Gold World News Flash

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• Everyone Hates Natural Gas, So Why Do We Love Contango?
• On Approaching Deflation
• Capital Inadequacy
• Where Krugman Went Wrong
• Swap Dealers Flat for Silver, Not Overbought
• Is Gold Getting Too Much Media Attention?
• USD Index Likely to Move Lower - What’s the Impact for Gold Prices?
• Why Are Technology CEOs So Reluctant to Pay Dividends?
• Lundeen's Market Trends: Since 1920, Gold Mining has Outperformed the DJIA
• Yukon Gold Rush Overview
• Sunday Message
• Nine Bullish Arguments for Gold
• Hourly Action In Gold From Trader Dan
• You say Obama; I say Ozawa! You say boom; I say ka-boom!
• The Gold:Silver Ratio
• Gold Forms Overbought Rising Wedge at Resistance
• Beware the Market Maniacs
• Bangladesh Latest Buyer in Central Bank Gold Game
• Legendary Hedge Fund Manager Bill Fleckenstein Says No Bond Crash Without a Dollar Crash
• Rationing ends for U.S. silver eagle coins
• Learn How Butterflies Can Create Profits When Trading GLD
• M2 Surges By $30 Billion In Past Week To Highest Ever, Even As Monetary Base Declines
• Federal Reserve Balance Sheet Update: Week Of September 8
• Deustche Bank Raises a Boat Load of Captial to Buy the Insolvent!
• The China Equation
• Time For Gold Miners To Decouple?
• The Global Yuan, Dollars & Gold
• Thin Tail Investing
• Silver Showing Strength
• Historic Shift Driving Gold Higher
• Telling Time for Gold & Stocks
• Gold Confiscation Past and Present
• Basel III Summary, And The Fed's Endorsement of 20x+ Leverage
• Graham Summers’ Weekly Market Forecast (Time for the 200-DMA? edition)

Everyone Hates Natural Gas, So Why Do We Love Contango? Posted: 12 Sep 2010 06:43 PM PDT The Manual of Ideas submits: Contango Oil & Gas (MCF) presents a compelling opportunity for investors willing to look beyond the headlines of drilling bans and the current natural gas glut toward a world that remains starved for energy. Emerging economies continue to demand increasing amounts of oil and gas, while true alternatives remain in their infancy. And with commodities in general looking more attractive vis-`-vis easily printed fiat currency, history may yet play out in way that puts Contango among the beneficiaries rather than the victims. Did we mention the company is cheap? Contango's high-margin, easily accessible, proved and developed reserves of natural gas in the Gulf of Mexico can be seen as a huge tank of gas that can be monetized in a predictable way, subject to volatility in natural gas prices. Even at current depressed prices, the company’s value exceeds the market price. If we consider Contango’s capable and shareholder-friendly management, “free” options on future exploration, and a debt-free balance sheet, Contango becomes a compelling situation with low downside and material upside. Complete Story »

On Approaching Deflation Posted: 12 Sep 2010 06:35 PM PDT Ivan Kitov submits: Five years ago we developed an empirical model describing inflation in developed countries and published a forecast for the USA at a ten year horizon in 2006 (Kitov, 2006ab) as a linear and lagged function of labour force. For the USA the model is as follows: DGDP(t) = 4.0dLF(t-2)/LF(t-2) – 0.03 (1) Complete Story »

Capital Inadequacy Posted: 12 Sep 2010 06:23 PM PDT [NOTE: With Dan Denning jet setting around the USA, the Daily Reckoning Week In Review Editor Nick Hubble chimes in today...] The Global Financial Crisis displayed just how bad regulators are at dealing with problems. Line up the industries with the most government involvement alongside the industries that struggled most and you get a match. Banking and US housing are at the top of that list. So which is cause and which is effect? "Deregulation was the prevailing trend of the last few years, so it must have been the lack of regulations which caused the crisis," the well educated mainstream reader will exclaim. Yes, no doubt the world's parliaments tweaked the rules around. But, as we have argued before, as long as a central authority controls the quantity of money and the interest rate, banking is more regulated than anything else. Usually it's the interest rate which gets all the attention. Econ-101 teaches us that the central bank will use the interest rate to control the amount of economic activity. The idea is that a bunch of economists get together and figure out the appropriate interest rate over tea and lamingtons (or variations of those depending on which central bank). Then we all live by that rate in "the great moderation". No irrational exuberance and no depressing recessions. Only the great moderation turned into the great bubble and came to an end with a great correction. In the years before, each time the economy wanted to purge itself of bad investments, those investments were made profitable again by lowered interest rates. Central bankers didn't know that kicking the can down the road doesn't solve the problem. So we have a heavily regulated banking system and those at the top of it made a mistake by holding interest rates too low for too long, causing a boom, which was followed by a bust. End of story? No. A similar bunch of regulators, who get less publicity, but arguably have more effect, are meddling with the other foundation of banking - the quantity of money. Their home is that bastion of responsible banking, Switzerland. Basle to be more exact. And in true global regulatory tradition, the regulations the intellectuals at Basle dreamt up were named Basle. But unlike with the climate change bunch, who have Kyoto, Copenhagen, and the rest, the Basle bunch has stayed put each time their lofty ideals didn't pan out. And so when 'Basle I' wasn't enough, they came up with 'Basle II'. As you and taxpayers around the world may be aware, Basle I and II regulations didn't stop banks from needing bailouts. So we're back to Basle for the solution - Basle III. (Getting sick of Basle yet?) Politicians are particularly fond of the concept "if at first you don't succeed, try, try again." Your editor owns a poster that says "Failure... It could be that your sole purpose in life is to serve as a warning to others." Only one of the two applies here. We should clarify something... The Basle regulations, among other things, are capital adequacy requirements for financial institutions. In simple terms, they establish minimum capital requirements for banks. They tell banks how much reserves must be held for when things go bad. Kind of like your parents telling you to eat your vegetables. Only in the case of Basle II, vegetables were defined as whatever the ratings agencies said was good and wholesome. That's where the whole thing fell apart. The ratings agencies made a spectacular mess of things. Addison Wiggin, the Executive Publisher of Agora, and 5 Minute Forecast contributor, points out the following: Last month, a long-running Senate study determined that over 91% of the AAA mortgage-backed securities issued from 2006-2007 have since been downgraded to "junk" - BB or lower. So now it's back to the drawing board for Basle III... Well, actually, "Central bankers reach deal on tougher rules" is already a headline in The Age. The deal has been done. The most concerning aspect of this is that all parties congratulating themselves on this achievement seem to emphasize what Basle III does not achieve. The list is too long to publish here. So it looks like we can brace ourselves for plenty more Basles to come. For now, it is important to grasp just how important capital adequacy standards are. They control the money supply... sort of. To be more specific, they control the velocity of money. Please don't go to sleep. This is actually the biggest fraud ever committed. It goes as follows: Assume Basel has been simplified to state that 10% reserves must be kept for all deposits. So you deposit $100 into bank A. Their statement looks as follows: It has your $100 and owes you that amount whenever you want it. To make a profit, the bank makes a loan, but has to keep $10 as a reserve in case you ask for some of your money. Whoever the loan is given to spends that money and the person who receives it deposits it into their bank. Bank B then does the same thing with its cash, again keeping 10% in reserves. Bank C's accounts look like this: Pretty soon, the banking system is awash with $900 more than when you deposited your $100. That's a velocity of money of 10, because you end up with 10 times as much money as you started with. At a capital adequacy requirement of 4.5%, as in Basle III, you get a velocity of money of 22.22. Which means a $100 deposit gives you $2222.22 in money supply. That is if each dollar is leant out by the banks. Banks usually keep excess reserves, slowing the velocity. But where does all this money come from? Thin air. Yes, the government has the much maligned license to print money, but so do banks. To see how this story goes in a little more of its glory, you can read this article. Yours, Nickolai Hubble for The Daily Reckoning Australia Similar Posts: Irving Fisher Has Come Back Into Fashion Surge in Chinese Bank Lending in 2009 Leads to Fall in Bank Capital The Banks Should Hold More Capital Australia's Capital Crisis and its Chinese Future Capital Flight Out of Greece

Where Krugman Went Wrong Posted: 12 Sep 2010 06:08 PM PDT Only an austerity program can stop the runaway debt tower, and that only under a gold standard. It is to be regretted that Krugman has, as Keynes had before him, completely failed to grasp the role of the gold standard as the regulator of the level of debt in the economy that would sound the alarm if safe levels of indebtedness were exceeded — just as he is missing the curative effects of the gold standard.

Swap Dealers Flat for Silver, Not Overbought Posted: 12 Sep 2010 06:07 PM PDT Well, okay it's Sunday and we are supposed to be taking the day off today. But what better thing to do on a day off than to pour over COT data, charts and ratios? While we are at it, why not share a few of our observations with our best friends and the people who make this service possible?

Is Gold Getting Too Much Media Attention? Posted: 12 Sep 2010 06:06 PM PDT After a brief decline in July, gold once again finds itself in the investment spotlight as investors seeking safety from the turbulence of the bottoming 4-year cycle turn to gold. In its latest close, the gold price according to the 100 oz. COMEX index closed at $1,248.50 just below and within reach of its previous high of $1,260.

USD Index Likely to Move Lower - What’s the Impact for Gold Prices? Posted: 12 Sep 2010 06:05 PM PDT Is it true that the dollar, the yen and Swiss franc may be better investments than gold if the world economy slips back into recession? That's the claim of New York University Professor Nouriel Roubini, famous for having predicted the US housing bust and subsequent recession more than a year before they happened.

