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Tuesday, October 25, 2011

Gold World News Flash

Gold World News Flash

Peak Oil or Peak Silver?

Posted: 24 Oct 2011 05:55 PM PDT

(Neither; just rising prices!) Silver Stock Report by Jason Hommel, Octoer 21, 2011 There is a 50 year supply of oil in the ground, but only a 13 year supply of silver. This means that if peak oil is true, then peak silver is more true, that we will run out of silver, first. If that happens, you can forget about peak oil, because without silver, we won't have any computers or electronics to be able to go out and explore for, or pump, or deliver, any oil. But wait, see, 10 years ago, when I first got into silver, the world had a 15-16 year supply of silver in the ground. Why isn't it down to 6? Because we explore for, and find, more silver all the time. We always have. Also, with rising prices, previously explored and uneconomic silver deposits suddenly can become economic and add to supply, especially as silver prices have risen from $5 to $30/oz. See, mankind has been exploring for, finding and mining silver, for maybe up to 6000 years. In con...


Winners And Losers: The New Economy

Posted: 24 Oct 2011 05:42 PM PDT

This article originally appeared in the Daily Capitalist.

There was a wonderful article in the Wall Street Journal this weekend on the ultra (über, hyper, 1%) rich. The article ("The Wild Ride of the 1%") discusses the volatility of wealth of the top 1% income earners in America. The author, Robert Frank, reveals that these people's income and wealth have become much more unstable than the wealthy class of the past. He makes an important point about today's economy. I urge you to read the article. If you are not a subscriber, you may find it here.

First look at some of the article's data highlights:

The super-high earners have the biggest crashes. The number of Americans making $1 million or more fell 40% between 2007 and 2009, to 236,883, while their combined incomes fell by nearly 50%—far greater than the less than 2% drop in total incomes of those making $50,000 or less, according to Internal Revenue Service figures.

 

As of 2009, the richest 20% of Americans showed the largest decline in mean wealth of any other group.

 

Only 27% of America's 400 top earners have made the list more than one year since 1994, one study shows.

 

Suddenly, in 1982, the wealthiest broke away from the rest of the economy and formed their own virtual country. Their incomes began soaring higher during good times. The top 1% of earners more than doubled their share of national income, to 20% as of 2008. Looking at another measure, the richest 1% increased their share of wealth from just over 20% to more than 33%.

 

Between 1947 and 1982, the beta of the top 1% was a modest 0.72, meaning that their incomes moved relatively in line with the rest of America. Between 1982 and 2007, their beta soared more than three-fold. ["Beta" is an investment term that tries to measure market risk of a stock in terms of volatility.]

 

Interviews with more than 100 people with net worths (or former net worths) of $10 million or more, and a wave of new studies on the rich, suggest a different cause: the "financialization" of wealth. Simply put, more wealth today is tied to the stock market than to broader economic growth. A larger share of today's rich make their fortunes from stock-based pay, shares in publicly traded companies, selling a business or working in finance.


The household debt of the top 1% surged more than three-fold between 1989 and 2007, to $600 billion, and grew faster than their net worth.

 

As the wealthy gain a greater share of wealth and income, they account for a growing share of spending, taxes and investments. The top 5% of earners now account for 37% of consumer outlays, according to Moody's Analytics. The top 1% of earners pay 38% of federal income taxes. The richest 1% of Americans own more than half of the country's individually held stocks, according to the Federal Reserve.

 

Luxury is now the most volatile segment of the consumer economy. 

 

The spending volatility of the top 10% of earners is now more than 10 times the spending volatility of the bottom 80%, according to one study.

The article illustrates two important concepts of Austrian theory economics:

  • The impact of the boom-bust business cycle (Mises); and
  • The dynamics of creative destruction (Schumpeter).

The result of these two forces is that we are increasingly being turned into a society of winners and losers as the economy becomes less robust, more volatile, and less dynamic. This has important investment consequences and lessons for the protection of wealth.

The Boom and Bust

 The article's author, Robert Frank, sees wealth volatility as a cause of economic instability. In fact it is a result of Federal Reserve policies that create these boom-bust cycles and destroy real capital.

 Back in 2009, Bill Gross of PIMCO made the observation (in a very depressing post):

We were getting richer by making things [in the two decades after 1956], not paper. Beginning in the 1980s, however, the cult of the markets, which included the development of financial derivatives and the increasing use of leverage, began to dominate. ...

 

The U.S. and most other G-7 economies have been significantly and artificially influenced by asset price appreciation for decades. Stock and home prices went up – then consumers liquefied and spent the capital gains either by borrowing against them or selling outright. Growth, in other words, was influenced on the upside by leverage, securitization, and the belief that wealth creation was a function of asset appreciation as opposed to the production of goods and services. American and other similarly addicted global citizens long ago learned to focus on markets as opposed to the economic foundation behind them.

For once I would agree with Mr. Gross. His blind spot is that he doesn't understand why all this happened. He justifies the Fed's and Treasury's interventions to prop up asset prices, regardless of the negative consequences of ZIRP, etc. That's why he has made our Crony Capitalist of the Month list.

Perhaps Mr. Gross should look at money supply. It is not a coincidence that monetary growth since the 1980s has been rather exponential—this chart measures the Fed's broadest measure of money stock:

What Mr. Gross and Mr. Frank and many others don't see is that it is the creation of fiat money that destroys wealth and misdirects the investment of capital into less productive assets.  That is, monetary inflation destroys capital (wealth). The reason why the production of goods and services do not bear higher yields than financial assets is that the production of goods and services suffers from a lack of real capital. Remember that real capital comes only from the saved profits of production and from the savings of workers from wages earned in production.

You obviously cannot print wealth, but if you try that fiat money distorts the entire economy by directing investment to things which appear to appreciate but what is really happening is that the dollar is depreciating. As a result, fiat money and real capital are invested in financial assets because they appear to have greater yields than returns from the production of goods. Prices rise (price inflation) and it creates the inevitable boom which always busts. The fall out is that we are stuck with things people don't want (in the present re/depression it is housing). And we fall for it every time.

This has led to the phenomenon that Messrs. Frank and Gross describe: the financialization of the economy. 

Creative Destruction

If you look at the Forbes 400 richest Americans you will see that the industry that has the most rich people is "investments" (96 people, or 24%). The next category is technology which has 48 people. So investments have generated twice as many billionaires as America's powerful and dynamic technology sector. By the way, manufacturing has only 17 people on the list.

The result of these boom-bust business cycles is not only the financialization of the economy, but a change in the attitude of investors about how money is made. My thesis is that (i) investors go where the money is and (ii) people believe that making money is easy. Wall Street is an example of (i) and Main Street is an example of (ii). 

I've discussed the easy money syndrome before: people see other people making money as a result of the boom phase of the cycle and jump in. It looks easy when your neighbor just refinanced their home and bought a new truck and trailer with a boat on it. If they were left out in the last cycle, they will get into the next one. This, as we have seen, replaced a society of savers with a society of spenders. They were fooled by the cycle and ended up bust or holding on to houses that are underwater. We know how that impacted the economy (Crash, Bust, Depression).

It is (ii) that results in the One Percenters and instability of their wealth. It's not an earth shaking conclusion: investors always go where the money is. But in this case the Fed has caused them to go to the wrong place and when the bust inevitably happens many a fortune is lost, as the above statistics reveal.  

This is the Schumpeterian aspect of capitalism but it is not a result of dynamic, competitive capitalism. Businesses are not wiped because someone invented a better product, but rather fortunes are lost through speculation, which is another way of saying betting.

Look at investor John Paulson. He is No. 17 on the Forbes 400 list at $15.5 billion (the only investors ahead of him are Buffet and Soros). In 2006 he wasn't on the list (he was worth only a measly $300 million in early 2007). How did he get so rich? His fund bet heavily against subprime debt and he personally scored $3.5 billion in 2007. Investors flocked to his funds and in 2008 he was up another 20% betting mostly against subprime. In 2009 he started buying gold and his personal wealth went up 50%. In 2010 he doubled his wealth again (his take-home pay was $4.9 billion, a record for the hedge fund industry). This year his fund is down 30% but his personal wealth is up 25% because of his own investments in gold.

