Gold World News Flash

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• Indicium
• Jim Interviewed By King World News
• Hourly Action In Gold From Trader Dan
• Trend & Cycle Update - XAU & S&P500
• Gold Seeker Closing Report: Gold and Silver Fall 1% and 2%
• Introducing the American Siler Dirham
• The Burden of Pensions on States?
• Important Vulture Update, Gold-Silver Ratio “Only” 28 Year Low
• Lawmakers Back Recognizing Gold & Silver as Currency
• The US ponzi schemes are exposed and the gold scam could be bigger
• Chinese Inflation Heats Up Again As PBoC Takes Another Step To Establish Yuan As Reserve Currency
• The Generational Budget Gap
• The Charts You Absolutely HAVE to Watch Going Forward
• Approved, gold and silver money bill goes to Utah's governor
• Gold market will get ever more violent, Sinclair tells King World News
• Bob Quartermain: The Constraints on Silver Supply
• Guest Post: Chinese Gold Fever
• Gold Price Took a Wound Today, As Yet There's No Reason To Believe it's the Start of a Larger Correction
• The Probability of More Quantitative Easing
• The First Runner-Up in This Year’s Daily Reckoning Financial Darwin Awards
• Opportunities Along the Path to Democratic Prosperity
• Inflation 1; Economy 0
• Jim Sinclair - Gold Explosion, Oil $150 to $200, Continued QE
• Gold falls 1.5 per cent on dollar gains; oil, stocks slide
• Former Goldman Sachs Analyst Charles Nenner Joins Marc Faber and Gerald Celente in Predicting Major War
• Guest Post: On Japan’s Bond Market And Its Economy
• Fat-Tail Fatigue
• The Constraints on Silver Supply
• Profit Taking at New Highs for Gold and Silver

Indicium Posted: 10 Mar 2011 07:06 PM PST Several of you have expressed frustration with the direction the comments have been meandering lately. You've requested a more "Freegold oriented" discussion. I aim to please, so here is some Freegold fodder to get you started.Do any of you remember FOA writing about "K-Rands" and the fact that they are a legal tender gold coin yet they have no indicated face value? Here is one such excerpt:FOA (

Jim Interviewed By King World News Posted: 10 Mar 2011 06:17 PM PST View the original post at jsmineset.com... March 10, 2011 09:47 PM Dear CIGAs, Eric King of King World News was kind enough to interview me on today's gold market action. Please click the link below to listen to the interview. Click here to listen to today's interview…...

Hourly Action In Gold From Trader Dan Posted: 10 Mar 2011 06:17 PM PST View the original post at jsmineset.com... March 10, 2011 12:06 PM Dear CIGAs, Click either chart to enlarge in PDF format with commentary from Trader Dan Norcini For further market analysis and commentary, please see Trader Dan’s website at www.traderdan.net ...

Trend & Cycle Update - XAU & S&P500 Posted: 10 Mar 2011 06:17 PM PST The Downtrends Continue XAU Update The daily trend for the TDI/GC indicators is now in a sell mode as of today. Additionally, the weekly XAU chart continues in the previously indicated downtrend. The monthly chart is still in an uptrend, however, it should be noted that the Pendulum SRA cycle indicator is turning over. Two out of three time frames are clearly indicating a bearish trend and a SRA cycle question mark exists in the monthly chart. This development is clearly not good. As previously noted on the website, gold has been up for 5 straight weeks and silver for 6 weeks. One does not need technical indicators to infer a rest period is in order. XAU Summary: There is no current evidence for an immediate surge to $1500 gold, $40 silver or new highs for the XAU, as suggested by many others. In my opinion, that day will come but only after a considerable period of backing and filling activity. Here is where I would prefer the indicators to be dead wrong. S&P500 Update...

Gold Seeker Closing Report: Gold and Silver Fall 1% and 2% Posted: 10 Mar 2011 04:00 PM PST Gold fell all the way to $1403.20 by late morning in New York before it bounced back higher in afternoon trade, but it still ended with a loss of 1.12%. Silver fell to as low as $34.658 and ended with a loss of 2.03%.

Introducing the American Siler Dirham Posted: 10 Mar 2011 03:59 PM PST We are developing a barter trading system that will allow our customers to open their own store fronts at our website, and buy and sell products denominated in a bullion backed barter Share this:

The Burden of Pensions on States? Posted: 10 Mar 2011 03:00 PM PST Via Penson Pulse. Mary Williams Walsh of the NYT reports, The Burden of Pensions on States:   For public workers in Wisconsin, there’s more bad news.   Having lost the battle on collective bargaining, they may soon be asked to make more financial sacrifices.   The state’s workers offered to start picking up part of the cost of their pensions and health insurance early in their showdown this year with Gov. Scott Walker. That change will provide immediate relief for struggling towns, school districts and state agencies, and help them balance their budgets.   But new pension cost estimates, ordered before Governor Walker was elected, are coming as soon as next week. They are expected to show that the current contribution levels to the state pension system are too meager. More money, from employers and employees in some combination, will be needed, and perhaps much more in coming years.   Other states will also probably find that Wisconsin’s idea of simply dividing pension contributions between labor and management is an illusory solution to their long-term financial woes. That’s because several studies have shown that promises to workers are far more costly than routinely calculated by Wisconsin and most states.   And the problem seems unlikely to be solved by putting curbs on the collective bargaining power of state workers. Despite the arguments of some Republican governors and popular perception, the places with the most unionized work forces are not necessarily the ones with the most generous pensions, according to a new study.   Coming up with bigger contributions to pension funds will require states to make difficult choices about the size of their work forces, their commitment to public services and the viability of their employee benefits, which are often said to be irreversible and protected by state constitutions.   “The amount they have to be contributing could potentially be two to three times as much as they’re contributing now,” said Joshua Rauh, an associate professor of finance at Northwestern University, who has been challenging the way most cities and states measure their pension promises. “If you don’t want to count on the stock market to pay for all this, this is what you’re going to have to contribute.” Mr. Rauh and a number of other analysts say the states’ biggest problem has been a failure to understand how much benefits will really cost. Instead of the states’ models, these analysts have come up with alternatives that more closely approximate those used by insurance companies.   Unlike recalcitrant states like New Jersey and Illinois, Wisconsin has been setting aside money every year for its fund. It has also been thinking of lowering its reliance on stocks, to reduce its exposure to bear markets. The issue is whether it has been setting aside anywhere near enough, given the magnitude of its promises to workers.   The idea that public pensions may cost more than expected angers many union officials. They say economists like Mr. Rauh are trying to frighten workers, or build resentment among taxpayers so that public pension funds will be scrapped and replaced with something less generous.   “We think there’s an agenda,” said Steve Kreisberg, research director for the American Federation of State, County and Municipal Employees. “These numbers have become intensely politicized, and they’re being distorted in a way that does real harm to real people.”   A spokesman for Wisconsin’s governor said Mr. Walker had not factored any possible increase in pension contributions into his budget proposal or talks with the unions. “That was never discussed,” said the spokesman, Cullen Werwie.   An analysis being prepared for the state agency that operates Wisconsin’s pension system — and which is to be presented to the agency’s board on Wednesday — is expected to show that it has been relying on too high a figure for investment gains. If the system’s trustees accept those findings, overall cash contributions will have to rise.   The actuary preparing the analysis is not tipping his hand, but any increase at this point is likely to be small. The state estimates that 12 percent of all public workers’ pay will need to be set aside annually for the pension fund. Lowering investment expectations sharply, to 7 percent a year from the current 7.8 percent, could push the contribution rate up to perhaps 16 percent, meaning an additional $2,000 to $3,000 a year apiece for workers nearing retirement.   Based on the 12 percent figure, workers agreed earlier this year to contribute 5.8 percent of their pay to the pension fund, leaving their employers to pay the remaining 6.2 percent. Workers also agreed to cover a portion of their health costs. How to pay for health benefits for retirees is still being discussed. Workers in Wisconsin point out that their payments in retirement are hardly a king’s ransom. Their average annual benefit is about $26,500, and they believe they have been wrongly portrayed as greedy chiselers who game the system and walk away with six-figure pensions.   But it can be a huge burden for states and municipalities to provide even a modest, $26,000-a-year pension to hundreds of thousands of people, at least in today’s economic environment, and especially if those people are able to retire well before 65 and collect that money for many years.   “When interest rates are low, these plans are really expensive to run,” said Gordon Latter, an actuary at Voyageur Asset Management whose clients include both corporate and public pension funds.   Despite the furor in Wisconsin, collective bargaining does not appear to be the main factor driving pension costs higher.   Sylvester J. Schieber, an economist and independent consultant, recently compared public pensions in each of the 50 states, ranking them from richest to poorest. Instead of looking at dollar values, like Wisconsin’s $26,500 a year, Mr. Schieber looked at what part of the average worker’s paycheck his pension was designed to replace in retirement. The method eliminates regional disparities and certain other problems with benefit-cost data.   Mr. Kreisberg of the public workers union said he considered the approach fair.   Mr. Schieber said he expected to find that the most generous states were the ones with collective bargaining for public workers, but he found no correlation whatsoever. “I was surprised at the result,” he said. “I had expected that the unions would be a significant force.”   Wisconsin turned out to have the eighth-richest pensions of any state, replacing on average 57 percent of a worker’s pay in retirement. But the most generous state by far is Colorado — even though it has granted collective bargaining to only a fourth of its public work force. In Wisconsin, roughly half are covered, according to Unionstats.com, a database that uses Census data to track union membership. Colorado offers pensions that replace 90 percent of salary, with generous annual compounding that more than keeps up with the current rate of inflation. (The state has tried to reduce this compounding; retirees have sued.) Colorado’s pensions are unusually rich because its public workers are not permitted to participate in Social Security — the state pension is the only one they get.   The second-richest state is New York, which replaces 77 percent of a worker’s income, even though New York’s public work force earns Social Security benefits as well. A New Yorker’s public pension benefit, combined with Social Security, replaces more than 100 percent of his pay, Mr. Schieber found.   That might appear to be the fruits of collective bargaining, since New York State grants that right to more of its public work force than any other state. But the third most generous state is Georgia, replacing 68 percent of a retiree’s former paycheck on average. And Georgia is a right-to-work state with one of the lowest rates of collective bargaining in America, just 14 percent of its public work force.   Nonunion Georgia’s public pensions are, in fact, three times as generous as those of labor-friendly Vermont, where more than half the public work force has collective bargaining. Vermont replaces just 20 percent of a retiree’s previous pay, the lowest of any state.   Mr. Schieber said he was at a loss to explain these findings. He had expected rich pensions would go hand in hand with collective bargaining.   But his research, to be published in the Journal of Pension Economics and Finance, does shed light on how a seemingly modest $26,000-a-year pension can be considered unaffordably rich. One reason is low interest rates; another is that public employees can often start claiming their pensions in their 50s. Wisconsin’s pension plan allows people to retire at 57 with a full pension, as long as they have 30 years of service. Police officers and firefighters can retire at 53, with 25 years of service.   In the private sector, pensions like that “have just kind of dropped off the radar screen,” Mr. Schieber said. At the dwindling number of companies that still grant full pensions below age 65, people seldom take them, for fear of giving up their health insurance before they qualify for Medicare. Labor statistics show a marked increase in the number of 60- to 65-year-olds still working.   Public employees have so far dodged that bullet. They can still generally retire several years younger, which means their states or municipalities must pay their benefits over a longer period. That adds up. It also means the money for their benefits has fewer years to compound, so more must be set aside years in advance.   “By the time the typical private-sector worker has retired, the teachers, the highway patrolmen and these folks have already gotten $200,000, $300,000, $400,000 in pensions,” Mr. Schieber said. “Plus, they’re getting a pretty rich retiree health benefit. That’s why these benefits are so expensive. ” I have already mentioned that early retirement is on its way out. It's simply ridiculous to allow public sector workers to retire earlier and collect pensions for 20 or 30 years. That's exactly what was going on in Greece for years before the crisis forced them to curb these generous benefits. People were retiring as early as 40 years old after working 20 years in the civil service and then collecting pensions for the rest of their life. But public sector workers will argue that they don't make as much as their private sector counterparts who can potentially make a lot more money during the good years. This is absolutely true but the good years are over. And now that states face severe budget crunches, they're all looking to cut costs, including public pension costs. It's unfortunate that pensions have become so politicized but the reality is that pension reforms need to take place to reflect the reality that people are living longer, healthier lives. Finally, I too was surprised by Mr. Schieber's findings that the most generous states weren't the ones with collective bargaining for public workers. Goes to show you that things aren't always as intuitive as they seem.

