Gold World News Flash

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• Is the World Broke? Blueprint to Bankruptcy
• The Doctor and the Dealman: An Energy Update
• Why Governments Hate Gold
• Still Just A Baby Bull
• Consumer Credit: Yuck
• Inflation Corroded Copper Coins
• Frank Holmes: How to Avoid Vulnerability to Volatility
• What You Always Wanted To Know About Gold
• Trader Dan Comments On Euro Priced Gold
• Return Of The Hedgies And Dirty Tricksters
• Hourly Action In Gold From Trader Dan
• Got Gold Report – Gold Outperforming Silver
• Thank You, Alix
• Exclusive Video
• Safe Havens are Shining but are Equities about to Rocket Higher?
• LGMR: Gold Hits New Euro Record as France Warms to "Parity", Hungary Denies Crisis
• Grandich Client Updates 10:30AM EST
• Consumer Credit Up Marginally in April
• Box office futures market decision delayed one week
• The Multi-Year Bear Market: Led by Housing and Community Banks
• There Is No Rise in Distressed Debt
• Cross-Device Continuity: The Future of User Interface
• Deltek Deal Shows Atlantic Trade Winds Are Blowing
• The New Great Game
• Real Reason Gold Jumped: “Because!”
• Germany Applies the Debt Brake
• The Great German Inflation
• Who Controls the Gold Market?
• U.S. Economy: Plenty More Bad News
• Contagion Spreading Further to Core Eurozone
• Sluggish Revenue Growth: Another Headwind for Stocks
• The Dominant Force In World Financial Markets In 2010 Is Fear
• How Bankers Benefit From All the Debt
• Gold, $7000!
• Hey Friend, May I Have a Dollar for Fifty Cents: Enter EVI
• Counting the Census
• European Bankers go to the Mattresses
• Funded Status of US Plans Drops in May
• Gold Seeker Closing Report: Gold Gains Almost 2% While Silver Surges Over 4%
• The Cause of the Oil Spill: Peak Oil
• Analyst: Invest In Barb Wire And Guns, A Nightmare Is Upon Us
• Golmand Sachs Gets Subpoenaed: Provides BILLIONS of Pages Of Documents
• Marc Faber's Must Watch 2010 Presentation
• Is Excess Economic Slack No Longer A Factor For Ben Bernanke?
• Long Gold, Short Stocks
• The International Significance of Gaza
• Hungarian Bond Story
• The Biggest Shock of All
• Anyone recognize this Franklin Mint bar?
• Precious Metals Market Report

Is the World Broke? Blueprint to Bankruptcy Posted: 07 Jun 2010 07:46 PM PDT Sustainable Wealth - Axel Merk June 07, 2010 12:41 PM In a follow-up to my televised interview with FoxBusiness last week, I tell FoxBusiness journalist Dunstan Prial that the U.S. blueprint is to spend and print money while hoping for economic growth: “…Portfolio manager Axel Merk, author of the recent book ‘Sustainable Wealth,’ believes the U.S. will likely try to pay down its debt simply by printing more money and hoping for economic growth. The risk of that type of strategy is inflation, but it's a risk U.S. politicians are willing to take in lieu of scaling back entitlements. ‘It may work until the next election,’ Merk said. ‘But if we're not tackling these major issues, inflation is the path of least resistance. That is the de facto solution. …’ ” Axel Axel Merk Author of Sustainable Wealth – order now. President and Chief Investment Officer, Merk Investments In my book, SustainableWealth: Achieve Financial...

The Doctor and the Dealman: An Energy Update Posted: 07 Jun 2010 07:46 PM PDT It has been a busy day in Rome, doing the Vatican Museum, St. Peter's and the Trevi Fountain. But I have to find time to get you your Outside the Box and have I got a great one for you. David Galland of Casey Research was kind enough to let me use an interview he did with two of his energy research staff normally only available to his subscribers. A big thank you to David. This is a special treat for Outside the Box readers, as they talk about the future of the energy markets. I have been following their work for some time and I think they are the real deal if you are looking for an energy letter to regularly read. You can subscribe at here. I am going to sign off as the "kids" are waiting. One quick observation. Stop lights in Rome seem to be more of a suggestion than an actual statement. Oh, but what a city! Your in the city of restaurants analyst, John Mauldin, editor Outside the Box. The Doctor and the Dealman: An Energy Update By David Galland At fir...

Why Governments Hate Gold Posted: 07 Jun 2010 07:46 PM PDT   This past week several emerging and ongoing crises took attention away from the ongoing sovereign debt problems in Greece.  The bailouts are merely kicking the can down the road and making things worse for taxpaying citizens, here and abroad.   Greece is unfortunately not unique in its irresponsible spending habits.  Greek-style debt explosions are quickly spreading to other nations one by one, and yes, the United States is one of the dominoes on down the line.   Time and again it has been proven that the Keynesian system of big government and fiat paper money are abject failures in the long run.  However, the nature of government is to ignore reality when there is an avenue that allows growth in power and control. Thus, most politicians and economists will ignore the long-term damage of Keynesianism in the early stage of a bubble when there is the illusion of prosperity, suggesting that the basic laws of economics had been repealed.  In fac...

Still Just A Baby Bull Posted: 07 Jun 2010 07:46 PM PDT It's sad to say but I'm afraid 90/95% of all retail traders/investors are not going to successfully ride the gold bull. The reason of course is that they are deathly afraid of draw downs. It's glaringly apparent every time gold pulls back or suffers the slightest correction. Immediately a slew of traders come on the blog and warn of impending doom. "Gold is going to $600" (think Elliot wave). Some are even brave (maybe I should say 'foolish') enough to short. Here is one we hear alot lately, "miners are going to get crushed if the stock market enters a new leg down in the secular bear market". Pure nonsense! Let me show you what happened to gold and miners during the 2000-2003 bear market. ...

Consumer Credit: Yuck Posted: 07 Jun 2010 07:46 PM PDT Market Ticker - Karl Denninger View original article June 07, 2010 03:16 PM There's nothing here that I like: [INDENT] Consumer credit increased at an annual rate of 1/2 percent in April 2010.  Revolving credit decreased at an annual rate of 12 percent, and nonrevolving credit increased at an annual rate of 7 percent. [/INDENT] Yeah yeah. In dollars, non-revolving loans went from $1.5925 trillion to $1.602 trillion, an increase of $10 billion.  But revolving (credit card) debt decreased $8 billion from $846.5 to $838. The previous values were revised (negatively) as well. To put this in chart terms in percentages: Yeah, ok, the rate of change has leveled out in the credit card space and turned up a tiny bit in the non-revolving.  But in dollars it looks like this: Nice little hook there eh?  The consumer continues to say "screw that!" on more spending - especially spending that goes on plastic. Believe whatever you want about the magic ...

Inflation Corroded Copper Coins Posted: 07 Jun 2010 07:46 PM PDT Junior Mogambo Ranger (JMR) Phil S. sent an article from the Globe and Mail where I learned that inflation in Canada has been so persistently corrosive over the years that, like in America, "it now costs the Royal Canadian Mint more than a penny to make a penny, and because of penny 'hoarding' by Canadians, the mint has to keep making more." Hahaha! "Hoarding"? Hahahaha! Well, the facts seem to be that, like in America, inflation has so corroded the buying power of Canadian money that it costs one and one-half Canadian pennies to make a Canadian penny, which makes Beverley Lepine, the mint's chief operating officer, say, "So we are into a negative situation on every penny." I don't know why she seems so surprised, as this is exactly what must happen when the buying power of the currency constantly falls and falls, and so if you see Ms. Lepine, tell her I said, "Hahaha! What did you think was going to happen, you moron?" Hahahaha! I mean, look at the disappearance since the '60s o...

Frank Holmes: How to Avoid Vulnerability to Volatility Posted: 07 Jun 2010 07:46 PM PDT Source: Karen Roche of The Gold Report 06/07/2010 Human nature being what it is, sucker punches to the portfolio can erode more than your net worth. They can wreak havoc with your sense of self-worth as well. After more than 20 years at the helm of U.S. Global Investors, a leading investment management firm that specializes in gold, natural resources, emerging markets and global infrastructure opportunities, Frank Holmes says that it's important to segregate bad things that happen on the outside from the good person you are on the inside. Knowing full-well that even the most prudent investor can't escape the wild volatility that's come to characterize the markets, in this exclusive interview with The Gold Report, he also offers some sage advice about how to avoid vulnerability to that volatility. The Gold Report: In a recent interview, you stated that price-wise, gold performs exceptionally well whenever three factors coalesce—negative interest rates, deficit spendi...

