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Sunday, July 4, 2010

Gold World News Flash

Gold World News Flash

The Dow Chart is Ugly

Posted: 03 Jul 2010 06:31 PM PDT

From its Thursday low of $1,195 spot shortly after 4:00 p.m. in New York... gold rose quietly until about 1:00 p.m. in Hong Kong trading on Friday. From there it only added a few more dollars to its London high of around $1,213 spot shortly before lunch their time. From that high, the gold price slowly rolled over... and by the time the Comex opened in New York... had given back about $10 of those gains. This decline ended abruptly at $1,202 spot at precisely 8:30 a.m. Eastern time. Then, about a half hour after the London p.m. gold fix was in at 10:00 a.m. Eastern time, gold rose in fits and starts to close almost back at its London high. Gold's New York high of was $1,213.20 spot... with its low of the day occurring at the opening of Far East trading twenty-two hours prior. It wasn't very exciting trading... but volume was pretty decent... although it really fell off as the day progressed, as traders headed for the exits early, in order to get sta...


Jim?s Mailbox

Posted: 03 Jul 2010 06:31 PM PDT

View the original post at jsmineset.com... July 03, 2010 10:06 AM Gold Stocks Cup and Handle CIGA Eric Once the highs have been cleared, the trend will accelerate. Amex Gold Bugs Index (HUI): More…...


Daily Dispatch: Weekend Edition - July 03, 2010

Posted: 03 Jul 2010 06:31 PM PDT

Weekend Edition Dear Reader, Welcome to the weekend edition of Casey's Daily Dispatch, a compilation of our favorite stories from the week for the time-stressed readers. Of course, if you want to read all of the Daily Dispatches from the week, you may do so in the archives at CaseyResearch.com. [B] Deficit Hawks at the G-20?[/B] By Chris Wood You may have read that "leaders" of the world's biggest economies agreed on Sunday to a timetable for cutting deficits and halting the growth of their debt. But that's not really true. Rather than a firm deadline, the timetable to cut government deficits in half by 2013 and stabilizing the ratio of public debt to GDP by 2016 is really just a loose expectation. Furthermore, even if it had been a hard deadline, at least in the case of the U.S., the idea is laughable. Not that I don't hope the U.S. government gets its deficits and debt under control. I do. I just think at this point it's become ...


July and Emerging Markets

Posted: 03 Jul 2010 06:31 PM PDT

July and Emerging Markets By Frank Holmes CEO and Chief Investment Officer There's no shortage of bleak news out there that's weighing heavily on the markets, but we could be coming into a positive period for emerging markets investors. The chart below, from Jim Lowell at Dow Jones MarketWatch, shows that July tends to be a good month for emerging market equities. The sector's beta-weighted performance in July tops 2 percent on average, far greater than any other asset class on the chart. Of course, emerging markets can be highly volatile and there's no assurance that this month will follow the pattern. But Lowell's observation is certainly timely and may be of value to investors looking for opportunities in the current market. Our experience is that seasonality is one of many important variables to monitor to keep a finger on the pulse of the market. We have found it useful over the years to watch the seasonality of gold, oil, copper and other commodities a...


Hourly Action In Gold From Trader Dan

Posted: 03 Jul 2010 06:31 PM PDT

View the original post at jsmineset.com... July 02, 2010 02:25 PM Dear CIGAs, Gold held fairly well today considering the fact that there was further unwinding of those Gold/Euro and Gold/Sterling spread trades. That trade continues to be tied to the shift away from the problems of sovereign debt in Euroland and an increasing focus on the abysmal state of the US economy which we were reminded of with today's payroll numbers. You can see the unwind by looking at the performance of Dollar-priced gold versus Euro-priced gold at the London PM Fix over the past week. Euro gold lost 6.4% of its value against a fall of only 4.2% in Dollar gold. If you recall, gold priced in Euro terms had been outperforming gold priced in Dollar terms during the height of the European sovereign debt crisis. Now that those fears are fading somewhat, Euro gold is dropping at a faster clip. We will be able to see where the investment community focus is shifting from day to day or week to week by monitoring ...


Gold Buyer's Checklist

Posted: 03 Jul 2010 06:31 PM PDT

by Paul Tustain BullionVault Friday, 27 November 2009 A nine-point checklist for secure gold investment... LOOKING TO buy gold today? Here's a nine-point check-list for secure gold investment presented to this week's Investor's Chronicle Gold Conference, hosted at the London Stock Exchange... #1. Don't take it home, except maybe a few coins History is littered with sad stories of people who bought gold (rightly) because they feared severe economic contraction in their home country, and then made the mistake of holding their gold at home. When they needed it they could not release its value because it had become contraband. Think of Zimbabwe (now), Argentina (2001), Yugoslavia (1990s), Vietnam & Cambodia (1970s), Nazi Germany (1930s), the USA (1933), Russia (1917). Gold secures your wealth when it is held in a reliable country. This is unlikely to be your own country if you are wise to be buying gold. 2. Buy 'Good Delivery' fine bullion to save 6-10% over coins & small bars Th...


