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Thursday, February 17, 2011

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MIKE FARRELL: Not Just Madoff, It’s “Everybody”

Posted: 17 Feb 2011 06:41 AM PST

Everything Screwed Up and Nobody Goes to Jail…now you know the rest of the story! by Mike Farrell Matt Taibbi has a new piece in Rolling Stone that discusses why we've yet to see anyone go to jail as a result of the various pieces of nonsense leading up to the financial meltdown. It's an interesting [...]

Turk: Massive short squeeze underway.

Posted: 17 Feb 2011 06:04 AM PST

James Turk - Short Squeeze in Silver Could Be the Big One

With silver closing at a new multi-decade high, King World News today interviewed James Turk out of Spain. When asked about silver specifically Turk stated, "I always listen to what the market is telling me. The backwardation and all of the other factors that we have been talking about mean that the market is telling us the situation in silver is very bullish, regardless of what the naysayers are spouting."

We are at a new multi-decade high, silver is still in backwardation, Comex open interest has been expanding and perhaps most importantly, I refer to the insight Dan Norcini provided in the KNW Weekly Metals Wrap, namely that silver is trading above all of its important moving averages.

The most reliable principle in investing as well as trading is to follow the trend. Commodity traders like to say, "The trend is your friend" and as simple as that statement sounds, it should be investors guiding light for following markets.

The hard part for investors was to buy on that drawdown in price from the old high of $31.23 to just above $26.38. It shows how the accumulation program that we continue to stress can take the emotional aspects out of buying both gold and silver. It just becomes mechanical for investors to buy at the same time each month.

With the new multi-decade high in silver, the shorts find themselves on the ropes. Given my study of short squeezes in the past, we have to open our minds as to what is possible here. There is no way of predicting the future, but short squeezes usually end up with a rapid escalation in price, meaning this could be the big one.

Eric, normally we go into option expiration and both gold and silver will be under pressure. This is the first time we're going into option expiry with silver in backwardation. That's why I have been stressing the potential for a short squeeze as we move towards the end of February.

When asked about gold specifically Turk commented, "I think the key point Eric is that gold took out the key resistance at $1,375, so it's a couple of weeks behind the development we are already seeing in silver. We now have almost four months of solid accumulation here in the $1,300's which does provide a huge base for much higher prices.

With that kind of base in place we should not only see gold take out its previous highs, but I believe this will provide the launching pad for a very significant move in the price of gold. We have previously talked about a target for gold of $1,800 for this year. The bottom line here is that both of these precious metals have a lot more left in this move."

So a short squeeze is unfolding in the silver market while gold is preparing to take out its previous highs. Gold and silver continue to punish the bears, much to the delight of hard money advocates around the world.

Eric King

KingWorldNews.com

http://kingworldnews.com/kingworldne...e_Big_One.html

8 Stocksto Pop for a Rising Gold Price 2011 Forecast

Posted: 17 Feb 2011 05:00 AM PST

Kurtis Hemmerling submits:

The average gold price forecast for 2011 is $1,457. This figure represents the average price prediction of a large group of high profile analysts posted by the London Bullion Market Association. The average high range they see is around $1,633 giving the price some upside potential. Over the past 10 years the


Complete Story »

Chinese Bank Sells ~4.7 X as Much Physical Silver in Jan.'11 vs. 2010 Avg. Month

Posted: 17 Feb 2011 04:23 AM PST

"Chinese demand for silver is outrageous. The Industrial and Commercial Bank of China (ICBC) sold 13 tons of physical silver in January 2011 alone. Compare that to the 33 tons sold in all of 2010..."

Above quote from http://www.wealthdaily.com/articles/...-breakout/2977

Given that they sold 33 tons in all of 2010, that calculates to 2.75 tons/mo.
13 tons is 4.72 fold this amount. This is a huge increase!

Silver-DO NOT celebrate yet

Posted: 17 Feb 2011 03:25 AM PST

This is NOT a confirmed break out yet, do not think for one second Blythe is not shorting into this. I will have more info after the metals reports tonight. I repeat don't get excited, YET. On the only hand if you do find yourself jumping in irrational exuberance, keep jumping...feels good doesn't it?? Anyone who took my strong BUY signal last week has gained over 15%, not bad. Problems ahead

Fekete: Silver and Opium

Posted: 17 Feb 2011 02:45 AM PST

Silver and Opium

Thursday, February 17, 2011 – by Dr. Antal Fekete


The opium wars do not belong to the glorious episodes of Western history. Rather, they were instances of shameful behavior the West still has not lived down. Mercantilist governments resented the perpetual drain of silver from West to East in payment for Oriental goods (tea, silk, porcelain) that were in high demand in the Occident, facing low demand in the Orient for Occidental goods. From the mid-17th century more than 9 billion Troy ounces or 290 thousand metric tons of silver was absorbed by China from European countries in exchange for Chinese goods.

The British introduced opium along with tobacco as an export item to China in order to reduce their trade deficit. Under the disguise of free trade, the British, the Spanish and the French with the tacit approval of the Americans continued sending their contraband to China through legitimate as well as illegitimate trade channels even after the Chinese dynasty put an embargo on opium imports.

Because of its strong appeal to the Chinese masses, and because of its highly addictive nature, opium appeared to be the ideal solution to the West's trade problem. And, indeed, the flow of silver was first stopped, and then reversed. China was forced to pay silver for her addiction to opium smoking that was artificially induced by the pusher: the British.

Thus silver was replaced by opium as the mainstay of Western exports. In 1729 China, recognizing the growing problem of addiction and the debilitating and mind-corrupting nature of the drug, prohibited the sale and smoking of opium; allowing only a small quota of imports for medicinal purposes. The British defied the embargo and ban on opium trade, and encouraged smuggling. As a result, British exports of opium to China grew from an estimated 15 tons to 75 by 1773. This increased further to 900 tons by 1820; and to 1400 tons annually by 1838 – an almost 100-fold increase in 100 years.

Something had to be done. The Chinese government introduced death penalty for drug trafficking, and put British processing and distributing facilities on Chinese soil under siege. Chinese troops boarded British ships in international waters carrying opium to Chinese ports and destroyed their cargo, in addition to the destruction of opium found on Chinese territory. The British accused the Chinese of destroying British property, and sent a large British-Indian army to China in order to exact punishment.

British military superiority was clearly evident in the armed conflict. British warships wreaked havoc on coastal towns. After taking Canton the British sailed up the Yangtze River. They grabbed the tax barges, inflicting a devastating blow on the Chinese as imperial revenues were impossible to collect. In 1842 China sued for peace that was concluded in Nanking and ratified the following year. In the treaty China was forced to pay an indemnity to Britain, open four port cities where British subjects were given extraterritorial privileges, and cede Hong Kong to Britain. In 1844 the United States and France signed similar treaties with China.

These humiliating treaties were criticized in the House of Commons by William E. Gladstone, who later served as Prime Minister. He was wondering "whether there had ever been a war more unjust in its origin, a war more calculated to cover Britain with permanent disgrace." The Foreign Secretary, Lord Palmerston replied that nobody believed that the Chinese government's motive was "the promotion of good moral habits", or that the war was fought to stem China's balance of trade deficit. The American president John Quincy Adams chimed in during the debate by suggesting that opium was a "mere incident". According to him "the cause of the war was the arrogant and insupportable pretensions of China that she would hold commercial intercourse with the rest of mankind not upon terms of equal reciprocity, but upon the insulting and degrading forms of the relations between lord and vassal." These words are echoed, 160 years later, by president Obama's recent disdainful pronouncements to the effect that China's exchange-rate policy is unacceptable to the rest of mankind as it pretends that China's currency is that of the lord, and everybody else's is that of the vassal.