Important Vulture Update, Gold-Silver Ratio “Only” 28 Year Low Posted: 10 Mar 2011 02:35 PM PST An overdue pullback/correction may be getting underway in multiple markets as we settle back into our "battle station" here at the ranch in relatively warm and sunny Texas. That's having left cold and snowy Toronto and the PDAC conference behind for the time being. We consider the conference as well worth the time, expense and distraction, but catching up will prove a daunting task this time, especially given two brim-full satchels of information and notes (culled down from even more) we decided were too important to leave behind in Canada.

Lawmakers Back Recognizing Gold & Silver as Currency Posted: 10 Mar 2011 02:31 PM PST By Amanda Verzello Utah might be one step closer to its own gold standard after the Senate approved a bill Thursday that would require the state to recognize gold and silver coins as legal tender. "Our hope is to help stabilize the currency within our own state long term," said Senate Majority Leader Scott Jenkins, R-Plain City.  HB317, [...]

The US ponzi schemes are exposed and the gold scam could be bigger Posted: 10 Mar 2011 02:04 PM PST Share this:

Chinese Inflation Heats Up Again As PBoC Takes Another Step To Establish Yuan As Reserve Currency Posted: 10 Mar 2011 01:45 PM PST That China's February inflation just came out at a consensus-beating 4.9% is no surprise. After all, the country miraculous slipped just below the consensus so the Department of Truth had to keep things somewhat symmetric. And yes, while this is the 5th consecutive month that Chinese inflation is higher than the official target of 4%, this is not the news of the evening: a press release just issued by the PBoC however is... But before we get there, here is Bloomberg's brief take on the latest Chinese number, which will likely have an adverse impact on the market: Investors are concerned that monetary tightening to tame inflation may slow the Chinese economy, weakening a global expansion already hampered by elevated unemployment in the U.S. and sovereign debt woes in Europe. Stocks tumbled globally yesterday as the Asian nation reported weaker exports, U.S. jobless claims rose and Moody’s Investors Service cut Spain’s debt rating. “Inflation and overheating are still a bigger risk in China than an sharp economic slowdown,” Yao Wei, a Hong Kong- based economist with Societe Generale SA said before today’s release. “The economy has strong momentum.” China’s economic data is distorted in the first two months of each year by a weeklong holiday to celebrate the Lunar New Year. The customs bureau yesterday cited the event as a factor in an unexpected $7.3 billion trade deficit for February, the nation’s biggest in seven years. Premier Wen Jiabao’s campaign to cool real-estate and consumer prices after the economy surged back from the financial crisis has included three interest-rate increases since mid- October. Producer prices rose 7.2 percent in February after a 6.6 percent gain in the previous month, today’s report showed. What is the big news is that a short week after the PBoC made it clear it would start allowing CNY in all cross-border transactions, a direct affront to the dollar's reserve status, it just stepped up its rhetroic materially with the following press release on its website: From: "Zhang Xiaohui: to promote the interest rate, exchange rate formation mechanism reform and monetary policy transmission mechanism" The key selection Google-translated: Promote the reform of RMB exchange rate formation mechanism, improve the managed floating exchange rate system is based on China's national conditions and development strategies to make the choice, improve the socialist market economic system consistent with the direction of reform, in line with our long-term and fundamental interests of promoting China's economic restructuring , curb inflation and asset bubbles, maintaining the development of strategic opportunities and international trade environment has a positive effect. Meanwhile, as the development of a large open economy, further enhance the effectiveness of monetary policy is to achieve our internal and external macroeconomic balance, keep the economy stable and healthy development of the necessary requirements of a managed floating exchange rate system will also help improve China's implementation of financial macro regulation of the initiative and effectiveness. "Eleventh Five-Year" period, the RMB exchange rate formation mechanism reform an orderly fashion.To achieve unification of exchange rates in 1994, China began to implement a market-based, managed floating exchange rate system, only after the outbreak of the Asian financial crisis narrowed the floating band of RMB exchange rate. July 2005, after full argument and preparation, our implementation of the RMB exchange rate formation mechanism reform, the implementation of the basis of market supply and demand with reference to a basket of currencies, a managed floating exchange rate system. Second half of 2008 to further deepen the international financial crisis, many of the national currency devaluation against the dollar, the RMB exchange rate maintained basically stable, and global economic recovery in Asia has contributed to demonstrate our efforts to promote global economic balance. June 19, 2010, under domestic and international economic and financial situation and China's international balance of payments situation, the PBOC announced that further advance the reform of RMB exchange rate formation mechanism, focusing on the basis of market supply and demand persist, with reference to a basket of currencies. July 2005 to exchange reform since the end of 2010, the RMB against the U.S. dollar has appreciated 25% against the euro has appreciated 14%, according to BIS data, to the end of 2010, the RMB appreciation of 14.8% in nominal effective exchange rate, real effective exchange rate appreciation of 22.6%. RMB exchange rate formation mechanism is also supporting the work of other steadily. First, the foreign exchange market and vigorously promote the construction, based on market supply and demand mechanism of RMB exchange rate formation system of support. Inquiry into trading and market maker system and improve the RMB exchange rate formation way, and to develop inter-bank RMB forward, swaps and options markets, innovation and exchange rate hedging instruments, enhance risk management capabilities. Spot foreign exchange market in 2010, forward and swap transactions were 3.05 trillion U.S. dollars, 32.7 billion and 1.28 trillion U.S. dollars, respectively, 4 times in 2006, 2 times and 25 times. The second is to strengthen and improve foreign exchange management, and continuously expand the channels for foreign investment, gradually introduced a series of policies to relax the companies held by residents of foreign exchange restrictions, speed up the pace going. While also strengthening cross-border financial supervision and prevent large-scale short-term arbitrage capital flows. The third is closely monitoring the economic situation, to observe the business capacity, while maintaining stable and rapid economic growth while actively and steadily promote the reform of RMB exchange rate formation mechanism. Since the reform of RMB exchange rate formation mechanism of RMB exchange rate fluctuations in two-way, significantly enhanced flexibility, the market supply and demand in the exchange rate fundamental role in further strengthening. View from the operation of the real economy, the exchange rate formation mechanism reform the overall impact is positive in promoting China's foreign trade structure adjustment, economic structural optimization and industrial upgrading to achieve sustainable economic development to the positive role gradually. Micro-enterprises and financial institutions, the main initiative to adapt to the heightened sense of exchange rate fluctuations, changes in the market should also have greater flexibility and capacity to improve. The rapid development of the foreign exchange market, interbank foreign exchange market quotation active trading volume grew rapidly, such as derivatives swaps and long-term steady development of the foreign exchange market efficient allocation of resources and further enhanced. Financial institutions, exchange rate flexibility in adapting the same time, strengthen risk management and improve the ability of independent pricing, improve financial services and innovative financial products. These were to some extent, reinforce the transmission of monetary policy and market micro-foundation base and enhance the effectiveness of monetary policy. Steady progress in interest rate reform, the exchange rate formation mechanism reform is an important part of our financial system, but also to establish and improve the socialist market economic system component. Play a good interest rate, exchange rate effect of price signals, for optimizing resource allocation, promote balanced and sustainable development of economic significance. "Eleventh Five-Year" period, the area of ??reform has achieved remarkable results, the People's Bank monetary policy system has improved constantly, and gradually shift to price-based indirect control tools, significantly enhance the flexibility of RMB exchange rate, money market, the rapid development of the foreign exchange market, the market With the further expansion of the depth and breadth of the micro subject of monetary policy are also constantly enhancing the sensitivity, flexibility and effectiveness of monetary policy be improved. Transmission mechanism of monetary policy more smoothly. The next stage, the People Bank will "Twelfth Five-Year Plan" of the general requirements and basic conditions, interest rates continue to steadily promote market-oriented reform and the reform of RMB exchange rate formation mechanism, and enhance the policy relevance, flexibility and effectiveness, improving macro-control capacity. In accordance with the requirements of prudent macro management, establishment of prudent financial companies must have qualified the hard constraints; guide financial institutions to further improve the pricing power, market pricing of infrastructure to promote continuous improvement; gradually liberalized the prices of alternative financial products, banking products to avoid excessive cross-subsidies, to achieve a variety of products in the market pricing. Through interaction and mutual promotion in many fields, especially to speed up the cultivation of the financial markets, from the start of building a mechanism to create conditions for the market to play a greater role in interest rate decisions. In accordance with the initiative, controllability and gradual manner, to further improve the RMB exchange rate formation mechanism, market supply and demand in the exchange rate to play a basic role in reference to a basket of currencies, exchange rate more flexible and keep the RMB exchange rate at a reasonable and balanced level the basic stability and promote basic balance in international payments. Simply stated while China says it will follow a prudent monetary policy, which however means to keep the Yuan stable and thus not revalue, further pissing TinyTaxFraud off even more, reiterates it will expand Yuan use in cross-border trade, and will rush to improve its international balance of payments even with the current rate. All of which simply means that China just took another big step toward instituting the Yuan as the next reserve currency.

