enslave them real early. We wonder if this is not also a post-facto attack at German politicians who are now openly accusing the ECB of pursuing monetization policies which every now and then tend to lead to a Weimar-like conclusion. Keynes: for ages 8 to 80. h/t Nicholas

Look how easy it is to manipulate a London futures market Posted: 02 Jun 2010 02:11 PM PDT Broker Fined for Market Abuse in FSA Crackdown By Javier Blas Financial Times, London Wednesday, June 3, 2010 http://www.ft.com/cms/s/0/16e786d4-6e93-11df-ad16-00144feabdc0.html A commodities broker was fined for market abuse on Wednesday in the first such action by the Financial Services Authority. The move is a sign that the City regulator is starting to crack down on price manipulation in the London-based raw materials markets. The UK is home to the world's second-largest commodities centre, after New York, with trading in important benchmarks including Brent oil, copper, aluminium, gold, silver, white sugar, cocoa, and coffee. ... Dispatch continues below ... ADVERTISEMENT Prophecy to Become Coal Producer This Year with 1.5 Billion Tonnes of Resource Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php The UK watchdog's move comes after the US regulator, the Commodity Futures Trading Commission, toughened its approach. The FSA said it had fined Andrew Kerr, a former broker at Sucden Financial, L100,000 and banned him from working in the financial industry. Mr Kerr has agreed to settle the case. The regulator said Mr Kerr "deliberately manipulated" the Liffe robusta coffee futures and options markets on August 15, 2007, on behalf of a client, which it did not identify. It is unclear whether the FSA will take action against the client, but coffee market participants said it was likely to do so. Mr Kerr organised a series of trades during a key period of the day, which serves to price options, to boost artificially the price of coffee futures, the FSA said. Mr Kerr moved the market to $1,752 a tonne, up from about $1,145. The "small size of the coffee futures market meant that it was particularly vulnerable to price manipulation," the FSA said. "Mr Kerr's financial benefit from the market manipulation was limited to his commission," the regulator said. But it added he was "doubtless motivated" by a desire to attract further business. Brokers estimated the commission at as low as $100 and no more than $500. Sucden Financial is owned by sugar trading house Sucres et Denrées of France. Tariq Ahmad, director of strategy, said that Mr Kerr left 15 months ago. "The FSA had no criticism of Sucden Financial's supervision, or internal procedures." * * * Join GATA here: World Resource Investment Conference Sunday and Monday, June 6 and 7, 2010 Vancouver Convention Centre Vancouver, British Columbia, Canada http://www.cambridgehouse.ca/index.php/world-resource-investment-confere... * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 ADVERTISEMENT Coming Friday-Sunday, June 11-13, at the Dallas-Fort Worth Airport Marriot: The Anglo Far-East Bullion Co.'s Gold and Silver Conference The conference will explore the dangers and opportunities in today's bullion markets and the need for investors to diversify bullion holdings outside of bullion banking and commodities markets. Speakers will include David Morgan of Silver-Investor.com, Gold Anti-Trust Action Committee Chairman Bill Murphy, and Duncan Cameron and Philip Judge of Anglo Far-East Bullion Co. The earliest conference attendees on Saturday will be able to schedule one-on-one interviews for personal consultation with Anglo-Far East's experts on Sunday. To learn more about and register for the Anglo Far-East Bullion conference, please visit: http://www.anglofareast.com/seminar-registration/

Euro-Risky Asset Decoupling Redux Posted: 02 Jun 2010 01:51 PM PDT Last night's decoupling (albeit subsequent recoupling) between the Euro and risky assets (in our case the ES) was the second time in as many weeks that the European currency has openly decoupled from the rest of the risky market. Granted, last night the decoupling lasted for just 12 hours, and the resultant spread collapse generated some 70 bps in P&L. We were not the only ones who noticed the original schism: here is Bank of America's Hans Mikkelsen discussing this increasingly more frequent decoupling event. To date, the decouplings have been temporary. Which is the case until it isn't: any time a trade looks too good to be true, it isn't. Unless one is trading against a retarded army of Dark Avenger-infected 80286s. Risk Assets Decoupling from the Euro Today’s move where U.S stocks rose and decoupled from the Euro early in the morning, partly due to the stronger housing data, mirrors the decoupling we saw last week on May 26th where stocks remained strong for some time despite a rapidly weakening Euro. Despite moving in tandem during the intermediate days, the net result is that stocks are up about 2% since their May 25th close whereas the Euro has declined 1%. Over the same period corporate credit spreads have tightened 9 bps to 117.5 bps in high grade (CDX.IG) and 2 pts p 94.75 pts in high yield (CDX.HY), tracking the 18 bps improvement in funding spreads (3x6 FRA-OIS) from sovereign crisis wide levels of 68.75 bps. Thus clearly risk assets are benefiting from easing funding pressures despite the fact that the Euro remains under pressure. While we continue to view funding pressures as contained due to the ECB/Fed currency swap lines, the main risk to our tactical long credit positions remains any disorderly declines in the Euro as that would undermine the credibility of the ECB to contain the sovereign crisis.