The peace of Nanking did not last. The Chinese searched a suspicious ship, and the British answered by putting the port city of Canton under siege in 1856, occupying it in 1857. The French also entered the fray. British troops were approaching Beijing and set on to destroy the Summer Palace. China again was forced to sue for peace. In the peace treaty of Tianjin China yielded to the demand to create ten new port cities, and granted foreigners free passage throughout the country. It also agreed to pay an indemnity of five million ounces of silver: three million to Britain and two million to France.

This deliberate humiliation of China by the Western powers contributed greatly to the loosening and ultimate snapping of the internal coherence of the Qing Dynasty, leading to the Taiping Rebellion (1850-1864), the Boxer Uprising (1899-1901) and, ultimately, to the downfall of the Qing Dynasty in 1912.

The present trade dispute between the U.S. and China is reminiscent of the background to the two Opium Wars. Once more, the issue is the humiliation and plunder of China as a "thank you" for China's favor of having provided consumer goods for which the West was unable to pay in terms of Western goods suitable for Chinese consumption. The only difference is the absence of opium in the dispute.

Oops, I take it back. The role of opium in the current dispute is played by paper. Paper dollars, to be precise. In 1971 an atrocity was made that I call the Nixon-Friedman conspiracy. To cover up the shame and disgrace of the default of the U.S. on its international gold obligations, Milton Friedman (following an earlier failed attempt of John M. Keynes) concocted a spurious and idiotic theory of floating exchange rates. It suggests that falling foreign exchange value of the domestic currency makes it stronger when in actual fact the opposite is true: it is made weaker as the terms of trade of the devaluing country deteriorates and that of its trading partners improves. Nixon was quick to embrace the false theory of Friedman. No public debate of the plan was permitted then, or ever after. Under the new dispensation the irredeemable dollar was to play the role of the ultimate extinguisher of debt, a preposterous idea. The scheme was imposed on the world under duress as part of the "new millennium", shaking off the "tyranny of gold", that "barbarous relic", the last remnant of superstition, the only remaining "anachronism of the Modern Age". The ploy was played up and celebrated as a great scientific breakthrough, making it possible for man to shape his own destiny rationally, free of superstition, for the first time ever. Yet all it was a cheap trick to elevate the dishonored paper of an insolvent banker (the U.S.) from scum to the holy of holies: international currency. The fact that fiat paper money has a history of 100 percent mortality was neatly side-stepped. Any questioning of the wisdom of experimenting with is in spite of logic and historical evidence was declared foggy-bottom reactionary thinking.

The amazing thing about this episode of the history of human folly was the ease with which it could be pushed down the throat of the rest of the world, including those nations that were directly hurt by it, such as the ones running a trade surplus with the U.S. Their savings went up in smoke. The explanation for this self-destructing behavior is the addictive, debilitating and mind-corrosive nature of paper money, in direct analogy with that of opium. The high caused by administering the opium pipe to the patient (read: administering QE) had to be repeated when the effect faded by a fresh administration of more opium (read: more QE2).

If the patient resists, like China did in 1840, then a holy opium war must be declared on it in the name of the right of others to free trade. 170 years later a New China once more demurred against the paper-torture treatment it was subjected to by the American debt-mongers and opium pushers.

But beware: if the West starts another Opium War, this time it is not China that will be on the losing side.

http://www.thedailybell.com/1766/Ant...and-Opium.html

$31

Posted: 17 Feb 2011 02:22 AM PST

:banana::banana::banana::banana:

The Collapse of Americas Labor Force

Posted: 17 Feb 2011 01:53 AM PST

Gold Daily and Silver Weekly Charts, and a Tribute to Blythe Masters

Posted: 17 Feb 2011 01:30 AM PST

These Indicators Suggest Stock Markets Have More Upside - and Gold Some Uncertainty

Posted: 17 Feb 2011 01:25 AM PST

That Nagging Feeling Surfaces Again

Posted: 17 Feb 2011 12:49 AM PST

We have been looking over some of our technical charts the past couple days, looking for a little "guidance," hoping that by doing so some element of clarity or inspiration would surface. We usually do that about when we start to get a familiar unsettling feeling in the pit of the stomach, but we can't really describe to others why that notion has crept in. In the past we have called that "traders intuition." In the past it has served us uncommonly well – most, but not all of the time.

DOLLAR ON THE EDGE OF THE ABYSS

Posted: 16 Feb 2011 11:15 PM PST

The dollar is now poised on the edge of the abyss.

The current intermediate cycle has rolled over and is making lower lows and lower highs. The current daily cycle has formed a swing high and is in jeopardy of rolling over into a left translated cycle. If the dollar breaks below the November intermediate bottom of 75.63 it will be an incredibly bearish sign as not only will the current intermediate cycle have topped in only 4 weeks but the larger yearly cycle will also have topped in only 4 weeks.

If that happens there is little chance the dollar will be able to hold above the March 08 lows as the crash down into the three year cycle low begins in earnest.


This will not only drive the final leg up in gold's huge C-wave it will also drive a huge spike in inflation in all other commodities. Food riots world wide will intensify. The rest of the world will be in an uproar over the collapsing dollar. Spiking commodity prices will collapse discretionary spending just like it did in 08 and 09.

The phony economy driven by Ben's printing press will roll over when he's forced to turn off the presses to halt the dollar collapse. (Just like it started to do last summer when QE ended and the stock market started to collapse.)

The dollar's rally out of the three year cycle low should correspond with stocks beginning the next leg down in the secular bear market and the next brief deflationary period just like the bounce out of the 08 three year cycle low drove the second leg down in the secular bear market.

The rally out of a three year cycle low usually lasts about a year to a year and a half. The next 4 year cycle low in the stock market is due in 2012. I expect that year long rally out of the coming three year cycle bottom to drive stocks down into the next major 4 year cycle trough and drive the CRB into it's next major cycle bottom.

A lot is riding on the next 2/3 weeks. If the swing high in the dollar yesterday does signal the top of the dollar's daily cycle then the November low will almost surely be broken and the chain of events I laid out will be set in motion.

This posting includes an audio/video/photo media file: Download Now

How Much More Demand Can Silver Handle?

Posted: 16 Feb 2011 10:51 PM PST

How Much More Demand Can Silver Handle?

The numbers for silver demand are starting to make some market-watchers nervous. The U.S. Mint sold over 6.4 million silver Eagles in January, more than any other month since the coin's introduction in 1986. China's net imports of silver quadrupled in 2010, to 122.6 million ounces, roughly 13.7% of global production. Meanwhile, mine production can't meet worldwide demand; the only way demand gets fulfilled is from scrap supply.

That is some very hungry demand. Which raises the question, how long can this pace continue?

This is important for various reasons, starting with how demand contributes to price. If demand falls off, our investments could, too.

While I've discussed the concern regarding the lack of supply before, which has its own implications for the silver market, let's focus on investment demand. Frankly, is there room for it to continue to grow? After all, how long can investors continue to set records?

There are a number of ways to measure this – the amount of money available to invest, its percent of total financial assets, its contrast to demand in the last bull market, etc. – but I think the bottom line to answering the question is to compare the biggest silver investments to some popular equities. If they rival that of the stocks we always see on the news and analysts constantly talk about and every fund manager wants to own, then it might be reasonable to assume demand could be nearing its pinnacle.

So how do the world's largest silver ETF and one of the biggest silver producers compare to the more fashionable equities?