Why you can’t day trade Gold

Posted: 03 Jul 2010 06:00 PM PDT

BP plc And The Administration Replace First Amendment With $40,000 Fine And Class D Felony

Posted: 03 Jul 2010 11:54 AM PDT


CNN's Anderson Cooper, one of the few people who apparently hasn't or isn't leaving the troubled news network (surely Ted Turner has learned by now from CNBC that his female anchors should wear transparent body suits, show belly button deep cleavage, and install a stripper pole or seventeen for those ever more elusive Nielsen points), reports some troubling developments out of New Orleans. "The coast guard today announced new rules keeping photographers, reporters and anyone else from coming within 65 feet of any response vessel or booms, out on the water or on beaches. In order to get closer you need to get direct permission from the coast guard captain of the Port of New Orleans. Shots of oil on beaches with booms - stay 65 feet away. Pictures of oil soaked booms useless laying in the water because they haven't been collected like they should. You can't get close enough to see that. And believe me, that is out there. But you only know that if you get close to it, and now you can't without permission. Violators could face a fine of $40,000 and class D felony charges. The coast guard tried to make the exclusion zone 300 feet before scaling it down to 65 feet." While Cooper's conclusion is spot on, "we are not the enemy here, those of us down here trying to accurately show what is happening down here, we are not the enemy. If we can't show what is happening, warts and all, no one will see what is happening, and that makes it very easy to hide failure and hide incompetence", it doesn't matter, and little by little, nothing else matters, except for what the administration, the Fed, and the megacorps think it is in America's best interest to be able to see, hear, read, do, and what assets they have, where they can invest... especially if all this is done in conjunction with maxing out yet another credit card to buy the latest and greatest weekly edition of the iPhone.

h/t Arnoldsimage

Currency Wars and Fugitives from Justice

Posted: 03 Jul 2010 11:31 AM PDT

Stacy Summary:  Excellent piece from Jesse's Cafe Americain.   We're already seeing this . . .

The oligarchs have ruined the US. They will now seek to subtly starve the middle and lower classes to pay for their bonuses, and will resist every effort to repeal the absolutely irresponsible tax cuts enacted during the administration of their chosen candidate G. W. Bush, and the setup to divert reform through their stalking horse, Barrack Obama. They will speak out of both sides of their mouths. Unemployment insurance, Social Security benefits, and pensions are bad, and their unfortunate recipients lazy, stupid and expendable, but the keeping ill gotten gains, enormous fortunes obtained through fraud and paying little or no effective taxes on them, is a requirement for economic recovery. There will be many useful idiots well outside the circle of power who will agree with this injustice, and vehemently attack the unfortunate in society because of a combination of character flaws, usually selfishness, emotional immaturity, and just plain meanness. It is how it always is. Most Gestapo informants were actually neighbors, bearing petty grudges and spites, not realizing the damage they were doing to real people.

Gold Wars : Military Conflicts, Gold and Currency Crises

Posted: 03 Jul 2010 11:10 AM PDT

Bond Market Worried About 1930s Echo?

Posted: 03 Jul 2010 10:31 AM PDT


Via Pension Pulse.

David Leonhardt of the NYT wrote an excellent article this week, Governments Move to Cut Spending, in 1930s Echo:

The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.

 

In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.

 

On Tuesday, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth.

 

Longer term, though, it’s still impossible to know which prediction will turn out to be right. You can find good evidence to support either one.

 

The private sector in many rich countries has continued to grow at a fairly good clip in recent months. In the United States, wages, total hours worked, industrial production and corporate profits have all risen significantly. And unlike in the 1930s, developing countries are now big enough that their growth can lift other countries’ economies.

On the other hand, the most recent economic numbers have offered some reason for worry, and the coming fiscal tightening in this country won’t be much smaller than the 1930s version. From 1936 to 1938, when the Roosevelt administration believed that the Great Depression was largely over, tax increases and spending declines combined to equal 5 percent of gross domestic product.

 

Back then, however, European governments were raising their spending in the run-up to World War II. This time, almost the entire world will be withdrawing its stimulus at once. From 2009 to 2011, the tightening in the United States will equal 4.6 percent of G.D.P., according to the International Monetary Fund. In Britain, even before taking into account the recently announced budget cuts, it was set to equal 2.5 percent.

 

Worldwide, it will equal a little more than 2 percent of total output.

 

Today, no wealthy country is an obvious candidate to be the world’s growth engine, and the simultaneous moves have the potential to unnerve consumers, businesses and investors, says Adam Posen, an American expert on financial crises now working for the Bank of England. “The world may be making a mistake, and it may turn out to make things worse rather than better,” Mr. Posen said.

 

But he added — after mentioning China, India and the relative health of the financial system, today versus the 1930s — that, “The chances we’re going to come out of this O.K. are still larger than the chances that we aren’t.”

 

•

 

The policy mistakes of the 1930s stemmed mostly from ignorance. John Maynard Keynes was still a practicing economist in those days, and his central insight about depressions — that governments need to spend when the private sector isn’t — was not widely understood. In the 1932 presidential campaign, Franklin D. Roosevelt vowed to outdo Herbert Hoover by balancing the budget. Much of Europe was also tightening at the time.

 

If anything, the initial stages of our own recent crisis were more severe than the Great Depression. Global trade, industrial production and stocks all dropped more in 2008-9 than in 1929-30, as a study by Barry Eichengreen and Kevin H. O’Rourke found.

In 2008, though, policy makers in most countries knew to act aggressively. The Federal Reserve and other central banks flooded the world with cheap money. The United States, China, Japan and, to a lesser extent, Europe, increased spending and cut taxes.

 

It worked. By early last year, within six months of the collapse of Lehman Brothers, economies were starting to recover.

 

The recovery has continued this year, and it has the potential to create a virtuous cycle. Higher profits and incomes can lead to more spending — and yet higher profits and incomes. Government stimulus, in that case, would no longer be necessary.

 

An internal memo from White House economists to other senior aides last week noted that policy makers “necessarily tend to focus on the impediments to recovery.” But, the memo argued, the economy’s strengths, like exports and manufacturing, “more than make up for continued areas of weakness, like housing and commercial real estate.”

 

That optimistic take, however, is more debatable today than it would have been a month or two ago.

 

As is often the case after a financial crisis, this recovery is turning out to be a choppy one. Companies kept increasing pay and hours last month, for example, but did little new hiring. On Tuesday, the Conference Board reported that consumer confidence fell sharply this month.