Strategic Defaults: Is It Morally Right To Decide To Simply Stop Paying Your Mortgage? Posted: 02 Jun 2010 01:18 PM PDT In 2010, record numbers of Americans are defaulting on their mortgages.  For most of them, it is because they simply cannot afford the mortgage payments any longer.  But for a growing number of Americans, the decision to stop paying on a mortgage is not because of financial hardship.  Rather, after taking a hard look at the numbers, many Americans are simply deciding to walk away rather than continuing to make monthly payments on a home that has dramatically declined in value.  It is called a "strategic default", and it is a phenomenon that is sweeping the nation.  So why have strategic defaults increased so dramatically?  Well, in some areas of the United States, homes are only worth about half of what they were going for at the height of the market.  So what is the morally right thing to do in that situation?  Should someone "honor the contract" that they signed and continue making payments no matter how hard it hurts, or is the morally right thing to stop making payments on the mortgage in order to put your family in a better financial position? The truth is that the answers to these questions are not easy.      In the past year it is estimated that at least a million Americans who can afford to stay in their homes simply walked away. Take a moment and think about that. A million Americans that have simply walked away from their homes. This is something that is absolutely unprecedented in American history. In fact, 31 percent of all foreclosures in March were deemed to be "strategic defaults" by researchers at the University of Chicago and Northwestern University.  That is up from just 22 percent in March 2009. So the strategic default trend is accelerating. And with more than 24% of all homes with mortgages in the United States underwater as of the end of 2009, it is likely that we are going to see a whole lot more strategic defaults. This is particularly true in areas that were hurt the worst by the real estate crash.  In Arizona for example, it is estimated that 50 percent of all homes are underwater, and in Nevada it is estimated that a whopping 65 percent of all homes are underwater. That is a whole lot of families that have some very hard decisions to make. But it just isn't families that are making these kinds of decisions.  Even the biggest financial institutions in the United States have committed strategic defaults.  For example, Morgan Stanley walked away from five San Francisco office buildings they bought at the height of the real estate boom. But is it the right thing to do? Well, let's look at both sides of the issue. Why many would say that strategic defaults are morally acceptable.... Many Americans have no problem at all walking away from their mortgages.  After all, they would argue, they never agreed to pay twice what a house is worth. If they signed up for a $400,000 mortgage, they would argue that they expect to be making payments on a house that is worth somewhere around $400,000. So is that unreasonable? After all, if a $400,000 house goes down to $200,000, there are many that would argue that it represents an unforeseen circumstance that negates the deal. Others would argue that bankers tricked millions of Americans into accepting mortgages that they could not possibly afford, and therefore nobody should be crying for the bankers when people quit paying on those mortgages. In essence, the argument is that the bankers created this mess so the bankers should be the ones to pay the penalty. Still other Americans are choosing strategic defaults because it enables them to provide for their families during these hard economic times. For many Americans, often the choice is between paying the mortgage and putting food on the table. And because of the massive delays in processing foreclosures these days, many people are finding that they can live in their homes "rent free" for months on end after they stop making payments. In fact, Bank of America's credit loss mitigation executive, Jack Schakett, has even acknowledged that many home owners have a huge financial incentive to walk away: "there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers." So how much "free rent" are those who have walked away from their mortgages getting? According to LPS Applied Analytics, the average home owner in foreclosure has been delinquent for 438 days before actually being evicted.  That is up from 251 days in January 2008. The truth is that especially in states where the foreclosure process must go through the courts, the systems are simply being overloaded. For example, in Pinellas and Pasco counties, which include St. Petersburg, Florida and the suburbs to the north, there are 34,000 open foreclosure cases.  Ten years ago, there were only about 4,000. But there are others that would argue that strategic defaults are 100 percent morally wrong. Why many would say that strategic defaults are morally wrong.... Those who would say that strategic defaults are wrong would argue that no one put a gun to the head of anyone signing up for a mortgage. They would argue that "a contract is a contract" and that Americans should fulfill their obligations, no matter how hard it hurts. The truth is that once upon a time in America, a "strategic default" would have been unimaginable to most people. Back then, a man was only as good as his word. Even today, to purposely break a contact is on the same level as purposely telling a lie to many people. Not only that, but the reality is that a strategic default will ruin your credit for years to come.  Many would argue that it is immoral to ruin your family credit for the simple convenience of getting out of a bad mortgage. In addition, many would argue that it is wrong to take advantage of the banks by exploiting the delay in foreclosure processing - no matter how evil the banks have been. After all, do two wrongs make a right? Plus, in some states there may be additional financial penalties even after you walk away. Kyle Lundstedt, the managing director of Lender Processing Service's analytics group says that those who do willingly walk away from their homes are playing a very dangerous financial game.... "These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure." Plus, those who do commit strategic defaults raise borrowing costs on the rest of us.  In the future, banks are going to have to charge all of us higher interest rates on our mortgages in order to factor in the risk that many Americans will simply walk away from their mortgages if their house values go down. So is it right for everyone else to suffer in the future so that some can get out of bad mortgages right now? The truth is that it is not the purpose of this article to answer these questions. The purpose of this article is simply to raise these questions. We live in unprecedented economic times, and we are all going to be faced with very hard decisions as we move into a very uncertain future. Strategic defaults pose some very interesting moral dilemmas, and if you ask 10 different people about strategic defaults you are likely to get 10 different opinions. So what do you think about strategic defaults? Is it morally right to decide to simply stop paying your mortgage? Feel free to leave a comment with your opinion....

Peter Grandich: An open letter to GATA Chairman Bill Murphy Posted: 02 Jun 2010 12:44 PM PDT 8:40p ET Wednesday, June 2, 2010 Dear Friend of GATA and Gold: Prompted by a critical reference to GATA from Dennis Gartman in his market letter today, market analyst Peter Grandich has written "Open Letter to Bill Murphy" crediting GATA's chairman with keeping him riding the gold bull. You can find Grandich's commentary at his Internet site here: http://www.grandich.com/2010/06/open-letter-to-bill-murphy/ Grandich also today gave an interview to GoldSeek Radio's Chris Waltzek, warning gold investors that they should give up looking for mainstream financial media commentary favorable to gold, the media's livelihood being drawn from interests antithetical to gold. Grandich's interview with GoldSeek Radio is 27 minutes long and you can listen to it here: http://radio.goldseek.com/nuggets.php CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. ADVERTISEMENT Prophecy to Become Coal Producer This Year with 1.5 Billion Tonnes of Resource Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php Join GATA here: World Resource Investment Conference Sunday and Monday, June 6 and 7, 2010 Vancouver Convention Centre Vancouver, British Columbia, Canada http://www.cambridgehouse.ca/index.php/world-resource-investment-confere... * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 ADVERTISEMENT Coming Friday-Sunday, June 11-13, at the Dallas-Fort Worth Airport Marriot: The Anglo Far-East Bullion Co.'s Gold and Silver Conference The conference will explore the dangers and opportunities in today's bullion markets and the need for investors to diversify bullion holdings outside of bullion banking and commodities markets. Speakers will include David Morgan of Silver-Investor.com, Gold Anti-Trust Action Committee Chairman Bill Murphy, and Duncan Cameron and Philip Judge of Anglo Far-East Bullion Co. The earliest conference attendees on Saturday will be able to schedule one-on-one interviews for personal consultation with Anglo-Far East's experts on Sunday. To learn more about and register for the Anglo Far-East Bullion conference, please visit: http://www.anglofareast.com/seminar-registration/