But let's be clear about the foundation of Mr. Paulson's wealth: he bets. Granted he made mostly smart bets and he is to be congratulated for that but he is no Warren Buffet (my criticism of him aside, Buffet is a great investor). But others made the same bets and turned around and lost it all (see my article on Peloton Partners-also see Nassim Taleb's comment there). 

Financial speculation has always existed throughout history, and usually for the same reasons (fiat money), but financial speculation is now a fixture of our economy as a result of the relentless boom-bust policies of the Federal Reserve. And we now see that these cycles are causing greater economic dislocation each time they occur. This is the valid point of Mr. Frank's article: the new speculative wealth is less stable than early industrial fortunes because it isn't real and when that fact is discovered (bust) it can go away. And it ripples through the economy. Recall his point:

The top 5% of earners now account for 37% of consumer outlays, according to Moody's Analytics. The top 1% of earners pay 38% of federal income taxes. The richest 1% of Americans own more than half of the country's individually held stocks, according to the Federal Reserve.

This is what we have been calling the bifurcated economy, an economy that benefits the wealthiest among us, but hasn't "trickled down" to most of us because real capital isn't being invested in things that would benefit us for the long term.

As long as the Fed pursues these policies which continue to destroy real capital we will be plagued by booms and busts and our economy will be more volatile and less productive. Instead of wealth being distributed widely throughout the economy as capitalism has done historically, we are now becoming an economy of winners and losers.

 

 *Mr. Frank is coming out with a book on this topic, The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust, to be published Nov. 1 by Crown Business.

The Coming New Recession: A Game Plan

Posted: 24 Oct 2011 05:12 PM PDT

This article was written by DoctoRx and it first appeared on the Daily Capitalist. The Doc has 30 years of investment expertise.

I wanted to summarize some major themes we have been addressing on the Daily Capitalist. 

First and foremost, my view is that the markets and the mainstream media have been giving insufficient attention (if any at all) to the core problem that was revealed by the meltdown in 2008.  Massive amounts of capital was misspent ("malinvested") during the boom.  In order to finance the boom to its excess, financial companies ranging from small mortgage brokers in Orange County, California to titans of Wall Street burned through and pledged and hypothecated unbelievable amounts of capital.  Recall that at the time, the total amount of base money in the U. S. was around $1 T.  But the actual amount of bad loans and writedowns- not market value, which is a price that is evanescent- was gigantic.  So it is my contention that what happened in 2008 was bankruptcy on an incomprehensible scale. 

In other words, much of the "money" that "cash-rich" individuals or companies had "in" the bank or on loan in a money market mutual fund may have been worthless, or nearly so, due to poor lending practices.  It is hard for me to see how Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, Bear Stearns, Lehman Brothers, Countrywide and Merrill if not acquired by BofA, various mortgage insurers, CIT, General Motors (a financial company with an automotive subsidiary, as it were), Chrysler, etc. could simply have imploded under any scenario other than gross near-insolvency of the financial system and mismarking of their assets and liabilities along with absence of prudent balance sheet management.

This quantity of huge bankruptcies (and all the averted ones due to massive government intervention) is extraordinary and may be without precedent for any leading financial power in modern history.  But how often on CNBC or out of Washington have you heard matters framed this way?

If you believe the above, then an additional great tragedy is the failure to examine publicly at the highest levels what went wrong for so many years to lead to this catastrophe.  Instead, the official explanation is that something unexplainable such as a Hurricane Katrina hitting New Orleans with a defective protective structure that was breached.

The deflationary events of the early 1930s saw almost none of this level disaster amongst the giant banks, even though objectively economic matters were much worse by 1932-3 than in 2008-9, in real terms which were amplified by the massive price deflation that assets suffered then.  For example, the Bank of United States was based in New York City.  James Grant recounts it as not being especially well-run, but there was no embezzlement or fraud.  It went bust in1930; it was not a giant.  There were no level 3 assets or CDOs, much less CDO squareds.  When the economic downturn  came, the bank simply had a duration mismatch/illiquidity problem.  It had financed good properties, but it had to go through bankruptcy.  Several years later and many deflationary price percentage levels lower, depositors recovered 83% of their money.  Given what happened to the stock market in the interim, these depositors did fine.  They may even have gained purchasing power.  Now, compare that to what you think you would have received if you were a depositor in Citibank if it was left to fail (let us talk about funds above the FDIC limit) amid a massive deflationary (price and credit, both of them) liquidation spasm that could have occurred in 2008-9 (and beyond) similar to the one that occurred in the early 1930s.  Remember that every big money-center bank paid 100 cents on the dollar back then to both depositors and bond-holders (if there were any bond-holders):  there were no insolvencies, and I have read that "only" about 2% of money deposited in banks was lost during this time period.  Does anyone think that things were anywhere near so robust compared to the 1930s amongst the banking companies that did not go bust in 2008-9?  There is no way to really know, of course, but remember that the big guys all did well enough then to survive in vastly more challenging situations than they were recently faced with.

Thus I contend that matters were in many ways worse in 2008 than after 1929 even though the economic downturn was much less severe, and that we are paying the price for that but in a different way.  The result could be ZIRP on and on and on as the authorities continue to create enough new money to replace the immense balance sheet holes that the public is not allowed to see.  There's no way for me to know, but secrecy and complexity in financial matters speaks for itself, at least in the DoctoRx mindset.

I contend that the current systemic instability is an (the?) absolutely fundamental reason that the Fed keeps "printing" money but there is no hyperinflation and that residential and commercial real estate prices have been falling again:  the newly printed money is partly overwhelmed (though only temporarily) by the ongoing depressionary forces.  The evidence of the ongoing depression is all around us.  Just look at the Bloomberg Consumer Comfort Survey, the NFIB survey, the Discover/Rasmussen Small Business and Consumer surveys.  Look at the Gallup survey that is posted daily.  Unfortunately I cannot post their daily charts, but if you go to Gallup.com and look at the trends in hiring/not hiring; daily spending; and living standards, the highest any of these got in the "recovery" was to early 2008 levels:  recessionary levels.  They may already be declining again.  Ignoring all the machinations in Europe, the U. S. has its own cyclical problems.

Is it too soon for another recession?

No, no, a thousand times no.  Since 1940, there have been 12 recognized recessions in 71 years:  one has begun less than every six years.  The last one began nearly 4 years ago.  According to NBER, the Great Recession ended in June 2009.  Thus it officially was a 19 month official recession.  The prior recession, as mild as the 2007-9 one was severe, ended exactly 10 years ago.  That means that in the past 10 years, the U. S. has officially been in recession only 19 months:  about average for the past 71 years.

Can a recession occur with a positive yield curve?  Yes for at least two reasons.

One is Japan.

The other is that the Economic Cycle Research Institute says that it does use the yield curve to forecast recessions.  

When the free market cannot match capital assets with what are perceived to be good investment opportunities, a somnolent future economic state is expected.  When the profit motive doesn't stimulate borrowing at rock bottom interest rates, and when there is so much capital available, my conclusion is that there is simply enough of most things. 

So the central government goes on "filling a demand void" when the problem instead is a lack of real savings.  Borrowing/printing money to give $500 handouts to old people regardless of need simply because they "consume" is representative of all the wrong-headed but "nice" tendencies of American Keynesianism.

To summarize:  the country ran out of a lot of its real capital during the boom/bubble 1996-2007 period.  This was masked by financial shenanigans but the lack of real capital was revealed when a mild recession forced the financial emperors to be revealed as nearly naked.

The "Great Recession" did not cause the lack of capital.  Instead, it revealed it, just as the little dog Toto revealed the fake wizard behind the curtain in the merry, merry land of Oz. Only after that revelation did the recession become a depression. 

So once again, in case I have not been clear, the (neo-)Keynesians may have the best of motives, but from the standpoint of stimulating healthy future economic growth, they have matters backwards.  What is needed for a true recovery is more useful savings, not more consumption paid for with borrowed or newly printed money.  Until real savings (real capital) is rebuilt, it is difficult for me to see other than a continuation of the current pattern:  limited economic growth and upward price pressures as the quantity theory of money gradually wins out.

