Save Your ASSets First

Gold World News Flash

Price Of Silver About To SKYROCKET Because Of China
More Silver Than You Imagined
Japan versus USA: Same Depression with a Lag
The Fed Must End QE2 on April 27th
Doug Casey: Debunking anti-gold propaganda
BOJ's Shirakawa Lowers Japanese Growth Outlook, Prepares For More QE, Blames "Mrs Watanabe" For Yen Surge
Prez to AG – “Get Krasting”
Housing vs. Gold
Will Adverse Regulatory Changes Cause Further Deterioration In Shadow Banking And Force The Fed's QE Hand Again?
A Hyperinflationary Great Depression Is Coming to America by 2014! Here?s Why
The Anti-Climactic ‘Downgrade’ of the U.S.
Chris Martenson will be my guest on “Keiser Report” next week
Where Next for Gold,Silver and the Stock Market SP500 Index?
Silver Black Swan if Rampant Speculation is Not Reigned In
Why Bank and Debt Crises are Helping the Gold and Silver Prices
What's with $1,500 Gold and $42 Silver?
Broad Dollar Index continues sinking
Public opinion shows 90.42% is bullish on silver prices
Axel Merk: Why Is Anyone Still Waiting to Sell the Dollar?
Gold Investment Opportunities Emerge in the Americas
Guest Post: Our Only Hope - You
Where Next for Gold-Silver and the SP 500 Indexes?
Rein in Rampant Speculation Or Face The Black Silver Swan
“The Comex is headed for a default unless they can secure a large new supply of silver and increase their inventories.”
So far, Automatic Earths’ prognosis for the dollar and gold have been dead wrong.
The Best of the Week

Price Of Silver About To SKYROCKET Because Of China

Posted: 23 Apr 2011 06:07 PM PDT

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

Posted: 23 Apr 2011 03:58 PM PDT

Having risen from an average price of $5.00 to $46.05 an ounce, it is only reasonable that one question what may be occurring in the silver market. A well read Investor will certainly have considered many explanations as to why ... Read More...

Japan versus USA: Same Depression with a Lag

Posted: 23 Apr 2011 01:09 PM PDT

Charts speak more eloquently than I can and they speak a brutal truth. Perhaps it is my scientific background or perhaps I appreciate the art that can be found in price charts. In either case, I prefer the message of charts to CNBC blowhards and other so-called experts.

Anyone who currently has excess savings they want to invest is in the minority of the world's population. They are also likely "rich" and "evil" according to populist sentiment. In any case, these aren't the best of times for advanced/Western economies.

We are currently in the midst of an unmistakable secular bear market for general equities in the United States. Such bear markets don't end with the current obscene valuations and they don't end because government saves the day. If it were only true, writing everyone a check for $700 billion dollars (i.e. treating everyone like a Wall Street bank) would bring endless prosperity and create an endless bull market.

The piper waits patiently, knowing that he will be paid. Currency debasement and allowing survival of the most unfit is not the way to restore a secular bull market. Ask Japan how QE1, QE2, and QE3 helped their stock market for the long haul.

Speaking of Japan, do you realize that we are on a similar course when stock markets are priced in Gold? I am not saying deflation of inflation, I am saying "priced in Gold." Only Gold bulls are used to such pricing strategies, but it is time for reality to intrude on the paperbug world.

Whatever monetary chaos we are in store for, Gold will outperform stocks over the next several years. This is open for debate in my mind as much as the question of whether fiat money will retain its value over the next decade is open for debate. Believe what you will.

But notice the "phase shift" chart message between Japan and the USA shown below. The chart is a monthly log scale chart of the Nikkei stock index ($NIKK, the main Japanese stock index) divided by the price of Gold ($NIKK:$GOLD), shown in a black and red candlestick format, versus the Dow to Gold ratio ($INDU:$GOLD), shown in a black line format:

Same chart with a phase shift, no? The corrections in this ratio lasted longer for Japan because they entered their secular depression when everyone else's economy was booming. We don't have that luxury, so our corrections in the Dow to Gold ratio have been shorter. We are about to begin the biggest leg down in this ratio since the "secular bear market" in this ratio began in 1999. This is not a drill and this is not a call for the end of the world. Be careful out there if you're not in the precious metals sector.

The Fed Must End QE2 on April 27th

Posted: 23 Apr 2011 11:04 AM PDT

By Dian L. Chu, EconMatters

The Federal Reserve has lost all credibility on Wall Street, and most of the American public with the absolute refusal to recognize the dire effects on asset prices that QE2 has created. But the refusal is part of the problem. It reinforces the wide spread belief of investors that the Fed is out of touch with reality, and that they sit in their Ivory Tower implementing an exceedingly loose monetary policy, with the stated goal of inflating asset prices.

The Fed has refused to even acknowledge the possibility (rather than the indisputable facts) that not only have they inflated selected asset prices like S&P 500, the Dow indexes, but they also have inflated asset prices like food, energy, and clothing which would actually hurt the economy and consumers (See Chart).

Needed – Housing and Wage Inflation

Remember, overall inflation is actually being artificially under-reported by the numbers because housing and wages are not inflating. These are the two actual groups of assets that Americans in reality need the Fed to inflate. But Fed’s policies have been unable to help and seem to essentially be hurting the housing sector, as higher everyday living costs with stagnant wages tend to reduce disposable income and resources that could be otherwise allocated to saving towards a down payment to purchase a house, improving the real estate sector of the economy.

Inflation Exported Would Come Back To Haunt

Furthermore, since most of these asset prices are priced in dollar, the fed has exported dire and extreme inflationary pressures on an already precariously balanced inflationary picture in the emerging market economies from China to India.

It is the proverbial throwing of jet fuel on a barbeque for most of the economies. Yes, Bernanke is right that these countries had inflationary problems before based upon their undervaluing currencies. Nevertheless, this is how their economies have been set up in the global trade role that has been 30 years in the making.

These countries just couldn`t revalue their currencies near enough to still keep their role as exporting, cheap labor manufacturers, without sending the entire region into a 10-year depression which would bring the entire world into a depression not seen since the Great Depression.

Unmanageable Inflation Elsewhere

Given the fact that these manufacturing exporting countries cannot meaningfully revalue their currencies, they are basically stuck with an endemic higher level of inflation compared with the developed economies, but it is still manageable. Now, with the US`s persistently loose monetary policies exacerbated by QE2, raising input costs for commodities used in abundance by these manufacturing, cheap labor economies like Oil, Copper, Cotton, and Iron Ore (See Chart), these policies are exporting additional inflationary pressures to these developing economies.

This results in making what would be a manageable level of inflation in China of around 3.5 to 4% an unmanageable level of inflation at 5.5 to 6%, and maybe even higher as the full effects of the inflation of commodity asset prices have not yet fully been incorporated and manifested in the Chinese manufacturing economy.

Long Live the Inflation Trade

The other area where Ben Bernanke`s stubbornness of acknowledging the effects of QE2 on food and energy prices, i.e., the rise in prices is due strictly to demand reasons, Middle East tensions, and product shortages and in no part to a loose monetary policy which encourages traders to make the following trade:

Loose monetary policy is dollar negative (printing money, currency devaluation, etc).
Commodities like Oil, Gold, Silver, Wheat, Corn, Cotton, Copper are Dollar negative Hedges
Therefore, put on the following trade: Short the dollar, and go long commodities.

This is the famous inflation trade is has been going on and off for the past 10 years by fund managers around the world. This trade has been in the investing 101 handbook for 50 plus years. And the fact that Ben Bernanke never admits to knowing about these trade dynamics in the marketplace, and how his policy initiate of QE2 actually encourages, facilitates and even mandates that fund managers around the world put on this very trade is beyond a rational explanation.

