Wednesday, July 25, 2012

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Protected Principal Retirement Strategy: Retiring Without A Million-Dollar Nest Egg - Part IV

Posted: 25 Jul 2012 11:39 AM PDT

Byakaralph:

Now that we have covered the basic premises of the Protected Principal Retirement Strategy and examined some thoughts on asset allocation, I wish to focus on individual asset classes, beginning with the Master Limited Partnerships.

Before beginning, I suggest if you haven't already done so, that you review Part I (here), Part II (here) and Part III (here
Complete Story »

The Bernanke Cargo Cult: Bankrupt Policy for a Bankrupt Generation

Posted: 25 Jul 2012 09:30 AM PDT

There is a class of equities we call "cult stocks."

Roughly speaking, a cult stock is a high-growth concept stock, with an extraordinary degree of emotionally invested ownership. The classic cult stock typically has all of the following:

  • An excellent story
  • Excellent earnings / growth trends
  • Leadership in its market space
  • Membership in a "top 50 / top 100″ list
  • Plenty of "blue sky" potential

When a stock has all the above, investors and money managers gain the courage to dream. With quarter after quarter of outperformance, optimism is entrenched as the feedback loop self-reinforces.

The naysayers are self-selected out (or carried out by losses on their shorts); the 'truest' of true believers are rewarded with the biggest profits, by dint of their huge position size and/or willingness to "buy every dip."

The "in it for the long haul" longs are then free to paint visions of unlimited upside: Most every growth story has potential to grow yet bigger. There are always new markets to conquer… new ways the genius founder can revolutionize the industry / change the paradigm, blah blah blah.

For cult stocks, the earnings multiple thus has zero relevance. Whatever multiple exists – if there even is one – is simplify justified in the rear view mirror, by way of the blue-sky-story du jour.

Eventually, expectations for XYZ cult stock become so ridiculous, they are literally impossible to fulfill. At this point, even a small miss — a minor disappointment, a modest whiff — can lead to complete and total carnage, as a crowded theatre of bulls (sans bears, who mostly left a long time ago) cry "FIRE!" simultaneously.

It is the way of all cult stocks. Expectations soar like Icarus, flying straight into the sun… until the wax wings melt and the share price goes into freefall.

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Following Tuesday's earnings miss, the inflated expectations curse finally hit mighty Apple. (Though AAPL is a strange hybrid – part cult stock, part cash-cow value stock – and as of this writing, with AAPL down circa 5%, true believers are still holding out hope for the iPhone 5).

In recent days the 'Icarus moment' happened — to far more severe degree —  in the following sampling of names:

  • Chipotle Mexican Grill (CMG)
  • Whole Foods Market (WFM)
  • Netflix (NFLX)
  • TripAdvisor (TRIP)
  • Buffalo Wild Wings (BWLD)
  • Intuitive Surgical (ISRG)
  • Akron Inc (AKRX)
  • Questcor Pharma (QCOR)
  • NVR Inc (NVR)

It is enough to make one wonder: What are growth stock investors thinking? Holding these names into earnings seems about as safe (and logical) as juggling live hand grenades.

Such has always happened, and always will happen, because human nature does not change — as the following quotes from Reminiscences of a Stock Operator, a book first published in 1923, make clear:

…The belief in miracles that all men cherish is born of immoderate indulgence in hope. There are people who go on hope sprees periodically and we all know the chronic hope drunkard that is held up before us as an exemplary optimist.

…When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators today differ from yesterday. The game does not change and neither does human nature.

…At first, when I listened to the accounts of old-time deals and devices I used to think that people were more gullible in the 1860′s and 70′s than in the 1900′s. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings.

There are other, bigger financial cults, however — far more dangerous than the lemming hordes in overbought concept stocks.

The biggest of these is the Bernanke Cargo Cult.

In his 1974 Cal Tech commencement address, the brilliant physicist Richard Feynman warned against the dangers of "Cargo Cult Science." Read the following excerpt, keeping the Fed in mind as you do so:

I think the educational and psychological studies I mentioned are examples of what I would like to call cargo cult science. In the South Seas there is a cargo cult of people. During the war they saw airplanes land with lots of good materials, and they want the same thing to happen now. So they've arranged to imitate things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas–he's the controller–and they wait for the airplanes to land. They're doing everything right. The form is perfect. It looks exactly the way it looked before. But it doesn't work. No airplanes land. So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they're missing something essential, because the planes don't land.

~ Richard Feynman, Cal Tech Commencement Address 1974

I submit to you: Who is more patently ridiculous?

The South Sea Islanders, who at least have a lack of education as excuse for their folly?

Or the Federal Reserve, who is doing the exact same thing — the equivalent of coconut radio towers and what have you — in their persistent belief that lowering interest rates, or flooding the economy with useless liquidity, can somehow help unemployment in a deleveraging?

Here is a fresh example of embarrassing Fed folly:

Quaking in fear at the potential fallout from an AAPL earnings miss — which hit the tape at 4:30 EST on July 24th — the Fed followed up with a leak that same evening, via designated mouthpiece, Jon Hilsenrath.

The leak, er, WSJ story was titled "Fed Closer to Action," and contained the following money quotes:

Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central bank officials could take new steps at their meeting next week, July 31 and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act.

Fed officials could take some actions in combination or one after another. Fed Chairman Ben Bernanke, in testimony to Congress last week, listed several options under consideration, including a new program of buying mortgage-backed or Treasury securities, new commitments to keep short-term interest rates near zero beyond 2014 or an effort to push already-low benchmark short-term interest rates even lower.

Determined to keep trying to get the economy going without causing inflation, the Fed is exploring other novel measures.