From a timing standpoint for investors, however, which is more of a micro than macro concern, my sense is that we are so far from the onset of the Great Recession that another down-wave in the depression (or a new recession if you go by NBER) is either here or due soon.  It may not be a severe downturn, as housing and autos would be falling from first- or second-floor windows in that case, but it would be occurring on the backdrop of a weakened structure, and thus the financial effects could be more severe than the economic effects (which could be severe or mild).  Remember that the mild 2001 recession was associated with about as severe a stock market crash as was the 2007-9 monster downturn.

My suggestion is:  watch the ten-year T-bond rate, lower meaning more economic weakness; watch the gold:platinum ratio, which is already signaling recession; do not trade off of European developments (you will be front-run by those in the know); do not use trend-following techniques that used to work and equally, do not use counter-trend trading techniques.  For that last point, the algos will beat you most of the time in either direction.  Some markets are untradeable except by true pros.  So if one has a "good" investment, don't sell just because the price drops.  Some robot might be getting you out at the bottom of the move.

As far as gold, I have recently suggested it would be quiescent for a while.  I stick with that view, with a positive longer-term view, though there is significant downward price pressure possible from this level should a new recession be recognized and lead to a temporary asset liquidation to gain access to plain old fiat U. S. dollars.

Finally, I want to state the core paradigm that has worked reasonably well the past few years.  It uses the recent Japanese ZIRP experience and combines it with the very prolonged period of very low interest rates in the U. S. following the 1929 crash, even though price inflation resumed after FDR took office in 1933 and deflation never really came back.  In this scenario, real short- and intermediate-term Treasury yields can stay lower than one thinks for longer than one thinks and can be negative after accounting for inflation year after year.  Right now I favor the Japanese trend of yet lower long-term rates because I consider that the destruction of real financial capital was greater in the bubble years now than perhaps ever before, and whereas America went back to saving as quickly as it could in the 1930s, that has not been the case ever since Mr. Greenspan ramped the presses while Mr. Bush told us to go shopping right after 9/11 and ever since the Fed began QE1 in late 2008. 

In this hybrid Japan-U. S. post-Depression scenario, long-term bonds have their best use as trading vehicles to be sold near the end of recessions, but given much (much!) higher stock valuations now than in 1933 and its aftermath, stocks have more crash potential now than they did at most points in that era (until the 1960 time frame and beyond, when stocks finally began to get frothy again).

Financial matters are at best a confusing mix of matters, more so now, and central authorities will do what they will, when they will, without giving you a heads up.  And the robots and trading costs will beat you as certainly as the slots in Vegas if you try to trade where you are not an expert.

People who think the Austrian way and go back to the first principles that the economic damage occurs because of malinvestments during the boom, and that the bust should be the healing phase, are way ahead of the game in contrast to Keynesians who misdiagnose a lack of real capital for some implausible anorexia consumptionosa of the public at large.  So long as the authorities keep doing what they are doing, I would analogize this bust as a wound that is not allowed to heal because the doctor keeps damaging the scab. 

Sometimes it just is best to get up each day, go to work (or a coffee house), and not think too much or do too much about the financial markets, all the while increasing one's knowledge about things one has real interests in.  The world keeps turning, and one wants a coherent game plan for the period ahead when the times are not out of joint. 

Silver Update: Petrodollar Seignorage

Posted: 24 Oct 2011 04:49 PM PDT

Stephen Leeb - China Will Send Gold & Silver to the Moon

Posted: 24 Oct 2011 04:05 PM PDT

With gold, silver, commodities and stocks moving sharply to the upside, today King World News interviewed acclaimed money manager Stephen Leeb, Chairman & Chief Investment Officer of Leeb Capital Management. When asked about the action in commodities, Leeb responded, "Commodity prices, it's true, are below their all-time high.  But when you step back and look at it from a yearly perspective, the vast majority of commodities are averaging all-time high prices in 2011."


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

Peter Schiff - Expect a Huge Rally in Gold & the Euro

Posted: 24 Oct 2011 04:01 PM PDT

With gold, silver and stocks all moving higher, today King World News interviewed Peter Schiff, CEO of Europacific Capital. When asked about gold and silver, Schiff stated, "Well, I think they are both going to go higher.  They are both up today, gold stocks are up very strongly.  If the stock market is going to go up, the gold stocks are going to go along for the ride because this is an inflationary rally."


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Gold Seeker Closing Report: Gold and Silver Gain About 1%

Posted: 24 Oct 2011 04:00 PM PDT

Gold chopped its way up to $1661.85 by a little after 8:30AM EST before it fell back off a bit in New York, but it still ended with a gain of 0.97%. Silver surged to as high as $32.028 and ended with a gain of 1.54%.


Silver Pullback Is A Gift

Posted: 24 Oct 2011 03:45 PM PDT

Goldsilver


What Have We Gotten For The Trillion Dollars We Have Spent On Wars In Afghanistan, Iraq And Libya?

Posted: 24 Oct 2011 02:59 PM PDT

from The Economic Collapse Blog:

Over a trillion U.S. taxpayer dollars have been spent on wars in Afghanistan, Iraq and Libya. Whether you are for the wars or against the wars, it is important for all of us to step back and evaluate what we have really gotten for all of that money. In Libya, we have actually helped al-Qaeda forces that were shooting at U.S. soldiers in Iraq and Afghanistan take over the country. Now they have announced that they will be imposing strict Sharia law on all of Libya. After 10 years of having our boys shot up in Afghanistan, the Afghan government is so "grateful" that they are publicly saying that they will side with Pakistan in any future war against the United States. In Iraq, Islamic radicals are beheading and killing dozens and dozens of Christians and the new Iraqi government seemingly can't wait to push the remaining U.S. soldiers out of the country. We ran up well over a trillion dollars of new debt to "liberate" these countries, but are they really in better shape than they were before these wars? Are we really in better shape than we were before these wars?

Read More @ TheEconomicCollapseBlog.com

There He Goes Again

Posted: 24 Oct 2011 02:57 PM PDT

from TFMetalsReport.com:

At some point, I guess I've got to stop and decide whether or not it's just wishful thinking.

About two weeks ago, I gave you this:

http://www.tfmetalsreport.com/blog/2658/rally-cometh

I'd been itching for a gold rally but, until now, it hasn't developed. In the post above, I called for a rally in the HUI to 560-580 and it made it to 560 before falling back to 500 last week. A sharp rally has it back to 538 tonight and it still looks like 580-600 is in the cards. That would be about a 10% rally from here.

Read More @ TFMetalsReport.com

The Gold Money Index: Why Gold Could Go Above $10,000/oz

Posted: 24 Oct 2011 02:46 PM PDT

FGMR - Free Gold Money Report In one important respect, gold is like any other asset. You want to buy it when it is undervalued, and sell it when the opposite is true – when it becomes overvalued. Thus, knowing how to accurately value gold is essential for sound portfolio management. Because gold is money, its value cannot be measured with the standard techniques used to evaluate investments. Gold is not an investment because it does not produce any cash-flow. It is a sterile asset. Consequently, gold does not create wealth, nor for that matter, does any national currency create wealth. Currency in all its forms – whether fiat or gold – is wealth, held in the form of deferred purchasing power. This store of value function is one of any currency’s most important tasks. So when the price of gold rises, wealth is just being transferred to people who own gold away from those people holding the national curren...


As Hope For EFSF Solution Vanishes, Europe Comes Crawling To Uncle Sam

Posted: 24 Oct 2011 02:39 PM PDT

With less than 48 hours left until Europe's latest and greatest summit on Wednesday (no point in keeping count: it is certain that yet more extensions wil be demanded and granted, letting the EURUSD have just that much more space from where to fall) Europe has, as it usually does in the 12th hour after it whips out the abacus, realized that the EFSF in its latest incarnation is Dead on Arrival (as expected). So what does Europe do? Why come crawling to Uncle Sam of course, only in this case it manages to save face as the uncle is really Aunt Lagarde, one of Europe's own, and ironically up until 4 months ago, the Finance Minister of what has emerged as the most distressed core European country. From the WSJ: "Europe may ask the International Monetary Fund to create and run a special new fund to help solve its debt crisis, according to a person familiar with the matter. The idea is one of several options still in the formative stage that European officials are considering as a way to prevent the crisis from engulfing its largest economies. The IMF and world financial leaders fear that if Europe doesn't act forcefully now, it could push the global economy into a recession and spark another global financial meltdown." And yes, there is a reason why three weeks ago we made big news out of the IMF scrambling to "Double Bail Out Capacity To $1.3 Trillion, May Issue Bonds." Because when in doubt always follow the money, or in this case the US taxpayer bailout, because this is what the IMF's turbo intervention will be: it will always give the right answer.