Inflationary Effects Are Transitory?

In addition, it is even more incredulous of Bernanke and his failure to acknowledge any role whatsoever for the feds function in these higher commodity prices when their stated goal is to in fact inflate asset prices. Whenever he is interviewed about this very question he always uses the standard response that inflationary pressures are not due to the recent Fed policy of QE2.

I guess these are assets that the Federal Reserve has expressly forbidden traders to inflate. However, Bernanke also adds that these inflationary effects are transitory in nature--he has been saying “transitory” for over 6 months now. How long does it take for ‘transitory” to become “stuck in the economy, and cannot get rid of without a massive rate hike sledgehammer”?

Fed Out of Touch with Reality

It is starting to sound like a broken record, and it is completely divorced from the facts in the marketplace, or the facts on the ground for those not in the Ivory Tower. It is this main street denial that has reinforced the notion that Bernanke and his dovish colleagues with their incessant soft selling of inflation in their comments regarding inflation questions every week that they are out of touch with reality.

This “fed out of touch with reality” notion only goes to reinforce the very “Inflation /Currency Devaluation Trade” causing traders to pile even more capital into shorting the US Dollar and going long Commodities because it is only going to get worse down the line. This is what is referred to as inflation expectations.

Dovish Fed Undermines The Dollar

The fed policies regarding QE2 are not near as damaging for the US Dollar as traders perceptions of the Fed policy of QE2, and judging by the rise in Silver alone will tell you, traders perceptions of QE2 is extremely negative. And that old adage perception is reality takes hold and traders do far more damage to the US Dollar than any actual currency devaluation due to QE2 by going heavily short the currency. Traders and their perceptions right now are what is really hurting the US Dollar and Bernanke has failed to realize this fact.

Another interesting question for Bernanke and his Dovish colleagues, and it appears that even the more hawkish members of the Fed are still to dovish in their market comments regarding inflation. Probably because they all are in the upper income bracket on a percentage basis compared with the average US consumer, and are largely immune to the ridiculous six month rise in food and energy prices felt by the average American citizen.

The Fed can change all that on the 27th of April with either a cutting short of QE2, or an equally hawkish wording of the fed statement with a nod towards tightening sooner than previously indicated in past policy statement wording.

Everyone Worries Except the Fed

The Fed might ask themselves the following question:

How come at every Speech where there is a question and answer session that you are asked about inflation?
Or how come every reporter when interviewing a fed member asks them about their role in causing inflation around the world and how this is contributing to political and social instability in emerging economies?
Is this just by coincidence, all these reporters and questions revolving around inflation effects? The answer is that these questions are being asked for a reason, and that alone is a problem for the fed.

Another question for Bernanke is how come every other country is worried about inflation, including developed economy neighbor Europe, while the US doesn`t have an inflation problem? It seems the US is the only country in the entire world where inflation isn`t a problem? Does this seem logical? And if it is in fact the case, how long do you think it will stay this way, where the entire globe is experiencing inflation pressures but the US has a “transitory” inflation problem?

When Transitory Turns Self-Fulfilling

The problem for the Fed is that this goes beyond current inflationary effects in the economy, but future expectations of inflation in the economy. And none of these are transitory in nature once they get embedded in the psyche of investors and consumers. The only way they were doused in 2008 when they were at these exact levels was a near historic crash in the financial and housing markets.

Absent of some similarly extreme deflationary event, inflation and expectations of inflation are only going to feed on themselves and become even more firmly entrenched in the economy, negatively reinforcing investors and consumer’s asset allocation and spending habits.

This all becomes self fulfilling in nature, and the real nasty part about inflation is if you don`t head it off early, once it gets even a little momentum, it becomes much more difficult to control and manage. This is where the fed is right now; they are at the cusp of losing control of their handle on inflation with their incredibly dovish stance towards inflation.

End the Denial or Lose on Inflation

Bernanke and the current Federal Reserve Board have a credibility problem both with Wall Street traders and the American population. The sooner Ben Bernanke acknowledges his role in causing inflation, the better off we will be in fighting the battle of inflation. The longer the denial routine of “transitory’ responses continues, the increased chance that Bernanke loses what shred of remaining credibility he has on the inflation issue.

Then, the inflation battle is essentially lost without equally devastating policy responses that are almost similarly as bad as the inflation effects, i.e., you have to send the economy into a recession with an abundance of tightening measures that completely destroys growth to get a handle on prices.

Needed - Hawkish & Cut Short of QE2

Again, the Fed and Bernanke can change all this on the 27th of April, failure to do so basically dooms Bernanke`s legacy to be remembered by the initial moniker put on him when he initially was chosen as Alan Greenspan`s successor, when he was commonly referred to as “Helicopter Ben”!

During his first six months on the job as Fed chairman, he did everything possible to dispel such a label, but he has more than made up for that period during the last six months regarding his outright refusal to acknowledge the exceedingly negative side effects revolving around out of control food and energy prices related to his QE2 Initiative.

The average American citizen cannot withstand another two months of “Asset Inflating” on behalf of the Fed, enough is enough, time to cut the QE2 policy initiative short.

EconMatters, April 23, 2011 | Facebook Page | Post Alert | Kindle

Doug Casey: Debunking anti-gold propaganda

Posted: 23 Apr 2011 10:31 AM PDT

6:33p ET Saturday, April 23, 2011

Dear Friend of GATA and Gold:

With his new essay Doug Casey demolishes as well as anyone the claim that gold is in a bubble. After laying out Aristotle's criteria for money, Casey confronts the criticisms of gold one by one. His essay is titled "Debunking Anti-Gold Propaganda" and you can find it at GoldSeek here:

http://news.goldseek.com/GoldSeek/1303671600.php

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

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

Join GATA here:

An Evening with Bill Murphy and James Turk
Sponsored by Deutsche Edelmetall-Gesellschaft
Friday, April 29, 2011
Hofbrauhaus, Munich, Germany

http://www.goldmoney.com/munich-2011-april-29.html

World Resource Investment Conference
Sunday-Monday, June 5-6, 2011
Vancouver Convention Centre East
Vancouver, British Columbia, Canada

http://cambridgehouse.com/conference-details/world-resource-investment-c...

Gold Rush 2011
GATA's London Conference
Thursday-Saturday, August 4-6, 2011
Savoy Hotel, London, England

http://www.gata.org/goldrush2011-london

Support GATA by purchasing gold and silver commemorative coins:

https://www.amsterdamgold.eu/gata/index.asp?BiD=12

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

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

http://gata.org/node/wallstreetjournal

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

http://www.goldrush21.com/

Help keep GATA going

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

http://www.gata.org

To contribute to GATA, please visit:

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

ADVERTISEMENT

Prophecy 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

BOJ's Shirakawa Lowers Japanese Growth Outlook, Prepares For More QE, Blames "Mrs Watanabe" For Yen Surge

Posted: 23 Apr 2011 10:11 AM PDT

It is one thing for sellside research, caught in its traditional lemming frenzy, to cut national GDP outlook. In the case of Japan the resistance to reality provide futile early on and based on the average of 43 economists' forecasts, economic growth is now expected to post a 0.22% GDP decline in Q1 and a whopping 2.83% in the April-June period. As had been predicted this is not surprising. What is surprising, is that the head of the BOJ, Shirakawa-san himself has now indicated that Japanese growth is stalling. Per the WSJ: ""We are now expecting production and GDP will decline in the first quarter and the second quarter," Mr. Shirakawa said in an interview on Friday. It is rare for the central bank governor to make such forecasts and is the first time that Mr. Shirakawa officially admitted the likelihood that the economy may shrink in the first two quarters of the year, in line with many private-sector economists' predictions." So for those wondering who will take the temporary lead in money printing in the brief period between QE2 and QE3, look no more: "given high uncertainties surrounding the Japanese economy, many analysts expect Japan's central bank to be eventually forced to take additional easing steps." And just how much money printing are we talking here? "The central bank currently buys ¥1.8 trillion of long-term JGBs every month from financial firms as part of its regular market operations. The bank's hands are tied by the so-called banknote rule, which limits long-term JGB buying to the amount of banknotes in circulation. But the central bank still has capacity to purchase around ¥20 trillion of long-term bonds, according to the central bank's latest account data." In other words, lots.