Why Are Technology CEOs So Reluctant to Pay Dividends? Posted: 12 Sep 2010 05:58 PM PDT Ravi Nagarajan submits: Few examples in stock market history more clearly illustrate the risks of buying into “hopes and dreams” than the technology bubble of the late 1990s and early 2000s. Companies with no earnings and nonsensical business plans eventually ceased to exist and are now long forgotten. However, most of the well known technology firms from 2000 continue to exist today and have tested business models that generate consistent profitability. Yet investors are so disillusioned that valuations have plummeted. This raises the question: Are technology companies now “value stocks” that should pay large dividends? The question of technology firms’ “payout problem” was the subject of an article this weekend in Barron’s. Andrew Bary makes many of the familiar points regarding the valuation of companies such as Hewlett-Packard (HPQ), Microsoft (MSFT), Intel (INTC), and other former high fliers that now trade in value territory based on earnings multiples. We recently published a favorable article regarding Microsoft making some similar points. Barron’s points out that few technology companies are paying significant dividends. Intel’s 3.5 percent payout is an exception and Microsoft also pays a modest dividend of 2.2 percent but clearly the potential for much larger dividends exists. Complete Story »

Lundeen's Market Trends: Since 1920, Gold Mining has Outperformed the DJIA Posted: 12 Sep 2010 05:58 PM PDT Lundeen's Long Term Market Trends Wk 152 of the 2007-2010 Bear Market Issue ---: 36 Volume: 03 Focus Section Since 1920, Gold Mining has Outperformed the DJIA Asset Performance Since April 2010 Mark J. Lundeen [EMAIL="mlundeen2@Comcast.net"]mlundeen2@Comcast.net[/EMAIL] 10 September 2010 Color Key to text below Boiler Plate in Blue Grey New Weekly Commentary in Black Below is my BEV chart for the Bear Race. I changed the name of my report, and made some adjustments with my charts to reflect the fact that the 1929-32 Bear Market won the Race to the Bottom. In the Red Plot above, we see that the 1932-37 Bull Market, (370% Gain in 5 Years) is now in its third week. But that was a long time ago. Here in September 2010, Mr Bear Continues to Grind down the patience of Investors and "Policy Makers" alike, with another week in Zombie Land. From October to now, this market has gone nowhere. Oh sure, there have been times when the DJIA looked like ...

Yukon Gold Rush Overview Posted: 12 Sep 2010 05:58 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! September 12, 2010 06:17 AM Eric Coffin discusses the Yukon Gold Rush Vancouver area readers take note! [url]http://www.grandich.com/[/url] grandich.com...

Sunday Message Posted: 12 Sep 2010 05:58 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! September 12, 2010 05:16 AM Below is an email from a reader: Hi Peter, I wanted to drop you a line to say thanks. Thanks for telling it as it is. As a Lebanese Christian, we have been suffering the type of subtle persecution in Lebanon since 1947, that only now the USA and several other nations are trying to come to grips with. The sooner the world wakes up to the reality, the better informed they will be. The bottom line is…. You cannot negotiate with irrational mindsets….you will have more success in training chimpanzees to type meaningful articles in a widely circulated newspaper. And this tone of writing does not emanate from *hatred or bigotry…far from it….it is simply trying to state the truth…. St Peter said, silver and gold have I none; but what I have I give to thee, arise and walk! We are to declare that greater is He that is in u...

Nine Bullish Arguments for Gold Posted: 12 Sep 2010 05:58 PM PDT By Frank Holmes CEO and Chief Investment Officer Dr. Martin Murenbeeld, chief economist for Dundee Wealth Economics and one of the smartest gold minds around, recently released his latest chart book—hundreds of useful visuals to help him tell the gold and commodity stories. Dr. Murenbeeld also outlines his nine bullish arguments for gold. [*] Global fiscal and monetary reflation—The world’s major economies have taken on extensive amounts of debt to keep their economies afloat. The struggles of Greece and other nations in Western Europe haven’t gone away. The U.S. has spent hundreds of billions of dollars in stimulus money and is still losing jobs. [*]Global imbalances—The dollar has benefited from the troubles in other countries in its role as a relative safe haven. “Relative” is the key word—roughly $10 trillion is expected to be added to the U.S. federal debt burden through 2019 and the U.S. trade imbalances are huge. ...

Hourly Action In Gold From Trader Dan Posted: 12 Sep 2010 05:58 PM PDT View the original post at jsmineset.com... September 10, 2010 09:49 AM Dear CIGAs, Click chart to enlarge today's hourly action in Gold in PDF format with commentary from Trader Dan Norcini ...

You say Obama; I say Ozawa! You say boom; I say ka-boom! Posted: 12 Sep 2010 05:56 PM PDT The Nobel Prize committee has never withdrawn a prize. It might want to consider it. In Tuesday's New York Times, prizewinner in economics, Paul Krugman reveals either that he knows nothing about economics...or that there is nothing worth knowing in it. We're beginning to think it's the latter. "From an economic point of view," he writes, "World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Deficit spending created an economic boom - and the boom laid the foundation for long-run prosperity...." In the 1938 US elections, voters showed what they thought of the New Deal; Democrats lost 70 seats in the House. Then as now, the public had lost faith in public spending, says Krugman. Nearly two out of three of those polled said they were opposed to stimulus efforts. Roosevelt buckled under the pressure; he drew back from further spending to fight the slump. Thank God for WWII! No one opposes military spending in time of war. Krugman made his position clear in 2008 in his New York Times blog. "The fact is that war is, in general, expansionary for the economy, at least in the short run. World War II, remember, ended the Great Depression." According to this line of thinking, the best form of stimulus spending is money spent on the military. It creates consumer demand without creating consumer supply. Consumer prices rise; people spend. The slump is soon over. But if WWII helped the US economy, think what it must have done for Japan; proportionally, its stimulus efforts dwarfed those of the US...and began much earlier. Just this week, Ichiro Ozawa, running for prime minister of Japan, vowed to take "every measure" to lower the yen and promised a stimulus package more than twice as big as the current program. He was just following in the footsteps of Japan's leaders from the '30s. It was "economic security" they said they were after. And they thought they could get it by central planning and government spending. Military spending rose from 31% of the budget in the early '30s to nearly 50% five years later. By the early '40s it was around 70% and nearly 100% later on. Deficits and debt soared. Did that create a boom? You bet it did. Japan was the first nation to get out of the global slump. It boomed...and boomed...and ka-boomed. When it came to warships, planes, and soldiers, Japan was soon among the richest nations in the world. Yes, Americans had more electric fans, automobiles, central heating, aspirin, ice cream, and the rest of the paraphernalia of civilized life at the time. In the mid-'30s, the US produced 40 times as many autos per person as did Japan. Even during the Great Depression, the US out-produced Japan by a factor of 7 and its workers earned 10-times as much money. Economists can't even measure real prosperity, let alone fiddle it. So they put on the GDP and employment numbers the way a bald man puts on a cheap wig. It makes him look ridiculous and fraudulent, but it's the best he can do. Unemployment disappears in a war economy. Japan put a million men in uniform. Two million more were part-time reservists. Those who weren't in the army were put to work building tanks and planes. By 1941, Japan could produce 10,000 planes a year. If you were a swallow you wouldn't want to build your nest in Japan's factory chimneys; they belched smoke night and day. And talk about fiscal stimulus! Krugman would have loved it - stimulus unfettered by real money or even a casual regard for real prosperity. Takahashi Korekiyo was known as the "Japanese Keynes." Gillian Tett notes in The Financial Times that he was assassinated in 1936 after he came to his senses and tried to bring state finances under control. He was done in by army officers who did not want the stimulus to stop. Not that we're being judgmental about it. As far as we know, the quality of central banking could probably be improved by an occasional assassination. Takahashi wasn't the first. Before him Junnosuke Inoue had held out for the gold standard and balanced budgets. He was out of office by 1931 and out of luck in 1932, when he was murdered. The gold-backed yen was abolished the day he left office. Then, public spending, deficits, central planning, debt, and inflation ran wild. By 1939, the Japanese were spending $5 million a day on their war with China - a huge sum for the Japanese at the time. Was the economy improved by all this spending? No, it was perverted...hammered into a grotesque imposter - a parody of a real economy. Most of the nation's resources were put to work building things almost no one wanted. Then, after the attack on Pearl Harbor, the stimulus efforts were redoubled. Rations were reduced further. Working hours were extended. What few consumer items were available were three times as expensive at the end of the war as they had been when it began. Men were conscripted into factories and the army. Women were expected not only to make the tanks, but to join the home-guard and prepare themselves to repulse the American invaders with sharpened bamboo sticks. What a marvelous economy - operating at full capacity and full employment until General MacArthur finally put it out of its misery. Regards, Bill Bonner for The Daily Reckoning Australia Similar Posts: The Fallacy of the Fallacy of Composition Investors Bow Their Heads and Say a Prayer Chinese Economy Seems to be Growing Japanese Government Displays Generosity as Prices Fall in Japan Feds Say Don't Worry About the Depression

The Gold:Silver Ratio Posted: 12 Sep 2010 05:41 PM PDT

Gold Forms Overbought Rising Wedge at Resistance Posted: 12 Sep 2010 05:33 PM PDT