What You Always Wanted To Know About Gold Posted: 07 Jun 2010 07:46 PM PDT Antal E. Fekete The following is a transcript of an interview requested by a gold-friendly hedge fund. Q.:Professor Fekete, you are known as a staunch advocate of a return to the gold standard. But mainstream economists are saying a gold standard is not practicable and they are fighting the idea with everything they have. How do you answer their criticism? A.:To say that the gold standard is not practicable is the same to say that honesty is not practicable, and Constitutions are made to be blithely ignored when convenient. The American Constitution, for example, mandates a metallic monetary standard for the United States in the clearest possible language. Opponents of the gold standard have never been able to muster up the moral fortitude to amend the Constitution so as to formalize the abolishing of the gold standard. Yet in 1933president Roosevelt confiscated the gold of the citizens, gave them irredeemable paper in exchange, and proceeded to write up the val...

Trader Dan Comments On Euro Priced Gold Posted: 07 Jun 2010 07:46 PM PDT View the original post at jsmineset.com... June 07, 2010 08:00 AM Dear CIGAs, Euro-priced gold scores another brand new all time high. Click chart to enlarge in PDF format ...

Return Of The Hedgies And Dirty Tricksters Posted: 07 Jun 2010 07:46 PM PDT View the original post at jsmineset.com... June 07, 2010 09:28 AM Dear CIGAs, This missive was originally posted and eblasted June 1st. Please review once again. Dear Comrades In Golden Arms, The hedgies and dirty tricksters are back. Frustration goes both ways. The price of gold has been a disappointment to the gold bears. The action in the HUI (AMEX Gold Bug Index) has posed a threat to the short on gold share hedgies and dirty tricksters. This morning’s pop up on the euro was accepted by this mangy group as the forth entry of emergency money into the currency market in the form of intervention. That message was taken by this group as confirmation to hold the euro at $1.2150 Gold’s failure to hold the highs of this morning has been taken by the discouraged gold and gold share shorts as courage to try one more time. Discouragement goes both ways. The gold share longs have felt it for a long time. The gold share shorts cannot be too happy either. So in rolled...

Hourly Action In Gold From Trader Dan Posted: 07 Jun 2010 07:46 PM PDT View the original post at jsmineset.com... June 07, 2010 09:40 AM Dear CIGAs, Click chart to enlarge today's hourly action in Gold in PDF format with commentary from Trader Dan Norcini ...

Got Gold Report – Gold Outperforming Silver Posted: 07 Jun 2010 07:46 PM PDT By Gene Arensberg Esse quam videri – To be rather than to seem. But silver may be the “better” buy. HOUSTON – In our Got Gold Report four weeks ago (May 9) we hauled out the caution flags because of the ominous signals then showing in the data, charts and ratios we follow closely here at GotGoldReport.com. The subtitle of that report said, “Rig for heavy weather and hope we don’t get it.” Two weeks ago, in the last full Got Gold Report (May 23) we wondered then: …”whether we are about to enter the eye of the storm or the eye wall itself.” Since then the world has given us all a bad taste in the mouth, a heavy dose of anxiety, precious little to be bullish about and we all have seen even less from our political “leadership” which might cause even the hint of increased confidence in them. About the only thing we have seen enough to be bullish about is gold – beca...

Thank You, Alix Posted: 07 Jun 2010 07:46 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here June 07, 2010 08:25 AM A few weeks back, I posted about how Tokyo Rose once again was IMHO misinforming the public in an interview on Street.com and publicly asked for a chance to respond. Alix Steel did indeed offer a chance to respond and I highly recommended Chris Powell of GATA as he is more qualified to speak on this subject. Here’s her column with Chris. Here, here to Alix (given her firm’s working relationship with Kitco) for being kind enough to allow a response to IMHO the worst forecaster bar-none in the gold market. (Yes, Kaplan and Gartman run a close second and third. I don’t throw Prechter in there despite his years of bearishness on gold because he’s still a gentleman, he doesn’t make like he has been right and he certainly isn’t arrogant to those who have been like you know who). Oh look, Gold is $1,240. Space helmets on Captain...

Exclusive Video Posted: 07 Jun 2010 07:46 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here June 07, 2010 08:54 AM of Bill Murphy at Vancouver show hearing gold hit $1,240 And Tokyo Rose after finding out what Murphy was so happy about Somebody stop me-LOL! [url]http://www.grandich.com/[/url] grandich.com...

Safe Havens are Shining but are Equities about to Rocket Higher? Posted: 07 Jun 2010 07:46 PM PDT It was another extremely volatile week sharp rallies followed by sharp sell offs. Fear is in no doubt controlling the market. The bulls and bears continue to battle it out. The charts below cover some important trends and market internals I pay attention to on a daily basis. US Dollar Index – Daily Chart The past two months the dollar as been in rally mode. The last 14 days we have seen a large bullish pennant form and this pattern typically marks the half way point for the current tend. The measured move for the USD is pointing to 93 over the next few months. Gold Futures Prices – Daily Chart Gold as we all know is seen as the major safe haven and the price per ounce has been steadily climbing. Friday we saw the major indexes sell down very hard but both the dollar and gold posted some solid gains. Gold does looks as though it needs some time to digest the recent move higher and this could take a week or two before anything exciting happens b...

LGMR: Gold Hits New Euro Record as France Warms to "Parity", Hungary Denies Crisis Posted: 07 Jun 2010 07:46 PM PDT London Gold Market Report from Adrian Ash BullionVault 09:00 ET, Mon 7 June Gold Hits New Euro Record as France Warms to "Parity", Hungary Denies Crisis THE PRICE OF GOLD edged 0.5% lower against the US Dollar early Monday, trading at $1213 an ounce by lunchtime in London, as world stock markets, commodity prices and other currencies rallied from sharp losses. The Euro made a new four-year low at the start of Asian trade, falling below $1.19 in response to French prime minister Villon saying he had "No concerns" about the Euro's 20% decline in 2010-to-date. "I would only see good news in parity between the Euro and Dollar," Villon told a press conference on Friday. The gold price in Euros today made a new all-time high at €33,000 per kilo. Versus the Dollar, silver prices fell to the worst level since late March, falling 8% from last week's rally to trade below $17.25 an ounce. Base metals also fell hard. Crude oil slipped back towards $71 per bar...

Grandich Client Updates 10:30AM EST Posted: 07 Jun 2010 07:46 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here June 07, 2010 06:29 AM I don't have the absolute latest on many clients due to the inability to visit Vancouver this week. Alderon Mining – See recent comments Anooraq Resources – Management is very keen they can have a very good second quarter. Not many emerging PGMs producers to play so I think ANO can become an institutional favorite. Crescent Resources – Awaiting word on company's plans going forward. Crocodile Gold – See recent comments Crosshair Exploration – Doing all it can to more than survive. Key remains the lifting of the uranium moratorium in Labrador. Donner Metals – So close to production decision you can taste it. Evolving Gold – See this Farallon Mining – Doing all the right things in a tough market. Formation Metals – Like a Timex watch it takes a licking but keeps on ticking. Garibaldi Resources – Nothing to write home about yet but company continues...

Consumer Credit Up Marginally in April Posted: 07 Jun 2010 07:29 PM PDT The Pragmatic Capitalist submits: Consumers continue to remain hesitant to take on high levels of new debt as the debt de-leveraging environment clearly continues. The latest consumer credit report showed a marginal year over year increase in consumer credit, however, in real dollar terms the data remains near its lows: Consumer credit increased at an annual rate of 1/2 percent in April 2010. Revolving credit decreased at an annual rate of 12 percent, and nonrevolving credit increased at an annual rate of 7 percent. Complete Story »

Box office futures market decision delayed one week Posted: 07 Jun 2010 07:19 PM PDT Hollywood won't find out if box office futures have a future for another week.

The Multi-Year Bear Market: Led by Housing and Community Banks Posted: 07 Jun 2010 07:13 PM PDT Richard Suttmeier submits: US Treasuries near resistances as supply test begins. Gold is nearing its May 14th high at $1249.7 as currency of last resort, and as the euro stays above this week’s support at 1.1863. Crude oil is range-bound between $67.15 per barrel and $75.72 balanced by weak demand and risks related to Hurricane season. We are not in a bull market correction; we began the second leg of a multi-year bear market with the April 26th highs. The bear is being led by housing and community banks. Complete Story »

There Is No Rise in Distressed Debt Posted: 07 Jun 2010 06:49 PM PDT Here is something to consider. If there was really a problem from a fundamental perspective in the US (lower corporate earnings and cash flows) then shouldn’t we have already seen a dramatic rise in distressed corporate debt? The chart below is the TRACE Index. It is an index of the number of bonds that are trading in a distressed state. “Distressed” refers to a condition where a bond trades in excess of 1000bpts above yields of US treasuries (i.e. bonds that are in real deep trouble). Unless I am missing something (and it has happened before) there does not appear to be any breakout in the number of bonds trading in a distressed state. Can we logically conclude that there is not a problem with the recovery in the US economy? Could we also conclude that the rush into US treasuries is merely the result of panic which is not fundamentally justified. We think so. click to enlarge Complete Story »