From the WSJ:

The BOJ's policy board will meet April 28 to discuss forecasts for Japan's economy and is scheduled to release its semiannual outlook report, including numeric forecasts for real GDP.

Given the cloudy outlook, Mr. Shirakawa said the central bank stands ready to take further easing action if economic conditions worsen.

"We are always carefully monitoring the situation and if we think it is necessary to take additional action, we as central bankers are ready to take such action," Mr. Shirakawa said.

In addition to expanding asset purchases, the BOJ has supplied ample liquidity to the money market amid growing concerns about the ability of banks to meet a surge in demand for funds from companies and households.

As a result of aggressive fund provision, the current account balance--the funds that financial institutions in Japan keep at the central bank, which they can use for lending or other needs--had expanded to more than ¥42 trillion in late March. That significantly exceeds the previous high of ¥36 trillion recorded during the BOJ's quantitative-easing program in the early 2000s.

To support reconstruction efforts in the affected areas, the central bank also introduced a special lending facility that makes ¥1 trillion of low-cost funds available for banks in the affected areas, and started considering accepting a broader range of collateral to make it easier for financial institutions to secure funds.

In other words, throwing the kitchen sink at the problem this tie will truly be different.

Or not.

In a statement that puts Shirakawa's perception of reality starkly into question, also on Friday the BOJ head blamed the massive surge in the JPY in mid-March not on repatriation and heavy trading desk margin liquidation, but on, wait for it, Mrs. Watanabe.

In a rare reflection of wild currency moves following the March 11 earthquake, Bank of Japan Gov. Masaaki Shirakawa said it was not the widely anticipated selling of overseas assets by Japanese insurers, but rather moves by the Mrs. Watanabes that propelled the yen to an all-time high against the dollar.

In an interview on Friday, the BOJ chief said actions by investors engaged in margin trading—the favorite game among the herd of small Japanese investors represented by a mythical housewife, "Mrs. Watanabe"—were mainly to blame for the yen's rise to 76.25 against the dollar in the early hours of March 17.

"The most promising explanation was such loss-cut trading," Mr. Shirakawa said, referring to yen buying by the retail investors that accompanied their compulsory loss-cut sales of foreign currencies in margin trading.

Japan's central bank, like the U.S. Federal Reserve, is not in a position to comment on the currency market, but in a lengthy analysis on the causes of the dollar's fall on March 17, Mr. Shirakawa cited two other reasons: expectations of fund repatriation by Japanese insurers and unwinding of the so-called yen-carry trade.

"First was the alleged repatriation by the institutional investors such as life insurers," Mr. Shirakawa said.

But he said the insurers didn't have strong reasons to sell their foreign assets because insurance resulting from the earthquake were not large, and as they have a sizeable amount of liquid assets in yen.

Well at least he didn't blame CDS traders or Citigroup bond runs. And the explanation would have been wonderful if only there was not this one glaring fact to the contrary (read about this here).

So yes, even as the clueless finally accept reality, they unfortunately still remain clueless. But that is a key job requirement of any central banker it would appear.

Prez to AG – “Get Krasting”

Posted: 23 Apr 2011 09:14 AM PDT

So the president of the United States has ordered the Attorney General to go after the speculators who have been drive up the price of oil and therefore gas. What can I say about this? Does the President think the American people are stupid? No one is going to fall for this line of crap.

Up front, let me acknowledge my guilt in this matter. I’m a speculator. I try my best at it. Some of my best friends are speculators. Many of my readers are speculators. In one-way or the other we are all speculators. Those that don’t think they speculate are actually speculators.

My local oil delivery company let’s me play in the big casino. I bought an option at a fixed price for 5,000 gallons of heating oil. The premium for the option was 20 cents a gallon. So I paid them $1,000 cash. That was sort of gambling money. If the cash price were to fall I’d get the lower price. If it rises, my cost is locked in. Last I looked I was 70 cents in the money. My option cost was 20 cents so I’m “up” 50 cents on 5,000. That’s $2,500 so I’m feeling good on this spec.

It’s not hard to find ways to make money in a rising energy market. I don’t have the balls to trade Brent futures. I overweight energy names in the global stock market. It’s worked pretty well.

I have some investments with funds that do trade energy futures (a “macro” directional fund). They’ve been doing great. I have nothing to do with their market bets, but since I (and many others) provide the equity I have to take some responsibility for their actions.

So if the AG is looking for someone who’s hands are “dirty”, well, I guess I’m on the list. If he did look me up, I would tell him that it was the Ben Bernanke that told me to do it. If the Justice Department wants to lean on me they also have to lean on the Fed.

If the AG, Eric Holder, bothered to look it wouldn’t be too hard for him to see that the blame for all this speculating can be laid at the feet of the Fed. Mr. Holder will not need a PhD in Economics to make this conclusion. All he has to do is read the FAQ’s on the home page of the Federal Reserve. From the FAQ (link):

Monetary policy also has an important influence on inflation. When the federal funds rate is reduced, the resulting stronger demand tends to push wages and other costs higher.

Ah! This is easy. When the Federal Funds rate is low, inflation rises. The price of goods rise! So what is the policy on Federal Funds? Also easy. It has been ZERO for the past two and a half years! What’s the outlook for ZERO interest rates being maintained? That’s easy too!! The Fed tells us every six weeks or so:

Interest rates will be kept exceptionally low for an extended period of time.

So the Fed is telling us in its FAQ that they want goods to go up in price. Now all they have to do is push me into action as a speculator. More from the FAQ:

policy actions can influence expectations about how the economy will perform in the future, including expectations for prices

To me, this is pretty clear, hopefully Holder will agree. The Fed has succeeded in its effort to change my expectations of the future of my energy costs. With my expectations being influenced, it is only natural that I would react. When I pay $1,000 to lock in a price to heat my home it is exactly what Bernanke would want me to do. I’m the best evidence that he has that his policy is “working”.

I think most Americans understand that we import half our oil and that the value of the dollar is a big factor in the price we pay for crude. A weak dollar causes the price of oil to rise. So what's the Fed’s policy on the dollar? Once more from the FAQ:

movements in the exchange value of the dollar represent an important consideration for monetary policy--such movements exert influence on U.S. economic activity and prices

Bingo! The desired consequence of the Fed’s monetary policy is to devalue the dollar in order to increase economic activity. But that same action also results in higher imported prices for crude. The only conclusion that I can come to is that higher oil prices are the desired consequence of Fed policy. Bernanke has brought me to the water and strongly suggested I should drink some. It's all spelled out in the FAQs. Its not hidden in some obscure language. Shame on me (and the President) if I had ignored such an obvious outcome.

The President and the AG need to determine why folks like me are speculating rather than just blaming me for high prices. When they look at the facts they can’t help but see that it is Bernanke that’s behind all that high priced gas. The speculators like me are just the mechanism that Bernanke uses to achieve his ends.

Housing vs. Gold

Posted: 23 Apr 2011 07:45 AM PDT

Okay then, when you price the value of the average house in terms of gold, or real money, the average house has lost 47% in value:

At its peak, the housing market in March 2007, the median U.S. home was $262,600, which was equivalent to 340.6 ounces of gold. Today's median income price is $186,100 or 109.2 ounces of gold. So in terms of real money, gold, the U.S. median home price has lost 47% since 2007 (Richard Russell from 321gold.com - Source LINK).

