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Sunday, June 30, 2013
Mish's Global Economic Trend Analysis: FHA Swamped By Defaults; Congressional Report Shows FHA Could Suffer Losses as High as $115 Billion; Shut Down Fannie, Freddie, FHA
Mish's Global Economic Trend Analysis: FHA Swamped By Defaults; Congressional Report Shows FHA Could Suffer Losses as High as $115 Billion; Shut Down Fannie, Freddie, FHA
Conservatively-Speaking: A Conservative-Libertarian Blog on Today's Issues: This is to Honor "The Great Little Madison," Who Passed Away 177 Years Ago June 28,1836
Conservatively-Speaking: A Conservative-Libertarian Blog on Today's Issues: This is to Honor "The Great Little Madison," Who Passed Away 177 Years Ago June 28,1836
The Government’s Mass Spying Is An Affront To Democratic Values. Let’s Also Not Pretend It’s An Effective And Efficient Way Of Keeping Us Safe | Washington's Blog
The Government’s Mass Spying Is An Affront To Democratic Values. Let’s Also Not Pretend It’s An Effective And Efficient Way Of Keeping Us Safe | Washington's Blog
Friday, June 28, 2013
HE INTERNATIONAL FORECASTER
Saturday, June 15, 2013
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It is easier for a father to have children than for children to have a real father.
Pope John XXIII
Happy Father’s Day
James Corbett with Dr. Stan “The Turning Point Has Arrived”
Four Economic Collapse Scenarios (and How to Prepare for Them)
By James Corbett
Without a doubt one of the most frequently asked questions I hear from my readers and listeners is: “So when do you think the economic collapse will happen?” That question has a number of related follow ups, of course. Like: “When the collapse comes, what will I need to have?” and “Will my 401k be there when I retire?” and “How much of my money should be in x?” where x is alternately stocks, bonds, real estate, commodities, alternative currencies, survival goods, or, most often, precious metals.
Given that I have talked repeatedly and at great length about the mathematical certainty of the coming collapse, these types of questions are hardly surprising. I can certainly relate to the people who are motivated to ask about the collapse and how to prepare for it. After all, when you strip away all of the distractions from the market (the daily dips and spikes in individual stocks or indices, the movements in the dollar and the yen and the euro, the latest manufacturing data or doctored unemployment numbers or bond yield figures), what else is there really to concentrate on but the end point we all know is coming?
And we do know that it's coming. We all learn the simplest law of the universe before we're even old enough to read and write: whatever goes up must come down. So too is the simplest law of economics equally self-evident: illusory wealth will eventually disappear. And there is enough illusory wealth floating around the economy now to choke a camel. There's the $86 trillion (at least) in unfunded liabilities that the U.S. government is committed to over the next 75 years, a chain of debt slavery that is put around the noose of every boy and girl in America (and those yet to be born) from the very moment of their birth. Or the quadrillion dollar derivatives bubble that has been blown by the jackals of finance capitalism, a bubble that is so large, and the popping of which would be so utterly devestating (picture a thousand financial nuclear bombs exploding simultaneously across the globe and you might start to comprehend the danger), that they have now been officially declared above the law by no less than the Attorney General himself, lest their prosecution sets off the economic time bomb. And there's the fact that the monetary system itself requires almost every single new dollar entering the economy to be born in the form of debt paid back to the banksters themselves. Such a system cannot continue indefinitely.
So I can understand if people are surprised that my usual answer to their questions about the collapse is that there's no way to predict when such a collapse will take place or even what form it will take. There are literally millions of variables at play in the collapse scenario equation, and many of them depend not just on the underlying reality of the situation (the actual unemployment figure, for instance) but on the market's perception of that reality (the manipulated numbers given out by the Burea of Labor Statistics). In my experience, this is surprising to many people because they tend to believe there is only one possible form that an economic collapse might take place, and many believe that it will certainly take place within the next year or two.
But this is not necessarily so. In order to widen our perspective on that nebulous “economic collapse” term, why don't we take a look at just a few of the possible ways that a collapse might happen, and the ways that people can prepare for each of them individually.
Scenario 1: A Complete Systemic Collapse
This is the so-called Mad Max scenario and its by far the most common one that comes to mind when they hear the phrase “economic collapse.” Essentially, it involves a complete breakdown in economic transactions leading to a total dissolution of society. There are different ways that this could come about. Here's one possibility:
Japan announces an inability to sell its latest offering of government bonds, and the BOJ steps in to monetize the debt. This spooks investors and the Japanese bond market swings completely out of control. Japanese banks with heavy JGB exposure find themselves on the hook and institute an investor “bail-in” to stay afloat. Transactions are halted for customers of the affected banks in the world's third largest economy. This starts a wave of panic selling that spreads overnight from Japan to the US and Europe. The news renews worries over sovereign debt that causes sudden spikes in bond yields across the board, crashing Spain and Greece's ability to finance their debt. The ECB reacts by firing Draghi's bazooka, but it's too little too late to save the Euro. The contagion reaches the States where major investment banks with exposures in both Japan and Europe suddenly find their derivatives trades unwinding as counter-parties go bankrupt. The Fed tries an emergency injection of liquidity, but the markets tank anyway, wiping out billions in equity wealth and further panicking the markets. The central banks of the world attempt a coordinated stimulus to boost the markets, but by this time too many banks have gone under. Customers at banks around the world find they can't withdraw money from their accounts or make payments from them. The FDIC and its counterparts across the globe can't back up all of the obligations, and financial markets buckle completely. The economy as we know it has ceased to function.
