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Saturday, February 5, 2011

Gold World News Flash

Gold World News Flash

How to Buy a Vacation Home

Posted: 04 Feb 2011 04:13 PM PST

http://www.caseyresearch.com/editorial/4048?ppref=TBP209ED0211A Think silver is too volatile to use as a savings vehicle? The price fluctuates, no doubt, but ask yourself this: if you were to put ten grand into a savings account and another ten into silver, which asset will have more purchasing power five years from now? Even with the savings account earning interest, [...]


Gold Seeker Weekly Wrap-Up: Gold Gains the first Week in Five and Silver Soars Over 4% higher

Posted: 04 Feb 2011 04:00 PM PST

Gold fell as much as $6.10 to $1345.90 just after the jobs report was released before it rallied to see a $5.84 gain at $1357.84 by midmorning, but it then fell to a new session low of $1345.35 by midday and ended with a loss of 0.33%. Silver fell to $28.727 in Asia before it rallied to as high as $29.285 in New York and then also fell back off in late trade, but it still ended with a gain of 0.97%.


Just the Facts

Posted: 04 Feb 2011 02:37 PM PST

Total Commercial Paper outstanding increased $7.8bn to $996 billion. CP was down $126bn y-o-y, or 11.3%. Global central bank "international reserve assets" (excluding gold) - as tallied by Bloomberg - were up $1.457 TN y-o-y ... Read More...



Can Markets Save the Pension Promise?

Posted: 04 Feb 2011 01:23 PM PST


Via Pension Pulse.

Scot Blythe of Benefits Canada reports, Why markets can’t save the pension promise:

With most Canadian private-sector workers lacking access to a defined benefit (DB) pension plan – and with the ones who do facing Nortel-like catastrophes – naturally attention turns to the apparently greater resources of the state. Hence the preference of many union and retiree advocates for a beefed-up CPP, rather than encouragement for greater private savings through opt-out defined contribution (DC) plans such as the proposed Pooled Registered Retirement Plan.

 

This misses the point that higher CPP contributions must take away from RPP and RRSP savings room – unless the federal government wishes to increase significantly its tax expenditures for retirement savings, which, theoretically, are now at 27.9% of earnings.

 

In any case, state resources are not infinite. As the developed world ages, pensions are becoming the defining issue in state policy, all the way from early retirement provisions to higher contribution rates to the transfer of risk from taxpayers to consumers.

 

Leo Kolivakis at the Pension Pulse blog notes some recent developments in Sweden and Utah.

 

The Globe and Mail recently reported on Swedish pension arrangements. “Swedes contribute 18.5 per cent of their pay to the system: 16 per cent to the NDC and 2.5 per cent to a private account where money is invested in mutual funds of their choice.” What’s interesting, for a state pension, is that while the contribution rate is fixed, the benefit, above a certain threshold, is not. It depends on market returns.

 

Thus, as a consequence of the global meltdown, “[p]ensioners, who had enjoyed years of higher payments following the changeover to the new system in 1999, suddenly faced a cut of 3 per cent in 2010 and 4.3 per cent in 2011.”

 

The widely praised Dutch model faces similar difficulties. Apart from state benefits, there is a mandatory occupational scheme, which is now banging up against higher longevity costs, leading to a decision over whether to provide inflation protection. And then there’s underfunding, which, for some occupational plans, means lower pension benefits for existing retirees.

 

Those are European examples where benefit rates are being reduced to match investment returns.

 

In North America, however, the options seem rather more limited. Reducing benefit rates for pensioners is not on the table – short of bankruptcy. So the solution is a two-tier pension system, DB for existing employees, DC for new hires – even in the public service, which has generally cleaved to a DB model.

 

In Utah, it’s looking grim, reports the Wall Street Journal: “Utah’s constitution bars pension changes for current workers—short of an imminent financial crisis in the fund—so the legislature created a defined contribution plan for all new hires starting this year. The state contributes 10% of each worker’s salary (12% for public safety workers and firefighters), a generous amount by private company standards. If they wish, new workers can choose a defined benefit plan, but the state contribution to such a plan is no longer open-ended but is legally capped at 10%.”

 

But it’s grim across the United States, as Capitol Hill legislators whisper about modified insolvency models for the states – which are not permitted to go bankrupt – at least partially in order to renegotiate the pension promise for underfunded plans, according to the New York Times:

 

“Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

 

“But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.

 

“Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.”

 

Of course, that will wreak havoc on states’ abilities to go to the capital markets. But with talk of sovereign defaults in Europe no longer improbable, former World Bank chief economist (and Nobel Prize winner) Joseph Stiglitz suggests there is life after sovereign debt restructurings. But for whom?

 

DC, DB, PRPP, RRSP, as the saying goes, there’s no free lunch. Market returns are no substitute for inadequate contributions.

I agree, market returns are no substitute for inadequate contributions. But I also have strong views on preserving and enhancing existing defined-benefit plans. In my opinion, defined-contribution (DC) plans, RRSPs, PRPPs, and tax-free savings accounts (TFSAs) are no substitute for a well funded, professionally managed defined-benefit (DB) plans.

Why? Lets start with the obvious, fees. Most investors are getting raped on management expense ratios (MERs) on their mutual fund investments. It's a scandal, especially since the majority of mutual funds underperform low cost exchange traded funds (ETFs) which basically deliver market returns. As an example, if you're paying some fund 100 basis points (one percent) a year than over 30 years, these expenses eat away a good chunk of your gains.

In contrast, large defined-benefit plans pool billions in assets which gives them leverage to negotiate lower fees with funds. Moreover, they have professional money managers in-house which are able to reproduce strategies like enhanced indexing or fundamental stock selection at a fraction of the cost that would be required if you went to external funds.

There are other reasons why DB plans are much better than DC plans. Large DB plans are able to invest in both public and private markets. This means that those contributing to these plans have access to some of the best public and private fund managers in the world. Individual investors are stuck with a plain stock/bond portfolio, which may not be that bad, but is not as well diversified over the long-run and can't capitalize on potentially lucrative gains in private markets (the so-called illiquidity premium, which is often overstated but still exists) or on other absolute return strategies (internal and external hedge funds).

But the most important reason why DB plans are better is because good pension fund managers are first and foremost good risk managers. As one senior Canadian pension fund manager recently told me: "...it's not about scarcity on capital, it's about scarcity on risk". In these volatile markets, I can't stress enough the importance of risk management. Over the weekend, I will show you why now more than ever, risk management is critical. Things are starting to get bubbly again in the stock market, and I fear it's only the beginning.

Gold Profits In The Correction

Posted: 04 Feb 2011 01:09 PM PST

Super Force Signals A Leading Market Timing Service We Take Every Trade Ourselves! Email: [EMAIL="trading@superforcesignals.com"]trading@superforcesignals.com[/EMAIL] [EMAIL="trading@superforce60.com"]trading@superforce60.com[/EMAIL] Weekly Market Update Excerpt Feb 4, 2011 Gold and Precious Metals [LIST] [*]SGOL 6 Mth (Gold Bullion Proxy) Chart [/LIST] [LIST] [*]I issued a Super Force buy signal for SGOL on Jan 27. Yesterday's action puts that trade in a huge profit position. [/LIST] [LIST] [*]For the last few weeks you have lived through a classic Bull Market correction, and the correction has proceeded almost exactly as I have predicted. I want to talk a bit about the whole debt issue, which is why you are in Gold, and why this is only a correction. It is easy to forget all the fundamentals when the news is bearish and the price is falling. [/LIST] [LIST] [*]You have seen the metals crowd go from wildly bullish to liquidation mode, and the drawing of bearish...


Is It Time To Sell Gold & Silver?

Posted: 04 Feb 2011 01:00 PM PST

In the last days we have seen the gold price hit $1,324 and yesterday spring to $1,355, leaving it in a neutral zone technically speaking. More than 10% of the gold ETF, SPDR in the States has been sold as well as around 10% of the ishares Silver Trust. Investors need to know, "is this the time they should be selling their gold and silver investments?"


Guest Post: The Great Global Debt Prison

Posted: 04 Feb 2011 12:24 PM PST


Submitted by Giordano Bruno of Neithercorp Press

The Great Global Debt Prison

By Giordano Bruno

Neithercorp Press – 2/4/2011

Tense and terrible times inevitably summon an odd coupling of two very different and difficult human conditions; honesty, and brutality. Certain painful truths are revealed, and often, a palpable fury erupts. Being that times today are particularly tense, and on the verge of being spectacularly terrible, perhaps we should embrace both conditions in a constructive manner, and become brutally honest with ourselves. This begins by admitting to that which most ails us. It begins by admitting how far we have fallen…

Our economy, our culture, our entire world, is built upon debt. No one ever asked us if that’s how we wanted it, it is simply how the system was designed when we came into it. Many of us have lived our entire lives under the assumption that debt is a necessary function of daily commerce and a valuable driver of successful society. Most households in America operate at a steep loss, trapped in constantly building cycles of liability and interest. There are even widely held schools of economic thought that are centered completely on the production and utilization of nothing but debt. Only recently have many people begun to ask themselves what the tangible benefits are (if any) in being dependent on debt based finance.

After careful examination, it becomes evident that debt does not fuel economy, it suffocates it. It does not nurture growth, it stunts and poisons it. Extreme debt is not a fundamental organ in a body of commerce; it is an aberration, a spreading cancer which disrupts the circulation of healthy trade. Debt is, in large part, unnecessary.

Of course, debt can be very useful if you are the controller or determining overseer of a system, especially if you wish to centralize and maintain power over that system. The tactical wielding of debt has been used by elites for centuries as a means to imprison the masses, or to create an atmosphere of endless dependency. Let’s take a look at what debt really is, and how it is being used against the average American today…

Understanding Debt

The Charles Dickens classic ‘Little Dorrit’ is commonly misinterpreted as a “love story”, however, the primary character in the book is not Little Dorrit, or the kindly Arthur Clennam, but the debt system of Britain itself, and its effects on every social class from the street beggar to the elitist socialite. Dickens despised the idea of debt and debtors prisons, being that his father was thrown into one for a good portion of his life, forcing young Charles to work just to support his parents. Dickens understood well the evil intent behind the debt system, and railed against it often in his writings.

One figure in ‘Little Dorrit’ which fascinated me was the character of Mr. Merdle, a national banking superstar who dominates the investment world with the help of British treasury officials and various political deviants. Merdle is referred to by merchant circles as “the man of the age”, a financial marvel who seems to make fortunes in every endeavor he touches. Little does anyone realize that Merdle is a fraud, a Ponzi scheme artist who takes money from unwary speculators and sinks it into increasingly more tenuous investments. In order to continue hiding the fact that all his financial ventures are ending in ruin, he lures more and more depositors to pay off previous debts. The problem is that Merdle is creating debt to chase debt. Eventually, his insolvency, and that of all those who trusted him, will catch up and overtake the lie he has carefully projected. All economic instability is invariably revealed, no matter how expertly it is hidden.

Mr. Merdle, in my mind, is an almost perfect literary representation of today’s private Federal Reserve and the global banking syndicates of JP Morgan, Goldman Sachs, Citigroup, etc. The Federal Reserve, with the help of politicians on both sides of the aisle, created a series of illusory incentives (through interest rate cuts) which allowed banks to begin lending almost unlimited fiat at rock bottom prices. America was awash in credit, to the point that it was nearly impossible for the average person to avoid the temptation of borrowing. What we didn’t understand then, but are beginning to grasp now, is that credit derived from fiat is not “capital”, it is NOT wealth. Credit is the creation of an obligation, to be paid at a later date, if it is paid at all, and because there are no rules to tie the debt to any legitimate collateral (at least for banks), there is nothing to back the obligation if it falters. Therefore, fiat induced credit is not the creation of wealth (as Keynesians seem to believe), but the destruction of wealth!

Because of its lack of tangibility, debt can be packaged and repackaged into whatever form banks like. Derivatives are a perfect example of the phantom nature of debt; securities which have no real value whatsoever yet are rated and traded as if they are a solid commodity. This brand of commerce is, at its very root, a kind of fiscal time bomb. Just as in the literary world of ‘Little Dorrit’, the Ponzi scheme in our very literal world had to reach a tipping point, and in 2008, it did.

One glaring difference between our troubles and those of Dickens’ fiction is that Merdle actually feels guilt over what he has done (or he at least fears the justice that will be dealt him), causing him to commit suicide towards the end of the novel. In the real world, the Merdles of our era appear fully content to watch this country crumble due to their intrigues, and rarely suffer any consequences for what they pursue. In fact, the modern banking elite are more liable to revel in the searing shockwave of a credit detonation, rather than feel any “remorse”. The point is, Dickens saw clearly over 150 years ago what many Americans today still do not; debt is an abstract idea, an absurd game which confuses and ensnares innocent people. Debt based systems con the citizenry into trading away their tangible wealth and labor for the promise of future settlements that will never come. Debt serves only to weaken the masses, and empower creditors.

The Consequences Of Debt

How has debt based economics served us so far?

The credit card debt of the average American household ranges from $8000 to $15,000. Total household debt including mortgage and home equity loans has hit an average of 136% of annual household income:

http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php

http://blogs.forbes.com/moneybuilder/2010/06/24/one-big-difference-between-chinese-and-american-households-debt/

Approximately 80% of mortgage loans issued to subprime borrowers over the past decade were Adjustable Rate Mortgages (ARM), meaning 80% of mortgages in the U.S. have reset or are ready to reset at much higher interest rates. There were approximately 1.4 million bankruptcy filings in 2009, and 1.5 million in 2010. One in every 45 homes in America received a foreclosure filing in 2010:

http://www.marketwatch.com/story/top-10-cities-where-foreclosure-rates-are-highest-2011-01-27

http://www.uscourts.gov/Statistics/BankruptcyStatistics.aspx

Keep in mind that in 2005, new government regulations were implemented making filing for bankruptcy much more difficult. In 2006, filings collapsed. Now, despite stringent obstacles, filings are up again over 100%.

