Gold World News Flash

Not enough metal to put dollar back on gold, Bernanke says
Thailand also Facing the Kraken
In The News Today
Dwindling Comex Silver Bullion, But Where Is the Gold Coming ...
Guest Post: Banks Face Renewed Headwinds
Egypt Paper Plunges On Latest Stock Market Reopening Delay, 266 Day Bond Hits 12.47% Following Partial Auction Failure
Graham Summers’ Free Weekly Market Forecast (Death of the Dollar Edition)
Utah House Passes Bill Recognizing Gold, Silver as Legal Tender
THE RECOGNITION STAGE
6 Years and Counting: Why Investing in Commodities is STILL the Way to Go!
Smith Barney's Louise Yamada has sky-high targets for gold, silver, oil
QE2: An Unmitigated Disaster?
Gold Surges, Hits New All Time High Of $1,437 After Precious Metals Talked Up During PDAC Conference
Of 5 Gold Miners, Markets Value Goldcorp's High Margins Most
Sean Corrigan's Take On The Fed's "Apres Moi Le Deluge" Policy Which Only "A Krugman" Can Approve Of
CHRIS IS BACK!!!! Pay your tax with Gold and Silver in Utah? WTF?
Louise Yamada - $80 Silver, $2,000 Gold & $140 Oil
Oil, gold both surge on MENA unrest
Silver Wheaton CEO Not Thinking About Hedging Silver Until $50
The Kraken Devouring China
Egon von Greyerz: "A Hyperinflationary Deluge Is Imminent", And Why, Therefore, Bernanke's Motto Is "Après Nous Le Déluge"
Silver Liberation Army Official Communiqué No 2: Formal Declaration of War on Banker Occupation
Physical Silver Price is Really $50 per Ounce (80% Premium on COMEX Silver Non-Delivery)
Everything Is Now Correlated Exclusively To The Fed's Balance Sheet
Senator James McClure – A Remembrance
Apres nous le deluge
We're Just Gonna Inflate Our Way Out Of It! (Or Are We...)
U.S. considers oil market intervention

Not enough metal to put dollar back on gold, Bernanke says

Posted: 06 Mar 2011 06:30 PM PST

GATA

Posted: 06 Mar 2011 06:00 PM PST

Many thanks to Paul, a reader who sends us this story about the problems that Thailand is also facing from the inflation beast. Any wonder why gold and silver prices are generally strong during the Asian session? Thailand may remove oil subsidy as fund runs out BANGKOK, March 4 (Reuters) - Thailand's state Oil Fund has fallen to about 7 billion baht ($230 million), the Energy Ministry said on Friday, suggesting the government may soon remove a fuel subsidy, which could add to inflation worries. [URL]http://af.reuters.com/article/energyOilNews/idAFSGE72302F20110304[/URL]Read the entire story here:...

In The News Today

Posted: 06 Mar 2011 05:31 PM PST

View the original post at jsmineset.com... March 06, 2011 11:10 AM Dear CIGAs, The developments in the Middle East are not a spontaneous outbreak of democracy. They are carefully planned, organized and misunderstood developments focused on crippling those that oppose Iran. The mercenaries that found their way to Libya should raise an eyebrow in the Situation Room. It is planned to initiate a spontaneous breakdown of Western civilization and financial viability based on the concept of peak oil. This concept alone guarantees a much longer gold bull market than almost anyone believes. There is no 1980 pratfall out there. Gold will stabilize in about 4 years at a very high price. This is a concept that has totally escaped the gold miners that went functionally broke on hedges by selling every ounce they mined, as fast as they mined it. That was madness, almost as crazy as their short of gold was. It is hard for a mad short taking it as a personal matter to reverse, and then go lon...

Dwindling Comex Silver Bullion, But Where Is the Gold Coming ...

Posted: 06 Mar 2011 04:33 PM PST

Jesse's cafe

Guest Post: Banks Face Renewed Headwinds

Posted: 06 Mar 2011 03:25 PM PST

Submitted by MacroStory.com

Banks Face Renewed Headwinds

In the fall of 2010, there was no shortage of news regarding faulty foreclosure processes, aka "robo-signing." Bank stocks took a hit and the threat of a nationwide foreclosure moratorium appeared imminent. Then came the concept of put back risk to the big banks claiming violations of reps and warranty agreements or pooling and servicing agreements (PSAs). Since that time the media has gone rather quiet on the subject and the price action in the bank stocks would imply all is well. BAC settled for pennies on the dollar with one of the GSEs and the stock rocketed that very day as investors were no longer "worried about the uncertainty."

The story may have gone cold but the lawsuits, court rulings, class actions, investigations have only heated up and continue to grow. In fact they have grown to the point where keeping up with all of it was next to impossible. Banks have tried to downplay any of these threats in their most recent earnings releases and conference calls but suddenly things seem to have changed. Recent SEC filings by JPM, earnings restatements by BAC, a quick departure of Howard Atkins from WFC and regulators investigating CDO transactions by C have begun to turn the spotlight back to the banks and the balance sheet risk they face.

MERS was recently sued by a small county in Massachusetts for $22 million for failure to pay recording fees. This is just one small county in one state. The warning shot has been fired. States face hundreds of billions in budget gaps. States have been defrauded of legal recording fees by MERS who will argue their electronic system of registration was a more efficient process in a fast moving mortgage market. MERS was created by the real estate finance industry (per their website) and should these floodgates open, the banks who used MERS to transfer mortgages may ultimately be liable.

"Citigroup, the third-largest U.S. bank by assets, also said U.S. regulators are examining how it structured and sold collateralized debt obligations as part of an investigation into mortgage-related businesses." - Bloomberg

The Obama administration as part of the ongoing 50 attorneys general investigation of robo signing is proposing a $20 billion settlement whereas proceeds will be used for principal reductions for those underwater in their mortgages. The banks / servicers involved in the suit will not be able to push those writedowns to the holder of the RMBS and will also have to adjust their second tier liens. So this settlement has three strikes. Strike 1, homeowners will still default. Strike 2, banks will take an immediate $20 billion hit to their balance sheet. Strike 3, the second tier lien writedowns will force additional capital raises.

Bank of America is in the largest class action suit right now. It started at $46 billion when PIMCO, NY Fed, etc claimed reps and warranty violations. That has now grown to $84 billion as more investors have joined a clearing house to overcome the 25% threshold level required to initiate such a request. Months back when this first surfaced, CEO Brian Moynihan argued the process of resolving put backs would be long and litigious. He said BAC would fight loan by loan. He was wrong. A recent ruling has set precedence for put back requests to now use statistical sampling to simplify the process of declaring judgment.

Of all these headwinds two by far still stand out, not for their sheer size but for their outcome does not involve a government agency where a slap on the wrist, pennies on the dollar fine is awarded. The private label put back and falling home prices in the face of a rising interest rate environment and rising unemployment (that's if you include the growing list of those disgusted and leaving the work force) are as close to a free market as we have in our society today.

Egypt Paper Plunges On Latest Stock Market Reopening Delay, 266 Day Bond Hits 12.47% Following Partial Auction Failure

Posted: 06 Mar 2011 02:24 PM PST

Remember when Egypt said that March 6 is the latest, guaranteed stock market reopen, or else? Well, the day has come and gone, and no Egypt stock market (all those who have been buying the EGPT ETF are forgiven for feeling like total idiots right about now). What however is trading are Egyptian bonds, which have plunged as a result of the ongoing total and complete chaos in the revolutionary country, which is now seeing a second wave of reactionary violence as fighting escalates between the police and protesters in Alexandria. As BusinessWeek reports: "Egypt’s borrowing costs are rising to the highest in more than two years and stocks listed overseas are tumbling as the Cairo exchange’s five-week shutdown and new rules on shareholder disclosure keep investors away. The Ministry of Finance sold 3 billion pounds ($509 million) of bonds yesterday, 1.5 billion pounds less than planned, as yields on 266-day notes climbed 31 basis points from the last auction to 12.47 percent, data compiled by Bloomberg show. Global depositary receipts of Commercial International Bank Egypt SAE sank 15 percent in London last week to the lowest level since July. Orascom Telecom Holding SAE traded 5.2 percent below its Jan. 27 close, when the Egyptian Exchange shut down." Our advice: don't expect Egypt to reopen any time soon, and certainly not before the situation in Libya is under control, which won't be for a long time. In the meantime the flight to safety trade (read gold, silver and crude) is raging overnight. And if and when it reopens, look for nothing less than freefall: "The EGX30 may drop another 10 percent when it eventually reopens, said Slim Feriani, London-based chief executive officer of Advance Emerging Capital Ltd., which manages $750 million in frontier and developing nation stocks including Egyptian shares."

From BusinessWeek:

Egypt’s bourse delayed indefinitely the reopening planned for yesterday citing the resignation of Prime Minister Ahmed Shafik in a March 3 statement. Regulators said last week they may require investment funds to disclose their shareholders as part of a probe of officials linked to ousted president Hosni Mubarak. The new rules and the bourse’s closure are deterring foreign funds and may spur selling when trade resumes, according to F&C Asset Management Plc and ING Investment Management.