Sony: Help Wanted, No UNEMPLOYED CANDIDATES Will Be Considered AT ALL! Posted: 02 Jun 2010 11:55 AM PDT ORLANDO, Fla. -- Job hunters are facing a new trend: businesses asking recruitment companies to keep unemployed people out of their job pools. VIDEO: Ad Angers Job Seeker SURVEY: What Do You Think? Peter May, of Atlanta, said he was hoping Orlando-based recruiter "The People Place" would help him find a job with Sony Ericsson. The company is moving its headquarters to Buckhead, which is located outside Atlanta. May said he was mortified when he read the message on the website. In all caps, and bold type, it said, "No unemployed candidates will be considered at all." "To just totally leave those people out of the mix, it's stupefying. I just can't understand it at all. ...To be honest with you, it kind of angered me. You know, I'm a good enough guy," May said on Monday. Sony Ericcson is supposed to bring 180 jobs to Buckhead, and was lured there with the prospect of a $4 million in state tax credits. But May said if the company is refusing to hire the unemployed, that deal should be rescinde During a phone conversation with Atlanta station WXIA, Howard Lawson, of "The People Place," refused to discuss the Sony Ericsson listing specifically, but he did say that he has seen a trend of employers looking to hire employed applicants. Recruitment experts say many companies are opting out of so-called passive job seekers for a number of reasons. First, it could take longer to get them up to speed in professions that require constant training. They also say people who have not been laid off are believed to be the best in the fields, therefore more valuable. More Here..

US Mint Out Of Not Only Silver But Gold American Eagles As Well Posted: 02 Jun 2010 11:40 AM PDT http://www.blacklistednews.com/news-9038-0-13-13--.html US Mint Out Of Not Only Silver But Gold American Eagles As Well Published on 06-02-2010 Email To Friend Print Version AddThis Social Bookmark Button Source: Zero Hedge Update: After following up with the Mint, any shipments and deliveries of American Eagle 2010 edition both gold and silver are TBD and the mint has no idea on when these will be received if at all this year. A small shipment of American Buffalo gold coins will go on sale on June 3 at noon. The mint expects these to sell out promptly. Earlier we reported that the US Mint has run out of American Eagle silver coins. It turns out the Mint is also out of gold American Eagles. Here is the US Mint page linking to various American Eagle subcategories. And here is the specific "availability" of: 1. American Eagle Gold Proof Coins: Production of United States Mint American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand for American Eagle Gold Bullion Coins. Currently, all available 22-karat gold blanks are being allocated to the American Eagle Gold Bullion Coin Program, as the United States Mint is required by Public Law 99-185 to produce these coins "in quantities sufficient to meet public demand . . . ." The United States Mint will resume the American Eagle Gold Proof and Uncirculated Coin Programs once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products. Additionally, as a result of the recent numismatic product portfolio analysis, fractional sizes of American Eagle Gold Uncirculated Coins will no longer be produced. Update: Due to the continued, sustained demand for American Eagle Gold Bullion Coins, 2009-dated American Eagle Gold Proof Coins will not be produced. 2. American Eagle Gold Uncirculated Coins: Production of United States Mint American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand for American Eagle Gold Bullion Coins. Currently, all available 22-karat gold blanks are being allocated to the American Eagle Gold Bullion Coin Program, as the United States Mint is required by Public Law 99-185 to produce these coins "in quantities sufficient to meet public demand . . . ." The United States Mint will resume the American Eagle Gold Proof and Uncirculated Coin Programs once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products. Additionally, as a result of the recent numismatic product portfolio analysis, fractional sizes of American Eagle Gold Uncirculated Coins will no longer be produced. Update: Due to the continued, sustained demand for American Eagle Gold Bullion Coins, 2009-dated American Eagle Gold Uncirculated Coins will not be produced. For those looking for Platinum, the 2010 on sale date is still TBD. In 2009, the United States Mint introduced a new six-year platinum coin program. This new series explores the core concepts of American democracy by highlighting the Preamble to the United States Constitution. This program will examine the six (6) principles of the Preamble as follows: 1. 2009--To Form a More Perfect Union, SOLD OUT 2. 2010--To Establish Justice, 3. 2011--To Insure Domestic Tranquility, 4. 2012--To Provide for the Common Defence, 5. 2013--To Promote General Welfare, and 6. 2014--To Secure the Blessings of Liberty to Ourselves and our Posterity. The themes for the reverse designs for this program are inspired by narratives prepared by the Chief Justice of the United States, John G. Roberts, Jr., at the request of the United States Mint. 2010 on sale date: To be determined.

Fiscal and monetary tightening to crash global stock markets? Posted: 02 Jun 2010 11:00 AM PDT Those who decided to 'Sell in May and go away' have been well rewarded in the worst May for the Dow since 1940. The Dow Jones Index fell by 7.9 per cent in May and the more broadly based S&P 500 by 9.9 per cent, its worst May performance since 1962. Is this a red light flashing danger ahead, or should investors buy on this dip? Investment gurus are all over the place. Is this a falter on the 'Road to Recovery' or the end of a long bear market rally? ArabianMoney thinks fiscal and monetary tightening suggest a far bigger stock market decline is in prospect, and these things tend to happen rather suddenly, although the warning signs are always pretty clear if you care to look. Contracting money supply Let us start with monetary policy. At first sight the Fed's commitment to almost zero interest rates for as long as it takes looks a big plus. However, interest rates paid on commercial debt (see this article) and more risky sovereign debt are on the way up. That is monetary tightening not easy money. Then again the zero interest rate policy is also not delivering the goods. The actual money supply contraction right now in the United States is only comparable to the 1930s (see this article). Those who rest their bullish case on low interest rates are therefore barking up the wrong monetary tree. Yes, money supply drives asset prices. But money supply is decreasing, not increasing, and what will deficit cutbacks in Europe do for money supply next? This can only be another negative. Consider this from Puru Saxena in Hong Kong: 'In our view, monetary policy determines the fate of every asset-class and as long as interest-rates are low, the ongoing bull-market should continue. In fact, history has clearly shown that each bear-market in the past was preceded by a period of significant monetary tightening. In every previous bull-market, rising interest-rates was the straw which broke the camel's back.' Commercial interest rates rising Agreed, money supply governs the market. But the important thing to note is that it is already tightening now with the re-pricing of global risk. This is a consequence of the massive hit to the global economy in the credit squeeze of the autumn of 2008. Low interest rates offset this problem for a while. But they have not solved it, and they were not enough to stop a big monetary contraction which is still ongoing. Let us remember we are in a deleveraging cycle and that is deflationary and not inflationary like a credit boom. The only boom has been in public debt, and in the long run that is bad for the private sector, not good. Still the net result is a declining money supply which is the stuff of depressions not recoveries. This leads us back to fiscal policy as the other perhaps more obvious reason not to be terribly optimistic about the outlook for stock markets this summer. Just look at all the budget cutbacks across Europe. Is this not going to have an impact on global demand? Cheaper euro Yes a cheaper euro has an offsetting effect. But as with low interest rates is it enough to totally counter the coming downturn in demand? Remember the euro-zone does most of its trade internally and not externally. No, any logic suggests an age of austerity in government spending in Europe is not good for immediate GDP growth. European governments seem to be rushing to see who can apply the biggest cuts. The new UK Prime Minister is also now hinting that higher interest rates are coming soon. None of this is good news for economic growth. Global stock markets are still pricing in a fairly rapid recovery in the global economy and that is simply not the outlook if you consider what is going to happen to public spending to reduce deficits and that the money supply is contracting at the fastest rate since the 1930s. And if you want to know why some investment gurus are getting this wrong it really seems to be a genuine misreading of the money supply situation. But then all would agree that interest rates will one day have to go up and that this will bring asset prices down, the only disagreement is on when not if. There is nothing here for investors, except high risk and the possibility of extinction. Peter Cooper for The Daily Reckoning Fiscal and monetary tightening to crash global stock markets? originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