 

And just as households and businesses are becoming skittish, governments are getting ready to let stimulus programs expire, the equivalent of cutting spending and raising taxes. The Senate has so far refused to pass a bill that would extend unemployment insurance or send aid to ailing state governments. Goldman Sachs economists this week described the Senate’s inaction as “an increasingly important risk to growth.”

 

The parallels to 1937 are not reassuring. From 1933 to 1937, the United States economy expanded more than 40 percent, even surpassing its 1929 high. But the recovery was still not durable enough to survive Roosevelt’s spending cuts and new Social Security tax. In 1938, the economy shrank 3.4 percent, and unemployment spiked.

Given this history, why would policy makers want to put on another fiscal hair shirt today?

 

The reasons vary by country. Greece has no choice. It is out of money, and the markets will not lend to it at a reasonable rate. Several other countries are worried — not ludicrously — that financial markets may turn on them, too, if they delay deficit reduction. Spain falls into this category, and even Britain may.

 

Then there are the countries that still have the cash or borrowing ability to push for more growth, like the United States, Germany and China, which happen to be three of the world’s biggest economies. Yet they are also reluctant.

 

China, until recently at least, has been worried about its housing market overheating. Germany has long been afraid of stimulus, because of inflation’s role in the Nazis’ political rise. In responding to the recent financial crisis, Europe, led by Germany, was much more timid than the United States, which is one reason the European economy is in worse shape today.

 

The reasons for the new American austerity are subtler, but not shocking. Our economy remains in rough shape, by any measure. So it’s easy to confuse its condition (bad) with its direction (better) and to lose sight of how much worse it could be. The unyielding criticism from those who opposed stimulus from the get-go — laissez-faire economists, Congressional Republicans, German leaders — plays a role, too. They’re able to shout louder than the data.

 

Finally, the idea that the world’s rich countries need to cut spending and raise taxes has a lot of truth to it. The United States, Europe and Japan have all made promises they cannot afford. Eventually, something needs to change.

 

In an ideal world, countries would pair more short-term spending and tax cuts with long-term spending cuts and tax increases. But not a single big country has figured out, politically, how to do that.

 

Instead, we are left to hope that we have absorbed just enough of the 1930s lesson.

Not everyone agrees that government spending shouldn't be reigned in. An editorial in the Calgary Herald comments, A new long depression?: World should follow Canada's lead:

The violence that occurred during the recent G20 summit in Toronto and the focus on the $1-billion cost of the affair overshadowed what was surely the most critical element of the meeting of world leaders: how to prevent, or at least best deal with, the continuing grave economic problems that beset almost all of the G20 countries save Canada.

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Many Canadians, most of whom kept their jobs in the short, sharp recession that ended one year ago, may understandably be blissfully unaware of the pressing economic problems many other countries yet face as they struggle to reemerge from their recessions, or worse, to avoid a slip back into another recession.

 

They should be more aware and governments should also be careful whose advice they take. This past week, in a piece entitled The Third Depression, Nobel Prize-winning economist Paul Krugman even wrote of the possibility of a third Great Depression, noting that while recessions occur regularly, he feared that much of the world was entering a Long Depression akin to the one that occurred following the 1873 panic in stock markets, which was followed by years of instability and deflation.

 

Krugman's remedy -- governments should spend, spend, spend to prevent deflation -- is not one with which we agree. Krugman's Nobel Prize is admirable, but other Nobel economists also exist and they disagree with Krugman. Canada's Robert Mundell, a Nobel Prize winner himself, recently advised the American government to lower business tax rates to spur reinvestment and recapitalize American banks.

 

U.S. room to move on tax rates, or much of anything else, is severely limited by how much Washington has already spent.

 

The U.S. public and Congress seem to have soured as of late on any new "stimulus" measures, this perhaps because the last round of deficit-increasing trillion-dollar stimulus packages, from the last administration and the new one, did not, as current U.S. President Barack Obama hoped, lower U.S. unemployment.

 

Instead, much of the money spent on bailouts, temporary tax rebates, cash-for-clunkers for automobile purchases and $8,000 tax credits for home purchases, merely stole purchases from the future and into the past 12 to 18 months. The result has been weakened consumer spending as of late. So the United States is back to where it started with an even bigger debt.

 

That, along with similar problems in Europe, is why the Krugmans of the world are incorrect to urge governments to spend more. Moreover, just this week, the Genevabased Bank of International Settlements stated that, "The first and most immediate challenge is to make a convincing start on reducing budget deficits in the advanced economies."

 

Private-sector confidence has steadily eroded as governments have borrowed more. Governments that excessively borrow crowd out the private sector and the private sector knows it, which is why companies are reluctant to spend on capital investment and new employees.

 

Europe is awash in red ink; the U.S. is mired in federal and state debt and a massive housing over-supply four years after prices first began to decline, and China's overheated property market may also soon burst causing more economic problems for the world. The situation worldwide calls for governments to be careful in their spending, not to assume they can finance another stimulus with questionable results.

 

Japan has been in what amounts to a "long recession "since the early 1990s -- and it followed Krugman's advice. At present, we think it more sensible for other nations to follow Canada's lead, our own Nobel-winning economist, and finally allow the private sector ultimately and finally to pull the world out of its economic malaise.

Of course, Paul Krugman isn't one to back down from debates on the economy. He was interviewed on Charlie Rose on Friday night (click here to watch) and he has taken on his critics in his blog, even openly threatening to punch them in the kisser.

On Saturday, Mr. Krugman wrote an op-ed, The Hawks Who Cried Wolf:

I’ve been taking a bit of a trip down memory lane, looking at older blog posts in aid of a possible future project. And I was struck by something I sort of knew, but hadn’t focused on: the latest round of oh-my-God-the-bond-vigilantes-are-attacking-gotta-cut is the third such round since Obama took office.