So what is the latest and greatest that Europe, under the wise alleged tutelage of JP Morgan, has up its sleeve, just two days before it is supposed to have a complete and convincing resolution to the European debt crisis? And why should Joe Sixpack be very angry?

European officials are considering several ways that a newly created fund could buy or insure bonds of ailing countries such as Italy and Spain, and raise money to boost capital levels at weak banks. One option is to ask the IMF to administer such a "special purpose vehicle."

 

The IMF could give such a financing tool more legitimacy than if Europe created and administered it, especially to prospective financiers, the person said. European officials are already assessing interest from potential lenders, including countries such as China and Brazil, the private sector and sovereign wealth funds, the person said. It could also be financed by the Europe's EUR440 billion bailout fund.

Unfortunately, the mere rubberstamp of US taxpayer-backed funding is no longer sufficient:

There are certain restrictions on the use of the IMF's existing resource base. One is that it can only be used to lend to countries, not regions. Another is its financial assistance usually comes with tough conditions and regular reviews. The IMF's lending rules also make it difficult to use its cash in some of the innovative ways that Europe is considering. The E.U. may insure a percentage of potential losses on purchases of state bonds as a way to leverage the impact of its rescue fund, encouraging investor appetite and pushing down the cost of state borrowing.

 

The IMF has created "special purpose vehicles" before. So technically, it wouldn't be very difficult for the IMF to create and administer. But the politics of financing and lending conditions could make the concept challenging to implement.

Said otherwise, while the superficial complexities can be easily overcome, the fund, whether in SPV or otherwise format, will not be able to participate in bank bailouts, which means that the European structured vehicle will need to have a little bit of everything in it: a PPIP, an SPV, a CDO, in fact: any of Geithner's bailout aphabet soup acronyms? You name it- it will have to participate. The only problem is that with the ECB no longer independently credible and capable of operating without Bundestag checks and balances, Europe is scrambling to get the next best thing: the US taxpayer as unlimited backstop, and if the Fed can be avoided in the process to prevent a political backlash in America, so much the better.

So where does Europe go?

Why the IMF of course, which is the US in all but name.

And here is where things get funny, because it was none other than the pathological tax cheat responsible for most of America's current economic disaster who personally was "demanding" Europe fix itself, even as he was quietly promising the moon and the stars to Europe behind the scenes. After all, not even Geithner is that dumb to not realize that if France goes, America is next, even though no bank dares to admit it has any exposure to France - a promise we would test in under 15 minutes when FrAAAnce becomes FrAA+nce.

The U.S., for example, wants to keep pressure on Europe to develop its own solution to the crisis. Treasury Department officials fear that by giving the nod to alternative financing options, European leaders may relax their efforts to craft a comprehensive strategy. Also, offers of funding from emerging markets may come with conditions such as promises for greater power at the IMF. The U.S. and Europe are reluctant to cede more power to emerging market economies at the IMF, particularly after reaching a hard-fought agreement on IMF governance last year.

So while it is certain that no monetary authorities will contest what they will say is an act of emergency, it will be once again up to the massively gridlocked legislative to screw this one up: after all the GOP will have no better opportunity to terminally humiliate Obama than to tie America's IMF-funding hands, in the process accelerating the debt spiral, first in Europe, then in America, and leading to a complete collapse in the US economy, just as the presidential race is really heating up.

And with that, something tells us the balance of the week will be quite thrilling...

Challenging Conventional Assumptions

Posted: 24 Oct 2011 02:07 PM PDT


GoldMoney. The best way to buy gold & silver


There are many old adages in the market that are like stereotypes: they may work more often than not, but there are enough exceptions to make them dangerous when applied blindly. I have been reading commentators talking about the US Dollar and how the Commitment of Traders is extremely bearish because the "commercials" are bearish on the US Dollar and they are the "smart" money. But are these insiders the smart money for all of the different futures contracts and are they usually right? Of course not.

When it comes to the US Dollar (and, by implication, the Euro), the commercials have a terrible history when it comes to predicting the intermediate-term trend and have more often than not been dead wrong over the past 5 years or so!

Let me show you a chart stolen from finviz.com to show you what I mean. This is a weekly chart of the US Dollar over the past 5 years or so thru part of today's action with my comments:




So, is the US Dollar about to collapse against other paper currencies or will recent history repeat and the US Dollar move higher from here? I think the latter.

This doesn't mean Gold (and silver) can't rise, as all paper currencies are sinking relative to Gold and will continue to do so until the Dow to Gold ratio hits 2 (and we may go below 1 this cycle). However, this may have implications for favoring Gold stocks over Gold once we hit bottom.

Specific trading recommendations reserved for subscribers.


Buy gold online - quickly, safely and at low prices[Most Recent Charts from www.kitco.com]

CrossTalk: Revolt Dot Com

Posted: 24 Oct 2011 01:34 PM PDT

Don't be fooled by GLD or SLV. Only GoldMoney offers real bullion allocated in your name.

Harvey Organ's: The Daily Gold & Silver Report

Posted: 24 Oct 2011 01:11 PM PDT

No agreement with respect to Europe/Greece will fail/gold and silver steady.


Join us! Gold Seekers Meetup @ Denver Tonight!

Posted: 24 Oct 2011 01:00 PM PDT

Are you watching your savings evaporate as the Federal Reserve keeps printing & devaluing our currency? Wonder how you can get out of paper money, T-Bills, and stocks before Hyperinflation confiscates your wealth? Come meet with other successful investors in a venue that is richly steeped in tradition and elegance, the Four Seasons in downtown Denver.


Gold Market Update - Oct 24, 2011

Posted: 24 Oct 2011 12:42 PM PDT

Clive Maund Technically the picture for gold now looks strongly bullish. Action played out last week exactly as predicted in the last update with gold breaking down from its Pennant pattern AND ABORTING THE BEARISH IMPLICATIONS OF THE PENNANT, by dropping back modestly instead of plunging. It arrived back in our target zone near $1600 on Thursday and then reversed quite sharply to the upside on Friday. While nothing is guaranteed in this business and there is still a reduced chance of its being a Pennant with an amended lower boundary, this action implies that a positive QE-rich resolution of sorts of the acute problems in Europe is imminent, despite the severe and intractable problems there. If we do see a QE-rich "solution" to the problems in Europe shortly then we can expect both gold and silver to re-enter robust uptrends, and this is what the latest COTs are pointing to. The latest COTs for gold show that Commercial short positions dropped back further to a re...


Silver Market Update - Oct 24, 2011

Posted: 24 Oct 2011 12:38 PM PDT

Clive Maund Over the past week silver has behaved as predicted in the last update, breaking down from its potential Pennant pattern and dropping gently back towards support in the $29 - $30 area, to enter our "accumulation zone" shown on its 4-month chart which turned it higher on Friday, and while the pattern could still be a bear Pennant with an amended lower boundary this is looking considerably less likely - it looks like the Pennant has aborted. It is thus thought that we are late in the base building process. The times of greatest opportunity are usually masked by danger, and there is certainly great danger at this time of Europe failing and thus a lot of associated fear in the markets. Could things get even worse and tank the markets, possibly including gold and silver? - yes, of course they could and we looked at this blood curdling scenario last week, but whether or not this occurs one thing is clear - the normally right Commercials are banking on a resol...


Who All Is Watching You?

Posted: 24 Oct 2011 12:23 PM PDT

by Vedran Vuk, Casey Research:

Dear Reader,

Every few weeks I receive an email inquiring about the investment-worthiness of the Iraqi dinar. Since multiple subscribers are interested in the topic and US withdrawal from Iraq is in the news, this issue is worth mentioning. The Iraqi dinar promoters seem to push two main ideas: 1. With Iraq free of Saddam Hussein, the economy will boom and as a result the currency will strengthen; and 2. The Iraqi government will revalue the currency to pre-war levels. Instead of over a thousand dinars per dollar, the government could even set a one-to-one exchange rate – making holders of the old notes rich.