UK Research Center Tells Greece to Quit the Euro Posted: 02 Jun 2010 10:00 AM PDT Despite new austerity measures and a nearly trillion dollar eurozone rescue package, a UK research center is proclaiming that Greece's days using the euro are numbered. The Centre for Economics and Business Research says it's only a matter of time before Greece must abandon the euro and default on the roughly €300 billion it has racked up in debt. From The Times: "The Centre for Economics and Business Research (CEBR), a London-based consultancy, has warned Greek ministers they will be unable to escape their debt trap without devaluing their own currency to boost exports. The only way this can happen is if Greece returns to its own currency. "Greek politicians have played down the prospect of abandoning the euro, which could lead to the break-up of the single currency… "…Greece's departure from the euro would prove disastrous for German and French banks, to which it owes billions of euros. McWilliams called the move 'virtually inevitable' and said other members may follow." The other euro members fingered are the usual suspects including Spain, Portugal, and Italy. However, if German and French banks are to wind up the biggest losers, by billions, it makes sense that those nations may fight this euro abandonment as vigorously as possible. We'll see how they weigh the long term consequences of that strategy. You can read more details in The Times' coverage of Greece getting urged to give up the euro. Best, Rocky Vega, The Daily Reckoning UK Research Center Tells Greece to Quit the Euro originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

WEDNESDAY Market Excerpts Posted: 02 Jun 2010 09:52 AM PDT Gold pauses climb as flight to safety slows The COMEX August gold futures contract closed down $4.30 Wednesday at $1222.60, trading between $1215.00 and $1228.90 June 2, p.m. excerpts: (from Marketwatch) Gold futures fell as flight-to-quality buying slowed, but trimmed losses later in the day, with a stronger dollar and a rising stock market putting a lid on any advances. But the fact that gold is only moderately off following strong stock gains shows that bullion has not lost its safe-haven appeal amid "geopolitical and economic unrest anywhere you look," RBC Capital Market's George Gero said. China's official Xinhua news agency reported Wednesday Iran's central bank has announced the sale of €45 billion from its foreign-exchange reserves to buy dollars and gold…more (from Bloomberg) Dennis Gartman, editor of the Gartman Letter, recommended selling yen and buying gold. The yen fell against the dollar after Prime Minister Yukio Hatoyama resigned. "The forex market is confused," said Gartman, who also has recommended holding gold priced in euros and sterling. Demand for gold coins and holdings in exchange-traded funds backed by bullion has surged on concerns that Europe's sovereign-debt crisis may spread. Before today, the Standard & Poor's 500 Index dropped 4% this year, and the Reuters/Jefferies CRB Index of 19 raw materials slumped 11%…more (from Dow Jones) Gold lost some ground as Europe's debt problems didn't appear to get any worse, resulting in some abatement of the recent flight to safety. "You're seeing a little bit of the safe-haven buying come out [of gold] as people are comfortable that no other shoe has dropped, temporarily," said Ira Epstein, director of the Ira Epstein division of Linn Group. Gold posted its highest close in two weeks Tuesday when investors sought the metal for protection after a report said European banks face sizeable write-offs. But when no further bearish news came from the Continent today, prices fell back…more (from Reuters) Gold slipped as some investors cashed in on the previous day's two-week high and as risk aversion dissipated upon release of strong U.S. housing data that helped spark an equity market rally in a grab for value among downtrodden shares. But gold dealings were light and investment demand for the yellow metal as a haven from credit risk lingers and continues to underpin prices. Barclays Capital analyst Suki Cooper said that "consolidating around these levels looks likely at the moment, but as long as investment demand looks strong, we would expect higher highs throughout the year."…more see full news, 24-hr newswire… June 2nd's audio MarketMinute