The largest silver ETF, iShares Silver Trust, has net assets of $9.6 billion (as of February 4). This pales in comparison to the more popular stocks trading in the U.S. In fact, SLV has roughly 3% the market cap of Apple. It would have to grow over 43 times to match Exxon Mobil.

Pan American Silver, the largest pure silver producer trading on a major U.S. exchange, has a market cap of $3.72 billion. This is 4.7% the size of McDonald's. The market cap would have to increase more than 53 times to match Walmart. It is over 62 times smaller than Microsoft.

This isn't to suggest SLV and PAAS will match the market cap of these other companies, but clearly the masses are still demanding much more of them than the biggest of silver's investment vehicles.

So how much more demand can silver handle? As much as it takes to make it the household name I'm convinced it will be before this is all over. When SLV is a favorite of fund managers. When Silver Wheaton is a market darling of the masses. When Pan American is Wall Street's top pick for the year.

Imagine what those bars on the right will look like when most everyone you know is talking about poor man's gold. The rise could be breathtaking.

Remember that silver rose over 3,646% from trough to peak in the last precious metals bull market; it's up about 630% in our current run. A return matching the 1970s advance would push the price to $152. This price level is further supported by the fact that this is about where it would be when inflation-adjusted for its 1980 peak.

When you look at the potential growth in market cap of the world's biggest silver investments, it becomes easy to view any downdraft in price as nothing but a buying opportunity. I know I do.

~ Jeff Clark, Casey Research

Pretend 'til The End

Posted: 16 Feb 2011 10:37 PM PST

A very interesting question is raised by Giordano Bruno: The issue is, how do you convince the general public that all is well until you are ready to unleash hyperinflation and fiscal Armageddon? How do you make them believe with all their hearts that they are not in the midst of a debt meltdown and [...]

Gold Demand: India & China Jump to New Records

Posted: 16 Feb 2011 10:30 PM PST

Forget central banks and Western "haven" demand. Indian and Chinese households drove 2010's surge in gold demand...

read more

Interview With Eric Sprott

Posted: 16 Feb 2011 08:40 PM PST

Link: 
Interview With Eric Sprott
Image: 

My first precious metals-related story is one that I ran yesterday where the link didn't work.  It was the Interview With Eric Sprott by Dr. Dave Janda over at WAAM 1600 in Ann Arbor, Michigan. The link worked fine for me when I checked it before sending it off to get posted...but something strange obviously happened in cyberspace...so here's the link once again.  Eric spends a lot of time talking about the silver market...plus other things.

Liberty Mutual Says U.S. Deficits ‘Debase the Dollar’

Posted: 16 Feb 2011 08:40 PM PST

Link: 
Liberty Mutual Says U.S. Deficits 'Debase the Dollar'
Image: 

Not to be outdone by the like of Bill Gross, here's a Bloomberg story [with thanks to Scott Pluschau] that points out that one of America's largest insurance companies has also cottoned on to all the Fed's money printing...and are heading for the exit door on the U.S. dollar as well.  The headline reads Liberty Mutual Says U.S. Deficits 'Debase the Dollar'.  It's not an overly long piece...and the link is here.

Global Gold Demand Hit 10-Year High In 2010

Posted: 16 Feb 2011 08:40 PM PST

China gold demand growing at "explosive" pace: ICBC. Gold Imports by India Reach Record on Jewelry Sales. Any hedging by silver miners won't diminish short squeeze: James Turk...and much, much more.

¤ Yesterday in Gold and Silver

Although Wednesday's activity looks impressive on the Kitco graph below...nothing much happened yesterday...at least not on the surface.  Gold's low of the day [$1,367.40 spot] came at the London p.m. gold fix around 3:05 p.m. GMT...which is 10:05 a.m. Eastern.  From that low, gold rallied a bit...and then really caught a bid shortly before 11:30 a.m.  The vertical price spike was hammered flat about forty-five minutes later...and gold behaved itself for the rest of the New York trading day.  The spike high was recorded at $1,383.30 spot.

The price action is silver was, as always, more 'volatile'.  After hovering around both sides of $30.80 for most of the Far East and London trading day, silver got sold down a couple of times shortly after the Comex open, with the low...surprise, surprise...also coming at the London p.m. gold fix about 10:05 a.m. Eastern time.

From there, a substantial rally began that ended at the same time as the gold price rally did...12:15 p.m. in New York...and at the very moment that silver stuck its nose above the thirty-one dollar price mark.

Silver's low and high for the Wednesday were both set in New York trading.  The low was $30.29...and the high was $31.02 spot.  That's quite a range.

Once the silver price was back under control, it quietly traded sideways for the rest of the day.

  

The dollar was down about 40 basis points by 3:00 p.m. Hong Kong time during their Wednesday afternoon trading day.  From there, the dollar began a rally that gathered considerable strength by 10:00 a.m. in London...and hit its zenith about 8:45 a.m. New York time...when it was up 55 basis points from it's Hong Kong low.  The dollar then rolled over hard...and lost all those gains by shortly after 12 noon Eastern.  From there it basically traded sideways for the rest of the Wednesday trading session.  The dollar was down about 35 basis points on the day.

  

I guess there was some correlation between the world's reserve currency and the gold price action yesterday...but it certainly wasn't an exact relationship.

Once again, the gold equities pretty much followed the gold price, at least in the early going.  The stocks hit their nadir around the London gold fix...and then headed higher...topping out at 12:15 p.m. in New York, when gold and silver hit their high ticks.  But, despite the fact that both metals got sold down hard after that, the gold stocks almost closed on their highs of the trading session.  This is the third day in a row that we've seen this sort of counterintuitive price action in the gold stocks.  And, as I said yesterday, maybe these buyers know something that we don't.

  

Yesterday's Daily Delivery Report from the CME wasn't very exciting, as they only reported that 4 gold contracts would be delivered on Friday...and nothing in silver.

Nothing very exciting happened at either ETF yesterday,as neither GLD or SLV had a report.

The U.S. Mint reported selling another 25,000 silver eagles yesterday.

Over at the Comex-approved depositories, their report showed that they shipped out 302,311 ounces of silver on Tuesday...and none was received.  The link to that action is here.

Here's Nick Laird's Silver Sentiment Index that shows how seven of the world's largest silver producers are doing.  Nick says that "The Silver 7 Index & the PM Funds Index are moving up nicely.  We should have breakouts to new highs soon..."

  

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¤ Critical Reads

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PIMCO Total Return Fund pares U.S. government-related debt

Despite my best editing efforts, I have another pile of stories for you to sift through today. As always, I leave the final edit up to you.

My first story is a Reuters piece that's courtesy of reader Bill Brunskill.  The headline needs no embellishment from me...and reads "PIMCO Total Return Fund pares U.S. government-related debt".  Bill Gross is now following China's lead...and the link to the story [which is only a handful of short paragraphs] is here.

View full GSD edition

Liberty Mutual Says U.S. Deficits 'Debase the Dollar'

Not to be outdone by the like of Bill Gross, here's a Bloomberg story [with thanks to Scott Pluschau] that points out that one of America's largest insurance companies has also cottoned on to all the Fed's money printing...and are heading for the exit door on the U.S. dollar as well.  The headline reads Liberty Mutual Says U.S. Deficits 'Debase the Dollar'.  It's not an overly long piece...and the link is here.

View full GSD edition

The Coming Food Envy

There was a very short piece that was imbedded in Casey's Daily Dispatch yesterday that's more than worth your time.  It's headlined "The Coming Food Envy" by author Kevin Brekke.  You have to scroll down just a bit to find it...but it's an education when you do get there.  As I said, it's worth the read...and the link is here.