Now obviously this scenario would not exactly unfold “overnight,” but we can imagine how it could all happen with surprising rapidity once the ball started rolling. As much as it sounds like something out of a Hollywood disaster flick, it's not outside of the realm of possibility; after all, this is essentially the type of nightmare scenario that Paulson, Bernanke, the Wall Street bigwigs and the banksters on the Federal Reserve board of governors threatened congress with in the wake of the Lehman Bros. collapse. At the very least the threat of such a collapse helped sell the $700 billion bailout (that later ran into the tens of trillions) to the public.
At the same time, I hope the reader can see that this is by no means the only way our current system might break down. After all, it relies on the complete and simultaneous meltdown of every failsafe and circuit-breaker in every market around the globe. It also posits that the market will have woken up to the central banks' phony baloney funny money tricks and fail to respond to the big proclamations and promises of the printing press, unlike every other stage of this crisis.
Even from the market realist position of someone who understands that the entire monetary system is a house of cards built out of illusion by the banksters, can we really believe that this is the scenario they want to bring about? The complete overnight collapse of civilization? The reduction of the population to roving bands of criminals and vigilantes? Do they really want to rule over a wasteland? I think not.
So, a total overnight collapse scenario: Possible? Certainly. Inevitable? Certainly not.
But if this is a possibility, what can be done to prepare for it? As you might have guessed, this is the scenario that the doomsday preppers have envisioned and that they will be best positioned to survive. If the entire system falls apart at once (banking, credit, money markets, bonds, stock market) then people are essentially left with whatever they physically have in their possession or what they're able to acquire. Many people have a few days' worth of food on hand in case of some sort of natural disaster, but how many are prepared for months or even years of living without electricity, without running water, without the ability to buy food at a supermarket? I'll leave this as a rhetorical question. What's more, while cash, stocks and bonds all become worthless in such a situation, it's by no means guaranteed that traditional stores of value like gold and other precious metals would fare any better. Given how detached modern western society has become from hard money, how likely is it that you'll find other people who even understand the value of your precious metals, let alone be willing or able to transact with them?
No, in this system the only things that will be guaranteed to still be valuable are land and whatever is sitting on it. This is why people are often encouraged to have an acre or two of land out in the countryside somewhere, well away from any urban population centers. Of course, all of that land and whatever food, water, and supplies you might have on it will be worthless if it is looted and pilfered by the desperate members of the public who suddenly find themselves unable to cope. In that regard, some guns and other items of self-defense might turn out to be your most valuable possessions overall.
This is what it boils down to for the total collapse scenario: guns, land, grub, shelter. The idea of “protecting your wealth” is almost meaningless in this case, as the sole purpose would be to protect your life.
But, luckily for all of us, as I mentioned earlier this is not the only (or even the most likely) scenario. So how else could an economic collapse play out?
Scenario 2: A hyperinflationary death spiral
This is the possibility that hard money proponents have been touting for years; namely, that the constant pumping in of Federal Reserve QE funny money into the system would spark a bout of hyperinflation. Think Weimar Republic and wheelbarrows full of money to buy a loaf of bread. So how could this play out?
The bond bubble pops. It was bound to happen eventually, but one day for some reason (no one is quite sure why) the markets fail to listen to Chairmen Ben and the Federal Reserve crew's latest pronouncement about easing, or the lack of easing, or the possibility of continuing easing, or the probability that easing might end some day in the future, or the likelihood that an end of easing won't come unless it does, or some such thing. Bond prices drop. Interest rates rise. They turn up the printing press in order to buy more bonds, but they suddenly can't print fast enough to keep the rates down. The new money floods the markets, but the economy doesn't grow. Suddenly the US (and, in short order, the rest of the world) is awash in dollars and has nothing to buy with them. People discover the real value of Federal Reserve Notes: they burn well in the winter. In the meantime, they discover that it's hard to stuff enough $100 bills in a wheelbarrow to buy a billion dollar loaf of bread.
This is another popular conception of what a crash would look like. On the surface it makes total sense. The Fed has more than tripled the monetary base since the 2007 crisis and their sure hasn't been a tripling of economic activity in that time. From econ 101 we know that an expanding money supply in the face of a stagnant economy means inflation. But we're not seeing inflation anywhere near the figures we should be...not even the real statistics (i.e. John Williams' statistics) show inflation reflective of such a rapid expansion of the monetary base. So where is all the money going?
At the moment, it's going into bonds. The Fed is currently engaged in two easing programs, one of which is purchasing long-term Treasuries to the tune of $45 billion a month. For those keeping track at home, that means the (privately owned) central bank of the US is outright monetizing half a trillion dollars of government debt a year in one purchasing program alone. This is part of what Andrew Haldane (the euphemistically-entitled “Director of Financial Stability” at the Bank of England) calls the biggest bond bubble in history. If you don't know what that means but you don't like the sound of it, don't worry; you're on the right track. Essentially it means that if and when the central banks of the world take their foot off the printing press gas (or even hint that they are going to do so), yields are going to start rising. Essentially, governments will have to pay more to finance their debts. Given that the entire Eurozone crisis is focused on the sovereign debt crisis and the knife-edge balance that is going on right now to stop bond yields from spinning out of control, the idea that the central bank gravy train could come to an end is a scary thought indeed for bond markets.
Long story short: if the central banks ever find that simply printing more dollars doesn't keep those rates low, the bond bubble could pop and yields could go through the roof, requiring more and more money to be pumped in to try to keep things in check. Theoretically, this could be your hyperinflationary kick-off...