The “official” national debt now stands at over $14 trillion, which is around 100% of U.S. GDP (with entitlement programs like social security included, this number is probably closer to 400% of GDP) . The 100% mark is often cited as the breaking point for most countries struggling to sustain liabilities. Greece’s national debt stood at 108% – 113% of GDP when it collapsed into austerity. From 2004, to 2010 (a span of only six years) our national debt has doubled. To put this in perspective, it took the U.S. over 200 years to reach its first trillion dollars of debt. Now, we are looking at the accumulation of at least a trillion every year. This is unsustainable.

The much talked about debt ceiling has been raised six times in the past three years. This frequency is unprecedented. International ratings agencies are now openly suggesting an end to America’s AAA credit rating:

http://www.bloomberg.com/news/2011-01-28/moody-s-says-time-shortens-for-u-s-rating-outlook-as-s-p-downgrades-japan.html

A credit rating downgrade would be devastating to what little foreign interest is left in the U.S. Treasury bond investment.

On the local front, cities and states are on the verge of folding due to the evaporation of municipal bond markets. Cities depend greatly on two sources of revenue in order to continue operations; property taxes, and municipal investment. Property taxes, obviously, are disappearing as property values continue to spiral downwards. This leaves only municipals, which have also unfortunately fallen off the map:

Wall Street analyst, Meredith Witney, recently stated in an interview with 60 Minutes that she believed 50 to 100 American cities would default in the midst of a municipal crisis in 2011. She was promptly lambasted by the rest of the MSM for her prediction. In my opinion, she was rather minimalist in her estimates, especially if the Federal Reserve does not commit to another round of quantitative easing (QE3) for the states (Bernanke denies this policy would be enacted by the Fed, though, which means there is a good chance it will be).

To summarize, the U.S. is swimming in debt. Absolutely nothing has been changed for the better in terms of wealth destruction and liabilities since the credit crisis began, and the situation only looks more precarious with each passing quarter.

Where Is The Debt Roller Coaster Taking Us?

What is the most likely outcome of the conditions described above? The vital factor will be the continued Federal Reserve policy of fiat bailouts as a “counterbalance” to the evolving debt crisis.

As is clearly explored in the Dickens novel we discussed earlier, staving off the effects of debt by creating more debt is a temporary solution that only leads to greater calamity down the road. Anyone who believes that fiat inflation actually “cancels out” debt instability is going to find themselves sorely disappointed. At bottom, government created stimulus is not a solution to corporate engineered debt burdens, but a reallocation of debt away from banks and into the laps of the American taxpayer. The Federal Reserve and our own Treasury have not paid off anything. They merely shifted the responsibility of payment away from the banks that created the problem, and handed that responsibility to us. On top of this, they have also set the dollar up for a crushing blow of devaluation. Here is where the prison bars enclose…

If our historic debt is not being diminished, but only moved around while it expands, then this means that eventually our credit worthiness will come into question. In fact, it already has. Foreign investment in long term Treasuries has dwindled. Our own central bank is now the largest holder of U.S. debt, surpassing even China (Note: this news has so far been ignored by almost all mainstream outlets):

http://www.ft.com/cms/s/120372fc-2e48-…

So, the question of debt default turns from theoretical to quite imperative. If the Federal Reserve continues buying our debt with fiat, it means that the effects of the debt will only be delayed, the dollar will be dropped as the world reserve currency, and hyperinflation is a certainty. If they do not continue buying, then our government defaults, the country’s financial infrastructure ceases to exist, the dollar loses its world reserve status, and hyperinflation is a certainty. The banking elites haven’t just erected a prison, they’ve tossed us in Alcatraz!

The battle over yet another increase of the debt ceiling has obscured the fact that the debt has already done all the damage it needs to do. Freezing the ceiling in place becomes a battle of principle, and an important one, but it would in no way stop the dysfunction and chaos to come. At best, it might shorten the duration of the disaster by a few years. The important thing to remember is that government intervention will only incur greater loss. There is no easy way out, no magic shortcut, no last minute brilliant idea that will wrap up this mess. Years of hard work, determination, honesty, and sacrifice are ahead of us.

Inflation will be the buzzword of 2011. Endless debt facilitates endless Keynesian liquidity. Expect to see commodities double once again this year.

Household debt will probably level off through 2011, as more Americans abandon their credit habits and make more concerted efforts to save. In 2009, Visa lost 11% of its credit use, while MasterCard lost 22%. Over 8 million consumers have stopped using credit cards altogether since the end of 2009:

http://abcnews.go.com/Business/holiday-shopping-americans-cut-back-credit-card/story?id=12367547

Bank lending is still tight as creditors raise the requirements necessary to receive FHA (Federal Housing Administration) mortgages:

http://www.bloomberg.com/news/2010-11-17/home-ownership-gets-harder-for-americans-as-lenders-restrict-fha-mortgages.html

Will credit use and debt based consumption ever return to levels similar to 2006? Not a chance. One might predict then that savings will rise dramatically as credit use falls, but this too is unlikely. Why? Because over the next year Americans will be spending far more on essential goods due to inflation than they ever have before. Whatever savings they would have accrued will be eaten up by the relentless spike in commodity prices. The term used for the combination of chronic debt, low job growth, and burgeoning inflation, is “stagflation”. I honestly can’t think of a worse situation than being subject to exploding costs in light of a dilapidated standard of living. As Dickens points out plainly in ‘Little Dorrit’, how can a man be expected to settle his obligations when he is imprisoned for them?

Breaking The Cycle In The Midst Of Global Strife

Why after thirty years under the despotic rule of the Hosni Mubarak regime did the Egyptian people suddenly decide to revolt? Why now? The MSM will field a number of political tales, but the key to most popular uprisings, especially in the Middle East, has been the lack of necessities. The last time Egypt saw an uprising of this magnitude was during the Bread Riots of 1977, when the IMF terminated state subsidies of basic foodstuffs. Is it any wonder that turmoil has developed so quickly in the region as grain prices double? This is the devastating power of debt, and the so called “solutions” which merely perpetuate debt.

Tunisia, Egypt, and Yemen, are only the beginning. The sting of inflation will be unbearable as austerity measures take hold in Europe, and the potential for riots in Greece, Spain, Portugal, and Italy looms large. The most volatile environment on the planet to date, however, is the United States, which, as we have shown in previous articles, is being dismantled deliberately and viciously in preparation for IMF regulation and centralization. Today, the IMF is stalking Egypt, ready to pounce as the nation goes mad. Tomorrow, it will be us. I will be very surprised if we are not hearing about IMF intervention in the U.S. economy and the dollar by the end of this year, offering more debt, and more unaccountable governance.

The secret to breaking the circle of debt is to adopt a policy of decentralization, and self sufficiency. To take back control of our local commerce and to establish micro-economies with self contained methods of trade. Debt must be removed from the equation altogether, and systems protected by flexibility and redundancy must be applied. Savings and meaningful production would have to take the place of endless spending and outsourcing. The claustrophobic nurse-maid philosophies of globalism would have to be cast aside and replaced with goals of independence and self reliance. By cutting our dependency on the corrupt establishment, we sever its ability to feed off of us. By building a better system, we make the faulty one obsolete. Whether or not we throw off the trappings of the debt machine is entirely up to us.

Two very important steps are required; the realization that debt is not the only way, and, the realization that debt is the worst way. Prosperity is not achieved at the expense of the future. The society that finally takes this fact to heart will accomplish incredible things indeed…


The Government-Gold Screw Job of 1933

Posted: 04 Feb 2011 12:00 PM PST

Art Arbutine of Belleaircoins.com has a nice pamphlet titled "Everything you wanted to know about buying and selling precious metals, and then some!!!!!" I have to admit that I was certainly intrigued by the five exclamation points, with the result that my Super Mogambo Senses (SMS) switched to high-alert status, looking for signs of danger, at the sight of them. And fortuitously so, as I soon found dangerous things! Firstly, he writes of Roosevelt in 1933 infamously ordering that everyone turn in their gold at the nearest bank and receive fiat currency in exchange. Even then, it was a government Big Screw Job (BSJ) because "At the time," he writes, "a $20 gold coin contained over $20.80 worth of gold, but the citizens got only a $20 bill." Re-read the previous paragraph, and see if you detect a Big Screw Job (BSJ) in getting a $20 bill in exchange for $20.80 in gold, too. Being a paranoid, conspiracy-nut, lunatic whacko like I am, I contribute to the genre by declaring that Frank...


FRIDAY Market Excerpts

Posted: 04 Feb 2011 10:05 AM PST

Gold eases on firmer dollar, ends week up 0.5%

The COMEX April gold futures contract closed down $4.00 Friday at $1349.00, trading between $1345.50 and $1361.00

February 4, p.m. excerpts:
(from Marketwatch)
Gold futures settled lower, weighed down by expectations Egypt's president may be getting closer to his resignation, a stronger dollar, and the previous session's rally that left the metal vulnerable to a price correction ahead of the weekend. Earlier Friday, the Labor Department reported the unemployment rate fell unexpectedly to 9% in January. U.S. nonfarm payrolls, however, rose by a paltry 36,000 jobs. The market had expected an increase of 140,000…more
(from Reuters)
Analysts said that even as U.S. jobs barely grew in January, gold failed to benefit further from the mixed payrolls report, which also showed that the unemployment rate fell to its lowest since April 2009. Bullion was also pressured as the dollar rose against the euro on the U.S. jobless number. But gold remains on track for its first weekly gain in 2011 after U.S. employment rose far less than expected in January, and after Federal Reserve Chairman Ben Bernanke indicated easy monetary policy would stay in the near term…more
(from TheStreet)
European Central Bank President Jean-Claude TrichetGold prices popped 1.5% Thursday thanks largely to Ben Bernanke and Jean-Claude Trichet. Both central bank leaders reiterated their commitment to low interest rates despite acknowledging rising food and energy prices. Although the headlines were nothing new, rumors had been circulating that Federal Reserve Chairman Bernanke would raise rates as the U.S. economy strengthened and European Central Bank President Trichet would also curb growth to fight inflation…more
(from Bloomberg)
Gold futures for April delivery fell 0.3% to settle at $1,349 an ounce on the Comex, ending the week up 0.5%. Earlier, gold reached a two-week high of $1,361 an ounce as the mounting conflict in the Middle East boosted demand for a haven. "We've seen a slight improvement generally in the economic recovery," said Bernard Sin, head of currency and metal trading at MKS Finance SA. "People are still very concerned about the Middle East and will be comfortable buying on any dips."…more
(from Dow Jones)
Gold has received some support recently from widespread unrest in Egypt, which has sparked fears that trade flows through the Suez Canal could be disrupted or the instability could spread elsewhere in the region. Demonstrations in Egypt continued Friday, with thousands of protesters calling for President Hosni Mubarak to step down. But the protests didn't spark the flight to safety among investors that it did at the end of last week, as the wider economic impact of the unrest has been limited…more

see full news, 24-hr newswire…

Gold Correction Nearing Comletion

Posted: 04 Feb 2011 09:52 AM PST

courtesy of DailyFX.com February 04, 2011 07:51 AM 240 Minute Bars Prepared by Jamie Saettele Gold has held a multiyear support line. However, the decline from 1425.40 is in 5 waves, indicating that the larger trend is most likely down. Price has nearly reached initial resistance from the 100% extension of the initial rally off of 1308.70. This level should be strong resistance....


David Skarica: "Bond Vigilantes" Ultimately Good for Gold

Posted: 04 Feb 2011 09:37 AM PST

Source: Brian Sylvester of The Gold Report 02/04/2011 Addicted to Profits Editor David Skarica predicts that in the second half of 2011, Europe's "bond vigilantes" will make their presence felt in the U.S. by driving up interest rates and driving down the dollar. That's one of the reasons he remains bullish on gold. "I think we're going to see gold headed much, much higher," David says in this exclusive interview with The Gold Report. To learn about David's investment thesis for the gold market and a few names that offer better value post correction, read on. [I]The Gold Report: Hi David, welcome back to The Gold Report. David Skarica: It's good to be here. Thank you for having me back. TGR: You're quite welcome. You tend to look at macroeconomic trends and draw conclusions based on your observations. What are you observing in the gold market that has led to about a 6% drop in January? DS: I think there are just two factors for me. First, gold was overbought. When go...


Global Silver Exploration

Posted: 04 Feb 2011 09:25 AM PST

Inflation ‘Round the World

Posted: 04 Feb 2011 08:26 AM PST

Faithful and unfaithful readers alike will have noticed a recurring theme in our recent reckonings. We refer, of course, to inflation; that insidious, noxious tax which appears to be gushing out of every economic orifice in the land, but that, somehow, fails to register as even a drip on the government's official inflation-o-meter. Curious, no?

Regular reckoner, Chris Mayer, identified inflation as the "wrecking ball" of 2011 in his column "Inflation's First Phase". Eric Fry addressed it in both "When Stock Market Rallies Validate Effective Monetary Policy" and "Tracing the Fed's Vital Role in the Decline of the US Dollar". And our Reckon-in-Chief, Bill Bonner, touches on it in some fashion, on most days.

In fact, most people in possession of at least one of the five basic human senses seems to see, feel, hear, taste or smell inflation's foul presence. Which means that those trained specifically to keep an eye (ear, nose, etc.) out for it – and who so adamantly deny its existence – are either blessed with a sixth "masking" sense to which the rest of us are not privy…or that they are simply senseless morons, blinded by the light of their own academic brilliance.

