Gold World News Flash |
- Response To Pragmatic Idealist And His Article On Austrian Theory
- Gold Resource Corporation Appoints Board Member
- Hourly Action In Gold From Trader Dan
- Douglas' 'Failure of Second London Gold Pool' published in Spanish
- Douglas' 'Failure of Second London Gold Pool' published in Spanish
- What were Bernanke and Geithner doing Wednesday afternoon?
- Izabella Kaminska: Germany's defaulted gold bearer bond
- Izabella Kaminska: Germany's defaulted gold bearer bond
- Why Small Banks Are The Key To Recovery-Part 2
- Gold shortage in Nepal, sales suspended
- Gold 1250 is Potential Resistance
- Gold 1250 Remains Potential Resistance
- Further Thoughts on My Treasury Meeting
- The Land of the Future Today
- What Was That?
- LGMR: Gold Hits New 7-Week High as Ex-Hedger Barrick Forecasts Higher Prices to Come
- Two Must Read Articles on Gold
- Update
- Why can't those Nepalese women settle for a nice ETF?
- Why can't those Nepalese women settle for a nice ETF?
- The Point of Maximum Despair
- We Killed The Goose That Laid The Golden Egg And Now The Number Of Americans Receiving Long-Term Unemployment Benefits Has Risen A Whopping 60 Percent In Just One Year
- Gold Seeker Closing Report: Gold and Silver End Mixed While Stocks Drop
- Huh? No Inflation?
- Are Your Ready for the Big One?
- Bullion As An Alternative to ‘Shorting’, Part I
- Peter Brimelow: Gold gearing up?
- US jobs data weighs on copper prices
- M2 Update
- The Land of the Future… Today
- Bonds vs. Tech Stocks for Bubble Supremacy
- Hinde Capital On Why Silver Velocity Will Be The Bullet That Sends The Metal Much Higher
- Follow the Money in the Junior Gold Stock Space
| Response To Pragmatic Idealist And His Article On Austrian Theory Posted: 19 Aug 2010 06:24 PM PDT
From The Daily Capitalist Dear Pragmatic Idealist: I was going to let your post, “Repositioning Austrian Monetary Business Cycle Theory” pass, but it contains so many misconceptions about Austrian theory that I have to answer it. Please don’t take this the wrong way, but I see similar critiques around the web, and I believe that most commentators haven’t actually read any of the Austrian theory economists. I say that because you misrepresent what it is and that leads me to believe that you haven’t read Mises, Rothbard, Hayek, or any other Austrian theory economists. You say:
That simply isn’t true. In fact it is just the opposite of what Austrians believe. You may be confusing Austrian theory with Neo-classical economics which believes that people act rationally. Austrians believe that people never act “in a perfectly rational environment.” In fact, people are faced with imperfect information every day about the world and the economy and they frequently make bad choices. But it is the freedom of choice and ability to succeed or fail that makes free market capitalism work. As I’ve written before here, capitalism is a profit and loss system and without losses, as Austrian Joseph Schumpeter noted, capitalism wouldn’t work. One of the best things about capitalism, Austrians say, is that when economic actors make mistakes, such as entrepreneurs, the only ones that pay for it are those that made the mistake and their investors. When government makes mistakes we all pay for it. Austrian theory works from the principle of individual action, not the behavior of aggregates such as “nations,” “national exports” or “national output.” This concept is called the “Marginal Revolution” of economics and went a long way to explain economic behavior. It is a given that at times all people can act rationally, irrationally, be greedy, or panic. That is the human environment we live in. Assuming that these are truths of human behavior, Austrians ask, what is the best way for individuals to meet their goals in life, such as start businesses, get capital, hire labor, make money, and expand while at the same time serving the needs of the consumer? Of course we believe that is free market capitalism which you continually misrepresent in your article. Then you say:
Yikes, dude, that is definitely not Austrian Business Cycle Theory. You must think that we Austrians think humans have to be perfect calculating machines with perfect knowledge. We assert that we can never have perfect knowledge. That’s what the Keynesians and Neo-classical economists think. Actually they must think that Ben Bernanke and Tim Geithner have such knowledge because they want to give them more power over the economy. Let’s start over. Manipulations of money supply by the central bank (the Fed), such as by setting a low interest rate to increase money supply, do send false signals to businesses. It causes them to throw money at projects which, but for the new fiat money, would not otherwise be profitable. It doesn’t cause over or underinvestment, it causes malinvestment. We just went through this (still are) with the housing market. Cheap money stimulated developers to build houses, which, when the money stopped, people didn’t want. The technical explanation does have to do with time preference of savers, but, I don’t think you understand that and I don’t want to make this too complicated. Look, human factors such as greed and panic always exist in the market place; that is who we are. The better question is, why, all of a sudden, do booms occur? We believe it is because of new fiat money created by the Fed. We believe that printing money doesn’t create wealth; it just creates more pretty pieces of green paper that benefit some and hurt others (higher prices). But it always must end in a bust. Your last point about welfare is a statist, Keynesian view of the world. You view welfare as being necessary to raise people out of poverty and the “rich” ought to pay for it. You think it is the responsibility of the state to oversee the economy and make it grow. Only capitalists operating in a free market can do that. All the government can do is redistribute the wealth. It can’t create anything. And as Maggie Thatcher said about socialism, which does In all of human history, free market capitalism is the only system that has created the wealth to allow us to rise out of the muck. You well know that if you go to any country without it; they are dirt poor. Please do me a favor and read some books on Austrian theory before you criticize it.
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| Gold Resource Corporation Appoints Board Member Posted: 19 Aug 2010 06:08 PM PDT Gold Resource Corporation (GRC) (OTC.BB:GORO - News) (Frankfurt:GIH - News) is pleased to announce the appointment of Mr. Tor Falck to the Company's Board of Directors. Gold Resource Corporation is a low-cost gold producer with operations in southern Mexico.
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| Hourly Action In Gold From Trader Dan Posted: 19 Aug 2010 05:43 PM PDT View the original post at jsmineset.com... August 19, 2010 02:19 PM Dear CIGAs, Click chart to enlarge today's hourly action in Gold in PDF format with commentary from Trader Dan Norcini ...
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| Douglas' 'Failure of Second London Gold Pool' published in Spanish Posted: 19 Aug 2010 05:15 PM PDT 1:15a ET Friday, August 20, 2010 Dear Friend of GATA and Gold: Thanks to our great friend Rafael Villegas, GATA board member Adrian Douglas' new study, "The Failure of the Second London Gold Pool," sent to you Wednesday (http://www.gata.org/node/8935), has been translated into Spanish and published at GATA's Internet site here: http://www.gata.org/files/DouglasFailureOfSecondLondonGoldPool-SPANISH-0... GATA urges its supporters to forward the translation to Spanish-language news organizations and Internet sites for republication there. CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy to Become Coal Producer This Year 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: Toronto Resource Investment Conference The Silver Summit New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: 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: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, 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
This posting includes an audio/video/photo media file: Download Now | ||||
| Douglas' 'Failure of Second London Gold Pool' published in Spanish Posted: 19 Aug 2010 05:15 PM PDT 1:15a ET Friday, August 20, 2010 Dear Friend of GATA and Gold: Thanks to our great friend Rafael Villegas, GATA board member Adrian Douglas' new study, "The Failure of the Second London Gold Pool," sent to you Wednesday (http://www.gata.org/node/8935), has been translated into Spanish and published at GATA's Internet site here: http://www.gata.org/files/DouglasFailureOfSecondLondonGoldPool-SPANISH-0... GATA urges its supporters to forward the translation to Spanish-language news organizations and Internet sites for republication there. CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy to Become Coal Producer This Year 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: Toronto Resource Investment Conference The Silver Summit New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: 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: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, 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
This posting includes an audio/video/photo media file: Download Now | ||||
| What were Bernanke and Geithner doing Wednesday afternoon? Posted: 19 Aug 2010 05:07 PM PDT $550,000 Gold Bar from Florida Keys Shipwreck Stolen From The Associated Press http://www.miamiherald.com/2010/08/19/1783935/550k-gold-bar-from-florida... KEY WEST, Florida -- Two thieves entered a museum shortly after closing time and stole a gold bar worth about $550,000 that had been recovered from the shipwreck of a Spanish galleon off the Florida Keys, police said. Police and the FBI are working to identify the suspects who took the gold bar Wednesday afternoon from the Mel Fisher Maritime Museum, where it had been on display for more than 20 years. The gold bar had been locked in a see-through case that allowed visitors to touch and lift it while keeping it secure. Security footage shows the suspects breaking into the case after the museum closed for the night, police said. ... Dispatch continues below ... ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, 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 The bar was recovered from the Santa Margarita shipwreck in 1980 by the late Key West shipwreck salvor Mel Fisher and his crew while searching for the Santa Margarita and Nuestra Senora de Atocha galleons. The Spanish ships -- loaded with gold, silver, and jewelry -- were two of eight to sink during a 1622 hurricane. According to the museum's website, a fleet of 28 ships had left Havana bound for Spain, all packed with treasure. "Everybody who comes to the museum is encouraged to lift the gold bar and to have a firsthand experience with history," said Melissa Kendrick, the museum's executive director. "This is one of the most iconic and best known objects in the museum." Kendrick said the museum's insurance company is offering a $10,000 reward for information leading to the return of the 74.85-ounce bar. One suspect is described as a white male, about 6 feet tall with dark hair and a medium build, the Key West Police reported. The second suspect is about 5 feet, 6 inches tall. "The security systems worked because we knew the bar was stolen within 10 minutes, and we have usable video and photos for law enforcement," Kendrick said. "The museum made a decision to designate this as a handling object, allowing people to touch the artifact, and this was part of the risk involved in granting public access." The museum and associated Mel Fisher Maritime Heritage Society are an internationally recognized center for excavation, preservation, research and exhibition of New World maritime artifacts. The museum holds the richest single collection of 17th-century maritime and shipwreck antiquities in the Western Hemisphere, including treasures and artifacts from the Atocha and Santa Margarita. Much of both galleons' precious cargo was recovered in the 1970s and 1980s under the leadership of Fisher, founder of the society and museum, who died in 1998. The search for artifacts, treasures, and other items from the vessels continues to be directed by his family. Join GATA here: Toronto Resource Investment Conference The Silver Summit New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: 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: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Prophecy to Become Coal Producer This Year 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