So how can you position yourself for this scenario? Well, bonds are obviously not a good place to be if the bubble should pop. And it obviously wouldn't be good to have your life savings in cash stuffed under your mattress (or your bank) in a hyperinflationary wheelbarrow-full-of-paper-to-buy-a-postage-stamp scenario. If cash becomes toilet paper, there goes your life savings. But counter-intuitively, stocks are not necessarily a bad place to be during a hyperinflationary bout. In fact, various examples of hyperinflation from history, including Weimar Germany, showed that stocks can actually fare fairly well. A JP Morgan analysis indicates that the value of the Weimar stock market tripled in value (in US dollar terms) during Germany's hyperinflationary scare. Commodities are a fairly safe bet, as their prices will tend to track the inflation. But the hyperinflationary scenario is really the goldbug's heaven. If the dollar circles the drain this will be the prudent gold investor's chance to have the ultimate last laugh as gold prices go through the roof (measured in fiat, of course).
But some argue that the hyperinflation scenario isn't going to happen. They point out that the velocity of money (the measure of how quickly money is actually moving through the economy) is at its lowest value in over half a century. This means that whatever is happening to the money supply right now, it's not adding to inflation. After all, the Fed could print a trillion dollars a day, but if they just buried the money in the ground it would have no inflationary effect at all. So some are arguing that despite all the money printing that's going on, it's not a hyperinflationary nightmare that people have to watch out for, it's...
Scenario 3: The deflationary depression
This is a much less popular view among the economic realists who see the collapse coming, but no less of a potential nightmare if you're not positioned accordingly. And there is no question about whether such a scenario could come true. It already did. Just ask your grandparents.
Things continue pretty much as they are now. The governments run their printing presses, but that money doesn't make its way into the economy. Banks continue to park their reserves in central bank vaults rather than loan them out. People don't want to take out loans, anyway, as they struggle to dig their way out of all-time record household debt burdens. Economic activity continues contracting, retail sales continue dropping, people pinch their pennies and when they see the economy slowing down they start pinching even tighter. Businesses scale back, and layoffs start to add up until even the government bean counters can't hide it. The majority of the population is on food stamps, and less and less economic activity actually relies on increasingly scarce dollars. Instead, government handouts and/or private charity becomes the new currency. The 21st century equivalent of the Dirty Thirties is upon us.
If the hyperinflationary scenario seems intuitive at first glance, this one has to be counter-intuitive. After all, central banks are flooding the world in easy money. How can this possibly lead to a more scarce (and more valuable) dollar? Of course, the other half of the equation is what the public is doing, and for the last few years we've been in an overall deleveraging cycle as people struggle to pay down their debts. In the first quarter of this year household debt fell to 2006 levels.
But in an economy where money is debt, the extinguishing of debt is the extinguishing of money. Less debt, less money in circulation. The government can continue to inflate its bond bubble all day long (and feed into a new housing bubble while they're at it), but it's ultimately the banks and the people that decide if the economy is going to expand or contract...and the more people deleverage and the less they spend, the more the economy will contract.
So if we do enter a deflationary depression, who are the winners and losers? Well, unsurprisingly this is just about the mirror image of the hyperinflationary scenario. Goldbugs would be the big losers at first, as dollars become more scarce and thus rise in value, so would precious metals decline in value. But as the effects of the depression kick in and people struggle to meet debt obligations, currencies could collapse and precious metals could once again be a hedge of last resort. Stocks would plunge as businesses downsize and revenues dive. There would be an upside on bonds, but given that we're already in a bond bubble there isn't very much to that upside. Cash could actually be a safe place to have your money in a deflationary depression, assuming you're not holding one of the currencies that collapses.
This is a nightmare scenario for the average person as people struggle to find work and people hoard dollars rather than spend them into the economy, creating the vicious cycle of contraction. Hyperinflationists argue this is virtually impossible because central banks can always print as much money as they want to make sure the economy never ceases up completely, but deflationists argue that monetizing government debt (which central banks are “good” at) is a different kettle of fish from monetizing household and business debt, which runs into the tens of trillions. Essentially they argue that there's a point at which even central banks would blink at the prospect of straight-up monetizing all of that debt, and if so the deflation cycle kicks in. And we all know that the only way out of the Dirty Thirties was World War II...
Scenario Four: Expect the unexpected
Life's funny sometimes. You can spend all your time wargaming out every possible scenario and carefully thinking about the logical consequences of different events...but it still doesn't mean you'll be prepared for what actually happens. Imagine where you thought your life was going to be like in 2013 back in 2003. It probably didn't look anything like where you really are. Sometimes you just never know what will happen.
By some miracle, a researcher discovers an abundant source of clean, virtually limitless energy. Cold fusion or zero point energy or some such thing. By another miracle, they don't suffer an unfortunate “accident” before they can share their discovery with the world. The world economy is transformed overnight. All of that part of the economy that is geared toward finding, extracting and producing energy collapses. Limitless free energy transforms nations, enabling even the poorest countries access to technologies that their infrastructure could never have supported before. With free energy, humanity outgrows wars for resource control and squabbles over patches of land or lines on a map and begins to fulfill humanity's real destiny of populating the stars. A new era of human existence begins.
Alright, that is a fanciful scenario to say the least, but hopefully it gets the point across. Some random, completely unexpected event can come along and utterly change the course of human history. Or smaller game-changers can, at the very least, throw off calculations completely. Dire forecasts of dwindling oil and gas reserves in the past decade, for example, have been utterly thrown off by fracking and the shale gas revolution and the tar sands and other things that were not part of the old equations. Similarly, what if 3D Printing lives up to its promise and revolutionizes manufacturing as we know it? If 3D Printers become the norm and become adept at manufacturing useful everyday items, the transformation of the economy at large would be almost incalculable.