“The fact that Egypt’s market is not open today is a very big negative, especially as we do not have an idea of when it may reopen,” Ahmed Talhaoui, the Abu Dhabi-based head of investment at Royal Capital PJSC, which is 44 percent-owned by United Gulf Bank BSC, an investment bank in Bahrain, said in an interview yesterday.

Egypt risks becoming “a pariah of an investment destination,” said Jeff Chowdhry, the London-based head of emerging-market equities at F&C, which oversees about $163 billion worldwide. “If they value foreign investment in their stock market, they should get that market open immediately and take off any restrictions in terms of having too cumbersome administrative requirements.”

The bourse extended its suspension on Feb. 14 because of worker protests disrupting bank operations, exchange spokesman Hisham Turk said at the time. The exchange said on Feb. 22 it would have to put off opening in order to implement rules to limit daily share price moves. It postponed a planned reopening on Feb. 28 after investors facing losses criticized exchange chairman Khaled Seyam at a news conference, calling for an extension of the closure.

The Egyptian Financial Regulatory Authority, the bourse’s regulator and the main clearing house, said on its website on March 2 that it may require brokerages and fund managers to disclose the owners of financial assets traded in the country as part of a probe of officials linked to Mubarak.

“It’s difficult for people like us as international investors to do much in these markets, no matter how much they fall in the next few days or weeks,” Feriani said in a phone interview. The outlook for Egypt’s economy and companies is too uncertain to make investment decisions, he said.

Adding insult to injury, if the EGX30 remains halted for more than 40 days, it will be moved to the symbolic equivalent of the pink sheets:

If the market is closed for 40 days or more, MSCI Inc. may begin investor talks to determine whether to remove Egypt from the MSCI Emerging Markets Index, Frank Nielsen, the company’s executive director for equity and applied research, said in a telephone interview from New York on March 1. Argentina removed from the index in 2009, when it was reclassified as a frontier market, according to MSCI’s website.

We are sure the Fadi Al Said speaks for all momentum lemmings who put their money into EGPT when he said..

“On Egypt I’m really disappointed on the way it’s been handled,” said Fadi Al Said, a Dubai-based senior investment manager at ING Investment Management, which oversees about $518 billion worldwide. His ING L Invest Middle East & North Africa fund has beaten 88 percent of peers in the past year, according to data compiled by Bloomberg. “I hope that the market will open up soon and let’s get over with this cleanout, because this will create massive opportunities,” he said.

Look for the escalating MENA panic to shift much more aggressively to Saudi Arabia, which despite the government's plunge protection efforts, is next in line for "delisting", and ultimately to Europe.

Graham Summers’ Free Weekly Market Forecast (Death of the Dollar Edition)

Posted: 06 Mar 2011 01:43 PM PST

Graham Summers' Free Weekly Market Forecast (Death of the Dollar Edition)

The single most critical issue to note right now is the US Dollar's collapse.

The US Dollar has broken below its multi-year trendline in a BIG way. Any hope of a bull market run is pretty much over and we're on our way to a MASSIVE currency devaluation.

gpc 3-7-1

Things are even uglier when you do a close-up of the breakdown. The greenback has already taken our support at 76.59 (its 2010 low). This leaves support at 74.98 (the 2009 low) and then 71.61 (the 2008 low). After that, it's GAME OVER for the US Dollar as we will be in uncharted territory.

gpc 3-7-2

Indeed, if we take out these last two lines of support, we're triggering the massive Head and Shoulders pattern which forecasts a 50% collapse in the US Dollar.

gpc 3-7-3

Understand, this will collapse not necessarily happen all at once. It might take years. But the chart predicts the US Dollar losing 50% of its value. The markets are already predicting this with commodities and other inflation hedges soaring across the board:

gpc 3-7-5

All of these assets, particularly Gold and Silver, will perform well in the coming months. However, their performance will pale compared to other, less well know inflation hedges.

Why?

Everyone knows that Gold and Silver are the most obvious inflation hedges out there. And to be blunt, anyone who invests in these two assets will likely do very well in the coming months as inflation erupts in the US.

However, to make truly ENORMOUS gains from inflation you need to find the investments that are off the radar… investments that the rest of the investment world hasn't discovered yet.

I'm talking about investments that own assets of TREMENDOUS value that are currently priced at absurdly low valuations: the sorts of assets that larger companies will pay obscene premiums to acquire.

I detail the three best investments I know that fit these criteria in my new Special Report the Inflationary Storm Pt 2 which I just released to the public last Wednesday.

Already two of these investments are up 5% and 13%. That's in just 10 days! I fully expect they'll ALL be in the triple figures within the next six months.

And I'm only making 250 copies of this second report available to the public. Any more than that and we'll blow the lid off these investments too quickly.

As I write this, there are only a few copies left. And I fully expect we'll sell out shortly. So if you want to pick up a copy of the Inflationary Storm Pt 2 (including the names, symbols, and how to buy my three NEWEST extraordinary inflation hedges) you better move quickly.

To reserve a copy...

CLICK HERE NOW!!!

Good Investing!

Graham Summers

Utah House Passes Bill Recognizing Gold, Silver as Legal Tender

Posted: 06 Mar 2011 01:19 PM PST

"Massive gold demand continues to break records in China. The Extraordinary Events in the Middle East and the Coming Global Tsunami. Making the Chicken Run. " Yesterday in Gold and Silver The gold price stayed pretty much range-bound for all of Far East and London trading during their Friday trading session...but caught a bid shortly before nine a.m. in New York...with a secondary high of the day coming at 12 o'clock noon right on the button. From there, the price declined until 2:45 p.m. in electronic trading, before resuming its rally into the close...with the gold price closing virtually on its high price of the day, which was reported as $1,434.60 spot. Gold has only closed on its high of the day a handful of times in the twelve years I've been watching this market...and this is the first time I remember it closing at its high on a Friday. Whether it means anything or not, remains to be seen. The silver price gained about thirty cents up unti...

THE RECOGNITION STAGE

Posted: 06 Mar 2011 01:09 PM PST

At some point in any bull the market finally "catches on". That recognition phase shows up as an explosive expansion in volume on the weekly charts.

In early `05 the market finally figured out that the steady rise in oil price wasn't a fluke. That it was in fact a massive bull market in the making. You can clearly see this "recognition phase" in the two charts below.

The same thing happened with the major mining stocks in early `09.

Silver has now reached the recognition stage.

The market has also figured out what the bellweather mining stock of this secular bull is.

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

6 Years and Counting: Why Investing in Commodities is STILL the Way to Go!

Posted: 06 Mar 2011 12:26 PM PST

Many events and circumstances could be the trigger that causes the system to implode, explode or go off on some tangent, It will probably be a sudden factor which will trigger yet others such as a leveraged hedge fund or sovereign debt collapse ... Read More...

Smith Barney's Louise Yamada has sky-high targets for gold, silver, oil

Posted: 06 Mar 2011 12:16 PM PST

8:11p ET Sunday, March 6, 2011

Dear Friend of GATA and Gold (and Silver):

Smith Barney's technical research chief, Louise Yamada, tells King World News that her target prices for gold are $1,500 and then $2,000, for silver $40 and eventually $80, and for oil $115 and eventually $140. Who does this respectable and establishment personage think she is -- John Embry or Jim Sinclair? You can find excerpts from the interview at the King World News Internet site here:

http://tinyurl.com/4evtnye

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

Support GATA by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:

http://www.goldrush21.com/

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

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To contribute to GATA, please visit:

http://www.gata.org/node/16

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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

QE2: An Unmitigated Disaster?

Posted: 06 Mar 2011 10:44 AM PST

By Dian L. Chu

There was a debate recently between Rick Santelli of CNBC and James Bullard, President of the Federal Reserve Bank of St. Louis regarding the inflation effects of the QE2 initiative.

Bullard, the economist, cited the core inflation rate, and even the headline inflation rate as illustrative of a lack of serious inflation pressures in the US economy. Santelli, on the other hand, talked the trader`s perspective of inflation wanting to use the CRB Index (Fig. 1) as a true indication of inflation effects since QE2 was brought up at Bernanke’s Jackson Hole Speech in August 2010.

So let us compare two scenarios and ask ourselves would the US economy be doing better without the QE2 initiative?