Beware the Market Maniacs Posted: 12 Sep 2010 05:27 PM PDT Nothing much to report from the markets. The Dow gained 28 points yesterday. Gold lost $6. The dollar was weak...as was the bond market. The Fed came out with a report from its regional banks. Almost all the indicators showed a slowing economy. Not that we're headed into a double-dip. We haven't even gotten out of the first dip yet. Here's Bloomberg with the news: Banks: 'Widespread Signs of a Deceleration' in Economy The Federal Reserve said the US economy maintained its expansion while showing "widespread signs of a deceleration" in mid-July through the end of August, according to a survey by 12 regional Fed banks. 'Major Disappointment' The report is "a continuation of the view that was discussed at Jackson Hole that the chairman put forth," John Taylor, an economist at Stanford University and creator of an interest-rate formula used by central banks, said in an interview on Bloomberg Radio. "It's not a double dip, it's not another recession within a recession. But it is a major disappointment in terms of a recovery." The regional survey, known as the Beige Book for the color of its cover, offers anecdotal evidence that will help central bankers determine whether more stimulus is needed to reduce a jobless rate stuck near a 26-year high and protect a recovery from the deepest recession since the 1930s. The policy-making Federal Open Market Committee next meets Sept. 21. President Barack Obama, speaking in Parma, Ohio today, said he recognizes that the recovery has been "painfully slow" and called on Congress to enact measures to cut taxes for businesses and middle- income Americans while letting rates rise for the wealthiest. Home sales declined in recent months, the Fed said. Probably the most often asked question in the financial world now is: when is the bond market going to crack? If the economy really were gathering speed, however slowly - as the Fed insists - you'd expect a rise in inflation...and a fall in the bond market. Practically everything is connected to the bond market. If bonds crack the dollar won't be far behind (or ahead). If bonds crack there will be one heckuva lot of money looking for a new home. Where will it go? Gold? Commodities? Stocks? Yep. Probably all of those things. Bonds are a "risk off" investment. You buy them when you're afraid that the economy may not recover quickly. You buy them when you suspect that the "risk on" investments won't turn out so well. Bonds are a retreat...a safe house...a bolt hole...where you can wait out a bad spell in the market. But wait? Could this be a scary movie? Could investors be like a young couple taking refuge in an abandoned house in the woods...and then discovering that the place was not completely abandoned? Is there a maniac loose in the bond market? Well, yes...in a manner of speaking... We've been meaning to warn you. You're probably sick of hearing it, dear reader. We've been saying it off and on for the last ten years. The US is following in Japan's footsteps. It will stay in Japan's tracks - in a long, slow, soft depression - as long as it can. Not only that, but America's financial authorities are doing the same thing the Japanese did. And they're getting the same results - a nation of zombies. Japan has been in a slump for 20 years. But the worst is still ahead. So far, they've been able to cover their stimulus budgets with the savings of their long-suffering people. But now, the deficits are bigger than ever...the debt is the highest in the world...and the people are becoming zombies too. That is, they're retiring...and expecting to live at the expense of the government. Only trouble is, the government spent all their pension money. And now the Japanese will have to borrow from...from whom? That's the funny part...there isn't anyone. The public sector bailed out the private sector. Now, who's going to bail out the public sector? No one. It's going broke. Not a big deal, as far as we're concerned. But we wouldn't want to be holding a huge pile of Japanese Government Bonds (JGBs) when the issuers go belly up. That's why our modified trade of the decade has us selling JGBs and buying cheap, Japanese small-cap stocks. We're not so sure the stocks will work out as planned, but we're confident about the JGBs. If they don't crack before the end of the decade, we'll eat our hat. And guess what? The US bond market will crack too. We're on record. The Daily Reckoning says the bond market will crash. But not any time soon. The Japanese managed to keep digging themselves a grave for a long time. We'll do the same - most likely. Investors will get even more comfortable with bonds. They'll settle in...like the young couple in the "abandoned" house. They may even start foolin' around. Having fun. Making money as bonds rise and yields fall. But beware. There are maniacs on the loose. And zombies too. Don't go down into the basement! Fidel Castro is back on the job. After a long illness, the man is back at work...running his island nation into the ground. Fifty years ago, Cuba was the most prosperous, most fun-loving, most- likely-to-succeed nation in Latin America. But...uh oh...it had a dictator. So, Fidel Castro and his band of sociopaths and incompetents took over. One of Fidel's first acts as the new dictator was to appoint Che Guevara to run the central bank. What a mistake that was. Che was no better banker than he was anything else...which is to say, he was terrible. Soon, the economy was a wreck. Fidel figured he should get rid of Che...so Che was packed off to begin a series of very stupid attempts to export revolution...first, with a criminal gang in Africa, which ended in disaster for everyone...and second, where at least Che could speak the language, in South America. That one ended in disaster for Che...which is to say, it was a plus for the rest of the world. But El Presidente is no fool. And now he's come to see that his economic model doesn't work. Bloomberg reports: Fidel Castro's comment to a visiting US journalist that Cuba's economic system doesn't work is the strongest signal yet that the communist island is looking to private enterprise and foreign investment to bolster growth. "The Cuban model doesn't even work for us anymore," Castro told journalist Jeffrey Goldberg after being asked if he believed it was something still worth exporting, according to a post yesterday on The Atlantic magazine's website. Castro didn't elaborate on his comment, Goldberg said. Since re-entering the public sphere in July following an illness that almost killed him, statements by the 84-year-old former president have focused on international affairs. His silence on domestic issues signals he is willing to allow his brother Raul to reduce state control of the economy, said Tomas Bilbao, executive director of the Washington-based Cuba Study Group, which promotes free-market overhaul of the Cuban economy. "These are pragmatic admissions from an idealist," Bilbao said. "Ever since he came back he has stayed away from talking about domestic issues which in itself is the best thing he can do to support his brother's running of the country." Raul Castro, 79, has initiated measures to open the economy since being handed power by his brother in 2006. The moves come as the economy suffers its worst slide since the former Soviet Union ended its support in the 1990s, Bilbao said. In a speech to the National Assembly on Aug. 1, Raul said that the government will allow more citizens to work for themselves rather than for the state. He warned that some government workers will lose their jobs to reduce inefficiency. Property Laws That month, the government loosened controls that prohibited Cubans from selling their own fruit and vegetables. It also eased property laws, extending lease periods to 99 years from 50 years for foreign investors in an effort to build up a tourism infrastructure and draw more visitors to the Caribbean island of 11.4 million people. Cubans can now run private taxi companies, own mobile phones and operate their own barbershops. The state still controls 90 percent of the economy, paying workers salaries of about $20 a month in addition to free rationed food staples and health care, and nearly free housing and transportation. The island's economy is suffering after prices for exports such as sugar and seafood fell. Cuba, the world's seventh- biggest nickel exporter, has seen the price of that metal tumble 59 percent this year. Raul said in July that one in five state workers may not be needed to keep the government running. The Cuban government employs 95 percent of the country's workforce. Cuba now receives about 100,000 barrels of oil a day from Venezuela, which Cuba pays for by sending medical staff to work in the South American country's community clinics. Venezuela has suffered five consecutive quarters of economic contraction and Cuba is looking to diversify its trade partners, Bilbao said. What surprises us is that anyone thought the Cuban model would ever work. Regards, Bill Bonner for The Daily Reckoning Australia Similar Posts: Labor-ious to Watch Warren Buffett Travels to Europe to Seek Out Better Investments Latin America Has Suddenly Become Very Interesting Does the Stock Market Know Something We Don't? Recession for the Japanese Economy Once Again

Bangladesh Latest Buyer in Central Bank Gold Game Posted: 12 Sep 2010 05:00 PM PDT It's a relatively small gold purchase, amounting to only 0.3 percent of last year's 4,000 tonnes of demand, but Bangladesh Bank, the nation's central bank, has stepped up to the yellow-metal plate with a roughly $400 million, 10-tonne purchase of gold from the International Monetary Fund (IMF). According to the Financial Times: "The shift in central banks' attitudes towards gold is important on two fronts: the fresh interest provides psychological support and, more importantly, slower sales reduce sources of supply and help to boost prices. GFMS, the London-based precious metal consultancy, estimates central banks last year sold 41 tonnes of gold, down 82 per cent from 2008 and the lowest level in 20 years. "The IMF said on Thursday it sold gold to Bangladesh Bank, the country's central bank, at market prevailing prices on September 7. Gold was quoted on the afternoon fix in London, the market benchmark, at $1,256.75 a troy ounce that day. "Gold prices hit a nominal all-time high of $1,264.90 an ounce in mid-June. However, in real terms, adjusted for inflation, the precious metal is still well below its record of more than $2,000 set in the early 1980s. In early trading in London on Friday, gold hovered just below $1,250 an ounce." This most recent gold purchase is a part of the 403.3 metric tons the IMF began shopping around in September 2009. Previous buyers included the Reserve Bank of India, Bank of Mauritius, and the Central Bank of Sri Lanka, which together scooped up about 212 metric tons. The IMF sold another 83.3 tonnes on-market, which leaves it with roughly 93 tonnes still left to sell. Asian central banks continue to increase their gold holdings, a tangible sign of the growing wealth and influence of the region. You can visit Bloomberg to read more details about how Bangladesh's central bank has boosted its gold reserves. Best, Rocky Vega, The Daily Reckoning Bangladesh Latest Buyer in Central Bank Gold Game originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Legendary Hedge Fund Manager Bill Fleckenstein Says No Bond Crash Without a Dollar Crash Posted: 12 Sep 2010 04:36 PM PDT My guest on Hedge Fund Radio this week is the legendary hedge fund manager Bill Fleckenstein, president of Fleckenstein Capital, based in Seattle, Washington. Bill graduated from the University of Washington with a major in Mathematics, and joined the prestigious Wall Street firm Kidder Peabody in 1979. In 1982 he launched his own firm, following in the footsteps of the great hedge fund pioneers like George Soros, Julian Robertson, and Michael Steinhart. He became a highly controversial figure during the nineties by warning of the dangers of the dotcom bubble. Bill stuck to his convictions and cashed in big time in the collapse that followed, riding some of his short positions down to zero. Fleck, as he is known to his friends, was a vociferous critic of the Fed’s easy money policies during the 2000’s. He published a bestselling book, Greenspan’s Bubble: The Age of Ignorance at the Federal Reserve in January of 2008. Fleck ran a short only hedge fund which he closed within days of the March 2009 bottom in the stock market, and returned the capital to his ecstatic investors. Since then he has been predominantly long investments that are beneficiaries of the relentless running of the printing presses in Washington, such as gold and the Canadian dollar. He still keeps in his office a six foot high stuffed black bear, wearing a blue “Dow 10,000” baseball hat, given him by a client. Note to readers: Bill doesn’t play in the ETF space, but I have included the relevant stock symbols for the convenience of individual investors. Bill is sitting a major position in gold (GLD) these days, both in the physical and through the major miners, Newmont Mining (NEM), Agnico Eagle (AEM), and Goldcorp (GG). Despite a fourfold return over the last decade, the barbarous relic is still hated by many professional money managers, which means it still has much further to rise. Falling confidence in “colored paper” (dollars) will just add fuel to the flames. Fleck is matching investments in the yellow metal with serious positions in silver and its miners. His target is nothing more specific than “UP”. As much as Bill despises Treasury bonds (TBT), (TMV) at these nosebleed levels, he isn’t going short yet. He thinks we need to see a dollar crash first, and a recognition that we are in a stagflationary environment. Don’t waste time trying to call the top, because once the spike in interest rates starts, it will be “a big, big bear market,” that could go on for decades. The same currency/bond market tandem collapse logic may also apply to the yen and the JGB market. Rising commodity prices, like in copper (CU), are an indication that some real inflation is on the way. Stocks generally are headed for a big multiple compression, but until then, are stuck in a wide trading range. One of his few long picks is Microsoft (MSFT) which has recovered from its disastrous Vista operating system launch, and is now hitting on all cylinders with a series of successful new product launches. MSFT is selling for only ten times earnings. Bill also likes Verizon (VZ), which has been running on the prospect of a big network deal for Apple’s (AAPL) I phone. Fleck hates banks because they are still depending on a bogus accounting system, but won’t short them because the government keeps rescuing them with arbitrary safety nets. Regarding China, Bill is not in the China bubble camp, and likes emerging markets generally, but isn’t a specific investor. The Western world ruined its banking systems during the bubble, while emerging markets didn’t. The consequence is that they are booming and we aren’t. On the currency front, Fleckenstein likes the Canadian dollar (FXC), and admires the Singapore dollar and the Norwegian kroner from afar. He also has some cash in the Chinese Yuan (CYB) because he thinks it has to appreciate at some point, but doesn’t know how long it will take to pay off. To listen to my interview in full with Bill Fleckenstein on Hedge Fund Radio, please click here at http://www.madhedgefundtrader.com/september-13-2010-bill-fleckenstein.html . To buy Fleck’s excellent book on the insanity of the Fed’s easy money policies and their dire consequences, please click here at http://www.amazon.com/GREENSPANS-BUBBLES-IGNORANCE-FEDERAL-RESERVE/dp/0071591583/ref=sr_1_1?ie=UTF8&s=books&qid=1284150032&sr=8-1 To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