So what could we expect for different investment classes in such a scenario? Well, we couldn't expect anything, of course. That's the very point. If some game changer arrives that could transform or even abolish entire sectors, there is no way to prepare for such a thing. In effect, it's luck of the draw whether cash, stocks, bonds, land, precious metals or commodities would surge, plummet or be rendered irrelevant.
In conclusion, it's always good to keep in mind that there is more than one way to skin a cat and there's more than one way for an economy to collapse. If we end up in a Mad Max scenario that would look quite different to a deflationary depression, even if certain factors look similar in both cases.
This is the very reason why any investment advisor (of which I am not one) will tell you to diversify your portfolio. You never want all of your eggs in one basket because if you bet the farm on the stock market and stocks plunge, you've lost it all.
What percentages you want to invest in what asset classes will depend on all sorts of variables, of course, from how much you have to invest, to your risk appetite, to what future economic scenario you think is most likely. For the ultimate in stability, Libertarian writer Harry Browne advocated a portfolio consisting of 25% long term bonds, 25% cash, 25% stocks and 25% gold. That way, there is not a single one of these collapse scenarios where you would lose it all. The downside, of course, is that there is no scenario where you win across the board, either.
Such a strategy may or may not be for you, but regardless of what you choose, be sure to think carefully about what you are looking for and what you think is the most likely collapse scenario.
America Waking Up Part 1
By Bob Rinear
The true visionaries of the world such as our Late beloved Bob Chapman and a very select handful of others have had to endure all manner of snickering abuse over the years as most of the things they had to say were considered “conspiracy nut” absurdities by the main stream. While I’ll never profess to be in the same league as Bob and some others, I too have endured my share of being the butt of jokes about “tin foil hats”, Conspiracy gone wild, and Lord knows what else.
But one thing about us supposed conspiracy nuts is that today’s “nut” is usually tomorrows’ news. When I suggested that gold would hit 1000 dollars to the ounce “within ten years” I penned that in 2001. I was “nuts’ I was a loon. Yet gold most certainly did just what we figured it would do. Likewise all the jabs we got when we predicted we’d go into Iraq, or the housing bubble, or the housing crash, or the credit crash. One time in 2000 we said that if we go by “fundamentals” the Bank of America should be bankrupt and go out of business within 5 years. It too was obviously the ranting of a lunatic. Yet in early 2008, we lost Lehmans, and 5 of the other majors were indeed fundamentally bankrupt. We missed by a few years, but you get the idea.
So I have to say that I’m not “above” having a small self indulgent grin on my face as day after day the public is learning that the things we’ve said that are going on in the dark shadows behind the curtain, isn’t some fodder for late night TV, it is as real as rain. For instance on Thursday morning CNBC had its paid actors act “completely surprised” that for a special fee some of the high frequency trading desks get economic information released to them ahead of the public outlets. The acting was sub par at best as they all feigned shock and surprise that this practice was going on.
So now John Q Public is catching on to the fact that “yes Toto we aren’t in Kansas any more.” People are just finding out through the main stream that the big time money folks are hyper trading on information that we are not able to see at the same time. “But this doesn’t sound fair” said one of the paid actors…to which the chorus chanted “no, it doesn’t!” and on and on. It was grand Theatre. But again, it is just to show the public that they aren’t responsible for knowing that “things like this go on every day”. (They do)
Oh Please, spare me the drama.
The public is also finding it a bit scary that the NSA is privy to every single thing you ever do. While we told you over and over about their covert spying on folks, no one paid attention. We were just whacko conspiracy nuts. But now it’s on main stream TV. Ghee, maybe Bob wasn’t nuts after all? How about the reporters getting snooped on? That’s really a thorn in their side. As you all know the media is part and parcel of the Obama/Left regime. So they took it very hard that their own savior and Master had taken it upon himself to spy into the reporters logs. They bit the hand that feeds them.
The IRS scandal finally has Mr. Public understanding what we’ve been saying for years on end. They use Government tools to punish anyone that says things that goes against the State. Their budget is limitless. If they want to target you or your organization, you are quickly out of money because of paying high priced lawyers to defend yourself and you have to fold. They never have to fold, their supply is limitless. So, they can beat up and crush anyone that goes against their particular agenda. Well it seems that the public is finally waking up to the reality that we are no longer the United States of America. We are the Soviet Union of the 60’s.
The only question is this…is America going to have a flashback to the days when it was truly a free country and the people were brave enough to stand up and demand change? Or will Football, American Idol, the Kardashians and the other Hollywood drama junk just absorb them all again, and they go back to being the same brain-dead zombies they were before? Well, time will tell but frankly I don’t have too much faith. Don’t forget it was just 8 short months ago that these same people that say they are so “outraged” by what’s going on…. voted back in power the very administration that is doing all this.
Maybe I should think that “hey, better late than never” but if you were so shallow of thought just 8 months ago, that you thought Obama and his gang of thieves were doing well enough to stay in power, I don’t know that I have much hope for a true reversal of attitude. No one, not even the media cared when we explained what “Fast and Furious” was all about and how it was an “end around” to abolish guns here. No one but a select few were calling for Holder to step down. The public went along like brainwashed sheep.