 

First, there was a runup in interest rates in the spring of 2009 — mainly a reaction to receding fears of a second Great Depression, but widely interpreted as a sign of impending fiscal doom. Then rates went back down.

 

Second, there was a big scare in the fall of 2009, based on, well, nothing — which is what led me to write my original post on invisible bond vigilantes. And fear of this phantom menace helped scare the Obama administration away from a second stimulus.

Finally, there was the bond scare of March, in which we were turning into Greece because of a blip in rates barely visible on the charts. Since then, rates have plunged.

It kind of makes you wonder: why do such claims carry any credibility? Bear in mind, too, that anyone who actually acted on these deficit scares — who, for example, believed Morgan Stanley’s prediction of soaring rates in 2010 — has lost a lot of money.

 

But I have a sinking feeling that the next time long rates rise even a bit — say, back to where they were a year ago — we’ll be told that the bond vigilantes have arrived. Really. And Washington will believe it.

And rates can rise from these levels, especially if economic data comes in stronger than expected. Consider this, Bloomberg reports that Treasury Two-Year Yield Drops to Record Low on Slowdown Concern:

Treasuries rallied, pushing the two- year note yield to an all-time low, as U.S. companies added fewer jobs in June than economists forecast and China’s manufacturing growth slowed.

 

The extra yield investors demand to hold 10-year notes over 2-year debt dropped the most in six weeks on heightened deflation concern. The U.S. government will sell $12 billion in 10-year Treasury Inflation Protected Securities on July 8.

 

“Whoever is calling for a double dip is emboldened by this week,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, one of the 18 primary dealers obligated to participate in Treasury auctions. “We have to be a little more cautious about what we expect in the future.”

 

The yield on the 10-year note dropped this week by 13 basis points, or 0.13 percentage point, to 2.98 percent, according to BGCantor Market Data. The price of the 3.5 percent security maturing in May 2020 increased 1 1/8, or $11.25 per $1,000 face amount, to 104 13/32.

 

The benchmark note’s yield fell the most since the five days ended May 21, when it dropped 22 basis points. It touched 2.88 percent on July 1, the lowest level since April 28, 2009. The two-year note yield slid 3 basis points to 0.62 percent after reaching the all-time low of 0.5856 percent on June 30.

 

The difference between 10- and 2-year note debt, known as the yield curve, dropped this week to 2.36 percentage points after touching 2.28 percentage points on July 1, the lowest level since Oct. 2.

 

The narrowed spread indicates investor preference for longer-term bonds, which tend to rise on slowing inflation. Two- year rates tend to track the outlook for the Fed’s target rate for overnight lending.

 

“Bonds are saying this economy is getting bad,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “People are going across the curve. They are buying for yield and capital preservation.”

My feeling is that the curve flattener trade is getting overcrowded, and yields can easily snap back from these levels, especially if economic data come sin stronger than expected.

But maybe the bond market is worried that austerity measures will effectively kill the fragile economic recovery, pitching the world into a protracted period of deflation. With 10- and 30-year yields plummeting to their lowest level since April 2009, there sure seems to be an ominous 1930s echo in the air.

20 Questions with Robert Prechter: Long Decline Ahead

Posted: 03 Jul 2010 07:39 AM PDT

The 7¼-year cycle has been quite regular since the first bottom in 1980. The next bottom was at the crash in October 1987. The next one was November 1994, which is when the economy went through four years with lots of layoffs ...

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Gold ETF: Time To Buy?

Posted: 03 Jul 2010 07:28 AM PDT

On Thursday, the SPDR Gold Trust (symbol: GLD), which is the ETF that tracks the performance of gold, saw its worst one day performance since February, 2010. No one would deny that gold is in a bull market ...

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Unaware of $60 Trillion in National Obligations

Posted: 03 Jul 2010 07:00 AM PDT

The mellow stock market decline through mid-2008 (measured by historical yardsticks) and the bull market in U.S. Treasuries of all maturities belied not a crisis but some dreadful disease that had been effectively quarantined.

Perhaps as in history's great epidemics, the doctors in this case had not seen this sort of sickness before and had yet to understand completely what strain of bug was at work. Although having DNA similar to pathogens seen in wartime debt buildups, this season's strain encoded itself with the pattern of socialism: entitlements, bloated and intrusive government, and punitive taxation exclusively directed at the top brackets. Its vector of transmission is fiat currency.

Our culture leaves the body politic and the investment community with no antibodies to recognize this threat. In earlier eras such as the 1980s, the bond vigilantes watched the money supply and government outlays closely. At the turn of the century, leading bankers looked over their shoulder for signs of the next wave of panic from others who might have lent speculatively, and they kept their balance sheets in good shape for that rainy day.

Today, those who took defensive action through short selling or exchanging their money for commodities were instead pilloried in public hearings and damned for being speculators.

Even before the stock market panic that began in 2008, lenders were willing to accept historically low returns on short- and long-dated treasuries even if these nominal returns were being eroded by a CPI-U that pierced through 5 percent from June through August, or worse, by that and taxation, too.

The low interest rates then may have anticipated the risks revealed once the stock market collapsed. More joined this wary camp to push nominal returns below zero once deflation became evident. It may be this contagion is a virus capable of fooling the body's defenses, sort of an HIV look-alike, since with long-term Treasury rates in the low single digits and a public that is not alarmed (or even aware) of the dangers of $60 trillion of national obligations, a message is being sent to the government that it might have unlimited supplies of free money that it might spend.

Private debt of $40 trillion plus $60 trillion of public debt and entitlements might have been enough moisture to feed a hurricane. But it might just as well require more, due to the behavioral aspects of the system and its complexity, so no economist might know what the breaking point may be.