Most likely, inflation will continue to be…and not to be. In other words, those manning the controls in the government's "Ministry of Information" will continue to churn out numbers that agree with whatever qualitatively-eased, policy-of-the-month they are pursuing. Meanwhile, the rest of us will continue to weather the adverse consequences of these econo-commands as they express themselves in the form of everyday higher prices.

This time last week, we heard from some of our frontline reporters across the United States. Fellow reckoners wrote in from grocery stores and gas pumps around the country to lend some of their own boots-on-ground perspective.

Alas, this academically-defined non-inflation is also pushing up prices in other parts of the world. But fear not. We have eyes (ears, noses, etc.) in those parts, too. And so, without further ado, we present a handful of reader mail from some international Daily Reckoning reader posts…

First up, here's what reader B.L. had to say:

"I currently live in Singapore and travel throughout Asia Pac, Central Europe, ANZ, and was back in the US over Christmas/New Year's. I see food inflation everywhere I go. [In] Singapore the prices have risen noticeably since I've been living there, which was April of 2010. When I was in the US – North Carolina – I was shocked by the food prices when I bought groceries for two families for New Year's Eve and day. Combine the food prices with the fuel price rise and I can see why so many American families are getting support for food from good ole Uncle Sam.

"In places like China or India, where food makes up a huge % of a families cost to live – over 50% versus less than 10% for the middle class in the US – they are really feeling the pinch.

"Lots of reasons, but very scary for those of us that have to eat – oh wait, that is all of us last time I checked on the human condition.

"Keep up the good work."

Sticking in the East for a bit, here's what another reckoner had to say:

"Here in Thailand, inflation is running high.

"On January 1st, 7/11 mini-marts, of which there are thousands across the country, increased all their prices by 10%.

"Hotel rates, mostly in the 4 and 5 stars categories, are going through the roof, 25 to 50% higher than a year ago.

"Restaurants of all kinds regularly increase their prices.

"Overall, the national inflation rate is certainly in the double digits."

Thailand? But why would prices be rising in Thailand? Another reckoner, based in that (offensively gorgeous) part of the world offers some thoughts:

"The millions of dollars flowing into Thailand form your neck of the woods is causing real problems with food prices and more noticeable is the increase in washing powder, soap etc. These too are increasing due to the raw material costs.

"Cambodia and Vietnam are feeling the winds of change also. I live here in Thailand 6 months a year then go home to shitty Britain to fish for trout. I was in Cambodia last week. My friend has just opened a small guest house there and we both went to see friends in Vietnam. Same problem; big inflows of money.

"I hope this adds a new thinking to your insight into inflation."

But what about Japan, the leader in all things DEflationary? Reckoner Gary?

"I live in Japan, and have observed over the past year, food prices have gone down. In fact, prices have been about the same for many years. Last year flour was about Yen 230 a kilo, this year about Yen 150. Living on a fixed income, I must say, I like DEFLATION much more than INFLATION. So tell me, why is Bernanke trying to increase my food costs – doesn't he have my interests at heart?

"The US system is broke, financially, economically, morally, education, etc. And with all the partisan fighting in government, Republican vs. Democrats, secret agendas, it isn't going to get better. I think the best solution is to just let all those banks and zombie companies crash and burn, and we start over again."

Hmm…but what about this… Another email from The Land of the Setting Sun? This one from Reckoner Matthew:

"One small slab of mozzarella cheese imported from Germany costs about 600 Yen, or 7.26 US doll hairs. A small pack of blueberries from Chile costs about the same. These items have become extravagances for consumers.

"How about gasoline? Just filled up my car with a tank of the stuff. Converting liters to gallons and Yen to USD, I paid 6.64 dollars/gallon (high octane, mind you) at today's exchange rate.

"Try guessing what will happen to the USA when prices get to this point? Here in Nipponville, everyone's numb to it all."

And in Australia, Reckoner Ronald:

"The cost of our city-supplied water has tripled in the last ten years. In the last 29 years, the local daily newspaper has quadrupled in price and the TV weekly magazine is up 625%. But petrol (gasoline) is 'only' up 308%."

How about in Europe? Reckoner Paul?

"After taking 2 weeks holiday around Christmas, I returned to my commuting routine to my office in Hamburg, Germany. Between the station and my office, I usually pick up breakfast at one of many bakeries. Between 18 Dec. 2010 & 3 Jan. 2011, my breakfast cost went up on average 3%. Oh My! 10 cents more for my apple turnover or chocolate croissant!"

And finally this observation from Buenos Aires, where your editor experiences daily the effect of government-induced non-inflation…

"Argentina is a good example of food inflation. Meat (main food for most locals) is now 100 % more expensive than a year before, as a result of government controls and policies against production, just in order to maintain local prices in line. Result: less production, less consumption and less exports of an Argentine symbol. Is this a recipe to be applied in other countries?"

A big thanks to everyone who wrote in with frontline reports on the effects of inflation that, we are told, doesn't exist.

Joel Bowman
for The Daily Reckoning

Inflation 'Round the World originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

Geithner Refuses To Call China Currency Manipulator, Also Refuses To Stop Complaining

Posted: 04 Feb 2011 08:21 AM PST


Our administration in a nutshell: in the just released "Semiannual Report on International Economic and Exchange Rate Policies" by the Treasury, the conclusion is that while China isn't really a currency manipulator, which it obviously is via the CNYUSD peg, inasmuch as the US also is courtesy of the Hewlett Vissarionovich, "progress thus far is insufficient and that more rapid progress is needed." Win win for everyone, as the global FX attrition war continues (we lob inflation at them, they lob it back ten fold). In the meantime, the status quo is great and let's all pray that the global revolutions end with Egypt, which a month ago few even could point out on a map.

The salient section exposing just how pragmatic our fearless leaders are... and who has all the leverage.

With respect to exchange rate policies, ten economies were reviewed in this Report, accounting for nearly three-fourths of U.S. trade. Many of the economies have fully flexible exchange rates. A few have more tightly managed exchange rates, with varying degrees of management. This report highlights the need for greater exchange rate flexibility, most notably by China, but also in other economies.

In China, the authorities decided in June 2010 to once again allow the exchange rate to appreciate in response to market forces. Since the June announcement, the renminbi (RMB) has appreciated by a total of 3.7 percent against the dollar as of January 27, or at a rate of approximately six percent per year in nominal terms. Because inflation in China is significantly higher than it is in the United States (in the second half of 2010, the annual rate of CPI inflation was more than 5 percentage points higher in China than in the United States), the RMB has been appreciating more rapidly against the dollar on a real, inflation-adjusted basis, at a rate which if sustained would amount to more than 10 percent per year. China is also undertaking a relaxation of restrictions on the use of the RMB. These reforms will gradually erode the controls that help the authorities manage the level of the exchange rate, and over time will contribute to a more market-determined exchange rate.

China’s continued rapid pace of foreign reserve accumulation and the huge flow of capital from the Chinese public to advanced countries that it implies, the essentially unchanged level of China’s real effective exchange rate especially given rapid productivity growth in the traded goods sector, and widening of current account surpluses, all indicate that the renminbi remains substantially undervalued. It is in China’s interest to allow the nominal exchange rate to appreciate more rapidly, both against the dollar and against the currencies of its other major trading partners. If it does not, China will face the risk of more rapid inflation, excessively rapid expansion of domestic credit, and upward pressure on property and equity prices, all of which could threaten future economic growth. By trying to limit the pace of appreciation, China’s exchange rate policy is also working against its broad strategy to strengthen domestic demand. And China’s gradualist approach on the exchange rate also adds to the substantial pressure now being experienced by other emerging economies that run more flexible exchange rate systems and that have already seen substantial exchange rate appreciation.

Many in China recognize that China is too large relative to the world economy for it to continue to rely on foreign demand to grow. They also recognize that exchange rate flexibility needs to be part of China’s efforts to change its pattern of growth. During President Hu’s state visit to the United States in January 2011, China committed in a joint statement of Presidents Obama and Hu that “China will continue to promote RMB exchange rate reform and enhance RMB exchange rate flexibility, and promote the transformation of its economic development model.”

Based on the resumption of exchange rate flexibility last June and the acceleration of the pace of real bilateral appreciation over the past few months, and in view of the commitment during President Hu’s visit that China will intensify its efforts to expand domestic demand and further enhance exchange rate flexibility, Treasury has concluded that the standards identified in Section 3004 of the Act during the period covered in this Report have not been met with respect to China. Treasury’s view, however, is that progress thus far is insufficient and that more rapid progress is needed. Treasury will continue to closely monitor the pace of appreciation of the RMB by China.

Next up, Chuck Schumer to do a repeat of the whole very loud song and dance, which will also achieve absolutely nothing.

Full report (pdf):

 


Newmont Buys Out Fronteer; What's Next in Gold Mining Sector?

Posted: 04 Feb 2011 08:11 AM PST

Jeb Handwerger submits:

Even though January 2011 brought a lot of profit-taking to mining stocks and precious metals, the leadership of Newmont (NEM) has used this pullback in prices to purchase one of my long-term favorite recommendations, Fronteer Gold (FRG).

I believed Fronteer was a great candidate for a takeout. Newmont has gone straight ahead, believing in Fronteer’s three major projects in Nevada and buying Fronteer out for a 37% premium. Newmont believes that the gold price is moving much higher, and it is using its large cash position to find growth. It is much cheaper to buy a quality asset rather than go out and find it yourself. Now Newmont has really made a huge transition to have high grades assets.

Some of the other Nevada companies to monitor in light of this buyout are other miners with significant Nevada gold resources such as U.S. Gold (UXG), Allied Nevada (ANV), Timberline Resources (TLR) and Midway Gold (MDW). From Fronteer’s position, the valuation was very reasonable and this deal was valued similarly to Andean deal with Goldcorp (GG) and Redback’s (RBAK) deal with Kinross (KGC).

Newmont and Fronteer were partners on the Sandman project and needed to make a production decision later this year on that project. They have worked closely before and Newmont was well aware of the high-quality portfolio and the incredible growth of Long Canyon, both in grade and size. Newmont is convinced that this mine could be a monster, similar to some of the great mines in the Carlin


Complete Story »


Gold Daily and Silver Weekly Charts

Posted: 04 Feb 2011 08:03 AM PST


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Newmont Buys Out Fronteer, What's Next In The Gold Mining Sector?

Posted: 04 Feb 2011 08:01 AM PST

Even though January 2011 brought a lot of profit-taking to mining stocks and precious metals, the leadership of Newmont (NEM) has used this pullback in prices to purchase one of my long-term favorite recommendations, Fronteer Gold (FRG). Read More...



Grandich Client Sunridge Gold

Posted: 04 Feb 2011 08:00 AM PST

The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! February 04, 2011 11:56 AM The “Mama Mia son of Bisha” is noted in this article. [url]http://www.grandich.com/[/url] grandich.com...


How to Buy a Vacation Home with Silver

Posted: 04 Feb 2011 07:53 AM PST

For most people, there are some surefire luxuries that signify wealth, a few pearls of conspicuous consumption that say you've made it. For me, it's always been a second home. My grandparents owned a vacation home in Arizona and then Florida when I was a kid, and it was an annual highlight to travel there every year.


Gold this decade

Posted: 04 Feb 2011 07:49 AM PST

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Gold Short-Term Buying Spree on Middle East Crisis

Posted: 04 Feb 2011 07:48 AM PST

Political and social unrest in the Middle East was the most discussed topic during the week.  Restlessness and riots could inflate food prices in the region and worsen the economic balance further. As a result, equity, currency and commodity markets have experienced fluctuations. The political disturbances have impacted the crude oil trade significantly as Egypt is a crucial link for oil and gas headed to Europe, Asia and the United States. There are large black swans paddling in the Middle East pond that could have a significant effect on precious metals, oil and stock markets.


Bond Vigilantes Ultimately Good for Gold

Posted: 04 Feb 2011 07:41 AM PST

Addicted to Profits Editor David Skarica predicts that in the second half of 2011, Europe's "bond vigilantes" will make their presence felt in the U.S. by driving up interest rates and driving down the dollar. That's one of the reasons he remains bullish on gold. "I think we're going to see gold headed much, much higher," David says in this exclusive interview with The Gold Report. To learn about David's investment thesis for the gold market and a few names that offer better value post correction, read on.


Query For The Bernank: What Is The Fair Value Of Netflix Stock Expressed In 8% Unemployment?

Posted: 04 Feb 2011 07:36 AM PST


Yesterday, while we were listening to the Chairsatan (©Bill Gross), we made the following semi-serious realtime translation of Bernank's presentation to the sycophants' club: "Let me explain it to you: 9% unemployment: NFLX $300; 8% unemployment: NFLX $500; 6% unemployment: NFLX $1000. Kapishe?" And while we were mostly joking in our correct interpretation of the Fed's massively wrong understanding of causality between the market and the economy, Nicholas Colas of BNY today took a comparable idea and analyzed what the level of the S&P should be for unemployment to get to a Fed acceptable level based on empirial data. We quote: "By our analysis of the last forty years of history for the S&P 500 and unemployment rates, in order to get to the Fed’s 8% target in 2012, the U.S. equity market needs to climb another 35% in 2011, putting the S&P 500 at 1755. That’s not our price target, but it just may be the Fed’s." Since this is most likely the entire "sophisticated" plan laid bare of one Iosif Vissarionovich Bernank, expect to see a complete elimination of volume as the mutual fund cartel continues with the never-sell collusion, and the only incremental buying is PDs with taxpayer money and HFTs' bid-bias fully compensated by rebates for providing the PDs with the "liquidity" they need to send stocks up another 350 points. Luckily, few if any care what the joke that is the stock market actually does (see today's unprecedented low NFP volume here).