But I did see a Ray of hope and I’m going to end this on an interesting note. I’m not sure how many of you are aware of the fact that during Hurricane Sandy, I lost my home. I have lived on and around the Jersey shore most of my life, being born there. Although I moved to Florida in 2006 to be closer to some aging parents, we kept our “shore house”. Well, Sandy took care of that. I was damaged beyond repair. So, this week my younger son and I drove back up here to NJ, to go about the business of trying to figure out our next step.
Well, where we’re staying for the time being is hard to describe. I own a permanent RV trailer that resides in a campground about 2 miles inland from where our house was. It’s really quite nice, as it is connected to water and sewer, it has two bedrooms, a full bath, even a 10 by 30 4 season room. All in all, it isn’t “roughing it” by any means. But it has shortcomings. In any event, I stopped into a Kmart to pick up some cleaning supplies Sunday, and when checking out…. the people ahead of me put their stuff on the cashier counter and the cashier said “can I have your phone number please?” Well, the woman replied “no, I see what’s going on now. You guys can track my purchases by matching my phone number with the items. You can share that data with everyone else. No thanks, I’m not doing any of that any more”
She had seen the light. A bit late? You bet. Will she stick to it? Who knows, but at least it’s a shimmer of light in the darkness. A person, who formerly just went with the flow, stood up and said “wait a minute I see what’s going on here”. Wow. Someone woke up. I desperately pray millions more do, and hopefully we can put an end to the big brother socialist agenda our Government is hell bent on giving us. If it starts with one woman at a silly Kmart, hey…I’ll take it.
America Waking Up part II
Moving along on our theme that what you read in these letters is not conspiracy nut babble, but simply news and information that the main stream is not allowed to reveal to you, it is finally dawning on folks that we weren’t crazy when we said that the only reason this market has gone from 6600 to flirting with the 15,000 level is simply because of Bernanke’s printing presses.
I can’t imagine how, but people actually believed that the economy was recovering and that is why the stock market was doing so well. No matter how hard we’d try and explain what was truly taking place, we’d get mail telling us we were wrong. But now, seeing as though we’re working on almost 6 years since they had to bail out the banks and revert to all manner of stimulus, the media has finally had to admit that “yes, the stock market is all about the Fed policy, not the economy”.
I’m glad they woke up.
But once again, the media has only done its mea culpa because it ran out of excuses and ways to explain the dichotomy. It takes a lot of metal effort to try and explain to people that despite overwhelming unemployment and falling corporate profits and all the manipulations and frauds that the market was going up because of “the recovery”. They have finally run out of make believe excuses. Now they just admit that most of the “recovery” is nothing more than Central banks around the world printing money like madmen.
What interests me however is that just like the citizens that can still process thought have come to realize that a whole lot of dark nasty things are being done by this administration, they’ve also started to wake up to the idea that this whole rally is fake. Again I congratulate them for finally waking up.
But here is where the deep confusion will set in. They are finally starting to believe that this is fake and will end at some point. When it does, it probably won’t be pretty. But they don’t know what to do about it. I understand their frustration. Just when they started believing that maybe gold and silver were the right things to buy to “get through” all this, the Central planners attacked the metals, sending them down hard and scaring people away from them.
It is going to take a strong leap of faith for those who are just waking up to the economic disaster the world truly faces to continue to believe in gold and silver. And guess what? This is NOT by accident. Central bankers have done every single thing in their power to keep people from saving, and to keep people from buying precious metals. They’ve been ruthless about it.
But the facts are still facts. While they beat the metals down in the paper futures markets, the demand for the metal is still rising. All around the globe people are paying fantastic premiums “over” the stated price of gold. In other words, suppose you look at a daily quote and see gold at 1375 the ounce. If you go to buy a coin or what have you, you know you’re going to pay more for it, because of minting the coin, the dealer mark ups, etc. it is called a premium and usually they can run 2 – 5%. Ha. Not now. In Asia they’re paying 7, 8, I’ve even seen 9.5% premiums.
Which begs the question, what IS the price of gold? Don’t laugh, it’s not meant to be funny. If my Bloomberg terminal says 1375, but I have to pay 1475 in Asia to buy it (7% premium) then just what does the 1375 mean??? It means nothing. It is a Central bank rigged game to place the so-called price where they want it.
Demand is strong. Prices are weak. At the rate we’re going, available gold stores will be “out” of deliverable gold in the not too distant future. What happens then? There’s no doubt that gold have been flowing from West to East. China’s loading up. The way they are artificially suppressing the price is by naked shorting the futures, and by physically flooding the market with bullion. But again I ask, what happens whey they can’t do that?
At some point the paper prices will become irrelevant. The price has already disconnected from what they “say” the price is, to what you have to pay for it. That spread will widen and it is my guess that a new index of gold pricing will appear. The “real” price, not some central bank driven baloney posted by insider traders in London. What happens then?
Here’s my point. If folks can finally wake up and understand that we’re not nuts, we’re not looking for aliens and don’t’ get signals in our tin foil hats concerning what Uncle Sam is doing behind the curtain, maybe, just maybe they can wake up to the fact that the metals have been smashed ON PURPOSE to keep them from buying it. Maybe, just maybe they will understand what they are doing and realize that it is all a scam.
I’d like to think so. Better late than never.
Awaken the sheeple, NSA and their nefarious cohorts continues to be exposed! Orwellian world is already here and expanding daily! London Protests against G8 meeting last week with establishment Goons overacting again! Protests season is upon us, too many unemployed angry youth with alot of time of their hands! Even I was surprised of the 10 000 Chinese in one queue to by gold last week which appeared on Zerohedge.com! Now the NWO puppet Obama with DICK Cheney wants to go to war in Syria, playing the war card again like in Iraq and Libya with Stooge David Cameron following sheepishly and French Hollande making up the rear end!