What's missing from both of these cases is an understanding of monetary policy. Either the Iraqi dinar promoters are completely ignorant of the basics of currency markets and monetary policy or they're just plain scammers. I'll let you decide.

Read More @ CaseyResearch.com

Ray Dalio On Whether The Current "Hopeless, Mob-Rule Deleveraging " Can Lead To The Ascent Of Another "Hitler"

Posted: 24 Oct 2011 12:19 PM PDT

Yesterday we presented the complete must watch Ray Dalio interview and transcript from his Charlie Rose appearance in which he explained how, in his increasingly skeptical view, we are now "out of ammunition" as there are "no more tools in the toolkit." Today, he layers on top of this rather bleak macroeconomic perspective some very disturbing observations, specifically, what the realization of the dead end situation facing monetary and discal authorities means when confronted with a violent (metaphorically) deleveraging, and a violent (quite literal) social mood. In an FT op-ed he writes; "We are in the midst of a deleveraging, we are nearly out of ammunition and we are at each other's throats. Being in a deleveraging and nearly out of ammunition is a very difficult position to be in. But, being at each other's throats is our biggest problem." Needless to say this won't be the first time we have found ourselves in such a predicament: one very vivid example from history beckons: "Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933."

Does Dalio predict the advent of another "Hitler" - hardly... But the risks are there, especially since none of the banks have learned any lessons from the past, and no preventative measures have been taken to avoid a repeat of 2008, only this time the entire population is already on edge: "Mobs are at the doors of bankers and others in the financial system, screaming to politicians to put these people in jail while the vote-seeking politicians are fanning the flames rather than reminding people that the legal system is the way these people should be judged. Since banks are levered about 15 to 1, it doesn't take much of a debt problem to cause them solvency problems, and since in deleveragings debt problems are big, there is significant risk banks will run out of equity again and the fury against them will intensify. For these reasons risks to the global banking system are much greater than normal."

This lucid explanation of reality from the biggest hedge fund manager in the world explains precisely why the status-quo coopted media continues to retrench itself in lies and propaganda: in attempting to avoid panic and the realization that the entire system is now hollow, the lies will literally continue until morale improves. Only this time it won't, because the people (at least those that wish to be), can and will be far more educated than ever before in history. And the fear that reality (and associated discontent) will spread like wildfire, is why the status quo continues to retrench day after day, terrified of what happens if it loses control over that last bastion of "stability" - the stock market, which explains the relentless drive against logic and reason, ever higher, to mask the complete collapse of reality's facade just behind the surface.

Unfortunately this inability to deal with the interplay of Dalio's three core forces: deleveraging - social frustrations - and a policy cul-de-sac, is precisely why we are and have been so pessimistic on the final resolution to the prevalent problems occupying modern society.

We wish we could share Dalio's optimism...

If we calm down and work together to properly manage this difficult situation – for example, if we can properly distribute both the austerity and the increased efforts that are required to manage our debt burdens – we can get through this deleveraging without great pain. If we can't, we may experience an economic, social and political collapse.

...but unfortunately we can't. Only when it is far too late will the status quo finally deem it worthwhile to engage with the "99%" on an equal and equitable footing. By then, however, not even the Dow at 36,000 will give anyone any more illusions that things are even remotely "normal."

But then again, a violent end, and subsequent reset, is nothing new in history: every declining civilization has gone through the same terminal death rattle, only to result in a systematic rebirth. This time around it won't be any different.

From Ray Dalio, in the Financial Times:

Risk on the rise as political leaders give in to mob rule

We are in the midst of a deleveraging, we are nearly out of ammunition and we are at each other's throats. Being in a deleveraging and nearly out of ammunition is a very difficult position to be in. But, being at each other's throats is our biggest problem.

Our character and our political and social systems are now being tested in ways that have typically been tested in past deleveragings. In deleveragings bad economic conditions typically lead to emotional reactions, social and political fragmentation, poor decision-making and increased conflict. When this occurs in democracies, the checks and balance system, which is intended to yield the best decisions for the whole, can stand in the way of thoughtful leadership and lead to ineffective "mob" rule. This dynamic can lead to a self-reinforcing downward spiral.

Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933.

In our opinion these types of risks are now emerging and should be taken into consideration when trying to figure out what may lie ahead. Rather than trying to resolve disagreements through thoughtful discourse, people are now trying to grab power to beat and suppress their opponents. Tensions between the rich and the poor, capitalists and socialists, those in and out of power and different factions in each group are now intensifying in a manner that is classic in deleveragings. Politicians who are fighting for power in a political year are fanning the flames and are increasingly willing to do risky things (like shutting down the government) in pursuit of their missions and popular support.

This growing populism will have important implications for monetary, fiscal and trade policies and will significantly increase risks of a markets downturn and a global depression.

Regarding monetary policy, the mob is at the gates of the Federal Reserve and wants to grab control while those on the inside are in disagreement about what should be done. Fed chairman Ben Bernanke and those who helped him save the country from depression are now under siege. These challenges are being faced in different forms by most central banks at the same time as they are nearly out of ammunition – i.e., their capacities to ease are very limited because they cannot stimulate private credit creation and because they cannot get money in the hands of people who will spend it. For these reasons there is greater risk that central banks cannot save us as they have always saved us in the past.

The battle between the left that wants to tax the rich more and the right that wants to cut entitlement spending is at a fierce stalemate that is likely to intensify in more scary ways. As a result, fiscal policy is unlikely to be supportive to economic growth.

With high unemployment and growing anger, the "mob" is blaming the foreigners who "took their jobs," especially the Chinese who they say are "manipulating" their currency to "compete unfairly". And since politicians want popular support, they are navigating this issue to gain political benefit (e.g., to put the US President in the position of having to choose between the political suicide of vetoing Senator Charles Schumer's currency bill and clashing with China) rather than to approach this difficult issue calmly and analytically. Trade flows and capital flows are increasingly being looked at by all sides as possible weapons in an economic war. As a result, the risks of bad surprises in trade and capital flows are heightened.

Mobs are at the doors of bankers and others in the financial system, screaming to politicians to put these people in jail while the vote-seeking politicians are fanning the flames rather than reminding people that the legal system is the way these people should be judged. Since banks are levered about 15 to 1, it doesn't take much of a debt problem to cause them solvency problems, and since in deleveragings debt problems are big, there is significant risk banks will run out of equity again and the fury against them will intensify. For these reasons risks to the global banking system are much greater than normal.

While we hope that most people and their leaders will approach these difficult challenges calmly and collectively, we would not be meeting our fiduciary responsibilities if we bet on this happening without clear evidence of it. We are not alone in having and expressing our concerns in what has come to be known as "risk-on" and "risk-off" market movements.

If we calm down and work together to properly manage this difficult situation – for example, if we can properly distribute both the austerity and the increased efforts that are required to manage our debt burdens – we can get through this deleveraging without great pain. If we can't, we may experience an economic, social and political collapse.

Ray Dalio is founder of Bridgewater Associates

Ray Dalio On Whether The Current "Hopeless, Mob-Rule Deleveraging " Can Lead To The Ascent Of Another "Hitler"

Posted: 24 Oct 2011 12:19 PM PDT


Yesterday we presented the complete must watch Ray Dalio interview and transcript from his Charlie Rose appearance in which he explained how, in his increasingly skeptical view, we are now "out of ammunition" as there are "no more tools in the toolkit." Today, he layers on top of this rather bleak macroeconomic perspective some very disturbing observations, specifically, what the realization of the dead end situation facing monetary and discal authorities means when confronted with a violent (metaphorically) deleveraging, and a violent (quite literal) social mood. In an FT op-ed he writes; "We are in the midst of a deleveraging, we are nearly out of ammunition and we are at each other's throats. Being in a deleveraging and nearly out of ammunition is a very difficult position to be in. But, being at each other's throats is our biggest problem." Needless to say this won't be the first time we have found ourselves in such a predicament: one very vivid example from history beckons: "Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933."