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| Izabella Kaminska: Germany's defaulted gold bearer bond Posted: 19 Aug 2010 04:57 PM PDT 12:55a ET Friday, August 20, 2010 Dear Friend of GATA and Gold: In her latest posting at FT Alphaville, blogger Izabella Kaminska calls attention to the attempt of a Florida company to obtain payment from Germany for Weimar-era gold bonds repudiated by the Nazi regime in the 1930s, bonds that, if honored, might be worth as much as $500 billion. It's an intriguing story but that Florida company has as much chance of recovery as the guy who took GATA Chairman Bill Murphy's marker for dinner and drinks on the last night of the Vancouver conference in June. Kaminska's commentary is headlined "Germany's Defaulted Gold Bearer Bond" and you can find it at FT Alphaville here: http://ftalphaville.ft.com/blog/2010/08/19/319446/germanys-defaulted-gol... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy to Become Coal Producer This Year 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: Toronto Resource Investment Conference The Silver Summit New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: 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: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, 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
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| Izabella Kaminska: Germany's defaulted gold bearer bond Posted: 19 Aug 2010 04:57 PM PDT 12:55a ET Friday, August 20, 2010 Dear Friend of GATA and Gold: In her latest posting at FT Alphaville, blogger Izabella Kaminska calls attention to the attempt of a Florida company to obtain payment from Germany for Weimar-era gold bonds repudiated by the Nazi regime in the 1930s, bonds that, if honored, might be worth as much as $500 billion. It's an intriguing story but that Florida company has as much chance of recovery as the guy who took GATA Chairman Bill Murphy's marker for dinner and drinks on the last night of the Vancouver conference in June. Kaminska's commentary is headlined "Germany's Defaulted Gold Bearer Bond" and you can find it at FT Alphaville here: http://ftalphaville.ft.com/blog/2010/08/19/319446/germanys-defaulted-gol... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy to Become Coal Producer This Year 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: Toronto Resource Investment Conference The Silver Summit New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: 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: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, 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
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| Why Small Banks Are The Key To Recovery-Part 2 Posted: 19 Aug 2010 04:55 PM PDT
From The Daily Capitalist
Part 2 of 2 There are three factors that will hurt bank earnings: weak loan demand, spreads on interest income will narrow because of competition among banks, and it appears that many banks are concealing the true state of their balance sheets because of "extend and pretend" policies. "Extend and pretend" and "mark-to-make-believe" have been a major factor in dragging out this recession and is a major threat to the economy. This article describes the problem well:
But here is one positive note. It may be that these banks are finally recognizing that the CRE market is not going to get any better and that they need to more aggressively charge-off CRE loans. Also, the Fed has said that their new loan workout guidelines weren't intended to foster "extend and pretend:"
We can expect these banks to have more problems with federal auditors which will force them to deal with their CRE loan problems. But the results are a mixed bag so far and it is too early to see a definite trend. What we need to see is more CRE loan charge-offs by lenders. While the trend in Q4 2009 through Q1 2010 showed charge-offs declining, it likely that this is due to "extend and pretend" rather than improving fundamentals. According to Moody's latest report [Q1], charge-offs declined to 3.3% of all loans versus 3.6% in the prior quarter. Nonperforming loans stood at 5% of total loans. It noted that these percentages are still historically high, even going back to the Great Depression. According to Moody's report:
But they point out that banks have only charged off 45% of delinquent CRE loans.
I'm not sure where they saw improvement in the CRE market. From my review of Moody's forecasting history, they have been consistently wrong about the direction of the economy. When this report came out in June, 2010, they said:
I suggest that the economy is already slowing down and will get worse over the next few quarters. And, from my analysis of the CRE market that would affect the types of properties which secure most regional and local bank loans, it is not getting better. If you look at the CMBS loans (CRE-backed securities) as kind of a proxy for bank-owned CRE loans, defaults have been increasing:
According to Trepp, one other reason for slowing defaults is that loan modifications have increased 37% over the 2009 level. This leaves us with mixed signals, but I believe the data shows that banks are more willing to deal with their CRE loan problems and "extend and pretend" will be less of a refuge for them as new Fed policies require banks to more fairly reflect the true values of the assets securing these loans. I also believe that banks are taking a more realistic view of the economy and realize that the CRE market is a long way off from "recovery." I expect more banks to be added to the "problem bank" list in the near future along with more failures as the economy declines. The big question is: how long will this process take? Because of rising competition among banks for customers, it is likely that ailing banks will wish to get their balance sheet in order, recognize and charge off more bad loans, and raise the capital needed to compete for good business borrowers. If they don't they will fail either because of FDIC auditors or because of their inability to compete against more powerful competitors. It is not as if there will be a rush to charge-off CRE loans, but rather a steady trend. It would be better for the economy if the process was done quickly. In that way capital malinvested in unproductive projects would be freed up and this would allow new lending to be directed toward profitable ventures, paving the way, as it were, to a recovery. While this is just one leg of a recovery, it is an important one. Keeping alive dead projects is what caused Japan to stagnate for so long. That's when the term "zombie banks" was coined and it caused the "Japanese Disease," which is long-term stagnation (average 0.6% GDP growth since 1990) and deflation. Because of the large amount of CRE debt that is coming due this year and in 2011 (actually through 2014), and because it is likely that the economy will continue to decline for the next several quarters, this process of charge-offs, deleveraging, and more bank failures could last well through 2011. This points to a slow recovery. But at least there will be a recovery. But ... What will the Fed do? This may be the key. As the unemployment rate creeps upward, the Fed will pursue quantitative easing in order to attempt to stop deflation. I am quite sure that they have not figured out how much QE they will need to do and that they are unsure of its impact on the economy. I doubt that it will have the positive impact the Fed would like. It is unlikely that QE will aid the deleveraging process. All that will happen is that the new money will bid away goods by those who first borrow the new money and cause prices to rise without any increase in real wealth. Printing money doesn't create wealth but it does distort the entrepreneurial process and, as there is no real wealth underlying the fiat money, production will actually fall after the new money is spent. As a result, we will likely experience inflation and a stagnant economy at the same time. It is an experience familiar to those who experienced the late 1970s--stagflation. If the Fed decides to engage in massive QE, and here I am thinking in terms of $3 to $5 trillion, then we may well see inflation and the start of another boom-bust phase. I believe this scenario is unlikely because Chairman Bernanke, Secretary Geithner, and Mr. Summers, understand that such a policy would lead to hyperinflation and they will not allow that to happen. Think price and wage controls while they raise interest rates and we start over with the deleveraging process. Then you would see a real bust.
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| Gold shortage in Nepal, sales suspended Posted: 19 Aug 2010 04:46 PM PDT Gold's glitter remains despite spiralling price Added At: 2010-08-20 12:19 AM Last Updated At: 2010-08-20 12:19 AM Kuvera Chalise/Eliza Manandhar KATHMANDU: In the wake of complaints lodged by a few gold traders, Nepal Rastra Bank on Tuesday directed the banks to 'temporarily' suspend gold supply. The suspension has resulted in shortage of gold supply in the market spurring price hike, say gold traders. "While price hike due to gold shortage is making a big hole in customers' savings, the government is losing revenue as well its stack of Indian currency," Tej Ratna Shakya, president of Nepal Gold and Silver Dealers' Association (Negosida), told The Himalayan Times. The central bank move of temporarily stopping the supply followed some traders' complaint that they were not getting enough of the yellow metal. Shakya said Negosida made efforts to manage gold supply among the traders by recommending maximum 200 grams per trader per day. "But the demand has gone up to 35 kg per day," said Shakya, adding, the NRB-prescribed 20 kg per day is not enough to meet the market demand. Suspension in the supply of gold ultimately fuelling price hike does not gel well with Teej — the festival of Hindu women when the gold trading picks up — approaching. But Governor Dr Yubraj Khatiwada assured that NRB would take a decision in a day or two and that the central bank would ensure that the customers did not bear the brunt during the festive season. "The central bank took the decision (of temporarily suspending gold supply) after some traders complained that they didn't get the precious metal," he added. According to Shakya, traders were forced to purchase gold from the Indian market to meet the demand. "Around Rs 1.87 million in IC goes to India if the central bank does not rollback the decision at the earliest," he said. During last Teej, around 25 kg of gold was traded every day and Negosida expects daily demand of the yellow metal to soar up to 35 kg during this Teej which is two weeks away, added Shakya. But with the scarcity already in the local market, the price of the precious yellow metal is spiralling. Today gold was traded at Rs 36,500 per tola (11.664 gram) — Rs 50 more than yesterday. Yesterday, it had jumped by Rs 510 than a day ago and was traded at Rs 36,450 per tola. Though the price has been continuously soaring since start of the week due to international market, yesterday and today's price hike is simply attributed to shortage of gold in the domestic market. This week alone, gold price rose by Rs 750 compared to Sunday's opening price of Rs 35,750 per tola. There is growing suspicion over the increased gold import. "The demand is picking up every year, where is it being consumed?" governor said. http://www.thehimalayantimes.com/ful...&NewsID=254400
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| Gold 1250 is Potential Resistance Posted: 19 Aug 2010 04:39 PM PDT courtesy of DailyFX.com August 19, 2010 06:43 AM 240 Minute Bars Prepared by Jamie Saettele Gold has topped. Please see the latest special report for details. Gold is making its way lower in an impulsive fashion. It seems as though the first 5 wave decline ended following a terminal thrust from a triangle. I do expect this rally from the low to prove corrective. Price has reached the 61.8% retracement – additional resistance would be the parallel channel, which intersects with a 100% extension level today....
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| Gold 1250 Remains Potential Resistance Posted: 19 Aug 2010 04:39 PM PDT courtesy of DailyFX.com August 19, 2010 06:55 AM 240 Minute Bars Prepared by Jamie Saettele Gold has topped. Please see the latest special report for details. Gold is making its way lower in an impulsive fashion. It seems as though the first 5 wave decline ended following a terminal thrust from a triangle. I do expect this rally from the low to prove corrective. Price has reached the 61.8% retracement – additional resistance would be the parallel channel, which intersects with a 100% extension level today....