Cross-Device Continuity: The Future of User Interface Posted: 07 Jun 2010 06:23 PM PDT Kevin Lawton submits: The next "killer app" across all forms of end-user devices (smart-phones, tablets, HDTVs, PCs, etc) is the ability to "drag-and-drop" any application between any device, giving a seamless and continuous UI experience. In effect, this mobilizes mobile and web apps, and makes all devices which a given user interfaces with, part of an overall continuous UI tapestry. A quick look at the the direction in HDTVs, sets the stage for this next wave of UI innovation. An important trend in newer model HDTVs is to offer apps/widgets, which can be downloaded/upgraded from an online "app store" as needed. You name it: video Skype (EBAY), Hulu, Netflix (NFLX), Twitter, whatever. Whether these be native apps or "web apps", they ought to evoke parallels to every other modern type of mobile or desktop platform. What's occurring is none other than a convergence of end-user platforms, each with their own strengths. But the key is that many of the same apps are offered across all possible platforms. Complete Story »

Deltek Deal Shows Atlantic Trade Winds Are Blowing Posted: 07 Jun 2010 06:14 PM PDT The 451 Group: Inorganic Growth submits: By Brenon Daly As the hackneyed old phrase goes, there is opportunity in crisis. We were musing on that as we watched the euro plummet at the end of last week to a four-year low against the dollar. With countries such as Greece, Portugal and, most recently, Hungary unable or unwilling to run balanced books, much of the continent looks shaky. Reflecting the worries caused by the ballooning debt in many countries, the euro has shed 15% of its value compared to the US greenback. Complete Story »

The New Great Game Posted: 07 Jun 2010 06:04 PM PDT Some of us have already witnessed the need in the past few years to exercise the need to sell gold holdings to raise cash (and pay the bills.) And this will not be the last time gold will come in handy. Remember, gold is insurance. When cash becomes unstable and questionable we use the precious metals to secure the needs we need for daily survival.

Real Reason Gold Jumped: “Because!” Posted: 07 Jun 2010 06:00 PM PDT Gold quotes lurched sharply higher yesterday, and we take it as especially bullish that the news media tripped over their own feet trying to explain why. Reuters reported that prices surged because of "safe-haven demand due to ongoing fears about euro zone credit contagion." How's that for lame analysis?

Germany Applies the Debt Brake Posted: 07 Jun 2010 05:47 PM PDT

The Great German Inflation Posted: 07 Jun 2010 05:45 PM PDT

Who Controls the Gold Market? Posted: 07 Jun 2010 05:39 PM PDT

U.S. Economy: Plenty More Bad News Posted: 07 Jun 2010 05:20 PM PDT Michael Panzner submits: Many people seem to think that U.S. markets are jittery because of fears about what developments in Europe might mean for the rest of the world. But even if there was no sovereign debt crisis, I would be hard-pressed to overstate just just how bad things are here at home. While I've posted plenty of articles detailing the dismal state of the U.S. economy from the perspective of the man in the street (not the one on Wall Street, mind you), all you need is Google, an internet connection, and a few moments of time to see that there's plenty more bad news where the rest came from. After reading the following articles, the first thing that pops into my head is: Why does what is happening overseas even matter? "In Brutal Job Market, More Than a Million Quit Looking" (CNBC.com) Complete Story »

Contagion Spreading Further to Core Eurozone Posted: 07 Jun 2010 05:20 PM PDT Edward Harrison submits: In a note to investors yesterday, Win Thin of Brown Brothers Harriman noted that contagion has spread to core Europe with France now paying more for debt. France is coming under scrutiny, with one astute market contact noting that France CDS prices are now about equal to UK. This comes even as French bonds have underperformed Germany this past week, with 10-year spreads between the widening by 23 bp. We’ll stress again that it’s not a question of fundamentals, as France is closer to Germany than it is to the periphery. No, what’s worrisome is that France is coming under pressures as the contagion continues unabated. The fact that it is spreading to core euro zone is not a good thing. Belgium and Austria, two other core euro zone countries, have also seen bond spreads widen and CDS prices rise in recent days. European officials have yet to find the “game-changer” that turns market sentiment around, and so we see continued spread-widening in euro zone bond markets as well as ongoing EUR weakness. We believe that the “game-changer” remains debt restructuring coupled with aggressive IMF and World Bank-backed structural reforms, a la Latin America under the Brady Plan. A muddle-through approach will only lead to a Lost Decade for the euro zone. Complete Story »

Sluggish Revenue Growth: Another Headwind for Stocks Posted: 07 Jun 2010 05:16 PM PDT Washburn University Market Commentary submits: Friday’s weak job number took about 300 points off the Dow, and another 100 on Monday. The national employment situation mirrors other factors weighing on the market, such as sluggish sales growth, which received more attention from the media in last year’s news cycle. A year ago many analysts were hedging their outlook for stocks with a caveat along the lines of Earnings may be growing but revenues need to follow, because sustainable earnings growth based on cost-cutting alone is not sustainable. Complete Story »

The Dominant Force In World Financial Markets In 2010 Is Fear Posted: 07 Jun 2010 05:03 PM PDT Extreme volatility is not a sign of health for financial markets.  But in 2010 financial markets around the globe are experiencing unprecented volatility.  Why?  It is because the entire world financial system has been gripped by fear.  In today's crazed environment, it seems like just about anything can set off a major panic.  In fact, these days politicians have to be extremely careful about what they say about their national finances, because saying the wrong thing can literally send world markets into violent convulsions.  For instance, when a senior Hungarian official said that the Hungarian economy was in a "very grave situation" last week it sent world financial markets into a tailspin.  Panic was everywhere and everyone was talking about how Hungary could be the "next Greece".  Of course on Monday Hungarian officials backed away from that comment and tried to reassure world markets that everything was fine, but the damage had been done. It was a perfect example of the spirit of irrational fear that has gripped the financial world. After all, even if Hungary did fall apart financially, it wouldn't plunge the rest of the world into a depression. And the truth is that Hungary is not really in that bad shape financially.  Hungary's budget deficit is about half the size of the Greek budget deficit and Hungary doesn't even use the euro. But now investors all over the world are constantly scanning the news for the latest piece of information that will send waves of panic through the markets. In the current environment, fear is what moves the markets. The reality is that fear is the reason why the euro is plunging at breathtaking speed.  Are many of the economies in Europe truly in really bad shape? Of course. However, it could be argued that the economies of the U.S. and Japan are in even worse shape in many ways.  Japan's gross public debt has reached 201 percent of GDP and the United States has piled up the biggest mountain of debt in the history of the world. But because of the extreme fear that has been generated, people are moving out of the euro and into dollars and yen. In fact, the euro is probably headed even lower. GFT Forex's Boris Schlossberg believes that the euro could fall down to the 1.16/1.17 range before this current panic is over....  "I think we run the risk of seeing 1.16/1.17 before the next selling phase dies down. The euro is just absolutely hated here. The European rescue package still faces some regional opposition. There were rumors the German high court could rule it was unconstitutional. They don't have a federal mechanism to put it in place, and there's worries that at any point in time, the rescue package could be sabotaged." But all of this fear and panic is actually good for investors in gold and silver. Why? Because during times of fear and panic investors look to move their money into something that is secure, and gold and silver have been secure investments for thousands of years. So in this environment of fear, gold is absolutely soaring.  On Monday, the price of gold climbed 1.9 percent to $1239.30 per ounce.  That was the largest one day rise in the price of gold since February 16th. So how high will gold go? Well, the truth is that nobody knows. But if fear and panic continue to grip world financial markets in the months ahead, there is really no telling how high it could go. In fact, even many mainstream financial analysts are becoming extremely bullish on gold. As Dan Burrows of Daily Finance recently commented, "you don't have to be a member of the build-a-bunker-in-Montana crowd to believe gold could hit $2,500 in the next couple of years." But these days no investment is truly safe.  One really bad rumor these days can send any stock, any currency or any commodity into a tailspin. Fear is everywhere.  Governments and central banks are intervening in the markets in unprecedented ways, but it is still not enough to keep the markets from flopping around like a dying fish. So for those who are waiting for the financial markets to get back to "normal", you are likely to be waiting for quite a long time.  The world economic situation is not going to be getting any better in the long-term.  So if financial markets are flipping out this much even now, just wait and see what happens when things really start falling apart.