Unfortunately, sometimes markets, like ocean skies, can be clear before bed but stormy in the morning. The storm that could break hardest would be the downgrading of the credit rating of the United States. For if we expect to pay off the obligations of the government through concentrating tax increases on the top brackets, foisting debts of somewhere between $500,000 and $2 million upon each rich household (depending on where the cut-point is drawn), no longer would the Treasury have the resources to honor its obligations.

Yes, complete dismantling of the socialist entitlement state would fix the problem. But the political will to do something this drastic could never come out of thin air; it would only come once we as a society as a whole hit rock bottom.

Regards,

Bill Baker,
for The Daily Reckoning

[Editor's note: This passage is reprinted from William W. Baker's book, Endless Money: The Moral Hazards of Socialism, with the permission of John Wiley & Sons, Inc (©2010). You can get your own copy of his book here.]

Unaware of $60 Trillion in National Obligations 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."


Rick Santelli Uncut (And GE Turbofan Commercial Free)

Posted: 03 Jul 2010 06:54 AM PDT


Having rapidly become the only person worth listening to on CNBC, Rick Santelli's insights on the economy are now far more valuable than any other guest's on the Jeff Immelt propaganda station. Which is why we were very happy to find that Eric King's latest interview was with none other than Mr. Santelli. The topics discussed are numerous, varied and and very critical to our economy, covering such concepts as deflation, deficit spending, bailouts, government spending multipliers, Fed transparency, spending cuts, austerity, the folly of Keynesianism, strategic defaults, direct bidders and treasury auctions, and lastly, tea party dynamics, making this a must hear interview for anyone still on either side of the economic fence, and who enjoys listening to Rick for longer than the 45 second segments the CNBC producers will allow.

  • Deflation: "deflation is the most disingenuous argument especially in the current conditions. [When the bubble process ends prices have to come down to reality] the process really is deleveraging, but what happens when prices go down you get the economists call it deflation. Deflation is always the biggest bogeyman in a central banker's closet. It also allows them to use the only tool in their toolbox, which is to spend money, and usually money they haven't collected yet, so it's usually a deficit form of spending. Think about what economists are trying to do: we go up too high in leverage, prices are too high, we try to correct that process, it's called deflation, and they try to put money in to prop it up at an artificial price-deleveraging is the word we should stick to"
  • Deficit spending: "the only thing that works is across the board tax cuts because it fuels the type of small business that does the bulk of the hiring"
  • Bailouts: "the only regulation that will ever work is failure. If you don't allow failure what you end up with is regulators trying to serve when it's time to take punch bowls away. Regulators never go against the grain. Back in 03-04 many in the fixed income markets saw it coming but nobody wants to pull that punch bowl away. Businesses should fail, that's the way the system was designed"
  • The Multiplier of Government spending: "Larry Summers on many occasions has said that the multiplier of government spending is greater than 1. If that was true, we'd never have another recession ever again, and I would be advocating to spend a trillion dollars every hour. It would be like a perpetual motion machine and all physicists know those are impossible. Every dollar the government spends comes from somebody's pocket"
  • Fed Transparency: "It seems to me we are making some progress on the financial audit. I absolutely agree that on all of the issues that take taxpayers' money and end up being distributed or put on the balance sheet and in any way used by the Fed, there should be an audit that should be fully transparent. I am worried about the financial accounting"
  • On Spending Cuts: "Listeners, this is going to be the most important thing I am going to say: we need to maintain the focus on spending, the politicians in my lifetime always spend. If we end up spending way more than we can take in, in essence the deficit panel becomes a tax panel. We must stop spending before we talk about VAT taxes or taxing Americans more, we need to get spending under control. The retings of congress are the lowest they have been in history." 
  • On Austerity: "Nobody wants that. But there is a silver lining - the UK have conditions in their economy worse than the US, but they came up with an austerity plan, and we see that their currency has been rewarded. The GBP has risen about 10% in a very short period of time."
  • On Keynesianism: "The Keynesians are both right and wrong. I don't think Keynes advocated the kind of helicopter-Ben spending  that many say he promoted. He promoted the kind of stimulus that created jobs, that's more the medicine for a cyclical downturn, we have a structural issue because of the bubble credit scenario."
  • On the ECB's Debt Monetization: "I think that the ECB has a huge issue and they are behind the ball. They don't have a constitution in the eurozone, they have cultural and monetary cultural issues to deal with. I think that buying securities or monetizing or QE is always a bad idea. Once there is a subsidy in the marketplace, it becomes the normal pricing mechanism. For the Fed or the ECB to unload these securities, becomes a destabilizing force and in the long run does more harm than good."
  • On Strategic Defaults: "I have feelings on this that go both ways. I think morally I would have an issue doing that, but people who did the mortgage, or the second mortgage, or took a HELOC to pay for cars, pay for the vacations, I think it is reprehensible that we end up reshuffling wealth to pay some of that off. But I think the dynamic is from the government side - I think contracts between banks and homeowners - if it's unsecured, it's unsecured, I don't have an issue with that."
  • On Direct Bidders being a proxy for the Fed (a much debated topic on Zero Hedge) and Treasury Auctions in general: "That's the best question anyone has asked me in a long time. I think there is a recycling quid pro quo going on: the Fed is making banking obsolete because a lot of the programs that they have is to take the cheap end of the curve and invest it in Treasuries. Well the Treasury needs as many buyers as it can get. I think the financial institutions are recycling easy money that should be going into John Q Public's pocket, to those that deserve credit, all this money is ending up in the forms of purchases of 10, 7, and 5-Year Notes, and I don't like that way that's working. That's why I think that raising rates would be a good thing. Why? Because it would take some of the easy ways the banks recycle the Fed's cheap money and put it back in the hands of the public and actually make banking a relationship between banks and Americans that need it whether it is for funding a mortgage or funding a small business."
  • And on Tea Party dynamics: "I think November 2 is going to be a watershed of Americans letting Washington know they're the boss."