Why More Econ Majors Are Republicans Rather Than Democrats Posted: 02 Jun 2010 09:49 AM PDT From The Daily Capitalist The New York Fed just published a study on the political and civic behaviors of college graduates based on their majors (“Is Economics Coursework, or Majoring in Economics, Associated with Different Civic Behaviors?” Sam Allgood, William Bosshardt, Wilbert van der Klaauw, and Michael Watts (no. 450, May 2010)). Don't ask me why they study these things, but they do. This was a longitudinal study based on surveys mailed out to over 25,000 graduates from Florida Atlantic (FAU), Nebraska-Lincoln, North Carolina (UNC), and Purdue. The surveys were done in 1976, 1986, 1996, and 2003. They broke down majors into three broad categories--economics, business, and general (not the other two majors). They concluded that econ majors were statistically significantly likely to be Republicans. They also found that econ majors were more likely to donate money and volunteer on behalf of candidates. Further it found that business majors behaviors were no different than genral majors. Here are the significant results: [O]ur results clearly suggest there is more to the story than simply “being educated” – so that what people study in college, or what they choose to study, is associated with their civic behaviors many years after they graduate.   Most previous studies that look at the link between education and civic behavior simply include a control for the amount of education a person has. This implies “being educated” influences a person’s civic behavior, but it ignores the possibility that the content of what a person is learning might also influence behavior.   Our analysis shows several statistically and economically significant associations between coursework in economics, or majoring in economics or business, and later civic behavior, including party affiliation, making donations to political parties, and volunteerism. ...   To briefly preview our results, those who took more economics classes or who majored in economics or business were more likely to be members of the Republican party and less likely to join the Democratic party. Those findings hold even after controlling for the higher salary, higher equity in real estate holdings, and earning a graduate degree.   Without controlling for salary, the value of real estate holdings, and graduate degrees earned, we found that with a higher number of economics classes taken increased the likelihood that a person had donated money to a political party or campaign. ...   The number of economics courses completed by the graduates of these four schools significantly decreases the likelihood that a person does not join a political party and the likelihood of joining the Democratic party, while the number of economics courses is positively related to the likelihood of joining the Republican party. For example, taking five economics courses is associated with an eight percent decrease in the likelihood of joining the Democratic party and more than a 10 percent higher chance of joining the Republican party. These marginal effects are large relative to the unconditional means reported in Table 1. For example, approximately 40 percent of respondents report being members of the Republican party, so a 10 percentage point increase for 5 economics courses represents a 25 percent increase. ...   However, business majors are less likely than General majors to participate in time consuming activities such as voting in the 2000 Presidential election or volunteering, and when they volunteer they volunteer for fewer hours than do General majors. ... Our estimates reveal the somewhat surprising result that the attitudes of business students on public policy are more similar to General majors than to Economics majors. I think what this means is that if you have some understanding of how the economy works, you realize that business and commerce is harmed by legislation rather than helped by it. While we know that the Republican Party is not a bastion of free market economics, if you are painting with a very broad brush the Republicans are viewed as being more pro-business and more anti-government than the Democrats. And I think that is why econ majors tend to be Republicans. I understand that much of what is taught in economics classes these days in Keynesian or Monetarist as far as Fed policy and the government's role in the economy, so please don't jump down my throat. But the basics of economics do teach supply and demand, business responses to taxation and regulation, and the role of business in creating jobs. It is interesting that the more econ courses one takes, the higher the likelihood is of being Republican. I wonder what the party affiliation is of Ph.Ds in economics? I, for one, think this is a hopeful conclusion. Imagine if we were able to teach the basics of Austrian theory economics in every college in America. The Libertarians would win.

Four Letters To Rosie Posted: 02 Jun 2010 09:11 AM PDT Some notable correspondences submitted by David Rosenberg's fans to the Gluskin-Sheff strategist. All are worth a read, although inbetween we get this glimpse of what Rosie really thinks: "We will come out of this cycle with tremendous inflation, but the primary trend for the next 3-5 years, the length of time it will minimally take before this global deleveraging cycle fades, is deflation." We knew Rosie was a long-term hyperinflationist. THE NEW “PAY ME LATER” ECONOMY The great thing about writing a daily is the insightful responses it elicits. Yes, yes, it seems that everyone has the cash to spend on an iPad — the latest must-have consumer gadget. All you need to do is stop paying your mortgage, as the NYT wrote about yesterday. But if you are waiting for State governments to pay you for services rendered, wait in line. Dave from New York sent the following: “Hi Dave At a Memorial Day event in upstate NY today I spoke with a friend who works in a medium sized construction company, about 45 people total. His firm does a lot of work for New York State, as do most of the construction companies. New York stopped paying all of them. They have been asked by the State to keep working on their ongoing projects and the state will pay them at some point in the future, they don't know when. Many of these firms have walked out of the projects, they just can't afford to keep working without being paid. One firm is owed over $8 million on one job alone and has been told that if they quit, the State will sue them for breach of contract, even though the State will not pay them in the near future. It appears that the State wants all of the construction companies to carry the State through these tough times. New York State probably won't pass a budget this year at all. The politicians are afraid that the cuts will be so severe that the government workers' unions will make sure they are all defeated in the elections in November. So now we have a State government that is acting exactly like the ostrich, sticking their heads in the sands when danger is at hand. Who's covering the rear?” DAVID MEET DAVID Another response from a reader ... and a meeting of the minds on this ‘income-less’ recovery. “David, Consistent with your theme of deep level drawdowns vs. monthly change, you probably noticed the big "mother may I" (two steps forward, 1.8 steps back) in the April income and spending report. It looked like April private wage and salary income was up a healthy $24.4 billion, but, whoops, they revised March down by $28.6 billion. So we are still $4 billion lower than we thought we were last month! But on government social benefits to persons, "mother may I" worked in the opposite direct[ion]. The April number looked to be down (finally) by $5 billion, but that was only because they revised March up by $8 billion. Transfers are thus still going up! I prefer to look at "private incomes" as the true organic stuff---private wages and salaries + rental incomes +proprietors incomes + interest and dividends. Due to the Q4 2009 benchmark revisions, this number was reduced by $31 billion from its previously reported anemic level. Consequently, the April "private incomes" number of $8,281 billion is still $477 billion or 5.4 % below its pre-Lehman, Q3 2008 level of $8,757 billion. And of course, these are nominal income numbers---meaning they are totally off the charts compared to any previous post-war cycles where private incomes never declined at all. Since August 2009, "private incomes" have only grown at a $16 billion monthly rate----so it will take another 30 months to even get back to pre-Lehman levels. On the other hand, "public incomes" (government transfers plus government wages and salaries) are up $417 billion or 14% from Q3 2008. But even Uncle Sam is running out of sovereign steam. Consequently, if total income growth is now stuck in the mud and the idea of frugality and savings is still operative, it would seem that PCE may have a hard row to hoe.” THE BULLION-BOND BARBELL Yet another thoughtful reply on the deflation-inflation debate. It’s all about timing. We will come out of this cycle with tremendous inflation, but the primary trend for the next 3-5 years, the length of time it will minimally take before this global deleveraging cycle fades, is deflation. Take a read of the email below from Scott from New York: “David, Great work lately, spot on as usual. A few observations from Upstate NY, a place where the economy is always depressed, since cash for clunkers not many new cars on the road. A new health club opened, very nice, we live in the high rent part of town, (my wife is a health club instructor and they are hiring), but no new sign-up’s or slow sign-up’s. In other words, no recovery here. FYI, both parents are brokers at major wirehouses, I can assure you the income theme is alive and well and one will attest that the gold fever is coming to life, but nowhere near bubble territory. Your deflation theme and charts are right on, prices everywhere except for the grocery store are low. I side with you on deflation, all evidence points towards it. However, I also believe inflation is a fat tail event that is not understood fully yet. I believe we will go from deflation to inflation very quickly thanks to QE from the Fed. Bear with me on this one, in The Depression: A Diary, Benjamin Roth feared inflation which never happened, but that debt was never really paid off, we grew our way out of it, basically. But, we did have a bout of higher prices in the 50’s, a small fat tail from the 30’s? When the 60’s hit we spent on Vietnam to the Great Society and that created a shorter fat tail event, i.e. the 70’s stagflation. Is it possible that inflation is the next fat tail as the fat tails are picking up steam and happening at an increasing rate? I say this because sovereign default can be prevented through printing, avoiding technical default, while it is default in my eyes, still you get the point. Couldn’t we suffer inflation through QE or dollar devaluation because of the monetization of our debt? From my lens this fits into your scenario of deflation and into Bernanke’s need to create inflation. I love your work, you are right and most of us believe, I own treasuries, gold and income securities and am very happy because of your guidance. Thank you” THREE D — DEBT, DEFLATION AND ... DENIAL Below is another response from a reader — this missive really resonates. Mike from Houston (where they indeed have a problem): “Mr. Rosenberg, Your daily economic commentary is fantastic as always. I have been reading your commentary since 2002. I am in total agreement on your view of the economy and am always amazed that the debt problem is everywhere (consumer, state governments, national governments, etc.). My overall opinion is that the country (consumers and government) and the world are addicted to debt and spending. The average person I come in contact with is well aware of the national debt issues, since it is in the press all of the time but the average person seems to be in denial about their own personal debt problems or their neighbor’s debt problem. As you have pointed out numerous times, the consumer has a spending addiction (iPhones, etc.). I find that most people I know are in denial over their spending also. My question is should governments be educating their citizens on responsible personal financial management. I assume the obvious problem with this is that the government would have to educate itself first. The Wall Street Journal reported last week that the State of Texas will have a large budget deficit (I believe the deficit is approximately $18 billion) over the next two years or approximately 20% of the annual budget. It was also noted that the Texas Governor had spent $600,000 to rent a luxurious mansion over the last two years while the Texas Governor’s mansion is being repaired. I live in Houston, Texas and it appears that Texas is one of the healthier states debt wise. I would hate to live where the sickest are. The State of Texas has been in a state of denial over the budget (i.e., it is a federal problem only). My message to the Texas governor would be “Earth to space cadet!!” or “Austin, Texas we have a problem here”. It is an election year for state officials in Texas so I am sure denial will last until 2011.”