Thursday, June 27, 2013
Wednesday, June 26, 2013
THE INTERNATIONAL FORECASTER
Wednesday, June 26, 2013
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James Corbett with Dr. Stan “Radio Liberty: FOMC Fallout”
Is the Asian Collapse Beginning?
By James Corbett
Big things are afoot in Asia this week, and unfortunately they are not good things. A credit crunch and liquidity crisis in China's money markets came to a head this week as China's Shanghai Composite suffered its worst two days since 2009. In fact, the crash was even worse early Tuesday morning when the Chinese index was down 5.8% on the day, making for a 2-day 10% crash, but markets rallied after a rumor circulated that the PBOC was going to step in directly. By the end of the day, China's central bank had promised a much needed liquidity injection into Chinese money markets that were fast seizing up. To top it all off, some of the country's largest banks have been experiencing “outages” this week, with some customers unable to withdraw money from ATMs or even transfer funds. So what's going on?
The standard explanation so far has been that the Chinese government is attempting to rein in a problem that it helped to create in 2008-2009 when it unveiled a stimulus that led to a credit boom. That boom is responsible for much of China's economic expansion over the past few years, but this unsustainable credit-fueled boom has to come to an end soon, and a growing chorus of analysts have been calling for the PBOC to dial down its easy money injections. Now China is signaling their intention to take away the punch bowl and over the past week the PBOC turned off the cheap money spigot that was fueling the credit boom. Interbank lending rates spiked immediately (as high as 25%), and the threat of a complete breakdown of the money markets became a very real possibility.
But some are now pointing to an even more worrying explanation for the current crisis. China now offers the world's leading (volatility-adjusted) FX carry, meaning a steady flow of funds into the country has built up to take advantage of the carry trade. As US rates rise in the wake of last week's FOMC meeting however, and as China tries to shore up its economy by drying up some of the easy credit, that carry trade may be in the process of unwinding. If that is indeed the case, this could be the start of a major disaster, as liquidity in Chinese money markets relies heavily on dollars flowing into the system. If and when the dollars reverse and start leaving the system, money markets dry up and we see something very much like what we've seen in the past few days.
Whatever the case, the PBOC's announcement seems to have broken the circuit and reassured markets (for now) that there will be liquidity injections as needed to stabilize the markets. But we caught a glimpse of the effects that such volatility in the world's second largest economy are likely to have on the rest of the world in the future. Japan's Nikkei 225 lost 450 points in intraday trading at the same time as the Shanghai Composite plummeted, and Korea's Kopse dropped 1%. When the rumour spread early Tuesday that the PBOC was going to step in to stop the carnage, US equity markets responded more strongly than the Chinese markets.
All of this just serves as more proof, if any were needed, that in the increasingly global economy, the world will catch a cold when China sneezes. And given the dismal performance of the Chinese economy of late, that's not good news for anyone.
Is QE Ending?
By Bob Rinear
You all know what happened. During a question and answer period a week ago, Bernanke hinted that he wouldn’t mind seeing QE start to taper off later in the year and maybe end in 2014. While he didn’t make a single actual move, the markets all around the world reacted violently. On just Wednesday and Thursday alone, we lost almost 6oo points. Then on this past Monday we opened ugly and within an hour were down another 240. While Monday’s sell off was in response to some ugly noise out of China, we must face the facts. The entire market has been built on Bernanke’s easy money. Just the thought of him pulling it back sends shock waves of terror across the land.
But it is real? I mentioned the other day that I personally do NOT believe QE will end. If just the mere mention of it ending tosses the market around for hundreds of points, and pushes bond yields up so fast we’ve really never seen it before, what happens if they really did end it? The results would be catastrophic. But you have to understand why. The stock market falling for thousands of points is just one aspect of a ripple effect that would turn into tsunami’s crashing into the global markets.
I’m going to say something that is ugly and politically incorrect. But it is indeed fact. For the most part the American public is brainless as a baseball when it comes to what is really going on. I know that’s pretty rough, and I don’t say it to be mean. But consider this. Do you know why they like to boost stocks and housing? It is called the “wealth effect”. When people see their 401k’s rise and the supposed value of their homes rise, they feel better. It’s all about the feelings folks. When they “feel” better they don’t mind spending more money. Does it matter that they shouldn’t’ be spending? Nope. Does it matter that the wealth effect they’re reacting to was artificially stimulated? Nope. Like Pablo’s dogs… when the bell rings, they run out and buy things they don’t need with money they don’t have. They used credit. I’m sorry but that’s just stupid.
So, the spinner heads at the Central banks got together and in dark rooms like an old gangster meeting they lay out a plan. It goes sort of like this…. “Hey fellas, we have a lousy economy. We need to get people spending so maybe companies will make things again. If we can get folks to open their wallets and create some demand, maybe we can keep out of a depression.” So what do they do? They push the buttons and pull the levers that will create a rise in stocks and housing. Sure enough for the most part it worked. The simpletons that listen to their 6 pm newscasts heard daily about how the economy is roaring and stocks are proving it. Housing was recovering they said (over and over and over) so they broke out the credit cards. They ran out and bought cars. “Hey we can afford it, the stock market’s at an all time high!”.
But there’s a few fly’s in the ointment. Since it was simply the Fed money that allowed stocks to rise and housing to stop crashing, with companies now going on year 6 without expanding or growing or hiring…nothing would or will take the place of all those Fed billions if they stop. Thus, the wealth effect dies on the vine, people stop spending again and the gears jam up. If that however was the only ill effect, we’d be okay. People should stop spending in the first place. Unfortunately, losing the wealth effect spending is just one part of a multi pronged fork. There are many other things that we need to consider.