~ Fed Closer to Action, WSJ

A more cynical bit of reporting might lead:

Completely freaked out by AAPL earnings, and the possibility their precious stock market might actually correct in the face of severe macro headwinds and unrealistic forward expectations, the panicked Fed decided to telegraph "Hey, we've got the juice" as quickly as possible… responding within hours of the AAPL miss…

And yet, in attempting to juice the economy, the Fed is forced to explore "other novel measures" — to use the Hilsenrath phrase — because NONE OF THE CURRENT MEASURES HAVE WORKED… and are arguably MAKING THE PROBLEM WORSE…

(By the way, for more on why the current Fed policy is not just ridiculous, but dangerous, you simply must read The Fed's Jelly Donut Policy by David Einhorn. If you have already read it, you know of what I speak.)

What yours truly would like to know is, why is the mainstream financial media not mocking the Fed?

Why is the mainstream financial media not visibly disgusted with the Fed?

Could it be because the Wall Street shill mechanism is utterly (and willfully) blind to the dangers of manufactured prices and manipulated markets, in spite of all the damage such has caused?

As Bernard Baruch observed,

Bulls always have been more popular than bears in this country because optimism is so strong a part of our heritage. Still, over-optimism is capable of doing more damage than pessimism since caution tends to be thrown aside.

And not just over-optimism, sadly, but flat-out flights of fancy and full-scale departures from reality that amount to reckless negligence in risk management terms.

The sad truth is, the Fed has gotten a pass because legions of short-sighted, long-only investors assume always-and-forever rising stock prices are an unalloyed good, no matter how that rise is created. These investors actually want a Bernanke Cargo Cult, in the hope it will serve their bias.

This Wall Street majority cheers their shaman-oracle-messiah, the Wizard of Zirp Bernanke, who can make stock prices rise with a wave of his magic QE wand.

And as for long-term consequences? Meh. Who cares about those…

Still, the amount of deference that Fed officials receive is mind-boggling. "Serious" financial journalists are respectful, because being disrespectful would cause a loss of precious political access.

But culturally sanctioned idiocy can reach a degree upon which, on the journalist's part, further respectfulness is not just a bad call but a gross dereliction of duty.

Consider the following from the Financial Times, one of the most respected newspapers on the planet:

In an interview with the Financial Times, John Williams, president of the San Francisco Fed, said that the weak outlook and the extent of downside risks "would argue for further action" but the counter-argument was doubts about tools such as QE3.

However, Fed officials are determined to ensure that the economy makes progress towards lower unemployment. In June, the rate-setting Federal Open Market Committee still forecast a decline in the unemployment rate over the next few years, albeit very slowly. Any downgrade to that forecast would be a likely trigger for further action.

"We are looking very carefully at the economy, trying to judge…whether or not the economy is likely to continue to make progress towards lower unemployment," said Ben Bernanke, the Fed chairman, in recent testimony to Congress. "If that does not occur, obviously we have to consider additional steps."

- Financial Times, Fed looks at third round of easing

What I want to know is, why are these men being taken seriously? Why is no one calling them out on the carpet?

  • There is no evidence that past QE efforts have helped unemployment.
  • There is no evidence that future QE efforts will help unemployment.
  • There IS evidence – plenty – that the Fed's actions are causing distortions and damage.

If I were the FT journalist interviewing Fed Governor Williams, I would ask something like this:

Fed Governor Williams: Based on the available evidence, the idea that further easing will have any positive employment effect whatsoever is simply not credible. The Fed's collective track record has been terrible. Your rationales are terrible. In fact, with 30-year treasury bonds hitting record lows, your talking points (lowering rates further etc.) don't even make coherent sense.

In fact, Mr. Fed Governor, if you had sat here telling us the Fed wants to plunge billions into magic bean research, in the hopes of growing a beanstalk to the giant jobs castle in the sky, you would hardly have less credibility than you have right now. So why in the world should the Fed be given further leeway to pursue nonsensical monetary policies with 1) serious latent downside and 2) no genuine evidence that they work?

Mr. Fed Governor, a good definition of insanity, as you may have heard, is doing the same thing over and over and expecting a different result. So I have to ask: Are you people completely insane?

The problem, of course, is that it's all political… and politics has little to do with rationality or logic.

If the Fed were committed to logical, rational policies, they would heed Feynman's 1974 advice:

Now it behooves me, of course, to tell you what they're missing. But it would be just about as difficult to explain to the South Sea Islanders how they have to arrange things so that they get some wealth in their system. It is not something simple like telling them how to improve the shapes of the earphones. But there is one feature I notice that is generally missing in cargo cult science. That is the idea that we all hope you have learned in studying science in school–we never explicitly say what this is, but just hope that you catch on by all the examples of scientific investigation. It is interesting, therefore, to bring it out now and speak of it explicitly. It's a kind of scientific integrity, a principle of scientific thought that corresponds to a kind of utter honesty–a kind of leaning over backwards. For example, if you're doing an experiment, you should report everything that you think might make it invalid–not only what you think is right about it: other causes that could possibly explain your results; and things you thought of that you've eliminated by some other experiment, and how they worked–to make sure the other fellow can tell they have been eliminated.

Talk of scientific experiments is apropos because, in attempting to stimulate a deleveraged economy back to health, the Federal Reserve is conducting the biggest and most dangerous financial "experiment" of all time.

But are they doing anything that Feynman suggested?

  • Are they committed to "integrity" and "utter honesty" in interpreting their monetary policy results?
  • Are they reporting factors or findings that could falsify their stimulus theory (make it invalid)?
  • Are they "bending over backwards" to the empirical testing aspect right?