Pre-QE2 Prices:

2.50-2.70% 10-Year Treasury Yield
$2.64 US Gasoline Price (August 2010)
Cotton Prices at $85 (Contract Size 50,000 pounds)
S&P 500 Index 1100
Copper Prices $3.25 a pound
US Dollar Index at 83.00
Lumber Prices at $200 (Futures Contract –Contract Size 110,000 board feet)
Sugar Prices at $17.50 (Futures Contract-Contract Size 112,000 Sugar #11)
Cattle Prices at $92 (Futures Contract-Contract Size 40,000 pounds)
Milk Prices at $14 (Futures Contract-Contract Size 200,000 pounds Class III)

QE2 Effects So Far:

3.50% 10-Year Treasury Yield
$3.50 US Gasoline Price
Cotton Prices at $215 (Futures Contract -50,000 pounds)
S&P 500 Index 1320
Copper Prices $4.50 a pound
US Dollar Index at 76.40
Lumber Prices at $303 (Futures Contract)
Sugar Prices at $30 (Futures Contract)
Cattle Prices at $114 (Futures Contract)
Milk Prices at $19.50 (Futures Contract)

About That Unemployment Rate...

This just gives a snapshot of some of the inflationary effects for the US consumer. I cannot think of any argument where higher interest rates resulted from QE2 are good for the housing sector, which is the most troubled part the US economy.

Nevertheless, I must add that the unemployment rate is better, and we have created more jobs since QE2 but with a highly fluctuating job pool where workers give up looking and leave the labor market it is hard to gauge the real unemployment numbers.

Plus how much of the job creation is due to other factors like more business friendly policies from the Obama administration, a Republican Landslide in the Midterm Election, and the extension of the Bush Tax Cuts and a reduction in the payroll taxes for businesses?

Equity Gains Don’t Mean Much

The S&P 500 is 230 points higher which can be argued is good for the “wealth effect” but stocks usually have a year-end rally so some of these gains probably would have occurred even without QE2.

Clear Present Danger – Inflation

There are some substantial price increases in a lot of these inflationary metrics for both businesses and the US consumer, not to mention the reduced purchasing power of a much lower US dollar (Fig. 2).

More importantly, inflation data utilized by the core and headline rates are behind the curve of futures prices by anywhere from 3-6 months so the true inflation pass through effects of these higher input prices at the futures level have yet to be realized in the Fed`s measures of inflation data.

For example, gasoline prices at the pump probably lag the futures prices established by the RBOB contract by 20-30 cents. Likewise, the full effects of higher cotton prices will take much longer to work their way through the supply chain to consumers at the retail level for clothes they purchase. It may take another six months for the damage that has already occurred at the futures level to be fully experienced by consumers of cotton products, which would lead to an underestimate of the current inflationary effects in the economy.

Biflation at Work

It should be noted that parts of the economic data are deflationary in nature like housing and wages, which serve to artificially keep the inflation numbers utilized by the fed down, which is the biflation phenomenon I previously discussed.
And if you add in the 6 month lag factor for inflation effects to pass through to the data, a completely different inflation story starts to emerge.

Wanted – Lower Inflation & Interest Rate

However, this still misses the important barometer for analyzing QE2 which should be the following question: “Which scenario is better off for the US economy?” and not any argument of what the current inflation level is in the economy.

This assumes that some inflation is better than no inflation, and I would argue that being able to finance a home mortgage at 100 bps lower, and a dollar per gallon cheaper gasoline is better for businesses and consumers, and that this scenario is far better for fostering sustainable economic growth than the current scenario of QE2 and its effects.

Really Better Off with QE 2?

So the question for Bullard misses the mark if one argues with him what the current or even future inflation effects are for the economy due to QE2. The real question for Bullard is would the US economy be performing that much better without QE2? If you add up all the pros and cons of QE2, guess which scenario would 9 out of 10 independent economists pick for an environment that fosters economic growth?

It seems regardless of what the inflation data says is the overall inflation rate in the economy, QE2 gave us all the negative, anti-growth, lowered standard of living type of inflationary effects that act as a major tax and headwind for both businesses and consumers going forward, and very little of the much needed “Record GDP Growth” and “Eye-Popping Job Creation” bang for our costly buck.

Right Back Where We Started

It seems we pretty much could have gotten this same level of current GDP growth and job creation without massively devaluing the dollar in the process. Sometimes a little patience goes a long way, and if the fed would have waited until the November elections where both the business climate and economic data were improving all on their own we could have had the best of both worlds with a low inflationary price stable environment, and a slow but steadily improving employment situation.

The real fear and irony is that once the full effects of QE2 are realized in the US economy, that we start reacting to said inflationary effects both through tightening monetary policy and consumer/business behavioral changes, and the US starts giving back some of its recent economic gains, and becomes vulnerable to the very scenario that the fed was trying to avert in the first place, a double dip, deflationary downturn in the economy.

EconForecast, March 06, 2011 | Facebook Page | Post Alert | Kindle

Gold Surges, Hits New All Time High Of $1,437 After Precious Metals Talked Up During PDAC Conference

Posted: 06 Mar 2011 10:38 AM PST

As the world continues to burn, gold hits a new all time high of $1,437 as silver is en route to pass $36. Whatever shorts did not cover on Friday night are strongly urged to postponed their "market top" speculation until another day. Elsewhere Bernanke is still confused by what the relentless march to daily all time highs in gold means...

Reuters has some additional reasons why gold may be poised for much more upside:

Gold should push higher from its near-record levels due to its appeal as a safe haven, while iron ore should regain its upward momentum on the back of red-hot industrial demand from Asia, forecasters told the world's largest mining conference on Sunday.

Copper, an economic bellwether due to its industrial versatility, should be well supported at its current lofty levels but may have trouble pushing significantly higher as mine production races to catch up to demand growth, they said.

Addressing the Prospectors and Developers (PDAC) conference in Toronto, forecaster Philip Klapwijk said he saw a "stronger case for investment in precious metals as a safe haven" as demand for base metals declines due to slowing global growth and political turmoil.

Klapwijk, chairman of metals consultancy GFMS, also said he expected global GDP growth to slow slightly this year as compared with last year.

Prices for gold and silver have risen sharply since the outbreak of violence in the Middle East and North Africa earlier this year as buyers turned to precious metals as a haven from risk.

Gold is holding within $10 of the record above $1,440 an ounce it set on Wednesday, while silver extended 31-year highs above $35.40 an ounce on Friday.

JPMorgan analyst Michael Jansen told a room packed to overflowing with more than 500 delegates -- from corporate chief executives to geologists to fund managers -- that he expects gold prices to average $1,465 an ounce this year.

His year-end target for gold is $1,500, he said, adding the gold production outlook was strong going forward.

"We think mine supply is easily on track to grow 3 to 4 percent year on year," he said."

His forecast is slightly more subdued other predictions, such as by Barclays Capital, which said in January it expects the metal to average $1,495 an ounce this year, and range as high as $1,620 an ounce.

GFMS said in a January quarterly forecast that gold may top $1,600 an ounce by the end of 2011.

Klapwijk said gold and other precious metals will also get some impetus as investors exit other traditional safe havens.

"We expect the sovereign debt crisis will not be confined to Europe and it will eventually spread to the U.S. and Japan ... It seems to be inconceivable that the U.S will be able to continue on its current path and maintain its 'AAA' rating," Klapwijk added.

More than 20,000 people are in Toronto this week for the annual PDAC conference. Attendance grows every year at the event, a barometer of mining investment appetite. This year it has also attracted a handful of top government ministers from important mining jurisdictions.

As presenters rolled out their outlook from everything from gold to iron ore, and uranium to potash, there was one key word was in almost every presentation -- China.

Demand from the world's most populous country will help underpin demand for iron ore, the main steelmaking ingredient, said Phil Newman, chief operating officer of consultancy group CRU.

Of 5 Gold Miners, Markets Value Goldcorp's High Margins Most

Posted: 06 Mar 2011 08:03 AM PST

Marco G. submits:

Ms. Alix Steel (of Kitco Gold news fame) wrote about a fundamentally important point for gold miners (or any other type of miner), that all investors need to realize. In her article entitled "Record Gold Prices Not a Cure for Miners", she makes the point that total costs are key, and not the much-trumpeted cash costs for mining the golden metal.

Following is a sampling of gold miners with cash costs and total costs extracted from her article:

Gold Miner	Cash Cost	Total Costs	Est. % Margin*
Goldcorp (GG)	$300	$700	50%
Agnico-Eagle (AEM)	451	925	34%
Yamana Gold (AUY)	465	N/A	#VALUE!
Barrick Gold (ABX)	465	775	45%
AngloGold Ashanti (AU)	670	900	36%
* Gold price was arbitrarily set for calculations at:			$1,400

The estimated margin in gold mining was arbitrarily calculated with the supplied costs and gives a truer picture of the company going forwards rather than

Complete Story »

Sean Corrigan's Take On The Fed's "Apres Moi Le Deluge" Policy Which Only "A Krugman" Can Approve Of

Posted: 06 Mar 2011 07:32 AM PST

The key running theme this weekend is "the flood", specifically that soon to be left in the wake of the Federal Reserve, which is now facing the last days of its ignoble existence. Previously, Egon von Greyerz shared his outlook on why the Pompadour-esque cliche will soon lead to a complete destruction of the dollar, and all other paper currencies. Now, it is the turn turn of Diapason's Sean Corrigan, who in his note from Thursday shares his view on the Fed's "reprehensible policy": "When the Chuck Prince Charleston suddenly stopped in 2008, the initial impact was just as dramatic on the market for machine tools, ceramic magnets, and silicon wafers as it was on lumber, carpets, and dishwashers and, so, the shock hit the surplus nations every bit as hard as the deficit ones as they all realised, to their horror, that they had all become nothing more than imprudent, Rueffian tailors. Since then, of course, the game has been replayed at an even more frantic pace, with governments largely taking pole position as the drivers of deficits, the media of monetization and, hence, the inflamers of inflation...By the time this last blunder works its way through the system, it will not just be the world's tinpot tyrants and biddable client kings who will pay the price for the Fed's reprehensible policy of 'apres moi le deluge', but it will be the ordinary man and woman who will have occasion to rue a programme so replete with intellectual arrogance, power-worship, and a wilful blindness to its awful, unintended consequences that only a Krugman could approve of it."