Most fail to grasp the degree to which the "recovery" will stall without the $85 billion per month that the Fed is currently pumping into the economy. Like Peter Schiff said, although Bernanke dodged the question in his press conference, the Fed has broken the normal market for mortgage-backed securities. While it's true that the Fed only owns 14% of all outstanding MBS (the "small fraction" he referred to in the press conference), it is by far the largest purchaser of newly issued mortgage debt. What would happen to the market if the Fed were no longer buying? There are no longer enough private buyers to soak up the issuance. Those who do remain would certainly expect higher yields if the option of selling to the Fed was no longer on the table. Put bluntly, the Fed is the market right now and has been for years.
Interest rates are already rising rapidly based simply on the expectation of tapering. Imagine how high rates would go if the Fed actually tried to sell some of the mortgages it already owns. But the fact is the mere anticipation of such an event has already sent mortgage rates north of 4%, and without a lifeline from the Fed in the form of more QE, those rates will soon exceed 5%. This increase will greatly impact the housing market. Speculative buyers who have lifted the market will become sellers. More foreclosure will hit the market, just as higher home prices and mortgage rates price any remaining legitimate buyers out of the market. Housing prices will fall to new post bubble lows, sinking the phony recovery in the process. The wealth effect will work in reverse: spending and confidence will fall, unemployment will rise, and we will be back in recession even before the Fed begins to taper.
Then of course we have the issue of Treasury debt itself. Bernanke and the Fed heads have told us over and over they’re really not monetizing all that stuff (wink, nod) yet clearly he’s been the buyer of about 70% of ALL Treasuries for a few years now. Why is the Fed buying all the treasuries? Because no one else wants them. Seriously. So, if he were to end all that buying, what would have to happen? Well to get folks to buy them, the yields (interest rates) would have to soar. Well guess what? They’ve soared just on the hint of tapering QE, let alone ending it. The 10-year has jumped from 1.6 to 2.6 in just a few weeks. That’s the fastest jump in 50 years. On a rumor of a taper!
Okay, so what? No so what. If he isn’t buying those 70% of issuance, then they have to try and sell them on the open market. Let’s Call Russia and China and Japan and see what they’ll need to buy up hundreds of billions in Treasury debt. I’m thinking 5, 6% minimum. But of course if rates go to 6% to lure Treasury buyers, companies aren’t going to finance buy backs. Or plant expansions. Or hiring programs. Housing will retreat again. Foreclosures will rise again.
Unfortunately there’s still more. Remember those nagging words “budget deficit?” Well if we’re spending a huge amount each year to service our debts in a “zero interest rate policy” world, how are we going to service them in a more natural order of rates? Our national debt and our deficits per year will soar once again. Can we afford that? Is our tax base growing? Of course not. The only thing growing is permanent disability and food stamps.
So as you can see, the Fed has built an economy based on the Fed. Without their billions, we implode. We crash. We endure giant economic pain. While that is what SHOULD happen, to clear out the whole system and rebuild it correctly, are they really going to let that happen? Remember what I said about Bernanke and his “teaching”. He said over and over that he worked on the Great Depression as his life study. He said he could fix anything like that from ever happening again. Yet if he stops his printing policy, we roll over into a dark depression. Is he willing to be proven wrong and he didn’t have the right medicine to prevent a melt down?? Not likely.
I say this. He talks about tapering. He continues to tell us that they see growth, but it’s just missing the mark. He tells us he wants to taper and cut it completely, but we’re just shy of being there. Over and over he jawbones it. Yet in the end, it doesn’t go away. The only logical way I could see a taper is what I said a few weeks back. Maybe he cuts back from 85 billion to 65 billion at the year end. Then in January he is replaced as he steps down and the new Fed head reacts by jamming even MORE QE in the system. That way the new guy gets to look like a hero right off the bat. I could indeed see that. But to end QE? Not a chance.
Oh and by the way, this monetary experiment in fiat silliness of course hasn’t been confined to the US. China is coming a bit cleaner lately about their policy and basically said that they had misallocated too much money. What they mean is that they too blew a big economic bubble and it isn’t going well. China is on the verge of a “Lehman’s” moment as its shadow banking system implodes. China had pumped roughly $1.6 trillion in new credit (that’s about 21% of GDP) into its economy in the last two quarters… and China GDP growth is in fact slowing. Imagine that.
But here’s where I think it really gets sort of Twilight zone. If I’m right, they’ll talk of taper. They might even give us a couple months of say 65 billion instead of 85 billion. The markets will try and fend it off, an act brave but we’ll be weak. Then the new guy steps into the Fed chairman’s slot and increases QE by MORE than 85 billion. Yet the reaction will be a bit different that time. By then everyone and his brother will be aware that the only reason they’re in stocks at all is because of Fed money, and the stock market won’t run as wild as it did. It might jump big at first, and then maintain a level, but no crazy 3K-point runs. It is at that point where the final chapter might be written and we crash into chaos.
Chaos is coming. It’s coming if the Fed really did quit QE and it’s coming if they don’t and we run over the financial cliff. I’m just thinking that it is in their best interest to run the QE programs and hope beyond hope that one day something good comes of it all. Otherwise, Bernanke is proved to be yet another Keynes fool, and his entire reputation ruined. He’s had 6 years already. He knows he better abandon ship while he can still go to cocktail parties. Let someone else mop up the mess. Oh, and what a mess we’re in for. Stay safe.