How Bankers Benefit From All the Debt Posted: 07 Jun 2010 05:01 PM PDT Jason Hamlin submits: You really have to hand it to the banksters. As was painstakingly detailed in the book Creature from Jekyll Island, the banking elite devised a brilliant plan in November of 1910 on Jekyll Island in which to take over control of the United States, steal the wealth from the taxpayers and the resources from the country. It was at this meeting that the Federal Reserve was conceived by the banking cartel, as they devised a plan to protect its member banks from competition and convince Congress and the American public that this cartel was an agency of the United States government. Complete Story »

Gold, $7000! Posted: 07 Jun 2010 04:55 PM PDT During a week when almost everything went wrong, the gold market went very right. In fact, gold has been going very right for more than a decade. The gold price has more than quadrupled during the last 10 years. So is it too late to buy the stuff? My short answer is, "No." Admittedly, gold is not like any other investment. It is not merely a financial asset; it is the ultimate form of money. But that doesn't mean it is always a good investment. Many investors make a case for gold laden with ideological fury over the government's printing press. These investors are always saying buy gold. Their arguments are timeless, but not always timely. If you bought gold in the 1980s and 1990s, your return was abysmal. So, as with all assets, there are times when gold is a really good buy and there are times when it is not. Sounds obvious, but many people seem to want to think that gold is an exception to the order of things. It isn't. But how do you know if gold is cheap? Well, intelligent people usually advance a couple of arguments: 1) On an inflation-adjusted basis, gold is 30% less than its all-time high in 1980. Okay, that's true, but it's not particularly timely because by that measure gold has been cheap for three decades. And who's to say that the 1980 gold price is a benchmark we should pay attention to anyway? By that way of thinking, the NASDAQ is a bargain, too, because it trades at a big gap from its 2000 high. But is it? I think not. 2) The other point often advanced by the "gold is cheap" crowd is the old monetary base argument - that gold's price tends to track the monetary base over long periods. The monetary base is essentially bank deposits and currency. It's like the seedlings of inflation. This second argument is a little more interesting. Yet, as the government has added huge piles to the monetary base in the last year or so, the gold price has responded in a muted way. The hedge fund QB Partners really likes this argument. QB writes: "True capital has already begun to flow where it is being treated best - to capital-producing economies and to global stores of wealth, from paper money and financial assets to hard money and hard assets...We think gold is cheap by a factor of almost 7 times." If a gold price of $7,000 an ounce doesn't strike you as implausible or absurd, QB's next comment might. QB says, "The gold price could move higher than [$7,000 an ounce] if it experiences a blow off top, like all other bull markets tend to do before exhausting themselves." So, $7,000 an ounce, you see, is just some kind of base case. Maybe it's not so implausible. Strange stuff happens all the time in markets. If I had told you on May 6 that Accenture - a $40 stock with a $29 billion market cap - would trade for a penny a share the next day, you would have thought I was nuts. Yet, on May 7 it did just that, if only for a second. As investors, we tend to think too narrowly within the confines of what seems probable. Yet, the really big money lies in the outlying events. As QB puts it: Most investors allocate to the markets by playing the odds, which by definition gravitates capital to the middle of a bell curve of possible outcomes. This fools the investor into thinking that the probability of future events is somewhat predictable. Of course, history is rife with startling social, economic and political "tail" events. Stuff happens - things like earthquakes, the bombing of Pearl Harbor, the 1980 US Olympic hockey team, the demotion of Pluto, dotcom bubbles, liar loans and even periodic global economic failures and the re-assertion of gold as money. This is essentially the familiar "black swan" argument made popular by Nassim Taleb. This is really the best argument for gold in my view. It is a hedge against really bad stuff happening. And when really bad stuff happens, gold holds up. Of course, over the last decade, it has more than held up. Gold has been the best-performing asset class from December 1999 to December 2010. People often invest by looking in the rearview mirror. They feel better investing in stuff that has done well. Even professionals feel this way. Money follows performance, which is why so many investors get mediocre results. They hop into the hot fund or sign up for the hot newsletter just as it is about to go cold. They abandon apparent losing strategies and sell poor-performing stocks just as they are about to turn up. But the gold market is different because it's so small. Even a small amount of interest in gold will send it up a lot. Just imagine if people decide a small sliver of that tall bar of financial assets should be in gold. We're talking about some serious pressure on the gold price. Frankly, the gold market is set up perfectly these days. You couldn't design it better. Bad stuff is happening - see the crisis in Europe. And you can surely bet more bad stuff will happen, given all the debt and leverage that still remains in the system. Even if you don't know exactly what will happen or when it will happen, you know a monetary crisis is good for gold. As an added bonus, gold has a track record, which will attract fans soon enough. And when it does, it can't really accommodate many buyers because the market is small. This means the chance of the gold price spiking upwards are pretty good. It's like being in the lifeboat business on the Titanic. No price will seem too high! Chris Mayer for The Daily Reckoning Australia Similar Posts: A Bull Market in Gold and Gold Alone Michael Pascoe and the Snarky Disinformation About Gold Gold Ratios: Bearish for Gold Prices, Bullish for Gold Shares A Gold Standard, Without Gold Will Gold Make Higher Highs From Here?

Hey Friend, May I Have a Dollar for Fifty Cents: Enter EVI Posted: 07 Jun 2010 04:55 PM PDT I would like to draw attention to BoomBustBlogger Shaunsnoll and his write up on Envirostar titled, “A dollar for fifty cents: EVI” EVI is a well run company with 60%+ of shares owned by management that has an absurd amount of cash on the balance sheet, no debt, and trades at a ridiculous valuation with a few likely catalysts. EVI primarily distributes commercial and industrial laundry and dry cleaning equipment including a proprietary line of dry cleaning machines (98% of revenue) with a focus on environmentally friendly dry cleaning methods and equipment. There is even a “green” angle here for you environmentalists! Overall prospects for this business are not great but not terrible. Much of their dry cleaning products sales goes into hotels, hospitals etc, which is obviously very weak. They do have some good growth into international and latin America though, which is ~20% of their sales and growing. Not exactly the most “sexy” industry but keep reading! Valuation for this company is ridiculous given ROE, ROIC, cash flow and balance sheet and there are some clear catalysts that could unlock value in the next year. Company has ~80% of market cap in cash, no debt, is fcf positive, insiders own >60% of shares, and company has respectable ROE, ROIC and EPS growth over last few years. … Summary: So you essentially have 25% downside and 70%+ upside using relatively conservative estimates, for a 2.5x return/risk ratio with very little risk of permanent loss of capital. Impossible to know exactly what could happen but it seems under almost any scenario the company is under valued. Stock could do anything in the short term but over the next year or two I have a hard time coming up with any scenario that has less than a 40% return. Given market environment and limited downside this looks pretty compelling to me. I am a buyer at anything <$1.20. If the company starts having multiple quarters of negative net income indicating likely extended cash burn or if management shows me reason not to trust them, then I will likely exit the investment. To read the full write-up as well as ability to download an accompanying word.doc, visit Shaunsnoll’s microblog on the BoomBust by clicking here. Neither I, nor BoomBustBlog necessarily endorse this work, nor have we verified the contents, for it is independent and research and opinion posted by Shaunsnoll but I do encourage all readers to investigate, comment and share.