From Nic Colas of BNY.

Peanut Butter, Bananas and Bacon – The Fed and the Stock Market

Summary: Even if Fed Chairman Bernanke doesn’t want to admit it, many investors and market watchers think the U.S. central bank is explicitly targeting the stock market with its quantitative easing program. In today’s note we assess the historical relationship between stock price movements and U.S. labor markets to see what kind of advance in equities correlates with the Fed’s target of an 8% unemployment rate in 2012. As it turns out, the stock market is a reasonably good predictor of future
changes in unemployment, especially at “the tails,” when broad market indices move dramatically higher or lower. And we suspect there is some causation as well as correlation at play here: companies with rising stock prices are more likely to hire if their equity prices are marching higher, and stocks are supposed to be leading indicators of general economic growth and contraction By our analysis of the last forty years of history for the S&P 500 and unemployment rates, in order to get to the Fed’s 8% target in 2012, the U.S. equity market needs to climb another 35% in 2011, putting the S&P 500 at 1755. That’s not our price target, but it just may be the Fed’s.

Elvis Presley is playing Radio City Music Hall on February 15th. No, I am not one of those people who think he’s still alive. Elvis really has “Left the building.” But some clever concert promoters have ginned up a show that reunites many of his old band members with a digitally scrubbed voice track of Elvis singing. There’s a video component to the show as well, featuring footage of some of his famous Vegas act and other appearances. Evidently the show goes over really well with Elvis fans, and it has made its way around the world to the United Kingdom, Australia and Japan. If you have an interest, here’s a link: http://www.thegarden.com/events/elvis-presley-0211.html. Good tickets, as they say, are still available.

Of course many people associate Elvis with his oddball taste in food as much as his killer live act or iconic status in the world of rock ‘n roll. Reportedly, his favorite snack was a peanut butter, sliced banana and bacon sandwich. Sometimes with honey. The sandwich is so closely associated with Presley that many people just call it an “Elvis.” And, believe it or not, New York City’s own Mayor Bloomberg has stated that he harbors a fondness for the same creation. It would, in fact, be his “last meal” of choice. Another of Presley’s favorites, for which he supposedly flew from Memphis to Denver to enjoy, was a “Fool’s Gold Loaf”: a whole loaf of Italian bread, hollowed out, with a jar of peanut butter, an equivalent amount of jelly, and a pound of bacon. Served with champagne, included in the price.

I doubt either of these concoctions was on offer yesterday at the National Press Club in Washington D.C., but Federal Reserve Chairman Ben Bernanke did address questions during a lunch there about an ideological combination that feels about as odd as an “Elvis.” The ingredients, however, are Fed stimulus from quantitative easing, the stock market, and unemployment. The Chairman said “the purpose of monetary easing is not to strengthen stock prices per se. The purpose is to strengthen the U.S. economy, put people back to work and create price stability.” He then went on to say, “I do think that by taking these securities out of the  markets (ed: through QE) and pushing investors into alternative assets, we have led to higher stock prices and to lower market volatility.” (See a good recap of the entire speech and Q&A summary here: http://www.reuters.com/article/2011/02/03/us-usa-fed-bernanke-idUKTRE7126MA20110203).

So it should be clear that the Fed sees higher stock prices as a logical extension of their actions in the arena of monetary policy management. I’ll get to the chicken-and-egg nature of this assumption in a minute. But first we should get a handle on whether history supports any linkage between higher stock prices and the Fed’s mandate to encourage full employment. Recall that the Federal Reserve has two official directives from Congress – price stability is the other one. Since pushing stock prices higher can’t be part of the “price stability” mandate, Chairman Bernanke must feel that a rising tide of equity prices must help lift the boats of the labor market.

To assess the relationship between unemployment and stock prices, we looked at the historical record of the Labor Department’s take on the monthly unemployment rate and the 12 month return of the S&P 500 back to 1970. We assumed that there would be a lag between when stock markets moved and unemployment rates changed, as labor markets are notoriously “sticky” and tend to rise or fall only after economic conditions have shifted. So we took the 12 month historical change in the S&P 500 and compared this return to the change in the unemployment rate over the next year. We have included a few charts and a table as attachments, but here is our summary of the data:

There is some correlation between stock price movements and subsequent changes in the U.S. labor market – about 28%. That’s not an especially robust result, but we are talking about a 40-year time frame, after all, with everything from wars to tech and housing bubbles in the mix. So it is close enough for “government work.” Which is, after all, what we’re doing anyway.

The real action is in the “tails” of the distribution, when equity markets soar or plummet. When stocks drop 15-20%, unemployment picks up by an average of 1.2 points (a rate that goes from 5.0% to 6.2%, for example) over the next year. When the market falls by 25-30%, that rise in unemployment is more pronounced, at an average of 1.8 points. Conversely, when markets rise by 30-35%, unemployment drops by 0.4 points over the next year. If equities can manage a 35-40% increase over a year, the unemployment rate tends to fall by 0.8 points.

Two very important points here.

  • First, this relationship has been absent if you look at the entire period from the 2009 lows for the S&P 500 to the present day. Unemployment was at 8.6% in March 2009. It is now 9.4%. And the market has doubled over the same time frame. This is the “chicken and egg” problem. Perhaps the Fed has  broken this historical linkage with artificially low-cost capital flooding into stocks, rather than capital markets improving from genuine investor interest in equities from a visibly improving economy.
  • Second, the equity market/labor market relationship is much stronger to the downside than the upside. Simply put, a declining stock market is a fantastic predictor of rising unemployment. But a rising market has much lower observed correlation and impact.

Assuming that the long term relationship between stocks and the labor market does manage to right itself in 2011, we can draw two conclusions.

  • First, unemployment should drop 0.4 points over the next year. We reach that conclusion from tying the market’s 20% advance over the last 12 months to our historical analysis, which shows that this is the average improvement in labor markets when equities rise by this amount. This dovetails very nicely with the Fed’s own estimate of unemployment for 2011, at 9.0%, down exactly 0.4 points from last month’s unemployment rate.
  • But if you want to “dream the dream” for equities for a moment, consider that the Fed’s estimate for 2012 unemployment is 8.0%, or a full point lower than its estimate for 2011. Look at our summary table for historical stock price returns that correlate with a full percentage point drop in unemployment. It is anywhere from 35-50% in terms of price appreciation. Using the lowest end of that range, this implies a price target of 1755 on the S&P 500.

I don’t know which is stranger – a 1755 price target on the S&P 500, or one of Elvis’ sandwiches. This isn’t my price target on the S&P 500, but it may well be the Fed’s. Pass the honey… The bananas aren’t quite ripe.

Which brings us to the original question: can his Beardedness please supply American citizens with a Netflix, or at least S&P 500 fair value chart expressed in terms of jobs. 10% is 666, 9% if 1,200 8% is 1,755. Does that mean to get back to the pre-Depressionary 5%, the S&P will have to jump on the logarithmic train and hit 36,000? We honestly don't know, which is why central-planning Chairman Ben, please open up your little black book and tell us what the answer is?


COT Gold, Silver and US Dollar Index Report - February 4, 2011

Posted: 04 Feb 2011 07:34 AM PST

Gold, Silver and Food, the Three Best Investment Opportunities for the Next Decade

Posted: 04 Feb 2011 07:30 AM PST

“Is the US's financial position hopeless? I've studied the US finances backwards and forwards, and as I see it the US's financial position most definitely is hopeless. The actual posted national debt of the US is $14.1 trillion. However, the US reports its finances on a cash basis while omitting its unfunded obligations in such items as Social Security, Medicare and Medicaid and various other entitlements. If the entitlements are included, the total national debt including unfunded obligations would be over $100 trillion…


The Overlooked Palladium ETF: PALL

Posted: 04 Feb 2011 07:28 AM PST

Tom Lydon submits:

Gold, silver, copper, steel. Everyone’s talking about metals. But one solid performer that hasn’t entered the conversation yet is palladium.

Why should you have palladium on the brain? For starters, ETFS Physical Palladium (PALL) is up more than 64% in the last six months alone. But that’s far from the only reason.

  • Analysts forecast a a continued strong year for the metal, though they warn that gains might be somewhat tempered and not as great as they were in 2010.
  • Amanda Cooper for Reuters reports that

Complete Story »


Short-Term Buying Spree in Gold

Posted: 04 Feb 2011 07:22 AM PST

Political and social unrest in the Middle East was the most discussed topic during the week. Restlessness and riots could inflate food prices in the region and worsen the economic balance further. Read More...



Pre-Weekend Comments...

Posted: 04 Feb 2011 07:12 AM PST

Another lazy Friday today.  The post-NFP excitement in the markets dissipated pretty quickly and now it's back to business as usual for the usual smoke-blowers.  I don't have much to add to the commentary put out by my friend and colleague "Jesse" on the employment report.  You've likely already read his wisdom and insight but, if not, the link is HERE 

I will dress that up with a few facts that can be found if you bother to read the actual BLS report, which is HERE.  Briefly:  the labor force participation rate dropped to a 26 yr. low.  This is the pool of humans that the Govt determines to either be working or not working but actively looking for a job.  The reason the unemployment rate dropped to 9% is because the Govt cut 504,000 people out of their labor force calculation.  It's an absolute farce because what it tells us is that there's really no hope for many of these people to ever find work in this country.  On a not seasonally adjusted basis, the more comprehensive U-6 report showed an unemployment rate of 17.3%.  That's a lot closer to the truth but still low according the work done by John Williams on the matter.  I guess the most remarkable aspect of today's huge miss vs. expectations is the fact that the number diverged so much from the much-cheered ADP employment report released earlier this week.  Both ADP and the BLS use a very similar method of calculating (note: massaging) the data and calculating their cesspoolified number. 

Remember, it's the BLS - leave the "L" out for the truth about what it really is and what the people who work there are full of...

Please read this comment published last night on inflation and gold by James Turk linked HERE.  I've said this before and I'll say it now:  In 10 years of doing exclusively the precious metals sector and analyzing the truth about our system, I respect James Turk's writing and analysis as much as anyone's out there.

Finally, here's the Friday tune from Charles "Mad Dog" Sheffield, a little-known musician from the Louisiana creole blues movement which proliferated when this country really was great:



Avete un divertimento fine settimana ognuno! (Have a fun weekend everyone!)

It's NFP Day, Do You Know Where Your Vapor Melt Up Volume Is?

Posted: 04 Feb 2011 07:09 AM PST


Non-Farm Payroll day has traditionally been one of the top three most volatile and highest volume days each month. No more. If the primary scourge for the banking community has been the total collapse in market participation, leading to a drop in flow and commission revenues, then Q1 earnings will be a bloodbath. Today alone ES volume is 25% below average, and this is on the week's traditionally most active day. So once again we wonder out loud: is anyone left trading stocks at all, or has everyone now shifted to the far less manipulated FX, bond and commodity markets? And, following up with our second question: when will CDS trading for retail finally be approved? Obviously nobody wants to trade equities any more, and Goldman will be more than delighted to skim pennies off the top as OTC goes global.

And NYSE volume. This is beyond ridiculous.

 

China to raise gold, silver reserves in 2011

Posted: 04 Feb 2011 07:08 AM PST

"SLV has another big silver withdrawal...and another big chunk of silver leaves the Comex as well. Newmont pays 37% premium to acquire Fronteer Gold. Go global, before it's too late...and much more. " Yesterday in Gold and Silver The gold price declined about eight bucks in fits and starts all through Far East and most of London trading yesterday. It then caught a bid at the Comex open...rising ten bucks in less than an hour...and then got sold off to its low of the day around 10:15 a.m. Eastern time...which was probably the London p.m. gold fix. From that spike low, gold rose about twelve bucks over the next hour and fourty-five minutes. Then, only minutes before noon in New York, gold spiked up over fifteen dollars in about ten minutes before basically trading sideways for the rest of the New York session. The high of the day was $1,356.60 spot...a price that gold bounced off of several times, but never penetrated. Reader Scott Pluschau sent me the 10...


Weathering Wheat Prices and Unemployment Numbers

Posted: 04 Feb 2011 07:04 AM PST

We detect a pattern in this morning's media. Whatever's going wrong in the economy, blame it on…the weather.

"Payrolls rose less than forecast, depressed by winter storms," says Bloomberg of the January employment report out this morning from the Bureau of Labor Statistics (BLS).

Traders were counting on 140,000 new jobs. BLS statisticians could conjure up only 36,000 – less than a third of what it takes to keep up with the natural growth of the "labor" force. Ho-hum.

The percentage of the working-age population in the labor force sank to its lowest level since the early '80s – down to 64.2%. Again. For perspective, this figure stood above 65%, and as high as 67%, every year between 1986-2009.

Still, because so many people gave up looking for work – so long ago they no longer get counted by BLS quants – the unemployment rate actually fell from 9.4% to 9.0%.

For perspective, we turn once again to the chart that tracks the percentage of job losses during every postwar recession…and the number of months it took to get back to par.

Percent Job Losses in Post WWII Recessions

The BLS also issued what it calls "benchmark revisions" – or, revised figures from last year that account for all the missed guesses they made at the time.

Unfortunately for all the clamoring you hear on TV about "jobs, jobs, jobs"… 483,000 jobs that were thought to have existed two months ago turn out to have been a chimera.

"The freeze gripping a swath of the US threatens winter wheat planted in the fall," says The Wall Street Journal, catching the drift. As such, we're told wheat prices are up 13% in two months.

Never mind that the run-up in wheat – and everything else – has a rather longer history. Wheat's lows came last June.