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| Further Thoughts on My Treasury Meeting Posted: 19 Aug 2010 04:39 PM PDT In a previous article reviewing my attendance at a small discussion group meeting with Treasury Secretary Geithner and other senior Treasury Officials, I left out one very important topic that was covered. I also failed to effectively summarize my overall impressions. First, let’s cover the omitted topic. Housing Treasury officials several times emphasized that they recognize there are still many more potential foreclosures to come. I conclude that they are not delusional about the magnitude of the remaining tenure of the housing bubble and its aftermath. I took the occasion to try to explore Treasury’s thinking. One thing Treasury folks mentioned was a responsibility to support efforts to ensure that citizens can get adequate housing. I found that very curious but let it pass because I had a larger objective, which I was able to get to shortly thereafter. But, before getting there, let me just say that I think a more appropriate statement would have be...
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| Posted: 19 Aug 2010 04:39 PM PDT Stefan Zweig pegged it right after all. In the late 1930s, the Austrian playwright and writer sought relief from war-torn Europe and settled in Brazil. He loved it. In 1941, he moved there and wrote his book Brazil: Land of the Future. Brazil, he thought, "was destined to become one of the most important factors in the development of our world." Brazil impressed Zweig with its enormous size – it is bigger than the continental US – and impressive landscapes. He also saw what many saw before him. "Here lies immeasurable wealth of soil that has never been plowed or cultivated," he wrote, "and beneath it are ores, minerals and natural resources that have not in the least been used up nor even extensively explored." And so it remains today. As I say, Zweig was not the first to find charm in these sunny lands. A long line of travelers and adventurers have said much the same thing. But it took a long time to get going, so much so that it became a joke: "Brazil, the land of the future and al...
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| Posted: 19 Aug 2010 04:39 PM PDT Well, the little sell-off in gold going into the London open that I mentioned in my closing comments in yesterday's column didn't amount to much... as that was the 'bottom' for the moment. From that point, gold rose slowly until precisely 9:00 a.m. in New York, when the bullion banks pulled their bids... and down went the price. But a surprise buyer showed up at the London p.m. gold fix... and gold was off and running to the upside, reaching its high of the day [$1,233.50 spot] at 12:15 p.m. Eastern. From that high, gold sold off a hair going into the close of electronic trading at 5:15 p.m. in New York. Gold's low of the day was also in New York at the London p.m. fix at $1,216.80 spot. Volume was pretty chunky. Silver didn't do much, but the price began to decline in the early hours of Wednesday morning, before reaching a temporary bottom at the London silver fix at noon local time. Then it rose a nickel until the rug got pulled out from under...
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| LGMR: Gold Hits New 7-Week High as Ex-Hedger Barrick Forecasts Higher Prices to Come Posted: 19 Aug 2010 04:39 PM PDT London Gold Market Report from Adrian Ash BullionVault 08:55 ET, Thurs 19 August Gold Hits New 7-Week High as Ex-Hedger Barrick Forecasts Higher Prices to Come THE PRICE OF GOLD in London's wholesale market reached new 7-week highs for Dollar investors Thursday lunchtime, rising above $1234 an ounce as bond prices slipped and commodities held flat. Silver prices were little changed around $18.50 an ounce, while Western stock markets cut an earlier 0.5% gain following worse-than-expected US jobless claims data. "Consolidation above $1190 is bullish [for gold]," says a note from Barclays Capital, quoted by Reuters, "and we continue to expect resistance at $1242 eventually to give way and gold to test $1350 later in the year." "The technical picture for gold is looking quite strong at the moment," agrees a London dealer. "There is little major resistance from here to the record highs of June." Even at current levels, "We don't expect scrap selling to becom...
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| Two Must Read Articles on Gold Posted: 19 Aug 2010 04:39 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! August 19, 2010 06:59 AM [LIST] [*]The imminent failure of the London gold pool [*]The best gold interview of 2010 [/LIST] [url]http://www.grandich.com/[/url] grandich.com...
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| Posted: 19 Aug 2010 04:39 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! August 19, 2010 05:06 AM U.S. Stock Market – I don't know what's sinking faster – Obama's popularity or the jobs market. 500,000 unemployment claims announced this morning instantly deflated the "Don't Worry, Be Happy" crowd's hope.* While I still think they can manage a rally into the Labor Day weekend, I think it's becoming abundantly clear that the wheels have fallen off the so-called economic recovery. Gold – We had a technically bullish “outside day” up on the daily bar chart yesterday – whereby the high was higher and the low was lower than the previous session’s trading range, with a higher close. While the perma bears and the media that still flocks to them will bark one more time around the old highs, they're constant crying wolf is at most a nuisance and very sad if it wasn't so darn funny how people still rea...
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| Why can't those Nepalese women settle for a nice ETF? Posted: 19 Aug 2010 04:33 PM PDT Gold's Glitter Remains Despite Spiralling Price By Kuvera Chalise and Eliza Manandhar http://www.thehimalayantimes.com/fullNews.php?headline=Gold%27s+glitter+... KATHMANDU, Nepal -- In the wake of complaints lodged by a few gold traders, Nepal Rastra Bank [the Central Bank of Nepal] on Tuesday directed banks to "temporarily" suspend gold supply. The suspension has resulted in a shortage of gold in the market, spurring price hikes, gold traders say. "While the price hike due to gold shortage is making a big hole in customers' savings, the government is losing revenue as well its stack of Indian currency," Tej Ratna Shakya, president of the Nepal Gold and Silver Dealers' Association (Negosida), told The Himalayan Times. The central bank's temporarily stopping the supply followed some traders' complaints that they were not getting enough of the yellow metal. ... Dispatch continues below ... ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, 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 Shakya said Negosida made efforts to manage the gold supply among the traders by recommending maximum 200 grams per trader per day. "But the demand has gone up to 35 kilograms per day," said Shakya, adding that the central bank-prescribed 20 kilograms per day is not enough to meet market demand. Suspension in the supply of gold fuelling the price hike does not mesh well with the approach of Teej, the festival of Hindu women, when gold trading picks up. But central bank Governor Dr Yubraj Khatiwada said the bank would make a decision in a day or two and that the central bank would ensure that the customers did not bear the brunt during the festive season. "The central bank took the decision" of temporarily suspending gold supply "after some traders complained that they didn't get the precious metal," he added. According to Shakya, traders were forced to purchase gold from the Indian market to meet demand. "Around 1.87 million rupees go to India if the central bank does not roll back the decision at the earliest," he said. During last Teej, around 25 kilograms of gold were traded every day, and Negosida expects daily demand of the yellow metal to soar up to 35 kilograms during this Teej, which is two weeks away, Shakya added. But with the scarcity already in the local market, the price of the precious metal is spiralling. Today gold was traded at Rs 36,500 per tola (11.664 gram) -- Rs 50 more than yesterday. Yesterday it had jumped by Rs 510 more than a day ago and was traded at Rs 36,450 per tola. Though the price has been soaring since the start of the week due to the international market, yesterday's and today's price hikes are attributed simply to the shortage of gold in the domestic market. This week alone the gold price rose by Rs 750 compared to Sunday's opening price of Rs 35,750 per tola. There is growing suspicion over increased gold imports. "The demand is picking up every year. Where is it being consumed?" the central bank governor said. Join GATA here: Toronto Resource Investment Conference The Silver Summit New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: 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: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Prophecy to Become Coal Producer This Year 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
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| Why can't those Nepalese women settle for a nice ETF? Posted: 19 Aug 2010 04:33 PM PDT Gold's Glitter Remains Despite Spiralling Price By Kuvera Chalise and Eliza Manandhar http://www.thehimalayantimes.com/fullNews.php?headline=Gold%27s+glitter+... KATHMANDU, Nepal -- In the wake of complaints lodged by a few gold traders, Nepal Rastra Bank [the Central Bank of Nepal] on Tuesday directed banks to "temporarily" suspend gold supply. The suspension has resulted in a shortage of gold in the market, spurring price hikes, gold traders say. "While the price hike due to gold shortage is making a big hole in customers' savings, the government is losing revenue as well its stack of Indian currency," Tej Ratna Shakya, president of the Nepal Gold and Silver Dealers' Association (Negosida), told The Himalayan Times. The central bank's temporarily stopping the supply followed some traders' complaints that they were not getting enough of the yellow metal. ... Dispatch continues below ... ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, 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 Shakya said Negosida made efforts to manage the gold supply among the traders by recommending maximum 200 grams per trader per day. "But the demand has gone up to 35 kilograms per day," said Shakya, adding that the central bank-prescribed 20 kilograms per day is not enough to meet market demand. Suspension in the supply of gold fuelling the price hike does not mesh well with the approach of Teej, the festival of Hindu women, when gold trading picks up. But central bank Governor Dr Yubraj Khatiwada said the bank would make a decision in a day or two and that the central bank would ensure that the customers did not bear the brunt during the festive season. "The central bank took the decision" of temporarily suspending gold supply "after some traders complained that they didn't get the precious metal," he added. According to Shakya, traders were forced to purchase gold from the Indian market to meet demand. "Around 1.87 million rupees go to India if the central bank does not roll back the decision at the earliest," he said. During last Teej, around 25 kilograms of gold were traded every day, and Negosida expects daily demand of the yellow metal to soar up to 35 kilograms during this Teej, which is two weeks away, Shakya added. But with the scarcity already in the local market, the price of the precious metal is spiralling. Today gold was traded at Rs 36,500 per tola (11.664 gram) -- Rs 50 more than yesterday. Yesterday it had jumped by Rs 510 more than a day ago and was traded at Rs 36,450 per tola. Though the price has been soaring since the start of the week due to the international market, yesterday's and today's price hikes are attributed simply to the shortage of gold in the domestic market. This week alone the gold price rose by Rs 750 compared to Sunday's opening price of Rs 35,750 per tola. There is growing suspicion over increased gold imports. "The demand is picking up every year. Where is it being consumed?" the central bank governor said. Join GATA here: Toronto Resource Investment Conference The Silver Summit New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: 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: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Prophecy to Become Coal Producer This Year 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