Does Dalio predict the advent of another "Hitler" - hardly... But the risks are there, especially since none of the banks have learned any lessons from the past, and no preventative measures have been taken to avoid a repeat of 2008, only this time the entire population is already on edge: "Mobs are at the doors of bankers and others in the financial system, screaming to politicians to put these people in jail while the vote-seeking politicians are fanning the flames rather than reminding people that the legal system is the way these people should be judged. Since banks are levered about 15 to 1, it doesn't take much of a debt problem to cause them solvency problems, and since in deleveragings debt problems are big, there is significant risk banks will run out of equity again and the fury against them will intensify. For these reasons risks to the global banking system are much greater than normal."

This lucid explanation of reality from the biggest hedge fund manager in the world explains precisely why the status-quo coopted media continues to retrench itself in lies and propaganda: in attempting to avoid panic and the realization that the entire system is now hollow, the lies will literally continue until morale improves. Only this time it won't, because the people (at least those that wish to be), can and will be far more educated than ever before in history. And the fear that reality (and associated discontent) will spread like wildfire, is why the status quo continues to retrench day after day, terrified of what happens if it loses control over that last bastion of "stability" - the stock market, which explains the relentless drive against logic and reason, ever higher, to mask the complete collapse of reality's facade just behind the surface.

Unfortunately this inability to deal with the interplay of Dalio's three core forces: deleveraging - social frustrations - and a policy cul-de-sac, is precisely why we are and have been so pessimistic on the final resolution to the prevalent problems occupying modern society.

We wish we could share Dalio's optimism...

If we calm down and work together to properly manage this difficult situation – for example, if we can properly distribute both the austerity and the increased efforts that are required to manage our debt burdens – we can get through this deleveraging without great pain. If we can't, we may experience an economic, social and political collapse.

...but unfortunately we can't. Only when it is far too late will the status quo finally deem it worthwhile to engage with the "99%" on an equal and equitable footing. By then, however, not even the Dow at 36,000 will give anyone any more illusions that things are even remotely "normal."

But then again, a violent end, and subsequent reset, is nothing new in history: every declining civilization has gone through the same terminal death rattle, only to result in a systematic rebirth. This time around it won't be any different.

From Ray Dalio, in the Financial Times:

Risk on the rise as political leaders give in to mob rule

We are in the midst of a deleveraging, we are nearly out of ammunition and we are at each other's throats. Being in a deleveraging and nearly out of ammunition is a very difficult position to be in. But, being at each other's throats is our biggest problem.

Our character and our political and social systems are now being tested in ways that have typically been tested in past deleveragings. In deleveragings bad economic conditions typically lead to emotional reactions, social and political fragmentation, poor decision-making and increased conflict. When this occurs in democracies, the checks and balance system, which is intended to yield the best decisions for the whole, can stand in the way of thoughtful leadership and lead to ineffective "mob" rule. This dynamic can lead to a self-reinforcing downward spiral.

Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933.

In our opinion these types of risks are now emerging and should be taken into consideration when trying to figure out what may lie ahead. Rather than trying to resolve disagreements through thoughtful discourse, people are now trying to grab power to beat and suppress their opponents. Tensions between the rich and the poor, capitalists and socialists, those in and out of power and different factions in each group are now intensifying in a manner that is classic in deleveragings. Politicians who are fighting for power in a political year are fanning the flames and are increasingly willing to do risky things (like shutting down the government) in pursuit of their missions and popular support.

This growing populism will have important implications for monetary, fiscal and trade policies and will significantly increase risks of a markets downturn and a global depression.

Regarding monetary policy, the mob is at the gates of the Federal Reserve and wants to grab control while those on the inside are in disagreement about what should be done. Fed chairman Ben Bernanke and those who helped him save the country from depression are now under siege. These challenges are being faced in different forms by most central banks at the same time as they are nearly out of ammunition – i.e., their capacities to ease are very limited because they cannot stimulate private credit creation and because they cannot get money in the hands of people who will spend it. For these reasons there is greater risk that central banks cannot save us as they have always saved us in the past.

The battle between the left that wants to tax the rich more and the right that wants to cut entitlement spending is at a fierce stalemate that is likely to intensify in more scary ways. As a result, fiscal policy is unlikely to be supportive to economic growth.

With high unemployment and growing anger, the "mob" is blaming the foreigners who "took their jobs," especially the Chinese who they say are "manipulating" their currency to "compete unfairly". And since politicians want popular support, they are navigating this issue to gain political benefit (e.g., to put the US President in the position of having to choose between the political suicide of vetoing Senator Charles Schumer's currency bill and clashing with China) rather than to approach this difficult issue calmly and analytically. Trade flows and capital flows are increasingly being looked at by all sides as possible weapons in an economic war. As a result, the risks of bad surprises in trade and capital flows are heightened.

Mobs are at the doors of bankers and others in the financial system, screaming to politicians to put these people in jail while the vote-seeking politicians are fanning the flames rather than reminding people that the legal system is the way these people should be judged. Since banks are levered about 15 to 1, it doesn't take much of a debt problem to cause them solvency problems, and since in deleveragings debt problems are big, there is significant risk banks will run out of equity again and the fury against them will intensify. For these reasons risks to the global banking system are much greater than normal.

While we hope that most people and their leaders will approach these difficult challenges calmly and collectively, we would not be meeting our fiduciary responsibilities if we bet on this happening without clear evidence of it. We are not alone in having and expressing our concerns in what has come to be known as "risk-on" and "risk-off" market movements.

If we calm down and work together to properly manage this difficult situation – for example, if we can properly distribute both the austerity and the increased efforts that are required to manage our debt burdens – we can get through this deleveraging without great pain. If we can't, we may experience an economic, social and political collapse.

Ray Dalio is founder of Bridgewater Associates

Will We See a Higher Gold Price For The Next Few Days? Comex Closed Today at $1,651.50

Posted: 24 Oct 2011 12:11 PM PDT

Gold Price Close Today : 1651.50
Change : 16.40 or 1.0%

Silver Price Close Today : 31.620
Change : 0.447 cents or 1.4%

Gold Silver Ratio Today : 52.23
Change : -0.223 or -0.4%

Silver Gold Ratio Today : 0.01915
Change : 0.000081 or 0.4%

Platinum Price Close Today : 1543.20
Change : 27.20 or 1.8%

Palladium Price Close Today : 640.00
Change : 23.00 or 3.7%

S&P 500 : 1,254.19
Change : 15.94 or 1.3%

Dow In GOLD$ : $149.12
Change : $ (0.15) or -0.1%

Dow in GOLD oz : 7.214
Change : -0.007 or -0.1%

Dow in SILVER oz : 376.77
Change : -2.04 or -0.5%

Dow Industrial : 11,913.62
Change : 104.83 or 0.9%

US Dollar Index : 76.04
Change : -0.474 or -0.6%

The GOLD PRICE upside down head and shoulders that appears on it's five day chart confirmed itself again today. Bottom of the head last Thursday came at $1,605, neckline stands about $1,660, so that gives a target of $1,715. Any trading below $1,635 would gainsay that outlook and send GOLD down. However, I believe we will see higher prices for a few days. Comex closed gold today at $1,651.50, up $16.40 (0.4%)

The SILVER PRICE is riding the same train with GOLD. 3200c is now silver's barrier above. Comex closed today at 3162c, up 44.7c (1.4%). Silver must hold 3125c or destroy its optimistic pattern. Target is about 3400c.

Pssst! Don't tell anybody, but things are not going well in Euro-land. Sarcophagus and Ferkel are not getting along. At one point this weekend folks down the hall could hear them yelling at each other, and Sarcophagus was making snide remarks remarks about Ferkel eating cheese when she was supposed to be on a diet.

The meeting decided on only one thing for certain: to hold another meeting in four days. Meanwhile all sorts of financial gymnastics are being suggested so that Greece doesn't have to use the D-word. Banks want their haircut limited to 40%, while autocrats say they'll have to take a 60% loss.

Just to put all this into perspective against the Grand-Canyon-ness of the sovereign debt mess, the 440 million euros already in the European Stabilization Fund would not suffice to pay off Greece's debt by itself, let alone any of the other bankrupts.