Global Food Prices 2003-Present

"Are we to believe," asks GoldMoney's James Turk, "that the market knew seven months ago that weather around the world today would be so bad that it would impact global wheat output?

"Obviously, given that commodity prices are rising across the board, we have to look for other factors that are causing this surge in prices. Just consider the money printing – aka quantitative easing (QE) – by central banks going on all around the world.

"QE is building up tremendous inflationary pressures in the pipeline of goods and services, which for months now has been showing up in the area most sensitive to monetary debasement, namely, commodity prices.

"The gathering monetary storm is far more important than the weather," James says, "and there is one easy way to seek shelter – buy physical gold."

Addison Wiggin
for The Daily Reckoning

Weathering Wheat Prices and Unemployment Numbers originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

Canada Jobs Clocks U.S.A. , Silver Clocks New Shorts

Posted: 04 Feb 2011 07:04 AM PST

HOUSTON – The U.S. non-farm payroll headline number disappoints at plus 36,000 but Canada is humming with a gain of 69,200 jobs according to Stats-Canada. As of January, Canada clocks the U.S. in one department – Canada has now regained all of the jobs lost in the 2008-9 recession.


Weather-Adjusted Unemployment

Posted: 04 Feb 2011 06:58 AM PST

by Addison Wiggin - February 4, 2011

  • Economy adds fewer jobs than expected in January because of… [spins the wheel]… bad weather!
  • Wheat prices up 13% since early December because of… [spins again]… bad weather!
  • We’re already at $100 oil… Why the oft-quoted price in the media is almost useless now
  • A stock that generates neither capital gains nor dividends… but always generates high interest
  • Readers chime in on commodity prices… the EPA (again)… and lithium. Lithium?

We detect a pattern in this morning’s media. Whatever’s going wrong in the economy, blame it on… the weather.


“Payrolls rose less than forecast, depressed by winter storms,” says Bloomberg of the January employment report out this morning from the Bureau of Labor Statistics (BLS).

Traders were counting on 140,000 new jobs. BLS statisticians could conjure up only 36,000 -- less than a third of what it takes to keep up with the natural growth of the “labor” force. Ho-hum.


The percentage of the working-age population in the labor force sank to its lowest level since the early ’80s -- down to 64.2%. Again. For perspective, this figure stood above 65%, and as high as 67%, every year between 1986-2009.

Still, because so many people gave up looking for work -- so long ago they no longer get counted by BLS quants -- the unemployment rate actually fell from 9.4% to 9.0%.

For perspective, we turn once again to the chart that tracks the percentage of job losses during every postwar recession… and the number of months it took to get back to par.



The BLS also issued what it calls “benchmark revisions” -- or, revised figures from last year that account for all the missed guesses they made at the time.

Unfortunately for all the clamoring you hear on TV about “jobs, jobs, jobs”… 483,000 jobs that were thought to have existed two months ago turn out to have been a chimera.


“The freeze gripping a swath of the U.S. threatens winter wheat planted in the fall,” says The Wall Street Journal, catching the drift. As such, we’re told wheat prices are up 13% in two months.

Never mind that the run-up in wheat -- and everything else -- has a rather longer history. Wheat’s lows came last June.



“Are we to believe,” asks GoldMoney’s James Turk, “that the market knew seven months ago that weather around the world today would be so bad that it would impact global wheat output?

“Obviously, given that commodity prices are rising across the board, we have to look for other factors that are causing this surge in prices. Just consider the money printing -- aka quantitative easing (QE) -- by central banks going on all around the world.

“QE is building up tremendous inflationary pressures in the pipeline of goods and services, which for months now has been showing up in the area most sensitive to monetary debasement, namely, commodity prices.

“The gathering monetary storm is far more important than the weather,” James says, “and there is one easy way to seek shelter -- buy physical gold.” James offers an unusually convenient way to do so. And Byron King has nine more suggestions you can use to profit from gold’s rise.


 Stocks are flat after the release of the employment numbers. Yesterday, the major indexes ended up in the green by the close. Among the stocks in the spotlight was J.P. Morgan Chase.

According to confidential emails just released as part of a lawsuit, senior JPM executives had big doubts about Bernie Madoff 18 months before he was outed as a fraud… but they decided to keep doing business with him anyway because, damn, the fees were just so good.

After the news came out, JPM stock went up.


Gold moved up the instant the employment numbers came out, presumably because that implies the Fed will keep its foot on the monetary accelerator. Right now the spot price is $1,355.

Gold shot up over $20 around lunchtime yesterday for no apparent reason. “Short covering” and “safe haven buying” were among the explanations offered, along with the convenient excuse of Egypt. For all we know, it was Charlie Sheen’s latest drunken antics.


Crude prices have firmed to $102.01 as traders keep a nervous eye on Egypt. That’s Brent crude, by the way, seeing as the American benchmark -- the West Texas Intermediate stored at Cushing, Okla. -- has become darn near irrelevant.

WTI sits at $91.18 as we write, and “the divergence is no mystery,” says Jeff Rubin, former chief economist at CIBC World Markets. “Unlike Brent crude from the North Sea, which can be shipped to refineries pretty much anywhere in the world, oil in storage at Cushing can only be absorbed by refineries in the U.S. Midwest.

“With nowhere else to go, WTI is not even an accurate barometer for oil prices in the U.S. market, let alone the global market. For example, the price spread between it and Light Louisiana Sweet on the Gulf Coast is as big as its spread with Brent.”

That’s because new crude from the Alberta oil sands is piling up at Cushing, often faster than local refineries can process it. This situation won’t change until TransCanada Corp. can connect its flow of crude to refineries on the Gulf of Mexico -- which won’t happen for another two years.

“There is going to be a bigger and bigger disconnect between WTI and global crude demand as more oil piles up at Cushing,” concludes Rubin. “As that happens, the oil industry and the investment community will look to Brent as the new benchmark for global oil prices.”


Heard around Washington: “I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U.S. monetary policy,” Ben Bernanke complained to the National Press Club yesterday when someone had the temerity to ask him a question about it.

“The most important development globally is that the world is growing more quickly,” he added.

Really. Didn’t Malthus believe something similar a couple hundred years ago? Well, At least he didn’t blame it on the weather.

“Emerging markets have all the [monetary] tools they need to address excess demand,” Bernanke says he believes.

For our part, we’re planning a trip to Colombia in March, where some money management friends have lined up a meeting with the Colombian Treasury. Among other questions we’ve forwarded to them ahead of schedule; “Just how much does U.S. monetary policy affect emerging markets in South America?” Stayed tuned for a firsthand account of the response.


And now, on this auspicious sporting weekend, we pause to ponder a one-of-a-kind stock that’s in perpetually high demand, despite the many things it has going against it…

  • It pays no dividend and never will

  • Its share price cannot appreciate (although private sales have been known to go for more than “face value”)

  • It will pay you nothing should the board of directors choose to sell or to cease operations.
And the coup de grace: Your share certificates don’t even entitle you to season tickets.



One of the two contenders in Sunday’s Super Bowl is a publicly owned nonprofit with 112,015 shareholders. The Green Bay Packers’ ownership structure -- unique in professional sports -- explains how a city of merely 101,025 people is home to an NFL franchise.

Well, that’s part of it. Here’s the other: Under the team’s Articles of Incorporation drafted in 1923, any profits from a sale of the franchise were to be donated to the Sullivan post of the American Legion to build “a proper soldier’s memorial.”

In other words, it was a transparent ruse to keep the franchise from moving back in a day when the NFL included teams like the Canton Bulldogs and the Muncie Flyers. (Today, the designated beneficiary is the Green Bay Packers Foundation, the team’s charity arm.)

There’ve been only three stock offerings -- in 1923, 1950 and 1997, the last one bringing in $24 million to finance a renovation of Lambeau Field.

But don’t get the wrong idea: Like the newer breed of NFL owners, the Packers have socialized their costs onto the backs of taxpayers; for the last decade, stadium operating expenses have been covered in part by a half-percent sales tax.


“Coffee prices just went up,” a reader informs us. “The Wawa had reduced a 16 ounce cup to a $1.00 a month ago. Guess what: It's back up to $1.36 again.

“What happens to us when eggs are $4.50 a dozen, milk is $5.00 a gallon (almost is) and gas is $6.00 a gallon? Heating oil of gas is at $1,000 a month.”

The 5: The way things are going, we’re all going to find out.


“I traded commodities about seven years ago,” writes another. “Now I am much wiser, I think, and would like to get back into them, seeing the food shortages, worldly disasters, etc.

“Who is your guy that handles that aspect of the market? I have searched through past emails from you and can't put my finger on it. Let me know because I want to subscribe to his service.”

The 5: That would be this guy:



The one and only Alan Knuckman of Resource Trader Alert, founder of OriginAl’s Chicken Ribs and perpetual Big Gulp aficionado.

Indeed, Mr. Knuckman has been right on and out front of the rising prices trend. As of this morning, RTA traders are sitting on open gains of 104% on wheat… 258% on soybean meal… even 480% on cocoa.

At the moment, membership is available only by telephone. Call John Wilkinson at (866) 361-7662. He can answer all your questions and get you set up right away.


“I work at the EPA,” writes a reader who takes issue with the tale of corruption contributed by another reader yesterday, “but that is not a requirement for knowing EPA does not keep its fines under most circumstances.

“Under some circumstances, fines can be directed to improve environmental conditions under a consent order informed by community input. Fines mostly go to the Treasury. That is pretty standard across the government.

“As useful as it may be for conspiracy theorists to assert that the gov'ment thug busting the poor businessman for an OSHA or Clean Water Act violation gets a kickback, it’s just groundless and born of ignorance. So for beginners, dispense with the corrupt officials argument.

“Try this on for size -- the laws and regulations to enforce a clean and healthy environment are so diluted by industry and business interests that the fines are too minimal to drive corrective behavior.”

The 5: And yet you’d argue they should be able to drive corrective behavior.


“What would happen if the Fed just burned all the Treasury securities that it now owns?

“Would the U.S. government now be in less debt? With fewer securities in existence, the price of remaining securities would go up and drive rates even lower.

“Apart from some double-entry bookkeeping (and our government is very good at that -- e.g., the unfunded Social Security Trust Fund), I think a fire in the Fed's vaults sounds like a plan!”

The 5: Oh man, don’t give them any more ideas!




"Byron is full of s&*t," our final contributor writes. “All this lithium crap, etc., is another scam to get investors screwed.”

The 5: Hmmn. Lithium? When did Byron discuss lithium? But far be it from us to interrupt…

“The most pollution-free solar energy is wind power,” the reader continues. “Every person on earth can collect its energy and, after initial costs, have all the energy he needs for free. No earth-destroying wind farms and electric grids needed.

“Let’s get rid of the bankster gangsters and their international campaign bribing corporations. Then every American can have his very own self-employed job. No more involuntary servitude. No more competing with Asian slave labor.

“Let’s restore America to its self-reliance and prosperity. All free energy collection designs are free for the asking. Powering your car, heating your house, generating your own electricity is free. It can be manufactured by real can-do Americans in every neighborhood in America.

“I dare you print this, you one world central government promoters!”

The 5: Heh. You forgot ‘free love,’ dude!

We’re not very fond of our own central government. Why would we want to foist one on the world?

(As a side note: You’ve made us reconsider our policy to publish anything we get “dared” to publish. We’re not afraid of any ideas, but Christ, at least try to be coherent.)

Have a good weekend,
Addison Wiggin
The 5 Min. Forecast

P.S.: “OK, OK, I agree with your readers’ praise of Byron King,” writes a charter member of the Agora Financial Reserve. “Suffice it to say that when Byron King recommends, I buy and buy and then I buy some more.

“For the love of the Almighty, keep him on staff, no matter what it takes.”

The 5: Uh… we’re hoping Byron is otherwise occupied in Toronto today and doesn’t read this issue of The 5. (Wink, wink.) Still, to your point: We know a good thing when we have it. For instance, shares of Cameron Intl. hit a 52-week high this week after some terrific fourth-quarter earnings.

“I told people to buy CAM after the BP blowout,” Byron wrote to us yesterday. “Buyers are up a cool 60% or so if they followed the advice.”

Because he was on this beat even before the Deepwater Horizon accident happened, Byron knew Cameron wasn’t at fault for its blowout preventer failing. BP had tinkered with it endlessly over the preceding 10 years. He also knew the market would eventually recognize their ‘innocence’… and that Cameron’s technology would be in high demand as offshore operators sought to beef up their safety measures.

Whether it’s energy or precious metals, Byron’s Outstanding Investments has you covered when it comes to the resource sector… and for a remarkably low price of entry. Here’s one of his favorite plays right now.


Reducing the Risk of Gold Exposure in a Portfolio Through Options

Posted: 04 Feb 2011 06:55 AM PST

There are many opinions on the direction of the price of gold. Some believe gold is in a bubble and will be below $1000 soon. Others think gold is the only true store of value and will be surging past $1500 in the not too distant future. There is of course no sure way to know which of these scenarios will come to pass. There is however, a lot of solid analysis that indicates having a long gold position in a portfolio is a good diversification strategy. (i.e. hopefully if equities and bonds pull back, gold will not)

If you believe in the positive diversification aspects of having gold in a portfolio, there are a few basic alternatives to gain gold exposure in your portfolio. Buying an etf such as GLD is an easy way to do that. Alternatively, there might be some merit in achieving this exposure via gold mining stocks such as the GDX etf. Either might work. However, options on these equities provide another approach to gaining exposure which might minimize the risk in the event of a fall in the price of gold.

There are two factors that are the basis for the options strategy described below.