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| Posted: 19 Aug 2010 04:14 PM PDT Is there a chance that the resolution of Australia's election will be good for stocks? Of course! Stocks, and the investors who buy them, hate uncertainty. By Saturday night, we'll know for certain who the next do-gooder in Chief will be in Australia. Although we've never passed a gall stone, it must be a little like enduring the platitudes of two insipid politicians making bland promises and trying desperately to conceal their true selves from voters until after they secure power. Only masochists and egoists would run for high public office, and neither quality makes for a good leader! But stocks...what about stocks? Well, a Liberal win most likely means the end of the Mineral Resource Rent Tax (MRRT). You'd think the market would like that quite a bit. On the other hand, a Labor win would mean some version of the tax, and maybe a carbon tax as a concession the Greens and in exchange for their support. We're not commenting on the wisdom of these policies. But it's not a big stretch to say that they won't attract a whole lot of global investment capital. But here's an important point: the point of maximum despair (PMD) is usually a great time to be bullish. And by bullish, we mean optimistic. About anything in life. It's a kind of psychological survival strategy. Please allow us explain. What is the PMD and when do you know you've reached? It's a little like U.S. Supreme Court Justice Potter Stewart's definition of hard-core pornography. "It's hard to define," he said, "But I know it when I see it." The PMD is like that too. It's hard to define. But you know it when you feel it. You feel it when you feel like things just can't get any worse. You're tired. You want to give up. Maybe you have given up. That's the PMD. We used to reach the PMD early in our career trying to write recommendations for small-cap stocks. Having come from a Liberal Arts program where we studied the Classics, it was a big-ask. We had yet to unleash our inner an inexhaustible energy and enthusiasm. We failed a lot back then. Repeatedly. One particular story took eight drafts before our editor was satisfied. It was a story about a small U.S. company that owned the merchandise licensing rights to a Japanese children's TV programme. The program became controversial in Japan because its rapid flashing bright lights were causing children to vomit and, in some cases, fall into epileptic fits. We were intrigued. The U.S.-based company we were writing about owned the rights sell merchandise licenses in America for the Japanese brand. The folks running the company had brought the Science Fiction channel to the American public. The channel catered to Star Trek geeks (like your editor) and other social misfits. It was a huge success (proving there are more misfits in the world than you might think) and its creators sold it for a profit and moved on to their next venture. We don't' remember the exact headline we used when we recommended the stock as a buy in 1998. It could have been something like "Fat Yellow Alien-Looking Japanese Children's Toy/Doll/Apparition to make small U.S. company millions." We wrote that headline over and over until we were sure the story would never see the light of day. "That's good. You've reached the point of maximum despair. Your story's done," our editor said. "Let's print it." We did. And the rest, as they say, was insane. You can see what happened based on the chart below, although that only tells part of the story. Recommended at around a dollar, it spilt 3-2 near $10 and then 2-1 at around $35. By the time it closed above $90 it was up nearly 5,000% on a split-adjusted basis from the original recommendation price.  What went right with the recommendation is that Pokémon - the Japanese property to which the U.S. company owned licensing rights - went supernova, in pop cultural terms. This taught us to never ridicule the outcome produced by a free market just because you don't like it. The market is what it is. It produces outcomes that result from the decisions made by free people buying what they want at the price they're willing to pay. It was 1998. There was a lot of irrational exuberance going on. People wanted fat Pikachu figures. And to be honest, when you have a close look, who wouldn't want on? Kids loved it. The stock price soared.  In retrospect, what happened with the stock was emblematic of what happened to investors in the late 1990s: insanity. The stock became a proxy for the popularity of the merchandise. Its value was not tied, in anyway, to realistic earnings projections based on actual product sales. All of that is painfully obvious when you see how quickly the stock fell from its highs. But your editor learned another valuable lesson from the exercise: let your winners ride. Convinced we were luckier than we deserved to be, we recommended a sell on the position after a quick double and before the stock split. It was the amateur decision of a rooky adviser scared by his own success (and not believing people would pay much more for a stock that, at the end of the day, was riding a crazy children's fad that caused vomiting and epilepsy in extreme cases). The world is a complex place. If you think you know what should happen, you're probably wrong. That's why trailing stops are so handy in shares. They take some of the emotion and human fallibility out of your sell decision. You let your winners ride and you move your stocks up. Lesson learned. Since then, we have learned to embrace the point of maximum despair (PMD). Until you've reached it, it means you haven't worked hard enough. And more importantly, once you've reached it, it usually means things are about to get better. Either that, or terminally worse, and there is nothing you can do about that anyway. But the biggest lesson we learned from the Pikachu affair is that you should never underestimate the spirit of enterprise. It just doesn't quit. That's why, despite having to listen to the depressing and spirit-killing admonitions of professional politicians, we are essentially an optimist. Politicians don't' create. And most of them have never spent a productive day of their life in private enterprise trying to create value. They wouldn't understand the relentless spirit that drives people to improve their lives or go into business to accomplish their personal ambition and passion in life. That's why the first newsletter we decided to publish in Australia in 2007 was the Australian Small Cap Investigator. It wasn't because we were trying to capture lighting in a bottle by starting up another small cap newsletter. It was because lightning is always striking in the small cap market. The small-caps are the research and development laboratory of the free market. It's the small companies out there on the margin and the frontier doing all the interesting things. "From little things, big things grow," goes a catchy TV jingle. That's true too. For an economy to produce a steady stream of new starts up in ventures, the right conditions must exist. In fact, for an economy to produce an astonishing variety of products and sheer abundance, you have to have certain conditions. Namely: the rule of law (not men and women), honest money, secure private property, and low taxes. The further an economy moves away from those things, the less prosperous it will be. If you thing complexity can't come from simplicity, play chess! There are only about two dozen rules that govern how the 32 pieces can move on a 64 squares of a chessboard. People have been playing it for thousands of years. Yet these few simple rules, easily understood by anyone, produce a nearly infinite variety of chess games. Simple systems produce a huge variety of complex results. The economic is not a chess game. But to the extent that it has simple rules understandable to everyone, it IS a complex adaptive system. And in that system, the most interesting and potentially profitable companies are often the newest, riskiest, most disruptive, and most unproven. Perhaps that is why we've always had a soft spot for the small caps in our sceptical heart. Even at points of maximum despair in markets, the sheer energy of innovators is hard to suppress. Twice in the last two years, Kris Sayce (the editor of the small-cap letter) has decided to buy stocks at the height of a global financial panic, when everyone else despaired and was frozen by inaction. Kris kept it simple both times and some of his readers made gains both times. We've asked Kris how he spots a good small cap punt. But he answers the way Justice Stewart answered: "I know it when I see it." We have deduced from this oracular answer that Kris is doing three things every time he makes a successful recommendation. We'll present them to you now. First, he's finding a big, disruptive idea where future profits are driven by a particular set of events. In 2008, for example, it was the emerging coal-seam-gas (CSG) boom in Queensland. It was not on any one's radar. And Kris got nasty e-mails from readers accusing him of flim-flammery for promising to show them how to make money out of "thin air." "Thin air" referred to liquid natural gas. And Kris' big-picture observation was that Asian utilities were signing long-term LNG deals with conventional suppliers. The unconventional LNG sources like coal-seam-gas were being unveiled. And Kris rightly took a punt on them. But then he did something unusual. He kept punting. This is what we now refer to as "owning a portfolio of experiments." Rather than put all his eggs in one CSG basket, Kris recommended several stocks. Each had different risks and different prospects. Finding a potential valuation of a start-up company that doesn't have a product or customers is a bit iffy. However the strategy (CSG) and the tactic (own a few plays instead of just one) both worked. Kris' readers could have banked triple digit games on any number of stocks. He had correctly - at the point of maximum despair in the market - picked a great new idea that he reckoned was both a good business and a good punt. The third and final part of his method came from experience: trailing stops. There's no use being right and making a big gain if you give it all away when the market falls. So Kris told his readers how, if they weren't already using them, to use trailing stops to "lock in" profits on open positions. Despite your editor's general belief that in a deleveraging world it's going to be very hard for "the market" to go up, Kris managed to replicate his LNG feat recently with another industry sector. In this case, the dynamics driving the shares up were almost totally different to LNG. But you find that in the small cap universe, each and every business is unique. What the good ones (the survivors) all have in common is that you can easily understand what they do and how they will make you money. Kris seems to be able to lock onto these two question and they figure in all the stories he writes. And he is not daunted when everything else seems to be going to hell, which is good. Geeky or learned students of Austrian Economics will recognise profiting from financial disaster in Joseph Schumpeter's phrase "creative destruction." Schumpeter was referring to the incessant process by which winners are made and losing businesses are punished a truly free market. This great threshing of the business world produces better companies, more profits for shareholder, and ultimately, more and better goods and services for consumers and cheaper prices. Critics of the free market - generally unhappy with specific outcomes - are wholly ignorant of the incredible variety and wealth of choice it produces. That's why they are usually so busy going about reducing your choice and freedom; to save you from a complex world, and probably from yourself. Trust them. It's for your own good. So the election is coming. And probably the result will be a disaster. And if not now, then surely Australia will be caught up in the violent death throes of heavily armed fiat-money driven Welfare State. It's a dangerous disastrous world we live in. It's going to be a premium on financial survival strategies that actually work. But don't' despair! Or if you do, rejoice! It means things can get better faster than you think. You can't keep a good idea down, thank goodness. Dan Denning
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| Posted: 19 Aug 2010 04:11 PM PDT 