No, of course not. They are doing the exact opposite of all those things.

Stubborn pursuit of the illogical, evidence-free notion that pushing down interest rates / propping up the stockmarket is pursued, doggedly and blindly, with no regard for logic, common sense, or experimental integrity whatsoever.

Simply put, the Federal Reserve is a ship of over-educated fools.

But you know what? It gets worse, because further evidence exists the Fed is a ship of morally bankrupt fools.

Consider the following data — most alarming if true, and close to the mark if exaggerated:

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.

- Our Ridiculous Approach to Retirement, New York Times

Or this:

The ranks of America's poor are on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and fraying government safety net.

- US poverty on track to rise to highest since 1960s, Yahoo / AP

So let me get this straight:

  • The Federal Reserve claims to care about the plight of the unemployed, even as reckless stimulus policies contribute to a higher cost of living (via upward pressure on commodities prices) while diminishing the value of savings accounts — meanwhile bearing little to no evidence of positive jobs impact at all.
  • The Federal Reserve claims a stock market 'wealth effect' is beneficial for the U.S. economy, even though 75% of retirement-age boomers — tens of millions of adult Americans – do not have enough savings to be meaningfully involved in the stock market at all.

It is a mantra of sound and sensible investing that short-term funds should not be put into stocks. If you need your money in a tight time-frame, e.g. less than three to five years, your exposure to near-term volatility is too high.

To have $30K or less, with retirement age looming, is practically the dictionary definition of "financially exposed." Such funds that exist should not go into stocks — for the vast majority of strapped boomer retirees, they should probably go into some form of super-safe savings account.

But what are such savings accounts yielding these days? Zip. Zilch. Nada. Thanks to the Federal Reserve. Worse still, the Federal Reserve is actively trying to "push" these boomers "out onto the risk curve"… where they have no business going whatsoever. It is almost criminal.

From a trading perspective, the current volatility is great. We can make money short as easily as long — and it is especially fun to see your equity curve going up, as the S&P turns down.

But from a citizen's perspective, the current environment is disgusting, appalling, and frightening.

As an individual in his thirties, and the co-founder of an intellectual-property-based business that can be relocated offshore fairly easily, I have to ask:

  • For the boomer generation — essentially bankrupt via nil retirement savings — what happens when the severity of their retirement plight finally hits home?
  • For the "Bernanke Cargo Cult" — administrators of the most shameful, dangerous and stupid financial experiment of all time — what happens when investors, and American citizens in general, lose faith in the coconut radio towers and promises that "the next easing will work?"
  • For the US stock market — what happens if / when the US economy falls back into recession, stimulus or no stimulus, as corporate profit margins decline?

A word on corporate profit margins – the following chart is from Cullen Roche / Pragcap:

Prior to July 20th, stocks had not yet declined in earnest. This lack of decline, even as the macro environment deteriorated alarmingly, was due to a few things:

  • Corporate profit margins were holding up
  • The anticipation of QE3 put a psychological floor under the market
  • "Presidential election year" arguments contributed at the margins
  • "Top 30%" stocks – those catering to the upper middle class – looked strong

But now corporate profit margins are threatening to erode fast, as demonstrated by the "canary in the coal mine" of declining top line revenues.

What's more, as pointed out in this week's View From the Turret, fat profit margins and persistent unemployment trends are actually related:

  • At the same time, lower wages and benefits lead to steadily eroding revenues as discretionary income falls. Hence warnings from once-invincible juggernauts like Chipotle (CMG) of same-store sales declines.
  • Simultaneously, international revenues are contracting as the "pain in Spain" — and all of Europe — transmits to global exporters, and slowdown fears across the board. Note tell-tale misses from international bellwethers McDonald's (MCD) and United Parcel Service.
  • Net result: Thanks to persistent revenue erosion, as US consumers retrench, China slows, and Europe spirals further into economic decline, unsustainable profit margins eventually give way. Which is pretty much what the current earnings season is telegraphing…

The Political Threat

To be blunt, I'm not sure which worries me more: The cack-handed idiocy of the Federal Reserve — whose policies are custom-crafted to exacerbate the wealth / poverty gap while making eventual outcomes worse — or the looming political backlash of a broke Boomer generation trained to extract entitlements from the voting booth.

Picture it: Fifty-million-plus boomers, broke as a joke… unable to land a job at Barnes & Noble or Starbucks (because too many fellow boomers have already applied)… contemplating a future of ramen noodles and efficiency apartment living.

To a political demagogue, that's fifty million votes to be held in the palm of one's hand…

There is an old prophecy that comes to mind, routinely attributed to Scottish historian Alexander Frasier Tytler.

Though the attribution is uncertain — many are certain Tytler did NOT say it — the vision painted is chilling, considering the disastrous policies being implemented… the retirement cliff that 75% of boomers are heading over… and the ravenous entitlement grabs yet to come:

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years.

Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.

Contemplating the future of the United States,

JS (jack@mercenarytrader.com)

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Philipp Bagus on Europe’s date with destiny

Posted: 25 Jul 2012 09:30 AM PDT

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Gold Rises 1% as ECB Comments Lift Euro, Stocks

Posted: 25 Jul 2012 08:02 AM PDT

from cnbc.com:

Gold prices rose on Wednesday after European Central Bank policymaker Ewald Nowotny said he could see grounds for giving Europe's rescue fund a banking license, lifting the euro off lows versus the dollar and pushing stock markets higher.

Giving Europe's ESM bailout fund a banking license would allow it to tap cheap ECB (ECB explained) funding.