  • That GLD and GDX will be highly correlated. A three year correlation, found on the web, indicated a .96, correlation over 3 years. The strategy below assumes a correlation of 1. As actually correlation varies from 1 it will impact the results (to either the plus or minus).

  • GDX


Complete Story »


Egypt is Just the Beginning for Gold’s Next Move

Posted: 04 Feb 2011 06:50 AM PST

By James West MidasLetter.com February 4, 2011 Watching CNN, its easy to be lulled into the sense that the cute little third world African country that is home to Cleopatra, mummies and pyramids is having a little revolution to get rid of a tired old tyrant. That the old goat is putting up such resistance to the national message is to be expected, and might be forgiven. Unleashing bands of paid thugs under the guise of 'supporters' reveals true brutality and illuminates the character of the man, Hosni Mubarak – a sociopath. This phenomenon, originated in Tunisia, a nation of 10 million, and now raging in Egypt, of 85 million has spread to Yemen, population 25 million and Jordan, population 6 million is no mere regional political shift: this is the beginning of America's loss of control over the region. That the democratic process even got a foothold in the tribal and historically despotically governed middle east is due to a series of historical power plays, and not so m...


LGMR: Gold & Silver Keep "Bernanke-Trichet" Gains, Western Investment Slumps Stalls

Posted: 04 Feb 2011 06:40 AM PST

London Gold Market Report from Adrian Ash BullionVault Fri 4 Feb., 09:10 EST Gold & Silver Keep "Bernanke-Trichet" Gains, Western Investment Slumps Stalls THE PRICE OF BOTH gold and silver bullion were little changed in London trade on Friday, unmoved by unexpectedly weak US jobs data near two- and 3-week highs respectively. Adding 36,000 net jobs in Jan., the US economy still saw unemployment slip from 9.5% to 9.0% as a growing number of "discouraged" people – no longer seeking work actively – fell out of the official definition. Major government bonds slipped as European stock markets rose, while Brent crude oil pushed above $101 per barrel. As the start of New York trade approached, the gold price for both Dollar and Euro investors neared its first weekly gain in five. "Counterbalancing factors [have] largely offset each other," says the latest gold market analysis from French bank – and London bullion dealer – Natixis. "Investment outflows and a drop in peripheral Europ...


Egypt is Just the Beginning for Gold’s Next Move

Posted: 04 Feb 2011 06:05 AM PST

By James West, MidasLetter.com

Watching CNN, its easy to be lulled into the sense that the cute little third world African country that is home to Cleopatra, mummies and pyramids is having a little revolution to get rid of a tired old tyrant. That the old goat is putting up such resistance to the national message is to be expected, and might be forgiven. Unleashing bands of paid thugs under the guise of 'supporters' reveals true brutality and illuminates the character of the man, Hosni Mubarak – a sociopath.

This phenomenon, originated in Tunisia, a nation of 10 million, and now raging in Egypt, of 85 million has spread to Yemen, population 25 million and Jordan, population 6 million is no mere regional political shift: this is the beginning of America's loss of control over the region.

That the democratic process even got a foothold in the tribal and historically despotically governed middle east is due to a series of historical power plays, and not so much to a nascent and organic inclination towards the idea of democracy. When oil emerged to become the most strategic substance on earth after the second world war, the United States, armed with the economic windfall from the war machine, set about toppling governments and seeding insurrection through the offices of the C.I.A., bolstering governments that were 'incentivized' to protect U.S. interests, and destroying those that were not.

Back then, before the light-sped connected world, the C.I.A. could operate with impunity, given the backwards communications systems in those days, and the relative lack of education of their targets.

It is unlikely Mubarak would have lasted as long as he did without overt U.S. support, and tacit Israeli support. Egypt and Saudi Arabia have been the two moderating influences in the volatile regional mindset that inclines naturally towards the harsh brand of Islamic orthodoxy that characterizes the rest of the region. There is deep resentment against the U.S. hegemonic strategy that has determined the current Middle East order.

That resentment, now finding expression in a unified regional protest, is transforming itself into a force of self-determination, and the Muslim brotherhood and Al Qaeda are most likely to recognize and capitalize on that force.

The implications for the United States, Saudi Arabia and Israel are seismic. This brand of revolution, that starts peacefully and ends up violent, is the archetypal early stage of total regional reorganization. This could be the first stage of an elevated conflict that would see a war ignite between Saudi Arabia and the rest of the Islamic region, where the outcome would be a dramatic rise in Islamic fundamentalism, as the Saudis would be accurately portrayed as the puppet of the decadent and imperialistic West and Egypt would fall to the Muslim Brotherhood, already the largest political opposition group in Egypt.

Algeria, Syria, Morocco, and other North African countries will begin to feel incrementally emboldened, and in theory, it mightn't be long before new strategic alliances with Russia and China tipped the balance of power towards and Islamist brand of socialism. China especially would welcome its chance to strengthen the financial dependency it already receives from the United States with a military dependency as well.

How many more active theatres of war can the U.S. afford to fight, considering its $14.3 trillion debt and feeble economy?

Obama has been upstaged by Egypt at exactly the moment when the plan was supposed to be to focus on the employment picture while shilling for the economic recovery. To find the dictatorship that has long been subsidized by successive White House administrations crumbling and sending oil and gold prices higher completely derails the script. Despite the White House and Hilary Clinton's feckless distancing from their long time ally (urging a 'peaceful transition to democracy'), the historic relationship and its bearing on the rise and staying power of the Mubarek regime will be amplified in the weeks to come. The outcome will be the widespread perception, both internationally and domestically, that the U.S. has been up to its old tricks and can't be trusted.

Though the issues play as superficially unrelated in the cooperative press, they are not. It is domestic grievances that ignited North Africa, it is domestic grievances that dog the Obama administration and the U.S. Federal Reserve. While the crushing poverty that plagues Egypt is only marginally present in the United States, the widespread deterioration in the standard of living that has affected the majority of Americans since 2008 is a substantial ratio of the population.

Like the collapse of the U.S. dollar now underway, the collapse of American influence in the Middle East is underway, and both are slow, long-drawn processes slowed by intermittent attempts, in both cases, to deter the inevitable.

Right now, its an all out effort to portray the Egyptian revolution as an Egyptian problem contained within that countries borders, with only look-alike conflagrations surrounding it. Just as there is an all-out effort to downplay the profound implications of the U.S. out of control debt and once again prematurely achieved borrowing limit.

Gold is, as is its historical habit, starting to throw off the cumbersome shackles of futures market derived negative price influence, and reasserting its role as the only trustworthy barometer of both political stability and monetary integrity. Since both of those are now in advanced stages of disability, there is renewed impetus behind gold demand now that is probably stronger than at any point in its ten year bull market rise.

There are more U.S. dollars, less U.S. GDP, less security in the Middle East, less security in Iran, no security still in Afghanistan, diminishing security and stability in Pakistan.

Japanese debt has been downgraded, and U.S. debt is threatened. The jobs data and consumer spending data coming out of the United States are weak and insubstantial, and bank failures continue apace. GDP growth was negative in the U.K, there is 25% unemployment in Spain, and without China's intervention, the debt auctions of both Portugal and Spain would have been utter failures.

Commodity prices are ratcheting upward, and the price of gasoline remains at all time highs.

If that isn't gold price positive, I don't know what is.

MidasLetter Premium Edition identifies 5 stocks on the first Sunday of each month from the TSX Venture Exchange that are expected to double within 12 to 18 months, 9 out of 10 times, or your money back. Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.

Silver Shortages Continue According to Pan American CEO

Posted: 04 Feb 2011 06:00 AM PST

With silver closing over $29 today, King World News interviewed the head of one of the largest silver producers in the world, Pan American Silver CEO Geoff Burns. When asked if he was hearing anything regarding continued reports of shortages in the silver market Burns stated, "Really only anecdotally.  I have heard that the end users on the commodity side are having trouble locating silver.  I have heard that through a couple of traders who have proven to be reliable sources."


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Copper shoots above $10,000 on US data

Posted: 04 Feb 2011 05:47 AM PST

Friday, 4 Feb 2011 (Reuters) — Copper shot decisively through the $10,000 a tonne barrier on Friday after data from the United States showed the jobless rate tumbled and employment in the manufacturing sector surged.

The industrial metal — widely used in the power and construction sectors — hit $10,095 a tonne, a gain of more than 65 percent since June 2010 when markets feared sovereign default in the euro zone could derail global economic growth.

… The United States is the world's second largest consumer of copper, accounting for about 15 percent of global demand estimated at around 21 million tonnes this year.

China, accounting for nearly 40 percent of global demand, leads the pack.

Analysts said copper's bounce through $10,000 showed investors were still piling into the metal expecting higher prices because of supply shortages and market deficits.

[source]

RS View: Those proportions cited for copper should add to your perception that the future for gold is not ultimately couched in the United States, but rather will be driven by China (and India…)

Eric King: Gold mining acquisitions to continue

Posted: 04 Feb 2011 05:24 AM PST

1:19p ET Friday, February 4, 2011

Dear Friend of GATA and Gold:

Reflecting on Newmont Mining's acquisition of Fronteer Gold, Eric King of King World News observes today that a bull market in gold that has much longer to run will make such mergers look good eventually. King's commentary is headlined "Gold Mining Acquisitions to Continue in 2011 and 2012" and you can find it at King World News here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/2/4_Gol...

Or try this abbreviated link:

http://tinyurl.com/4ctta4g

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


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Prophecy Resource Spins Off Platinum/Palladium Venture:
World-Class PGM Deposit in Yukon

Company Press Release, January 18, 2011

VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.

PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.

Following the transaction:

-- Prophecy will own approximately 90 percent of PCNC.

-- PCNC will consolidate its share capital on a 10 old for one new basis.

-- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.

-- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.

Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.

For the complete announcement, please visit:

http://prophecyresource.com/news_2011_jan18.php


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Glendale, Arizona

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit, Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf

Is Another Banking Crisis Inevitable?

Posted: 04 Feb 2011 05:07 AM PST


Today, Bloomberg reports that Goldman Sachs Turns Bullish on Europe Banks as Debt Risk Eases.The report goes on to state:

The U.S. bank that makes the most revenue from trading advised investors to take an “overweight” position on banks, raising its previous “neutral” recommendation, according to a group of equity strategists led Peter Oppenheimer. Investors should pay for the trade by lowering holdings of consumer shares, he wrote.

“For financials the narrowing of sovereign spreads in peripheral eurozone, which our economists expect to continue, is a clear positive,” London-based Oppenheimer wrote in the report dated Feb. 3. “Banks are one of the least expensive sectors in the market and the trade-off between their growth prospects and earnings in the next few years looks especially attractive.”

Unfortunately, the risks of this particular trade were not articulated, and I feel that the risks are material. Far be it for me to disagree with the “U.S. bank that makes the most revenue from trading”, but they have been wrong before – many times before. Reference Is It Now Common Knowledge That Goldman’s Investment Advice Sucks??? or Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? for more on this topic.

 

So where is the risk?

The impact of the Asset Securitization cum Sovereign Debt Crisis to bank balance sheets should become the market and media focus. The full cost of cleaning up the balance sheets of financial institutions particularly against the backdrop of adverse macro shocks emulating from sovereign defaults is not fully known. Structural weaknesses in sovereign balance sheets could easily spill over to the financial system due to the fact that most banks are stuffed to the gills with sovereign debt – highly leveraged, and marked as risk free assets at par. This can have broad, adverse consequences for growth in the medium term.

Since banks balance sheets are still highly vulnerable to external shocks with precedent setting levels of NPAs, particularly from an economic perspective (as opposed to an accounting perspective which is what is commonly followed) a sovereign crisis [read as defaults/restructurings] could cause equity wiping holes in banks’ balance sheets. Overall, NPA’s to bank loans (world average) have increased to 7.6% in 2010 from 5.9% in 2005. Greece’s NPA-to-loans has increased to 9.0% from 6.3%, Hungary to 7.8% from 2.3%, Spain to 5.5% from 0.8%, Romania to 17.5% from 2.6%, Central and Eastern Europe to 11.5% from 4.5% and US to 10.3% from 0.8%, in the corresponding period. Elevated NPA levels which already pose a threat to banks loan losses coupled with sovereign risks losses could result in massive write-downs on investments in banks trading (AFS – available for sale) and banking books (HTM – hold to maturity). A common shenanigan used both in Europe and the states is to shift the most problem assets from the AFS category where they are more rigorously marked to market to the HTM category where they are considered kosher because they are allegedly to be held to maturity. The issue is, if there is a default or restructuring, they are worth materially less – no matter how long they are supposedly held for. This valuation his is multiplied several time since it is banks business models to leverage up on these securities to increase yield.

Banks NPAs to total loans

Source: IMF, Boombust research and analytics

Euro banks remain weak as compared to their US counterparts

Health of European banks is weaker when compared to US banks. European banks are highly leveraged compared to their US counterparts (11.1x versus 4.1x) and are undercapitalized with core capital ratio of 6.5x vs. 8.5x. Also, the profitability of European banks is lower with net interest margin of 1.2% compared with 3.3%. However, non-performing loans-to-total loans for European banks are slightly better off when compared to US with NPL/loans at 4.9% vs. 5.6%. Nonetheless, considering the backdrop of high exposure to sovereign debt in Euro peripheral countries, we could see substantial write-downs for Euro banks AFS and HTM portfolio, which would more than offsets the relative strength of loan portfolio.