This week the U.S. Labor Deparment announced that for the week ending August 14th, new applications for unemployment insurance benefits reached the half-million mark. That was the first time since last November that the psychologically important 500,000 threshold had been hit. Most economists had predicted that unemployment claims would actually decline, but instead they experienced their fourth increase in the past five weeks. But the increase in new applications for unemployment benefits is only part of the story. It is not such a bad thing to be unemployed if you can find another job in a couple of weeks or a couple of months. But in 2010, there are millions of Americans that cannot seem to find a job no matter what they do month after month after month. In fact, the number of Americans that have exhausted their state unemployment benefits and that are collecting long-term federal unemployment benefits has increased 60 percent over the past year. The following is how a recent article on CNBC recently described the situation.... "Claimants under the Emergency Unemployment Compensation provision—who have exhausted their state benefits—surged 260,105 to 4,753,456 for the week ended July 31 (the data lags the weekly claims by two weeks). While that represents a weekly increase of 0.5 percent, the total is 60.5 percent higher than the 2009 figure of 2,961,457." So what will the figure be at this time next year? 6 million? 7 million? And what happens if the U.S. Congress finally decides to cut off the long-term unemployment benefits at some point? The truth is that things are getting really frightening out there. "There's a red flag being waved right now that says 'Danger,'" Bloomberg quoted Mark Vitner, a senior economist at Wells Fargo Securities LLC as saying recently. "Growth is going to slow in the second half and we might face something a little more ominous than that." The reality is that there are not nearly enough jobs out there for everyone. According to one recent survey, 28% of U.S. households have at least one member that is looking for a full-time job. Just think about that. Almost 30 percent of all U.S. homes have someone who is looking for a full-time job. That is not just a problem. That is a national crisis. But it is not just those who are unemployed who are suffering. The reality is that this economic downturn has hurt most of us in one way or another. A recent Pew Research survey found that 55 percent of the U.S. labor force has experienced either unemployment, a pay decrease, a reduction in hours or an involuntary move to part-time work since the recession began. Millions of Americans are putting up with increased workloads, pay decreases and benefit cuts right now because the alternative is joining the hordes of jobless Americans that are fighting tooth and nail over the few jobs that are actually available. Once you lose your job in this economy there is no telling when you are going to be able to get another one. In America today, the average time needed to find a job has risen to a record 35.2 weeks. Could you imagine being unemployed for 35 weeks? The truth is that in 2010, it is employers that have all the power and all the leverage. In fact, when you really analyze it, it is a wonder that companies are hiring new workers at all. It is a massive pain in the rear end to hire a new worker in America today. The thousands upon thousands of regulations that must be complied with, the big pile of forms that need to be filled out and the elaborate bookkeeping that must be maintained make hiring someone a major headache. One top of that, tax contributions, benefit packages and health insurance premiums make each worker a very expensive proposition. There is a reason why so many companies are trying to squeeze more out of the employees that they already have or are only hiring temporary employees right now. But the biggest reason why there is such a lack of jobs is because millions upon millions of good jobs have been shipped overseas. Globalism and "free trade" have put middle class American workers into a situation where they are in direct competition for jobs against the cheapest labor in the world. Why in the world should U.S. companies hire American workers when they can hire very willing workers on the other side of the world who will do the same job for less than one-tenth the cost? Those who once warned us about "the great sucking sound" that globalism would create were right, and the truth is that the U.S. has already been bleeding good jobs for years. According to one analysis, the United States has lost 10.5 million jobs since 2007, and the truth is that unless something is done things are going to get even worse. But what can get lost in all of these statistics is the very real pain that so many millions of Americans are now experiencing. Losing a job and watching everything that you have worked for crumble can be extremely soul crushing. In fact, this economy is pushing some Americans completely over the edge. The following is an excerpt from an actual letter to U.S. Representative Anthony Weiner.... "My dad, S, killed himself March 16, 2009 because he ran out of money and could not find work. My whole family had been devastated by the economy. He was 61 years old and could not take it anymore. He could not figure out how to keep the electric on, buy food, or keep a roof over his head. A day before his electric was to be shut off, and 2 weeks away from eviction, my dad took the hardest walk of his life. He left a note on the dining room table for my sister and I. His suicide letter said 'I love you. I had to do this. I ran out of money. I wish you both luck in your lives'. He left the door unlocked with the door key left in the lock. He carefully laid out two suits for us to pick from to bury him in." Could you imagine if that was your father? As the economy continues to deteriorate, many more Americans are going to be pushed to the edge of despair. Life is not about paying our bills or about the things that we own, but there is no denying the pain that comes when you run completely out of money and you feel totally helpless. But nobody should ever give up. There is always hope. Things can always be turned around. Unfortunately, we have entered a time when there are always going to be a large number of unemployed Americans because there are just not nearly enough jobs to go around. Anyone who thought that we could merge American workers into a massive global labor pool and still be able to maintain our middle class lifestyles was living in fantasy land. No, the truth is that globalism has killed the goose that laid the golden egg and now tens of millions of Americans are going to pay the price.
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| Gold Seeker Closing Report: Gold and Silver End Mixed While Stocks Drop Posted: 19 Aug 2010 04:00 PM PDT Gold fell slightly to $1227.15 in London before it rose to as high as $1237.20 by about 10:30AM EST and then dropped back down to $1228.55 by late morning in New York, but it then bounced back higher in afternoon trade and ended with a gain of 0.26%. Silver climbed to $18.57 in early New York trade before it fell to $18.195 by about noon EST and then rallied back higher in late trade, but it still ended with a loss of 0.33%.
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| Posted: 19 Aug 2010 01:35 PM PDT This article from Bloomberg News this morning grabbed my eyeballs: "Dollar Dinners From ConAgra Threatened By Costs." Heck, I didn't even know there was such an item. It looks to be the food-stamp- family-equivalent of Ramen Noodles for college students (I did a baked potato with melted cheese and hot sauce for variety when I was at the U of Chicago grad school). At any rate, if you read through the article, it would appear that ConAgra can no longer keep the price point at a buck by cutting costs and will have to either raise the price somewhere between 20% and 50% or reduce the size and quality of the portion. Here's the article link: No Inflation? So I decided to update some prices of select everyday commodities - the kinds of goods that the Government conveniently overlooks when calculating its PPI/CPI metrics. This should be eye-opening: measured over the last 12 months, prices of all these items have increased by: copper 37%, corn 35%, pork bellies (bacon anyone?) 350%, cotton 74% and heating oil 33%. The last one bummed me out because I hate a chilly home and winter is coming. Here's the data link if you want to check my numbers: LINK Let's be clear about one thing. The true definition of inflation is not higher prices of assets, goods and services. Prices in the system that we observe and experience are nothing more than the manifestation of the underlying cause, which is currency devaluation from an increase in the money supply in excess of a country's real economic output. You can't look at this over a short period of time. Take a look at this long term graph of the basic money supply measure, MZM, which is now one of the popular money supply metrics now that the Fed has hidden M3, the real money supply metric used by every other Central Bank:  So ya, over the past few months, the money supply appears to have contracted - slightly (although, it can be argued that MZM under-reports the true money supply, see this LINK and this True Money Supply if you care to be enlightened). Just think about the cost of a cadillac or a college education in 1970 vs. now. And even better measure of the money devaluation that has occurred is that since roughly the mid-1980's, it takes a 2-income household to maintain the same standard of living that a 1-income household could maintain back in 1970. In fact, stripping away the benefits of technology, a lot of analysts would argue that the overall standard of living today with 2-income households is lower than with 1 in 1970. THAT's inflation/dollar devaluation at work. That miniscule drop in MZM that has deflationists chasing their own tail in what can be termed "intellectual sloppiness" is not going to undo the damage of over 50 years of money supply expansion. One other point to which I would like to draw your attention. You can see from the above chart the increase in money supply has accelerated since 1995. In theory, that increase in money supply should have been backed by a concomitant increase in the GDP. Of course, this was not even close to being the case. What resulted was the series of paper asset bubbles, each one ultimately inflicting more damage on our system. (emerging market debt, internet/tech stocks, housing - housing is a "paper" bubble because it was fueled by the mortgage bubble - and now the Treasury bond bubble, which some would call ultimately the dollar bubble). Another way to look at the devaluation of the dollar is to measure it against the price of gold. After all, up until FDR did his magic in 1933, anyone could exchange their dollar bills for gold or silver at the Fed "window." In 1971, when Nixon completely shuttered the gold window, thereby completely unleashing the dollar from its tether to to gold, the price of gold was $35. This chart shows what has happened since then:  As you can see, the price of gold has increased 3500%, or the dollar has lost 97% of its value since 1971. Again, try to think about the long term affects of this insidious, long term devaluation of the dollar. My parents bought the home I grew up in 1969 for about $45k. The last sale I heard about around the peak of Denver real estate was $450,000. Given the devaluation of the dollar vs. gold, they would have been much better off taking that $45,000 and buying gold and renting. Let's tie this back to the opening comments about the surprisingly large 12 month price increases in basic commodities. I would argue that a significant portion of the money that the Fed/Treasury has printed and injected into the system since the credit crisis of 2008 has flowed into commodities. This would be a natural place, besides gold and silver (up 31% and 37% respectively over the last 12 months), for printed money to flow into, as they represent consumable, depletable goods which have value to everyone and could ulitmately be used in a barter system if/when the dollar is ultimately rejected as a medium of exchange. Are you better off holding gold, silver and select commodities or holding paper dollars backed by a Government that would be insolvent if it weren't for its ability to use the printing press? What about the folks who depend on those $1 meals from ConAgra? If I were one of them, I would rush out and buy as much of what is left for a $1 as would fit in my freezer before the price goes up or the content of the package is reduced. Of course, then again, this is how the hyperinflationary price escalation got started in Weimar Germany and, recently, in Zimbabwe. No inflation? Better check your premises because the facts do not contradict reality. And the reality is that the deflationists are wrong. To conclude, gold is going to go MUCH higher as this drama unfolds. Late edition. I just read this piece by Egon von Greyerz LINK - Good read I thought this chart was a perfect addition to what I presented above:  
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| Are Your Ready for the Big One? Posted: 19 Aug 2010 01:28 PM PDT By Rick Ackerman, Rick's Picks The Dow looks to be in the throes of a 420-point plunge, even if sellers were unable to deliver the haymaker yesterday that would have put bulls down for the count. At the final bell, the drop amounted to only 144 points, although it would have been closer to 200 points at the day's lows. If our prediction of a further 276-point fall over the very near-term pans out, pushing the blue chip average slightly below 10000, that would be just a very small downpayment on all of the plunging the Dow will still have to do to catch up with a U.S. and global economy that have begun to relapse into deep coma. Dow 5000, anybody? Whatever happens, it seems clear already that the highs achieved by the broad averages earlier this month marked a last hurrah for the most recent bear-rally cycle, and that the major bear market begun from Dow 14198 in October of 2007 has resumed.