The Generational Budget Gap Posted: 10 Mar 2011 01:21 PM PST Bill Bonner View the original article. March 10, 2011 11:40 AM Stocks were flat yesterday. Gold was flattish. Oil was flat. Everything was flat. Nothing much happened, as near as we can tell. So, let's turn our attention elsewhere. To greedy old people, for example. Here's a letter that appeared in The Financial Times on Saturday: "I have recently returned from the first leg of a world cruise. Many of the elderly passengers were on their way around the world at a cost, for a couple, of between [$75,000] and [$140,000] and I met several who were on their third of fourth such voyage. This at a time when their grandchildren or great grandchildren may be struggling to pay university tuition fees…and later to find a deposit for a house… "It is time for the elderly to step up to the plate to support the younger generation." In America, each generation is expected to make it on its own. At least that is the idea. So, old people think they are quite within their rights to sp...

The Charts You Absolutely HAVE to Watch Going Forward Posted: 10 Mar 2011 01:10 PM PST The Charts You Absolutely HAVE to Watch Going Forward First and foremost, the bearish rising wedge pattern in the S&P 500 has broken to the downside. These patterns have a nasty habit of dropping to their base, so we could see stocks at 1100 in a hurry. Indeed, not only have we broken the lower trendline that supported stocks since September, but we've also taken out major support at 1,300: Elsewhere, the US Dollar has rallied to test its recently broken multi-year trendline. If it reclaims this line that it's highly probable the Euro will implode and we're going to enter another round of deflation. Indeed, the Euro looks to have put in a double top at 140. We're likely going to 135 if not 130 in short order here if the US Dollar can reclaim support. Finally, Gold needs to hold the line at $1,400. If it doesn't then we could be breaking the rising bearish wedge pattern which could see Gold falling as far as $1,250 per ounce. I will say that if Gold falls to test $1,250, I will view it as a HUGE buying opportunity. After all, it's now clear that the inflation genie has been let out of the bottle. Sure, we might get a small rally in the US Dollar, but ultimately the greenback is DOOMED. You can already see world investors moving into Gold and other inflation hedges in preparation of this. China's imports of Gold rose 500% last year. They're not the only ones either: world Gold demand hit a ten year high in 2010 as world central banks became NET buyers for the first time. In plain terms, the Gold bull market is nowhere near over. Over the coming months Gold and Silver will be soaring higher. 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. If my first three inflation hedges are any guide (we're up 20%, 26%, and 38% in two months respectively), these three new ones will all be exploding higher in the very near future. On that note, 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 before the end of the weekend. 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, all you have to do is take out a "trial" subscription to my paid newsletter, Private Wealth Advisory. Do this, and you'll receive a copy of the Inflationary Storm Pt 2, as well as FOUR (4) additional Special Reports. To take out a "trial" subscription Private Wealth Advisory and reserve one of the last few remaining copies of the Inflationary Storm Pt 2… CLICK HERE NOW!!! Good Investing! Graham Summers PS. About those other Special Reports… Three of these are devoted to preparing you for the return of systemic risk to the financial system. Together I call them the Phoenix Investor Personal Protection Kit.Protect Your Family, Protect Your Savings, and Protect Your Portfolio. However, individually, they're titled All told, these reports contain over 50 pages of detailed information on how to protect these three areas of your life from another "2008-type event." On top of this, you also get Part 2 of my Inflationary Storm Report. Its 18-pages are devoted to showing, in painstaking detail how inflation will soon erupt in the US... and which three investments stand to profit from it the most. So that's an additional 70 PAGES of hard-hitting content ON TOP of your annual subscription... all for the price of $199. And these reports are yours to keep... even if you choose to cancel your subscription during the first 30 days. To get your copies today... Click Here Now!!!

Approved, gold and silver money bill goes to Utah's governor Posted: 10 Mar 2011 12:38 PM PST Lawmakers Back Recognizing Gold and Silver as Currency By Amanda Verzello Deseret News Salt Lake City, Utah Thursday, March 10, 2011 http://www.deseretnews.com/article/705368431/Lawmakers-back-recognizing-... SALT LAKE CITY -- Utah might be one step closer to its own gold standard after the Senate approved Thursday a bill that would require the state to recognize gold and silver coins as legal tender. "Our hope is to help stabilize the currency within our own state long term," said Senate Majority Leader Scott Jenkins, R-Plain City. HB317, passing 17-7, makes the exchange of federally issued gold and silver coins an option for businesses and individuals, though it does not mandate it. The bill also requires gold and silver coins to be valued at their current market value. The Senate approved sending the measure to the Tax Review Commission and Revenue and Taxation Interim Committee to study establishing an alternative currency system backed by silver and gold. ... Dispatch continues below ... ADVERTISEMENT 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 But some lawmakers are skeptical of the implications of the measure, which has passed the House and now moves to Gov. Gary Herbert for his action. "We had better be careful before we fully embrace this," said Sen. John Valentine, R-Orem. The bill is not a "get-out-of-jail-free card" when it comes to federal regulation, he said. Gold and silver users would have to file federally required transaction reports, Jenkins said. Sen. Ross Romero, D-Salt Lake, said the bill, which exempts gold and silver from the capital gains tax by providing a tax credit, creates a false incentive to invest in them. The state, he said, shouldn't have a policy encouraging coin investing. "We're artificially creating an incentive for this investment vehicle over others," Romero said. Sen. Ben McAdams, D-Salt Lake, joked Wednesday night during preliminary discussion that the state should also make salt a legal form of tender, since Utah has such an abundance. "I hope we also revive salt as a form of currency too!" he tweeted during the debate. Legislative fiscal analysts have estimated the bill would reduce the state's income tax revenue, which funds public education, by $250,000 in 2012 and $550,000 per year beginning in 2013. But House sponsor Brad Galvez, R-West Haven, has said the state would see an increase in sales-tax revenue as the value of gold rises. * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 ADVERTISEMENT 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

Gold market will get ever more violent, Sinclair tells King World News Posted: 10 Mar 2011 12:28 PM PST 8:25p ET Thursday, March 10, 2011 Dear Friend of GATA and Gold: If you think the gold market has gotten violent at $1,400, just wait for it to move higher, gold trading and mining entrepreneur Jim Sinclair told King World News in an interview today. The rebellions in the Middle East, Sinclair added, are not democratic in nature and will increase Iranian power as they drive oil prices up. He expects a lot more "QE." Excerpts from the interview are posted at the King World News blog here: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/3/10_Ji... Or try this abbreviated link: http://tinyurl.com/47evg5v CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. ADVERTISEMENT 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: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16 ADVERTISEMENT 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

Bob Quartermain: The Constraints on Silver Supply Posted: 10 Mar 2011 12:20 PM PST http://caseyresearch.com/articles/constraints-silver-supply?ppref=TBP202ED0311A Bob Quartermain spoke about the constraints facing silver supply today, "Mine supply doesn't meet demand and in many of the new applications silver isn't being recycled, so it's not going to come back into the scrap supply chain… We'll have to go out and find new mines or new sources for silver; and that [...]