View full GSD edition

Another Look At Inflation: Cotton Up 44% YTD - One Percent Per Day

Reader Mike Molleur provides today's next reading material.  It's a posting over at zerohedge.com that's headlined "Another Look At Inflation: Cotton Up 44% YTD - One Percent Per Day".  There's a nifty graph...and only one measly paragraph of text...so this won't take a lot of your time.  The link is here.

View full GSD edition

Rising food prices push millions into poverty

Roy Stephens has the following story that was posted over at the france24.com website on Tuesday.  The headline reads "Rising food prices push millions into poverty".  World Bank President Robert Zoellick has warned that global food prices have reached "dangerous levels" and pushed an estimated 44 million people into poverty over the past year, an effect he says could contribute to political instability.  The man has a keen grasp of the obvious...and the link is here.

View full GSD edition

Iran's Leader Derides Protests; Lawmakers Urge Death for Opposition Leaders

Roy's next offering is this piece from Tuesday's edition of The New York Times.  The headline reads "Iran's Leader Derides Protests; Lawmakers Urge Death for Opposition Leaders".  It's a bit of a read, but it appears that Iran's leaders are in a bit of a spot...and the link is here.

View full GSD edition

Oil rises to $104 a barrel

Roy's last offering is this piece from The Telegraph late last night.  The headline reads "Oil rises to $104 a barrel".  The price of Brent crude flirted with two-and-a-half-year highs amid fresh concerns about tensions in the Middle East.  The link is here.

View full GSD edition

Saudi, Jordanian Columnists Attack U.S. Policy in Middle East

The next piece on the goings-on in the Middle East was sent to me by reader U.D.  It's posted over at the memri.org website...and is headlined "Saudi, Jordanian Columnists Attack U.S. Policy in Middle East".  It's a boots-on-the-ground perspective on things Arabian and Persian, far away from the Wall Street spin machine.  For that reason alone it is very much worth the read...and the link is here.

View full GSD edition

Doug Casey on Revolution in Egypt and Beyond

I'll leave the last word on what's happening in the Middle East up to our own Doug Casey.  His views are well know to me...but maybe not well known to you.  So be prepared to educated...and a bit shocked with some of the things he has to say.  But don't be surprised...as it's just Doug being Doug.  The interview is conducted by Louis James, editor of the

Oil To Go Much Higher

Posted: 16 Feb 2011 08:15 PM PST

Middle Eastern War Drums Might Begin Driving Oil To The Moon. Trader Tracks Situational Trading Alert 2-1-11 745 AM PST:

The problems in the Middle East are spreading. Initially, we thought Egypt would stay together and Mobarak could hold on. Now it appears this is not the case. Further, the prime minister of Jordan has resigned and appointed a new man until elections can be held. This is a major turning point in world affairs, particularly as it affects energy producers. Our take on this situation says the problems will spread and the Muslim Brotherhood takes over. This is an ill wind for the free world and will entrench and create a host of new problems. Egypt has been providing Israel with 35% of its gasoline. We would expect this to be blocked under a new administration heightening tensions between all in the region. OIL CAN RISE MORE THAN OUR TECHNICAL FORECAST, NOW CALLING FOR 2011 HIGHS AT $115 AND A CHANCE FOR $125. Under the circumstances we might be facing $150 oil or higher with potential disruptions and a piling on from inflation. Crude oil is pushing $92.50 resistance this morning on the March, 2011 futures. Last price $91.74.

Gold and silver are still treading water but took a shot at new rallies this morning that failed. However we see gold moving to $1365 resistance soon and silver back up to $30+.  But, they can still sell back to $1407 gold and $26.65 silver before those new rallies. Gold April futures 10:20am Friday are $1,356.30.

Currencies: The Swiss futures are 106.09 this am rising smartly the past few days with the manipulated Euro. Eventually the Euro hits new and hard selling pressures with the Swiss in rallies, being a premium safe haven for now. The USDX dollar has fallen under major support this morning at 77.50 to 77.395. If it holds, the 77.50 on the close this afternoon it means no drama. We'll see.

Grains continue to rise with beans now $14.226 up nearly $.10 with more buying pressures on wheat and corn. We had wheat forecast at $8.00 and now see chances for $10-$12 per bushel. Corn is going to $8, which many find amazing. We hinted at global grain rationing previously but now are sure of it…its already started.

The most dangerous event we see now is the Middle Eastern trauma. Obama is an appeaser and appears to be ready to cave in on the entire mess that has the potential to start a world war and turn half the world upside down. We feared this month's ago but were hoping against hope it would not happen. Now its happening and we feel this almost guarantees a world war by 2013 or sooner.

On the home front, the GOP Congress will do their best to cut spending and balance the budget and they will fail. Bernanke is going to keep pushing out phony cash through bonds with his current QE2, shoveling $600B out by April 1st. Both the 2nd and 3rd quarters will see attempts at QE3 and QE4. We forecast the QE4 will not complete before the entire breakdown of global bond markets.

One catalyst for this is the forthcoming election in Ireland when a new Parliment is elected followed by our forecast of Irish citizens say no to the banker repayments of $85B agreed to by Mr. Cowan who sold out his Irish nation to the bankers against the citizens.

We think the citizens refuse to pay and Euro-bankers take the hit which they deserve. They made the loans and they lose. This could set-off a cascade of bond failures all across Europe crashing the Euro and causing Germany to bail out of the Euro-Euroland experiment.

The first half of this year might make it through most markets without any major messes. The second half is going to be like navigation through a minefield of troubles. Stay alert and watch for updates.


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Global Inflation Rising and Other Pro-Gold Developments

Posted: 16 Feb 2011 06:42 PM PST

Doubled Up

Posted: 16 Feb 2011 06:21 PM PST

Mercenary Links Roundup for Wednesday, Feb 16 (below the jump).

02-16 Wednesday

S&P rises, doubles its 2009 low | Reuters

Fed Raises Its Forecast for Growth – NYTimes.com
Wholesale Prices Hit Two-Year High – WSJ.com
Commodities News: Outlook for Food Prices

China adds to steps to 'internationalize' yuan Caixin Online
China Tightens Control Over Rare Earths – NYTimes.com
China Scraps Property Data, Clouding View – WSJ.com
China to Launch Yuan Forex Options – WSJ.com

Now Libya Set for 'Day of Anger'
Police Attack Bahrain Protesters Demonstrators Mourn
Two Iranian Warships May Pass Through Suez Canal
Curveball: How US was duped by Iraqi fantasist looking to topple Saddam
In sharp reversal, U.S. agrees to rebuke Israel in Security Council

Oil rises to $104 a barrel – Telegraph
Is a U.S. Nuclear Revival Finally Underway?: Scientific American
Williams To Spin Off Oil, Gas Exploration and Production Unit in an IPO

U.S. close to punishing banks over foreclosures | Reuters
Big Banks Face Fines on Role of Mortgage Servicers – WSJ.com
Fed's Bernanke says backs U.S. financial reforms | Reuters
Citi grants millions of stock options to top execs | Reuters

Germany's Banks Face a Grim Future – NYTimes.com
Weidmann, Adviser to Merkel, to Head Bundesbank – NYTimes.com

With One Pass, Google Elbows Apple and Woos Publishers – WSJ.com
Borders files for bankruptcy, to close 200 stores | Reuters

Smartphones That Stand Out From the Crowd – NYTimes.com
Can You Hear Me Now? Data Overwhelming Cell Networks – NYTimes.com

Family Dollar bid sparks rally in discount stores | Reuters
Bubble trouble over sky-high internet values
Daimler Posts a Profit, but Misses Estimates – NYTimes.com

Hawaiian Airlines Drafts More Asia Flight Plans – WSJ.com
Qantas Earnings Surge Fourfold on Travel Recovery – Bloomberg

Why Isn't Wall Street in Jail? | Rolling Stone Politics
Credibility Shaken, Hedge Funds Are Punished by Investors

U.S. Immigration Agents Shot in Mexico – WSJ.com
Mexican Governor Pins Killing on Cartels – WSJ.com

Ratan Tata Lashes Out Over Leaks – WSJ.com
Iceland Clears Icesave Repayment – WSJ.com

IBM Computer Thumps 'Jeopardy' Champions – WSJ.com
Andy Kessler: Is Your Job an Endangered Species? – WSJ.com
In Monopoly Live, a Computer Runs the Game – NYTimes.com
~

Miffed by eBay decision not in my favor.