In retrospect, it's hard to imagine how DaBoyz could have succeeded to the extent they did this summer, manipulating an 1100-point surge in the Dow Industrials since early July. The economic landscape hasn't looked as dark since the early days of the Great Depression. Unemployment will only rise in the months, or perhaps years, ahead; real estate prices have failed to respond to trillions of dollars worth of direct and indirect stimulus; and all of the Government's bailouts have produced not even an iota of sustainable economic growth. Put all of these factors together, and many not mentioned, and Wall Street pros who bought into the rally should be wondering, "What were we thinking?" Threat Is Waxing Looking ahead, although a bout of further weakness might be satisfying to those who have yearned to see stocks get in line, finally, with the grim realities noted above, it remains to be seen what form the decline of shares will take. We raised the possibility here the other day that a full-blown collapse may already be under way and that only the element of momentum is lacking to put some hair on the chest of a bear that showed its incisors last Wednesday via a 216-point plunge in the Dow. We think the most likely scenario is for stocks to continue to drift lower between now and the November elections, but with sharp rallies along the way to keep bears at bay. As this occurs, however, the chance of an outright crash, with the Dow falling 3000-4000 points in a matter of two or three weeks, will be with us more less constantly. It could begin tomorrow, or next week, or at any time in September or October. But make no mistake, it is surely coming. Investors who want to avoid disaster should be at least 80% in Treasurys right now, since the preservation of capital is paramount. This next phase of the bear market is going to make the deep economic trough of the early 1970s look like a picnic. Back then, the economy was in a secular credit expansion that resumed following the 1973-4 bear market. This time, credit is collapsing and consumers will be unable to reverse the trend. Economic growth is going to swing negative in 2011, and it's possible it will remain negative by as much as 2% to 3% for a couple of years. That the stock markets have yet to discount an economic implosion of this degree implies that the collapse in share values just ahead will be devastating. If you've been hanging onto stocks, lulled by this summer's hoax into believing there's no need to rush for the exit, think again. It's time to get ready for the most destructive and precipitous phase of this Great-Recession-or-Worse. (If you'd like to have Rick's Picks commentary delivered free each day to your e-mail box, click here.) >> Next Hidden Pivot Webinar begins 9/22. Early-bird registrants save $50. Use coupon code 7D5629 Rick's Picks is a trading newsletter for stock, gold, silver and mini-indexes. All trades are based on the proprietary Hidden Pivot technical analysis method. © Rick Ackerman and www.rickackerman.com, 2010.
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| Bullion As An Alternative to ‘Shorting’, Part I Posted: 19 Aug 2010 01:18 PM PDT By Jeff Nielson, Bullion Bulls Canada In a recent commentary, I characterized gold and silver bullion as a "superior" asset-class, versus virtually any other investment options. In this series of commentaries, I'm going to focus upon the versatility of bullion as an investment. Experienced precious metals investors are familiar with the many "drivers" which have been identified for the precious metals market. However, this is simply another way of saying that bullion is a good proxy for many of the dynamics in markets (and the overall economy) today. This is a concept which is especially useful with respect to investing in a "short" position (i.e. betting that a particular investment will go down rather than up). "Shorting" a market is inevitably a much more high-risk investment than going "long". To begin with, there is the potential for infinite losses. Bet "long", and you can never lose more than 100% of your investment (assuming we avoid the insanity of "margin" in our accounts). Bet "short" however, and there is no limit to potential losses, since there is no (theoretical) limit on how high any particular investment could rise (except for bonds). Add to that the further risk of being forced-out of your short-position, and we can see that this is a particularly precarious form of investing, best left to trading experts. What makes this a frustrating reality is that investors who are strongly bullish on precious metals inevitably believe that there are many other asset-classes which are going to plunge in value – due to many of the same dynamics which will cause bullion to rise. Since many of those doomed asset-classes are U.S. investments, I will focus this discussion on some of those asset-classes. As even the mainstream media begins to clue-in to the U.S. Treasuries market, talk increases about the massive "bubble" in this market: the highest prices in history, at a time when more supply is being dumped onto this market than at any time in history and global debt-markets were already saturated with U.S. debt before this "big dump" began. In private conversations with readers, on more than one occasion talk has turned to "shorting" this particular market. Thanks to the large in-flux of "short" ETF's, even ordinary retail investors can set up a short position against virtually any market. Put another way, the bankers have made a huge effort to increase investor access to the trades which have both the highest probability of losses and the potential for the greatest possible losses. And we are supposed to conduct these trades in the most "rigged" markets in the history of human commerce. Let's examine the potential risks facing an investor who chooses to short U.S. Treasuries. Treasuries prices are near their theoretical maximum (as previously mentioned, only bonds have a theoretically-maximum price, as interest rates move towards zero), so this would seem like the "safest" short-trade imaginable. Perhaps the best way to identify the hidden risks to this market is to simply ask ourselves: why hasn't this ridiculously-inflated bubble imploded already? All things being equal, the greatest "supply" in history for U.S. Treasuries implies the lowest prices in history, not the highest. Bond-pumpers will argue, however, that "all things are not equal". As U.S. debt spirals exponentially higher, and government revenues plummet at the fastest rate in history, the United States already has debts and liabilities exceeding those of all the rest of the planet, combined – despite only representing about 5% of the Earth's population. It is hopelessly insolvent by any, rational measure. And still the bond-bulls trot-out the absurd argument that U.S. Treasuries represent a "flight to safety". The best rebuttal for this position is to refer to a somewhat generic, cartoon image. A cartoon character sees some gigantic boulder about to fall on top of him, and quickly pulls out an umbrella for "protection". Quite obviously, U.S. Treasuries are the "umbrella". The "boulder" is the largest debts in history, the largest liabilities in history, the largest deficits in history – combined with massive, structural unemployment and falling, real wages (i.e. no revenues to make payments on all this debt). More articles from Bullion Bulls Canada….
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| Peter Brimelow: Gold gearing up? Posted: 19 Aug 2010 01:17 PM PDT By Peter Brimelow http://www.marketwatch.com/story/rapturous-gold-bugs-see-new-highs-ahead… NEW YORK — Is gold gearing up for new highs? Rapturous radical bugs say yes. Wednesday may prove to have been a very important day in gold. Gold broke early in the day, but then metal reversed, closing higher than Tuesday's high. For technicians, this amounts to an outside reversal. The Wednesday close put gold back to the level of June 30 and some $73 higher than the July 27 low. Back then, almost the only cheerful group was what I have call the "radical gold bugs" mustered around Bill Murphy's banner at LeMetropole Cafe. I quoted Murphy saying: "As long as the physical market holds up, it is only a matter of time before gold and silver go back up and make new highs." Murphy's prediction seems to be happening. On Wednesday night, Richard Russell commented: "Strange, the clearest pattern I see in any item is in gold. … Below, gold is a picture-perfect head-and-shoulders bottoming formation. Over the last few days gold has broken out to the upside. The breakout is capable of taking gold to the previous record highs." What is particularly interesting is that, for once, the gold shares agree. Two weeks ago the Chartist Martin Pring stipulated in his weekly Infomovie Report that although recent gold action "hints at a possible rally … until SPDR Gold Trust ETF (GLD) and the Market Vectors Gold Miners ETF (GDX) can take out previous minor highs at $120 and $52 I am remaining cautious." But on Wednesday both instruments achieved these levels. This is an important matter for Pring, who has traditionally laid great weight on the forecasting capabilities of gold shares. Gold bugs are also taking heart from other factors. They have learned to rely on a powerful upswing in physical demand for gold starting in late August and running through the end of the year. This is because of the wedding season in India, by far the world's largest gold importer. The research department of Canada's CIBC has recently pointed out that gold has risen in September in 16 of the last 20 years. Holding for the whole of the last four months of the year has provided double the returns of September alone. LeMetropole Cafe, which pays close attention to regional gold markets, has indeed been reporting signs of stronger buying out of India, Turkey, and even Iran. This is expected to more than offset weaker bids from the Far East — Vietnam, China, and Japan. This evening's weekly update from the Aden Report is on board for the ride: "With each passing day, gold is reinforcing that a renewed rise is under way. This is incredibly bullish because it's saying that the six week 8% decline from June 18 to July 26 is all we are going to get. … "If gold, basis December, now stays above $1,213, the D decline will be over and the rise could then easily test the June highs. But if gold closes at a new record high above $1,258.30, it will show super strength due to several reasons. A mild D decline, followed by a record 'A' rise high, at a time when a second phase of the bull market is under way, essentially means an explosive rise could be at hand. Gold shares are backing this up as the HUI gold share index closed at a seven week high today." * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| US jobs data weighs on copper prices Posted: 19 Aug 2010 01:16 PM PDT Copper reversed gains on Thursday after jobless claims data from the United States stoked concerns about global demand for industrial metals.
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| Posted: 19 Aug 2010 12:32 PM PDT
The "M" is there. Now all the Fed needs to get is to find the velocity that goes with it. However, with GDP now realistically declining, the latter is proving to be quite problematic for the Chairman.