Guest Post: Chinese Gold Fever Posted: 10 Mar 2011 11:25 AM PST Earlier Lear Capital presented their view on what the basis for Chinese gold accumulation may be. Next we present a comparable analysis by SmartMoney.eu which takes a deeper dive into the demand mechanics originating in China. To wit: "In some parts of Asia, inflation is rampant. Especially in India, food prices and other staples are going through the roof. The prices of some vegetables and spices has risen more than 100%... In China, the prime goal of the communist party is to maintain social stability and to avoid unrest. Targeting inflation is key. Therefore, many Asians are investing their hard-earned money into precious metals. The latest news from China corroborates this: in the first two months of 2011, the Chinese have imported 200 tonnes of gold, which is as much as in the entire year 2010! This is just individual investor demand, we are not even speaking about central bank demand, accounting for the entire Chinese mainland gold production! Chinese gold fever has caused gold demand to triple in the past 10 years, according to the World Gold Council. The Chinese are about to overtake the Indians as the world’s biggest gold consumers." For short-term market timers, as we predicted a week ago, continued pressure on risk assets, such as that today, will most certainly result in forced liquidation in precious metals such as gold and silver. This is absolutely guaranteed as margin calls pile in, and hedge funds, already levered to the hilt have no choice but to sell all outperforming assets, among which gold is at the top. Once liquidations are completed, the question will then be: does the Fed resume its inflationary path (and as a just completed analysis by Zero Hedge confirms, the shadow banking system is once again declining leaving few options for Bernanke). If that is the case, then the long-term fundamentals from a speculative standpoint revert. Add to that the discussed organic demand, and increasingly loud calls for $2,000 gold may materialize sooner rather than later. Submitted by Smart Money Chinese Gold Fever Investors are increasingly worried about rampant inflation, and they should. In the author’s home country, Belgium, the price of fuel just hit a new record. Other necessities are becoming more expensive, too. The price of many commodities is close to an all-time high, which does not bode well for the pricing power of many corporations, which are set to see input prices rise significantly. This will put severe downward pressure on valuations, hence stock prices. As a matter of fact, as the markets are trading at a price earnings ratio of 16 on average, the cyclically adjusted PE ratio (CAPE) is closer to 23, which is quite expensive! The CAPE is the Shiller PE, which flattens out the business cycle on a 10 year period, which gives a better idea of stock market valuations. Markets are far from cheap, despite what many mainstream media would like us to believe! Savvy investors however, know better. They are sensing we might be hitting a market top in equities. With oil prices north of 100 USD per barrel, sensible investors are looking for ways to shield their wealth from a potential market correction, shifting their assets into tangible goods. It goes without saying that gold is the most obvious beneficiary of this secular move. Investor demand is high, and the yellow metal is hitting new highs almost every day. It should thus not come as a surprise that demand is driven mostly by emerging markets. In some parts of Asia, inflation is rampant. Especially in India, food prices and other staples are going through the roof. The prices of some vegetables and spices has risen more than 100%. Due to the inefficient infrastructure and logistics in India, food cannot be transported easily and perishes on its way to the other side of this huge country. In China, the prime goal of the communist party is to maintain social stability and to avoid unrest. Targeting inflation is key. Therefore, many Asians are investing their hard-earned money into precious metals. The latest news from China corroborates this: in the first two months of 2011, the Chinese have imported 200 tonnes of gold, which is as much as in the entire year 2010! This is just individual investor demand, we are not even speaking about central bank demand, accounting for the entire Chinese mainland gold production! Chinese gold fever has caused gold demand to triple in the past 10 years, according to the World Gold Council. The Chinese are about to overtake the Indians as the world’s biggest gold consumers. These figures show that daily demand for gold in China outstrips current demand to a large extent, pushing up prices incessantly. And still, we are a long way from a gold hype. Mainstream media are still not touting gold as a sensible investment, retail demand, despite an increased interest, is not extraordinary and there is still quite a lot of room for central banks, especially those in emerging markets, to increase their gold holdings and diversify into the yellow metal, to the detriment of the US dollar and other fiat currencies. As the graph above shows, the USD gold prices is rising slowly but steadily, without overshooting on the upside. It clearly exhibits that we are in the second phase of the secular bull market in gold, namely the institutional phase. We are a long way from a top in gold. Before the masses wake up to this, the gold prices will have surged to levels that are unfathomable today. We expect the gold price to hit 1600 USD per troy ounce by the end of 2011, which is in the cards if the trend continues. It will not be a smooth ride however, as we expect volatility to rise this year. Gold is traditionally weak in summertime and is likely to correct by early August, but these are excellent buying opportunities. We continue to favour a balanced mix of physical gold (bullion bars, coins) and a quality selection of junior and mid-tier gold stocks. This ensures a healthy mix between capital preservation and leverage to the gold price!

Gold Price Took a Wound Today, As Yet There's No Reason To Believe it's the Start of a Larger Correction Posted: 10 Mar 2011 11:05 AM PST Gold Price Close Today : 1412.20 Change : (17.10) or -1.2% Silver Price Close Today : 35.003 Change : (0.985) cents or -2.7% Gold Silver Ratio Today : 40.35 Change : 0.629 or 1.6% Silver Gold Ratio Today : 0.02479 Change : -0.000393 or -1.6% Platinum Price Close Today : 1766.00 Change : -39.00 or -2.2% Palladium Price Close Today : 771.00 Change : -12.50 or -1.6% S&P 500 : 1,295.11 Change : -24.91 or -1.9% Dow In GOLD$ : $175.43 Change : $ (1.19) or -0.7% Dow in GOLD oz : 8.486 Change : -0.057 or -0.7% Dow in SILVER oz : 342.39 Change : -6.43 or -1.8% Dow Industrial : 11,984.61 Change : -228.48 or -1.9% US Dollar Index : 77.26 Change : 0.537 or 0.7% The GOLD PRICE dropped clean through $1,425, $1,422, and $1,415 like they weren't even there, like a tenth story safe dropping through canvas awnings. But it slowed at $1,405, and stopped at $1,403.85. By the time Comex closed it had recovered to $1,412.20, down only $17.10 (1.1%) from yesterday. "Bad" would have been a break through $1,400. As yet, there's no reason to believe that gold's correction today marks the beginning of a larger-degree correction. As yet, that is. What can we expect? Well, if this move is correcting only the last short-term upmove, you might have seen the bottom of it today. More likely is that it will labour here a few days, perhaps sink below $1,400 as low as $1,490-$1,392. More serious still would be a drop through $1,380, which surely would be accompanied by more toppling to $1,360. It would, however, be a rash error to jump immediately to the conclusion that the GOLD PRICE has finished its upmove. Yes, it failed at the last high (never reached old high + 2%), but that's not terminal. It could come roaring back. Watch that $1,400 level. How gold behaves there tomorrow and Monday will foreshadow the next weeks. Mercy! The SILVER PRICE got tangled in barbed wire at 3619 and fell off the cliff. All that happened before New York ever opened this morning. By then silver had already reached 3520c. It rose its head feebly at the open, then swooned away until 10:30 and 3466.5c. After 1:00 silver traded range bound between 3500c and 3540c. Comex closed down 98.5c at 3500.3c, and the aftermarket added about 20c to that. While gold's low brought it near its 20 DMA (1402.23), silver came nowhere near that point. Yet the 3500c support has been broken, and that points the market down, unless it can rise and cross above 3670c, last intraday high. Not much trading has taken place at these levels, so there's not much to call support. Round numbers always chip in some moral support, so 3500c and 3400c will offer some solace as will 3175c. 20 DMA stands at 3322c, and for months and months that has served as silver's backstop. Thus it might catch and comfort silver again, but if not it will signal much more downside to come. SILVER and GOLD took a wound today, but so far the market has not told us enough to guess whether this is merely a minor correction lasting a few days, or the start of something lasting much longer and bringing more pain. NEVER let these short term moves shake your resolution or your firm grip on the one dispositive fact: silver and gold remain in a primary uptrend (bull market) that has another 3 to 10 years to run. Mercy. How many mistakes can a fellow make in a single day? Yesterday, for me it was two. First, I knew that the month was March, and not April. I knew that. Second, I know very well that the .45 caliber automatic pistol was the Model M1911, later modified to M1911A1, so why I wrote M1A1 mystifies me, too. One thing I know for SURE: I will never, no, never try to mug any one of y'all in a dark alley, since the number of corrections I got about this pistol, along with detailed technical histories and footnotes, makes me purtee sure every last one of you is packing, and probably more than one whatever it is. If y'all like silver and gold when they are rising, y'all better like 'em when they're falling, too. Might as well learn to step up there and take your licks like a man, 'cause it happens from time to time, even in Bull Market. The scrofulous US Dollar, Mother of Parasites, confirmed Monday's V-bottom as a bottom by crashing up through the 77 barrier today. Along the way it added 53.7 basis points (0.69%) and is trading now at 77.258. 'T'ain't over by a long sight yet. Dollar has merely reached its 20 DMA (77.38). Before anybody much is going to believe a currency that has proven itself a diehard liar, it will have to clear more resistance levels: 77.5, 78, 78.8. Dollar will have to march johnny-quick-smart to find any sponsors. Oh, Oh, but lookee what we have on the euro chart. Day before yesterday's gap down was paired today with yet another gap down. Euro at 1.3799 (down 0.77%) today is floating, barely floating, above its 20 DMA (1.374) and a first signal of a trend change. Don't know what changed everybody'd mind all at once, but that euro is draining toward the sewer, fast. Exactly how much that benefits the scrofulous dollar remains to be seen, but for now we can say the dollar has turned up (subject to being contradicted and exposed as a fool any time in the next ten minutes). Stocks were plumb delighted by the rising dollar, and showed it by hurtling off the cliff of yesterday's close like a bad drunk diving off a high bluff. When the waves settled, the Dow had tumbled 228.48 points (1.87%), crushed support at 12,060 - 12,000, and closed at 11,984.61. S&P500 pitched even more, 2.64% (24.91 points) to close below 1,300 at 1,295.11. All them shiny Wall St. boys with the Harvard MBAs and the latest ties and pointy shoes can chatter all they want, but stocks are fixing to drop for several weeks. Step out of their way, it's Bear Market Vengeance time! In the Investment Green Grocery, stocks remain the basket of apples polished by Snow White's step-mother. This morning I woke up with a notion itching in my head, and that notion suggested that if today did not mark the end of this wave up, it might reach 4400c. Against that rank today's performance, and RSI and MACD momentum indicators that look look more overbought than chocolate covered cherries at Christmastide. Argentum et aurum comparenda sunt -- -- Gold and silver must be bought. - Franklin Sanders, The Moneychanger The-MoneyChanger.com Phone: (888) 218-9226 or (931) 766-6066 © 2011, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down. Whenever I write "Stay out of stocks" readers inevitably ask, "Do you mean precious metals mining stocks, too?" No, I don't.