Investors have increasingly worried that the fund's firepower would be hugely diminished if Spain needed a full scale sovereign bailout.The precious metal is particularly sensitive to moves in the wider financial markets in the absence of direction from physical demand, which has been weak in recent months, tending to benefit from dollar weakness and sharper appetite for risk.

Spot gold [XAU= 1600.96 21.12 (+1.34%) ] was up 1.3 percent at $1,600.56 an ounce on Wednesday morning, while U.S. gold futures [GCCV1 1599.40 23.20 (+1.47%) ]for August delivery were up $23.40 an ounce at $1,599.60.

Gold has held in a $75 range so far in July, its narrowest monthly spread in since April. Weak seasonal buying in some Asian markets, waning inflows into gold-backed exchange-traded funds (exchange-traded funds explained) and caution amongst investors have limited price gains.

Keep on reading @ cnbc.com

Gold edges up on euro zone fears, dollar limits gains

Posted: 25 Jul 2012 07:53 AM PDT

from in.reuters.com:

(Reuters) – Gold edged up on Tuesday, outperforming equities for the second day in a row as worried investors bought the precious metal as a safe haven after European Union officials predicted Greece will need more debt restructuring.

Gold prices seesawed early, then reversed losses as EU officials said Greece probably will not be able to pay its debts, making further restructuring necessary.

Bullion's gains were limited, and gold futures slightly lower as the euro fell against the U.S. dollar. Europe's private sector looked set for a prolonged slump after surveys showed the downturn that began in the euro zone's small economies was now entrenched in Germany and France.

"Gold is mostly taking its cues from the euro-dollar. Volume is pretty decent, suggesting there are good underlying bids here," said Jonathan Jossen, an independent COMEX gold options floor trader.

Dealers said the euro-dollar move has taken the lead role in dictating day-to-day moves in gold, as impetus from central-bank monetary policy announcements and the physical markets petered out.

Spot gold was up 0.1 percent at $1,577.86 an ounce by 3:04 p.m. EDT (1904 GMT), moving in a relatively quiet range of less than $20.

U.S. COMEX August gold futures for August delivery settled down $1.20 at $1,576.20, with trading volume about 15 percent above its 30-day average, preliminary Reuters data showed.

A 1 percent drop in the S&P .SPX and tumbling grain prices after the previous session's record rally also capped further gains in gold. U.S. Treasuries bond yields fell to a new low on safety buying. .N

More evidence of a slowing U.S. economy weighed on the financial markets. The U.S. Richmond Federal Reserve Bank's monthly manufacturing composite index in July fell to its weakest reading since April 2009.

COMEX OPTION EXPIRY EYED

COMEX floor trader Jossen said that bullish options strategies such as butterfly spreads were traded at higher strike prices such as $1,900 and $2,200 an ounce.

TD Bank said in a note that open interest for COMEX August options was concentrated around the round-number strike prices including $1,600, $1,550 and $1,650, and that would likely keep gold moves muted. The August options are expiring on Thursday.

Keep on reading @ in.reuters.com

Azerbaijan's SOFAZ to add 7.5 tons of Gold this year

Posted: 25 Jul 2012 07:48 AM PDT

from bullionstreet.com:

BAKU(BullionStreet): Azerbaijan's State Oil Fund (SOFAZ) said it plans to buy 7.5 tons of gold additionally this year after announcing activities for the first half of the year.

According to SOFAZ, it's gold holdings hit 6.847 tons as of July 1 since began to purchase gold from Feb 1.

The Fund plans to purchase about 30 tons of gold step by step in connection with the risk of price change.

SOFAZ began to buy gold only from the first quarter of 2012 and during this period the total amount of purchased gold was 2.804 tons (90,143 ounces).

From Feb. 1, the Fund began investing in gold bullion of banks that are market-makers – members of the Association of members of London Bullion Market.

The Association consists of banks, manufacturers, transportation and refining companies, specializing in the market of gold and silver bullion.

Investing in gold has begun to diversify the investment portfolio and income of SOFAZ.

According to the State Oil Fund's investment strategy, in 2012 up to five percent of the total investment portfolio may be invested in gold.

Keep on reading @ bullionstreet.com

Tajikistan Gold output climbs, Silver falls in H1-2012

Posted: 25 Jul 2012 07:45 AM PDT

from bullionstreet.com:

DUSHANBE(BullionStreet): Former soviet state Tajikistan's gold production hit 927.9 kilogram in the first half of this year which is more than 7 kilograms from same period last year.

However, silver production dropped by 10 kilograms to 860 kilograms during the period, according to country's Energy and Industry ministry.

The ministry said silver production will grow only after the joint venture Zarafshon will launch the second technology line.

2.241 tons of gold and 1.664 tons of silver were produced in Tajikistan in 2011. The central Asian country expects to increase in gold production for 200 kg compared to the previous year.

Tajikistan, sits on the gold belt, located in Central Asia's Tian Shen mountain range has only a small domestic market for gold, with the main buyers being the National Bank, the Treasury and a small number of jewellery makers.

Tajikistan produced 2,050 kilograms of gold in 2010, which is 690 kilograms more than in 2009. It has 28 known gold deposits containing an estimated 429.3 tons of gold.

Keep on reading @ bullionstreet.com

Is the gold rush finally over?

Posted: 25 Jul 2012 07:41 AM PDT

from stage.money.aol.co.uk:

Insuring against the worst has seen the price of gold soar – until recently. Many investors continue to buy into the precious metal, increasingly worried by the eurozone currency and debt stress, not to mention world growth drift.

But gold is not the dirt-cheap insurance it once was. Do gold bugs still have a strong investment case?
Still glistens?
At $1,572 an ounce the metal has come a long way since 2003 when it struggled to get past the $400 an ounce level. But gold has given investors a rotten 12 months, peaking close to $1,889 per ounce late last summer before falling back considerably. That's a -16.7% fall.