Please read the entire commentary I linked. It's short. Back in 2002 I suggested to anyone who asked me that housing would lose 75-90% of its value before the coming bear market in housing was finished. Some of those people are probably still thinking that I was overdosing on LSD. The good news is that I've never taken LSD and my prediction for housing is more than halfway home, so to speak, when viewed in terms of real money (uh, gold). I must admit that I wasn't thinking about using gold to measure the price of a home - I was using $dollars to measure home value. I know in many areas, distressed sales are occuring at more than 75% below the peak valuation level for homes. Having said that, I still believe that the average house will eventually drop at least 75% as measured in dollars and 90% as measured in gold.

There is also a good comparison chart in that link above showing the performance of the Dow vs. gold over the last 10 years. That the Dow has barely moved higher over that time period, and has plummetted vs. gold, will likely shock anyone who sees those charts.

I probably should start to focus more on the two bubbles that have yet to really blow up and crash - the dollar and Treasury bonds - rather than on housing. But there are still many people who ask me about housing and most of them refuse to believe that housing can go lower from here. Oh well. I guess you can look at it terms of gold like this: the dollar is going to go a LOT lower which, tautologically speaking, means that gold will go a LOT higher. So if you buy enough gold to fund 50% of a home purchase today, eventually - and possibly sooner that anyone thinks can happen - you will be able to fund the entire purchase of your dream home with gold you buy today.

To understand why the dollar is going to plummet, please read this quick commentary by James Turk in Eric King's blog: LINK Capire a tutti?

Will Adverse Regulatory Changes Cause Further Deterioration In Shadow Banking And Force The Fed's QE Hand Again?

Posted: 23 Apr 2011 07:19 AM PDT

Confused by the recent dramatic moves in General Collateral repo rates? Carry trade killing FDIC assessments got you down (and copycatting other blogs)? Still anguished by relentless end of quarter window dressing even as primary dealers reduce leverage to post crisis lows? Surprised by the ongoing deterioration in near term shadow banking despite the so-called improvement? Stunned by how the Fed has seemingly lost control of the near end even as the announcement of implicit tightening could be a few shorts days away? Then the following presentation from Barclay's Joseph Abate on the regulatory changes in money markets, and their broad consequences for funding markets is a must read for anyone concerned by the very peculiar recent goings on in shadow banking.

The bottom line is that as so often happens, regulatory intervention in what many forget is probably the biggest short-term funding market (now that LIEBOR (sic) is being investigated for mass criminal collusion, which is not news to anyone who followed unsecured funding during the great financial crisis) may end up having very dramatic events on actual funding availability.

While not nearly as serious as the "Ice-Nine" of money market that started in the week after Lehman's failure, it is more than obvious that a slow withdrawal of liquidity from the shadow banking system is again in progress. And as Zero Hedge readers know too well by now, it is precisely the critical shadow banking system with its $16 trillion in assets, that is by far the biggest determinant of whether or not the Fed will need to continue providing the liquidity needed to fund the shadow banking collapse offset. Read: conducting QE^x.

For much more, we urge everyone to read the following presentation which summarizes the recent adverse developments in shadow banking which as much as anything else, may force the Fed's hand to continue with ongoing market leverage interventions.

Abate April 20

A Hyperinflationary Great Depression Is Coming to America by 2014! Here?s Why

Posted: 23 Apr 2011 05:51 AM PDT

*The U.S. economic and systemic-solvency crises of the last four years only have been precursors to the coming Great Collapse: a hyperinflationary great depression.* Outside timing on the hyperinflation remains 2014, but there is strong risk of*a currency catastrophe beginning to unfold in the months ahead…moving into a full blown hyperinflation*[in a few]*months to a year… depending on the developing global view of the dollar and reactions of the U.S. government and the Federal Reserve. [Let me go into more detail.] Words: 2726 So*says*John Williams*([url]www.shadowstats.com/[/url]) inan article* which*Lorimer Wilson, editor of www.munKNEE.com,* has further edited ([* ]), abridged (…) and*reformatted*below**for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.**Williams goes*on to say:* The Great Collapse Nears The*crisis*will encompass a collapse in...

The Anti-Climactic ‘Downgrade’ of the U.S.

Posted: 23 Apr 2011 05:32 AM PDT

If we needed any confirmation of what humorless creatures bankers are, we got that today with Standard & Poor's warning of a "negative outlook" on the credit-rating of the U.S. economy.

Last year around this time, I'll admit I got a good chuckle when Ben Bernanke played his April Fool's Day joke on the world, and claimed that he had "finished quantitative easing, and begun the Federal Reserve's exit strategy". It was the sort of mad-cap humor Bernanke had previously made famous with phrases like "Goldilocks economy" and "soft-landing".

However, for April Fools Day this year, what do we get from Helicopter Ben but the exact, same joke. Even worse, it's been repeated ad nauseum by various other Fed-heads virtually every time one of them comes near a microphone. Only Fed-head Lockhart appears not to have gotten the memo on the "joke", as he was busy talking about business-as-usual – i.e. quantitative easing to infinity.

Now here we are, a full two weeks past April Fools Day, and Standard & Poor's belatedly decides to try its hand at humor. Guys, your timing is terrible! And it can't even be redeemed by the punch-line you threw in, that "it may take until after the 2012 elections to get a proposal that addresses the concern." In medical terms, this would be like a doctor quipping that he had "concern" for the health of one of his patients – at the patient's wake.

The U.S. is hopelessly insolvent. The only "issue" is how long its creditors allow it to continue with the Ponzi-scheme financing necessary to feign solvency. To some extent, we understand why the "game" has been allowed to continue, when we hear about the Federal Reserve's "secret payments" to foreign entities all around the world.

In agreeing to funnel trillions in Bernanke-bills, as partial restitution to some of Wall Street's foreign fraud-victims, the Fed was able to "buy some time" for the U.S. government. However there is absolutely no doubt about the final outcome here. But don't take the word of a Canadian for this (nor the various Chinese "academics" who have been suggesting the same thing, with ever more regularity).

Just ask Boston University Professor Laurence Kotlikoff. Kotlikoff has calculated the United State's total debts and liabilities at roughly $200 trillion. Note that I said this was a "calculation" – not an opinion. The only "issue" one can take with Kotlikoff's numbers concern the time-frame which he used in assessing liabilities. It is absurd to suggest that a (relatively puny) $14 trillion economy can even continue to service this "Mount Everest" of debt for more than a few years – before total collapse would occur.

Chris Martenson will be my guest on “Keiser Report” next week

Posted: 23 Apr 2011 05:10 AM PDT

Axel Merk: Why Is Anyone Still Waiting to Sell the Dollar? “The Fed can buy billions, even a trillion or so, but if and when the market is moving against the policymakers then there is no stopping. The Fed cannot stem that tide. There is only so much that they can manage and so it [...]

Where Next for Gold,Silver and the Stock Market SP500 Index?

Posted: 23 Apr 2011 04:57 AM PDT

The market action in both the precious metals complex and the equities markets has been moving in clearly defined Fibonacci and Elliott Wave patterns for quite some time now. All of the recent peaks and valleys in both areas can be clearly demarcated with Fibonacci retracements and crowd behavioral patterns both in advance and in hindsight. I’ve written about this phenomenon numerous times publicly and every week for my subscribers as well.