The crisis has not ended, the public is simply refusing to register it. Witness US stocks today, playing on the slopes of a smoking, steaming Mt. Vesuvius in Europe. Dow rose 104.83 (0.89%) to 11,913.62 while the S&P500 outpaced the Dow, rising 15.94 (1.29%).

Not because I am a spoilsport only, but out of curiosity I ask in passing, "If European banks are trashed, can US banks escape unscathed? The US economy?" I fell like the fellow in the movie, "They Live", who finds the special sunglasses that enable him to see that aliens are walking around running the earth. Am I the only one who can see these things? Surely not, but then, I don't work for any government or central bank. I'm just a natural born fool from Tennessee, not smart like them fellers.

US DOLLAR INDEX dropped today to 76.04, losing 47.4 basis points or 0.61%. That carries the $ index down past its 50 day moving average (DMA, now 76.41) and almost to its 200 DMA (now 75.84). If my expectation is correct, the dollar index ought to catch and hold here, and soon begin turning up.

Euro rose 0.26% to 139.29, and is not exactly burning up the boards, blocked at 1.395, and not benefiting from the insane euphoria over this past weekend's non-event. True, the euro did cross above its 50 DMA (138.82) so mayhap this will be the last push up that carries the Euro to its 200 DMA (140.65) and the end of its rally.

The yen keeps on refusing to behave. After last Friday's new all time high, it closed higher than Friday's close at 131.43c/Y100 (Y76.07/$1), up 0.24%. Nice Government Men in Tokyo better catch it soon or they may have to deal with a financial earthquake.

Y'all need to read Michael Lewis' book, Boomerang: Travels in the New Third World, not because he draws the right conclusions but because he shows the vastness of the insane booms in Iceland, Ireland, Greece, German banks, and US state and municipal governments. With an obtuseness that stretches credulity, he concludes that our evolutionary "lizard core" is to blame. To reach that gem, he had to ignore (1) that without banks there can be no credit-fed boom, because they create the credit, and (2) without governments offering them, there would be no cushy government jobs and pensions for folks to grab at. You build a system driven by greed, then are SURPRISED that it brings out greed in people? Well, there's a lizard in there somewhere, I reckon, but I can't find him. Maybe he's hiding behind banks and governments.

Y'all read the book anyway. 218 pages on a big, fat leading, so it'll take about 4 hours to read.

On 24 October 1929 Black Thursday hit Wall Street in the fist day of the stock market crash that kicked off the Great Depression.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 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 bubble has burst, primary trend down.

WARNING AND DISCLAIMER. Be advised and warned:

Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.

NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.

NOR do I recommend buying gold and silver on margin or with debt.

What DO I recommend? Physical gold and silver coins and bars in your own hands.

One final warning: NEVER insert a 747 Jumbo Jet up your nose.

Just Say No, Germany ... and Don't Listen to Geithner

Posted: 24 Oct 2011 12:10 PM PDT

By Wolf Richter   www.testosteronepit.com

The German parliament has a historic opportunity to say no to the bankers: On Wednesday, the Bundestag gets to vote on the expansion of the European bailout fund, the EFSF. The new limit: €1 trillion ($1.37 trillion), though it had just been expanded to €440 billion. Since no one has any money, the expansion will be in form of leverage—the very mechanism that has wreaked so much havoc already.

While the details are still uncertain, we know one thing for sure: you can't enlarge something by leveraging it without multiplying risks and ultimate costs. And the idea that these operations will prevent contagion and buy time to solve the underlying fiscal problems is self-contradictory: if the EFSF were actually able to eliminate market pressures on over-indebted governments, it would also eliminate the incentives to make the needed hard choices.

That's what happened in the U.S. The Fed's strategy of printing trillions of dollars and forcing interest rates to near zero has eliminated any and all market pressures on Congress to solve the budget fiasco. As a consequence, Congress is sitting contentedly on a situation where the U.S. borrows 38% of every dollar it spends. In about two years, gross national debt will approach 120% of GDP, the unenviable spot where Italy is today.

And Italy is in deep trouble. To bail it out, experts are already examining how the leveraged EFSF could buy massive amounts of Italian debt on the secondary market (Spiegel). This, despite provisions in the European Union treaty that specifically prohibit such bailouts. But these experts are now looking for a way around the law. The same has already occurred at the ECB, which has been buying the debt of countries like Italy, though by law, it cannot do so.

No country has ever paid off its sovereign debt without resorting to inflation and devaluation. It can't be done because the money from debt sales goes into salaries, paperclips, wars, politicians, pensions, offshore bank accounts, subsidies, infrastructure, bailouts, healthcare, etc., which do not produce enough revenues to pay off the debt when it matures. Investors understand that. But they have some sort of fuzzy guarantee that the piece of paper (or number on a screen) they hold will be redeemed at face value with funds obtained from the sale of new debt.

The idea is to create 2-3% inflation and 2-5% growth. Then a deficit of 3% of GDP, or more when the economy dips, is no problem. New debt can be issued, and maturing debt can be rolled over. The debt level remains "sustainable." Until the percentages go out of whack.

Now they have gone out of whack. Italy, Greece, the US, and some other countries have deficits that are 8-10% of GDP, far beyond the rate at which a developed country can grow. At these levels of deficit spending, even during a period of growth of 5%—the sound barrier for developed countries—the debt problem only gets worse. Inflation, at least in the U.S. economy, is no solution either because real wages have declined significantly since their peak in 1999. Reduced purchasing power has been a drag on growth, and more inflation will only make it worse.

So, rather than getting budget deficits in line, fancy schemes are devised to borrow more, print more, and add leverage to the mix. Losses, risks, and mountains of debt are shifted from one country to another, from banks to the taxpayer, and from one generation to the next.

Now the Bundestag has an opportunity to say no to this madness—and to stand up to the bankers. German taxpayers are shouldering 48% of the EFSF that is ballooning with every squiggle in the market. Their voices should be heard. While the Bundestag apparently cannot, or does not want to, prevent the subversion of the laws that govern the ECB and the EFSF, it can turn off one of the spigots. Through its vote, the Bundestag can allow market pressures to impose some discipline on budgets around the Eurozone. In the U.S., the Fed has eliminated that discipline, and with it, the checks and balances of capitalism. And we're paying the price. In the Eurozone, that is about to happen, too. So just say no.

Now, The GAO Audit of the Fed Doesn't Call It 'Corruption' but....

Wolf Richter   www.testosteronepit.com

Just Say No, Germany ... and Don't Listen to Geithner

Posted: 24 Oct 2011 12:10 PM PDT


By Wolf Richter   www.testosteronepit.com

The German parliament has a historic opportunity to say no to the bankers: On Wednesday, the Bundestag gets to vote on the expansion of the European bailout fund, the EFSF. The new limit: €1 trillion ($1.37 trillion), though it had just been expanded to €440 billion. Since no one has any money, the expansion will be in form of leverage—the very mechanism that has wreaked so much havoc already.

While the details are still uncertain, we know one thing for sure: you can't enlarge something by leveraging it without multiplying risks and ultimate costs. And the idea that these operations will prevent contagion and buy time to solve the underlying fiscal problems is self-contradictory: if the EFSF were actually able to eliminate market pressures on over-indebted governments, it would also eliminate the incentives to make the needed hard choices.

That's what happened in the U.S. The Fed's strategy of printing trillions of dollars and forcing interest rates to near zero has eliminated any and all market pressures on Congress to solve the budget fiasco. As a consequence, Congress is sitting contentedly on a situation where the U.S. borrows 38% of every dollar it spends. In about two years, gross national debt will approach 120% of GDP, the unenviable spot where Italy is today.

And Italy is in deep trouble. To bail it out, experts are already examining how the leveraged EFSF could buy massive amounts of Italian debt on the secondary market (Spiegel). This, despite provisions in the European Union treaty that specifically prohibit such bailouts. But these experts are now looking for a way around the law. The same has already occurred at the ECB, which has been buying the debt of countries like Italy, though by law, it cannot do so.