The Probability of More Quantitative Easing Posted: 10 Mar 2011 10:41 AM PST It would be an understatement to say that I was flabbergasted to see that the monetary base jumped $130 billion dollars in two weeks! Well, using an exclamation point as punctuation seems to confirm my suspicions that I was, indeed, flabbergasted, as the term seems, somehow, appropriate since I felt something more than the usual crushing pains in my chest, numbness running down my left arm, my guts heaving and sphincters tightening kind of reaction I get when I see horrifying, huge increases in money and credit created by the damnable Federal Reserve. Perhaps it is customary for those who are "flabbergasted" but I am a screaming crybaby about the horror of the terrible inflations in consumer prices that all this excess money creates, how it is going to destroy the country by destroying the purchasing power of the dollar, and take down the rest of the world with it. And, I shudder to say it, the Fed is still at it! Last week – in One Freaking Week (OFW)! – the Fed waved its little ma...

The First Runner-Up in This Year’s Daily Reckoning Financial Darwin Awards Posted: 10 Mar 2011 10:30 AM PST Population: 37.5 million. Unemployed: 2.2 million. Food stamp recipients: 3.7 million. Total debt: $367 billion. Debt/GDP ratio: 18.80%…! And, finally… Total state debt per man, woman and child – working or not: $9,835. Ladies and gentleman, Fellow Reckoners, people who enjoy overly dramatic, entirely non-scientific countdowns… The First Runner-Up in this year's Daily Reckoning Financial Darwin Awards: The State Edition is… The Golden State: California! Congratulations! Now, before we get all carried away with the celebrations, a couple of words… Your editor happens to enjoy a few drinks with a couple of California locals when he visits that paradisiacal stretch of coastline from time to time. One such local happens to be his senior editor, Eric Fry, who resides in Laguna Beach. So, instead of launching into some kind of gratuitous, politico-bashing tirade about a state in which our good friend happens to reside – and in which we do not… …we're going to let our Fellow Reckoners do it for us; Fellow Reckoners who, mind you, also happen to live on California and, therefore, should know better than us the goings on there. First up, from Reckoner Dimitri: "The LA Times ran an investigative series last week showing how billions were mismanaged and squandered in an inept and failed attempt to upgrade the Los Angeles Community College campus. Why the perpetrators of this disaster haven't been fired is beyond me – it unfortunately highlights the entrenched and increasingly incompetent infrastructure we are hopelessly saddled with. Yes, hopelessly – the chances of removing the incompetents is slim and none, but worse, I don't see a cadre of competents around to take their places." Then there's this, from another Golden State Reckoner, one who wishes to remain anonymous… "There are over 600,000 California state workers getting fat pensions and health care and other retirement benefits. With benefits like [theirs] there is no hope of ever balancing the budget. We already have the highest State Income Tax, Gasoline Tax, Sales Tax and property tax. The only hope is to declare bankruptcy and let all benefits be scaled down by the legal system." And this, from Reckoner Peterson… "California has a gigantic hole in this year's budget [$24.5 billion; the largest state budget shortfall for 2012 in the entire country]. This is illegal, as the California Constitution insists the budget be balanced. Governor Schwarzenegger recalled the legislature to a special session to deal with the crisis last Fall, just before he left office. "However, he could not get the legislature together. Many of the legislators were in Maui. As in, Hawaii. They were there to discuss green energy and who knows what else. The trip was paid for by California interest groups including the California Prison Guards union. What does the California prison guards union care about green energy, you ask? Absolutely nothing, of course. But, they care a great deal, and are willing to pay handsomely for, legislators' votes on their pay and benefits. "Thus, when new (old) Governor Jerry Brown took office, he was forced to propose a draconian budget that cuts all kinds of state services, including funding for education, medical care for children, and assistance to local governments. There were however no proposed cuts to the pay or benefits of the public service unions, including the California Prison Guards Union." Chimed Reckoner Edwardo… "Greetings from California, the most over-governed state in the USA. A crazy place where prison guards earn 3x the rate for starting schoolteachers, and enjoy fabulous retirement benefits. The whole public sector is out-of-control, bleeding the private sector dry. Prison overcrowding has put the State under severe federal pressure. "We have a whole government agency trying to collect sales taxes on out-of state purchases by Californians – which I would guess has a negative financial benefit to the state when all salaries, benefits, occupancy and other expenses are computed. The lunatics are running the asylum." And finally, we couldn't resist printing this last email, in full. It's a bit longer but, after having read through the entire mailbag from peeved California residents, we think it deserves a run… "What is generally not covered in most any press is the government tyranny at the local level. "5.3 (five point 3) YEARS ago I started the process to build a new home on a 50-acre parcel in Santa Clara County. Still no permit. The tyranny of 'Planning' is documented in a CATO report, showing how it created a CA real estate bubble. "Besides being incompetent and lazy, the planners outright lie to the citizens. Not once in the 5 years did they meet the 30-day CA STATE LAW response time for filings. The top elected officials (Board of Supervisors) admit they are unable to fix the indolence, incompetency, and aggressive adversarial positions taken against the citizens. "Since they have unchecked and unaccountable monopoly power, Planning has done what any good monopoly does when demand goes down – they have exorbitantly raised prices! Now, nearly triple the permits vs. 5 years ago are needed for – you name it! "No matter how surly, insulting, or capricious a county employee may be, one must remember to always Kiss Their A** or they will get even. Don't even think of escalating to a supervisor. "At one time in the past, taxes paid for government and citizens had some control. Now, the bureaucracies do as they wish, and fee us to death, and we have no recourse. "TO THE BARRICADES, I say! "A. Reckoner and former CA resident "P.S. Although I'm liquidating all CA real estate, please don't use my name or there will be retribution by County employees." Tomorrow: The Daily Reckoning Financial Darwin Award winner. Stay tuned… Joel Bowman for The Daily Reckoning The First Runner-Up in This Year's Daily Reckoning Financial Darwin Awards originally appeared in the Daily Reckoning. The Daily Reckoning has published articles on the impact of quantitative easing, bakken oil, and hyperinflation.