Jim's Mailbox Posted: 02 Jun 2010 09:05 AM PDT Dear Friends, Eric's comment answers the many similar questions coming in from the community in the last two days. Respectfully, Jim Quick Discussion on Seasonality & Cycles Eric, Just have a question relating to Gold and the coming seasonal period. My understanding in following Jim's comments is an indication that the seasonal woes won't affect gold this year as greatly as they have in the past. I'm surprised by some comments from long-term gold bugs, to expect a serious down reaction as the stock market continues to correct/crash. One's even saying that if silver gets up to around $19 on a stock market relief rally, bail out. Jim refers to long-term time points coming up – if gold is to go parabolic, the time should be close as Jim's $1650 prediction must be based on the time factors, and there's only 6 months or so left? Adrian Few comments on Adrian's observations. Seasonality, while important, is far more complex than presented on F-TV. Seasonality, gold, equities, bonds, (i.e. capital market flows), must be framed or studied with the content of other more dominant cycles. For example, seasonal performance changes or shifts when studied within the 4.3 and 8.6 cycle Here's a simple illustration of how seasonality, a minor cycle, shifts relative to more dominant factors. Risk Free Total Returns* 1926-2009: Year Two 4-Year Cycle Risk Free Total Returns* 1926-2009: Basic seasonality suggests weakness in May, June, July. Seasonality within the second year of the four year cycle clearly changes. June and July, traditionally weak months in basic seasonality analysis, turn from bearish to bullish. This is but one example of how seasonality is shifted by more dominant cycles. Jim "sees" what few are willing to acknowledge that capital flows are beginning to shift to protect against an increasingly unstable monetary system. Jim calls the transition IT, as – This is IT. I call money, inherently defeat from MOPE and SPIN, moving to protect itself from the inevitable deterioration in confidence. Approaching cycles dates are June and August. I expect the market(s) will do things few expect right now. Regards, Eric More… Hi Jim, As I was getting ready this am, I decided to watch our local news channel here in Columbus. Our city is the largest and most "profitable" city in the state. Did I fail to mention we are broke too? Anyways, in a cost cutting measure, the city has decided to cut the public school buses routes for 9th grade and up from 1451 routes to 166! That is a reduction of 1335 routes daily or 92%!! They said the inner city kids will have to find alternate ways to get to school. They said kindergarten kids were exempt!? Nothing like the trickle down of the Formula hitting even the children. God help us all when the greed of the powerful impact the innocent. NOBODY is immune to the fallout. When they speak of our "grandchildren paying back the deficit" how the hell are they going to pay back anything when they can't even get to school to get an education to get a job? Frustrated Father of 2 small girls, CIGA Craig   Dear Jim, How in the world did you come up with the three major players today, Turkey, Pakistan and Israel, with what appears to be the content of the events today, years ago? Regards, CIGA Dr. Bob Dear Dr. Bob, After being around markets since 1958 I have made the best of contacts at many levels. That is all I can say about that. If you believe that I know something of value read Eric's answer on my behalf posted today on why the hedgies and dirty tricksters will not win this time. Regards, Jim