Silver Black Swan if Rampant Speculation is Not Reigned In

Posted: 23 Apr 2011 04:49 AM PDT

If you think the crude oil market has gone totally out of control in the past month or so, observe the Silver. The Silver market has basically gone parabolic the week of April 17, going from $41.75 on April 15th to $46.69 on April 21st--a 12% move in 5 trading days, topping off the move with a 5% move on Thursday (See Chart).

Why Bank and Debt Crises are Helping the Gold and Silver Prices

Posted: 23 Apr 2011 04:33 AM PDT

Some months back we pointed out that in their present form, banks had become the arteries and veins of the financial worlds with central banks the heart. Unfortunately, banks are driven solely by the profit motive. As they grew into every aspect of people's financial lives, they failed to take on the corresponding social responsibilities that they came with it.

What's with $1,500 Gold and $42 Silver?

Posted: 23 Apr 2011 04:25 AM PDT

As gold and silver continue their spectacular rise, The Gold Report checked in with Midas Letter Publisher and Editor James West to get his take on the situation. James, always strongly opinionated, sees this as the beginning of a global revolution that could result in long-term opportunities for gold and silver juniors.

Broad Dollar Index continues sinking

Posted: 23 Apr 2011 04:20 AM PDT

[url]http://www.traderdannorcini.blogspot.com/[/url] [url]http://www.fortwealth.com/[/url] ...

Public opinion shows 90.42% is bullish on silver prices

Posted: 23 Apr 2011 04:19 AM PDT

More than 90% is now bullish on silver prices. When everybody does the same, you sometimes better do the opposite…

Chart courtesy sentimentrader.com

Axel Merk: Why Is Anyone Still Waiting to Sell the Dollar?

Posted: 23 Apr 2011 04:11 AM PDT

From Chris Martenson

"The Fed can buy billions, even a trillion or so, but if and when the market is moving against the policymakers then there is no stopping. The Fed cannot stem that tide. There is only so much that they can manage and so it is something that they have to watch very carefully. At the same time, they are not terribly concerned. If the bond market is falling, you do not know whether it is because of more economic growth or because of more inflation, and you really only know after the fact.

So for now people think “We have economic growth kicking in”, until the next economic numbers are not as great as expected and so it is a bit like a boiling frog syndrome. You print in all this money, you think everything is great and you have some warning signs but you think “Things are moving along” and by the time that you really see the damage you have created, it is quite late to undo this damage and it is going to be very, very expensive and painful."

So remarks Axel Merk, currency specialist and founder of the Merk Mutual Funds, who is perplexed by those waiting for additional warning signs to sell the dollar. In his view, we have all the evidence we need. He and Chris discuss the inner workings of the Fed and the course it is determinedly charting - and the looming dangers ahead for the US dollar.

Click here to listen to Chris' interview with Axel Merk (runtime 40m:55s):

Read the Transcript of the Podcast
Report a Problem Playing the Podcast

In this podcast, Axel explains:

Why Ben Bernanke is hell-bent on debasing the US dollar to spur economic growth
How the politics of the Fed work, where the power lies and which arguments and actions are likely to carry the day
Why inflation expectations actually matter more than actualy inflation, and why the Fed will not rest until it is satisfied the market expectations for inflation are higher
That the US is on its way to a fiscal trainwreck - a reality our political leadership continues to lack to backbone to address honestly
The Fed's powers are prodigious, but not as great as the market. If and when the market moves against policymakers, nothing will stop it. The growing risk is we quickly tip into the inflation the Fed wants, which then quickly leads to runaway prices
His outlook for gold and why he thinks this "ultimate currency" can go much higher from current levels
How the US is caught in a Catch-22: our loose monetary policy continues to encourages credit consumption that makes us increasingly vulnerable; but we're so indebted already that if the Fed tightens rates, the economy could easily fall into a full-blown depression
How currencies mutal funds can responsibily reduce their risk exposure to the US dollar while offering investment gains

Axel Merk is president, chief investment officer and founder of Merk Investments. Axel is a noted expert on world currencies and manages several mutual funds that manage currency risks for investors. For years he has been an outspoken critic of US monetary policy, warning investors that the current course risks seriously devaluating the dollar. The past few years have proven his warnings to be accurate. He is also the author of Sustainable Wealth, a very readable guide to understanding our macro economic environment, the risks today’s investors face, and how they can mange their finances to achieve financial stability .

Our series of podcast interviews with notable minds includes:

Gold Investment Opportunities Emerge in the Americas

Posted: 23 Apr 2011 04:04 AM PDT

From Quebec, Canada to Sonora, Mexico, House Mountain Partners Founder Chris Berry constantly uncovers new opportunities in the Americas. In this exclusive interview with The Gold Report, Chris outlines the geopolitical changes that are driving renewed interest in areas considered too risky or not profitable enough in the past. The Gold Report: Investing in junior mining companies across the Americas requires balancing risk and reward. What has changed in countries like Colombia, where violence and corruption hampered investment in the past, that make it worth considering investing in gold and nickel companies today?

Guest Post: Our Only Hope - You

Posted: 23 Apr 2011 03:33 AM PDT

Submitted by TF Metals Report

Our Only Hope: You

So I'm flipping through the channels late Wednesday night and I stop on O'Reilly visiting with Lou Dobbs. I notice that they're talking about oil prices so I figured I'd give it a listen.

As the interview dragged on, I was amazed at their points of view.

O'Reilly: Its all the evil speculators, oil companies and OPEC who are at fault. They are driving up the price of oil for their own benefit and screwing the consumer.

Dobbs: It's all Obama's fault. He should be putting the screws to OPEC to force them to pump more oil and bring the price down.

That these guys are apparently so clueless bugged me all day yesterday. In fact, I even discussed this on the phone with Mr. Hyde. How could these guys not get it? Anyone with a brain knows that crude is going up because of concerns of unrest in the Middle East and, more importantly, the rapidly declining dollar. But here are O'Reilly and Dobbs taking 5 minutes in front of O'Reilly's massive audience to construct bogey men for everyone to blame. WHY? Seriously, this really bugged me.

I got my answer yesterday when I saw this:

( RTR ) 04/21 02:30PM OBAMA SAYS HAS ASKED ATTORNEY GENERAL TO CREATE TEAM TO "ROOT OUT" FRAUD, MANIPULATION IN OIL MARKETS THAT COULD HIT GAS PRICES
( RTR ) 04/21 02:31PM OBAMA, IN PREPARED REMARKS, SAYS TEAM'S FOCUS WILL INCLUDE OIL MARKET TRADERS AND SPECULATORS
( RTR ) 04/21 02:31PM OBAMA SAYS WILL MAKE SURE THAT NO ONE IN OIL MARKET IS TAKING ADVANTAGE OF THE AMERICAN PEOPLE FOR THEIR OWN SHORT-TERM GAIN

And it all began to fall into place. The O'Bottom regime knew that the President was going to be discussing this nonsense yesterday. So, they put out a call to their new buddy, O'Reilly. Remember, O'Reilly owes them a few favors after they granted him the exclusive interview back on Super Bowl Sunday, O'Reilly obliges by gladly staging this interview to give the President some political cover. Adding Dobbs to the segment to criticize Obama gives O'Reilly cover, too. Pretty handy, huh?

Do you now see how you are manipulated? The Fed/TBTF/Govt/Media Complex is desperately clinging to power. Again, anyone with a brain knows that oil is rising because its denominated in dollars. It's the reason corn is rising. It's the reason gold is rising. It's the reason the stock market is rising. The world is awash in dollars, willfully printed by the Federal Reserve, to fund the U.S. government ponzi scheme. If you want to control inflation and bring the cost of crude oil down, you stop printing money and make the U.S. government function on revenues alone.

But that's not going to happen, now is it? Nope. No way. So long as the politicians and their willing accomplices in the media can construct straw men upon whom you can vent your anger, change will never come. Your politicians will distract your neighbors from focusing on the real problem (the politicians) by encouraging them to chase dead ends and ghosts, instead.