Rationing ends for U.S. silver eagle coins Posted: 12 Sep 2010 04:35 PM PDT 12:25a ET Monday, September 13, 2010 Dear Friend of GATA and Gold (and Silver): Numismaster reports that the United States Mint has ended rationing of silver eagle coins -- at least until the next constriction of supply. Numismaster's report is headlined "Rationing Ends for Silver Eagles" and you can find it here: http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=137... CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, Plans Aggressive Exploration of Elizabeth Gold Property On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia. Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013." For complete information on Sona Resources Corp. please visit: www.SonaResources.com A Canadian gold opportunity ready for growth Join GATA here: Toronto Resource Investment Conference Saturday-Sunday, September 25-26, 2010 Metro Toronto Convention Center, Toronto, Ontario, Canada http://www.cambridgeconferences.com/index.php/toronto-resource-investmen... The Silver Summit Thursday-Friday, October 21-22, 2010 Davenport Hotel, Spokane, Washington http://www.silversummit.com/ New Orleans Investment Conference Wednesday-Saturday, October 27-30, 2010 Hilton New Orleans Riverside Hotel http://www.neworleansconference.com/redirect.php?page=index.html&source_... * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 ADVERTISEMENT Prophecy to Become Coal Producer This Year with 1.5 Billion Tonnes of Resource Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php

Learn How Butterflies Can Create Profits When Trading GLD Posted: 12 Sep 2010 04:14 PM PDT I wanted to take this opportunity to illustrate some potential strategies to trade GLD. While futures and equity traders are forced to wait for a breakout or a selloff, option traders have the unique ability to profit from the passage of time. Read More...

M2 Surges By $30 Billion In Past Week To Highest Ever, Even As Monetary Base Declines Posted: 12 Sep 2010 03:11 PM PDT Another week in which the M2 jumped to a fresh all time high, increasing by $30 billion W/W to just under $8.7 trillion. This was only the fourth largest weekly jump in this broad money aggregate in 2010, with the prior biggest ones clustered just around the time of the Greek "out of court" reorganization and the flash crash in May. This was also the 8th sequential increase in the M2 in a row. Oddly enough this occurred even as the Monetary Base (NSA) declined by $11 billion to $1.983 trillion. Currently, the M2-MB ratio stands at 4.4x, close to its all time lows, with the recent decline purely a function of the modest contraction in the Fed's balance sheet as MBS had been rolling off for the past 4 months. With QE Lite in play, expect the Fed's Balance sheet to remain flat, which will likely mean that the ratio of the Fed's asset to the Monetary Base will remain more or less unchanged at its elevated ratio of 1.15x (with a tendency toward declining), compared to the historical average of around 1.00. Note the (as expected) inverse relationship between the M2-MB ratio and the total size of the Fed balance sheet, as the monetary base has exploded courtesy of excess reserves, without this number actually hitting M2. Is the recent leakage in M2 higher, coupled with a contraction in MB the critical step that all the inflationists have been dreading (yet at the same time expecting)?

Federal Reserve Balance Sheet Update: Week Of September 8 Posted: 12 Sep 2010 02:41 PM PDT It is time for the weekly update of the only financial component that really matters: the composition of the Fed's $2.3 trillion (and rising) balance sheet. Securities held outright: $2,047 billion, an increase of $1.8 billion from the week prior. Total Treasury holdings increased from $786 billion to 788 billion, as the Fed bought another $1.7  billion in USTs as part of QE Lite. MBS holdings were flat at $1.1 trillion. Agency holdings were also flat at $157 billion. Net borrowings: unchanged at $60 billion from the prior week. Float, liquidity swaps, Maiden Lane and other assets: $185 billion, an increase of $1 billion. FX liquidity swaps are at $64 million as the same bank that is experiencing a USD funding crisis continues to have no EURIBOR/LIBOR acces. The "value" of Maiden Lane I declined just marginally from the highest since November 2008, and was at $15.97 billion. Maiden Lane II was at $23 billion, while AIA Aurora was $25.7 billion.  The monetary base declined by $2 billion and was $1.993 trillion (even as M2 surged in the past week. More on this shortly) Reserve balances with banks: $1.031 trillion, a decline of $3 billion from the prior week. Foreign holdings of USTs and MBS at a new all time high of $3.22 trillion.

Deustche Bank Raises a Boat Load of Captial to Buy the Insolvent! Posted: 12 Sep 2010 02:41 PM PDT Deutsche Bank Plans to Raise at Least $12.4 Billion, Bids to Buy Postbank Sept. 13 (Bloomberg) — Deutsche Bank AG, Germany’s largest bank, plans to raise at least 9.8 billion euros ($12.5 billion) in its biggest-ever share sale to take over Deutsche Postbank AG and meet stricter capital rules. Deutsche Bank expects to offer between 24 euros and 25 euros a share in cash to Postbank stockholders to increase its 29.95 percent stake in the lender, the Frankfurt-based bank said yesterday. The company intends to book a charge of about 2.4 billion euros in the third quarter as it marks down the value of its existing Postbank holding. Chief Executive Officer Josef Ackermann is planning the biggest rights offer in Europe this year as he seeks to reduce Deutsche Bank’s dependence on investment banking by gaining control of Postbank, a consumer lender based in Bonn. The capital increase will also help Deutsche Bank meet new rules from global regulators that more than doubled banks’ capital ratios. “Deutsche Bank is doing it all at once — bidding for Postbank and topping off its coffers,” said Peter Thorne, a London-based analyst at Helvea Ltd. who is reviewing his rating on the stock. “This will help them move into line with their international peers in terms of capital.” Subscribers should recall that I went over this in some detail in the beginning of the year. I consider Postbank to be insolvent. See the following subscriber downloads: Deutsche Bank vs Postbank Review & Summary Analysis – Pro & Institutional Deutsche Bank vs Postbank Review & Summary Analysis – Retail For those who do not subscribe, here is the first page of that professional document release in May of this year:

The China Equation Posted: 12 Sep 2010 02:32 PM PDT By Jeff Nielson, Bullion Bulls Canada In my writing, I frequently focus on the U.S. "propaganda machine": the corporate-media oligopoly which poisons most of our "news" with a slant and "spin" which gets more absurd by the day. However (until now), I have been completely silent with respect to the use of propaganda by China's government. In defense of this omission, I point to the dramatically different intent of the U.S.-based propaganda campaign, versus that of China's government. The U.S. government (or, rather, the banking Oligarchs which pull its strings) are attempting to prop-up the U.S. bond-bubble, prop-up the equities market bubble, and now must deal with the bursting of the second U.S. housing bubble. In seeking to wallpaper over its insolvency, soaring inflation, massive unemployment, and hollowed-out economy, the U.S. government deceives markets and investors with a mountain of statistical chicanery. This saturation-level babble becomes increasingly absurd, as there is a need to tell larger and larger lies, to hide a rapidly deteriorating economic collapse. Investors, and Americans themselves are being duped into keeping their wealth tied-up in these grossly overvalued asset-classes, as (like all Ponzi-schemes) a loss of "confidence" will cause this house-of-cards to collapse. Across an ocean, the government of China stands as almost the diametric opposite of the U.S., at least in economic terms. China's "problem" is an economic juggernaut whose management is not unlike bull-riding at a rodeo. As long as China's government can remain on top of the bull, it will take China's economy to where it wants to go – in a hurry. However, the insane money-printing of Western bankers (in general), and U.S. bankers in particular, combined with exponentially soaring debts and deficits in many economies is making the task of China's government much more difficult – like goading the "bull" with a hot, branding-iron. The problem is that the near-zero interest rates which are at the root of this explosive money-printing are extremely inflationary, and (as we have already seen) are like "rocket fuel" when it comes to generating asset-bubbles. With the strongest economy, vast savings, and still under-developed markets, China is inevitably a destination for much of this "easy money" – whether it be domestic consumption, or foreign investment. Unlike Western governments, China's government has been endeavouring to act responsibly. While the U.S. financial sector came crashing down in 2007 due to hopelessly corrupt regulators allowing ultra-greedy bankers to leverage the entire financial system at an unbelievable 30:1 level, China's government raised bank capital requirements five times in that year alone. Similarly, as Western governments continue to try to goad their debt-leveraged economies into anemic growth through reckless monetary policy, China's government announces new measures on almost a weekly basis to "pull in the reins" of its own economy – to avoid the problems which Western governments seem dead-set on creating. As usual, the mainstream media is hopelessly confused. This is demonstrated with the almost perfect split between the "China bashers" who insist that government restraint will cause this juggernaut to suddenly grind to a halt, and the "China bubble" Chicken-Littles, who (once a week) proclaim to the world that this "China bubble" or that "China bubble" is ready to blow. Neither group of these binary, brain-dead talking-heads is capable of grasping the possibility that (being in the strongest position) China's government might successfully navigate the rough waters which threaten to cap-size the much less-seaworthy "vessels" of the West. Adding to media confusion, China's government has not only avoided contradicting the bubble-phobic Chicken-Littles, but it has allowed various talking-heads of its own to "suggest" that there could be bubbles forming in various Chinese markets. More articles from Bullion Bulls Canada….