Counting the Census Posted: 07 Jun 2010 04:52 PM PDT Well, the much-awaited unemployment report came out on Friday. The pundits, analysts, and kibitzers were all waiting. Their mouths open. Their pulses racing. They expected an "I told you so" moment. Bloomberg polled them a week or two ago. The 2000 of them surveyed were overwhelmingly bullish...with the average forecast of a 27% increase for the stock market in 2010. They must have thought the job figures would show that the 'recovery' was firmly underway...with unemployment finally turning down in a big way. Then it would be clear sailing... Oops... Bummer! It turned out that 95% of the new jobs were census takers - people paid by the government to count the people who pay the government. It also turned out that people are waiting longer than ever to find a job...an average of 34 months compared to only 16 months in 2007. Investors' mouths turned down. They sold stocks so they could go home for the weekend without worrying. The Dow dropped 323 points. The shorthand interpretation? It's a Great Correction...not a recovery. The census takers illustrate our point. Government spending - including government jobs - do not really make us richer. They make us poorer. If you could make people better off by hiring them to count each other, why not count them twice? Or three times? The trouble is, no matter how often you do it...or how well you do it...counting people doesn't add to our wealth; it takes away from it. Because it diverts resources - human labor - from worthwhile activities to activities that are a waste of time. And the more people you hire, the bigger the waste...and the poorer you get. Why count people anyway? So you can apportion seats in the House of Representatives? We got a census form in the mail. It looked official...and very nosey. As far as we're concerned, it's none of their damned business! But wait a minute. What if the government hired people to do useful things - such as baking and pole dancing? Well, as Jefferson put it, if you expect the government to do your baking for you, you "will soon want bread." As for the pole dancing, we don't know... But there's no secret to what makes people wealthier. No magic. No miracles. No free lunches. People want to believe that the feds can pull off some trick...that they can turn this Great Correction around by stimulating this or regulating that. Or how about tarring and feathering the BP chairman? Or sacrificing a few of Goldman's young virgins? What? There are no virgins at Goldman? Well, how about some old sluts from JPMorgan? JPMorgan just got fined $50 million - the largest penalty ever handed out by a UK regulator. What was its crime? "Failing to protect billions of dollars of client money by keeping it in segregated accounts," says The Financial Times. How much did clients lose as a result of JPMorgan's faithlessness? Not a penny. But they could have lost big-time, said the FSA. And besides, the regulators are getting tough everywhere. Back in the USA, BP faces criminal charges. We don't know exactly what its crime was either...but with so many laws on the books, it's hard to imagine the giant oil company didn't break a few of them. Not that we're shedding any tears for the goo pumper. If they can't keep the oil in their pipes, they should get out of the oil business. But it's a tough business. And accidents are bound to happen. Destroying the oceans and endangering life on planet earth could be called a mistake. But destroying the economy is malicious mischief. Which is what the feds are doing. So, Friday, the news was let out that the jobs stimulus effort was a flop. And as it made its way from one Bloomberg terminal to the others...the traders sold! 'Risk off'...the traders call it. It means that they are selling their 'risky' investment positions and putting the money into safe positions - notably, US treasury bonds. The dollar rose on the news - and is now near a 4-year high. ******************** Other news headlines tell us that the Great Correction continues. Electricity use fell for the second year in a row...the first time this has happened since 1949. And how about deflation? A report last week told us that retail discounters are having a price war. They're battling for stingy customers by lowering prices. We saw a little of this ourselves. It was so hot on Saturday night that we decided to go out to Home Depot to buy some fans. We got a small fan for $9...and a large fan for $14. How can they afford to make things so cheap? We don't know. But they need to make things cheaply, because Americans have so little money. Real organic income - the kind that actually makes people better off - is still $500 billion below pre-crisis levels. Let's keep it simple, dear reader. There was a huge bubble. Now there's a huge correction. When will another boom come? When the correction is over. When will it be over? Don't know...maybe in 2 years. Maybe in 20. In the meantime, why complicate things? *** And now comes word that the scourge of the Gulf will probably make its way to Atlantic beaches too. Poor Florida. It will have its western beaches sullied. And then its eastern beaches will be slimed too. *** We spent the weekend replacing a barn roof. It was so hot in Maryland that we wondered how people survived before the invention of air-conditioning... Well, they had electric fans. But before that... They must have sweat a lot. We tore off an old roof of some red composite material and replaced it with tin. We only got about a third of it done. And at around 3PM your editor was beginning to stagger. It's hard work, scrambling around on a barn roof. Your knees and legs begin to ache after a couple of hours. And in the heat of a Maryland summer, your head aches too. The gods were with us. Dark clouds formed to the west. Soon, we heard the rumble of thunder. A few minutes later, a bolt of lightning came down about 2 miles away. (You can figure out how far it is by counting. The flash of lightning travels at the speed of light. You see it right away. The sound of thunder takes a little longer - about a mile per second, is what we were told.) "Dad, you better get down off that roof," said Henry. "Yeah... I've just got a couple more screws to put in. I don't what this tin to blow off in the storm." A few seconds later, a blast of wind hit the barn. For a minute, we thought we would be blown off the roof. "Dad, you're standing up on that roof like a lightening rod. I don't think that's the smartest thing to do..." Before Henry had finished his sentence, another bolt of lightning struck. Between the flash of lightning and the thunder there was no gap. No time. They both happened at the same time. We jumped off the roof and raced to house. A few minutes later, a downpour began. Regards, Bill Bonner for The Daily Reckoning Australia Similar Posts: Expect the Great Correction to Wipe Out this Bounce A Flock of Sheep Without a Shepherd A Nice House With No Mortgage The Feds Are Counting on Fannie and Freddie to End the Nation's Housing Misery Consumer Price Inflation is What Everyone is Counting On

European Bankers go to the Mattresses Posted: 07 Jun 2010 04:46 PM PDT Are Europe's banks now playing a game of hide-and-don't-lend? According to overnight deposits made by European banks at the European Central Bank, the answer is "yes." The Financial Times reports that European banks parked around €350 billion at the ECB on Friday. There, huddled with all the other frightened deposits, it earned 0.25% in interest. This is the equivalent of bankers hiding their money under big government mattress. Yes, it's different than what Sonny meant by in The Godfather. Sonny wanted to "go to the mattresses" against Sollozzo. It meant, we think, getting ready for war and hunkering down for a big battle. If all that tarted up and pretty European money had been out on the street hustling - you always want your money working for you and not you for it - it would have earned closed to 0.32% in a money market account. But the streets aren't safe for paper money these days. You never know what kind of inflationary fire or deflationary pot hole is just around the corner. Taken with two other signs - the falling euros versus the USD and widening credit default swap spreads on sovereign European debt - it shouldn't come as much of a surprise that gold (which is made of metal and not paper) made a new high in euros and nearly US AND Australia dollars. The euro price of gold reached &ound;1070 by mid-morning in New York. Meanwhile, the August gold futures contract on Comex traded at $1,240.80, up nearly two percent. Here in Australia, gold is bobbing along nicely as well. It's good as. Now it's hard to say if this is related to concern about the Aussie dollar and the Aussie economy or if it's just relative strength in the U.S. dollar as investors bail on the euro. Either way, as you can see below, the Aussie gold price is within spitting distance of the 2008 high of $1,546. Aussie Gold Price Nears High The last time the Aussie gold price went this high, the dollar plunged and the post-Lehman world teetered on the edge of systemic collapse. Is that where we are this time? Hmm. In this second stage of the Global Financial Crisis, the bad debt problem is now a sovereign debt problem. The consequences for institutional failure are larger when the institutions are governments. But governments now seem to know that the status quo is not good enough. The big change to that story in the last week is that the G-20 meeting in South Korea over the weekend seemed to indicate that Europe's political and financial authorities are not going to inflate their way out of the crisis. At least not yet. Austerity could breed anger. Anger could lead to protests. And protests to violence. Why then, if the G-20 meeting signalled more fiscal austerity, is the euro getting weaker? Well, for one, no one has any confidence that the bad debt problems are contained. When one bank's assets are another government's liabilities, you get a bit of doubt. But at the very least, Europe is not going to spend its way out of debt. But in the long-run fiscal austerity promotes a healthy body politic in the same way that living beneath your means promotes financial health. Besides, the demographics in Europe and Japan simply don't favour growing your way out of debt by spending (a suggestion made by the youthful looking U.S. Treasury Secretary Timothy Geithner). It's true that older populations will consume their retirement savings on living expenses as they get older. But if anything, this means declining frivolous consumption. It also means, we reckon, fewer accumulated savings available for government bond purchases. Read: higher interest rates. And that's probably true here in Australia, not just in Europe, Japan, and America. As Robert Gottleibsen points out today at www.businessspectator.com.au, Australia's Federal budget relies on some optimistic assumptions about global growth to get Australia's public finances back into surplus. Is that realistic now? Reducing sovereign debt levels will reduce global growth. But not reducing sovereign debt levels threatens to destroy...a lot. So here we are. The difference between now and 2008 is that there is more sobriety in the market. The cheap thrills that came from cheap money have worn off. Stocks rallied from their 2009 lows. But it's now clearer that based on earnings, stocks are pricing in a recovery and growth that aren't going to happen. And then, of course, there is the little matter of the resource super profits tax. For ideological reasons (reclaiming ownership of the means of production in the name of the People) or for political reasons (putting the budget back into a theoretic surplus before the election) the government picked the worst time possible to make a disastrous economic proposal. Kevin Rudd has single-handedly made global investors suspicious of Australia as an investment destination (although Wayne Swan deserves a great deal of credit too). The tax is largely an attack on private property and entrepreneurship in the name of social equity. But populist appeals to win elections in a global marketplace can backfire with real world consequences that raise the cost of capital for Australians (which makes variable rate mortgages more expensive to service). Giving it to the miners good and hard might make people good for awhile - especially when the tax captures a lot of accumulated profitability in projects that have taken years and billions to develop. But when investment in Australia goes down...and when Aussie banks find themselves competing with other corporate borrowers and national governments for a dwindling pool of available global savings...it won't feel so good then. In the meantime, we're sticking with the investment strategy we laid out in our "Exit the Dragon" report. And we're headed away to America's Northwest for a week to do some thinking about what's next. A hint: the vulnerabilities of Australia's financial sector and possible hedges against them. Dan Denning for The Daily Reckoning Australia Similar Posts: Australia to Borrow as Much as $300 billion European Monetary Union Members Cannot Print Money to Inflate Way Out of Crisis Default Threat Rises Global Credit Shortage is Over According to European Central Bank Hike in Fed Funds Rate Would Cause Damage to Collateral on Books of America's Banks

Funded Status of US Plans Drops in May Posted: 07 Jun 2010 04:08 PM PDT Via Pension Pulse. The funded status of US corporate plans dropped to 82% in May: Falling stock markets in May sent pension plan assets lower, resulting in the worst funded status for the typical U.S. corporate pension plan since October 2009, according to monthly statistics published by BNY Mellon Asset Management. The funded status in May declined 4.3 percentage points to 82.0 percent. Through the end of May, the funded status of the typical U.S. corporate plan is down 3.5 percentage points for the year. The falling stock markets resulted in a decline of 4.8 percent in assets at the typical U.S. corporate plan, while liabilities were little changed in May, rising 0.3 percent, as reported by the BNY Mellon Pension Summary Report for May 2010. Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities. "U.S. stocks in May had their worst month since February 2009, declining nearly eight percent, while a weakening euro helped to send international stocks down more than 11 percent, said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management. "May's results wiped out equity gains on a year-to-date basis. Unfortunately, there was no relief on the liability side as the Aa corporate discount rate remained essentially flat despite a 30-basis-point widening of spreads to Treasuries." Austin added, "The May 6 U.S. market flash crash reminds us that the equity markets remain very sensitive. Continuing fears over the European sovereign debt crisis and the fragility of the global economic recovery are likely to result in increased market volatility for the near term. In response to this expected volatility, we are hearing from a growing number of corporations that are seeking new solutions to manage financial risks posed by their pension plans. There appears to be growing interest for funding strategies that seek to establish deadlines to achieve and maintain specific funding levels, with the goal of providing a buffer against wide swings in either the equity markets or in interest rates." State pension funds are not fairing any better. Weak equity markets and low bond yields are exacerbating pension deficits. This is a long-term structural problem that will require difficult decisions. Below, a humorous look at the growing problem of underfunded public pension plans. I thank Bill Tufts of Fair Pensions For All for sharing it with me.