EURO Stress Test Rebuffed, Again

The OECD working paper “The EU stress test and sovereign debt exposures” by Adrian Blundell-Wignall and Patrick Slovik rebuffs the EU stress test, as we have several times in the past. The argument in the white paper echoes BoomBustBlog view that accounting policies allows banks and financial institutions to mask their true economic health. An asset that has declined in value leads to economic loss irrespective of its classification as held-to-maturity or held-for-trading, but accounting policies allow banks to mark down only their trading portfolio to the current market value while leaving a large chunk of held-to-maturity at book value even if said asset loses 50% in value that would take years to recover, or the bank could be presented with the very distinct possibility that there may be no recovery of said value loss. The former event (of recovering back to book value) would mask the true economic picture at a given snap shot of time while the latter (no recovery) is more of time shifting distortion wherein current profits are inflated for future losses.

Coming back to the EU stress test, the paper contends that by focusing only on the trading book exposures, the EU stress test gave a rosy picture of banks true health.

•     Sovereign bond haircuts were applied only on the trading book holdings with implicit assumption that bonds held to maturity will receive 100 cents in the euro. This assumption severely understates the banks losses as 83% of banks investment portfolio is in banking books in form of held-to-maturity assets while only 17% of assets are held in trading portfolio. In case of sovereign default, the distinction between the banking book and the trading book simply disappears. By considering only a smaller component of banks investment books, EU stress tests have severely undermined the estimated write-downs on banks books and have given rosy picture about banks true health. The logic of said methodology is that with the EU/ECB/ EFSF SPV (basically, a giant new European CDO) backing, no sovereign state will be allowed to default.

•     Second, and more importantly, the market is not prepared to give a zero probability to debt restructurings beyond the period of the stress test and/or the period after which the role of the EFSF SPV comes to an end.

o   The assumption of no default over 2010-2012 appears reasonable given that the EFSF is made up of a €720bn lending facility (€220bn from the IMF; €60bn from the EU; and the SPV can build exposures for 3 years to the limit of €440bn for the 16 Euro area countries) which provides a guarantee of funding for any countries facing financing pressures, certainly for the next 3 years.

o   However, the concerns in the market beyond 2012 are: the longer-run fiscal sustainability problem; and the difficulty of achieving structural adjustments in labor and pension markets and ability to achieve a sustainable growth in a period of budget restraint. The fear is that this will not be resolved by the time the support packages run out, and hence the probability of restructuring may not be put at zero by portfolio managers. Angela Merkel has recently announced her willingness to spearhead several common nation reforms to put the EU block of nations on heterogeneous footing in regards to regulation, debt management etc. This will go a long way to solving the problem at hand, but will also put significant strain on several of the weaker nations, again exacerbating the probability for restructuring to bring said nations in line with their stronger counterparts.

Impact of bank’s banking books on haircuts

EU banking book sovereign exposures are about five times larger than trading book. The table below gives sovereign exposure of major European countries for both trading and banking book. The EU trading book has €335bn of exposure while banking book has €1.7t exposure towards sovereign defaults. EU stress test estimated total write-down’s of €26bn as it only considered banks trading portfolio. This equated to implied haircut of 7.9% on trading portfolio with losses equating to 2.4% of Tier 1 capital. However, if the same haircuts (7.9% weighted average haircut) are applied to banking book then the loss would amount to €153bn equating to 13.8% of Tier 1 capital.

We have also presented an alternative scenario since we believe that EU stress test had failed not only to include banks HTM books but also the loss estimates were highly optimistic, as has much of the economic and financial forecasting that has come from the EU. It is highly recommended that readers review Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! for a detailed view of a long pattern of unrealistically optimistic forecasting. Here’s and example…


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Revisions-R-US!

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In an alternative scenario, we have assumed weighted average haircut of 10% (exposure, haircut assumptions and writedowns for individual countries are presented in detail in the tables below) and have applied writedowns on both banking and trading books with the results available in the subscription document File Icon The Inevitability of Another Bank Crisis? Individual and more explicit haircut calculations are available for the following nations for professional and institutional subscribers:

Interested readers can follow me on twitter and review our latest European opinion and analysis. I will be lecturing on this “realistic” style of analysis as the special guest speaker at the ING Real Estate Valuation seminar in Amsterdam. See www.seminar.ingref.com.

Governments Struggle to Stand Still

Posted: 04 Feb 2011 05:04 AM PST

Facebook didn't even exist until 2004. Maybe it's just a fad. But it is a fad that the financial markets value at $50 billion. Mark Zuckerberg is now one of the richest men in the world. If he stole the idea, he is one of the most successful thieves in history. Google is another parvenu. It was created in 1998. Now it is worth $197 billion. Yahoo!, founded in the middle of the Clinton years, is worth $20 billion. eBay, which set up shop about the same time, has a market value of $40 billion.

Capitalism is a process of "creative destruction," said Joseph Schumpeter. New wealth is created. Old wealth is destroyed. Unless the feds can make time stop, these great successes of today will be the great failures of tomorrow.

The "crisis in capitalism" is now in its 5th year. But where's the crisis? Capitalism responds to demands that haven't even been invented yet. We didn't know we needed a Facebook, for example, and there it is. Whole new industries are growing up, worth trillions of dollars, with hundreds of thousands of well-paid employees, high margins and rapid growth rates. Capitalists are taking trillions of dollars from old businesses and re-allocating it to new ones. Emerging markets have grown 85% in the last 5 years, while mature markets have been flat. According to a McKinsey study, global investment is expected to jump from $11 trillion this year to $24 trillion in 2030 – with most of the money going to market economies that didn't even exist 30 years ago.

Capitalism is destroying fortunes too. In the US household sector alone, some $7 trillion has been taken off housing values since 2006. And in the corporate sector, in terms of gold, US stocks have lost 80% of their worth over the last 10 years. The world's erstwhile biggest automaker, GM, would have gone broke if it had been allowed to do so. Many of the planet's biggest and most prestigious financial institutions would have been demolished too. We will never know for sure. Because just as capitalism was getting out its wrecking bars and sledge hammers, it was called off the job.

The financial crisis that began in 2007 was widely, and intentionally, misunderstood. People who were paid not to see it coming earned even more pretending to see it go away. Bankers, for example, made billions in fees for promiscuously mongering debt during the bubble years. Then, when the itching and soreness began, they profited from the quack cures. It was a "liquidity" problem, they said; "give us more money and the economy will recover!"

Politicians were happily bamboozled. They mislabeled the problem a "failure of capitalism." Very convenient for the leveraged speculators capitalism was about to destroy. And very convenient too for the central planners who wanted to bring it under control. In 2009, magazine, for example, named Ben Bernanke its #1 Top Global Thinker, for his role in staving off another Great Depression. Without Bernanke's decisive rescue, bankers who lent imprudently would have lost their jobs, failed economists would be parking cars, reckless investors and fund managers would have gone broke. Trillions in unpayable debt would have been written off. But thanks to Bernanke it's still there! Thanks a lot.

First, the US Fed bought the banks' bad mortgaged-backed securities – about $1.5 trillion of them from all over the world. Fiscal policies worldwide contributed $2.3 trillion more to the bailout. Altogether, the bill came to more than $7 trillion – not including the trillions in free money that came from central banks' lending below the inflation rates – only to the big banks, of course.

The fix is in. And who knows how long it might go on? The Irish bail out their banks. The Europeans bail out the Irish. The Chinese bail out the Europeans. The Chinese bail out the Americans too, who also bail out the European banks. It doesn't matter how broke you are. You can still be bailee or bailor. There seems to be no end to it. Why else would investors lend to the US government for 10 years at only 3.41%? Or to the Japanese government – with debt to GDP of 200% – at just 1.23%? As long as the money keeps flowing, insolvency has no meaning.

Government hates change. When a stranger comes to town, it calls the cops. That is its role, to protect the elites who control it. But adjustments need to be made. The US government alone faces a financing gap of more than $200 trillion. Every day the sun still rises. By the time it sets, another $4 billion has been added to America's debt. But only phony "reforms" are put forward; Barack Obama's proposed budget cuts would only reduce the US deficit by 3%.

The feds resist change. But change happens anyway. Were it not so, the Hohenzollerns would still be in power in Prussia, the Ottomans in Istanbul, Pharaohs would still rule the Nile and the Moguls would still sit on the peacock throne in India. And what happened to the Romanoffs, the Habsburgs, the Bourbons, the First Republic, the Second Republic, the Third Republic, the Forth Republic…the First Reich, the Second Reich, the Third Reich? Like dodos and dinosaurs, they did not adapt. They went extinct.

Regards,

Bill Bonner
for The Daily Reckoning

Governments Struggle to Stand Still originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

Food inflation and QE2: the correlation is undeniable

Posted: 04 Feb 2011 05:00 AM PST

Experts can argue all they want about the causality relationship between food inflation and the Federal Reserve's second round of quantitative easing (QE2). What cannot be denied, however, is the correlation. Indeed, ever since QE2 was clearly signaled by the Fed, the price of food commodities surged.

[source]

PG View: This International Business Times article nicely tips-in the assertion I made in today's Morning Gold Report.

Chinese Gold Buying: All Part of the Plan…

Posted: 04 Feb 2011 04:41 AM PST

The Daily Reckoning

Jobs, jobs, jobs… That's the Big Kahuna to a lot of our problems regarding the meandering economy. Yes, there are signs that the economy is improving, and job creation is improving… But, we've got a long hard row to hoe here, folks… And for a group of people who have been so used to having things handed to them, you've got to wonder if the "will" is there… I mean, the government keeps sending them checks, right? I'm not trying to be mean, here… I'm simply stating that to get back to a thriving economy, we've got a lot of hard work to do…

So… The forecast for January jobs created was updated yesterday, and now shows that the experts believe that 145,000 jobs were created in January… Not exactly the stuff that strong economies are made of, but… It's a sign that it's improving…albeit at a snail's pace.

Today, the currencies will be driven by the markets' reaction to the Jobs Jamboree… Yesterday, the euro (EUR) had the trap door sprung underneath it, while most of the other currencies traded in a tight range. Two days ago, we were looking at a euro with a 1.38 handle, and today, the handle is 1.36… But, that's the way of a currency that has so many pulls on it…. It has the pull of being the offset currency to the dollar… It has the pull of being a currency that is racked with a debt crisis… It has the pull of being the currency of Europe, for it is perceived that how the euro goes, so goes Europe…and so on. So, one day, you can see a nearly 2-cent gain like we did on Tuesday, and the next day you can see a nearly 2-cent drop like we did yesterday.

I have a conspiracy theory on this… So if you don't want to hear it, simply skip to the next paragraph… OK… Everyone and their brother knows about the Eurozone periphery countries' problems… It's not like these things crop up new. The so-called PIIGS were first brought to our attention 1.5 years ago! So, why then, when a country like Ireland – one of the PIIGS – gets a credit rating downgrade, does it send the euro to the woodshed, when we've known for 1.5 years that stuff like this was going to happen? I personally believe that the US government directs the media to make a fuss over it, which then drives trader direction… Yes, I've told you that the US government wants and needs a much weaker dollar, but, they don't necessarily need it right here, right now… So, In my conspiracy theory mind, I believe that whenever it looks like the dollar is about to take a ride on the slippery slope again, the government directs the media to "come up with something" which will change the direction of the dollar, for a short time…

OK… As I said above, the euro dropped yesterday, but most of the other currencies range-traded, which means they did not sell off like the euro. At one point in the day, I looked up, and noticed that gold had turned around… I yelled out to the boys and girls on the trading desk that gold had just moved $20 in 10-minutes! WOW! I joked, semi-seriously, that gold must have reached a low enough price to entice the Chinese to buy! I mean who else could buy enough gold to move the price that quickly and by that much?

In 2009, China took delivery of 209 tons of gold… They are quickly becoming the largest holder of gold, passing India… Why are they amassing so much gold? Ahhh grasshopper, here's another thought that's way out on the limb but not as conspiracy driven… I mean, we do have the proof that China is hording gold these days… Well… This is what I told the interviewer from the Street.com (Alix Steele)… I truly believed that this gold buying (and silver!) was just another step in China's plans to have their currency front and center in the world in a few years… Their goal, when they signed the currency swap agreements with other countries, was to 1. Remove dollars from the transaction, and 2. Gain a wider distribution for their currency… Now… The baby steps that China is taking to get their currency used by more people will get a HUGE boost should they decide to float the renminbi (CNY), since they back it with gold and silver! Talk about making your currency ATTRACTIVE! The hard money investors of the world would flock to renminbi…

Now Alix Steele asked me a good thoughtful question when I told her that… She asked me if there was enough gold in the world to sufficiently back the renminbi? Ahhh… I said, this is why I believe China will also use silver, making their currency backed by a combination of gold and silver. I could be so far off base here, but I don't think so… To me, this means that gold and silver will be underpinned going forward… Sure they could slip further, but in my heart of hearts, I believe that China will be there to support the price of gold and silver by buying at the cheaper levels… And if this looks as though it's about to come to fruition, then the price of gold and silver will skyrocket, for everyone will want to get in on the action!

OK… That's Chuck's views on gold, silver, the renminbi, and China's plans… Shoot holes in it, but do it nicely…

Earlier in the week, I talked about a renewed enthusiasm for risk… I do believe that's being played out right before our eyes with the so-called safe haven Swiss franc (CHF), seeing weakness for the first time in weeks, and currencies like Aussie dollars (AUD), and even as far flung as the Mexican peso (MXN), getting a ton of air play. I mean, I've said this before, but Australia, has been rocked this summer by floods, and then a cyclone that was nearly the size of the 48 contiguous US states! But… the Aussie dollar continues to gain versus the dollar.