Time For Gold Miners To Decouple? Posted: 12 Sep 2010 02:32 PM PDT By Jeff Nielson, Bullion Bulls Canada My first inclination when I formulated this title was to leave out the "question mark". Now is clearly the time that precious metals miners should decouple from the broader market. However, as we all know, what should happen (in our manipulated markets) and what does happen, are usually two different things. To borrow the old adage, "the market can remain irrational longer than you or I can remain solvent." All the same, my own investment philosophy is that I would rather be "early" in arriving to an under-valued sector/asset-class than to hop on the bandwagon with the rest of the sheep as they chase the latest flavor-of-the-week. Indeed, to my mind, nothing speaks louder about the attractiveness of other sectors than the pronouncement by virtually all of the market experts that "buy and hold is dead". As I regularly tell our readers, "buy and hold" is certainly not dead when it comes to the precious metals sector. After nearly a ten-year bull-run, the fundamentals are much more bullish today for this sector than when this bull-market began. On this basis alone, cautious investors who want to ensure that their capital doesn't get sucked-into one of the many economic "black holes" which threaten to devour our economies should have already loaded-up on these safe, conservative investments. True, investing in precious metals miners means living with volatility that makes a roller-coaster seem tame in comparison. However, simply stretch-out the time horizon by looking at long-term charts, and (as with everything else) much of the (short-term) volatility disappears from the picture. What remains are simply the most-bullish collection of charts in all of our economic sectors. With bullion prices close to nominal highs (for the current bull-market) and with oil prices having pulled-back substantially, profit-margins have recently exploded for these energy-dependent companies. At the same time, the effort by the anti-gold cabal to dupe investors into believing that precious metals are no longer a "safe haven" has clearly failed. Every day, more mainstream analysts become born-again "gold bugs", and immediately proclaim precious metals as the one, safe haven for investor wealth. What this means is that precious metals will outperform in any crisis situation (i.e. deflationary scares), and we already knew that they would outperform in any bullish, high-growth/high-inflation scenario. This immediately separates precious metals from every other asset class. With the precious metals miners providing natural leverage to precious metals, holding a basket of these companies is truly a "no-brainer". As I regularly counsel people, this "outperformance" doesn't make these companies 100% immune to any market-contraction (which is why we must all avoid "margin"). In a true "panic", everything will plummet lower (except for gold and silver, themselves). However, here is the key point for investors to keep in mind: you can try to "time the market" – and to exit just before the (potential) "crash", and to re-enter once the market bottoms. This is an extremely difficult "trick" even for the savviest market experts. If we accept, as average investors, that it is highly unlikely that we will be able to "out-think" the market – and exit and re-enter at the perfect time – then we must accept that in the next panic we will likely be caught being close-to-fully-invested. Thus, what prudent investors should be thinking about is: which companies will be first to bounce-back from any panic? I strongly suggest that an entire sector of companies reporting "record profits" quarter after quarter clearly tops that list. True, there are other companies also reporting "record profits" these days. However, unlike a Wall Street bank, the "record profits" being earned by gold and silver miners are not dependent on utterly fraudulent accounting, and endless government subsidies and hand-outs. More articles from Bullion Bulls Canada….

The Global Yuan, Dollars & Gold Posted: 12 Sep 2010 02:31 PM PDT Bullion Vault What China's internalized Yuan means for the Dollar and Gold Investing… WE HAVE written many times about the need for the Chinese Yuan to be a global currency and eventually a global reserve currency – one of several, rather than simply replacing the US Dollar as No.1, writes Julian Phillips of the Gold Forecaster. We have also talked of how China had to develop its banking system before it could take such a journey. And we highlighted the experiments that the Chinese were making first in Hong Kong, then in Guanchow, in using the Yuan in international dealings. More importantly, we highlighted the consequences to other world currencies, in particular the US Dollar, of the Yuan becoming a well-used international trade currency. And the day is now here when the Chinese are starting to propel the Yuan onto the international scene. These consequences of its arrival will come over time, but they could come overnight. One consequence is becoming even clearer, as we forecast, that the exchange rate of the Yuan will not rise much on foreign exchanges. Another is that central banks will insure against currency crises in the future by holding gold. Should Chinese exporters and importers turn from a US Dollar price to a Yuan price for their deals, this would emasculate the US Dollar as quickly as it takes for banks and international traders to re-price their goods. If they act too quickly, the consequences could be chaotic for global foreign exchanges. If handled carefully the Dollar's international use will simply fade, producing major internal problems as these Dollars come home. A number of the world's biggest banks have launched international road shows promoting the use of the Yuan to corporate customers instead of the Dollar for trade deals with China. HSBC and Standard Chartered are offering discounted transaction fees and other financial incentives to companies that choose to settle trade in the Yuan. Both banks are now capable of doing Yuan settlement in many parts of the world. All the other major international banks (such as Citigroup and J.P.Morgan) are rushing to join the fray with their own road shows. Beijing wants this to happen now. Chinese central bank officials are backing the banks in their efforts. Next year and beyond should see the Yuan standing next to the Euro and the US Dollar on foreign exchanges. Cross-border trade in Yuan totaled CNY70.6 billion ($10bn) in the first half of 2010, twenty times the CNY3.6bn recorded in the second half of 2009. The eventual potential of global Yuan settled trades is 40 times this new level, up at $2,800 billion worth of goods and services currently settled in US Dollars and Euros. The development of the Yuan market will be rapid and very dramatic, we believe here at the Gold Forecaster. But before we begin to discuss the consequences of this change, let's first reflect on some salient facts: For every Yuan transaction in Chinese trade, there will be one less US Dollar or Euro trade; As with the US Dollar international market, there will develop an offshore Yuan market. (The MacDonald's burger chain has already achieved a Yuan cash-raising bond offer.) The Yuan will be capable of being used between among countries outside China in trade between themselves; Capital markets will always favor currencies that are based on a strong growing economy; Once international, the Yuan will take its place in central bank reserves. Those are the facts, but what are the consequences for the global economy, the US Dollar's role in international trade and in capital markets, and – as the globe's sole reserve currency – for the price of Gold Bullion? For now, this outlook is reserved for subscribers only. To get the full picture, even as it develops over time, subscribe to www.GoldForecaster.com now… Buy gold at the best prices, store it in the securest locations at the very lowest costs – go to Bullion Vault for a complimentary gift of Swiss gold now…

Thin Tail Investing Posted: 12 Sep 2010 02:31 PM PDT Bullion Vault Do what everyone else does, and you'll get average returns at best… MAINSTREAM thinking tends to produce mainstream results, writes Eric Fry from Laguna Beach, California, for The Daily Reckoning. The outliers of human behavior and consequence – for better or for worse – tend to reside outside of the mainstream…out on the thin tails of the probability curve. Out on those distant tails, you might find the creative genius of a Bill Gates or a Thomas Edison…or of that Chinese guy who invented gunpowder. On the other side of the curve, you might find the incomprehensible perspective of a Pol Pot or a Hernando Cortes…or of that woman who underwent 31 operations over 14 years so that she could look like "Barbie". Then, occasionally, you find those individuals, like Vincent van Gogh, who were so idiosyncratic that you can't really say which thin tail they would occupy. But, by definition, most of us live our lives where most of us live our lives – i.e. somewhere near the mainstream. That's mostly a good thing. It is safe, comfortable, and conducive to a lengthy and well socialized existence. Out on the Serengeti, for example, the "outliers" usually become lunch…or if they're lucky, dinner, a little later in the day. But mainstream thinking and mainstream behavior also possesses a very dark side. It lacks insight. It shuns self-examination. It repels intellectual honesty and creativity. Mainstream thinking, therefore, can sometimes nurture more detritus than a petri dish; more dysfunction than a sanitarium. In ages past, mainstream thinking has nurtured idiocies as innocuous as the periwig or as horrific as the virgin sacrifice. In 1923, Sir Winston Churchill rebuked one particularly horrific manifestation of the mainstream thinking of his day: "Accusing as I do without exception all the great Allied offensives of 1914, 1916 and 1917, as needless and wrongly conceived operations of infinite cost, I am bound to reply to the question – What else could have been done? "And I answer it, pointing to the Battle of Cambrai, 'This could have been done' [i.e. using tanks and other armored vehicles]. This in many variants, this in larger and better forms ought to have been done, if only generals had not been content to fight machine-gun bullets with the breasts of gallant men, and think this was waging war." Nearly one century later, many generals of many armies remain just as content as ever to fight machine-gun bullets with the breasts of gallant men. We here in the West believe ourselves to be slightly more enlightened. Maybe we are; or maybe today's generals simply confuse hi-tech weaponry and body armor with "strategy". Maybe they confuse "safer" with "safe"…while also confusing "can" with "should". But one fact is indisputable: No matter how sophisticated the weaponry and armor, inside the uniform you will still find a man or woman with a life to lose. A second fact is also indisputable: An unarmed 18-year old who watches TV in his living room – without a scrap of body armor, mind you – tends to live longer than his fully armed, and amply protected counterparts on a battlefield. Over in the financial battlefield, a similarly dangerous form of mainstream thought tends to dominate. "You can't really know the future," the financial mainstream insists, "so the best bet is just to charge ahead. Buy and hold!" These generals direct their troops to lock and load and charge the hill. Don't worry about the barrage of risks that might blow bigger holes in your net worth than a rocket through a Humvee. Your best protection is just to diversify and charge ahead. This advice is, of course, hogwash. Diversification provides very little protection when the bullets start flying. In fact, as the events of 2008 made very clear, diversification merely adds to the diversity of casualties on the battlefield. The safest course of action is to avoid the battlefield entirely. But of course, that course of action never wins a war. The second best course of action is to ignore the generals. Avoid mainstream thought. Avoid the tyranny of groupthink. Edge toward the thin tails of investment guidance and thinking. And don't be afraid to admit that black is black or that white is white. Here's a tip: If something looks risky, it probably is. Here's another tip: if someone's investment outlook seems illogical, it probably is. If you study the ingredients that produce the success of the world's best investors, you usually find one or more of the following traits: Patience: They are neither afraid of doing nothing, nor afraid of waiting for the positive outcome they anticipate; Selectivity: They never buy "the market." They always buy specific opportunities that offer a specific risk-versus-return profile; Independence: Mainstream thought is of no consequence to them. Fortunately for most of us, investment success does not require extraordinary genius, but it does require contempt for mainstream advice and groupthink. Avoiding mainstream advice and buying gold today? Slash your costs & get the maximum security by using Bullion Vault…