Opportunities Along the Path to Democratic Prosperity Posted: 10 Mar 2011 10:19 AM PST by Addison Wiggin - March 10, 2011 "Heisenberg effect" dogs us through Colombia... yet we still find opportunities along "the path to democratic prosperity" Data suggest housing market continues to sink... our forecast for a lowering tide Should your bank smell like fruit, sound like Enya and taste like candy? The answer below Readers encourage, warn about Colombia... say we’re "schizoid" about Michael Moore One of the dangers of writing a blog on the road: We gather our impressions, write about then on the fly... then, often, the people with whom we're meeting... er, read them. Exhibit A: “Forbes Destaca Opciones de Inversion en la Bolsa Local” We discovered this headline in La Republica, the nation's largest financial newspaper, this morning. Apparently, our comments, which you read here first in The 5, were picked up by a Colombian reporter who grabbed them from our Forbes blog. (We had a similar occurrence in Bombay last year. You may recall when soon after our arrival, we were introduced to a national TV audience as a "young Marc Faber". All due respect and apologies to Dr. Faber, of course.) Unfortunately, the exposure causes the "Heisenberg effect" on our emerging market experiments. Heisenberg, a German scientist who flourished in the middle of the 20th century, believed it was difficult for scientists to get accurate results from any given experiment, because they themselves impacted results... not to mention were very conscious of reporting those results. Ahem. Read between the lines, if you're so inclined. Our first meeting this morning kicked off with a discussion inspired by the debate we've been having here in The 5 regarding security and corruption in Colombia. The largest transporter by tonnage in the domestic economy in Colombia is a private company that dominates the ready-mix cement market. "Eight years ago," the CFO explained to us, shipping cement around the country was a "task of titans." They shipped to every region and city in the country, but could only do so between the hours of 6 a.m. and 6 p.m. The private security forces they employed to ensure the trucks arrived safely would not contract for the nighttime hours." Today, "it's a completely different business environment." They can now run their trucks 24 hours a day. And they employ only limited security forces. They attribute the improvement to better government institutions, better security by the military and police and better intelligence on "guerilla" movements with the assistance of the CIA and the Israeli agency Mossad. At dinner last night, we were told that 10 years ago, there were in excess of 40,000 guerillas in the hinterlands holding citizens hostage in the cities. Today, there are fewer than 6,000 operating in the most remote regions of the country. The 23 oil workers who were kidnapped earlier in the week were doing seismic studies in the jungle near the Venezuelan border. As for corruption, it's "in the newspapers now." It used to be behind closed doors. Young people are more conscious of the need for honesty in business, we're told. Demographics plays an important role in the growth story, not just for a new attitude toward prosperity. But 40% of the country is under 20 years of age. They are far more "aware" of the benefits of an open economy & — new houses, new cars, fashionable clothes, nightclubs and cosmopolitan restaurants. Our meeting with the Ministry of Finance echoed this new demographic influence. Four earnest ministers, the oldest of which could not have been older than 28, walked us through the current government's economic plan, dubbed "the path to democratic prosperity." It's a simple plan: More employment + less poverty + more security = PROSPERITY. Hear, hear. A couple of notable reforms that they hope will help usher in the first part of the plan & — a redistribution of oil and mining royalties from the eight states that currently retain all of them to include all 32 states. The 24 states who currently do not participate in the royalty program support the reform. The ministry is also supporting the first formal jobs law in which they will offer tax incentives to employ young folks who have know formal education... and tax incentives for others to get an education. Across the economy, the ministry projects 6.5% growth by the end of 2012. And they, like central bankers in other parts of the world, say they have inflation "under control" at 3.2%. “Coffee has long been an important Colombian export” writes our travel companion Chris Mayer, taking a broader historical view in Special Situations, “and it remains so today. Colombia is the world’s second-largest coffee producer, after Brazil. "Disappointing harvests helped drive the price of coffee to recent 34-year highs. Inventories fell to their lowest level in at least 40 years. The rains have been heavy this year, and Colombia’s harvests have suffered. Unusual weather has hit other coffee-growing regions as well, including Mexico and Brazil. The price of coffee is up over 145% in the last year. "Expect to pay more for coffee. The chief roasters — J.M. Smucker, Kraft and Nestle — have all had to raise prices several times already. But there are few investing ideas that play off coffee.” On the other hand, "Colombia’s history as an oil producer goes back to 1918 with the discovery of 'La Cira & — Infantas,' a giant oil field." They're now the world’s 25th largest producer of oil. "The Colombian oil story peaked in the late 1990s," Mayer continues. "Production declined and has been flat in recent years. The reasons for the decline are complicated. The turmoil in the country certainly took its toll. Some of it had to do with the shifting nature of contracts and concessions. Some of it had to do with just neglect and poor management. And some of it was just that the easy oil was found and pumped out. "But things have turned in the last couple of years. In 2009, production increased for the first time since the 1990s. Colombia’s oil industry is thriving amid better security, a better investment climate and the use of the new technologies." As you know, we’ve met with leaders at a couple of small explorers and producers this week, and we’ll meet with more today. Stay tuned as we separate the wheat from the chaff and identify who has the most potential. In a part of town our host dubbed, for better or worse, "little Dubai," we met with several small firms with oil and exploration concessions in various parts of the oil patch east of Bogota. Once we've had a chance to digest the hours of presentations we've been privy to, we'll give you our best recommendations for moving forward. Later, in the headquarters of Ecopetrol, the state-owned oil giant. It’s about to list on the NYSE, and the fresh-faced investor relations chap we met with was eager to put a good foot forward. In the end, we're sure the job experience will be good for his career... as he had a tough row to hoe. Ecopetrol has a market cap equal to 30% of Colombian GDP. As recently as 2002, any company that wanted to drill for oil in Colombia had to fork over 50% of its revenue to Ecopetrol. Only in 2007 were independent concessions allowed to be developed. At the time, Ecopetrol offered an IPO and began competing with its new competitors in the market. But today, it’s still 90% state owned. Three of the nine directors are cabinet officials. The headquarters had the vibe of a government agency, replete with all the perks thereof. We'd been told that of 19 new wells they drilled last year, a majority were dry. After we asked, the investor relations gentleman admitted, yes, there is room for improvement. Precious little else about how the company was going to grow its reserves was discussed. Given our effort to find small, quick growing opportunities in a booming economy, the experience was... well, whelming. Back in the U.S., we see Bank of America has just moved about half of its mortgage assets into a "bad bank" made up of its riskiest and poorest-performing loans, much of it inherited from its takeover of Countrywide. According to Bloomberg, this is an effort to get investors to focus more on the "good" mortgages still on BoA’s books. But this has all the hallmarks of something BoA can unload onto the U.S. taxpayer when the markets get rough again. Likewise, there's no respite for the rest of the weary mortgage market this morning. The number of Americans underwater on their mortgage rose again during the fourth quarter of last year. 23.1% of all homes with mortgages are now worth less than the outstanding loan balance, according to CoreLogic &— up from 22.5% in the previous quarter. And home prices in 25 major cities are now back to May 2003 levels, according to the RPX composite index. Across all 25 markets, home prices are down 34% from the peak. We maintain our forecast... until the mortgage market stabilizes, the economy in the U.S. is shot. This morning, we heard some corroborating evidence from our new friends in the cement business down here in Colombia. They bought into the ready-mix market in Texas, North and South Carolina and Virginia in 2005. At the time, they thought they were "management geniuses." Now they can barely discuss the acquisitions without grimacing. On the upside, however, they expect the U.S. market to begin exhibiting the attributes of an "emerging market" in 2012, suggesting the demographics in the southeast support a very strong market, "once prices have cleared." And there's the rub. Gold appears to be holding steady this week above $1,400. "I think that my gold forecast was too conservative," our friend James Turk of GoldMoney.com commented yesterday, recalling his 2003 Barron’s interview in which he called for $8,000 gold. "I thought the Dow/gold ratio would be 1-to-1 again sometime between 2013-15. My thinking had been that gold would be $8,000 and the Dow would be 8,000. "Now, given the way central banks are printing money when they are buying government debt, I think the 1-to-1 ratio is going to be reached at a much higher price," although he hesitates to say how much higher." Watch the dollar index, James recommends. Once it breaks below the all-time low of 71.33, all bets are off. This week, it’s holding steady between 76-77. While you're waiting, check out these nine easy ways to buy gold here. For its part, silver is holding steady at $35. "I watch where the money goes, and the money's going into silver," says Canadian hedge fund legend Eric Sprott, attending the PDAC mining conference in Toronto this week. “There's as much money going into silver as into gold in dollar terms." Thus, silver will likely continue to outperform gold, Sprott concludes. "Gold's right in there, but not as good as silver." Heh. Here are six ways to buy silver. Sprott will be one of our more notable speakers this year in Vancouver. If you're planning to join us, please be sure to register now. Seats are already filling up, and we haven't even sent invitations out yet. Best way: call Barb Perriello at (800) 926-6575 or (561) 243-2460 right now. She can help you with your registration and travel arrangements. Question: How does your bank smell? One of the truly peculiar experiences we’ve had this week was with a mid-size bank called Helm. They're a conservative and otherwise healthy purveyor of mortgages and retail banking services. But they were most proud of the makeover all 32 of their branches have recently undergone. For inspiration, Helm commissioned “brand guru” Martin Lindstrom to concoct a scheme of "sensory marketing." The Helm experience now engages all five senses: Bright colors, touch-screens, mood music, hard candies tastefully displayed and a faint scent of fruit wafting through the lobby, courtesy of small white boxes mounted eight feet high above your head. That's right. It smells like Helm. We asked why we couldn’t hear the music. We were told that was the whole idea. It operates on a very subtle level to create a more positive banking experience. Hmnn. Subtle indeed. Just what you want in a bank. "I have been reading your analysis of Colombia with some interest," a reader writes, having spent some time in the Putumayo district and having friends living there far from Bogota. "You have mentioned only the FARC, which is certainly one group of the 'bad guys,' but made no mention of the paramilitaries and the thugs (private and public) that do the dirty work of the oil companies, mining companies, palm oil folks and many of the other resource groups who are doing their best to successfully displace the little guys, farmers, miners, etc., in land disputes, not to mention controlling their own drug fiefdoms." "I would be very, very careful about investments there. Colombia has had over 200 years of violent conflict with very few times of peace. I’ve invested in many places in the world, including third-world countries where there are questions about local politics and exploitation." "However, I know too much about Colombia to invest in good conscience there." The 5: Your prerogative, of course. "I have been preaching for years that Colombia is the place to be," writes another enterprising reader with the opposite view. "I have been coming for the past 13 years, and have seen the opportunities at every corner. "I have been a police officer here in Michigan for many years, as well as a ceramic consultant to the heat-processing industry for over 30 years. I just completed a project for Ecopetrol, the state-owned oil company, in Cartagena, and just received another for August." "Along with the opportunities here, readers need to compare crime statistics with the U.S. They will find that the U.S. is the more dangerous place to reside. Trust me, I see the numbers. People that criticize the country probably live in Costa Rica, (way, way overrated) or have never been to the country." "My wife is Colombian. Our two children have invested in a 200-plus-meter beachfront condo in Cartagena that would easily yield $2 million where our Naples, Fla., home is. We are renting the home in Florida, as we are planning our move & — or escape & — to Colombia." "I am pushing to promote more of Colombian goods and services abroad. To those who will listen: There really are other good place in the world to live and invest in besides the good ol' USA. There are still plenty of good real estate opportunities in Colombia." "Take care, keep up the great work you do!" "Your quotes from Michael Moore are stinging, aren't they?" asks a reader. "It's tough when someone so supposedly despised says something completely in line with your own beliefs. Nowhere in Moore's comments will you find '...deciding how much wealth one "deserves" and what constitutes a "fair share."’ You construed those & — unfairly." The 5: Funny, we quoted him directly. "Look, I know you'd rather Moore had been more blatantly leftist," the reader goes on, completely missing our point, "and perhaps had advocated more of the same old 'distribute the wealth' rhetoric, but he didn't. At least not as contained (or alluded to) in the quotes you used. Rest assured that you selected the most inflammatory words from his speech." "At least be fair and give him due when the time is right. Your comment about fairness and then calling the bankers 'jackasses' shows a rather schizoid approach. He's just pissed about who the recipients were? So am I!" The 5: We could care less if Moore is left, right or just fat. We quoted him because we do agree with some of the things he said. Duh. On thing you can count on with Mr. Moore is he's polarizing. Here are two more intelligent responses from readers: "If Michael Moore is so concerned about the rich getting away with wealth that they 'stole' from the middle class, then I suggest that he start with himself and the millions that he has made exploiting the middle class to see his crappy movies. He can then move onto the Hollywood crowd and then to someone who has made an estimated $800 million over the last 20 years or so scaring the gullible public to death over a nonexistent threat, Al Gore." And: "Your blasting of Michael Moore was horses**t. He has more brains and guts than you'll ever have. And he did not say how much or what was fair for the wealthy to be taxed. I bet I pay more income tax than you do, and I don't doubt your annual income is at least 20 times mine." The 5: Congratulations? Cheers, Addison Wiggin The 5 Min. Forecast P.S.: "I read your 5 Min. Forecast every single day," says another reader. "Wouldn't miss it for anything. And this emboldens me to request a favor: I'm seriously thinking of subscribing to the option trading service that Abe Cofnas is offering and that you are promoting. "But I don't seem to be able to obtain an answer whether (as a nonresident alien of the United States) in order to trade these vehicles I will need to go through the time-consuming business of opening an account with yet another broker or I can trade them through my existing broker or bank. Any advice?" The 5: The bad news... yes, you do need to open a separate account. The good news is it only takes five minutes. Give it a look.