Posted: 16 Feb 2011 05:03 PM PST

Hello, long time lurker here. I recently filed a claim through Ebay for refund on a purchase of 20 franklin halves. The seller sent in a USPS envelope with tracking number. The mailman handed me the envelope and it was empty with one end intentionally or unintentionally ripped open and thus empty. I refused delivery and asked he return to the seller as i did not want to create a paper trail that i received the goods. Now under the tracking of the shipment, it says "delivery refused." So, I file a claim with ebay and they rule in the sellers favor. How can this be? I never received the goods. I have no reason to believe it was fraud by the seller as they do have 100% positive feedback although on just 12 recent sales. For reference, i have 100% positive feedback on over 70 purchases of gold and silver. So by their decision, ebay is telling me i'm liable for an item that is lost in transit or i can sell an item and send an empty envelope and keep the money.

Has anyone ever tried to cancel a Paypal payment through the credit card used to fund the transaction? If so, please share the experience.

Backwardation: What Everyone is Missing

Posted: 16 Feb 2011 05:01 PM PST

Prudent investors make wise markets: this should be the quote above every trading desk. The enemy of the hedged investor is not wild markets, nor bearish markets; it is their own emotions. With silver prices reeling to highs we haven't seen since the 1980s, every piece of information has earned some urgency. Immediately, the world attempts to decipher new developments and information as if there is some sort of end of the world scenario looming below.

Silver Price : 1344-1988 (in 1998 Dollars)

Posted: 16 Feb 2011 05:00 PM PST

Gold is for Real Wealth Preservation – Not Speculation (Free 75 Min Webinar)

Posted: 16 Feb 2011 04:17 PM PST

Gold has outperformed every other asset class over the past decade. On March 8, 2011, Bullion Management Group Inc. and Alliance Trust Company, LLC invite you to a free 75-minute Webinar with David Ranson, President and Director of Research at H.C. Wainwright & Co. Economics Inc. David is a world-renowned bullion expert.

Shortages! Is The World Really Running Out Of Food, Water And Oil?

Posted: 16 Feb 2011 01:39 PM PST

Everywhere you look today the mainstream news is talking about shortages. Authorities all over the globe are boldly proclaiming that the world is rapidly running out of food, water and oil. So are these doomsayers right? Well, it must be noted that some of the most famous "prophets of doom" of the past several decades have seen their predictions fail spectacularly. For example, in his infamous 1968 book entitled "The Population Bomb", Paul Ehrlich made the following statement: "I don't see how India could possibly feed two hundred million more people by 1980."  Well, India is now feeding well over twice the number of people than they had when Ehrlich originally wrote his book.  But that doesn't mean that major shortages won't happen in the future.  It just means that we should be careful not to look incredibly ridiculous like Ehrlich did.  The truth is that there are good reasons why we should be watching global supplies of food, water and oil very closely.  Life as we know it would cease to exist if we had severe shortages of any of them.

So will we actually be facing serious shortages of food, water or oil in the coming years?

Well, let's take a look at oil first.

Oil Shortage?

Right now oil is absolutely essential to almost everything that we do.  We require oil to drive our cars, we require oil to produce our food, a large percentage of our homes use energy that is derived from oil and most of what we buy at the stores comes in packaging that is made up at least partly of oil.

So if we run out of oil that is going to be a really huge deal.

So are we going to run out of oil?

Well, right now advocates of the "peak oil" hypothesis are getting a lot of attention in the mainstream media.

Basically the idea behind "peak oil" is that the world has reached (or almost reached) the maximum amount of oil that it can produce and that from here on out the amount of oil that will be produced will begin to decline.  Meanwhile, the demand for oil is only going to continue to increase.

So is there evidence that this is actually happening?

Well, it depends on who you ask.  But what is undeniable is that there are some very powerful interests that are doing their best to hype a coming oil shortage.

In recently released report entitled "Signals & Signposts", Shell Oil warns that global demand for energy is going to be three times as large in 2050 as it was in 2000.

So where will all of that extra energy come from?

Can the world possibly produce two or three times as much oil as it does today?

The Shell Oil report forecasts that the global supply of oil will continue to rise but that the rise in supply will not be fast enough to keep up with the rise in demand.  According to Shell, this is going to cause rapidly rising oil prices which will cause the gross domestic products of all nations to fall.

So just how high could oil prices go?

Well, the truth is that the price of oil is very highly manipulated.  The market for oil is not exactly what you would call a "free market".

However, it is alarming that almost everyone is forecasting much higher oil prices at this point.

For example, Weeden & Co. oil analyst Charles Maxwell recently stated that he believes that the price of oil will eventually hit $300 a barrel by the end of this decade.

If that were to happen, it would be absolutely disastrous for the global economy.  Yeah, those in the oil industry would make a killing, but for the rest of the world it would be a complete and utter nightmare.

Unfortunately, what most Americans don't understand is that there are lots of alternative energy technologies out there that have been repressed by the big oil companies and by the big oil producing nations because they threaten hundreds of billions of dollars in profits.

For example, did you know that it is possible to run a car entirely on water?  One Japanese company hopes to start mass marketing them....

But I wouldn't count on seeing water-powered cars sold on every street corner any time soon.

Why?

Because of greed.

Our entire system of energy is based on making as much money as possible for those who have all the oil.

So if the world has a shortage of energy in the coming years, it is not because that is how it inevitably had to be.

Rather, it will be all about pure, unadulterated greed.

There are plenty of alternative energy technologies out there that are incredibly promising, but those that are getting incredibly wealthy off of our oil-based society are not going to quietly step aside for the good of mankind.

Food Shortage?

So what about food?

Is the world running out of food?

Well, as we have seen so many times in the past, the earth can support far more people than most of the "experts" ever imagined.

In fact, if weather patterns were perfectly stable and we removed human greed out of the picture, the earth could most likely support a whole lot more people.

Unfortunately, weather patterns are becoming increasingly bizarre and human greed is always a problem.

In particular, this year extreme weather all over the globe is causing many to be concerned that we may soon see some very serious food shortages.  In Australia and Brazil, flooding of Biblical proportions has absolutely devastated crops.  Some of China's most important agricultural areas are experiencing the worst droughts that they have seen in 200 years.  Authorities are warning that two-thirds of China's wheat crop could be in danger.  A recent cold snap that hit northern Mexico wiped out entire harvests and has sent prices for many fresh produce items in the United States soaring.

But these bizarre weather patterns will hopefully settle down eventually.

What is of even greater concern is that we have been seeing a long-term trend of rapidly rising food prices over the last couple of years that is putting an extreme amount of strain on the 3 billion people in the world that are trying to survive on the equivalent of 2 dollars or less per day.