Silver Showing Strength Posted: 12 Sep 2010 02:31 PM PDT Bullion Vault The "contango" in Silver Bullion futures contracts remains tight, suggesting heavy demand… THE INTERNET is humming with numerous commentators wondering who "the big buyers for silver are", writes Gene Arensberg in his Got Gold Report from Houston, Texas. The second-most popular precious metal defied seasonality in July and early August by consolidating sideways, catching a bid when it "should" have sagged in late August, and then popping right into the teeth of futures contract and options expiry. This week it challenged its previous turning high at $19.80 an ounce – and all signals say there has been uncommon strength in Silver Bullion futures this summer. Is the strength in silver tied to the news that the big banks like J.P.Morgan and Goldman Sachs are in the process of winding down their own proprietary trading desks? Acting early to comply with the so-called "Volker Rule" on prop trading, might this explain silver's strength? Possibly…a little. But perhaps that is merely a "market suggestion" instead of an actual market trigger. Sometimes the market sees well ahead though. And here at Got Gold we see signals there is also strength in physical Silver Bars demand, especially the large commercial-sized 1000-ounce bars, even as ordinary investors for the small-sized products such as coins were doing more selling than buying this summer, forcing premiums down to their lowest levels in many months in the process. Premiums are the amount charged and paid by bullion dealers above the current cash or spot price of the metal quoted. That decline in smaller silver-product premiums jars with the strong outperformance of silver over Gold Prices in recent weeks, and the correspondingly large drop in the Gold/Silver Ratio – a more bullish than bearish sign for both metals. Notice also, however, the contraction in the high-low trading ranges for both precious metals, too – a sign of slowing momentum or growing resistance. As silver challenges its 30-month resistance at $20 an ounce, we call attention to the very tight contango which still shows in the Comex futures strip. [Ed. note: Contango means the premium typically paid for gold or silver further out in the future, so as to cover the seller's ongoing storage costs and lost interest-on-cash until then.] As just one example, even though silver has advanced about 26% over the past 12 months the spread between the December 2010 and December 2011 silver contracts is a miniscule $0.145 or 0.7% per ounce! We and other veteran traders believe such a tight contango indicates there is currently not an overabundance of silver bar stock. Indeed, a tight contango or backwardation in precious metals [i.e. a reversal of the usual pricing, so near-dated contracts cost more, rather than less] is a direct indication that there is heavy demand relative to existing physical supplies. Best we not forget that going forward. One other indicator that is cause for optimism in Silver Prices going forward is our old friend, the Gold/Silver Ratio. Behold the remarkable plunge in the GSR over the past two weeks…down from above 68 ounces of silver to one of gold…sinking below 63 ounces last week. In a word, wow…! When silver outperforms Gold Prices (and so the GSR falls) it is usually a more bullish than bearish signal. That is not just for the precious metals, but also for other markets as well. Because a falling GSR equates to a willingness by investors to take on risk. Would it be all that surprising to see the gold/silver ratio falling back into the 50s before this year is out? That's assuming the "prophets of doom" remain more in the shadows and fringes of our collective focus just ahead. And with gold at $1250 the ounce, a GSR of just 55 would mean a silver price of $22.72. At a GSR of 50, it would mean a Silver Price of $25.00. We cannot predict when, but we would not be at all surprised if by the time this current precious metals bull market is done, we see the GSR well below the lowest readings of the last two decades or more. Perhaps even as low as the low 20s is a realistic ultimate target in our own opinion. That is why we have included silver as a significant portion of our own real assets to hold for the long haul, and why we intend to add to that silver stash opportunistically as we move into Stage Two of the Great Gold Bull. Obviously, we continue to believe that silver is strongly undervalued relative to gold. But we remain long-term bullish for both, and we have seen nothing in the recent data to discourage that bias. We remain grateful that we hold, in addition to our short-term trade positions, a reasonable portion of our assets in actual bullion. We think everyone should. Buy Silver at live "spot prices" online today at Bullion Vault…

Historic Shift Driving Gold Higher Posted: 12 Sep 2010 02:31 PM PDT Bullion Vault Less equals more for the gold price as Gold Mining and scrap supplies flag… I HAVE reported many times how the Earth's gold mines have been yielding ever less gold, says Chris Weber of WeberGlobal, writing in Steve Sjuggerud's Daily Wealth. This is the case even though the Gold Price has been soaring over the last decade. And you have to go back that long to find the peak year of new mine production. This happened in 1999. That year, 83.69 million ounces of new gold came from mines. But back in that year, the price of gold was under $300, hitting a low of $256. If someone would have predicted in 1999 that in 2010 the price of gold would reach $1250, they'd have been laughed at. But had they further said that that much higher price would have caused less Gold Mining output than had been the case in 1999, they'd have been thought absolutely crazy. After all, if the price of something soars by 350%, then "everyone" knows that more of it will be produced. That's supposed to be basic economics. And yet, exactly the opposite has happened. Though no one knew it at the time, 1999 marked the peak of global gold production. At least, so far it has. Last year, 2009, Gold Mining production hit 74.46 million ounces. It was a sizable 12.6% increase from the year before. But while it was the largest total in years, it was still not enough to surpass 1999′s output. Besides new mine output, there are two other ways new gold can come onto the market: central banks and scrap gold. Supplies are drying up there as well… For the last several years, central banks around the world could be counted on to sell a combined 200 tonnes per year. However, this pattern changed drastically last year. We saw central banks accumulate gold for the first time in memory. China, of course, stands ready to buy all domestic production. India famously bought a big piece of the IMF Gold. Smaller central banks are buying as well. If the average investor in the developed nations is still not interested (and says things like, "How can you eat gold?"), central banks are slowly rediscovering the value of having it as a reserve currency. The second way that gold has come on the market is really the only other way new gold comes on these days. Well, it's actually not "new" gold at all. It is old gold scrap. Scrap gold can be many things, but it is mainly unwanted, broken, or bent gold jewelry. It can also be things as primitive as teeth or as sophisticated as the gold in cell phones and computers. As the price of gold soared, people with this scrap gold rushed to sell it. The figures tell the story quite dramatically. In 2008, while new mine production inched up by 1.38%, scrap gold soared by 34%. Scrap sales equaled nearly two-thirds of new mine output. I don't think anything like that had ever been seen before, even at the peak of the gold bull market of the late 1970s. Adding new mine output and scrap gold together, you get 108.26 million ounces. Looked at that way, it was a new peak of gold coming on the market. Except, it was foolish to consider the huge rise in scrap gold as an endlessly growing source of new supply. By their nature, there is a limited supply of teeth and rings that people want to part with. Last year, scrap totals rose again, to the largest total ever: 53.63 million ounces. But while it was another good rise, the percentage increase slowed dramatically. As opposed to 2008′s 34% increase, 2009 only saw a 26.75% increase. Still, though, put new mine output and scrap gold together and you get a total of new gold available to buyers of 128.09 million ounces. On the surface of it, this amount was the highest total of gold ever. But if you look closer over last year's results, you'll notice something else… New Gold Mining production was 74.46 million ounces and scrap was 53.63 million ounces. This meant that scrap equaled about 72% of mine production and over 40% of total new gold available for investors. That was a fresh record, and a huge percentage of new supply now relying on the scrap market. Can it continue to deliver? The World Gold Council's figures from the first quarter of 2010 show scrap sales for this period were 11.03 million ounces. This represents a huge 43% fall from the first quarter of 2009. Jan. to April this year also saw new Gold Mining production of 19 million ounces, a 1.37% increase. Putting the two sources together (scrap plus mine) you get 29.77 million ounces. Of course, it is very "iffy" to extrapolate for 2010 as a whole. However, if we do it, we get 119 million ounces, a 7% fall in total production, and during a year when Gold Prices will most likely rise. The supply part of the supply/demand equation for gold has undergone a huge shift since the current bull market began in 2001. New mine production has peaked, central banks are now net buyers, and "scrap" gold supplies may have peaked as well. I think that gold's startling failure to correct in price after the large run-up from the October 2008 lows of $693 is due in no small part to this changed equation. However you slice it, less gold is coming onto the market. And demand seems to be growing every day. I sense people who have never bought a gold coin starting to test the waters, people who have not owned any gold ETFs starting to buy. If vast numbers of investors start to have even 5% of their portfolios in gold, this would constitute an explosion in demand. In conclusion, I see this reduction of supply, coupled with increasing Gold Investment demand, supporting this bull market for years to come. Gold Investing – now simple, secure and low-cost at award-winning world No.1 online, BullionVault…