Inflation 1; Economy 0 Posted: 10 Mar 2011 09:25 AM PST America's recent economic "recovery" is just a dismal version of "Mother May I." Almost every "one step forward" will succumb to "two steps backward." To switch metaphors, the so-called recovery is not the fruit of sustainable underlying demand; it is merely the weed of rising inflation expectations. Let me explain… Much of the recent improvement in economic statistics can be chalked up to inflationary expectations. Business operators believe that future prices for many goods and services will be higher next month than they are today. As a result, many companies – and some households – are asking themselves: "Why don't we buy the supplies we'll need in the future today?" Those with savings and capital can afford to do so. This buying activity, which is driven by expectations of higher prices in the future, results in a transfer of future economic activity into the present. It's the type of activity that Keynesian central bankers like Ben Bernanke want to encourage. But the transfer of future economic activity into the present carries with it the same problems we saw during the housing and credit bubbles: when the "borrowed-against" future finally arrives, we see a collapse in demand for the pre-bought items. An example of this phenomenon was the spike and crash in the construction of new homes in the US. During the peak years, several years' worth of future demand was pulled into the present. Bernanke's goal of inducing a benign rise in expectations for future inflation will backfire. Pushing consumers and businesses to "buy now" with the expectation of higher prices in the future is hardly different from subsidizing the reckless growth in debt-driven economic activity in 2004-07. As a result of Bernanke's quantitative easing experiments, we'll see sugar rushes in economic activity, followed by hangovers. The result will be stagflation. While some industries and companies enjoy pricing power, most do not. Those without pricing power will see weaker profit margins as higher raw material prices flow through the chain of production. I continue to be amazed by the market's complacency in the face of obvious deterioration in the economic picture. There's no denying the recessionary impact of gasoline spiking to $4-plus per gallon – and staying there for some time. The International Energy Agency estimated this week that the turmoil in Libya has shut in between 850,000-one million barrels of oil per day. Governments and investors around the world are more interested in securing their oil and food imports than they are in holding US dollars paying negative real interest rates. Central banks and governments remain blind to the inflationary consequences of their policies. Based on his public comments, Ben Bernanke seems to view rising energy and food prices as a deflationary shock to the US economy – which would, in his mind, necessitate even more money printing. He sees no connection between the expansion of the Fed's balance sheet and rising prices for necessities. He blames the weather and growth in emerging markets. How convenient! One would hope that Bernanke understands the dilemmas that faced one Rudolf von Havenstein, president of the German central bank during its hyperinflation of 1921-23. In a research piece posted on Zero Hedge, SocGen strategist Dylan Grice offers an interesting perspective of von Havenstein's experience. Here is a snippet: [Let's] not ignore the parallels [between Weimar Germany and today's monetary environment]: as is the case for today's central bankers, Von Havenstein was faced with horrible fiscal problems; as is the case for today's central bankers, the distinction between fiscal and monetary policy had blurred; as is the case for today's central bankers, the political difficulty of deflating was daunting; and as is the case for today's QE-enthralled central bankers, apparently respectable economic theory reassured him that he was doing the right thing. Grice's piece is over a year old, published at a time when the consensus view was expecting a "self-sustaining recovery" and an "exit strategy" from QE1. Instead, after a few short months of economic deterioration in mid-2010, Bernanke came out blazing with his QE2 guns. So the question must be asked: how are endless QE programs not considered an effort to monetize the US federal deficit? Everyone has their own answer, but it's hard to imagine that more investors won't start worrying about a dramatic collapse in confidence in the US dollar. The proposed budget cuts from the Obama administration and Congress are jokes. They are woefully inadequate. And polls this week revealed that even many self-identified Tea Party members have no desire to cut Social Security and Medicare benefits. The weaker the political will to enact painful budget reforms, the faster the federal debt will grow. The faster the debt grows, the more the Fed will be pressured to monetize, which boosts the money supply. The further the money supply grows, the more urgency investors around the globe will feel to buy gold, silver, and other hard assets. Demand for gold should keep growing in the coming months, as Bernanke and other central bankers willfully ignore the inflationary consequences of their actions. It's hard to imagine a reversal of this trend until we see much more political support in Congress for handcuffing the Fed or changing its so-called "mandate." As Rep. Ron Paul noted in his questioning of Bernanke recently, the Fed's quantitative easing enables reckless federal spending like an accommodating bartender enables an alcoholic. Investors looking to protect their portfolios from the ravages of deficit spending and money printing will look to buy gold. Regards, Dan Amoss for The Daily Reckoning Inflation 1; Economy 0 originally appeared in the Daily Reckoning. The Daily Reckoning has published articles on the impact of quantitative easing, bakken oil, and hyperinflation.

Jim Sinclair - Gold Explosion, Oil $150 to $200, Continued QE Posted: 10 Mar 2011 09:15 AM PST With gold weakening, today King World News conducted a rare audio interview with the legendary Jim Sinclair. When asked about the action in gold today Sinclair remarked, "If you would analyze what happened today in terms of economic figures, market sentiment and the action of traders, you've got to come to the conclusion that gold is not going to do much more than be violent around the $1,400 level...You've got to see that above and below $1,400 is just the same as $1,300, just the same as $1,200 and by God when you see it at $1,500 and $1,600 you're not going to believe the violence that's going to go on around the round numbers." This posting includes an audio/video/photo media file: Download Now

Gold falls 1.5 per cent on dollar gains; oil, stocks slide Posted: 10 Mar 2011 09:07 AM PST NEW YORK/LONDON (Reuters) — Gold lost more than 1 per cent on Thursday, set to post its biggest one-day loss in about six weeks, as the dollar rallied and investors sold bullion to cover losses in equity and other commodity markets. Gold retreated from its record high of $1,444.40 an ounce set earlier this week, as a cross-asset sell-off accelerated on Thursday. Both Wall Street and oil fell sharply after an unexpected Chinese trade deficit and renewed euro zone debt jitters fueled global growth concerns. The need to raise cash more than offset any safe-haven buying in gold, even as a downgrade of Spain's credit rekindled worries about the euro zone debt crisis. … Bullion investors will watch closely for possible development out of a Friday summit of a group of 17 euro zone leaders. The goal for the meeting is to boost competitiveness and to quell the region's debt crisis. UBS said in a note that financial markets are likely to be disappointed by the outcome of the European meeting, which could benefit bullion. [source]

Former Goldman Sachs Analyst Charles Nenner Joins Marc Faber and Gerald Celente in Predicting Major War Posted: 10 Mar 2011 09:06 AM PST ? Washington’s Blog   I noted in 2009:   The claim that America would launch more wars to the help the economy is outrageous, right? Certainly. But leading economist Marc Faber has repeatedly said that the American government will start new wars in response to the economic crisis: "The next thing the government will do to distract the attention of the people on bad economic conditions is they’ll start a war somewhere." “If the global economy doesn’t recover, usually people go to war.” Is Faber crazy? Maybe. But top trend forecaster Gerald Calente agrees. As Antiwar's Justin Raimondo writes: As Gerald Celente, one of the few economic forecasters who predicted the ‘08 crash, put it the other day, "Governments seem to be emboldened by their failures." What the late Gen. William E. Odom trenchantly described as "the worst strategic disaster in American military history" – the invasion of Iraq – is being followed up by a far larger military operation, one that will burden us for many years to come. This certainly seems like evidence in support of the Celente thesis, and the man who predicted the 1987 stock market crash, the fall of the Soviet Union, the dot-com bust, the gold bull market, the 2001 recession, the real estate bubble, the “Panic of ‘08,” and now is talking about the inevitable popping of the "bailout bubble," has more bad news: "Given the pattern of governments to parlay egregious failures into mega-failures, the classic trend they follow, when all else fails, is to take their nation to war." As the economic crisis escalates and the debt-based central banking system shows it can no longer re-inflate the bubble by creating assets out of thin air, an economic and political rationale for war is easy to come by; for if the Keynesian doctrine that government spending is the only way to lift us out of an economic depression is true, then surely military expenditures are the quickest way to inject "life" into a failing system. This doesn’t work, economically, since the crisis is only maksed by the wartime atmosphere of emergency and "temporary" privation. Politically, however, it is a lifesaver for our ruling elite, which is at pains to deflect blame away from itself and on to some "foreign" target. It’s the oldest trick in the book, and it’s being played out right before our eyes, as the U.S. prepares to send even more troops to the Afghan front and is threatening Iran with draconian economic sanctions, a step or two away from outright war. A looming economic depression and the horrific prospect of another major war – the worst-case scenario seems to be unfolding, like a recurring nightmare ... Forecaster Celente has identified several bubbles, the latest being the "bailout bubble," slated to pop at any time, yet there may be another bubble to follow what Celente calls "the mother of all bubbles," one that will implode with a resounding crash heard ’round the world – the bubble of empire. Our current foreign policy of global hegemonism and unbridled aggression is simply not sustainable, not when we are on the verge of becoming what we used to call a Third World country, one that is bankrupt and faces the prospect of a radical lowering of living standards. Unless, of course, the "crisis" atmosphere can be sustained almost indefinitely. George W. Bush had 9/11 to fall back on, but that song is getting older every time they play it. Our new president needs to come up with an equivalent, one that will divert our attention away from Goldman Sachs and toward some overseas enemy who is somehow to be held responsible for our present predicament. It is said that FDR’s New Deal didn’t get us out of the Great Depression, but World War II did. The truth is that, in wartime, when people are expected to sacrifice for the duration of the "emergency," economic problems are anesthetized out of existence by liberal doses of nationalist chest-beating and moral righteousness. Shortages and plunging living standards were masked by a wartime rationing system and greatly lowered expectations. And just as World War II inured us to the economic ravages wrought by our thieving elites, so World War III will provide plenty of cover for a virtual takeover of all industry by the government and the demonization of all political opposition as "terrorist". An impossible science-fictional scenario? Or a reasonable projection of present trends? Celente, whose record of predictions is impressive, to say the least, sees war with Iran as the equivalent of World War III, with economic, social, and political consequences that will send what is left of our empire into a tailspin. This is the popping of the "hyperpower" bubble, the conceit that we – the last superpower left standing – will somehow defy history and common sense and avoid the fate of all empires: decline and fall. I certainly hope Faber and Calente are wrong. But they are both very smart guys who have been right on many of their forecasts for decades. Even when their predictions have been viewed as extremely controversial at the time, many of them have turned out to be right. Yesterday, former Goldman Sachs technical analyst Charles Nenner - who has made some big accurate calls, and counts major hedge funds, banks, brokerage houses, and high net worth individuals as clients. - told Fox News that there will be “a major war starting at the end of 2012 to 2013”, which will drive the Dow to 5,000. Therefore, says Nenner: I told my clients and pension funds and big firms and hedge funds to almost go out of the market, almost totally out of the market. As I have repeatedly documented, influential Americans are lobbying for war in order to save the American economy - what is often called "military Keynesianism". But as many economists have shown, war is - contrary to commonly-accepted myth - actually bad for the economy. Of course, someone other than the U.S. might start a war. Given that bad economic policies are leading to unrest globally, it is impossible to predict where a spark might land which leads to a wider conflagration.