That's disappointing when you compare the riches dividend investors have collected recently. Capita Registrars, for example, claimed that total dividend payments have hit record levels, more than 20% higher than in 2011. It thinks a total of £78.3bn could be returned to investors in 2012.

Gold, in contrast, gives most investors no dividend whatsoever. But it's not that simple says financial adviser Michael Bakowski from Chamberlain de Broe.

"People often go into gold for the wrong reason. You can't compare it to income-producing assets like equities or bonds. Someone once compared gold to the safety equipment you have on a boat. It takes up space. It's heavy. And it makes the boat go slower. You hope you never need it."

Keep on reading @ stage.money.aol.co.uk

Water is the new gold, a big commodity bet

Posted: 25 Jul 2012 07:38 AM PDT

from marketwatch.com:

SAN LUIS OBISPO, Calif. (MarketWatch) — "Is water the gold of the 21st century?" asks Fortune. Answer: Yes, water is the New Gold for investors this century.

In 2010 global water generated over a half trillion dollars of revenue. Global world population will explode from 7 billion today to 10 billion by 2050, predicts the United Nations. And over one billion "lack access to clean drinking water."

Climate and weather patterns are changing natural water patterns. And industrial pollution is making water a scarce commodity. So the good news is that huge "opportunities exist for businesses that can figure out how to keep the pipes flowing."

Yes, it's a hot market. So, expand your vision for a minute. How many bottles of water do you drink a week? How much did you use for a shower? When you flushed a toilet? Wash your car? Cooking? Lattes? And my guess is your city water bill's gone up in recent years.

So ask yourself: What happens in the next 40 years when another three billion people come into the world? Imagine adding 75 million people every year, six million a month, 200,000 every day, all demanding more and more water to drink, to shower, to cook, to everything. All guzzling down the New Gold that's getting ever scarcer.
Population, the explosive driver in the demand for ever-scarcer water

Now here's the real scary stuff, the investor's basic multiplier. In the 12 short years leading up to 2011 the world added a billion people. China's population is now 1.3 billion. Plus they'll add another 100 million in the next generation, while India adds 600 million according to United Nations experts.

China's already planning as many as 500 new cities to house all their new folks. Imagine, 500 new cities each housing 100,000 or more people, and that's just for half of China's projected growth to 2050, all demanding more water. The numbers are overwhelming.

Today Americans use 150 gallons a day, compared with 23 gallons in China. But they're catching up, just check out any panoramic travel photos of China's beautiful megacities, Shanghai, Beiiing, Guangzhou. And read about skyrocketing sales of Ferraris, Cartier watches, Gucci handbags and luxury goods in China. China has its own version of the American Dream!

Seriously, just a few decades ago China was an emerging country, a bit backward, not a global economic threat. But change is happening at light speed. Soon their GDP will overtake ours.

India expects their water demand to double in one decade while Fortune says "expanding populations will also swell demand for agricultural water some 42% by 2030," in two decades.

Keep on reading @ marketwatch.com

Chinese Paper Futures ‘Gold’ Scam Fleeces Investors of $60 Billion

Posted: 25 Jul 2012 07:30 AM PDT

from silverdoctors.com:

Over 5,000 Chinese investors have been fleeced for a total of $59.62 Billion in a paper 'gold' futures scam.
This should have enormously bullish implications for the PHYSICAL metals markets, as 5,000 Chinese have just been taught Doc's rule the hard way:
If you don't hold it, you don't own it!!!
While this has not been widely reported in the Western media, news broke this week of a massive illegal gold-futures trading scam in China. Not only does it underscore the growing hunger for gold among the newly minted Chinese middle class, but also hits home the rationale for owning physical gold, according to one U.S. based asset manager.
Over 5,000 investors were bilked out of 380 billion yuan, or $59.62 billion in a scheme involving Loco London gold since 2008, according to a report in the China Daily.
While details are unclear how the scam worked, the implications could be bullish for gold in a number of ways. Perhaps gold prices could be at even higher levels than they are right now, if this money had been properly invested.

Keep on reading @ silverdoctors.com

BOB CHAPMAN : The U.S. Dollar Index USDX could go down to the 45

Posted: 25 Jul 2012 07:30 AM PDT

BOB CHAPMAN : I think that on the U.S. Dollar Index (USDX), the dollar could go...

[[ This is a content summary only. Visit my blog http://www.bobchapman.blogspot.com for the full Story ]]

Spain to Default – Spanish Bonds to be Restructured like Greek PSI

Posted: 25 Jul 2012 07:30 AM PDT

from wealthcycles.com:

Readers following the news know that as of quite recent, a total of seven Spanish provinces have now checked in to alert all that they are insolvent and will need Spanish government bailouts. The trouble is that Spain itself will be out of cash by August, and as viewed by the market, will need public sector involvement in restructuring, also known as defaulting on, its own debt. As the assets lose value, the implications are broad – bank runs and big inflation.

Public sector involvement (PSI) in Greece amounted to bondholders getting their investment replaced with new debt on different terms, which summarily sank to pennies on the dollar.

Now European Union (EU) officials are hitting the wires, stating that Greece has missed the EU and International Monetary Fund (IMF) debt reduction targets, and most importantly, that further debt restructuring is necessary. Default. Again.

Keep on reading @ wealthcycles.com

Anatomy of Future Gold & Silver Bubble

Posted: 25 Jul 2012 07:27 AM PDT

from thedailygold.com:

In recent commentaries we've written about the three phases of a bull market and how and why the final phase evolves as it does. Valuations, sentiment and market structure all explain why markets take a dramatic upward turn in the final phase after relatively stagnant performance in the previous phase. These are the "micro" behind why a bubble emerges in the final phase. Today we want to look at the intermarket driving forces behind the emergence of a bubble.