From Sean Corrigan of Diapason Securities:

As the ongoing rise in raw materials prices has been brought into sharper focus by the oil price spike occasioned by the Colonel's little local difficulties, several varieties of myths, half-truths, and Laputan impossibilities have once again begun to infest the punditosphere to the point where the still, small voice of rational analysis is in danger of being entirely drowned out.

Arguably taking the palm among these is the ludicrous suggestion that a country such as Japan - a land erroneously believed to be languishing in 'deflation' (as opposed to being one enjoying the productivity-led benefits of modestly-declining prices amid a mildly increasing nominal supply of money and credit) - might, in some perverse, reverse-causality way, benefit from the fact that one important subset of its external suppliers has suddenly presented its house holders and businessmen with a much larger bill for its wares than has been its wont. Indeed, so powerful is the taboo associated with a fiat money not declining in value fast enough to satisfy the braying herd of underconsumptionists that it allows seemingly sane individuals to advance such a thesis even though they are simultaneously to be heard expressing the fear that when the self-same misfortune visits some supposedly less blighted population - i.e., their own - the 'tax' it represents cannot fail to pose a severe threat to their continued well-being. [TD: that was a 165 word sentence]

What they also fail to consider is that if higher oil prices are a 'tax', then so are higher banana prices, or higher T-shirt prices, or higher soda prices. What they therefore overlook is that the development of higher prices everywhere - a state of affairs whose attainment they all mindlessly ap-plaud the Federal Reserve for striving towards — is not a blessing of modern monetary manipulation, but a bane.

Implicitly a member of this same school of cart-before-the-horse Keynesians is former presidential advisor, Christina Romer, who used the pages of the NY Times last weekend to perpetuate the fallacy that when Roosevelt and his pet monetary cranks were ploughing under food and slaughtering herds while people in the land were literally starving, or when they were arbitrarily tinkering with the price of gold in semi-occult fashion over the great man's breakfast egg, their soi-disant courage in abandoning what was then the economic orthodoxy brought about a rapid end to a Depression which, in fact, turned out to be much more profound and protracted in New Deal America than in most other advanced nations — so much so, indeed, that a different strain of General Theory counter-inductionists frequently pops up to assure us that the horrors of World War II also had their silver lining in that the blessed upsurge in 'consumption' associated with tens of millions of deaths, the reduction of whole cities to cinders, and the delivery of half the globe to Communist tyranny did at least finally dispel the bogey of persistent over-capacity. [TD: that was a 185 word sentence]

Warming fully to her theme, Ms. Romer went much further in her haruspications, insisting that if only the higher councils of the Federal Reserve were not now populated exclusively by 'monetary hawks' (sic), that hidebound bastion of monetary rectitude could 'engage in much more aggressive quantitative easing, both in size and in scope, to further lower long-term interest rates and value of the dollar.'

As if that's what anybody needs at this point!

Meanwhile, that glowering eagle among the preening hawks, Chairman Bernanke himself (no, really, this is just too much even for irony!) had the gall to tell a European audience that none of the world's present problems were his fault. He even wheeled out the hoary old fable of the 'global saving glut' - something we thought had been laid to rest alongside its complementary, pre-Crash idiocy of a 'global asset shortage.'

As the man behind the screen of the most impor-tant economy in the Land of Oz, Bernanke is pre-sumably not unaware that the sins of both omis-sion and commission of which he is guilty when managing the world's reserve currency must have wider ramifications. So, when we talk of 'saving gluts', what we really mean — as no less a figure than Otmar Issing pointed out a few years ago - is not so much the voluntary, ex ante desire to forego a last nickel-and-dime, present con-sumption of American goods and services as it is the unfortunate result of the pressing, ex post dif-ficulty of disposing of the vast surplus of new dollars routinely being created with the full and enthusiastic blessing of the Fed.

It is hardly a coincidence that, during a decade which we now — rather belatedly — recognise as one during which dangerous 'imbalances' were building up (even if we have yet to admit the direct culpability for this of the ill-starred central bank measures taken to compensate for the Tech bubble which inaugurated the period), the US ran cumulative current account deficits of no less than $5.8 trillion dollars, a figure equivalent to more than a fifth of the simultaneous rise in global GDP. Given that this last measure is implicitly biased towards end-consumption — of however ill-judged a form — it should be a sobering thought that so much of its increase can be laid at the door of an American profligacy whose bitter legacy is the increasingly unsustainable weakness of the country's finances.

To put that enormous sum into perspective, we can note that the cumulative, ten-year deficits run up by all other OECD-member nations plus India and Brazil came to 'only' $3.8 trillion, or fully a third less than the US overspend. Depending on your taste, we can say that the US alone was responsible for eating up the equivalent of all the surpluses generated by the world's six biggest, non-oil, exporting nations (China, Japan, Ger¬many, Switzerland, the Netherlands, and Taiwan), or for almost twice the surpluses racked up by OPEC and Russia, combined, in a period when energy prices hit all-time, nominal dollar highs.

It further tells us something of how correctly to apportion the blame for the presently inflamed nature of markets for both goods and assets when we see that, even in these last two years of supposed American 'de-leveraging' and enforced credit stringency, the US current account gap has still managed to amount to almost half the overall total registered by the entire roster of OECD deficit nations, taken all together.

Now, it is true that the recipients of that Gilgamesh-like flood of Uncle Sam's suspect IOUs were not bound to pile them up in the local SWF or CB/Treasury foreign exchange account but neither is it obvious that simply to refuse all assistance to the local acquirers of dollars - leaving these to dispose of them in their own individual way - would have greatly mitigated the subsequent evils. After all, there was no official currency pegging at work in Continental Europe (not outside the pernicious system which bankrolled the importunate PIIGS, at least), yet hard-won, Teutonic and Swiss export dollars were still put to work by the local banks in financing some of the most arrant follies of the US credit bubble.

Incidentally, for all the accusations of 'policy manipulation' being bandied about, we should note that, notwithstanding the risible declarations of hewing to a 'strong dollar', the Greenback has fallen further in value over the decade in question - on a real, effective, trade-weighted basis - than all bar a handful of economic basket cases and one overt mercantilist.

Nor is it exactly a coincidence that an overlay of the US current account with the GDP figures for residential investment makes such a neat match. Unable to render a material settlement for the manifest of the Rest of the World's wares they desired, due to their nation's growing lack of industrial competitiveness, Americans simply took to buying and selling each other houses on a highly disproportionate scale, inadvertently providing the collateral necessary to attract funds back into the country and so to balance the books, however precariously, without overly scaring the dollar's owners with the pace of its depreciation.

Here it is not necessary to imagine that all the incoming surfeit of consumer goods was itself bought on tick, but only to countenance the idea that some of the proceeds of the credit-fuelled, phony prosperity being fostered by Bernanke's 'making sure it doesn't happen here' were routinely leaking abroad, contributing to a raft of misguided entrepreneurial, as well as banking, decisions there, too.

Think of it as if a successful US property developer, building contractor, realtor, mortgage broker or CDO packager — in addition to a cash-out refi junkie - had spent a non-trivial portion of his earnings on a chunk of Chinese electronic and German automotive excellence — shipments for which there were insufficient local goods either to act as passable substitutes or to be accepted in payment by the foreign vendors. Note, in passing, that this lack arose in good part from the fact that too many people had become involved in non-tradable, debt-financed activities, like housing, defence, or government in general because the preferential provision of credit to those sectors made them seem far more lucrative undertakings than the tough sledding of out-competing overseas manufacturers was deemed to hold in prospect.

The vicious circle which all this entailed would then be completed when the PBOC sequestered the dollars from the first sale and the local Landesbank received as a deposit those arising from the second, whereupon each institution would feed them back to those providing the mortgage finance from which our flat screen-watching, Beemer-driving hero was either making his living or eating his seed-corn.