Gold Seeker Closing Report: Gold Gains Almost 2% While Silver Surges Over 4% Posted: 07 Jun 2010 04:00 PM PDT Gold reversed slight gains in Asia and fell as much as $5.90 to $1210.40 in London, but it then shot higher in late morning New York trade and ended near its early afternoon high of $1239.35 with a gain of 1.78%. Silver followed a similar pattern and ended near its late session high of $18.15 with a gain of 4.5%. This past May 12th gold set its record closing high of $1242.70 and record intraday high of $1249.30.

The Cause of the Oil Spill: Peak Oil Posted: 07 Jun 2010 03:49 PM PDT → Washington’s Blog Sarah Palin and many others claim that the BP Gulf oil disaster happened because environmentalists have prevented drilling in shallower waters and safer locations. In other words, they claim that oil producers were forced into deeper, more dangerous conditions because of environmentalists. Are they right? BP was clearly criminally negligent, and government regulators were wholly captured by the oil industry. But we have to take a step back to see the bigger picture. As McClatchy pointed out last month: Conventional U.S. oil production has been in decline since the 1970s, and near-shore production along the Gulf Coast peaked in 1997. ***   Globally, one in every 10 barrels of oil produced in 2030 will come from ultra-deepwater operations, [Leta Smith, director of oil supply research for Cambridge Energy Research Associates, a leading oil analyst] said, adding that roughly 70 percent of the deep water in the Gulf of Mexico remains unexplored.   In 1990, the deep waters of the Gulf of Mexico yielded about 20,000 barrels per day of crude oil. By 2009, that number had grown to 1 million, according to CERA.   Nine projects that are coming onstream will add at least 200,000 barrels per day this year, said CERA researchers, who expect deepwater production to account for 17 percent of U.S. liquids production this year, which includes oil and natural gas.   Today there are at least 42 active deepwater projects for exploration or production in the U.S. Gulf of Mexico or international gulf waters, and at least another five projects in the works. Seventeen of those are ultra-deepwater.   ***   Outside the Gulf Coast region, Brazil is the world's most promising ultra-deepwater producer, with new discoveries in the past five years in the so-called Santos basin that experts think will make the South American giant a powerhouse in the oil business. Deep waters off the African nations of Nigeria and Angola also hold promise. Nigeria has next to no environmental controls. So the fact that deepwater drilling is being explored off the coast of Nigeria speaks volumes. As the Post Carbon Institute notes: With Federal regulators approving a new Gulf of Mexico oil well and the Canadian government continuing to support deepwater drilling off its own coasts, it looks like business as usual for the oil industry .... ***   Anyone wanting to understand the issue should turn to an 87-page Minerals Management Service document, Deepwater Gulf of Mexico 2009: Interim Report of 2008 Highlights [which] states: In February 1997, there were 17 producing deepwater projects, up from only 6 at the end of 1992. Since then, industry has been rapidly advancing into deep water, and many of the anticipated fields have begun production. At the end of 2008, there were 141 producing projects in the deepwater Gulf of Mexico. If 141 producing deepwater projects in that area seems larger than expected, note that there are many more leases on oilfields in the area – 7,310 active leases in 2008 - and that the trend is towards ever deeper water. The document continues: Over the last 15 or so years, leasing, drilling, and production moved steadily into deeper waters. There are approximately 7,310 active leases in the U.S. GOM, 58 percent of which are in deep water. (Note that lease statuses may change daily, so the current number of active leases is an approximation.) Contrast this to approximately 5,600 active GOM leases in 1992, only 27 percent of which were in deep water. There was a maximum of 31 rigs drilling in deep water in 2008, compared with only 3 rigs in 1992. Likewise, deepwater oil production rose about 786 percent and deepwater gas production increased about 1,067 percent from 1992 to 2007. Production from seven deepwater fields began in 2008, including Thunder Horse, the largest daily producer in the GOM. So why is drilling happening in such deep waters off the coasts of the U.S., Canada, Brazil, Angola, Nigeria and other countries? In two words: peak oil. As the head geologist of one of the world's largest oil companies - the guy whose job it is to find new oil - told me a year ago: Yes, it is true [that we have peak oil]. We are no longer on the ascending part of the curve. In other words, the rate of petroleum production (and also the rate of energy return for a given amount of investment) is no longer on the rising, left-hand side of the bell-shaped curve: And the world's leading oil experts say that peak oil is real. Peak oil doesn't mean that the oil flow will suddenly stop. What it does mean is that more and more extreme methods will be used to find and extract oil, such as deepwater drilling or crushing literally tons of sand to squeeze out some petroleum. Energy and oil expert Byron King explains in a new interview: [Interviewer] We know about peak oil already. But… is it really THAT bad that we’re having to search for oil buried beneath 12,000 feet of water? And after the water, another 10,000 feet of dense rock? That’s a lot of risk to take. Seems to be proof for the end of cheap oil theory, right?   [Byron King] Exactly. The days of drilling a hole beneath the soil in Texas, inserting a pipe and watching oil gush out are gone. We’re never going back to those days.   It gets into what we’re dealing with here in the search for deep sea oil… The energy industry has to go deeper and deeper to make things work. Risking more and more capital – and unfortunately, lives – along the way.   Look at what we’ve seen in the last 20 years or so, since 1990, when the oil industry really started to go deep. There was something like an “arms race” to develop better and better deepwater technology, to go for the next levels down. We’ve seen this race to deeper and deeper water. And it’s all because the so called “cheap oil” is gone.   It used to be that drilling at 1,000 feet water depth was the edge of technology! You know, back then in the early 1990s it was 1,500 feet, then it was 2,500 feet, then it was 5,000 feet…7,500, 10,000. Now they’re drilling at 12,000 feet of water.   ***   Offshore development is the future of oil. The oil industry wouldn’t be taking these risks if cheap oil was still with us. We’re just starting to scratch the surface of this deep-sea stuff. The cheap stuff’s gone. Gotta go offshore… The cheap stuff - and the less dangerous to get stuff - is gone. Because oil companies will go to more extreme measures and operate in more dangerous conditions to extract oil, there will be more accidents. As the Guardian reports: One industry insider, who asked not to be named, said: "Major spills are likely to increase in the coming years as the industry strives to extract oil from increasingly remote and difficult terrains. Future supplies will be offshore, deeper and harder to work. When things go wrong, it will be harder to respond." And because it will be so expensive to produce, companies will try to cut corners - just as BP did with the Deepwater Horizon drilling operation. Therefore, there will be more catastrophic accidents, which are much harder to clean up than a little oil gusher in the nostalgic oil fields of Texas. Unless we switch to smarter forms of energy, the Gulf oil spill will end up simply being one of many catastrophes. Note: While there are many promising prospects for alternative energy, it is important to be honest. Many types of alternative energy currently either use more energy than they produce, require substantial amounts of fossil fuels or toxic chemicals to produce, or only appear economical because of massive, hidden subsidies (I'm all for subsidies, as long as they are out in the open). Of course, oil is massively subsidized as well.

Analyst: Invest In Barb Wire And Guns, A Nightmare Is Upon Us Posted: 07 Jun 2010 03:46 PM PDT (snippet) No Exit Strategy Fry sees three outcomes for the global economy and none of them makes very good reading. "You can have lower rates and deflation, higher rates and higher inflation or the nightmare scenario of higher rates and deflating asset prices," he said. "If the nightmare scenario plays out as I suspect it may then the debt situation gets worse. There is currently no exit strategy and the reaction to the crisis of policy makers remains a big worry." As a result, Fry is telling investors to play it safe and buy physical assets like land. "I don't want to scare anyone but I am considering investing in barbed wire and guns, things are not looking good and rates are heading higher," he said. The comments mirror those of bearish Bob Janjuah from RBS, who told CNBC on Friday that we are facing big stock market losses and told investors to get into gold before G20 governments attempt to throw another $15 trillion in quantitative easing in a bid to jump start the economy. "The policymakers' response to the crisis has been new debt and this is an old game" said Janjuah. "Over the next 6 months we will see private sector deflation pushing 10-year yields down to 2 percent," he predicted. "This will see the policy makers mistakenly attempt to kick start the economy and market with a global quantitative easing program worth between $10 and $15 trillion dollars." More Here..