And what about that Mexican peso? Ahhh grasshopper, this is where the "silly money" goes… You've heard of the youngsters "drunk dialing"… Well, investors in Mexico are drunk dialing, for there is no risk premium to protect people from the things that can happen to investments in Mexico… In 1994, for instance, Mexico had a fixed exchange rate system that accepted pesos during the reaction of investors to a higher perceived country risk premium and paid out dollars. However, Mexico lacked sufficient foreign reserves to maintain the fixed exchange rate and was running out of dollars at the end of 1994. The peso then had to be allowed to devalue despite the government's previous assurances to the contrary, thereby scaring investors away and further raising its risk profile.

I was the currency and foreign bond trader at Mark Twain Bank in 1994, and had traded a ton of the Tesobonos, which were Mexican bonds denominated in pesos, but indexed in dollars… I remember investors screaming bloody mercy when Mexico devalued the peso… And this wasn't the first time Mexico had left investors holding the bag, and I don't know what would stop them from doing it again! So… Be careful here… Don't get caught drunk dialing…

On the northern end of the NAFTA countries… Canada will also print jobs data today. You might recall that last month, Canada's job creation was surprisingly strong… Well… I'm going to say that I believe that this month Canada will again print an upside surprise in job creation. Someone asked me the other day, just how strong I thought the Canadian dollar/loonie (CAD) could get… I turned it around, and asked how high they thought the price of oil would get? For it's my opinion that the loonie has really turned into a petrol-currency… Now, it's true that the Canadian government usually goes into convulsions when the loonie trades past parity. But with soaring oil prices kicking the inflation meter up a couple of notches, the Canadian government will allow the loonie to get stronger to offset the inflation pressures… But how strong? Well, in November of 2007, the loonie traded to $1.1040… So… I would use that as a guide… But then, if the price of oil drops, the loonie won't even get to smell what November 2007 was like!

OK… Yesterday I rambled on and on about rising inflation pressures… And rightly so… But a good friend and old colleague, Ed, sent me a note, and reminded me that inflation isn't the cause of all price increases… And of course he is correct, for I tell you all the time about the saying that my dad would tell me: "there's no such thing as a shortage, it's something that's merely in need of a price adjustment"… So, as food shortages continue to show up, the prices are adjusted upward, which is causing a lot of pain in parts of the world…

The other "big meeting" today, other than the Jobs Jamboree, will be the European Union (EU) Summit… The heads of states will meet and discuss important matters…or so they say… EU President van Rompuy indicated earlier this week that today's summit would set a "clear path" for resolving the sovereign debt crisis… Yeah, and cows jump over the moon! I guess we'll hear what van Rompuy has up his sleeve around noontime today… I doubt it's anything and will be akin to Bullwinkle saying, "Hey do you wanna watch me pull a rabbit out of my hat? Nothing up my sleeve…"

Then there was this… I found this in the FT…

Based on unemployment forecasts by the Congressional Budget Office and the Federal Reserve, it is becoming clear that this round of quantitative easing in the US is doing its job, according to The Economist. "With QE2 in place, American unemployment is likely to be between 6% and 7% in 2012," the magazine notes. "That's not full employment, but it's pretty close… A big risk is that the Fed will back away from its policy too quickly, thinking all is going well and worrying preemptively about inflation."

WOW! Are these guys living on Fantasy Island or what? First, I would dispute that QE2 had done anything except to prop up the stock market, and second, do they truly believe that the Fed will back away too quickly? I don't… Not in any sense of my imagination!

To recap… The euro is dragging the line today, after selling off nearly 2-cents yesterday, in a harsh reaction to Ireland's credit rating downgrade. Most of the other currencies range-traded on the day, and are not selling off like the euro. It's a Jobs Jamboree Friday, both in the US and Canada. And the renewed enthusiasm for risk is really getting far flung, as the Mexican peso rallies, alongside the Aussie dollar!

Chuck Butler
for The Daily Reckoning

Chinese Gold Buying: All Part of the Plan… originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

More articles from The Daily Reckoning….

Why Food Prices Must Go Up

Posted: 04 Feb 2011 04:41 AM PST

The Daily Reckoning

Since, being as melodramatic as I can be, all is lost, there is nothing that can be done, except for the government(s) to come up with plans for some new Big Screw Jobs (BSJs) with which to forestall the Big Ugly Inevitable (BUI).

This is the take I get on a Bloomberg article that starts off with, "Speculation and price swings in agricultural markets may threaten food security, 48 farm ministers meeting in Berlin said a month after a United Nations gauge of global costs reached a record."

There was, alas, nothing in the report about how The Courageous Mogambo (TCM) was there, and who cried out, in his outrage and his grief, "That's because you morons are all printing money and deficit-spending like it is some kind of freaking virtue or something! Milton Friedman said, and history has proved, that inflation is always and everywhere a monetary phenomenon, which, if you don't understand English, means you must have somebody who does savvy the lingo translate it into whatever indecipherable gibberish you people call a language so that maybe you morons will learn something and stop saying such stupid things! Now, open this door so I can come in there and REALLY tell you all what a bunch of lowlife socialist halfwits you are!"

Instantly, there were, of course, quizzical looks at my concluding reference to "socialists" since, up to that point, the whole conversation was merely about how the prices of food are rising ominously, although nobody mentioned the rises in the prices of energy and taxes, which are as bad or worse!

And although nobody actually said anything to me, I knew what they were thinking. I always know what they are thinking.

They were thinking to themselves, "Nobody said anything about anything socialist! This raving lunatic Mogambo is always ragging on socialists and communists and aliens from outer space and invisible helicopters full of invisible government goons always hovering over his house, shooting some kind of thought-control waves into his stupid head, explaining why he wears that stupid tinfoil hat, but not explaining why he has crumpled the aforesaid tinfoil into what appears to be a snazzy Viking helmet, replete with horns!"

I was intending to make a snotty remark about how I noticed that none of THEM was wearing a tinfoil hat and how none of THEM was buying gold, silver and oil as protection against the raging inflation in prices that is caused by the Federal Reserve creating So Freaking Much Money (SFMM), even when the horror of the latter proves the wisdom of the former.

And Doubly Especially So (DES) when the torrent of new money is borrowed by the government and used for new, obscenely high-and-getting-higher deficit-spending, a pathetic tragedy made "necessary" by the fact that, nowadays, half – half! – of all spending in the Whole Freaking Country (WFC) is government spending, as gigantic wads of money are spent on a long and growing list of things and people that are getting more expensive to maintain because the Federal Reserve is creating So Freaking Much Money (SFFM) that the prices of everything, including supporting them, are going up, and how everyone who can't see that obvious fact is a Big Fat Moron (BFM)

So, there I was, marshaling my forces for a Legendary Mogambo Onslaught (LMO) against such socialist monetary stupidity when, fortunately, it did not come to that, and I was completely vindicated by French Agriculture Minister Bruno Le Maire saying, "There is a risk of more food riots unless the surge in prices is contained, including through trading regulations"!!!

Those concluding three exclamation points were added by me as both indicating that this, indeed, was pure socialist crap (and with a vicious police-state undertone to boot!) and to say, "Up yours!" to those who thought I was wrong! Containing prices! Trading regulations!

The German Agriculture Minister Ilse Aigner piped up to say that "Food markets may not be the object of gamblers," which is a huge, industrial-sized load of hoo-hah (and which I think is translated into German as "Grosseloadacrap," but I am not sure) because Every Freaking Thing (EFT) that I can think of is, somewhere, by somebody, a leveraged bet of some kind, thus literally defining Every Freaking Thing (EFT) as "the object of gamblers"!

Hell, somebody ought to tell this Aigner character that the sheer, monstrous size of the derivatives market – alone! – is at least four times bigger than global GDP, for crying out loud, and which are all (theoretically) bets, which makes a complete mockery of whining about betting on the prices of commodities!

So, commodities, out of all things, should not be the object of gamblers? Hahahaha!

The rationale is, of course, that "Food and agricultural commodities are not like anything else. Sometimes it's about pure survival," meaning that people starve to death when they can't afford to buy any real food, even to augment their grubs-and-roots diet, because the price of food has gone up so high, which it does because prices Always, Always, Always (AAA) go up when the money supply expands so much so fast, like it is now with the Federal Reserve creating so much money, so incredibly much money, so impossibly much money, so outrageously much money that prices Must, Must, Must (MMM) explode upward.

This is seemingly proved when you mystically combine Always, Always, Always (AAA) with Must, Must, Must (MMM) to get MAMAMA, the person for whom you will be crying out, begging her to take you back home to live at her house, perhaps live in her closet, or for her to somehow come back to life after being dead all these years, get a mortgage, buy a house and THEN let you live with her, all because you lost your stupid butt by foolishly ignoring The Mogambo's advice, the lessons of the Austrian school of economics, Milton Friedman, and 4,500 years of history, which I helpfully distill down to its investment essence: Buy gold, silver, and oil stocks, pronto!

The Mogambo Guru
for The Daily Reckoning

Why Food Prices Must Go Up originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

More articles from The Daily Reckoning….

The Bullion Bulls Basket

Posted: 04 Feb 2011 04:40 AM PST

By Jeff Nielson, Bullion Bulls Canada

As we educate our readers on investing in precious metals mining companies, a common theme in our message is that investors must own/hold a "basket" of these companies. This criterion is based upon several factors.

As is the case in many sectors, "high growth" is only available via investing in the smaller mining companies – the "junior miners". Conversely, while these smaller companies offer vastly superior growth profiles versus the "seniors", the trade-off is that (naturally) there is increased volatility with these companies, and risk.

This "risk" comes in two forms. There is the absolute risk that any particular miner might fail to succeed, and will saddle its investors with long-term losses. The other aspect of risk is with respect to the rate of development of these companies. With their more speculative nature, even the expert analysts in this sector cannot predict with precision the speed with which these companies will develop.

Holding a basket of these junior miners addresses both of these categories of risk. Spreading out our investments among more companies, greatly reduces the impact of any one "loser" on our overall performance. Similarly, by spreading out our "bets" among these companies we also address the second form of risk – the amount of time we must wait before the investment potential of a particular company is realized. By holding a number of these companies, we will (hopefully) always manage to pick a few of those miners who manage to excel over the short term.

This variable rate of performance among our holdings provides us with additional opportunities to improve our rate of return. With companies which have "outperformed" over the short term, we can take some profits. In turn, with this new capital we can (if we choose) reinvest those profits in our miners which have lagged in performance (assuming we expect them to "catch up" with their peers), or simply add a new prospect which has caught our eye. Thus, by holding a basket of these miners, and actively managing our portfolio we can greatly improve our long-term return, while minimizing the amount of risk we must incur.

Let me take a moment to qualify this advice. As I also state regularly in my writing, contrary to the message from most experts, "buy and hold" is not "dead" as a strategy when it comes to the precious metals sector. When financial advisors claim that buy-and-hold is "dead", this is nothing less than an admission on their part that they don't know what will happen in markets in the future.

Sadly, these "experts" could have saved their clients $100's of billions in losses if they had merely confessed to their collective ignorance before the Crash of '08. Conversely, while the holders of these precious metals juniors were also ambushed by that crash, their portfolios have not only recovered all of those horrific losses, but generated fat profits for those astute enough to be holding these companies.

The message here for more conservative investors is if a basket of these junior miners could not only survive but thrive after the Crash of '08, then rather than being "risky", a portfolio of these resilient equities is a safe and conservative strategy for buy-and-hold investors.

Naturally, as we advise our readers of this strategy again and again, a request which we receive with increasing frequency is "help us in creating our own baskets of companies". It is in response to that interest that we are putting out our first feature on a "Bullion Bulls Basket".

First, a few words of explanation. Without understanding the particular needs/objectives of any individual investor, it is impossible to say (generically) whether any particular "basket" of companies is suitable for their own portfolios. Thus the names and information presented here are purely for educational purposes – as illustrative examples.

More articles from Bullion Bulls Canada….

US Mint Sales: 2011 Silver Proof Sets Debut Above 209K

Posted: 04 Feb 2011 04:39 AM PST

The newly released 2011 Silver Proof Sets debuted above 209K, while older numismatic products remained mixed in the latest United States Mint sales figures.
Additionally, and on the bullion front, more American Silver Eagle coins were purchased in the last days of January, which created a new all-time monthly record of 6,422,000.
The best-ever month for [...]

2011 Silver Eagle Bullion Coins Shatter Monthly Sales Record in January

Posted: 04 Feb 2011 04:39 AM PST

American Silver Eagle bullion coins are off to a stellar start in 2011, registering monthly sales never before seen in the history of the program. 6,422,000 of the .999 fine silver coins were ordered by authorized dealers during January 2011, according to United States Mint sales figures.
Not only did the monthly sales attain the new [...]

James Turk: The real reason for rising commodity prices

Posted: 04 Feb 2011 04:39 AM PST

10:36a ET Friday, February 4, 2011

Dear Friend of GATA and Gold:

Recent bad weather isn't driving commodity price inflation, Freemarket Gold & Money Report editor James Turk writes. Rather, he argues, the cause is worldwide money printing, which has driven commodity prices up for a decade. Turk's commentary is headlined "The Real Reason for Rising Commodity Prices" and you can find it at the Freemarket Gold & Money Report Internet site here:

http://www.fgmr.com/real-reason-for-rising-commodity-prices.html

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

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

Cheviot Sound Money Conference presentations on video

Posted: 04 Feb 2011 04:39 AM PST

10:40a ET Friday, February 4, 2011

Dear Friend of GATA and Gold (and Silver):

Videos of the presentations to Cheviot Asset Management's Sound Money Conference at Guildhall in London on January 27 have been posted at the Cheviot Internet site. Among them are the presentations made by GoldMoney founder and GATA consultant James Turk, Hugo Salinas Price of the Mexican Civic Association for Silver, and your secretary/treasurer. You can find them and the rest here:

http://www.cheviot.co.uk/sound-money-conference/presentations/introducti…

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

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
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