Our only hope is each other. We must educate and help each other and then we must help as many of our friends, family, neighbors and coworkers as we can. It is up to us to do it ourselves. I'm willing to risk everything trying to help. Are you? Do you know what you believe? What is it that you know to be true? Are you willing to stand in front of others and proclaim this truth, knowing that you will be criticized, ridiculed and marginalized by those who choose to let normalcy bias rule them? We must try. If not for ourselves, for posterity.

Thomas Jefferson wrote of this 235 years ago. It is clearly still valid today. I leave you today with his words to ponder:

When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.

Where Next for Gold-Silver and the SP 500 Indexes?

Posted: 23 Apr 2011 03:31 AM PDT

Rein in Rampant Speculation Or Face The Black Silver Swan

Posted: 23 Apr 2011 02:48 AM PDT

By Dian L. Chu, EconMatters

If you think the crude oil market has gone totally out of control in the past month or so, observe the Silver. The Silver market has basically gone parabolic the week of April 17, going from $41.75 on April 15th to $46.69 on April 21st--a 12% move in 5 trading days, topping off the move with a 5% move on Thursday (See Chart).

As Silver is a thinly traded market, one thing the CME could do is to raise margin requirements for Silver speculators; otherwise risk is setting up the silver market for an record-setting crash, which could impact many other markets in the process of correcting, especially other commodities like Gold and Crude Oil.

A Silver Contagion

We are not talking about a 5% correction setting up at these levels for silver, we are talking in terms of a 20% down day that poses a contagion effect to markets in general.

The reason the contagion risk in the Silver market is that while Gold is going up half a percent to one percent, Silver is logging in 3.5% days routinely (See Chart below). Well, what goes up, must come down... eventually. So, when this market breaks, it is going to break hard to the order of 10% easily.

Chart Source: FT.com

That kind of market selling will not occur in a vacuum, especially since commodities have been trending up as a group, i.e., the same hedge funds and banks are trading all the risk-on commodities as well, like Gold, Copper, Crude Oil, Wheat, etc.

In other words, if Silver gets a 10% down day, which it almost will for sure, and if it isn`t cooled off considerably with proper margin requirements instituted by the CME, then, the rest of the commodities will be forced to overshoot to the downside as well.

ETF Trading & Portfolio Rebalancing

There are a couple of reasons for this.  With the advent of commodity funds, silver is part of the basket of commodities in the funds. Also, because traders will not want to fight the tape, shorts will come in and take advantage of the selloff in Silver to push other commodities down through ETF trading vehicles.

Moreover, the same banks and hedge funds trading silver are also involved in the major commodity groups as well, and they will be liquidating other positions to keep their portfolios balanced with regard to risk. So expect a lot of portfolio rebalancing to take place if the Silver market drops 10% in a day across many hedge funds.

Price & Margin Out of Balance

The CME routinely sets margins based upon contract prices. So, if Silver goes up $10 more in price, then the ratio of margin to price goes down. In order to realign margins with the higher price, CME would raise the margins.

The reason this becomes a problem is that if price gets too far out of balance with margin requirements, the risk goes up, because traders will not be properly sized with regard to risk for a potential correction, and many trading accounts could be devastated due to overleverage.

Black Silver Swan

In addition, if Silver speculators are all heavily leaning towards one direction as the action of recent silver price movement suggests, then, there is an increased risk of a major market dislocation, thus creating a ‘black silver swan' day. That’s exactly the kind of event that exchanges try to prevent from occurring, as it is extremely unhealthy for markets, and bad for business.

It is obvious to anyone observing the Silver market that it is overheated to the N^th power. The longer CME ignores the problem, the worse the consequences will be down the line. When all the other risk-on commodity trades are putting in 1% days, and Silver is putting in 5% days, then you know the longer this goes on, the higher probability that this trade and market could end very badly.

Flash Crash 2.0?

As the very real possibility of a 20% two-day correction is moving towards becoming a very real probability, it could bring down a lot of other markets in the process. Remember, we had the flash crash around this time last year?  Well, if the Silver market isn`t cooled off, it could potentially be one of the catalysts for another broad flash crash this year.

Raise Margin Requirements by 30%

The easiest way for the CME to lessen the probability of an epic crash in the Silver market, and the subsequent public and regulatory inquisitions, would be to raise margin requirements by at least 30%, as the starting point.

Actually, the CME could be a little late based upon the manner in which silver speculation has gone bizzerk, especially over the last trading week--the market has simply become parabolic. The CME could have raised margin requirements once Silver broke $40 an ounce, and without a doubt they should have raised margin requirements on the 14th of April, before this latest 12% weekly move.

The longer the CME fails to address the problems in the Silver market to rein in excessive speculation, the more risk there is of an extreme market crash. Just as I said before--"The white metal appears overbought and could be heading towards a bubble stage," and without QE2, that bubble would have formed and burst by now.

Silver A Screaming Short

With gold/silver ration setting new 28-year low record almost everyday in April, it looks like the necessary elements are already set in motion for another horrid crash and burn contagion scenario--but this time originating from Silver--due to the interconnected nature and electronic evolution of modern day markets.  Any intervention effort by that time would most likely be futile in the face of a multi-market algo contagion.

EconMatters | Facebook Page | Post Alert | Kindle

“The Comex is headed for a default unless they can secure a large new supply of silver and increase their inventories.”

Posted: 23 Apr 2011 02:35 AM PDT

What I Think the Fluctuations and Trends In the Comex Silver Inventory Mean I am sure that the exchange principals will pass along rumours about a short squeeze and an attempted market corner, and try to paint this as some insidious anomaly. Yes there are speculators becoming involved, those who see what is happening. As [...]

So far, Automatic Earths’ prognosis for the dollar and gold have been dead wrong.

Posted: 23 Apr 2011 12:47 AM PDT

From the latest on AutomaticEarth: To go from there to the conclusion that the U.S. Treasury faces an imminent funding crisis, however, requires a few major and unlikely assumptions; the classic hallmark of those fretting over hyperinflation of the dollar in the short-term. As briefly discussed above, a slowdown in foreign government purchases of U.S. [...]

The Best of the Week

Posted: 22 Apr 2011 11:29 PM PDT

syndicate:

Author:

Vedran Vuk

Synopsis:

Welcome to the weekend edition of Casey's Daily Dispatch, a compilation of our favorite stories from the week for the time-stressed readers.

Dear Reader,

Welcome to the weekend edition of Casey's Daily Dispatch, a compilation of our favorite stories from the week for the time-stressed readers.

Of course, if you want to read all of the Daily Dispatches from the week, you may do so in the archives at CaseyResearch.com.

The Fracking Controversy

By The Casey Research Energy Team

The news that Blackstone Group LP (BX), the world's largest private equity firm, is set to invest $1 billion in unconventional oil and gas projects in North America through a joint venture with Alta Resources has cemented a spotlight on fracking.

A U.S. Senate committee is currently conducting a hearing on the safety of hydraulic fracturing, as it is formally known. The province of Quebec, the state of New York, and the entirety of France have recently banned the technique. And two new studies claim that fracking-derived shale gas is actually worse for the environment than mining and burning coal. With so many claims flying around about this unconventional practice, let's get a closer look at the facts.

Fracking is a drilling technique that involves pumping large volumes of water, sand and chemicals into deep shale deposits to fracture the rock and free the oil or gas. Drillers seeking to pull more oil and gas from hard rock deposits have been fracking since the 1950s, but in the last decade advancements in horizontal drilling techniques have taken fracking to a new level.