Good News for Your Grandchildren, Part II Posted: 02 Jun 2010 09:00 AM PDT Excerpted from his presentation to the Ira Sohn Investment Research Conference on May 26, 2010 We should have learned by now that every credit – no matter how unthinkable its failure would be – has risk and requires capital. Just as trivial capital charges encouraged lenders and borrowers to overdo it with AAA rated CDOs, the same flawed structure in the government debt market encourages and therefore practically ensures a repeat of this behavior – leading to an even larger crisis. (Greenlight continues to hold short positions in the common stock of the rating agencies, Moody's and McGraw Hill [owners of S&P]). I remember hearing that the rating agencies would never downgrade MBIA or Fannie Mae…I don't believe a US debt default is inevitable. On the other hand, I don't see the political will to make voluntary efforts to steer the country away from crisis. If we wait until the markets force action, as they have in Greece, we might find ourselves negotiating austerity programs with foreign creditors. Some believe this could be avoided by printing money. Despite Mr. Bernanke's promises not to print money or "monetize" the debt, when push comes to shove, there is a good chance the Fed will do so, at least to the point where significant inflation shows up even in government statistics. That the recent round of money printing has not led to headline inflation may give central bankers confidence additional quantitative easing can be put in place without inflationary consequences. However, printing money can only go so far without creating inflation. Now, government statistics are about the last place one should look to find inflation, as they are designed to not show much. Over the last 35 years the government has changed the way it calculates inflation several times. For example, under the current method, when the price of chocolate bars goes up, the government assumes people substitute peanut bars. So chocolate gets a lower weighting in the index when its price rises. Even though some of the changes may be justifiable, the overall effect has been a dramatic reduction in calculated inflation. According to Shadowstats.com, using the pre-1980 method CPI would be over 9%, today compared to about 2% in the official statistics. While the truth probably lies somewhere in the middle, this doesn't even take into account inflation we ignore by using a basket of goods that does not match the real world cost of living. For example, we all now know that healthcare, which is certainly a consumer good, is about one-sixth of our economy and its cost has been growing at a rapid pace. So what is the weighting of healthcare in the CPI? About 6%. The government doesn't count the part which the consumer doesn't pay out of pocket. So, if your employer has to pay more for your health insurance, it doesn't count, even if it means you have to accept lower wages. Similarly, Medicare cost increases don't count, even though everyone has to pay higher taxes to fund them. Income and payroll taxes, which are part of the cost of living, are not counted in the CPI either. On the other hand, one-fourth of the index is comprised of something called owners'-equivalent-rent. This isn't something that anyone actually pays for. If you own your house, the government assumes you are foregoing rental income. The amount that you could receive from a hypothetical renter – the government implicitly assumes you rent it to yourself – is counted in the basket. So, rising taxes, which you do pay, don't count; the fast rising cost of healthcare, which someone else pays on your behalf, doesn't count; but hypothetical rents which you don't pay, and conveniently don't rise very quickly, have a huge weighting. The simple fact is that if your goal is to never see inflation, you won't see it until it is rampant. Low official inflation benefits the government by reducing inflation-indexed payments including Social Security and Treasury Inflation-Protected Securities. Lower official inflation means higher reported real GDP, higher reported real income and higher reported productivity. Subdued reported inflation also enables the Fed to rationalize easy money. The Fed wants to have an accommodative monetary policy to fight unemployment, which in a new trickle-down theory it believes can be addressed through higher stock prices. The Fed hopes that by keeping rates low, it will deny savers an adequate return in risk-free assets like savings deposits and force them to speculate in stocks and other "risky assets" to generate sufficient income to meet their retirement needs. This speculation drives stock prices higher, which creates a "wealth effect" where the lucky speculators decide to spend some of the gains on goods and services. The purchases increase aggregate demand and lead to job creation. Easy money also aids the banks. Arguably, we still have many inadequately capitalized or insolvent banks. There has been so much accounting forbearance and extend-and-pretend loan collection that it is difficult to get an accurate gauge on the health of the system. However, each week the FDIC seizes more failed banks and when it does so, there are very large losses to the deposit insurance fund. In most cases, the failed banks' most recent financial statements claim that they were solvent which implies that the banks' balance sheets are not stated conservatively. It probably isn't just the banks that fail that are taking advantage of accounting forbearance. As a result, the Fed prefers to keep rates extraordinarily low in an effort to help banks earn back their unacknowledged losses. However, this discourages banks from making new loans. If banks can lend to the government, with no capital charge and no perceived risk and earn an adequate spread walking down the yield curve, then they have little incentive to lend to small businesses or consumers. Higher short-term rates could very well stimulate additional lending to the private sector. Given the enormous gains in the prices of bank stocks, it might be quicker to have banks deal with their questionable assets through additional equity offerings and more aggressive loss reserving than waiting for years for profits from an easy money policy to repair the balance sheets. Easy money also helps the fiscal position of the government. Lower borrowing costs mean lower deficits. In effect, negative real interest rates are indirect debt monetization. Allowing borrowers including the government to get addicted to unsustainably low rates creates enormous solvency risks when rates eventually rise. I believe that the Japanese government has already reached the point where a normalization of rates would create a fiscal crisis. While one can debate where we are in the recovery, one thing is clear – the worst of the last crisis has passed. Nominal GDP growth is running in the mid-single digits. The emergency has passed and, yet, the Fed continues with an emergency zero-interest rate policy. Perhaps, an accommodative policy is still appropriate, but zero-rate policy creates enormous distortions in incentives and increases the likelihood of a significant crisis later. Further, it was not lost on the market that during this month's sell-off, with rates around zero, there is no room for further cuts should the economy roll over. Easy money policy has negative consequences in addition to the obvious inflation of goods and services and currency debasement risks. It can feed asset bubbles, such as the internet bubble and the housing bubble. We know that when such bubbles collapse, there are terrible consequences. Nonetheless, the Fed has a preference to inflate bubbles. Sometimes Fed officials tell us that there is no bubble or that bubbles are hard to identify. Afterwards, they tell us that monetary policy was not to blame. Earlier this year, Mr. Bernanke said that the housing bubble was not caused by monetary policy. Essentially, he did a statistical analysis which found that there are many times when extraordinarily easy monetary policy has not led to a housing bubble. As a result, he argued that one can't generalize that easy monetary policy causes housing bubbles in all circumstances. From this, he reached the dubious conclusion that easy monetary policy was not responsible for the housing bubble he presided over. He must feel it is important to disclaim responsibility for the last bubble at a time where the Fed appears to have a desire to foment a fresh asset bubble. In recent years, we have gone from one bubble and bailout to the next. Each bailout reinforces moral hazard, by rewarding those that acted imprudently. This encourages additional risky behavior feeding the creation of a succession of new, larger bubbles, which then collapse. The Fed bailed out the equity markets after the crash of 1987, which fed a boom ending with the Mexican crisis and bailout. That Treasury financed bailout seeded a bubble in emerging market debt, which ended with the Asian currency crisis and Russian default. The resulting organized rescue of LTCM's counterparties spurred the internet bubble. After that popped, the rescue led to the housing and credit bubble. The deflationary aspects of that bubble popping created a bubble in sovereign debt despite the fiscal strains created by the bailouts. The Greek crisis may be the first sign of the sovereign debt bubble popping. Our gold position reflects our concern that our fiscal and monetary policies are not sufficiently geared toward heading off a possible crisis…We own gold and some gold stocks for our investors and ourselves. We will worry about the grandchildren later. David Einhorn for The Daily Reckoning Good News for Your Grandchildren, Part II originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