Do not misconstrue the argument here: the natural expansion of monetary means in the surexporting nation is not in itself an evil - this is, after all, exactly what the classic price-specie mechanism of self-regulating, negative feedbacks comprises. Nor do we wish to suggest that to make sales on credit is somehow not a vital part of a functioning economy, or that it is inherently reprehensible. True, such business should be conducted judiciously with a careful eye to the chances of repayment and a wise consideration of what the real value of the repaid monies is likely to buy, but without any such facility, the world would undoubtedly be a much poorer place.

Where these both go wrong, however; where they become detrimental to the chances of sustained material progress is when two intertwined distortions are introduced by our modern day, state-directed, financial apparatus.

The first of these occurs when what started as credit - i.e., the willing, contractual surrender of the lender's ability to buy present goods in favour of an accelerated capacity to acquire them on the part of the borrower - is turned, by the chicanery of fractional reserve banking, into money. Now, A does not cede his own ability to buy to a cash-strapped B, but rather has his bank alchemically transmute the narrow earnests of future payment - which A cautiously ac-cepted from B presumably in accord with his spe-cific knowledge of his counterparty - into the freely-employable, instantly transferrable, general medium of exchange we call money.

In this way, A no longer has to wait for B to re-deem his promises by offering something of equal, produced value - either directly to A, or to the world at large in exchange for its money - before he, A, can enjoy more goods for himself. This means that a discrepancy has arisen between the quantity of goods at hand and the amount of the money with which to compete for them, all thanks to the legally unexceptionable, but logically invalid transmogrification undertaken by the CB-backstopped, fractional banking system. This may or may not manifest itself as what is today called 'inflation' - i.e., a rise in a statisti-cally-massaged index of consumer goods and services - but it ineluctably perverts the market signalling process by altering the relative prices of present goods and by introducing an artificial element of presumed capital availability into the discount afforded to future goods.

Given the CB's prime agency in giving the illusion of stability to what is an inherently unsound and definitionally illiquid system - and, hence, in promoting its gross, debilitating hypertrophy - the blame for all the consequent ills of this fundamental violation of free-market principles can only lie with it and it alone. The more important the central bank, therefore, the larger its degree of incrimination in this destruction of wealth, Mr. Bernanke.

The second disastrous act of interventionism takes place when that greater abundance of money in the seller's pockets - something which tends to reduce its marginal utility to him, leading him to value both goods and the labour he expends to acquire them more highly, thus raising their price and gradually lowering his competitiveness - is not offset by a reduced quantity of money in the pockets of the buyer - a lack which would otherwise bring about an equal and opposite restoration of relative valuation and pricing and so provide an ongoing impetus back towards a dynamic balance, well before the whole shape of industry becomes locked into a highly sub-optimal pattern or the burden of associated obligations grows too crushing.

Rest assured, there would still be trade surpluses and trade deficits under an unhampered system of payments, but they would never loom anywhere so large if the addition to the money- backing reserves of those in credit could only come about by means of an equal-and-opposite reduction in the reserves of the debtor - a natural motion for which the over-optimistic reliance on a commensurate adjustment taking place in unanchored, often wildly fluctuating, exchange-rate parities is a very poor substitute as well as impracticably bad politics. Then again, such an 'economics of illusion' - in preferring a stealthy erosion of the capital-eaters' living standards via external devaluation to a more honest recognition of the effects of their profligacy through internal revaluation - is par for the course for the Keynes-inspired mainstream of inveterate money illusionists.

By contrast with the natural, Humean process of zero-sum reserves, the present system represents nothing less than a scheme of Perpetual QE on the part of dollar-buying central banks, one which therefore exerts little or no discipline on the politically-pliable proclivities of the dollar-issuing central bank, as Jacques Rueff famously recognised with his allusions to the 'deficit without tears', 'the childish game of marbles', and in his fable of the foolish tailor ever willing to swap suits for his customers' freely-issued IOUs.

Just as the inadvisability, in normal circumstances, of pursuing 'orthodox' QE (a denomination to which we are forced since a deviancy so widely-practised can hardly now merit the adjective, 'heterodox') is widely recognised by even the most dyed-in-the-wool inflationists because of the lack of restraint it implies upon all those wishing to borrow money - not least the insatiable Jacobin meddlers who toil infernally in the bowels of the Provider State - so should we condemn out-of-hand this whole, ongoing business of QE-by-proxy.

That does not, however, lead to the verdict that it is all the fault of the Others and that the Fed stands pristinely absolved of all crimes. After all, the Others are perforce operating under doctrines promulgated by, and within an institutional framework minutely devised by, the global hegemon; an ad-mixture which consists of erroneous conclusions, falsely drawn - a la Romer - from the trauma of the Great Depression, and venal, full-spectrum dominance, self-interest.

Thus, though neither the diligent Mr. Wu nor the assiduous Herr Meyer could have been expected to realise it, what they were engaged in was not the investment of some of the fruits of their successful, overseas business endeavours in the American property market, as much as in the often indirect provision of finance to their own customers - affording these the means to continue to buy their goods—albeit in a form issued against the dubious security of a condo possibly owned by an entirely unrelated third party of increasingly questionable standing.

Hence, when the Chuck Prince Charleston suddenly stopped in 2008, the initial impact was just as dramatic on the market for machine tools, ceramic magnets, and silicon wafers as it was on lumber, carpets, and dishwashers and, so, the shock hit the surplus nations every bit as hard as the deficit ones as they all realised, to their horror, that they had all become nothing more than imprudent, Rueffian tailors.

Since then, of course, the game has been replayed at an even more frantic pace, with governments largely taking pole position as the drivers of deficits, the media of monetization and, hence, the inflamers of inflation. No-one is wholly innocent in this regard, but it is clear that, if the PBoC has vied manfully with the Fed for the laurels for much of the course of this dreadful race to the bottom, only the latter institution was guilty of redoubling its efforts at just the wrong moment last year - and only this institution was hubristic enough to accompany its outrage with the nakedly inflationist manifesto issued by its Chairman amid the high-profile mediafest of the Jackson Hole confabulation.

By the time this last blunder works its way through the system, it will not just be the world's tinpot tyrants and biddable client kings who will pay the price for the Fed's reprehensible policy of 'apres moi le deluge', but it will be the ordinary man and woman who will have occasion to rue a programme so replete with intellectual arrogance, power-worship, and a wilful blindness to its awful, unintended consequences that only a Krugman could approve of it.

CHRIS IS BACK!!!! Pay your tax with Gold and Silver in Utah? WTF?

Posted: 06 Mar 2011 07:15 AM PST

Moral and financial decadence

A deluge of an unprecedented magnitude is both inevitable and imminent. The consequences of the economic and political mismanagement will have a devastating impact on the world for a very long time. And the consequences will touch most corners of the world in so many different areas; economic, financial, social, political and geopolitical. The adjustment that the world will undergo in the next decade or longer, will be of such colossal magnitude that life will be very different for coming generations compared to the current social, financial and moral decadence. But history always gives us lessons and the one that is coming will be necessary and eventually good for the world. But the transition and adjustment will be extremely traumatic for most of us.

We have reached a degree of decadence that in many aspects equals what happened in the Roman Empire before its fall. The family is no longer the kernel of society. More than 50% of children in the Western world grow up in a one parent home, either being born by a single mother or with divorced parents. Children are neither taught ethical or moral values nor discipline. Many children consider attending school as optional and education standards are declining precipitously. Most families do not have a meal around the dinner table even once a week. Sex and violence are common place on television and in real life. Both press and television create totally false values and ideals. Everyone must be young and beautiful often enhanced by surgical or digital means. Old people have little value and their wisdom is not benefitting the younger generations.

The Golden Calf or materialism is the ultimate value that is worshipped and no means are eschewed to attain material goals. Since most of the prosperity that has been achieved in the last 40 years is based on printed money and debt, it is totally false and unsustainable. A major part of the Western world has improved their living standard, by exchanging services and swapping houses at ever rising prices financed by printed paper and credit. The perceived wealth that is created out of this is illusory and ephemeral. We have created a world economy which is based on debt and thin air.

The Gini coefficient of income and wealth is now reaching extremes in many countries. This measures the inequality between the rich and the poor. In the US the Gini coefficient is now at the same level as in the 1920s before the depression. In countries like the US, the rich are getting richer whilst 45 million people live below the poverty line, 43 million receive food stamps and over 700,000 are homeless. With a real unemployment rate of 22% and urban youth unemployment much higher, the US will soon experience social unrest.

But it is not only the US that will experience financial misery, famine and social unrest. This will also hit most European countries and in particular the UK, southern Europe, Eastern Europe and the Baltic States as well as African countries, the Middle East, Asia, yes in fact the whole world.

Are boom and busts inevitable?

Well if you listened to the former British Labour Prime Minster Gordon Brown, he proudly declared that he had abolished booms and busts and thus economic cycles. But he was expeditiously thrown out at the next bust which of course had nothing to do with him since he blamed the US sub-prime market for his ill-fated destiny.

Cycles or ebbs and flows are a natural part of both economic life and nature. And right at the point when something could be done to limit the damage, most nations seem to have the uncanny knack of selecting the political individuals who will put fuel on the fire and make the situation catastrophically worse.