We often write about intermarket analysis, which is an incredibly useful and actionable form of technical analysis. The greater the bubble, the greater role intermarket relationships play in the formation of the bubble. Essentially, for a large market to form a bubble, capital needs to flow out of various asset classes and into that particular market.

Here is a quick example of the technology bubble in the 1990s. We plot the Nasdaq, Bonds and Commodities (the three major asset classes). The Nasdaq accelerated from 1994 to 2000. In the same time period, Bonds were volatile but didn't make much progress. Commodities were in a nasty bear market from 1996 to 1999. Note that Bonds surged from 1990 through 1993, a period in which the Nasdaq climbed slowly. Furthermore, from 1993 to 1996, Commodities experienced a very strong bull market.

The takeaway is bubbles cannot occur when the asset classes are challenging each other for supremacy. Let's quickly review the parabolic move in Gold, Silver and mining equities from 1976 until 1980. Interest rates soared in that period (Bond prices declined) stoking greater fears of inflation. Meanwhile, the S&P 500 peaked in Q3 1976 and didn't bottom until Q1 1978. Overall, precious metals faced little competition in the late 1970s from conventional heavyweights: Bonds and Stocks.

Keep on reading @ thedailygold.com

Ted Butler: The War on Silver

Posted: 25 Jul 2012 07:24 AM PDT

from caseyresearch.com:

¤ Yesterday in Gold and Silver

With the dollar index spiking a bit over 15 basis points at the open on Sunday night, the gold price was under some selling pressure right from the 6:00 p.m. New York open. The selling pressure continued in fits and starts until the absolute low of the day…$1,562.00 spot…which came at 8:45 a.m. in Comex trading in New York.

The subsequent rally ran out of gas minutes after 12:00 o'clock noon…and the New York high turned out to be $1,581.50 spot. Gold then traded sideways to down for the rest of the day.

The price ended the Monday trading session at $1,576.70 spot…down $7.30 on the day. Net volume was around 111,000 contracts.

Silver's price pattern, as per usual, was more 'volatile'…and the selling pressure was even more intense in this metal than in gold…which is also 'as per usual'.

The low of the day [$26.59 spot] came at 8:35 a.m. in New York…and about ten minutes before gold's low tick of the day. Like gold, silver's rally also topped out a few minutes after lunchtime began on the East Coast…and silver got sold off about two bits from its high tick of the day…which was $27.30 spot.

Silver finished Monday at $27.06 spot…down 27 cents from Friday's close. Net volume was somewhere around 34,000 contracts.

Keep on reading @ caseyresearch.com

Jim Rickards: "I expect a gold price of 7.000 dollars by the next several years"

Posted: 25 Jul 2012 07:22 AM PDT

Europe Can and Will Cause a Systemic Collapse… Are You Ready?

Posted: 25 Jul 2012 07:21 AM PDT

from gainspainscapital.com:

A lot has been said about the European Crisis. I'm going to explain it all in simple terms.

In simple terms, today we are facing a Crisis that is far, far worse than 2008. Before it ends, it is quite possible that we will see the entire Western Financial System collapse and a new system put into place.

This will mean:

1) Many major banks disappearing, as well as numerous potentially lengthy bank holidays (think Argentina in 2001)

2) Multiple sovereign defaults as well as broad economic contractions and their commensurate unemployment/ civil unrest/ erasure of retirement accounts/ pensions (this process has already begun in some US municipals, e.g. San Bernandino and Stockton California as well as Harrisburg Pennsylvania).

3) Possibly new currencies being introduced or new denominations of currencies (say one new unit being worth 1,000 of the old one)

4) Massive wealth destruction to the tune of tens of trillions of Dollars (think MF Global i.e. the money is gone… only systemically… in fact we just had another such instance with PF)

Keep on reading @ gainspainscapital.com

Yesterday's top story: How will gold and silver prices perform in a shrinking, debt-distressed world?

Posted: 25 Jul 2012 07:19 AM PDT

from mineweb.com:

As global growth is being downgraded by the I.M.F. from 3.5% to 3.1% fears that the Eurozone is already in a recession and the U.S. is likely to enter one next year, are growing. As the world becomes more and more familiar with the economic and financial climate investors are realizing that economic life is far from simple and that growth is not something that governments or central banks can turn on or off.

Likewise for all the clever construction of inflation and deflation measurements, the public in general are beginning to realize that overall inflation and deflation are far too simplistic to be given more than a 'seasonal influence'. The reality is that you can have both at the same time. The reality is also that there are times when deflationary paths, in some sectors, join with inflationary paths in others, to cause economic damage that is caused by both being destructive [and not ruling each other out in the addition of a minus to a plus - e.g. inflation at 2% with deflation at 2% does not make zero - but the two combined have a damaging effect of 4%]. That's what is soon to happen.

Inflation in the U.S. is running at 2.4% per annum [ahead of the food inflation that is on its way from the drought]. Deflation in asset values in housing is slowing but the slowing of the velocity of money alongside the falling value of fixed interest securities and a slowing economy, join together to undermine growth, the future and confidence. With a desperate need for increasing economic growth to stave off the destructive impact of inflation plus deflation, the failure to produce economic resuscitation seems more likely, by the day, to point to a new downturn. Then a very different type of inflation to food inflation will come to be.

It is excessive monetary inflation, which as we have seen does little to kick start growth. It simply postpones recession. Subsequently, the deflation that happens to asset values reaches down to the value of the buck in your pocket. That's when inflation really takes off to attempt to compensate for growing deflation.