Golmand Sachs Gets Subpoenaed: Provides BILLIONS of Pages Of Documents Posted: 07 Jun 2010 03:25 PM PDT WASHINGTON (AP) -- A panel probing the causes of the financial meltdown has issued a subpoena for documents from Goldman Sachs Group Inc., accusing the firm of stonewalling an investigation. The Financial Crisis Inquiry Commission said Monday it had sent Goldman numerous requests for information, documents and interviews. Goldman didn't respond to some questions, said panel chairman Phil Angelides. With others, it provided billions of pages of documents -- far more than the commission staff can process. "This has been a very deliberate effort over time to run out the clock," FCIC co-chair Bill Thomas said in a call with reporters. He said Goldman is "about mischief-making" and called the bank's actions "unacceptable". "We did not ask them to pull a dump truck to our offices and dump a bunch of rubbish," Angelides added. At least six other investment banks answered similar requests from the commission without incident, Thomas said. More Here..

Marc Faber's Must Watch 2010 Presentation Posted: 07 Jun 2010 02:46 PM PDT As someone once said, the only man who can tell a room full of people they are doomed and get a standing ovation, Marc Faber, gives a terrific hour long presentation to the Mises Circle in Manhattan on May 22, discussing the economy, interest rates, markets, why having massive output gaps (see previous post for Bernanke's most recent dose of lunacy on the matter) and hyperinflation can easily coexist, why the Fed will never again implement tight monetary policy, why Greenspan is a senile self-contradictor, why Paul Krugman is a broken and scratched record, and the fact that pretty much nothing matters and we are all going to hell. Little new here for long-term economic skeptics, but a must watch for all neophytes who are still grasping with some of the more confounding concepts of our dead-end Keynesian catastrophe and not only why the world can not get out of the current calamity absent a global debt repudiation, but why gold is the asset to own, even though one must not be dogmatic and shift from asset class to asset class in times of tremendous currency devaluation (i.e., such as right now). 2010's must watch Marc Faber presentation. One thing we disagree with Mr. Faber on, is that Asian banks did not buy CDOs during the housing bubble - this is patently wrong. As a detailed perusal through the Goldman discovery will confirm, Goldman looked increasingly eastward, first to Europe, and then to Korea, Japan and Taiwan, when finding the dumbest money around to invest in monstrosities such as Timberwolf, Abacus and others. If Mr. Faber is investing based on the assumption that Asian banks are free of this relic of the credit boom, we urge him to promptly reevaluate his investment thesis as he will certainly lose money here.

Is Excess Economic Slack No Longer A Factor For Ben Bernanke? Posted: 07 Jun 2010 02:27 PM PDT Traditionally the primary metric watched by Fed Chairmen when determining changes to monetary policy, especially on the tightening side, has been the observation of a contraction in the "excess slack" component in the economy, defined rather loosely, but primarily in terms of excess unemployment over the dogmatic steady-state unemployment rate in the 5-7% range. Today, in a Q&A at the Woodrow Wilson International Scholars dinner, Ben Bernanke joined Hoenig and other Fed members in stating that the Fed will no longer await a "sizable" drop in the jobless rate before raising interest rates. This is good, because as the San Fran Fed discussed in an analysis from exactly a year ago, the unemployment rate is not going down any time soon. Does this also mean that the Fed is no longer wed to the worst, and most procyclical indicator imaginable, i.e., economic slack? The answer of course, is no. And the only reason Bernanke is pretending to care about tackling the issue of inflation in advance, is due to the sudden and dramatic focus the ECB's policies have gotten in Europe, coupled with the dramatic politicization of Trichet's bank. It is ironic, that in the US the Fed is using the "political" card when demanding free reign in its complete opacity to do precisely the things that in Europe bring about screams of central bank politicization. But then again, they can't print a reserve currency, can they. Thus, the use of a double, and a 180 degree opposite at that, standard is not only welcome but expected. Market News reports: Noting that monetary policy takes a long time to work, Bernanke warned, “We can’t wait until unemployment is where we’d like it to be, we can’t wait until inflation gets out of control before we begin the process of normalizing interest rates.” “We are going to have to make a judgment about when is the appropriate time to begin moving and begin moving towards a more normal policy,” he said, “but doing that in a way that anticipates where  the economy is going to be a year or a year and a half down the road.” So it will be the case, Bernanke reiterated, that when the Fed starts the process of tightening monetary policy that the economy will not yet be back to full employment. Regarding his thoughts on how the recovery in the U.S. is progressing, Bernanke noted good  "momentum” in consumer spending and business investment, saying, “There are some signs that the private sector is picking up the baton and moving the economy forward.” In addition to empty rhetoric about rate hikes, Bernanke also had the following words of caution: The banking system is also not “completely healthy” Bernanke continued, with credit availability not yet at the point the Fed would like it to be. Banks are being relatively cautious with regards to new loans, he said, focusing on deleveraging and reducing their balance sheet.   On the precarious situation in Europe, Bernanke said the Fed is watching the situation “very closely,” stating his belief that the EU remains committed to preventing defaults by its peripheral countries and that the E440 billion special purpose vehicle will cover the obligations of the struggling nations “for a number of years.” Noting the continued uncertainty in market, Bernanke assured that, “European leadership is strongly committed to doing whatever is necessary to preserve the euro, preserve the euro zone … and avoid the financial problems that would certainly arise if Greece or another country defaulted.” This led him to comment on the United States’ own deficit situation, saying it will not be possible for the government to balance its budget this year or the next. “The recession is too deep, the loss of tax revenue is too great, the spending to try and support the economy and the financial system too large.” And some glowering hypocrisy, regarding the US $13.1 trillion in debt, incurred primarily in connection with bailing out his Wall Street superiors: Over the next three to six years, however, the U.S. must gain control of its public debt, underlining the need for a medium-term plan to bring the U.S. fiscal house in order, Bernanke said. All in all, another day in the Chairman's life, full of talk, empty promises and bluster, and nothing but. In the meantime, is it too much for the disgruntled US population to ask just what the outcome of today's discussion on the Discount Rate hike was? Or will the market interpret the mere lack of an announcement as equivalent to ongoing monetary looseness? Now that would be ironic: after all the Chairman spent an entire afternoon claiming he would do the sensible thing at the end of the day. Should we then assume that he was, gasp, lying?

Long Gold, Short Stocks Posted: 07 Jun 2010 02:22 PM PDT Which is why I rather enjoyed today. Gold won the clash of the titans and looked strong