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| The Land of the Future… Today Posted: 19 Aug 2010 12:26 PM PDT Stefan Zweig pegged it right after all. In the late 1930s, the Austrian playwright and writer sought relief from war-torn Europe and settled in Brazil. He loved it. In 1941, he moved there and wrote his book Brazil: Land of the Future. Brazil, he thought, "was destined to become one of the most important factors in the development of our world." Brazil impressed Zweig with its enormous size - it is bigger than the continental US - and impressive landscapes. He also saw what many saw before him. "Here lies immeasurable wealth of soil that has never been plowed or cultivated," he wrote, "and beneath it are ores, minerals and natural resources that have not in the least been used up nor even extensively explored." And so it remains today. As I say, Zweig was not the first to find charm in these sunny lands. A long line of travelers and adventurers have said much the same thing. But it took a long time to get going, so much so that it became a joke: "Brazil, the land of the future and always will be." Still, natural resource booms did help settle and build Brazil, as Zweig observes. Booms in lumber, sugar and cotton settled the north and created Bahia, Recife, Olinda, Pernambuco and Ceará. Gold settled Minas Gerais. Coffee raised São Paulo. Rubber gave life to Manaus and Belem. And on and on... Today, though, Brazil seems to be putting it all together and the old joke has gone stale. Brazil is the leading exporter of a long list of agricultural commodities. Then there are the big oil discoveries off its coastline. And there is the ample soil and water, as I've written about before. Brazil's net debt is at a level that, in the words of The Financial Times, "makes much of the developed world green with envy." Meanwhile, unemployment is low. The economy is growing 8-10% a year. Poverty from 2004-08 fell by half. Meanwhile, a growing middle class continues to make its presence felt - retail sales rose 30% in March alone. "There's nowhere else in the world that's had the dramatic change in the middle class like Brazil, not even China," says one analyst quoted in The Wall Street Journal recently. "You've got an unfathomable amount of money there." So what are the investment opportunities in Brazil today? I'll have a better handle on things in the coming months as I spend some time down there. But I have some initial thoughts to share here. For a long time, Brazil was not a place to trust with one's money. But the rules these days are friendlier for investors. Yes, the laws are still complicated and taxes are still high. Labor laws are still outdated and often inflexible. Overall, Brazil is still not a great place to do business. It ranks 129 out of the 183 nations tracked by the World Bank. Yet it still has come a long way. As one partner at a leading international law firm put it, "For the first time in the history of Brazil, we have an excellent environment for investment." There are plenty of places to look for those investments. Where are the needs most critical? In a word: infrastructure. Sewage facilities are inadequate. The FT opines that here the "need for investment is perhaps greater than any other sector." While some 80% of Brazilians have access to clean water, less than half have access to a sewage system. And Brazil treats less than a third of its wastewater. Roads are notoriously bad. Only 10% or so are even paved. As a result, freight costs eat up a third of the value of what's shipped. Sometimes, the freight never arrives. Recently, a McDonald's had to go a day without serving french fries because the supply truck never made it in. The roads affect most everyone since the roads handle some 68% of Brazil's transport needs. The ports and rail links also feel the strain of a booming economy. Brazil's biggest port, at Santos near São Paulo, handles only a 10th of the traffic of big Asian ports like Hong Kong. Another way to see these claims of weak infrastructure is to look at Brazilian steel use, which is very low. Brazilians consume only about 100 kilograms of steel per person. That number has barely moved since 1980! The Chinese consumed 30 kilogram of steel in 1980 and now consume 300 kilograms per person. European countries often top 500 kilograms. South Koreans use 1,200 kilograms per person! So there is a lot of room for steel consumption to grow in Brazil. Lakshmi Mittal, the CEO of the world's largest steel company, summed it up well. "The level of consumption is well below the country's potential. It also indicates a lack of infrastructure investment in the last two decades." Some of this is in the process of being fixed. Brazil has a huge port in the works near Rio, called Acu Super Port. It is a mammoth project - nearly two miles long, it will hold 10 deep-water berths. Brazil also has plans for more roads, a high-speed rail line between São Paulo and Rio and more. The best way to invest in rising Brazilian steel use is through native companies. That's because the Brazilians are among the lowest-cost producers of steel in the world. Brazil sits on some of the lowest-cost and highest-grade iron ore and coking coal deposits in the world. Power costs are low thanks to hydropower, which provides four-fifths of Brazil's electricity. And the relative isolation of the Brazilian market from other big steel producers gives the home team a big advantage in freight costs. The only tricky thing is the Brazilian real, a currency that has been strong of late and raises the cost of Brazilian steel. (We are a far cry from 1990, when Brazilian inflation peaked at 2,950%!) Finally, and somewhat ridiculously, Brazil still has import duties on steel. Another fact that bodes well for steel use: Energy consumption is also remarkably low. Brazil consumes about 1.2 tonnes of oil equivalent per capita per year. That's less than half what Portugal and Poland use. And they are among the poorer members of the EU. The US uses 7.8 tonnes. Building a new and needed energy infrastructure for Brazil's expanding economy will consume a lot of steel. Steel is just one idea, but there are many other sectors to invest in in the country. From a big-picture standpoint, it's hard not to like Brazil. As Zweig wrote, "In its geology, this gigantic empire lacks hardly any kind of ore, stone or plant." Finally, it looks like Brazil is taking advantage of its space. (Things would end badly for Zweig, though. Even Brazil couldn't beat back the demons. He committed suicide in Brazil in 1942.) Regards, Chris Mayer
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| Bonds vs. Tech Stocks for Bubble Supremacy Posted: 19 Aug 2010 12:04 PM PDT Nothing much happened on Wall Street yesterday. And there's not much in the press today. The Financial Times talks of mergers and acquisitions, Australia's upcoming elections, and South Africa's drift towards Zimbabwe. The International Herald Tribune (the overseas version of The New York Times) is concerned with elections in Haiti, Iraq bombings, and China's banking system. Generally, you are better off not reading the paper. It causes you to think like everyone else, which is to say, not to think at all. Instead, you spend your time getting worked up about things too remote and too complex to understand...things that you can't do anything about anyway. The issues are complex...but the motives are simple. The NYT and the FT want to sell papers. So they come up with stories that confirm readers' prejudices, flatter their vanities, and distract them from their own concerns and challenges. Readers are encouraged to ignore their own problems and meddle in the affairs of other people. All we find of interest in the news this morning is that bankruptcies have risen to a 5-year high - just what you'd expect in a major correction. The Wall Street Journal, meanwhile, carries an article entitled "The Great American Bond Bubble." The authors worry that bonds have gotten themselves into a bubble similar to tech stocks in 1999. You'll recall that back then investors were so sure new technology would pay off that they were prepared to pay astronomical prices for dizzy tech companies. Many of these companies had no realistic business plans, no revenue, no employees, and no hope of making money. Others were embryonic, with a tiny stream of income that they were sure would grow into a flood. It was not unusual for investors to pay 50 times earnings, or even 100 times earnings, for these stocks. Well, just look at what is happening in the bond market, say the authors. Prices have gone so high - for government bonds - that investors once again are paying sky-high prices for tiny streams of income. In the case of America's inflation-adjusted 10-year notes, the TIPS, for example, investors are now paying more than 100 times the expected annual return. Why? Ah...you know the answer. Because there's a Great Correction going on. There's more evidence of it every week. The recent jobs report...new unemployment claims...the latest consumer spending figures...Japanese GDP...European industrial output... ..and sinking yields on Japanese and US government debt... ..all point to a Great Correction. What can you do with your money during a Great Correction? If you're smart, you know that most asset values are vulnerable. If you're investing for retirement in 5 years, for example, you're taking a big chance in stocks. If they follow the Japanese example they could go down for the next 5...10...15 years. If they follow the example from the US from the '30s...they've still got another 50% decline coming. Maybe more. If you're 20 or 30 years old, heck, you can take the risk. Sometime between now and retirement, stocks are likely to trade at prices at least as high as they are now. But if you're 55 or 60 you've got to think about it carefully. The risk is that half your money will be gone when you need it. The reward is what...maybe a 10% gain? Maybe 20%? Not worth it. The stock market has been shilly-shallying around - up, down, up - for the last 10 years. Investors have made nothing. The boomers are getting ready to retire. They figure they'd rather hold onto what they've got than take a chance on losing it - especially when the performance of stocks has been so poor. The nice thing about US bonds is that you're sure to get your money. The bad thing is that you're not sure how much the money you get will be worth. But that's a problem for another day... And more thoughts... "Maria, you're a great investor... You've made good money." We were asked to look at our daughter's finances. She was afraid she was missing opportunities or taking unnecessary risks. But when we looked at her account statement we saw that she was doing very well. "Maria, it says here that if you had invested your money in world stocks, generally, over the last five years you would have turned $10,000 into just a bit more than $11,000. But your investment portfolio has gone from $10,000 to more than $25,000 over that period. Very good. How did you do it?" "I just bought that stock you told me to buy." "What stock?" "Iamgold." "Oh..." "But I think the stock went down recently. It's probably time to change to something different, don't you think, Daddy?" "Hmmm... I don't know. You're not in a hurry. What you want to do is to find something that is likely to pay off and just stick with it until it does. "Gold will probably go down if the economy continues to slump into deflation - which I think it will. But I don't think it matters. The bigger risk is getting wiped out by inflation. And the big opportunity, for you, is that when inflation comes a knockin' the price of gold is likely to start a rockin' and rollin'. "So even if the price goes down, it's not likely to go down too low or stay down for too long. On the other hand, when people realize that their savings could be wiped out by inflation, you're going to see gold really fly. It's probably worth waiting for." Regards, Bill Bonner
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| Hinde Capital On Why Silver Velocity Will Be The Bullet That Sends The Metal Much Higher Posted: 19 Aug 2010 11:46 AM PDT
By Ben Davis, CEO of Hinde Capital, published for King World News. The latest interview of Ben Davis by Eric King can be found here. Silver Velocity - The Coming Bullet "Money can lose its value through excessive abundance, if so much silver is coined as to heighten people’s demand for silver bullion. For in this way the coinage’s estimation vanishes when it cannot buy as much silver as the money itself contains…The solution is to mint no more coinage until it recovers its par value” Copernicus Our Hinde Silver Trend model has reached a significant low that usually precedes a dynamic move. This move can be lower or higher but our other technical indicators signal a move higher is the most likely scenario.
Silver Seasonality Our silver seasonality analysis suggests that the trend will be directionally higher in price.
Silver Volatility Other than just purchasing silver bullion (in allocated form), speculators could purchase volatility. As one can see from the chart below historical price volatility is at the lowest standard deviation on a rolling 3 month basis that it has been for sometime. Straddle break evens look attractive or likewise out-the-money call premiums look cheap, for those who agree with our directional bias for a move higher.