Fracking has enabled us to extract gas from shale deposits, which are often more than a mile underground. The gas in these deposits used to be inaccessible, but now that it can be extracted, and as a result, shale gas has transformed the North American natural gas landscape. In the chart below, the increase in Lower 48 onshore production over the last 10 years stems primarily from shale gas discoveries.

Shale gas deposits now provide 25% of America's natural gas and are expected to provide 45% by 2035. In 2010, the nation produced 4.87 trillion cubic feet of shale gas, a 57% increase from in 2009. Shale gas discoveries accounted for 90% of the increase in America's domestic gas reserves in 2009 – a year when gas reserves grew by 11% even though prices fell by a third – and shale gas now represents 21% of the nation's total gas reserves.

The dramatic shift to shale gas has three drivers. First, horizontal drilling advanced to a level where drillers became able to frack horizontally. Fracking has been used to extend the lives of vertical wells since 1949, but vertical fracturing cannot retrieve shale gas at economic levels. Horizontal fracking can.

Second, the world's easy-to-reach, conventional gas fields are starting to run dry. That precipitated an increase in the price of natural gas. When a commodity is worth more, companies become willing to spend more finding it, and thus was born today's frantic fracking campaign.

Third, the United States hates that it is reliant on OPEC oil. When fracking revealed a wealth of domestic natural gas, that natural gas quickly became the "bridge fuel" in the nation's energy plan, a cleaner-burning fuel than oil or coal that the country can use to wean itself off foreign oil as it transitions to renewable energy sources. Natural gas exploration has almost been cast as an act of patriotism.

It has also found major support from the federal government. President Obama has promoted natural gas as part of America's clean energy future, but the real support for fracking came from President Bush. In 2005, the Bush administration drafted and passed the Energy Policy Act, a wide-ranging energy bill crafted by Vice President Dick Cheney. (It is relevant to note that Dick Cheney ran Halliburton, the company that pioneered fracking and is highly active in U.S. natural gas exploration, before joining politics.)

The Energy Policy Act explicitly exempted fracking from the requirements of the Safe Drinking Water Act, the Clean Air Act, and the Clean Water Act. The Halliburton Loophole, as it has become known, enables gas companies to pump millions of gallons of fracking fluid into old wells or to leave the fluid evaporating in open pools, without having to identify the chemicals in the fluid. Those chemicals include benzene, toluene, boric acid, xylene, diesel-range organics, methanol, formaldehyde, and ammonium bisulfite.

It is this fracking fluid that causes the most concern. It takes up to 8 million gallons of water to frack a well, and a well may be fracked up to 18 times. With each round, about half of the fracking fluid returns to the surface along with the gas, via the collection pipes. The gas is piped to compressor stations, where it is purified and compressed for transport. The returned fracking fluid, now called wastewater, is either trucked to water treatment plants that may or may not be designed to handle fracking chemicals, reinjected into old wells, or stored in large, tarp-lined pits, where it is allowed to evaporate.

It is no great surprise that the rapid growth in fracking has been matched by an equally rapid growth in opposition. The wells themselves are eyesores for some; to build the roads and drill pads, hundreds of thousands of acres of land have been disrupted. However, the big issue is water contamination. As use of the technique has spread, it has been followed by thousands of incidents of water contaminated by metals and volatile organic compounds that have led to health problems for people, livestock and wildlife.

The natural gas industry claims that the one million currently producing, hydraulically fractured wells in the United States were drilled without causing a single confirmed case of groundwater contamination. That is not true. In Pennsylvania, the Department of Environmental Protection acknowledged a contamination of the aquifer that fills household wells in a rural area of Dimrock after more than 60 wells were drilled in a 9-square-mile area.

The fracking operations turned the water brown and imbued it with dangerously high levels of methane, iron and aluminum. Fracking fluids leaked into streams, turning them garish colors and killing fish. One woman's water well blew up. A family was evacuated from their house because of dangerous methane levels.

Shale formations are typically 5,000 to 8,000 feet deep, way below groundwater aquifers that usually sit just 1,000 feet below surface. As such, it is not likely that the frac gas and fluids travel all the way up to the aquifers through fractures. Contamination more likely occurs through poor cement well casings that allow fracking fluids and methane to escape all the way up the pipe, including at groundwater levels.

In addition, since the Halliburton Loophole exempts fracking from abiding by most environmental regulations, the above-ground handling of return wastewater and the airborne pollution produced through processing add significant risks to the fracking process. For example, Fort Worth, Texas, sits atop a very productive shale formation. Chemical emissions from natural gas processing facilities in and around Forth Worth now match the city's total emissions from cars and trucks.

Fracking still enjoys wide-ranging support, for good reasons. The lease fees that drilling companies pay to landowners are enough to turn many citizens into supporters. The price to lease an acre of Marcellus Shale, the huge shale play that stretches from West Virginia to New York, continues to climb. Twenty years ago, it was just $25; now it averages $5,000. The industry creates thousands of job and pumps lots of money into state coffers. And it provides natural gas, the clean energy of our near-term future. Right? Well, maybe.

The part that may not be right is the "cleanliness" of natural gas. Two new studies out of Cornell University are poking holes in natural gas' clean-and-green reputation, suggesting that the rush to develop America's unconventional gas resources will likely increase the nation's carbon emissions rather than decrease them.

Natural gas is considered clean because, on combustion, it emits roughly half the carbon dioxide of coal and about 30% that of oil. The problem, according to lead author Robert Howarth, is that combustion is only one part of the natural gas life cycle; during other parts of the cycle, a lot of methane is lost.

The study suggests that between 3.6% and 7.9% of the methane in natural gas is lost from the time a well is plumbed to when the gas is used. On top of that, a recent study from the Goddard Institute for Space Studies at NASA suggests an interaction between methane and certain aerosol particles significantly amplifies methane's already potent greenhouse gas effects. In addition, thousands of trucks are driving every minute of every day to bring fracking fluid to drills and to remove wastewater. When all is factored in, Howarth and his colleagues conclude the greenhouse gas footprint of shale gas is likely 20% greater than coal per unit energy, and may be as much as twice as high.

There are many caveats in the study. The data Howarth used was thin, by his own admission, in large part because the industry discloses so little. And much of the methane now leaking out of shale gas operations should be relatively easy to seal in. But if nothing else, the study should give lawmakers reason to pause before continuing their wide embrace of all sources of natural gas.

Along those lines, many people oppose the overall concept of a bridge fuel. The question is: how long and wide should the bridge be? And if Howarth is right and shale-derived gas is worse for the environment than coal and oil, should shale gas be part of the bridge?

These are the questions that governments around the world are wrestling with. In the U.S., a Senate Environment and Public Works Committee is currently hearing testimony in an effort to assess the safety of hydraulic fracturing. The Environmental Protection Agency (EPA) is also studying fracking, under orders from Congress. The EPA study is a comprehensive look at whether fracking taints water supplies, and initial results are not expected until 2014.

Some jurisdictions are not waiting for official study results. New York City and Syracuse, New York, have banned fracking in their watersheds, citing a study that concluded fracking could pose "catastrophic" risks to the prized local water supply. New Jersey is considering a ban, and Pittsburgh has prohibited the practice within city limits. The Canadian province of Quebec recently banned fracking completely, even though the province hosts considerable shale gas potential. In Australia, fracking has been sweeping the Queensland countryside, and a furor is building among landowners. Shale exploration is similarly spreading quickly and causing strife across Europe.

Nevertheless, Blackstone's $1 billion entry into the field suggests fracking is still a hot topic. Blackstone is not the only major making a major shale splash: a year ago, Indian materials and energy giant Reliance Industries struck a deal with Pennsylvania-based Atlas Energy to team up in developing Atlas' more than 500,000 acres of Marcellus land. The deal is worth $1.7 billion over five years, or $3.5 billion over 10 years.