Keep on reading @ mineweb.com

An Evening with Rob McEwen

Posted: 25 Jul 2012 07:17 AM PDT

The good folks at Joe Martin's Cambridge House International sent us a link to a video of our friend Rob McEwen who spoke on the 124th anniversary of the Toronto Board of Trade.

The video is from a little while back, but still timely and we thought worthy of sharing. 

 

The setup for the video reads:  "A model to emulate in giving is company builder Rob McEwen–founder of GoldCorp, creator of McEwen Mining and the McEwen Centre for Regenerative Medicine.

As recent keynote speaker of the 124th annual Toronto Board of Trade dinner, Rob indicated that, "Whenever I am facing a large challenge, I draw inspiration from my fathers courage and determination. I feel very fortunate to have had such an empowering role model in my life."

Beginning at the 13:30 mark, he retold his father's story saying, "He came home[from WW II] at age 20 a paraplegic in an iron lung. The doctors…gave him a bleak picture of the future. He would never get out of bed again. And his legs to prevent infection, were going to be cut off. He didn't accept that view…he decided he wasn't going to stay in bed for the rest of his life" He pushed himself to his limits in rehabilitation, "Until his palms were red, raw and bleeding…he pushed himself hard, exercising his muscles, until one day, he was able to stand and walk with the use of crutches…From that point on he was unstoppable…No obstacle could deter him."

In reflecting on this touching story–what can we each gather from our family histories? Who was it that struggled to put you through school, give you values, or nurture you with food? What did they have to conquer–to see to it that life would bless you with a greater future?

Source: Cambridge House International via YouTube 
http://www.youtube.com/watch?feature=player_embedded&v=ruplsjX7TlI

Ben Davies: Seeking value in a world of financial repression

Posted: 25 Jul 2012 07:17 AM PDT

from gata.org:

Dear Friend of GATA and Gold:

Four years ago, at GATA's Washington conference, your secretary/treasurer remarked that there were no markets anymore, just interventions –

http://www.gata.org/node/6242

– and, last year, elaborating at the Cheviot Asset Management Sound Money Conference in London –

http://www.gata.org/node/9545

– remarked that "since central bank intervention in the currency, bond, equities, and commodity markets has exploded over the last few years, we don't really know what the market price of anything is anymore."

Now Ben Davies, CEO of Hinde Capital in London, has put intellect, data, and graphs to work in the same vein in a presentation made last month at the Value Intelligence Conference in Munich, a presentation titled "Seeking Value in a World of Financial Repression."

Davies concludes:

"Unfortunately the criticisms leveled at capitalism's supposed failings are not a function of failed free markets but of state intervention in the supply of money. The failing of the banking system is the product of meddling in the true or real rate of interest which has distorted all pricing mechanisms in the production of credit, resource availability, manufactured goods, and services. This has been a global phenomenon. …

Keep on reading @ gata.org

Rule – The Return Of The Mega-Bullish “Fear Trade” In Gold

Posted: 25 Jul 2012 07:16 AM PDT

from kingworldnews.com:

With tremendous volatility in global stock markets, the US dollar breaking to fresh two year highs, and gold remaining firm, today King World News interviewed one of the wealthiest and most street-smart pros in the business, Rick Rule. Rule told KWN, "… we are now seeing what looks to be the extremely supportive and bullish return of the 'fear trade' in gold."

Rule, who is now part of Sprott Asset Management, discussed the enormous problems facing Europe and the US. He also spoke about gold and increasing acquisitions in the mining sector, but first, here is what he had to say about the problems the West faces: "You know, Eric, it seems to me that one of the lessons that's continually reinforced is that our political and business leadership, around the world, are so concerned about getting through the next month or three months that they make a fundamental economic mistake."

Keep on reading @ kingworldnews.com

Will the European Stability Mechanism Seek a Banking License?

Posted: 25 Jul 2012 07:16 AM PDT

from goldcore.com:

Today's AM fix was USD 1,587.50, EUR 1,309.39, and GBP 1,024.86 per ounce.
Yesterday's AM fix was USD 1,573.00, EUR 1,300.54 and GBP 1,015.23 per ounce.

Silver is trading at $27.13/oz, €22.42/oz and £17.56/oz. Platinum is trading at $1,397.50/oz, palladium at $564.63/oz and rhodium at $1,150/oz.

Gold rose $5.10 or 0.32% in New York yesterday and closed at $1,582.30/oz. The silver price dropped to a low of $26.60 before it recovered and edged higher then finished unchanged on the day. Gold rose and fell in Asian trading then began European market trading with a surge sending the price to nearly $1,589/oz and then it pulled back and settled near $1,585/oz.

Gold climbed again on Wednesday after poor economic data from Europe and America led the Wall Street Journal to report that the US Fed was close to taking new initiatives (QE3) to boost the US economy. The Fed's next policy meeting is to take place on July 31 and August 1st.

Spain now looks like it will need a sovereign bailout in addition to their 100 billion bank bailout. Yesterday's record climb to 7.6% yields on the 10-year Spanish bonds show the risk the market senses. Due to the financial risk on the Eurozone, Moody's Investor Service lowered the outlook on the EU's temporary bailout fund, the European Financial Stability Facility (EFSF), just after downgrading the outlook on its 3 main economies earlier this week.

Keep on reading @ goldcore.com

The depression drags on for Britain

Posted: 25 Jul 2012 07:14 AM PDT

from goldmoney.com:

Another day, and yet another rise in Spanish bond yields. Madrid's sovereign debt all the way down to two-year maturity is now trading above 7% – the first time this has happened to two-year borrowing rates since 1996. Italian yields are not far behind. The Spanish government denies that its about to request a €300 billion bailout from Brussels, while 17 leading economists claim that Europe "is sleepwalking towards disaster".