Most Americans can still handle rising food prices, but for millions upon millions of poor people all over the world a significant increase in the cost of food can mean the difference between life and death.

That is why the sudden rise in price of so many agricultural commodities is so disturbing.  Just consider some of the shocking price increases that we have seen over the past year or two....

*The price of corn has doubled over the last six months and recently hit a new all-time high.

*The price of wheat has more than doubled over the past year and hit a 30-month high on Monday.

*The price of soybeans is up about 50% since last June.

*The price of cotton has more than doubled over the past year.

*The commodity price of orange juice has doubled since 2009.

*The price of sugar is the highest it has been in 30 years.

If prices continue to go up like this we are going to see a lot more food riots all over the globe.

But perhaps that is what those in positions of power actually want.  The truth is that the global elite don't always have the best interests of the rest of us at heart.

Water Shortage?

So what about water?

Is the world running out of water?

Well, yes, many areas of the world are rapidly running out of fresh water and this is perhaps one of the biggest problems we are facing.

Without oil, most of us could survive for quite some time.

Without food, most of us could survive for a number of weeks.

Without water, most of us would die within a matter of days.

Fortunately North America still has a decent supply of fresh water, but as I have written about previously, in many areas of the globe the situation is quickly becoming absolutely dire....

*Worldwide demand for fresh water tripled during the last century, and is now doubling every 21 years.

*According to USAID, one-third of all humans will face severe or chronic water shortages by the year 2025.

*Of the 60 million people added to the world's cities every year, the vast majority of them live in impoverished slums and shanty-towns with no sanitation facilities whatsoever.

*It is estimated that 75 percent of India's surface water is now contaminated by human and agricultural waste.

*Not only that, but according to a UN study on sanitation, far more people in India have access to a mobile phone than to a toilet.

*In northern China, the water table is dropping one meter per year due to overpumping.

*But there are few places where the water shortage is as severe as it is in the Middle East.  Saudi Arabia had been producing enough wheat to be self-sufficient for most of the past 30 years, but in 2008 authorities there realized that the non-replenishable aquifer they had been pumping for irrigation purposes was nearly depleted.  So in response Saudi Arabia made the decision to reduce their wheat harvest by one-eighth every year thereafter.  Wheat production in Saudi Arabia is scheduled to cease entirely in 2016.

In some of the most populated areas of the planet the water situation can only be described as catastrophic.

For example, did you know that a new desert the size of Rhode Island is created in China because of drought every single year?

Did you know that in China 80% of the major rivers are so polluted that they don't support aquatic life at all?

Did you know that the women of South Africa collectively walk the equivalent distance to the moon and back 16 times a day for water?

Thankfully the water situation in the United States has not gotten that bad yet, but the truth is that even we could be facing serious water shortages in the years ahead.

According to a recent report released by the Natural Resources Defense Council, more than one-third of all counties in the lower 48 states will likely be facing very serious water shortages by the year 2050.

So, yes, there are some really good reasons to be concerned about earth's dwindling resources.

If the global elite were not so incredibly greedy and if we managed our planet better we would not have problems to this degree.

But here we are.

So what is the solution?

Well, it would be really great if the global elite would just share some of their wealth.  A study by the World Institute for Development Economics Research discovered that the bottom half of the world population owns approximately 1 percent of all global wealth.

But the global elite aren't about to change the rules of the global economy.  After all, they spent a whole lot of time and effort rigging the game so that virtually all wealth eventually gets funneled into their hands.

Rather, most among the global elite seem to believe that radical population control is the answer.

After all, they argue, if there are half as many people around then we will only be using half as many resources, right?

Well, as alluring as that may sound, the truth is that the world has always had a huge problem with poverty.  Even when the global population was down around 100 million people there was rampant poverty.

The number of people is not the problem.

The problem is the insatiable greed of the elite.

The global elite have systematically exploited the poor all over the planet, they have gobbled up the resources of the world wherever they have found them and now they are hoarding their wealth as millions upon millions suffer desperately.

Well, in the end the global elite will have to answer to a higher power.  In the book of James it talks about those who hoard wealth on this earth....

Now listen, you rich people, weep and wail because of the misery that is coming on you. Your wealth has rotted, and moths have eaten your clothes. Your gold and silver are corroded. Their corrosion will testify against you and eat your flesh like fire. You have hoarded wealth in the last days. Look! The wages you failed to pay the workers who mowed your fields are crying out against you. The cries of the harvesters have reached the ears of the Lord Almighty.

According to the most recent "Global Wealth Report" by Credit Suisse, the wealthiest 0.5% control over 35% of the wealth of the world.

That qualifies as hoarding wealth.

Other estimates put the concentration of wealth at the very top of the food chain much higher than that.

But sadly, the problem of greed is not going to be solved any time soon.

Global supplies of food and fresh water are going to continue to diminish.

The world economy is going to continue to become increasingly unstable.

If it was always your desire to live in "interesting times", then you are about to get your wish.  Things are about to get extremely "interesting" on this planet.

So what do you think?  Do you believe that the world will be facing shortages of food, water and oil in the years ahead?  Feel free to leave a comment with your opinion below....

Why Silver Sales Demand Excitement

Posted: 16 Feb 2011 11:29 AM PST

By The Mogambo Guru

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02/15/11 Tampa, Florida – Being a Big Silver Buff (BSB) like I am, I note the ups and downs of silver. Lately, it's been mostly the downs. This strange downtrend in the silver price makes me look like an idiot after I so arrogantly Highly, Highly Recommended (HHR) that people buy silver, buy silver, buy silver all these years, and I'm pretty testy about it, too.

I mean, the sheer fundamentals of silver make me giddy with excitement that, thanks to the manipulation of silver prices via the commodity futures since (by one estimate) 1983, the low market price of silver is an unbelievable, unbelievable bargain.

And, apparently, a lot of other people think so, too, as in his essay, "Silver Eagle Sales Hit Their Second-Highest Ever", Addison Wiggin, Publisher of The Daily Reckoning reported that "The US Mint sold 6,422,000 Silver Eagles in January 2011 – half again as many as were sold in the previous record-setting month of November 2010."

You can see by the way my hands are shaking with excitement that I am titillated by this, which is odd in that I don't ever remember being "titillated" before, and if I had, I probably would not have admitted it because it sounds so weird.

But titillated it is! I'm very excited by the fact that in November 2010, a few short months ago, the US Mint sold a record amount of Silver Eagles, and now, fast-forwarding a few short months back to today, they have surpassed that mark by a whopping 150%!

Mr. Wiggin says, "There are a few nattering nabobs who say the figures are skewed because the Mint credited some December sales to January. So what? If you add up December and January sales and average them, you still get the second-highest monthly total ever…right behind November 2010."

To his eye, the "fact is" that "demand is intense."

Of course, he may have been prompted to say this by reading ahead in his own newsletter, The 5-Minute Forecast, to the part where it looks like the supply/demand dynamic is out of whack, where it reads, "After just one week, Canada's biggest bullion bank sold out its limited stock of 100-ounce silver bars. Now ScotiaMocatta has no silver bars to sell in any size. One ounce, 5 ounces, 100 ounces and the kilobars – all gone."

All gone! As in zero, zilch, nada! So what does THAT do to the old law of supply-and-demand where price adjusts up or down to clear the market? Hahaha!