Guest Post: On Japan’s Bond Market And Its Economy Posted: 10 Mar 2011 09:05 AM PST Submitted by Nick Ricciardi On Japan’s Bond Market and Its Economy Over the past few weeks there has been a new round of articles and commentaries predicting doom for Japan’s economy. Yet, as usual, Japan’s bond markets have shrugged off these fears. Japan’s capital markets and its macro-economy are replete with confounding puzzles. But they are all rooted in two basic misconceptions that Japanese hold concerning their debt. Moreover they are understandable if analyzed from a perspective of both the public and private sectors. Doing so gives us insight into why Japan’s public debt offers the lowest yields of any nation when its debt/GDP ratio is the highest, why Japan’s corporate credit spreads are so narrow and its yield curve almost flat, why Japan’s bond prices are less volatile than those of other industrialized nations when its economy and stock market is “leveraged” to global growth, and why the yen tends to strengthen when Japan’s economy turns down. These conundrums (to paraphrase Alan Greenspan) are inter-related. To address them let us first consider the two misconceptions. (a) The Japanese regard their public debt as safe. Japan is the world’s most financially unconstrained nation. It has a fiat currency and full control over its money printing press. It has issued all its public debt in yen, and over 95% of it is held internally. Japan’s government – unlike Greece’s – cannot be forced to default involuntarily. Furthermore, there is near zero tolerance for voluntary default among its citizens. Hence its government bonds contain insubstantial default risk premia, despite the pricing of sovereign CDSs in London and the admonishments of rating agencies in New York.  (b) The Japanese are confident their debt will not be inflated away. 18 years of Keynesian spending to prop up its post-bubble economy has imparted a mild deflationary bias to its economy. Heterodox monetary measures (such as “helicopter money”) could swiftly reverse this, but Japanese understand that radical reflationary measures will not be on the agenda for the foreseeable future. Risk aversion of its governmental institutions, aging of its population, political gridlock, composition of its debt holders, and collective memories of its post-war hyperinflation of 1946-49 are powerful forces for maintaining purchasing power. Moreover, nearly two decades of below trend inflation have further conditioned its bondholders to discount the risk of future inflation. Hence Japan’s bonds contain inadequate inflation risk premia. These two misconceptions are pervasive and self-fulfilling. Japanese institutions, politics, and culture will need to transform before they can be jettisoned. (All nations have misconceptions about finance; there is nothing anomalous about Japan.) Since default and inflation risk premia are almost absent, and its bonds are mostly internally held, Japan’s government bond yields effectively become the rent that Japan’s private sector (the bondholders) charges the government to hold its debt. A unified basis for resolving Japan’s macroeconomic puzzles lies in reframing them along aggregate private / public sector lines.  Consider the true cost of Japan’s government debt. Japan has just under 1000 trillion yen of government debt and a GDP of just under 500 trillion yen. Since the average maturity of its debt is slightly more than seven years, Japan pays about 75 basis points in annual interest costs. With deflation running at 50 basis points a year, Japan pays out a real yield of 1.25% per annum on its debt. This equates to a real payment of 12.5 trillion yen, or 2.5% of its GDP paid (mostly) to its beleaguered private sector. This is a very high real yield despite the “sticker shock” of 0.75% for 7-year debt. In fact 2.5% of GDP is a greater real public sector wealth transfer than that demanded by the US’s more vibrant private sector. If this amount of required wealth transfer stays constant, and Japan’s private sector outlook remains the same, then when its public debt levels double its bond yields will need to halve. However, a real 2.5% wealth transfer is probably too much going forward as Japan’s private sector outlook will most likely become bleaker. The private sector consists of households, corporations, and banks. Due to its harsh demographics Japan’s household saving rate is expected to turn negative within the next few years, even as its consumers spend less. The nation’s annual public sector deficits of around 30 trillion yen will, therefore, flow to its firms and banks. This stream of excess corporate wealth will prevent prices of capital goods and non-residential land prices from falling, even as domestic demand for final goods falters. The corporate sector may do reasonably well in this environment, but it is hard to see how this will translate into greater optimism about the future. Since the nation no longer runs a significant trade surplus, Japan’s excess supply capacity will likely build, and the long term expectation for yen-based capital will most likely drop. This should put significant downward pressure on required real wealth transfers, and, hence, even more downward pressure on bond yields, in the coming years. Japan’s bank’s legendary insensitivity to yen-based credit risk also makes sense when examined along public / private sector lines. For the past 15 years much of Japan’s public debt has shown up in the corporate sector in the form of excess profits. This has papered over most potential credit problems. Policymakers also contribute to credit safety by opposing discontinuous change and by propping up weak firms to prevent bankruptcies. Japanese banks have also become inordinately overcapitalized as excess private sector wealth remains trapped in the banking system. These factors – unique to Japan – have conspired to keep yen credit spreads low. As Japan continues to spend far more than it taxes, corporate credit spreads will likely shrink further for most of its large corporations. Japan’s yield curve is not as flat as it appears. Yield curves are steep in the industrialized world mostly due to inflation risk premium in North America and Australia and default risk premium in much of Europe. Since these risk premia are minimal in Japan, and natural GDP growth is lower, Japan’s curve should be flatter. Yet when you look at the yield curve in absolute terms, it really is steep. Japan pays its bondholders (i.e., its private sector) roughly 7.5 trillion yen ($90 billion, or 1.5% of its GDP) each year to finance its public debt for an average of seven years, instead of zero to finance it via overnight rates. By comparison, the US pays roughly 2.7% of its GDP per year to finance its public debt for six years, but over half of this payment represents an inflationary premium. We can expect Japan’s yield curve to flatten in the coming years as its public debt levels rise, provided Japan’s basic misconceptions about its debt remain. Analyzing interest rate volatility along these public / private lines helps us understand the remaining puzzles. Given Japan’s Mount Fuji-sized debt, a 50 basis point move across the yield curve represents a 5 trillion yen change (or 1% of GDP) in annual financing costs of Japan’s debt, an enormous amount of wealth for Japan’s private sector to incrementally give up or receive. The same move in US rates would have less than one third the comparable impact. Japan’s greater sensitivity to rate changes means that as global economic conditions improve, yen bond yields can be expected to rise far less than those of the West; and the corresponding Japan/West yield differentials will widen. Since changes in interest rate differentials have long been the main driver of the yen, when global economic conditions turn up, the yen will likely weaken, amplifying Japan’s economic rebound and further fueling its stock market rise. Conversely, weak global economic conditions will lead to convergence of Japan/West interest yields, causing upward pressure on the yen, and downward pressure on its economy and stock markets. This explains why Japan’s equity markets are more volatile than those of other large nations while its debt markets move less. And it helps explain the seemingly perverse behavior of the yen strengthening when times are tough. A change in bond yields packs a more powerful punch in Japan than anywhere else. By appreciating the force of this punch we are then able to predict its ripple effects. To summarize, as can often be the case in Japan, things are not as they appear. From a Japanese perspective, its bonds are cheap, its corporate credit markets are sound, its true yield curve is steep, and the yen’s tendency to strengthen in the face of economic adversity is to be expected. Japan is in the midst of a wild experiment in pushing the limits of fiat money. Incorporating the ways its public and private sectors balance will lead to insights at substantial variance with prevailing views. I see this as the key to understanding many of Japan’s macroeconomic anomalies.   I conclude with a medium-term prediction. By 2016, Japan’s long-term bonds will yield less than 1%. When Japanese policymakers undergo future campaigns to “get control of the deficits”, bond yields will spike and most likely undermine the intermittent austerity efforts. Future austerity attempts will represent extraordinary opportunities for intrepid investors to buy long term JGBs. As for the risks to this prediction, “sudden stop” behavior of investors is a risk with all debt refinancing. But this tail risk for has long been overstated for Japan’s public debt. Barring natural disaster, calamity, or war, we can expect many future fakeouts and false alarms before Japan’s bond prices truly collapse. The stakes are most likely too high, the misconceptions too large, and monetary and fiscal fixes too powerful for a bond crash to occur on its own accord anytime soon. Nick Ricciardi is a private investor based in Kyoto. He can be reached at npr@gol.com

Fat-Tail Fatigue Posted: 10 Mar 2011 09:02 AM PST Bullion Vault

The Constraints on Silver Supply Posted: 10 Mar 2011 08:57 AM PST At the Casey Research Gold and Resource Summit, Bob Quartermain spoke about the constraints facing silver supply today, "Mine supply doesn't meet demand and in many of the new applications silver isn't being recycled, so it's not going to ... Read More...

Profit Taking at New Highs for Gold and Silver Posted: 10 Mar 2011 08:56 AM PST Jeb Handwerger submits: Gold [SPDR Gold Shares (GLD)] is breaking into new 52-week highs and silver [iShares Silver Trust (SLV)] is at its highest point in more than 30 years as Libya, one of the largest oil producers, faces a civil war. Libya is not following Tunisia and Egypt with a somewhat moderate transition; this revolt has been extremely violent and bloody. A lot of the fear at the moment is due to concern that protests could spread to Saudi Arabia. Investors are fearing the rapid rise in oil [iPath S&P GSCI Crude Oil TR Index ETN (OIL)] prices may be the spark that hurts a questionable global economic recovery as the equities [S&P 500 (SPY)] sells off, bringing down some miners to extremely cheap levels - considering the high price of gold and silver bullion. Countries that have created easy monetary policies and that are still struggling with high unemployment are finding Complete Story »

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