Full must hear interview can be listened to here, courtesy of King World News.


This Past Week in Gold

Posted: 03 Jul 2010 06:31 AM PDT

By Jack Chan at www.simplyprofits.org
07/03/2010

GLD – sell signal this week.
SLV – sell signal this week.
GDX – sell signal this week.
XGD.TO – sell signal this week.

Summary
Long term – on major buy signal.
Short term – on sell signals.
We continue to hold our core positions, while our trading positions were stopped out with a small profit. We shall now wait for new buy signals.

Disclosure
We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.
End of update

Jim's Mailbox

Posted: 03 Jul 2010 06:06 AM PDT

Gold Stocks Cup and Handle
CIGA Eric

Once the highs have been cleared, the trend will accelerate.

Amex Gold Bugs Index (HUI):
clip_image001

More…

How to Play “The Land of Rising Stocks”

Posted: 03 Jul 2010 04:00 AM PDT

The Wall Street Journal reported last week that, for the first time in three years, foreign investors are increasing their holdings in the Japanese stock market.

Data released by the Tokyo Stock Exchange shows that foreign ownership of Japanese shares rose to 26% for the year that ended in March, up from 23.5% a year earlier.

The Journal suggests that a recovery in Japanese corporate earnings is tempting foreign investors back to the country's equity markets.

But I think there's more going on here. Perhaps hedge fund managers and other savvy global investors have paged back through their old, dog-eared copies of Dr. Jeremy Siegel's Stocks for the Long Run.

If so, they may have recognized something significant…

Crunching the Numbers on Japan

Siegel notes that it's rare for stocks to go 10 years without giving a positive return. Yet we've experienced just such a rarity over the last decade.

For stocks to go 20 years without giving a positive return is almost unheard of. And 30 years? That's rarer than Big Foot, Nessie and the Abominable Snowman combined.

Which brings me back to Japan…

In 1989, the Nikkei 225 – Japan's equivalent of the S&P 500 – hit a new all-time high near 40,000. Today, more than 20 years later, it languishes near 10,000 – almost 75% lower.

In other words, the Nikkei 225 would have to rise 300% just to get back where it was in 1989.

And it wouldn't surprise me if it did just that by the end of the decade. After all, it's happened before.

In the 1970s, the US market returned just 0.34% a year – a 3.4% total return for the decade. Yet the Japanese market compounded at 16%, generating a 10-year return of 344%.

What other asset class offers that kind of potential return over the next decade? (Gold bugs, keep your seats.)

Don't Chase the Bullet Train… Get on Board Now

The groundwork has been laid.

Last August, after more than 50 years, Japan's opposition party trounced the Liberal Democratic Party in a landslide election.

The new government has promised to shrink the country's massive bureaucracy and cut wasteful public spending. It also intends to end more than 20 years of economic stagnation by cutting taxes and focusing on small and mid-sized businesses.

Of course, we're all skeptical of politicians' promises, but there is evidence that they mean business this time. Twenty years is a long time to leave your economy in a funk.

It's resulted in Japanese stocks being among the cheapest and most unloved in the world. Virtually no one is enthusiastic about the Tokyo market.

However, great opportunities are born when dirt-cheap valuations marry investor apathy. Plus, Japanese investors are flush with cash. They've largely ignored domestic stocks after two decades of sub-par returns. And as that money begins to find its way out of mattresses and back into Japanese equities, the Tokyo market should lift off.

This is doubly true when institutional money managers return to Japan in a serious way. For years, global fund managers have outperformed the world benchmark by simply underweighting Japan. But let the Shinkansen take off without them and they will be forced to dash after it.

So how do you play this?

Two Ways to Ride the Japanese Stock Market

There are dozens of worthwhile Japanese ADRs trading on Nasdaq and the Big Board.

But you can gain exposure to Japanese stocks through two ETFs…

– iShares MSCI Japan Index (NYSE:EWJ), which invests in large-cap Japanese stocks.

– Wisdom Tree Japan Small-Cap Dividend Fund (NYSE:DFJ), which captures the best of the Japanese small-cap sector.

Or you can spread your bets and own both.

Incidentally, if you remain skeptical about Japanese stocks digging their way out of this 21-year hole, consider again how unlikely it is that Japanese stocks will earn a negative 30-year return.

As Dr. Siegel writes in Stocks For the Long Run:

In the 12 years from 1948 to 1960, German stocks rose by over 30% per year in real terms. Indeed, from 1939, when the Germans began the war in Poland, through 1960, the real return on German stocks matched those in the United States and exceeded those in the U.K. Despite the total devastation that the war visited on Germany, the long-run investor made out as well in defeated Germany as in victorious Britain or the United States. The data powerfully attest to the resilience of stocks in the face of seemingly destructive political, social, and economic change.

The story in Japan was similar. By the end of 1945, stock prices stood at approximately one-third of their level just prior to the Empire's surrender. Over the next 40 years, the Japanese market returned more than 20 times its American counterpart.

If 200 years of world stock market history is any guide, the current decade should be another barnburner for Japan.

Good investing,

Alexander Green
for The Daily Reckoning

How to Play "The Land of Rising Stocks" 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."


Charts Showing The Commercial Real Estate Collapse

Posted: 03 Jul 2010 03:59 AM PDT


First, we should look at the trend in commercial real estate prices:
Source:  MIT
The above chart is extremely helpful in showing how quickly bubbles can grow but also, how fast they can deflate.  It took 7 years for prices to peak and only one year for prices to collapse.  We have seen similar trends in the residential real estate market.  The crash is rather obvious but why did it happen?   The reason prices collapsed so fast was that it was a speculative boom.  Lending became much too easy with the Federal Reserve flooding the system with easy capital trying to find a home.  In more sober times, CRE deals were scrutinized with a due diligence and it was inspected to produce cash flow from day one with sizeable down payments and strong financial reports.  But this is not the case and many of these giant deals ended up going the way of the little to nothing down world of residential real estate.
The market in CRE is enormous.  This market is over $3.5 trillion and is likely to damage the regional banks much more deeply than larger banks that have a taxpayer safety net:
Source:  T2 Partners

The Risk and Reward Ratio on The Precious Metals Market

Posted: 03 Jul 2010 03:26 AM PDT

At times daily volatility can cause one to lose the big picture from sight - focusing on trees is ok as far as one doesn't forget about the whole forest. This universal approach can be applied today since we have just seen a massive decline ...