This is not only very interesting, but is also the subject of today's Mogambo Pop Quiz (MPQ), which involves me finding an obscure fact, proving that you do not know the answer (and thus help you prepare for a lifetime of failure), but that I do know it, the object being both pedantic (in that you will learn something), and also so that everybody will think I am smart to know such an esoteric thing, and then maybe people will stop telling me to shut up all the time and calling me "stupid" and "ridiculous."

So, the question for today's MPQ is, "What do you call a thing that has such voracious demand that the marketplace is sold out of it, yet the price goes down, seemingly violating the law of supply and demand, which would say that the price should be rising?"

Well, grading your test papers, I see several of you came up with the answer "Giffen good," named after the guy who came up with the term to describe the phenomenon of the poor buying more bread as the price of bread rose, which seemed utterly paradoxical.

Paradoxical, that is, until it was shown that prices were rising so high that the poor could increasingly not afford to buy other foods, too, because they were simply unaffordable, and thus the poor increased their consumption of bread to make up for the deficit in their diets.

So, this Giffen good answer was a good guess, but actually incorrect.

Actually, the correct answer is, "There is no such thing as something whose price falls as demand rises, you morons! And even if there was such a preposterous thing, it would not be a Giffen good, because to be a Giffen good, demand should fall as the price falls, or demand should rise when the price rises, neither of which is happening, as proved in previous paragraphs, which clearly, clearly show that the price is falling even as high demand has cleared the marketplace due to insufficient supply! It's just a weird circumstance of the corruption in the silver market, government and regulatory complicity, and the foul Federal Reserve creating more money to finance the Whole Freaking Thing (WFT)!"

Of course, such massive manipulations cannot long continue, which means that if you are not buying gold and silver at every opportunity, then you are probably really stupid, and too stupid to come up with some clever ways to raise money with which to buy gold and silver, like telling your kids that they weren't getting their allowances this week, whereupon you find, to your delighted surprise, that you have a few extra bucks with which to buy gold and silver!

Like I always say, "Whee! This investing stuff is easy!"

The Mogambo Guru
for The Daily Reckoning

Read more: Why Silver Sales Demand Excitement http://dailyreckoning.com/why-silver-sales-demand-excitement/#ixzz1EB31X4Up

Let the Battle Begin: Sharpen Your Silver Spears, 300 Spartan Style

Posted: 16 Feb 2011 11:15 AM PST

COMEX NEWS: Gold: -volume dwindles again, seems to be theme of the week, no one want to play in rigged gold markets -1,113,400 standing Silver: -extremely high volume with little rolls (93K) -sticking around for March delivery -no deposits of physical -302K withdrawn -2,385,000 left standing, people are sticking around for March deliveries still (Bullish) Oky doky, Let the Battle Begin! If I'm

Troubles in Libya/Bahrain/ silver backwardation intensifies/brent crude $104.00

Posted: 16 Feb 2011 10:03 AM PST

India & China Jump to New Records

Posted: 16 Feb 2011 10:00 AM PST

Forget central banks and Western "haven" demand. Indian and Chinese households drove 2010's surge in gold demand.

On the African Gold Trail with GoldStone Resources

Posted: 16 Feb 2011 10:00 AM PST

With a porfolio also stretching to Ghana and Senegal, the prospect of an asset deal in Gabon gets CEO Jurie Wessels energised. In an interview, Wessels reveals thinking behind the company's strategy.

Healthy Correction for Gold Miners and Metals

Posted: 16 Feb 2011 10:00 AM PST

One of the most difficult decisions an investor must make is to determine if a turning point is of short term or long term consequence. The markets give subtle clues to students of the market of impending danger and times of caution.

Silver and Opium

Posted: 16 Feb 2011 10:00 AM PST

The opium wars do not belong to the glorious episodes of Western history. Rather, they were instances of shameful behavior the West still has not lived down. Mercantilist governments resented the perpetual drain of silver from West to East in payment for Oriental goods (tea, silk, porcelain) that were in high demand in the Occident, facing low demand in the Orient for Occidental goods. From the mid-17th century more than 9 billion Troy ounces or 290 thousand metric tons of silver was absorbed by

Surging Metal Demand a ‘Global Phenomenon’

Posted: 16 Feb 2011 10:00 AM PST

Gold bounced off support seen at the 150-day moving average and is now above the 100-day moving average. It is 3.5% below the nominal record high of $1,423.75/oz seen in early December.

Shut your pie hole.........

Posted: 16 Feb 2011 09:56 AM PST

Deferring Recession: A Short History of the “Age of Bubbles”

Posted: 16 Feb 2011 09:44 AM PST

The Dow fell 41 points yesterday...for no particular reason.

Gold went up $9...again, for no particular reason.

So, we will continue our description of what is really going on...for no particular reason other than curiosity. And self-protection. And personal enrichment. And bragging rights.

Future historians, when they finally get a grip on it, will no doubt dub our time as the "Age of Bubbles."

The feds created a bubble in the '90s - a bubble in tech stocks. That bubble was driven not just by the US feds...but by the Japanese feds too. The Japanese were in a major correction. They tried to get out of it using the same old tricks - cheap money, deficit spending, massive borrowing and even QE. This led to the "yen carry trade," in which speculators borrowed yen at zero interest rates and invested the money in the hot market of the time - Wall Street! It was the go-go dot.com era.

The Dow bubbled up...and then popped.

We thought - wrongly - that the game was over. We expected stocks to go down, down, down...until they finally reached a trough at real values. Then, with the mistakes wrung out of the system, and equities at good prices, a new bull market could begin.

Instead, the feds stalled the correction, reversed the bear market, and created an even bigger bubble - this time in housing and finance. The US feds followed the Japanese model. Faced with even a feeble recession, the Fed dropped rates to below the level of consumer price inflation - and left them there for years. The Bush administration, meanwhile, took the budget deep into deficit territory.

Do you remember the "Recession that Wasn't"? That was the failed mini- recession of '01. The authorities attacked it with so much new money and credit it was over before it had barely begun. Consumers kept borrowing and spending. Investors went right back into the stock market. Speculators moved on to the next hot market.

This time speculators borrowed to buy mortgage backed securities - and derivatives that only the mathematicians seemed to understand.

Result: Bubble II. After tracking inflation for nearly 100 years, house prices suddenly doubled. The Dow went over 14,000. Wall Street went wild.

This bubble sprang a leak in '07. By '09 it was losing air fast.

Once again, the feds got out the pumps. We've been following the story for the last 5 years...and yet another bubble is taking shape.

Food prices are rising so fast they are causing riots. Gold is edging back up towards $1,400. Stock prices are still going up too - nearly 2 years after the rally began on March 9th of 2009.

David Rosenberg explains (in The Financial Times) what it means for the stock market:

Just as the prior bear market rally was built on a shaky foundation of unsustainable credit and house price appreciation, the current bear market rally has been built on an even shakier ground of surreal public sector intervention.

But no use telling investors. They go for whatever is hot. And stocks are hot. Commodities are even hotter.

Practically everyone believes that the economy is recovering...inflation rates will go up...and that the hot markets will get even hotter.

"Don't fight the Fed," they say to one another. And everybody knows what mischief the Fed is up to. It used to be a crime to print money without any backing whatsoever. Now, the Fed is doing it in broad daylight. It's pledged to add $600 billion to the nation's monetary base before the end of June.

"If that ain't a guarantee of more inflation," says one investor to another, "I don't know what is."

But is it? Has there ever been a bubble that hasn't popped? Not that we've ever heard of.

Stick with the program, dear reader...sell stocks on rallies (like this one)...but gold on dips.

That was our advice for the last decade. It's still good advice.