No country has ever paid off its sovereign debt without resorting to inflation and devaluation. It can't be done because the money from debt sales goes into salaries, paperclips, wars, politicians, pensions, offshore bank accounts, subsidies, infrastructure, bailouts, healthcare, etc., which do not produce enough revenues to pay off the debt when it matures. Investors understand that. But they have some sort of fuzzy guarantee that the piece of paper (or number on a screen) they hold will be redeemed at face value with funds obtained from the sale of new debt.

The idea is to create 2-3% inflation and 2-5% growth. Then a deficit of 3% of GDP, or more when the economy dips, is no problem. New debt can be issued, and maturing debt can be rolled over. The debt level remains "sustainable." Until the percentages go out of whack.

Now they have gone out of whack. Italy, Greece, the US, and some other countries have deficits that are 8-10% of GDP, far beyond the rate at which a developed country can grow. At these levels of deficit spending, even during a period of growth of 5%—the sound barrier for developed countries—the debt problem only gets worse. Inflation, at least in the U.S. economy, is no solution either because real wages have declined significantly since their peak in 1999. Reduced purchasing power has been a drag on growth, and more inflation will only make it worse.

So, rather than getting budget deficits in line, fancy schemes are devised to borrow more, print more, and add leverage to the mix. Losses, risks, and mountains of debt are shifted from one country to another, from banks to the taxpayer, and from one generation to the next.

Now the Bundestag has an opportunity to say no to this madness—and to stand up to the bankers. German taxpayers are shouldering 48% of the EFSF that is ballooning with every squiggle in the market. Their voices should be heard. While the Bundestag apparently cannot, or does not want to, prevent the subversion of the laws that govern the ECB and the EFSF, it can turn off one of the spigots. Through its vote, the Bundestag can allow market pressures to impose some discipline on budgets around the Eurozone. In the U.S., the Fed has eliminated that discipline, and with it, the checks and balances of capitalism. And we're paying the price. In the Eurozone, that is about to happen, too. So just say no.

Now, The GAO Audit of the Fed Doesn't Call It 'Corruption' but....

Wolf Richter   www.testosteronepit.com

Stephen Leeb: China Will Send Gold & Silver to the Moon

Posted: 24 Oct 2011 11:40 AM PDT

from King World News:

With gold, silver, commodities and stocks moving sharply to the upside, today King World News interviewed acclaimed money manager Stephen Leeb, Chairman & Chief Investment Officer of Leeb Capital Management. When asked about the action in commodities, Leeb responded, "Commodity prices, it's true, are below their all-time high. But when you step back and look at it from a yearly perspective, the vast majority of commodities are averaging all-time high prices in 2011."

Stephen Leeb continues: Read More @ KingWorldNews.com

No Agreement with Respect to Europe / Greece Will Fail / Gold and Silver Steady

Posted: 24 Oct 2011 11:36 AM PDT

by Harvey Organ:

Good evening Ladies and Gentlemen:

First of all, I may not have enough time to write this weeks commentary from Tuesday through til Thursday as I have to attend to important developments on my side. I will definitely report to you on Saturday. If I do have time, I will write a commentary.

The most important day to mark on your calenders will be this Wednesday as we will probably see that Europe can bail out the weakest entities i.e. the weak sovereign PIIGS countries and the banks housed within. Failure to provide "TARP-Europe" will then cause a failure in Greece and then we will see further countries asking for debt forgiveness which in turn will cause a wholesaler banking nightmare throughout Europe.

Read More @ HarveyOrgan.Blogspot.com

Commodities Snapshot: Oversold For Now, Dollar Holds The Key

Posted: 24 Oct 2011 11:31 AM PDT

By EconMatters

Below are trading range charts for 10 major commodities from the Bespoke Group.  All 10 commodities are currently at or below the bottom of their trading ranges, which would suggest at the moment, a good opportunity to get in at oversold levels for investors looking to gain long-term exposure.

 

However, U.S. dollar has been strengthening as investors fled the Euro debt and financial crisis seeking safety in the dollar.  Since most commodities are priced in dollar, dollar movement will have considerable impact on commodity prices.  EconMatters guest author, Frank Holmes at US Global Investors, estimates that a 5% appreciation in the dollar could be associated with a 25% decline in commodity prices, based on the relationship between the CRB Index basket of 19 commodities and the Dollar Index.


So if the U.S. dollar continues to strengthen, which is quite probable with the burning Athens, and the lack of leadership and clarity in the Euro Zone, it would most likely put downward pressures on commodity prices.

But on the other hand, the U.S. Federal Reserve has already telegraphed the intention of yet another round of quantitative easing (QE3).  So the effect on the dollar, and thus commodities, would depend on how QE3 is implemented.  We suspect that the Fed now understands how QE2 has artificially jacked up commodity prices as well as inflaiton (although they will never admit it in public), and most likely will strive for a "commodity neutral" QE3.

 

However, if QE3 does translate into a similar effect to QE2, then commodities would be artificially inflated even further, which would suggest stagflation, and hyperinflation could be expected in most of the developed countries, and developing economies, respectively.

 

Further Reading - Chart of The Day: The Slippery Slope of Sliver 

 

© EconMatters All Rights Reserved | Facebook | Twitter | Post Alert | Kindle

 

 

 

 


 

 

Chart Source: Bespoke Group, Oct. 20, 2011

 

Graham Summers’ Weekly Market Forecast (Stocks Are Last to Get It Edition)

Posted: 24 Oct 2011 10:52 AM PDT


Last week's moves were entirely based on the fact that stocks are now tracking the Euro almost tick for tick. And last week, the Euro hit "take off," despite the clear indications that Europe is facing systemic failure (the entire banking system is leveraged at Lehman-like levels and European sovereigns are facing failed bond auctions on a weekly basis).

 

 

From a technical standpoint, stocks are now coming up against the 50% retracement level:

 

 

I mentioned that last week could be a potential top. I still hold that view and would consider anywhere between today's levels and 1,250 (MAJOR resistance) to be a spot to lighten up on longs and establish shorts.

 

Indeed, deflation looks to be the dominate theme in the markets today. Gold is having trouble catching a bid:

 

 

While Treasuries are bouncing off support and look ready to start a new leg up.

 

 

Inflation hedges falling, Treasuries rallying… this is a deflationary backdrop.  And it's occurring at a time when the EU is talking about launching a LEVERAGED version of the EFSF and the Fed has hinted at launching another version of QE 1???

 

Folks, something VERY bad is brewing behind the scenes. The Sarkozy- Merkel talks, the short-selling bans, the halted stocks, the leveraged EFSF, the hints of QE 3, all of this is telling us that the financial system is on DEFCON 1 Red Alert.

 

Ignore stocks, they're ALWAYS the last to "get it." The credit markets are jamming up just like they did in 2008. The banking system is flashing all the same signals as well.

 

So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding.

What happened in 2008 was literally just the warm up. The REAL DEAL is coming in the next 14 months. And it's going to involve corporate, financial, and sovereign defaults.

 

On that note, if you're looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.

 

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

 

Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.

 

Good Investing!

 

Graham Summers

 

PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it's my proprietary Crash Indicator which has caught every crash in the last 25 years or the best most profitable strategy for individual investors looking to profit from the upcoming US Debt Default, my reports covers it.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold Tests Steep Trendline Resistance

Posted: 24 Oct 2011 10:25 AM PDT

courtesy of DailyFX.com October 24, 2011 07:20 AM Daily Bars Prepared by Jamie Saettele, CMT Last week’s gold decline demands respect as the bounce from the September low may now be complete. Typically, this type of bounce acts as a midpoint for the larger decline. Interestingly, weakness from 1694.80 would equal the 1920.45-1532.07 decline at 1301.08, which intersects with channel support at the beginning of November. Of note is the 2011 low at 1308.37. Trend Strength (M,W,D) – 1, 0, 0 Latest Video Weekly Forecast COT...


Market Commentary From Monty Guild

Posted: 24 Oct 2011 10:21 AM PDT

Some New Recommendations

Over the past few weeks, we have been purchasing U.S., emerging market, energy, and agriculture related shares, and would like to recommend to our readers; Oil, Wheat, the Canadian Dollar and Singapore Dollar, emerging market equities, and U.S. equities.  We view these areas as an attractive trade between now and year

Continue reading Market Commentary From Monty Guild
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