Telling Time for Gold & Stocks Posted: 12 Sep 2010 02:31 PM PDT Bullion Vault September has failed – so far – to deliver the crash we've come to expect… The NEXT FEW DAYS should be telling for both Gold Investing and equities, writes Dan Denning in his Daily Reckoning Australia from Melbourne. The Gold Price has come off its new highs. But you haven't seen a huge amount of selling either. As our friend Phil Anderson pointed out the other night, you often see two to three days of lower closes after a new high. That gives you a good time to enter into a position. As for stocks, September so far hasn't been the historical disaster we've come to expect. Mind you, it's early. Yet outside some whisperings of capital raisings by major European banks, the Aussie papers are full of seemingly good economic news that just keeps getting better. Thursday's ray of sunshine came from the labor market. Full-time employment in Australia jumped by 53,100 in August, according to the Australian Bureau of Statistics. The jobless rate in the Lucky Country is now just 5.1%. And even the deficit spending laggard states of Victoria and New South Wales managed to buck the trend and add jobs. In fact, with the employment figures so positive, everyone's trying to figure out if the Reserve Bank of Australia will raise interest rates again this year to prevent the economy from overheating. This metaphor assumes the economy is machine which can be operated by an engineer (wrong) and that Australia is leading the developed world out of the global recession (highly debatable). Incidentally, the banking issue we referred to is Bloomberg's report that Deutsche Bank is considering selling US$11.4 billion in stock to meet stricter capital requirements imposed from the Basel III round of bank regulations. That sounds sort of ominous. But what does it really mean? According to the article: "Proposed rules under consideration by the Basel Committee may lead banks to raise reserves. Germany's 10 biggest lenders, including Deutsche Bank and Commerzbank AG, may need about 105 billion Euros in fresh capital because of new regulations, the Association of German Banks estimated on Sept. 6." Hmm…The Basel rules are designed to boost bank capital in the event of another shock to financial markets. Of course, the stress tests this summer were supposed to ensure that the European banks were just fine and didn't need any more capital. As the Wall Street Journal reported last week, though, the stress tests did not test how big European banks would react to losses on sovereign bonds, much less an outright default by one of the more distressed debtor nations in Europe. Are the Germans just stealing a march on the rest of the banking sector and stockpiling equity capital against future losses? If they were, it would tell you that there are going to more losses in the European banking sector and that despite a quiet Northern Hemisphere summer, the banking sector remains undercapitalized relative to the losses everyone knows it's sitting on. But who cares? In keeping with our theme of stating the geographically obvious this week, Australia is not Europe, even though parts of Melbourne may sound like parts of Athens. Opa! But when it comes to the quality of bank collateral, Australia has nothing to fear, right? Aussie banks should do just fine under the new Basel rules, according to a Reuters story that cites research by J.P.Morgan and Fujitsu. It looks like Basel III will require banks hold up to 9% in Tier 1 capital. That's highly liquid capital like cash and AAA credit that can cover the unexpected losses from a sudden shock. The hope is that an adequately capitalized bank won't have to be bailed out by the government (meaning taxpayers) again. Now, at the risk of sounding like a crank, we'd have to take these research reports with a big lick of salt. We're not accusing the banks or the firms that cover them of lying. After all, most of the people covering bank risk are careful, methodical, if unimaginative people. Their models tell them everything will be fine. It's just that the models are rubbish. If one thing has been consistent over the last three years of financial crisis, it's the tendency of professional analysts and policymakers to underestimate risk and overestimate asset quality. Of course that is not a nuanced argument against the quality of the commercial and residential real estate assets of the Aussie baking sector. It's really just a deep suspicion that these guys blew it last time and are going to blow it again. But as ever, we could be wrong. By the way, you know by now that Aussie banks have to borrow about A$150 billion a year from overseas lenders to keep the wheels of domestic commerce from squeaking. Does that make the Aussie economy vulnerable to external credit shocks, even if you generously assume banks will not be troubled by asset write downs? Yes! But wait Australia's most obnoxious property spruikers say! Aussie banks did not go on a reckless lending boom. Loan quality here is good. Non-performance figures and delinquency rates are not a concern. And we have borrowers cannot walk away from a mortgage here like they can in America. Even if Aussie banks really had made loans to risky borrowers (which they didn't, of course), those borrowers would be locked into the loans till richer or poorer because of the nature of the loan. Do you believe any of that? Really? And how is it good that someone is locked into paying down an asset which is falling in market value? That just makes the entire housing market less likely to find a clearing price when it does crash because the labour force is essentially immobile and chained to heavily-mortgaged homes. And for what of it's worth, we're reasonably certain there were plenty of loans made to people who will struggle to repay them or service them if prices fall and rates rise. It might not be as egregious as US subprime, but just you wait. And even if you concede (which we don't) that there was no reckless lending boom by the banks, they definitely went on a borrowing boom. This is what John Boyd called progress; confusion at a higher level. The Aussie banks financed the local property boom by going bonkers in the global wholesale funding market when the global cost of capital was cheap. Now, they will have to refinance that boom in a more capital competitive world. But eh, she'll be right! All of which brings us back to gold. It's the canary in the financial coal mine. If the Gold Price holds its recent US-Dollar highs…even as equities power along…you'll know that the world's banking system is not as well capitalized as you've been led to believe. You'll also know that many of the subterranean rumblings of the last few months may be ready to break loose. Watch out below…! Get the safest gold at the lowest price at Bullion Vault…

Gold Confiscation Past and Present Posted: 12 Sep 2010 02:29 PM PDT There was a recent article posted by David Ganz in Numismatics News titled "Protect Your Gold Against Seizure" (actually it is just the first part of a multi-part article), where several topics were discussed, not the least of which was FDR's Executive order from April 5, 1933. Many "Gold Bugs" in addition to just regular investors who have moved into the gold marketplace are concerned that if the economic crisis worsens, there is or might be the possibility that we could see new efforts to confiscate gold on the part of the government. Indeed the Glen Beck-Goldine controversy with NY Congressman Anthony Weiner is in part about what Rep Weiner calls misleading statements and fear-mongering on the part of Beck and Goldline, to use the 1933 Executive order to steer buyers into numismatic coins (and common date foreign gold coins) which were exempt under the 1933 confiscation order, rather than purchasing lower margin bullion products, such as American Gold Eagles, Krugerrands and the like. CoinLink is going to have an article about the Beck-Goldline-Weiner story next week which is sure to piss off a number of people. Back to David Ganz's article. There were several thing in the piece that raised our eyebrows and were just interesting. Mr Ganz is both an attorney and a highly intelligent and insightful coin enthusiast. We always follow his articles with the highest degree of interest. www.youtube.com/watch?v=3_ex0sTsb_I FDR Ends Gold Standard in 1933 He related that there was some disagreement on whether or not FDR's Executive order was indeed a confiscation order, or a request for voluntary compliance in the national interest. It is true that the police did not come knocking at the doors to take all of their gold, but we would have to disagree with Maurice Rosen's conclusion that this was a voluntary situation. Clearly Section 9 of the Executive Order (See full text of Executive Order 6102 below) calls for a $10,000 fine and Up to 10 Years in prison for 'non compliance. That does not sound very "Voluntary" to me. Mr Ganz then provides a very interesting summary of the number of gold coins that were indeed collected by the Treasury Department….. "the government's "voluntary" gold coin retirement program actually took in and melted 125 million gold coins of 351 million gold coins ever produced by the United States from 1795-1933. That constitutes melting 39 percent of all the double eagles struck, 47 percent of all the $10 coins manufactured, and about a third of the $5 gold coins that were produced by the U.S. Mints." However his next point was something that we had never heard of before from any source concerning the vague exemption of "collector coins" from the order. Ganz's states that "The regulations promulgated by the Treasury allowed collectors to retain up to five coins of each date and mint mark" WOW! In any event, one aspect of this entire debate that seems to get lost is "why would we assume that any New gold confiscation order either would be or should be crafted after Roosevelt's 1933 Executive order? Sure it is interesting to debate and I understand the concept of precedence, but realistically, if the government in its infinite wisdom and hypocrisy decided that it would be in what they considered to be the "National Interest" to confiscate all privately held gold, they would find a way to do it, either through Executive Order, The tax code, or by whatever means necessary. Of course we might go through they typical dog and pony show and wrap everything up in the American flag to make it more palatable for the general public, but if the dollar were to collapse, or if whatever scenario were to develop where the government/federal reserve/bankers were convinced that private ownership of gold was not in the best interests of the US government, they will find a way to either take it, tax it or make it illegal. So what are investors to do if there are no protections against a future Government confiscation? You are going to have to wait until the additional sections of Mr Ganz's article are published to hear his recommendations. For our part, check back with CoinLink next week for a list of things you can do to secure your gold . The Gold Confiscation Of April 5, 1933 From: President of the United States Franklin Delano Roosevelt To: The United States Congress Dated: 5 April, 1933 Presidential Executive Order 6102 Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates By virtue of the authority vested in me by Section 5(b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled An Act to provide relief in the existing national emergency in banking, and for other purposes~', in which amendatory Act Congress declared that a serious emergency exists, I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section to do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of the order: Section 1. For the purpose of this regulation, the term 'hoarding" means the withdrawal and withholding of gold coin, gold bullion, and gold certificates from the recognized and customary channels of trade. The term "person" means any individual, partnership, association or corporation. Section 2. All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following: (a) Such amount of gold as may be required for legitimate and customary use in industry, profession or art within a reasonable time, including gold prior to refining and stocks of gold in reasonable amounts for the usual trade requirements of owners mining and refining such gold. (b) Gold coin and gold certificates in an amount not exceeding in the aggregate $100.00 belonging to any one person; and gold coins having recognized special value to collectors of rare and unusual coins. (c) Gold coin and bullion earmarked or held in trust for a recognized foreign government or foreign central bank or the Bank for International Settlements. (d) Gold coin and bullion licensed for the other proper transactions (not involving hoarding) including gold coin and gold bullion imported for the re-export or held pending action on applications for export license. Section 3. Until otherwise ordered any person becoming the owner of any gold coin, gold bullion, and gold certificates after April 28, 1933, shall within three days after receipt thereof, deliver the same in the manner prescribed in Section 2; unless such gold coin, gold bullion, and gold certificates are held for any of the purposes specified in paragraphs (a),(b) or (c) of Section 2; or unless such gold coin, gold bullion is held for purposes specified in paragraph (d) of Section 2 and the person holding it is, with respect to such gold coin or bullion, a licensee or applicant for license pending action thereon. Section 4. Upon receipt of gold coin, gold bullion, or gold certificates delivered to it in accordance with Section 2 or 3, the Federal reserve bank or member bank will pay thereof an equivalent amount of any other form of coin or currency coined or issued under the laws of the Unites States. Section 5. Member banks shall deliver alt gold coin, gold bullion, and gold certificates owned or received by them (other than as exempted under the provisions of Section 2) to the Federal reserve banks of there respective districts and receive credit or payment thereof. Section 6. The Secretary of the Treasury, out of the sum made available to the President by Section 501 of the Act of March 9, 1933, will in all proper cases pay the reasonable costs of transportation of gold coin, gold bullion, and gold certificates delivered to a member bank or Federal reserve bank in accordance with Sections 2, 3, or 5 hereof, including the cost of insurance, protection, and such other incidental costs as may be necessary, upon production of satisfactory evidence of such costs. Voucher forms for this purpose may be procured from Federal reserve banks. Section 7. In cases where the delivery of gold coin, gold bullion, or gold certificates by the owners thereof within the time set forth above will involve extraordinary hardship or difficulty, the Secretary of the Treasury may, in his discretion, extend the time within which such delivery must be made. Applications for such extensions must be made in writing under oath; addressed to the Secretary of the Treasury and filed with a Federal reserve bank. Each applications must state the date to which the extension is desired, the amount and location of the gold coin, gold bullion, and gold certificates in respect of which such application is made and the facts showing extension to be necessary to avoid extraordinary hardship or difficulty. Section 8. The Secretary of the Treasury is hereby authorized and empowered to issue such further regulations as he may deem necessary to carry the purposes of this order and to issue licenses there under, through such officers or agencies as he may designate, including licenses permitting the Federal reserve banks and member banks of the Federal Reserve System, in return for an equivalent amount of other coin, currency or credit, to deliver, earmark or hold in trust gold coin or bullion to or for persons showing the need for same for any of the purposes specified in paragraphs (a), (c), and (d) of Section 2 of these regulations. Section 9. Whoever willfully violates any provision of this Executive Order or these regulation or of any rule, regulation or license issued there under may be fined not more than $10,000, or,if a natural person may be imprisoned for not more than ten years or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both. This order and these regulations may be modified or revoked at any time. /s/ Franklin D. Roosevelt President of the United States of America April 5, 1933 Nixon Ends Bretton Woods International Monetary System www.youtube.com/watch?v=iRzr1QU6K1o Related posts: Gold price soars past $730, raising gold type coin values Current gold $3 coin prices may present opportunities Is Collecting by Date a Thing of the Past?