News that the UK economy contracted by 0.7% during the second quarter – a much worse fall than the 0.2% contraction economists had expected – has added to the gloom. This is the biggest quarterly drop in British GDP since Q1 of 2009, and confirms that the country's current "double-dip recession" (what in more honest times used to be called a depression) is the longest in 50 years.

Amid the euro gloom the dollar had another strong session yesterday, with the Dollar Index back above 84.00 for the first time in two years. This continues to create headwinds for precious metals (and silver in particular), though poor man's gold is still being supported on forays below $27. Gold and silver have by and large been confined to a pretty tight price range since late May, so any breakout – upside or downside – will have important short-term implications for these markets.

Keep on reading @ goldmoney.com

End is near for economic rebound

Posted: 25 Jul 2012 07:13 AM PDT

from news.goldseek.com:

Since the start of the global economic recovery in 2009, the status of the U.S. economy has been a perplexing one. We've been bombarded with conflicting reports as to the economy's strength or weakness at various times over the past 3+ years and at any given time it's hard to get a good read on how well the domestic economy is performing overall.

When confusion prevails the best approach to cutting through the uncertainty normally begins with defining the basic terms involved. When news commentators talk about the "economy," for instance, what they're referring to is the sales and revenue trends of multi-national corporations such as McDonald's, Wal-Mart, Microsoft, et al. Under this rather limited definition of economy, how well these U.S.-based multinationals are doing in foreign markets like China or India counts for as much (if not more) as how much they are selling to customers here in the U.S. Under this definition of "economy," the global rebound since 2009 has been truly impressive.

But what of the sales and revenue trends for strictly U.S.-based companies which sell directly to U.S. consumers? And, more importantly, what about the overall economic state of those U.S. consumers? This should be the heart and soul of any discussion of the "economy," yet it's consistently underplayed by mainstream news commentators. To answer this question let's look at some recent U.S. economic data.

Keep on reading @ news.goldseek.com

China's role in global Silver market

Posted: 25 Jul 2012 07:13 AM PDT

from bullionstreet.com:

WASHINGTON(BullionStreet): China's important role in global silver markets will be the key area under scrutiny by the latest Silver Institute study.

The Silver Institute study will also focus on China's importance in the global silver market and will seek to identify emerging trends that could affect the silver price in the next few years.

Twenty years ago China accounted for some 3 percent and 5 percent of global silver demand and supply, respectively. In 2011, according to World Silver Survey 2012, those figures climbed to 16 percent and 14 percent, making China the world's second largest consumer and third largest producer of the white metal.

Many knowledgeable observers of the Chinese market believe that silver demand will continue to grow significantly over the rest of this decade, further increasing China's importance to the global market.

Keep on reading @ bullionstreet.com

Gold Continues To Move Towards The Financial System

Posted: 25 Jul 2012 07:09 AM PDT

from tdvgoldentrader.com:

It is currently estimated that the largest 110 central banks have 16% of their reserves as gold. Anyone who follows the gold market knows that many central banks have become net buyers of gold in the last few years, and the pace of accumulation seems to be growing. While central banks continue to accumulate gold, the misinformed mainstream media are still chanting the "gold is in a bubble" mantra. What they are not acknowledging is the clear evidence that the highest level of bankers and regulators are proposing that gold become a Tier 1 asset class with zero risk, which can also be used for collateral in financial transactions.

Recently, we wrote an article about a proposal made by the FDIC to make rule changes and allow gold bullion to be recognized as a Tier 1 asset class with zero percent risk weighting. Even the Bank of International Settlements (BIS), which is the central bank for central banks, is considering reclassifying gold as a risk-free assets as part of the Basel III framework. In their recent progress report, on page 26 under the section for other assets, they state the following (in footnote 32):

"At national discretion, gold bullion held in own vaults or on an allocated basis to the extent backed by bullion liabilities can be treated as cash and therefore risk-weighted at 0%."

The Basel Committee on Banking Supervision is an international regulatory agency that brings together banking regulators from 27 nations including the US, the UK, and China. This past week they published a draft of standards which creates "International consistency" with regards to margin requirements and seek tougher rules for non-centrally cleared swaps in the over-the-counter derivatives market. This proposal helps to align rules for the $648 trillion market for OTC derivatives in which regulators are seeking tougher oversight after the 2008 collapse. The proposal sets out a partial list of assets that companies can use as collateral for trading in the OTC derivatives market. It includes a range of financial instruments to be used as collateral, including cash, government debt, "high-quality corporate and covered bonds," gold and equities listed on "major" stock exchanges. This is just another example of how the gold role in the financial system is changing; it is becoming viewed as a safe asset class to hold as collateral. If implemented, financial firms trading in the OTC derivative market will be able to use gold as collateral for posting and meeting margin requirements.

The evidence is clear as day when you look at the facts. Gold is moving towards the financial system, not away from it. The bankers and regulators are now considering rule changes to introduce gold back into the financial system. If these proposals take effect in January 2013, the world will realize that gold is here to stay; maybe even MSM will warm up to the idea that gold is a safe asset to own. The only question is at what price gold will be trading at when all this happens.

Keep on reading @ tdvgoldentrader.com

Gold is a put option on politics

Posted: 25 Jul 2012 05:45 AM PDT

The Wall Street Journal began its 9 July 2012 article 'Libor and the Destruction of Trust' with these discouraging words: "That investors shouldn't trust the capital markets to ...
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