Greenspan was one such individual. During his 19 years as Chairman of the Fed, he could have limited the economic and social damage that the US would suffer. Instead he took every single measure possible to ensure that there would be a catastrophe with uncontrollable consequences. But we shouldn’t just blame the incompetence of Greenspan. It was sickening to watch every sycophantic congressman and senator licking Greenspan’s boots and praising his wisdom. Because Greenspan’s money printing and incompetent interest rate management created one of the biggest financial bubbles in world economic history. But the politicians loved this. It made the stock market boom, and house prices surge. Thus the politicians were all loved by their voters who did not understand the dire consequences that were looming. And Bernanke de Pompadour is continuing the same disastrous policies of creating money out of thin air. When will they ever learn that creating money out of thin air and running astronomical deficits that never will be repaid with normal money leads to the road of total ruin? When will they ever learn? The very sad answer is that they won’t and therefore they are leading the world into a hyperinflationary depression that will have uncontrollable and cataclysmic consequences for current and future generations.

Empty stomachs are rioting

We have for years warned about hyperinflation leading to famine, misery and social unrest. Well, this is exactly what is happening in many parts of the world. The protests and overthrowing of regimes in Tunisia, Egypt and Libya are primarily due to a major part of the peoples of these nations having no job, no money and little food. It is their empty stomachs that are rioting. In addition they are protesting against the leaders of these countries stealing from the people.

It is virtually certain that these riots will spread to many countries in the Middle East, Africa and the developing world. This will lead to new regimes and new political orders that could either be far left or far right politically or religious extremists. But the new regimes will not be in a position to change the root of the problem which is famine and poverty. In Egypt for example there has been a quiet military coup. It is unlikely that a democratic regime will take over from the military. So the people will protest again and again. And this will be the same in most countries. Eventually the people will take the law into their own hands since no regime will be able to give them the food that they need.

The hyperinflationary deluge is imminent

Although food and fuel inflation is rampant worldwide already, we are only seeing the very beginning. Massive oil price rises are likely to continue as a result of the geopolitical situation as well as peak-oil. The Middle East is a time bomb waiting to go off. Israel is in an extremely precarious position and the involvement or non-involvement of the US in this conflict would both have dire consequences for Israel and peace in the world. Food prices will continue to rise dramatically. Major parts of the world are living below the poverty line today and this will increase exponentially.

The lethal concoction of rising food and fuel prices is already affecting the Western world. The Continuous Commodity Index – CCI, (60% food, 17% energy and 23% metals) has almost doubled since the low in early 2009 and has gone up 42% in the last 12 months. The almost vertical rise of the CCI is one of the best indicators of hyperinflation being imminent. A catastrophe of astronomical proportions is looming. This will hit the world at a time when there is no capacity whatsoever to take any real measures that could alleviate the problems.

(Click image to enlarge)

Most countries are already running major deficits which will increase dramatically in the next few years. The banking system is bankrupt and is only holding together due to false valuations of toxic debt and derivatives. This is done with the blessing of governments since virtually no major bank could face an honest valuation of its assets. Unemployment and especially youth unemployment is currently a problem worldwide and it will get much worse. In 2010, the US government spent 60% more than its revenues. In order to balance the budget individual and corporate income taxes would have to double.

USA-2010-Revenue

Never before in history has the world run out of real money as well as (affordable) food and fuel simultaneously. But his is exactly what is happening now and it will get substantially worse in the next few months and years.

Financial misery, famine and high unemployment combined with governments that will not be in a position to give real help are a recipe for disaster that will lead to social unrest and revolutions not only in developing countries but also in the West. Hungry people are desperate people and desperate people do desperate deeds. We could see already in 2011 food shortages, and riots both in Europe and in the US.

Hyperinflation Watch

The following are INDISPUTALBLE FACTS:

The US dollar is down 82% against gold since 1999
The US dollar is down 49% against the Swiss Francs since 2001
The Dow Jones is down 81% against gold since 1999
The Continuous Commodity Index is up 100% since 2009

The above facts are clear evidence of an economy that has been totally mismanaged. But more importantly most of these trends are now starting to accelerate – a clear sign that hyperinflation is just around the corner.

dowjones-down-86percent-against-silver-since2001

With years of negative net worth and negative cash flow, the US is bankrupt today. The Federal deficit is forecast to increase by at least another $ 5 trillion in the next 5-7 years. Add to this the State deficits, the Municipal and City deficits that are rising at a galloping rate and we have a country that is going to haemorrhage to death in the next few years. One wonders when the totally ineffective and clueless rating agencies are going to fathom this. Not that it will matter if they once do. One also wonders what Mme Bernanke de Pompadour and his court are thinking. “She” and her courtiers should have above average intelligence and could not possibly avoid seeing the facts that we all see today (of course, some of us have seen it coming for over a decade). But “she” has to please her master King Louis XV Obama and her devotion to the king goes above all reasonable common sense, or rationale. So the two of them will continue to crank up the printing press and drown their people and the world in worthless paper.

USA-2010-CashFlow

Stock Market

To believe that the current money printing liquidity boom is real and sustainable would be a very serious and expensive mistake. The temporary and illusionary pickup that we are now seeing in the economy and stock market is the normal initial phase of a hyperinflationary economy. It must not be mistaken for a real improvement in the economy.

The normal pattern at the beginning of a hyperinflationary period is that stock markets surge. This is the result of the increased liquidity and a flight to more inflation proof assets. This was the case in for example the Weimar Republic and Zimbabwe. Just look at the chart below of the Zimbabwe stock exchange that went from 1,420 in January 2005 to 5.4 trillion in June 2008, a 3 billion per cent increase. That was of course in Zimbabwe dollars. In US dollars the stock exchange went sideways with major volatility. So in hyperinflationary terms stock markets could continue to rise initially thus making them a better investment than cash. However, measured against real money, the Dow has gone down 82% against gold since 1999 and 86% against silver since 2001 (see chart above). We are currently seeing a dead cat bounce but we expect the Dow to decline a further 90%, at least, against gold in the next few years. So even if stock market investments will initially give the illusion of protecting investors, it will be a very poor hedge against the ravages of hyperinflation in real terms.

ZIMBABWE STOCK INDEX 2007-2008

zimbabwe100milliondollarsandindex2007

Bond market

In January 2009, we warned investors that long term interest rates were bottoming. Since then the 30 year bond yield is up from 2.6% to 4.6% an 80% rise. But more importantly the 30 year is currently in the process of breaking a 17 year downtrend line which dates back to 1994. This confirms that rates will now start a major and rapid rise which is likely to reach the mid-teens or higher. Governments will attempt to keep short rates low due to weak economies but eventually the rising long rates will put strong upward pressure on the short rates. So the flight to government bonds that we have seen in the last few years will soon reverse into a massive rush for the exit. This will coincide with rapidly increasing financing requirements by the US, UK, EU and many other governments. The poisonous concoction of rising rates and rising financing needs will create a vicious circle of collapsing bond markets and unsustainably high financing cost. This will continue to drive interest rates even higher which will further increase deficits and necessitate even faster running printing presses. Add to that a collapsing currency and the hyperinflationary picture is complete. It is our very strong view that investors should exit bond markets entirely if they want to avoid a total destruction of their assets.

Currency Market

As we have explained for many years, hyperinflation is created by the government destroying the currency as a result of money printing to finance deficits. This leads to the cost push inflation that we are now experiencing. Add to that, shortages in commodities worldwide, thus creating the perfect hyperinflationary scenario. The Dollar, the Pound, the Euro and many other currencies will continue to decline. They can’t all decline against each other at the same time so the market will take turns in attacking one currency at a time. But all currencies will continue to decline against gold. We believe that the dollar will soon start a very rapid fall against gold and against many currencies. Investors should exit the Dollar and also the Pound and the Euro. There is no currency better than gold or silver but for any small amounts of cash we prefer the Swiss Franc, the Norwegian Krone, the Singapore dollar and the Canadian dollar.

Wealth Protection

A hyperinflationary depression will destroy the value of money as well as most assets that were financed by the credit bubble (property, stock market). Wealth protection is now critical and urgent. We see no better way of protecting assets against total destruction than physical gold and silver stored outside the banking system. Thereafter, precious metals, energy and food stocks are our preference. But it must be remembered that any asset including stocks that is held through a bank is dependent on a sound and surviving banking system.

The real move in precious metals is still to come as we have outlined in many articles. Less than 1% of investors own gold. Before this economic cycle is over we are likely to see a mania in physical precious metals that will drive prices exponentially higher. And luckily for investors, this is a mania which is unlikely to end in a collapse since gold most probably will be part of a future reserve currency.