So what should the investor do? First, it is not important to decide whether or not fracking is damaging to people and the environment. The Senate committee and the EPA are working on that (albeit through numerous politicians and lobbyists – good luck to them). What the investor needs to do is the same as always: separate the wheat from the chaff.

In that analysis, remember these points.

Unconventional exploration, including fracking, is a phenomenon that will forever change the face of hydrocarbon exploration. We applaud those trying to find new ways to tap into the earth's resources.
Natural gas prices are depressed because of oversupply in North America. Oil prices, on the other hand, are high. If you want exposure to unconventional exploration, choose a company that is working in both areas, or potentially just in unconventional oil. You rarely win when you're fighting against a low commodity price.
Every successful development in exploration attracts bandwagoners, companies that want to ride the wave even though they are not really involved in the action. Check maps to verify a company's land position is actually within the basin in question; check cash balances to see if the company has enough money to drill. Do your due diligence.
Where there are congressional committees and controversy, laws are apt to change. Fracking is coming under considerable scrutiny at the state and federal levels, so keep your eyes peeled for news about challenges or change to the regulations governing fracking.

While oil and gas companies can be terrific profit opportunities, rising prices also create opportunities in the renewable sectors, making them more economic. Learn which "green energy" is not only more viable and cheaper than solar and wind, but can also provide investors with stunning gains – it's so great, even Warren Buffett has a stake in it. Get the details here.

The S&P's Changed Outlook

By Vedran Vuk

Yesterday, S&P's change to a negative outlook for the U.S.'s AAA standing should have everyone worried, but not due to the U.S.'s fiscal situation. Sure, the U.S. is in extreme danger of defaulting in the future. That should be obvious to anyone who has examined the data or done a little basic math. In fact, it's so obvious that the market's reaction to the news almost doesn't make sense.

Are investors really that asleep at the wheel? S&P did not reveal any new information about the U.S.'s debt position. Things were as bad on Friday as they were on Monday morning. Yet, the market didn't take the news well. Why is everyone so surprised? With the market caught off guard, this hints at the trouble ahead when U.S. Treasuries are actually downgraded and in trouble. Many market participants have disregarded all the warnings signs. When the reality of U.S. debt finally comes knocking, the majority will be caught unaware.

On a side note, after the crisis, the relationship between ratings agencies and corporations was questioned as a conflict of interest. The companies being rated were paying the same agencies rating them. However, the incentive problem goes deeper still. After the agencies' failures in the recent crash, the government is now looking to regulate them. But doesn't this create the same perverse incentives? The ratings agencies must rate their regulator. That seems like a direct conflict of interest to me. But of course, the government is run by angels. They would never exert their influence on a ratings agency, right? Only those mean corporations would do that.

Gold Goes Bass Fishing

By Kevin Brekke

As a member of the pro-gold community, I am routinely forced into educating those that would lump me into the category of gold bug, and for no other reason than that this group can be so damn embarrassing. For a group that prides itself on being on the right side of history, they are regularly on the wrong side of the headlines.

Once you grasp the reality that the majority of today's news generators are just another entertainment appendage of Hollywood, it will all begin to make sense. As an investor, you can either be on the consumption side or the analysis side of the incessant stream of infotainment that barrages us daily.

One day's headline, like any news of the status of the Fukushima nuclear power station, can turn untold numbers of news consumers into Chicken Littles, grabbing their guns, canned beans, iodine and Krugerrands and heading for the bunker. The next day's news that a university investment fund bought physical gold can reform our Chicken Littles into alpha roosters, airing out the compound, enjoying the endless blue sky, and strutting around the blog-o-barnyard with puffed chests and atta-boys all around.

"Texas University Buys $1 Billion of Gold Bars" screamed the headlines in a steroid font. Talk of "new eras" and "turning points" for the gold market ran viral among the bugs' blogs. You could almost hear the metaphysical bell ring, signaling that it was time to go all in.

Meanwhile, over on the analysis side of the headlines, things looked a little different. Let's take a look.

The decision to purchase and store 664,300 ounces of gold was made by UTIMCO, the University of Texas Investment Management Co. that oversees funds held by the University of Texas System and Texas A&M University.

Seated on the board of UTIMCO is J. Kyle Bass, managing partner of Dallas, Texas-based hedge fund Hayman Capital Management LP. Bass is credited with successfully shorting the U.S. subprime mortgage market and walking away with a $500 million profit. His resume includes stints as a salesman with Bear Stearns and Legg Mason.

Bass is also a graduate of Texas Christian University.

Bass had been advising the board in early 2010 on the merits of owning gold and how to ladder into the gold futures market. He was named to the endowment's board later that year in August. The board subsequently voted to convert its paper contracts into physical gold by taking delivery. Bass was asked to assist with the storage of the gold, now held at a Comex-registered vault in New York owned by London-based HSBC Holdings.

About the decision, Bass remarked, "I simply voted as a board member to approve the storage facility and concurred with their decisions."

Uh-huh. Right.

Now, do not hastily tag me as a gold SINO (supporter in name only). I, too, am encouraged to see a large fund not only take a position in gold but to take a large position in physical gold. A smart move in my book.

But let's not get carried away with reading too much into this. Bass is far from your typical voting board member on a university investment fund. I mean, really, how many wildly successful hedge fund managers, alumni, local boys, and former Wall Street players are there on other university funds' boards? I don't have the answer, but I suspect it is a small number.

And to the claims circulating that this purchase will put further pressure on the availability of gold bullion, I offer a thousand words:

This photo shows how gold is stored in a bullion bank's vault. Not a velvet lined cedar box in sight. Odds are that the UTIMCO purchase did not entail the movement of any gold or even cause a forklift operator to break a sweat. A change in ownership was noted in the appropriate ledgers, and that was that.

Throttling back on the sarcasm, though, the purchase was certainly a welcome move by a large institution, a move the metals team at Casey Research has been expecting. But unlike the histrionics, theories, and conclusions drawn by the media consumers, the editors at BIG GOLD have developed and follow a measured approach to gold and gold stock accumulation. We recommend you do the same.

[Try BIG GOLD risk-free today, at only $79 per year and with 3-month money-back guarantee. Click here to go directly to the order form, or read more here Mom's IRA about Editor Jeff Clark's portfolio-boosting strategies.]

Technology and Your Fourth-Amendment Rights

By Alex Daley

Officer: "Do you know why I pulled you over?"

Driver: "I think I was going a little fast coming down that hill. I was just slowing down. Sorry, but…"

Officer: "License, registration and cell phone, please."

Next time you are pulled over, don't be surprised if a police officer asks for your cell phone. That's apparently what's started in Michigan, where police are employing a new piece of technology in their war against lead-footed menaces.

According to a complaint aired by the ACLU, Michigan State Police have launched a pilot program, having traffic cops search mobile phone data from speeders using this fancy gadget:

Sold by a company called Cellebrite, the "UFED" can download pretty much anything and everything from most models of phones: texts, photos, videos, even GPS data. The devices are equipped with adapters for connecting to most major brands of phones, and can even uncover information like the physical keypad lock code and internal diagnostics that track past SIM cards in use.

The device takes a dump of any phone memory it can access (on some phones, that's a complete dump of everything) and stores it for offline analysis using the company's desktop software back at the police station. There, police can read your call history, play your videos, or even recover previously deleted files in some cases.

There are certainly some uses for such a device, say, in analyzing the cell phone of a suspected drug dealer after his lawful arrest. But in Michigan the police have allegedly been using the device to download information from the cell phones of drivers pulled over for speeding, even when not suspected of any other crime.

The ACLU contends (and your author for one agrees completely) that downloading the contents of a person's ce