Silver’s timeless fascination Mankind’s timeless fascination with silver stretches back millennia. As early as 700 B.C., the Mesopotamian merchants used silver as a form of exchange. Later, many other civilizations also came to recognize the inherent value of silver as a trading metal. The ancient Greeks minted the drachma, which contained 1/8th ounce of silver; and in Rome, the basic coin was the denarius, weighing 1/7th ounce. And let’s not forget the English shilling "sterling," originally denoting a specific weight of silver, which has come to mean excellence. In fact the words for "silver" and "money" are the same in at least 14 languages. Silver or money is derived from the Ancient Greek: ργ?ντος - arg?ntos, gen. of ργ?εις - arg?eis, "white, shining" ). The Incas of Peru called it the “tears of the moon” because they were awed by silver’s strange gleam and the Chinese believed that a silver locket hung around a child’s neck would ward off evil spirits. In recent years silver has grown to be regarded as the poor man’s gold. However we suspect silver will shake off this unfortunate shackle and give gold a “run for its money” as the old idiom goes. There are key fundamental differences between gold and his poor cousin silver. Demand for gold is almost entirely from those holding for financial safety and protection of purchasing power and likewise from fabrication that preserves it. Gold is rarely if at all consumed. A base metal is the opposite, it is consumed. Like iron for example. Here silver is unique, industry will consume it, and others will buy for financial gain and protection. Fluctuations in the price of gold primarily arise from changes in demand as annual mine supply is small compared to existing stockpiles; of the same magnitude as the small amount lost or consumed each year. Hence over ground supplies don’t change much. Silver ounces come and go. Unlike gold silver’s active chemical properties lend it to practical industrial use that see much of it used beyond practical recovery. The uses for silver in modern industry are growing. It is the best conductor of both heat and electricity, the most reflective, and after gold the second most ductile and malleable element. It is used in photography, electrical applications, particularly in conductors, switches, contacts and fuses. Silver alloys are used in batteries as cathodes. As a bactericide, silver is used in water purification and air handling systems. Silver is also a natural biocide and is very effective against bacterial infections such as MRSA. New products using silver’s biocidal qualities are being developed each year; clothing, bandages, toothbrushes, door-knobs (flu-protection), keyboards, the list goes on growing. Silver is much less rare than gold and as a consequence less effort goes into salvaging and protecting it. Annual mine production and consumption are large compared to existing stock piles, so price fluctuations in theory come from both these factors as well as investment demand. Silver supply demand imbalance Uniquely silver has been in a multi-decade imbalance between annual “production” and demand from industrial, jewellery and investment. Ted Butler of Investment Rarities Incorporated has become the most ardent silver analyst and has done extensive research into the issues of dwindling stockpiles. His well documented research extended into the leasing market and the existence of huge short positions on Comex (namely among a few large bullion houses) that have been allegedly used to manipulate the price of silver lower for benefit of the “users”. This supply of paper silver has undoubtedly arrested the rise in the price of physical silver bullion, as there would appear to be a structural imbalance in supply vs demand, which can only be resolved by a much higher increase in price in order to encourage ‘normal’ free market forces of supply and demand to interact. The world annual silver mine output is approximately 650 million troy ounces (average of last decade), with about another 180 million ounces from recycling, and possibly another 100 million ounces from selling from other sources. Industrial consumption is almost 45%, jewellery consumes about 25%, photography is down to about 15%, leaving 15% for investor demand. Investors buy about 100 to 150 million oz. of silver per year, which is barely $2 billion. Yet the BIS estimates that most all of the worlds' banks have $200 billion in ‘other precious metal’ (i.e. silver) notional value worth of derivatives on the books. This seems somewhat incongruous with the lack of supply. It tends to point to a potentially more sinister occurrence. http://www.bis.org/statistics/otcder/dt21c22a.pdf In July to November 2008 silver net US bank shorts rose from 9% to 99% of the Comex commercial net short positions in one shot. Equal to some 27,000 contracts or 30mm tr.oz of silver sold, just prior to a 50% plus collapse in the silver futures price. The issue we and others in the market have with this egregious positioning is that it was concentrated between two commercial banks. Flip such a position around to the long side and regulators would be screaming ‘blue murder’ and accusations of market manipulation and market ‘cornering’ would be rife. Remember Bunker Hunt. Two Banks Net Short as % of Commercial Net Short and Silver Futures Price
The two commercial banks held 140% of annual mine supply in OTC positions. These two bullion banks dominate the OTC silver market. They range in concentration from 85% to 100% at any one time. HSBC and JPMorgan % Silver Derivatives (inferred) (average maturity less than 1 yr)
Unwinds of these positions would require more silver than is readily available and will lead to much higher prices as sellers are sought. The manipulation of this small market has led to low prices whilst a structural imbalance of some note has been growing.
Theodore Butler, Investment Rarities , first mentioned in 1998 The laws of supply and demand dictate that when there is a chronic production shortfall, inventory can only be bid away at higher, not lower prices. Ted argues that most of the inventories consumed over the last 60 years came from government holdings. This amounted to a stupendous 6 to 10 billion ounces, some 100-150 million ounces of silver each year for 60 years. So lets put this in perspective it took 5000 years to accumulative these stockpiles and in sixty, they have gone. Above ground silver is rarer than gold…. As Ted Butler describes it, to look ahead 50 years, it would be appropriate to look back fifty years to gain a sense of perspective. Half a century ago, at the end of World War II, total known stocks of silver amounted to ten billion ounces (with the US government holding 4 billion ounces of that total amount). At that time, we were just entering an era of unprecedented global economic expansion that has lasted to the present. In this era, silver was consumed in a variety of vital modern applications at a phenomenal rate. Today, known stocks of silver have shrunk over 95%, to maybe a half a billion ounces. The nine and a half billion ounce drawdown in total silver inventory, was the result of the persistent shortfall between supply and demand, which continues to this day. Not coincidentally, the current 150 to 200 million-ounce annual deficit in silver mirrors the long-term trend line average. This continuing deficit is remarkable in that there has been decent growth in world production of silver over the past 50 years, but obviously not enough to satisfy the surge in industrial demand. 2009 saw such a swift turnaround in copper prices that silver production was a record 709 mm troy ounces. This was 25 million ounces higher than in 2008 and arguably would have been higher had it not been for the crisis. But this is a moot point as we have just outlined. It took thousands of years to build up ten billion ounces, so to create a current surplus of over 2% does not appear feasible with the supply demand imbalance we have. We will caveat; it is exceedingly difficult to ascertain the true levels of inventories, and there is always disparity on the numbers depending on which data collector you converse with. However as can be seen below inventories remain exceedingly low, irrespective of whose data one observes.
Silver inventories have only turned up as assessed by CPM group, because they have included Silver ETFs, such as iShares SLV. This seems odd, as these inventories already existed, and were merely ‘transferred’ into these vehicles. In a nutshell- for many decades the world has consumed more silver than it has produced. That has necessitated a draw down of previously produced silver - the existing inventories. There has never been a situation in any commodity where such conditions have failed to cause a dramatic price increase. Money velocity rises leads to Silver rise Hinde Capital rigorously examines collates and archives proprietary economic and geo-strategic data to help provide us with global, national and regional sectoral insights. In 2009 “HindeSight” Macro research was spun off as Variant Perception www.variantperception.com. Variant has in very short order become a respected independent voice. Their growing independent macro research services are widely used by institutional organisations, hedge funds, corporate and family offices. In their latest August monthly “De Facto QE in Emerging Markets” they discuss that loose liquidity and undervalued emerging market currencies are leading towards excess foreign exchange reserve accumulation and loose credit conditions. Underleveraged emerging markets with higher velocity will continue to benefit from accommodative monetary policies of a developed world beset with high debt and low monetary velocity. At Hinde we employ their analysis and in conjunction with the VP team have drawn some assertions on the relationship between growing forex reserves, increasing monetary velocity and the trajectory for silver. What we have determined is that the macro back drop is also exceedingly promising for silver in the near term. When foreign exchange reserves are accumulated, they represent an expansion in central bank balance sheets. (Of course, some of the reserve accumulation can be sterilized, but this is only happening partially at best.) Excess reserve accumulation is acting as a massive de facto form of quantitative easing.
Source : Variant Perception Continued reserve accumulation can lead to inflationary pressure, over-investment, complications in the management of monetary policy and misallocation of domestic banks’ lending and asset bubbles. As the following chart shows, there is a high correlation between reserve growth and emerging market stock returns.
As EM reserve growth has continued in recent months we expect the MSCI continued outperformance to Western stock markets to support silver prices. Silver has a strong correlation with the MSCI Emerging markets:
Exchange traded commodities are very cheap VP have highlighted before that exchange traded commodities are cheap. Industrial commodities that are not exchange traded are not far from their all time highs, and they barely sold off during the earlier sell-off in risk assets through April to June.
Source : Variant Perception The ratio of the CRB Index vs. the CRB Raw Industrial Index is at all time lows, indicating significant undervaluation. The CRB Raw Industrial Index is driven by fundamental demand and not speculators, while the CRB Index is driven by speculators. (The Raw Industrial Index includes things like copper scrap, lead scrap, steel scrap, tin, zinc, burlap, cotton, print cloth, wool tops, hides, hogs, lard, steers, tallow, butter, soybean oil, lard, print cloth, rosin, and rubber.) The Raw Industrial Index contains no energy inputs, so is not driven by higher oil. VP also look at the JOCI Index which includes many non-exchange traded commodities (for example burlap, steel, lead, tin, nickel, hides, rubber, tallow, plywood, red oak, benzene, ethylene, etc). They both present a similar picture.
Source : Variant Perception The charts could not be clearer. Exchange traded commodities have never been cheaper relative to non-exchange traded commodities. VP has followed a framework of observing leading indicators in trying to determine if ‘deflation’ or a double-dip recession is on the horizon. They wrote in a recent monthly that they believed the world was experiencing a mid-cycle slowdown, similar to that seen in 1994 and 2004. “The momentum of growth has peaked and our forward looking indicators have peaked, but they are still positive and pointing to continued growth ahead.” The gold/copper ratio is one such leading indicator VP look at (it is an intuitive real world measure of excess liquidity). It gives an advance read on ISM manufacturing. After a huge surge, followed by a sharp slump, it has started to tick up again. The new orders to inventory ratio has also picked up again over the last few months.
Source : Variant Perception Over the summer concerns about a European banking crisis helped push sentiment to very negative levels. The VP Mania and Panic indicator, which measures risk aversion and risk taking globally, shows that only during the crash in October 2008 had the indicator been lower.
Source : Variant Perception Extreme sentiment in western stock markets, undervalued exchange traded products including silver and a turning up in the gold/copper ratio suggest the precious metals complex will rise substantially in short order under a surfeit of monetary reserves that is originating primarily in the West but accumulating in the East and on other developing nations’ balance sheets. We observe the Gold silver ratio closely.
SUMMARY of the most important Gold Silver ratios As Ferdinand Lips (of ‘Gold Wars’ fame) writes, the Gold Silver ratio makes for one of the most fascinati
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| Follow the Money in the Junior Gold Stock Space Posted: 19 Aug 2010 11:44 AM PDT Source: http://edegrootinsights.blogspot.com/2010/08/follow-money-in-junior-gold-stock-space.html Follow the money. The up trend in the Junior to Majors ratio suggests a rally phase. Junior Gold Miners Index to Majors Gold Minor Index: Strength of relative money flows can be assessed by the angle of ascension and the duration of trend relative to its peers. Enclosed below are a few names in the junior gold stock space. Yamana Gold: Seabridge Gold: Gammon Gold: Tanzanian Rty Explr Co:
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