Finally we are again quoting von Mises who clearly understood that “le déluge” is inevitable:

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises

Silver Liberation Army Official Communiqué No 2: Formal Declaration of War on Banker Occupation

Posted: 06 Mar 2011 05:58 AM PST

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Physical Silver Price is Really $50 per Ounce (80% Premium on COMEX Silver Non-Delivery)

Posted: 06 Mar 2011 05:46 AM PST

This just in from Harvey Organ's review of the gold and silver market. Wynter_Benton update on their recent raid With permission, I can update the results of our raid. It was successful beyond imagination but that "success" has spawned even more questions about the price of paper silver going forward. It was reported by SGS that he heard that on Friday Blythe was offering 30-50 percent premium and that at least 4500 hundred contracts will stand for delivery. I am here to give you a more accurate update (and a first hand account of what happened on Friday Feb 25). Our group was detemined to stand for delivery going into Monday because we were not going to take a 30 percent premium on a price of $33.50.

Everything Is Now Correlated Exclusively To The Fed's Balance Sheet

Posted: 06 Mar 2011 05:37 AM PST

(ZeroHedge) The chart which we presented a few weeks ago courtesy of Sean Corrigan sees a few additional components added to it. Whereas before the chart focused on the Adjusted Austrian money supply and commodity prices, it now sees the addition of the S&P and Junk spreads. In a word: every single asset class correlates 1:1 with the Fed's balance sheet. If the Fed is really planning on ending QE2 on June 30, the market collapse will be epic. And, yes, this should not come as a surprise to anyone.

Senator James McClure – A Remembrance

Posted: 06 Mar 2011 05:13 AM PST

Long before the Tea Party movement, there was the Sagebrush Rebellion — a movement in the Rocky Mountain states to push back federal government intrusion in our daily lives. The titular head of that movement was James A. McClure, then a senator from Idaho. He did something that would be impossible to achieve today: He read every word of every bill he ever voted on. Just the presence of the 2400-page Health bill might have provoked his resignation from the Senate. When he quit the Senate after three terms, he did so because he could no longer sanction the politicos who had come to dominate Congress. "Wet-finger politicians," he called them. In many ways, he epitomized the West as it was and still is once you cut away the modern trappings. McClure didn't become someone other than who he was simply because he worked in Washington, D.C. He represented the West and, in a way, he was the West.

Senator McClure is famous in gold lore for sponsoring the legislation in 1974 allowing private citizens to own gold bullion and coins. By it, Congress also repealed Franklin Delano Roosevelt's infamous gold ownership ban of 1933. It was that law coupled with the formal devaluations of the dollar in 1971 and 1973 that led me to consider gold as profession at 25 years of age. We lost Senator McClure this past week at 86 years of age and I didn't want his passing to go without a mention at the USAGOLD website. It was his bold position in the early 1970s that led to the gold industry which followed in its wake, and for that I will always be grateful.

– Michael J. Kosares

Apres nous le deluge

Posted: 06 Mar 2011 04:13 AM PST

(After us the deluge)

"The real move in precious metals is still to come as we have outlined in many articles. Less than 1% of investors own gold. Before this economic cycle is over we are likely to see a mania in physical precious metals that will drive prices exponentially higher. And luckily for investors, this is a mania which is unlikely to end in a collapse since gold most probably will be part of a future reserve currency."

Egon von Greyerz
GoldSwitzerland

Link

USAGOLD: Nothing adds more to gold's long term value than the notion that nation states are likely to accord it a stronger role in central bank (or national) reserves. Where once central banks were net seller's of gold, they are now net buyers. I see this development, in terms of the effect on the gold price, as akin to the original Central Bank Gold Agreement which regulated the flow of gold from the central banks and ignited the now ten-year old bull market. The yellow brick road widens from here.

– Michael J. Kosares

We're Just Gonna Inflate Our Way Out Of It! (Or Are We...)

Posted: 06 Mar 2011 04:00 AM PST

From Contrary Investor

We're Just Gonna Inflate Our Way Out If It!...Oh really? I don't think so, Scooter. In a recent discussion we mentioned the fact that lately former Fed member Larry Lindsey has been talking up the idea of a potential fiscal trap for the US. To be honest, we believe this idea has already played itself out in Japan and day by day is coming to a Euro theater near you in terms of individual country experience. The whole idea of a fiscal trap involves the combination of sovereign debt levels with manipulated domestic interest rate levels. Japan has been a poster child example of this simple concept. By artificially holding its domestic interest rates at the theoretical zero bound, it has allowed the government to lever up in a magnitude that most likely never could have happened had free market forces set domestic interest rate levels. Japan has enjoyed an artificial depressant on nominal dollar (in this case Yen) interest costs that has made incredible sovereign debt expansion feel relatively benign from an ongoing debt servicing cost perspective relative to what has been up to this point the magnitude of ongoing sovereign revenue collection.

Many moons ago we were involved with an investment idea for a time that was essentially a rollup of and specialized focus upon ventilator hospitals. The company was called Vencor. As a result of that investment we necessarily needed to get up to speed on the medical profession subspecialty that is pulmonology. And what struck us at the time as being so critical in many patient cases was the "weaning period" or window of opportunity so necessary for a patient to get off a ventilator. In the majority of cases involving a shorter term illness, the weaning period was simply a natural part of total patient recovery. But as you would imagine in a smaller number of cases, patients were not so fortunate. Although this is a very generic comment and completely dismisses patient and circumstance individuality, the fact is that the longer a patient remained on a ventilator, the greater the chances they would not be able to be weaned off of the machine. The body “learns” not to breathe on its own after a period of time. Essentially a patient would pass a critical window of recovery weaning period opportunity.

So, first, our personal apologies as we know this analogy is neither light hearted nor fun to discuss. Somber may be the true characterization. But we believe this analogy is incredibly apt in terms of describing the reality of the sovereign debt fiscal trap. The longer Japan has been on the artificial zero interest rate "breathing machine" over the last decade plus, the harder it has become to wean itself off. Although we could spend an entire discussion on Japan alone, we personally believe Japan has already passed the critical "weaning period" demarcation line for zero bound interest rate/monetary policy. At this point, meaningfully rising rates in Japan would cause a rise in debt service payments that would crash directly into the current level of offsetting revenue collection by the government and leave little else in the way of excess funds in its aftermath. Of course after so many years of zero bound for Japan , investors seem to believe rates will remain near zero indefinitely. This is what complacency is all about. Although this sure seems to be the real world reality that hovers over Japan, the Japanese fixed income markets have clearly not priced this in as of yet. Somewhere down the road it appears an inevitability. Again, a very big story that will be told another day. But when that day comes, it may indeed be quite the eye opener and repricing event for sovereign debt globally.

It just so happens that a few weeks back, those thoroughly lovely folks at the US Treasury Department were kind enough to give us a current look at just where the structure of official US Federal debt stands as of January 2011 month end. We pulled out our calculators and went to work to produce the chart you see below that breaks down the maturity structure of Federal debt by year looking out over the next decade. Let's cut right to the bottom line. A touch over 22% of US Federal debt matures in one year (2011). A touch less than 50% of total Federal debt matures within three years. And as you eyeball the debt maturities of 2011 through 2013, we believe it's fair to say that the average maturity of just shy of half of “official” US total Federal debt is roughly a year and one half. Trying to be conservative, with one year Treasury paper near 30 basis points in cost and three year paper near 100 bp, we believe it's fair to say that a bit less than one half of total publicly traded (excluding intergovernmental transfers) Federal debt has an average cost of capital of about 55 basis points, again remembering that in weighting these numbers the bulk of maturities occurs w/in 1 year. And without question this is a gift of Fed interest rate engineering at the theoretical zero bound. The cost of servicing US Federal debt interest payments has been hooked up to a Fed sponsored ventilator, if you will, as it's certainly not breathing on its own. So the much longer term thematic investment question becomes, just when will the eventual "weaning period" from the zero bound begin and what will be the character of the patient when this occurs?

For now, the US has in good part traveled down the path already trodden by Japan in the prior decade. But as we see life, the US has not yet passed the critical "weaning period" stage where it can no longer "afford" to get off the ZIRP ventilator. Time remains, but the clock is ticking ever louder with each passing day.

Here’s a fun fact you can use to thrill your friends at the next Wall Street cocktail party. At year end 2006, “official” US Federal debt outstanding stood at $4.9 trillion. The latest Fed Flow of Funds numbers tell us that by the third quarter of 2010, that number is now just over $9 trillion, an increase of $4.1 trillion. Not quite a doubling in US Federal debt. To find a similar increase of $4.1 trillion prior to the beginning of 2007, one has to travel back a quarter century and combine ALL Federal debt taken on. We’ve now accomplished in three and three quarter years what took a quarter century to accomplish.

And of course what has happened to 1 year Treasury rates since the dawn of 2007? They have fallen from literally 4.94% to under .3%. You get the picture. The government has been able to take on this magnitude of new debt as debt service costs are negligible under 30 basis points. This is the birth place of the fiscal trap.