Read More...

Goldman Sachs: "The Second Half Slowdown Has Begun"

Posted: 03 Jul 2010 03:12 AM PDT


The economic mood at 200 West has officially downshifted. In a report by Jan Hatzius, the Goldman chief economist warns that "the second half slowdown has begun." Hatzius says: "This is consistent with our long-standing forecast of  materially slower growth of just 1½% (annualized) in the second half of 2010." And while the contraction has been obvious to all those without a metric ton of wool in front of their eyes, the two indicators that have broken Goldman's will were this week's NFP and ISM reports. And not only that, but Hatzius is now firmly in the Krugman camp, blaring an even louder warning that should the government cut off the fiscal subsidy spigot "there is some downside risk to our forecast of a gradual reacceleration in 2011 (to about 3% on a Q4/Q4 basis)." In other words, not only will H2 GDP officially suck, but since Goldman has now officially jumped on the Keynesian gravy train, and as Goldman has rapidly become the best contrarian indicator in the world (we can't wait for David Kostin to realize that endless economic stimulus, GDP and corporate profits are, gasp, related), it likely means that Obama will not allow for even $1 dollar of extra unemployment subsidies or state bailouts just to spite Goldman.

From Hatzius:

The economic data have weakened noticeably over the past few weeks. This is consistent with our longstanding forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This forecast is based on a very simple idea, namely that final demand growth has remained at just 1½% since the middle of 2009. There is little reason to expect a significant acceleration, and the inventory cycle is ending. All this is illustrated in Exhibit 1, which shows the growth rate of real GDP, the growth rate of real final demand, and the contribution of inventories to growth (the difference between the two).

Manufacturing Starts to Slow…

One implication of our story as illustrated in Exhibit 1 is that the slowdown should be concentrated in the goods-producing sector, which previously enjoyed a disproportionate boost from the inventory cycle. This implies a significant decline in  measures of factory growth such as the ISM manufacturing index. Historical experience would point to a drop to around 50 by early 2011.1 The drop in the index from 59.7 in May to 56.2 in June-?much of which was due to a sharp decline in the new  orders index from 65.7 to 58.5?is the first significant step on this path.



The June employment report also points to a meaningful factory slowdown. While manufacturing payrolls logged another (small) gain, the manufacturing workweek fell by ½ hour, as shown in Exhibit 2. This is a very big drop by historical standards?in the 4th percentile of month-to-month changes using data that go back to 1936. This may be a sign that the manufacturing sector may be losing steam even more quickly than suggested by the June ISM report.

…and the Labor Market Softened in June

Even beyond manufacturing, the June employment report was weak. This was most obvious in the household survey, where the drop in the unemployment rate from 9.7% to 9.5% was entirely due to a big decline in the labor force. A more accurate gauge is the decline in the employment/population ratio from 58.8% in April to 58.7% in May and then to 58.5% in June, shown in Exhibit 3. (We note the April number in order  to illustrate that the weakness cannot just be explained by Census-related ups and downs?after all, the level of Census employment was higher in June than in April.)

 



But the establishment survey was also soft, despite a near-consensus increase of 83,000 in private sector employment. This number not only falls short of the pace ultimately needed to stabilize the unemployment rate, but it probably overstates the true increase in private labor demand because it probably benefited from the switch of Census workers whose contract has ended into similar private-sector work such as leisure and hospitality or temporary help services. This illustrates that the labor market is still far from ?escape velocity??gains in employment that feed into an income growth pace sufficient to overcome the headwinds from the withdrawal of the temporary inventory and fiscal boosts.

And here is the part that comes straight out of the fundamentalist Keynesian textbook:

The Risk of Fiscal Restraint

For the most part, we view the recent data as signaling that the economy is indeed slowing significantly as we enter the second half of the year, in line with our forecast. While there are risks of a sharper slowdown, the distribution of these risks still seems broadly balanced. In other words, a weaker outcome is clearly possible, but there is also some chance that the recent weakness in the numbers reflects partly noise and the slowdown ends up somewhat less serious than our forecast.

However, the distribution of risks around our forecast of a gradual reacceleration in 2011 to a Q4/Q4 pace of around 3% is tilted to the downside. The main reason for this is not so much the data, but the shift in the fiscal policy risks. As shown in  Exhibit 4, we already estimate the impact of fiscal policy on the growth rate of final demand (and GDP) to turn gradually negative in 2011. But even these forecasts are based on the expectation that Congress will ultimately extend all of the Bush tax cuts except for the top two brackets, provide more funds for extended unemployment insurance, and make additional transfers to state governments. While we still believe that most of these provisions should ultimately pass, the risk that some of them?most likely the aid to state government?will fail to materialize have clearly increased in recent months.

For now, we are not making any changes to our growth forecasts. However, we will evaluate developments both in Congress and in the US economic data closely over the next few weeks to see whether any adjustments are warranted.

For all those who are keeping their fingers crossed for a few extra trillion in fiscal stimulus to kick the can down the street with no actual changes ever occurring (which is exactly what happened the last time there was a massive fiscal stimulus, and the time before, etc), we would like to quote Lieutenant Ripley: "happy to disappoint you." Of course, monetary stimuli are a different matter altogether, and we are confident that in the absence of the fiscal piggybank, the Fed will have no choice but to further destabilize trust in the currency via QE 2-X. And remember - hyperinflation is ultimately not a pricing phenomenon, it is one driven by faith in the currency. Or lack thereof.