Or, if you want to move into this decade's advice, here's the formula:

Sell Japanese government bonds on rallies, buy Japanese small cap stocks on dips. The bubble in Japanese government bonds will blow up too. When it does, Japanese investors will rush to low-priced equities. Count on it.

Okay, so it's a little harder to do. But who said investing was going to be easy?

And more thoughts...

"Bill, what the hell are you doing up there?"

"What does it look like I'm doing? I'm pruning the apple tree."

"With a chainsaw?"

"Well... They were left alone for so long. Now, you need a chainsaw to cut out these big limbs."

Our cousin came over to visit on Saturday. We were working in the orchard when he drove up.

"Billy...you are supposed to be a smart boy...but you do some dumb things."

"Hey...I gotta prune the trees..."

"How many times have you fallen out of the trees?"

"Only twice..."

"I rest my case... That's the trouble with smart people; they don't have any common sense. Using a chainsaw is dangerous enough. You should never do it when you're by yourself. And especially not when you're climbing around in wet trees."

"Elizabeth is coming over later..."

"Great... She'll look for you in the orchard and find you lying on the ground in a pool of blood.

"I guess she could sell the story to 1,000 Ways to Die... Heck you've found a new dumb way to die... You slip on one of the boughs when the chainsaw is running...

"They'd probably call it 'A Very Painful Bough Movement'...ha ha...

"Seriously, you shouldn't be doing this... You should hire some El Salvadorians. They're good workers. They'd have this orchard cleaned up in no time at all.

"Isn't it funny how we talk about different groups? In the old days, Uncle Edward would say, 'I'll send over a colored man...'

"You can't say that anymore. And you can't find a 'colored man' to do this kind of work anymore.

"We spent nearly our whole lives trying to get away from these racial stereotypes and now they're more common than ever.

"Everybody says the El Salvadorians work a lot harder than the Guatemalans, for example...

"And you sure wouldn't call a group of Jews to prune your trees. And you sure wouldn't hire a group of Irishmen to guard your distillery, would you?

"I guess each group has its own specialty.

"I want an Asian doctor. A Jewish accountant. And a hotel run by a guy named Patel.

"And I'd sure as hell get some El Salvadorians in here to help you work on this orchard."

Regards,

Bill Bonner
for The Daily Reckoning Australia

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Why You Should Be Using Gold to Buy Your Groceries

Posted: 16 Feb 2011 09:00 AM PST

Rick Ackerman, of Rick's Picks newsletter, ran an essay by his "correspondent and occasional guest essayist Erich Simon."

He starts out provocatively enough with, "The dollar is down about 98% since it became global tender." Immediately, I can feel the beginnings of another Wild Mogambo Outrage (WMO) stirring within me, building into a raging anger at the Federal Reserve for creating so much money, and thus so much inflation, that the currency of my country has been so ruined that it contains a lousy 2 cents – 2 cents! – of buying-power left of that original 1913 dollar, which had (as I surmise) 100 cents of buying power.

Of course, it won't take me more than a couple of "expletives deleted" before I REALLY get into a snit about the current incarnation of the foul Federal Reserve and its insane degrees of money creation, and about Ben Bernanke, the despicable liar and laughable incompetent who is now the satanic chairman of the Fed.

My growing violent outburst was, surprisingly, soon replaced with outright fear, as what I thought was an insightful essay turned into a pop quiz! Yikes!

"Back in 1971," he starts off by way of introduction, "the price of an ounce of gold was $35 – in line with its 1945 conscription. Right after Nixon closed the gold window, the price popped to $42."

Then he continues with the question of the dreaded pop quiz, "All things being equal (and assuming gold doesn't get used up), at what price must gold be valued to compensate for a 98% loss from – call it inflation, debt or whatever you like?"

Just between you and me, I admit that I did not know the answer, and I did not know how to even start to figure it out, and (most importantly) I did not give a rat's ass about his question because I am only here looking for a way to make a lot of money in a hurry by foolproof investing in something guaranteed to go up.

Kindly ignoring my grubby, greedy, "love of money is the root of all evil" selfishness, he kindly provides an answer: "I think the math goes like this: One dollar is now 2% of its former self. If you divide the 1971 'fair market' price of $42 by .02, you arrive at $2,100."

Apparently Mr. Simon could see the look of sudden confusion on my face as to the significance of this, foundering, as I habitually am, in a wasteland of stupidity and clueless confusion. He helpfully volunteers the hint that "The price of gold (POG) is in fact now around $1,365."

On a hunch, I look at his $2,100 "fair market" price of gold and compare it against the current $1,365 price of gold a few times, and after a few hints and a couple hours to think about it, I realize, "Wow! He's right! This would indicate that gold should appreciate by about 50% to achieve its fair market value! Wow!"

I hastily conclude that here is one MORE reason to buy gold, and if I had any sense or any money I would immediately go out and buy some.

And, best of all, I think I can make a case that the 1971 price of gold was not the "fair market" price at either $35 or $42 an ounce, and I think it should have been a lot higher since the entire American population, the largest consumer market in the world and representing about half of global GDP, was prevented from owning any gold at all!

So, the $42 per ounce price of 1971 was an "agreed-upon" price, not a market price.

Hell, the fact that France noticed this glaring disparity and started exchanging their dollars for gold caused Nixon to shut the gold-for-dollars window in that selfsame 1971!

Apparently recognizing the force of my argument and growing weary of arguing with a crazy man like me, he goes on that perhaps an alternate valuation metric would be to "measure gold's purchasing power against a basket of necessities. Such as food."

To this end he notes that "A representative bag of groceries in 1970-71 (California prices) might include a pound each of pork chops (59 cents), potatoes (9 cents), apples (15 cents), onions (9 cents)… a bunch of celery (38 cents), a dozen large AA eggs (59 cents), a quart of milk (33 cents) and a can of Campbell's tomato soup (10 cents). The total for the 1971 bag is $2.32."

Fast-forward to today, "that same bag costs (in Pennsylvania prices): pork chops ($3.95), potatoes (98 cents), apples ($1.16), onions ($1.06), celery ($1.68), large A eggs ($1.86), a quart of milk ($1.02) and a can of Campbell's tomato soup ($1.00). The total is around $12.71."

I am not sure why he went from using California prices to Pennsylvania prices, but I am pretty sure that it is a Secret Code Of Some Kind (SCOSK), probably about how you had better be buying gold, silver and oil as desperate protection against the massive inflation in consumer prices that is guaranteed by such monstrous, profligate money creation by the foul Federal Reserve, and how everybody living in any area between California and Pennsylvania should rise up in angry rebellion and demand the immediate destruction of the Federal Reserve and the re-installation of the classic gold-standard as required by the Constitution of the United States so that we can thus "fix" our economic problems and also thus ensure that they never, never happen again.

Well, Mr. Simon's silence on this last point is, I think, very telling, and he studiously avoids any mention of secret codes by continuing with, "In this off-the-shelf comparison, food prices are 5.5 times higher than in 1971."

That means it takes 5.5 times as much money for the poor to keep from starving than it took in 1971. And a lot more than that since 1913.

That's the sad, sorry, despicable legacy of the Federal Reserve, and especially of its two biggest villains: Alan Greenspan and Ben Bernanke.

Of course, if you had been accumulating gold, silver and oil the whole time, you would be Just Fine (JF), and would have made a lot of money, too! Whee! It just proves that this investing stuff is easy!

The Mogambo Guru
for The Daily Reckoning

Why You Should Be Using Gold to Buy Your Groceries originally appeared in the Daily Reckoning. The Daily Reckoning has published articles on the impact of quantitative easing, bakken oil, and hyperinflation.

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