Remember, the numbers we are discussing do not include the impact of Fannie and Freddie, nor take into account the present value of SSI and Medicare liabilities. But since Federal debt costs have been artificially lowered for now by the Fed sponsored breathing machine, debt service costs during this period of what truly is unprecedented US sovereign debt buildup have been totally benign. Everyone and their brother know, or better know, that from a longer term standpoint this reality in current US Government funding circumstances is absolutely unsustainable. Somewhere ahead, "something" will change. It's how this set of circumstances is reconciled and what influences or effect this reconciliation has on financial asset classes and prices that will be important to investment decision making.

Sorry to have dragged you through the above, but it sets the stage for hopefully a thematic truism looking ahead. Right to the bottom line. The set of facts and circumstances we've dragged you through so far in this discussion argue incredibly strongly that the US is not going to be able to "inflate its way out" of its current leverage/entitlement obligation position. Of course this thematic comment rests squarely upon the assumption that US interest rates would rise in an accelerating inflationary environment. And yet wildly enough, does it not appear that Fed monetary actions seem absolutely hell bent on reflation at all costs? It sure seems that way.

You know that a few weeks back we received the new budget from the Administration. Of course it came on the same day that the $1.5 trillion budget estimate for 2011 became $1.65 trillion. (You may remember we entered the current year with an estimate of $1 trillion, but who's counting at this point, right?) Of course the missing item from the current budget proposal was any type of an attempt at reconciling entitlement costs. God forbid in a pre-election year, no? C’mon, what’s more important, the long term economic health of the country, or near term election results? Unfortunately and quite sadly, you already know the answer. The key fact in this balance sheet and deficit funding drama is that the US is facing chronic short term budget deficit acceleration due to the now inevitable fact that here and now entitlement costs are accelerating as the baby boom generation has come to collect, so to speak. Since there has never been any attempt by the Government to look at long term funding of these long term entitlement costs (match funding), it's a pay as you go set of programs. And that means the Government long ago chose to fund these short term. Hence the current structure of Government debt maturities. The Government long ago chose to fund its entitlement obligations with an adjustable rate mortgage, if you will. And for now, the chief pulmonologists at the Fed have chosen intubation and ventilator assistance in terms of current interest costs. But the longer the patient (US Government debt acceleration) remains on the artificial interest rate ventilator, the tougher it's going to be to successfully move through and past the "weaning period". Hence the description of the fiscal trap. This is only amplified by the fact that this year SSI inflows will not meet outflow requirements, leaving the Government to make up the shortfall as part of the budget. Just imagine what this will look like in a few years, let alone a decade.

For a minute, let's flip this set of circumstances on its proverbial head and ask under just what set of circumstances could the US Government potentially successfully inflate its leverage problems away. It's a bit of compare and contrast with the reality of current factual circumstances. The US could successfully "inflate away" its debt issues if 1) the structure of debt maturities was decidedly skewed to the long term, and 2) the US had not chosen to fund its longer term entitlement obligations on a pay as you go basis at the short end of the curve. Small annual budget deficits with large long dated debt obligations could easily and absolutely be reduced in "real" terms vis-`-vis a process of accelerating inflation. The problem, per se, could very much be inflated away. But this set of circumstances stands in polar contrast to the current reality of the Federal Government debt structure and ongoing and accelerating short term funding needs. Message being, the US will not be able to inflate its way out of what will be growing budget problems as we move ahead. In fact, the Fed trying to force macro inflation short term is simply counterproductive to Government longer term budget and debt service interests. Question: How does the Fed creating another stock market ramp help to solve bigger picture US debt and ongoing funding cost issues? We do not have an answer, not unless we are going to tax Wall Street and big bank record bonuses as well as stock related capital gains at a 100% marginal rate.

With a projected $1.65 trillion budget deficit for this year, the US will borrow about 11% of estimated GDP. It has likewise been estimated that interest costs to service US Government debt singularly will total about $190 billion, or roughly 1.3% of GDP. Due to the Fed manning the financial ventilator, borrowing costs are low, but borrowing needs are high. With this type of a structural backdrop, inflation (assuming higher interest rates would be a result) is the last thing the US Government needs, but its the very thing the Fed seems intent on provoking. The longer this set of circumstances not only exists, but continues to accelerate in trajectory, the tougher the "weaning process" will ultimately become for the Fed's zero interest rate policy. Unlike Japan , we believe the US still has the time to address this key issue for longer term US economic outcomes. Of course the most important question of all becomes, does it have the will?

The larger the US debt burden grows ahead as the Fed maintains the financial ventilator setting on zero bound, the greater the potential for a sovereign debt dislocation in the US to arise at some point. We are already seeing these exact circumstances in the EU zone along with fallout consequences. We personally believe it will not be long before the global capital markets "recognize" and price in the reality of fiscal and monetary circumstances in Japan . The US given a bit of lead time has a key choice right now. Either deal with this set of colliding circumstances proactively, or the global capital markets will do so somewhere ahead. Unfortunately as sovereign debt issues continue as a critical theme ahead, the spotlights will shine on this problem ever more brightly from a global perspective. We mentioned thematically many moons ago that the final provocateurs in generational credit cycle expansion would be sovereign entities. Just as it was clear in the middle of the last decade that US households were heading toward a generational tipping point in terms of balance sheet leverage extension, so too is it clear now that many global sovereign entities are exhibiting similar character. Unfortunately, our elected and appointed officials, as well as Wall Street and financial sector hangers on, told us "no one could have seen this coming" in 2008 and 2009. We're telling you right now that from a sovereign sector balance sheet standpoint it's coming, okay? We're just hoping we won't be calling ourselves "no one" in a few years.

U.S. considers oil market intervention

Posted: 06 Mar 2011 03:56 AM PST

White House Considers Tapping Oil Reserves

By Jackie Frank
Reuters
Sunday, March 6, 2011

http://www.reuters.com/article/2011/03/06/us-usa-energy-reserves-idUSTRE...

WASHINGTON -- White House Chief of Staff William Daley said on Sunday the Obama administration was considering tapping into the U.S. strategic oil reserve as a way to help ease soaring oil prices.

Speaking on NBC television's "Meet the Press," Daley said: "We are looking at the options. The issue of the reserves is one we are considering. It is something that only is done -- and has been done -- in very rare occasions. There's a bunch of factors that have to be looked at. And it is just not the price."

"All matters have to be on the table when you see the difficulty coming out of this economic crisis we're in and the fragility," Daley added.

Congress has pressured the Obama administration to look to the emergency oil supply to ease consumers' fears over rising gasoline prices, which are threatening again to top $4 per gallon at U.S. gas stations.

... Dispatch continues below ...

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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

Higher oil prices could undermine the fragile U.S. economic recovery and politically damage President Barack Obama as he moves toward his 2012 re-election bid.

While the White House has said governments around the world had options, including oil reserves, that could be used to prevent an inflationary price spiral due to oil supply disruptions, none have taken the rare step of tapping into their oil reserves.

U.S. oil prices jumped on Friday to more than $3 a barrel to $105.17, their highest level since September 2008, as fighting in Libya worsened and protests in the Middle East intensified.

The International Energy Agency said the revolt in Africa's third-largest producer had blocked about 60 percent of Libya's 1.6 million bpd (barrels per day) oil output, largely due to the flight of thousands of foreign oil workers.

On Thursday, U.S. Treasury Secretary Timothy Geithner played down the risks to the oil supply from political disturbances in the oil-rich Middle East and North Africa in testimony before a congressional panel.

He said there was "considerable" spare oil production capacity around the world and "substantial" reserves on hand.

"If necessary, those reserves could be mobilized to help mitigate the effect of a severe, sustained supply disruption," Geithner told the U.S. Senate Foreign Relations Committee.

Geithner said high food and oil prices were causing hardships in many parts of the world. But he said Americans were feeling less impact.

There has been support among Senate Democrats for tapping America's emergency oil supply to cool gasoline prices.

Senator Jay Rockefeller urged Obama on Thursday to allow a "limited draw-down" from the oil reserves, to "protect our national security by preventing or reducing the adverse impact of an oil shortage.

But Republican Senator Lamar Alexander, speaking on CNN's "State of the Union" on Sunday, said he would not support the oil reserve drawdown.

On Wednesday, U.S. Energy Secretary Steven Chu ruled out releasing oil from the reserve, saying ramped-up oil production in Saudi Arabia should lower the crude price.

"That's going to mitigate the price increase," he told reporters. "We're hoping market forces will take care of this."

Tapping the Strategic Petroleum Reserve, created in the mid-1970s after the Arab oil embargo, is a relatively rare event. It has been U.S. policy to turn to the emergency supply only when faced with a major supply disruption.

It was last done in 2005 following Hurricane Katrina, helping to drive oil prices down by about 9 percent.

British finance minister George Osborne on Friday signaled he would cut the country's fuel tax to counter soaring oil prices. A one penny-per-liter rise in the fuel duty planned by the previous Labour government was due to take effect in April.

* * *

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Save Your ASSets First

Monday, March 7, 2011