 

Metals smash down was just another paper affair, Butler tells King World News

Posted: 03 Jul 2010 02:53 AM PDT

10:50a ET Saturday, July 3, 2010

Dear Friend of GATA and Gold (and Silver):

In his weekly interview with Eric King of King World News, silver market analyst Ted Butler remarks that last week's smash down in the precious metals was another typical manipulation by the big commercial traders, a paper affair on the Comex without any real metal selling. The big commercials, Butler adds, began buying again on Friday. Butler says he has lost patience with the U.S. Commodity Futures Trading Commission, calls the silver market a criminal operation, identifies its perpetrators, as he has done before, and notes that none of them have ever challenged his accusation. The interview is about 10 minutes long and you can find it at the King World News Internet site here:

http://www.kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2010/...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


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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:

New Orleans Investment Conference
Wednesday-Saturday, October 27-30, 2010
Hilton New Orleans Riverside Hotel
http://www.neworleansconference.com/index.html

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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/

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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:

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Sona Resources Expects Positive Cash Flow from Blackdome,
Plans Aggressive Exploration of Elizabeth Gold Property

On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia.

Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013."

For complete information on Sona Resources Corp. please visit: www.SonaResources.com

A Canadian gold opportunity ready for growth

One Last Observation On Thursday's Price Ambush

Posted: 03 Jul 2010 01:34 AM PDT

Gold is in a long term bull market.  As such, all sell-offs, price pullbacks, secular price corrections and overt, illegal manipulative price attacks, like Thursday's, are to be bought - aggressively.  Feel free to take profits on part of your positions on big price rallies only if you have mining shares or paper surrogates (GLD, CEF, GTU, PHYS, etc).  Never, I mean NEVER, sell your physical gold/silver holdings until this long term bull has run its course.

On average, bull market cycles last 18-20 years.  We are only 9 years into the precious metals bull market cycle.  Historically, the most spectacular price gains occur in the latter stages of a bull cycle (think stocks, 1981 - 2001;  housing 1991 - 2007). 

Those of you/us who are willing to spend the time learning about, researching, investing in and trading the precious metals market will know what to look for when it is time to sell.  Until then, as per Jim Sinclair's perfect advice:  "never trade your core 2/3's position, always buy 'fishing line' sell-offs (like Thursday's) and take profits on 'rhino horn' price rallies."

Have a great holiday weekend.

If it quacks like a welfare duck, then it probably is a welfare duck

Posted: 02 Jul 2010 10:54 PM PDT

Stacy Summary: The US Congress refused to pass an extension of unemployment benefits to over a million Americans because they were "opposed to adding another $33 billion to our $13 trillion mountain of national debt." A few days later, they agree to spend $30 billion on an escalation of killing and occupation.

American politicians, usually of the Republican persuasion, speak often of the evil that is 'socialism' in Europe is for its welfare state. But if it quacks like government spending, it is government spending. And the US government spends, as we all know, more than the rest of the world combined on war. Domestically, it keeps with this same theme of violence against others and depriving them of their liberty as a favored means of welfare spending. In Europe, the government attempts to provide more rights than it can afford; but in the U.S. the government attempts to take more rights than it can afford to.

Check this report out on the high cost of US incarceration of its population, the highest in the world on a per capita basis. Bizarrely, the above-mentioned welfare war machine is sold to the population as a means of liberating others around the world who we are told are unfree. And yet, here is the US incarceration rate compared to other OECD nations:

From MaxKeiser.com Images

And here is the US compared to the other top ten incarceration nations:

From MaxKeiser.com Images

And here is just the US incarceration rate going back to 1880:

From MaxKeiser.com Images

What happened from early 1970′s? Did the American population suddenly go wildly violent? Was it something in the water? Here is the incarceration rate since 1960 against the rate of crime:

From MaxKeiser.com Images

Nope, I don't think it was something in the water. I think it was something in the currency. There is no way the U.S. could have afforded so much fear, war and incarceration if it were not for the abandonment of the gold standard.

Here is Alan Greenspan in 1966, before the US dropped the gold standard and before he became an apologist for units of fraud as currency:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth.

It doesn't matter whether that deficit spending is in the name of providing benefits to certain people in society or depriving certain people of benefits. It is still confiscation whether done in the name of aggression or in the name of benevolence.

This brings me back to the European social welfare state that provides more health, pension, childcare, etc than it can afford. The financial crisis is, according to some analysts, forcing Europeans to rethink their way of life:

In the ashes of Europe's debt crisis, some see the seeds of long-term hope.

That's because the threat of bankruptcy is forcing governments to implement reforms that economists argue are necessary to help Europe prosper in a globalized world – but were long viewed as being politically impossible because of entrenched social attitudes.

Changes such as making it easier for companies to fire workers or stare down unions were until recently dismissed as simply not being the "European way." Similarly, many were skeptical that European governments would or could tackle bloated public payrolls, trim entitlements or force people to retire later.

Is there any discussion on changing the "American way" of welfare: war and incarceration? I think not.


Jim Rickards: Gold is money and probably manipulated for its deadly power

Posted: 02 Jul 2010 07:00 PM PDT

Video: Gold Losing its Luster?

Posted: 02 Jul 2010 06:49 PM PDT

Unavailability of Spending Crisis

Posted: 02 Jul 2010 02:18 PM PDT

My thesis holds that the market's structural debt fears are shifting from the Eurozone to here in the U.S. The Euro gained 1.5% this week against the dollar. The Swiss franc jumped 2.7%. European debt markets showed hopeful indications of ...

Read More...
at

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