Basel III Summary, And The Fed's Endorsement of 20x+ Leverage Posted: 12 Sep 2010 01:48 PM PDT Earlier today, the Basel Committee on Banking Supervision committee released Basel III guidelines, which are expected to have a material impact on curbing bank risk appetite... when they are fully implemented in July of 2019. Luckily by then the last thing on people's minds will be whose bank's Tier 1 capital (which includes such intangible "capital" items as mortgage servicing rights and preferred stock) was being misrepresented for the past 9 years, as real cap ratios are discovered to have had a decimal comma following the zero. In the meantime, here is the summary of the proposed changes to bank capitalization requirements, which apparently were so "stringent" that the Fed issued a Sunday afternoon press release patting itself, and the entire financial system on the back, for pulling off another multi-trillion toxic debt David Copperfield disappearing act. So for the next several years, banks will need to demonstrate a stringent 4.5% Common Equity cap ratio, in other, will be allowed leverage over 20x. And this is the "stringent requirement" that has forced Deutsche Bank to sell over $12 billion in new stock to raise capital. Furthermore, the coincident take over of Post Bank will surely allow DB to terminally confuse its investors as to what its final pro forma numbers are supposed to represent, and, more importantly, what the unadjusted actuals really are... Surely this example of just how woefully undercapitalized European banks are (consider the DB action a stark refutation of the "all is clear" statement proffered by the Stress Test farce from July) will be enough to get the EURUSD back to 1.30 overnight. Basel III Sumary terms (courtesy of BiiiCPA) A. Tier 1 Capital A1. BASEL II: Tier 1 capital ratio = 4% Core Tier 1 capital ratio = 2% The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital. A2. BASEL III: Tier 1 Capital Ratio = 6% Core Tier 1 Capital Ratio (Common Equity after deductions) = 4.5% Core Tier 1 Capital Ratio (Common Equity after deductions) before 2013 = 2%, 1st January 2013 = 3.5%, 1st January 2014 = 4%, 1st January 2015 = 4.5% The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital. B. Capital Conservation Buffer B1. BASEL II: There is no capital conservation buffer. B2. BASEL III: Banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirements to 7%. Capital Conservation Buffer of 2.5 percent, on top of Tier 1 capital, will be met with common equity, after the application of deductions. Capital Conservation Buffer before 2016 = 0%, 1st January 2016 = 0.625%, 1st January 2017 = 1.25%, 1st January 2018 = 1.875%, 1st January 2019 = 2.5% The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. While banks are allowed to draw on the buffer during such periods of stress, the closer their regulatory capital ratios approach the minimum requirement, the greater the constraints on earnings distributions. C. Countercyclical Capital Buffer C1. BASEL II: There is no Countercyclical Capital Buffer C2. BASEL III: A countercyclical buffer within a range of 0% – 2.5% of common equity or other fully loss absorbing capital will be implemented according to national circumstances. Banks that have a capital ratio that is less than 2.5%, will face restrictions on payouts of dividends, share buybacks and bonuses. The buffer will be phased in from January 2016 and will be fully effective in January 2019. Countercyclical Capital Buffer before 2016 = 0%, 1st January 2016 = 0.625%, 1st January 2017 = 1.25%, 1st January 2018 = 1.875%, 1st January 2019 = 2.5%   D. Capital for Systemically Important Banks only D1. BASEL II: There is no Capital for Systemically Important Banks D2. BASEL III: Systemically important banks should have loss absorbing capacity beyond the standards announced today and work continues on this issue in the Financial Stability Board and relevant Basel Committee work streams. The Basel Committee and the FSB are developing a well integrated approach to systemically important financial institutions which could include combinations of capital surcharges, contingent capital and bail-in debt.   Total Regulatory Capital Ratio = [Tier 1 Capital Ratio] + [Capital Conservation Buffer] + [Countercyclical Capital Buffer] + [Capital for Systemically Important Banks] And here is what the Fed released on a busy Sunday afternoon. U.S. Banking Agencies Express Support for Basel Agreement The U.S. federal banking agencies support the agreement reached at the September 12, 2010, meeting of the G-10 Governors and Heads of Supervision (GHOS).1  This action, in combination with the agreement reached at the July 26, 2010, meeting of GHOS, sets the stage for key regulatory changes to strengthen the capital and liquidity of internationally active banking organizations in the United States and around the world. The U.S. federal banking agencies actively supported the efforts of the GHOS and the Basel Committee on Banking Supervision (Basel Committee) to increase the quality, quantity, and international consistency of capital, to strengthen liquidity standards, to discourage excessive leverage and risk taking, and to reduce procyclicality in regulatory requirements.  The agreement represents a significant step forward in reducing the incidence and severity of future financial crises, providing for a more stable banking system that is less prone to excessive risk-taking, and better able to absorb losses while continuing to perform its essential function of providing credit to creditworthy households and businesses. Today's agreement represents a significant strengthening in prudential standards for large and internationally active banks. [TD: in other news, the subprime crisis is contained] The GHOS agreement calls for national jurisdictions to implement the new requirements beginning January 1, 2013.  The GHOS announced that the new numerical minimum requirements would be phased in over two years beginning on January 1, 2013, and that certain capital deductions and the phase-in of capital buffers would occur over time from January 1, 2014, to no later than January 1, 2019.  This transition period is designed to give institutions the opportunity to implement the new prudential standards gradually over time, thus alleviating the potential for associated short-term pressures on the cost and availability of credit to households and businesses.  Consistent with this objective, supervisors will be evaluating an institution's capital adequacy on the basis of the then-applicable standards as well as the strength of an institution's plans to meet future standards as they come into effect. The U.S. federal banking agencies support and endorse the efforts of the GHOS and the Basel Committee to strengthen the capital position of large and internationally active banks.  The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the establishment of more stringent prudential standards, including higher capital and liquidity requirements for large, interconnected financial institutions.  Moreover, the Basel Committee continues work on the development of measures to improve the loss absorbing capacity for systemically important financial institutions.  This work would augment the standards announced by the GHOS today.

Graham Summers’ Weekly Market Forecast (Time for the 200-DMA? edition) Posted: 12 Sep 2010 01:44 PM PDT Last week I forecast that the stock market would likely rally to test its 200-DMA. We didn’t quite get there, but that’s largely due to the fact that no one was actively trading the market last week.   Indeed, thanks to a holiday week that entailed both Labor Day and Rosh Shoshanna, market volume was truly abysmal. In fact, last week saw even lower market volume than during April 2010 top, which should give you an idea of just how few participants were involved:       Due to the light participation, the market was essentially tossed this way and that by a handful of traders/ institutions, which made for a volatile week in terms of intra-day action with stocks often swinging 1% on the intra-day.   Indeed, the only truly significant developments from a technical perspective were that the S&P 500 broke above resistance at 1,100 and then rose to challenge 1,110.     Which brings us to today.   First off, the most important item to note is that it’s options expiration week. And it’s not just any options expiration week, it’s quarterly options expiration week. So this is THE week for Wall Street to thrash the market to insure the greatest number of contracts expire worthless. So the likelihood of an extremely volatile week is very high.   The most obvious pathway would be for stocks to finally challenge and perhaps even break above their 200-DMA at 1115. If volume stays light, then this outcome becomes even more likely.     Depending on just how aggressive Wall Street gets, we could even see a test of 1,131 on the S&P 500. As noted in last week’s forecast, this would represent an 8.8% rally similar to that which occurred during the early July ramp job.   From today’s levels (1,109), a rally to 1131 would only mean stocks going another 2% higher. We’ve certainly seen that kind of action during other options expiration weeks before.     The primary issues that could dampen a break out like this are the Euro and Europe’s continued banking problems.   The European banking crisis has now spread to Ireland where the Anglo Irish bank is to be broken up after suffering the largest loss in Irish history. This was accompanied by announcements that Deutsche Bank, Germany’s largest bank with net assets almost equal to Germany’s GDP, would need to raise $10+ billion in additional capital.   This latter story is of MASSIVE import. Germany is largely held to be one of, if not THE most financially solvent member of the European Union. If its largest bank needs to raise a capital amount equal to one sixth of its total equity, then you can only imagine how undercapitalized some of the less fiscally prudent banks in the less solvent countries of the European Union are.   I would also like to point out how the Deutsche Bank story echoes what occurred in the US banking system in Spring 2008. Remember how the Wall Street CEOs kept proclaiming that “the worst was over,” while their banks were frantically raising capital time and again?   Looks to me like the European banking system has taken a page straight out of the US banking system’s playbook. If the ultimate outcome is similar for Europe’s financial system, then we’re well on our way to a full-scale systemic Crisis over there.   Indeed, the Euro has both broken below and failed to reclaim its 50-DMA: a very bearish development. As I write this, the currency is just sitting on the trend-line that has supported it for most of the last month.     There is the potential for a “pop” here to re-test the downward sloping trend-line of the larger wedge pattern. But given the shakiness of the European banking system it’s just as likely we’ll see a break below support at 127 too. And if the Euro takes out 126, then we’re back in Crisis mode and likely going to 122 and ultimately re-testing the June low of 118.   In conclusion, my overall forecast for this week is that stocks will likely test their 200-DMA thanks to the usual options expiration week ramp job. We could even see a spike above the 200-DMA and re-test of the August high at 1131 on the S&P 500.   However, all of this bullish action hinges on things not crumbling in Europe. So keep an eye on the Euro and all things European banking this week for clues as to whether we’re heading lower sooner rather than later.   Intermediate term, I am SUPER bearish. But I have to respect what the charts are telling us. And right now the charts are telling us that stocks may have some additional room to the upside before they go back into Collapse mode.   However, I continue to anticipate a full-scale Collapse/ Crash this Autumn. All the ingredients are there: low volume, my Crash indicate is “On,” multiple Hindenburg Omens, and a massive Head and Shoulders patterns in the S&P 500… the issue is simply waiting for the “Lehman” event to kick everything off.   Given that the Sovereign Debt Crisis is presently occurring in Europe, that’s where the “Lehman” even will likely come from. And since Europe has already followed the US’s “phony stress test accompanied by claims that the ‘worst is over’ while simultaneously raising huge amounts of capital” playbook, I have a feeling the “Lehman” event is coming sooner rather than later.   Good Investing!   Graham Summers   PS. If you’re worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.   I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).   Again, this is all 100% FREE. To pick up your copy today, www.gainspainscapital.com and click on FREE REPORTS.

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