10 Reasons to Avoid Baidu.com Posted: 02 Jun 2010 08:44 AM PDT Bret Jensen submits: Baidu.com (BIDU) has an amazing run over the last year. It is up not quite 300% in the last year and 80% for 2010. A large of part of this year’s run up has been driven by a better expected 1st quarter earnings report, a ten-for-one stock split, and Google’s (GOOG) decision to abandon mainland China after it had some of it users email accounts hacked from inside the country. BIDU’s skyrocketing appreciation has come despite the Chinese bourse entering a bear market since the first of the year. Given the rapid appreciation of the stock and a valuation that is stretched by any metric, despite its stellar growth record; I would take this opportunity to sell any appreciated shares and wait for pullback to pick up at a lower price if you are a long term believer in this company’s prospects. For investors with more risk appetite, I think this could be great short opportunity given what is happening in markets all across the globe. 10 reasons to avoid BIDU at this price: 1. Stock is priced at more than 35 times trailing revenues. 2. Management turnover: COO and CIO left in January. 3. Stock is priced at almost 100 times trailing earnings. 4. Company does not seem to be investing enough in its future. Capital expenditures and investments fell both in 2008 and 2009 in both relative and absolute terms from the previous year. While this helps earnings and operating cash flow, it does not bode well for future product innovation. 5. Stock is priced at 75 times operating cash flow. 6. Much of the run up was fueled by Google’s departure from mainland China. It was projected that BIDU would take most of Google’s 35% market share to add to its leading 60% market share. However, Google still has a presence in Hong Kong and market share erosion may not happen to the extent priced into the stock. In latest quarterly earnings, BIDU had only moved up its market share to 65.4%. 7. Stock is priced at 33 times book value. 8. BIDU competitors are not standing still. Google still has a presence via Hong Kong, Netease has entered partnership with Microsoft, Softbank is entering market via Japan, SINA and SOHU could improve their products, and Tencent could entered search market at some point. 9. The divergence from what is happening in the overall Chinese market can not last forever. 10. Being a search engine in a communist country that heavily censors the internet has its own degree of political risk that probably isn’t priced into the stock price at these levels. At these levels, I think Sohu.com (SOHU) is a much better way to invest in the growth of the Chinese internet. Although its projected revenue growth of 20% next year does not compare to BIDU’s 60%, its valuation is much more attractive especially after losing value since first of year along with most of the rest of the Chinese Index, and its susceptibility to a major pullback is much less. It is trading at 10 times next year’s earning, three times revenues, and seven times operating cash flow. It also has 35% of its market cap in net cash, compared to BIDU’s 3%. Disclosure: Short BIDU Complete Story »

Guest Post: Give Unto Caesar - What To Pay When You're Selling Posted: 02 Jun 2010 08:42 AM PDT Submitted by Jeff Clarke of Casey's Gold & Resource Report Give unto Caesar - What to Pay When You're Selling Proper planning with your finances is incomplete until you consider the endgame consequences of your investment decisions today. So, what are the tax consequences of selling gold, gold ETFs, and gold stocks? There’s lots of conflicting and inaccurate tax information on the Internet about this. We know of one site that claims the sale of silver Eagles is exempt from capital gains tax due to some obscure law (not true). So, let’s nail down the current tax rules for selling gold in the U.S. [The following information pertains to U.S. taxpayers only and is not intended as nor should be considered personal tax advice. Always consult a financial planner and/or tax professional before investing.] ?The IRS considers gold a “collectible” and will tax your capital gains at a 28% rate. This designation includes all forms of gold (other than jewelry), such as... All denominations of gold bullion coins and numismatic/rare coins, gold bars, and gold wafers ETFs like GLD, SLV, etc. (closed-end funds have different rules; see below) Any electronic form of gold like GoldMoney and Bullion Vault Any “paper” or certificate forms of gold, such as Perth Mint Certificates and EverBank accounts All forms of pool gold, rounds, and commemorative coins And the same designation and rules apply to silver, platinum, and palladium. ?“Reporting” requirements can be confusing. It is true that precious metals dealers aren’t required to report certain small sales to the IRS – but that doesn’t relieve you of the obligation. If you sold one gold or silver coin to your local dealer, he is not obligated under current regulation to report the sale. But selling at a profit requires you to report it and pay 28% tax on your gain. Keep in mind that the Patriot Act obligates a dealer to report any “suspicious customer activity.” Therefore, don’t expect a wink from your dealer if you proclaim you won’t be reporting your sale or ask him to “book” only half the coins you sell him. There are people sitting in prison who’ve tried this. ?Gold stocks are not designated as a collectible and are therefore subject to the standard capital gains tax rates like all other stocks. ?Gold jewelry sales are not reportable. This makes the Heirloom Collection an attractive consideration and an excellent diversification maneuver (for both financial and romantic reasons!). ?We wouldn’t advise making your investment decisions based solely on tax considerations. You should own both gold and gold stocks for different reasons – gold for wealth protection and gold stocks for profit potential. ?There’s a lobbying arm for our industry, the Industry Council for Tangible Assets. Their efforts are mostly for dealers, but their website contains valuable information on this topic. PFICs: Blessing or Curse? For U.S. investors, there’s one more tax consideration if you own, or plan to own, a closed-end fund (whether it’s precious metals or otherwise). For example, the Central Fund of Canada (which holds gold and silver bullion) is considered a Passive Foreign Investment Corporation (PFIC) for U.S. investors. This is a complex topic, but what I learned could save you some dinero now and some hassle later if you own a foreign closed-end fund like this one.   Keeping it simple, if you own CEF, you can qualify for the standard capital gains tax rates, instead of the 28% collectibles rate, if you file a timely and valid Qualified Electing Form, or QEF. There are several options you can take with a PFIC, but this is the most common election. Even if you don’t sell the fund in any given year, you must file this form every year. If you don’t complete an annual QEF or make one of the other elections, you could get hosed when you eventually do sell because your gain will be considered ordinary income, forcing you to pay interest and penalties on top of the regular tax. You can hold a PFIC stock for years without paying tax, but if you haven’t made a QEF or other election, you get the bad result we’re describing when you sell. Further, if the PFIC company reports income in a given year, this income is reportable and taxable as regular income that year, even if no stock was sold and even if the stock ended down on the year. The point here is obvious: don’t blindly buy into a PFIC. The QEF benefit is clear: you can cut your tax liability up to 46%, the difference between the 15% long-term capital gains rate and the 28% collectibles rate. Yes, capital gains rates are scheduled to rise next year, but this option still reduces your tax liability. A successful investor is an informed investor, and you should read the prospectus of any closed-end fund before buying. And if you don’t want to mess with the tax hassle, use an ETF instead.

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