The International Significance of Gaza Posted: 07 Jun 2010 02:15 PM PDT Original piece here. Co-written by Qasim Khan Since the recent boardings of the Turkish flotilla last week and the MV Rachel Corrie on Saturday have grabbed headlines, much has been made of the economic significance of these events. However, many notable pundits continue to claim that this situation presents much less of a concern than other tensions in the region and throughout the world. Normally we would be inclined to agree with their reasoning, but a recent Economist piece on the conditions in Gaza has forced us to question this position. It appears that contrary to its intended purpose, the shunning of Gaza has resulted in increased control and legitimacy of the Hamas government. The article is a must read, but here are a couple especially important highlights: Initially Hamas and other militant groups, drunk on their self-claimed success in forcing Israel’s departure, sought to fight their way out with projectiles. The number of mostly home-made rockets hitting Israel rose from 281 in 2004 to 1,750 in 2008; and their range rose from a few kilometres to reach Tel Aviv’s outskirts. But stung by the ferocity of Israel’s reprisals, most lethally in the January 2009 war, Hamas reined in its fire and forced others to do likewise. So far this year 34 rockets have landed in Israel, none launched by Hamas. “Hamas is defending Israel,” chuckles an Israeli foreign ministry official.   …   Instead Hamas has turned its energies inward. With Gazans locked inside the 40km by 10km (154 square-mile) strip, the siege has given Hamas a free hand to mould the place… At first the resistance economy failed to meet people’s needs. But today, thanks to the tunnels, Gaza’s shop shelves are brimming with goods that often arrive cheaper and faster than when Israel opened the gates.   …   Humanitarian agencies, with an eye on external financing, bewail the lack of development. But their indices miss the point. Gaza is redeveloping, and Hamas is making society in its own image. Huge amounts now pass through the tunnel shafts each year, creating a new economy from which Hamas creams a handsome share of the profits to finance its rule. “The siege is a gift,” says a Hamas minister.   …   This has created stability but at the price of a reign of fear. When rival Islamists decried Hamas’s rule in Rafah, the militants stormed the mosque and killed its worshippers. When leftists protested that the tax rises hit a people already burdened by siege, they were hauled to jail. The death penalty has been reinstituted. And insensitive to comparisons with Israel, Hamas’s forces have bulldozed the homes of Gazans who had moved onto former settlement land without authorisation. A thriving political culture has been culled to a one-faction state. Israel was put in a no-win situation regarding the recent humanitarian missions. Let the boats make it to Gaza and lose all credibility; stop the boats and become the villain. With increased Israeli backlash, (not to mention more tempered, albeit still undeniable support from the US) and increased resistance and protest efforts, this story will only continue to dominate headlines. We would suspect that we haven’t seen the last of boats, protests and resistance on an international scale either. The problem is because of its aggressive policies, Israel will continue to find itself in no-win situations, like denying entry to Noam Chomsky this week for a lecture to be given at the West Bank’s Birzeit University; it is clear that the current path is unsustainable. Are we saying that there will be trouble in the near future? No. Very clearly this is just part of a conflict that stretches upon a much longer time horizon. But there is a very real possibility that this conflict reaches a breaking point within the next two or three years and Gaza could very well be the impetus for the ultimate breakout of the Israeli-Palestinian-Iranian-US-Oil-Restoftheworld clusterfuck of political tension, with severe global economic ramifications. And the catalysts keep on coming. Just before the flotilla raid, Israel deployed the first of three nuclear missile submarines off the coast of Iran for a permanent nuclear presence in the area: The submarines could be used if Iran continues its programme to produce a nuclear bomb. “The 1,500km range of the submarines’ cruise missiles can reach any target in Iran,” said a navy officer. Apparently responding to the Israeli activity, an Iranian admiral said: “Anyone who wishes to do an evil act in the Persian Gulf will receive a forceful response from us.”   Israel’s urgent need to deter the Iran-Syria-Hezbollah alliance was demonstrated last month. Ehud Barak, the defence minister, was said to have shown President Barack Obama classified satellite images of a convoy of ballistic missiles leaving Syria on the way to Hezbollah in Lebanon.   Binyamin Netanyahu, the prime minister, will emphasise the danger to Obama in Washington this week. Of course, Netanyahu never met with Obama as the flotilla raid happened a day later. The increasingly vocal alliance between Iran and Hamas, in enmity against Israel, has extensive implications on US foreign policy. Its positioning with Israel is finding increasing fragility, due to international pressure against Israel's recent actions; meanwhile, its anti-Iran policy is at odds with further neutralization of its relations with Israel. With its own enormous problems domestically, the United States is at a critical turning point in its foreign relations regarding Israel, and the recent global anti-Israeli sentiment (which may increase as Israel rejects demands for an international probe on the Gaza flotilla raid) is putting pressure on Obama to not end up going the route of Bush 2.0 regarding Middle Eastern politics. Political momentum is vital to furthering causes, as the anti-offshore drilling backlash to the recent BP turmoil attests to. And with anti-Israeli sentiment seeing a resurgence on the eve of recent events, further aggression from Israel will lead to a positive-feedback cycle of political death. Meanwhile, Israeli patrol killed four Palestinian militants diving off the Gaza coast today. The political ramifications of this, particularly in the global community (and thus affecting US policy), are enormous. Yet a more tempered stance from Israel would provide even more momentum for a homegrown revolution in Gaza. And with Hamas gaining political and economic control in Gaza, time is of the essence for the United States to position itself properly. If it decides to use the Iranian support of Hamas as justification for a resurgence of American-Israeli relations, a political dichotomy will unfold in foreign relations, and Obama may be forced to go way of GWB. As Bush once said, "Fool me once, shame on — shame on you. Fool me — you can't get fooled again." And the international community will not let itself be fooled again by an aggressively militant United States presence in the Middle East. If the declining, yet still very existent, American support of Israel continues, Israel could find itself struggling for alliances and forced to increase its already aggressive policies. Either way, time is becoming a factor, and as the Economist puts it, "the Obama administration’s failure to cast a blanket veto on any deprecation of Israel is depicted in Israel almost as a betrayal," rendering neutrality/indifference not an option for the USA.

Hungarian Bond Story Posted: 07 Jun 2010 02:03 PM PDT I was rummaging through some old stuff and found this: Here is a close up of the legend: As you can see this is a $500 Hungarian bearer bond issued in 1924. It is worn, but still pretty. This how they printed money back then. They issued bonds. Sound familiar? A bit of history. My father bought these and hundreds of others like it after WWII in Zurich, Switzerland. Czech, Polish, Yugoslav and Hungarian bonds. The pile was six inches high. They stayed in a closet until I got them in 1980. Years later, with the help of the Foreign Bondholders Protection Agency I was able to peddle the pile for a few pennies on the dollar. I kept this bond as a reminder. There is a stamped legend on the front of the bond that says it was restructured in 1937. At that time the principal was rolled over to 1979. The interest rate was reduced to 4.5% from 7.5%. A forty-year extension of the principal, the yield was cut in half. A lousy deal for the bondholders. Attached to a bearer bond are coupons which one clipped and sent to a bank for collection. The following is a picture of the remaining coupons. Presumably the August 1941 payment was made. But no effort was made to collect on the February 1942 coupon. Not hard to imagine why. Fifty years later the $500 of principal and the $1,250 of accrued interest were worth $40. In 1924 Hungary was a prosperous nation and could issue debt because people believed it would be paid back on a timely basis and in the meantime it was a “store of wealth”. Banks were suspect, but a sovereign credit was as good as gold. And this store of wealth could be transported across borders. Things changed in the first 13 years in ways that could not be anticipated. An effort was made to formally restructure what were un-payable debts. The evidence is that partial interest continued for another five years and then it was worth nothing. There are very few similarities to the Hungary of 1924/37/42 and Hungary/PIIGS/etc. of today. First and foremost there are no attractive looking, negotiable bearer bonds. But electronics has made the debts more mobile then ever. There is no war in Europe to destroy the value of a debt. Today there is just too much debt. That alone will destroy its value. The observation is that many countries defaulted over the years. Every country south of Texas went bust in the 80’s. Each time the bondholders got whacked. Some debts just got rescheduled at a lower rate. Some paid nothing at all. The difference between 1945 in Europe and the problem countries in the EU today is that the numbers are so crazily large. The deflationary implications of restructuring a few trillion in debt are difficult to fathom. But history does have a way of repeating itself. Another takeaway from a review of this bond is that it was backed by gold. Of course there was no gold. Only ink that said there was. And today we are still talking about this very same subject. Ink is not gold. Amazing how little things change.

The Biggest Shock of All Posted: 07 Jun 2010 12:43 PM PDT Why did the specter of collapse in far-away Hungary help sink the Dow by 323 points on Friday? And why did similar scenarios in Greece, Spain, and Portugal trigger the Dow's 1,000-point Flash Crash one month earlier? Is it because those countries are so important to the future of America's blue-chip corporations? Not quite! It's because investors around the world are finally waking up to some shocking realities: Shock #1 is that these countries are canaries in the coal mine — the first of many that could suffer the wrath of investors fed up with runaway deficits. Shock #2 is that, in the UK and the US, federal deficits and total debts, as a percent of GDP, are similar to — or even larger than —those of Greece, Spain, Portugal, or Hungary. Shock #3 is the recurring revelations of official deceptions. Investors suddenly discover that unemployed were counted as employed … that government debts were disguised as capital … that far bigger federal deficits were camouflaged. And it is these revelations that trigger the biggest selling panics, that are the final nail in the coffin for companies and entire countries. But Shock #4 is the biggest and most dangerous of all — not just random deceptions by a few companies or a few countries, but a global deception in the credit ratings that investors rely on for nearly ALL companies and countries! With gathering momentum right now, investors are beginning to realize they can't trust the ratings issued by established agencies like Moody's, Standard and Poor's, and Fitch. But this is not merely bad news for the agencies themselves. It's also a powerful force that can drive global stock and bond markets into a nosedive. When companies are downgraded, their share and bond prices automatically fall. So think about what it means when the grading system itself, encompassing thousands of ratings on trillions of dollars in securities, crumbles! It implies, in effect, a collective downgrade of nearly ALL the securities in the world — every rated corporate bond, municipal bond, and even government bond in existence! Needless to say, this transformation is too massive to happen overnight; it will progress in three phases. More Here..

Anyone recognize this Franklin Mint bar? Posted: 07 Jun 2010 12:30 PM PDT I bought this piece of Franklin Mint bullion and I didn't understand why there was no indication of the weight of the bar. I didn't want to take it out the package for the sake of preservation. The whole package weighs 22.7 grams so it is definitely not a 1 ounce bar. Im guessing a 1/2 ounce bar? Anyways, I hoping someone here might have seen it and can tell me how much it really weighs. http://imgur.com/Qeddq.jpg http://imgur.com/hPII6.jpg

Precious Metals Market Report Posted: 07 Jun 2010 12:10 PM PDT By Catherine Austin Fitts Paul Ferguson is a founder and Treasurer of the First Ever Solari Circle, my circle that has been meeting every Monday by phone since 2005. Paul is a very astute entrepreneur and investor. He will be coming this week to Tennessee to spend several days with David Liechty and me. We head [...]

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