Awaken the sheeple, Chinese banking crisis unfolding, there were those who thought last year that China helps the world out of the economic void we stuck int, even Germany is slowing down, Italy needs another elections and Berlusconi will appeal his 7 year sentence, Greece troubles has made headlines again for the umpteenth time! Summer of Rage is here! Brazil and Turkey protests continues, middle east conflicts expanding with CIA and it' nefarious cohorts supplying more heavy weapons to extremists including al-quada which even makes most Muslims fearful, a huge spike in deaths in the conflict immanent, things will just get worse next year! More austerity measures in the U.K. will continue unabated! Precious metals is falling due to liquidation from the paper markets of GLD and SLV etc. with government manipulation which has become increasing brazen in recent months! A sense of desperation! A good link in the Int. Forcaster about what who is who in the Syrian conflict! Precious metals will go down further in the short term, coming in the last financial quarter it will rebound for higher prices, this will set up higher prices in 2014! Most likely making higher prices with the Commercial banks going long on precious metals!
Tuesday, June 25, 2013
THE INTERNATIONAL FORECASTER
Saturday, June 22, 2013
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James Corbett with Dr. Stan “Bond Bubble Set to Burst”
Like a Junkie Without a Fix: World Markets Update
By James Corbett
All hell broke loose on the markets this Wednesday. A sell-off worked its way through the system, spurring on major losses in every major investment class, from equities to bonds to commodities. The S&P marked its biggest drop in over 18 months. A bond market sell-off led to ETF losses that were “far beyond what the most sophisticated financial risk models could have predicated for worst-case scenarios” according to one industry insider. Precious metals took a dive, with gold shedding nearly $100 to fall to 30-month lows. Crude oil prices fell over 3%.
So what caused all of this mayhem? Why, the Federal Reserve, of course. More specifically the Federal Open Market Committee, the committee that oversees the Fed's sales and purchases of treasuries. They holed up for their quarterly meeting earlier this week, and, as expected, all eyes were on their decision regarding the Fed's bond buying programs.
For those keeping a casual eye on these matters, there was no sign of what was to come from the FOMC's spectacularly bland press release as their meeting wrapped up on Wednesday: “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.” In other words, they are not changing anything at all right now. QE3/QE Infinity, involving the monthly purchase of $40 billion of MBS and $45 billion of long-term treasuries, is continuing exactly as before.
No, the action was to be found in Chairman Bernanke's post-meeting press conference. Here he laid out for the first time details of how the Fed envisions an end to its ongoing 85 billion dollar per month easing operations. The Fed could start cutting back on purchases later this year, with an end to the program coming as early as the middle of next year. He went to great lengths to stress that the pace of these cutbacks was all data-dependent, hinging on seven percent unemployment, or positive payroll reports, or the birth of a two-headed pig under a full moon, or whatever else goes in to the witches' brew that is the Fed's economic “calculations.” But this was all the markets needed to hear.
Less long-term treasury purchases from the Fed puts upward pressure on bond yields. It puts downward pressure on inflation, with the implication that the monetary base will not expand so quickly without Fed support. This puts downward pressure on stocks, which have been one of the main beneficiaries of the easing programs. And attendant on the rise in stocks since easing began in 2009 has been a rise in consumer spending, which is also threatened by the tapering. Commodities? Yes, they too are sent tumbling by the prospect of losing the Fed funny money trough. The strengthening dollar eats away at commodity value (as measured in dollars). And so we have something that shouldn't be possible in almost any other situation expect a systemic economic collapse: an immediate plunge across the board, wiping out much of the last year or two of gains for investors in all asset classes.
Which begs the question: is the end of QE equivalent to a systemic collapse? Well, yes and no. “Yes” in the sense that the “system” in question is the new normal that has been established by QE itself. In essence, the expectation of easy money that the QE program established has blown a bubble across the board, and the ending of the QE madness is the popping of that bubble. Popped, too, is the irrational exuberance (to borrow a phrase) of the stock market that saw the S&P balloon from its post-Lehman low of 666 (coincidence, surely) to its all-time high of 1669. The market bulls insisted that this run-up was all due to strong fundamentals and had nothing to do with the Fed's QE punch bowl. Well, the announcement of the taper certainly proved them wrong (although there are still Fed stooges who are arguing that this week's events somehow prove that QE has been successful).
So where are we heading from here? Once again, the answer to that question (and the life of the markets generally) rest in the hands of Bernanke and his crew on the FOMC. Everyone will now be waiting with baited breath for their next meeting in September to see if they go ahead with the taper, and if so, how much. Until then, markets adjust to the idea that QE Infinity may not be infinite in the exact same way a heroin junkie might come to terms with the thought that their heroin supply will one day run out. Even if that day is not tomorrow, just the thought that such a day will come will be enough to give the market the shakes.
As for precious metals, the gold sell-off didn't last long. After breaking through supports to land as low as $1270 an ounce in overnight trading, demand from (you guessed it) China propelled markets upward throughout the day on Thursday. In fact, buying interest was overwhelming as bargain hunters and physical buyers joined in with traders in what was recognized seemingly across the board as a good buying opportunity. A new technical support level of $1250 and resistance level of $1338 has been established in the near-term charts.
Elsewhere, the ripples from the Bernanke taper continue to spread around the globe. Asian markets tumbled on the US sell-off, with both the Shanghai Composite and the Hang Seng reaching 2% intra-day losses before making a partial recovery on unrelated “good” news that the Shanghai inter-bank money-market rates had fallen from their record highs the previous day. The Australian S&P and the Kopsi both fell as well, tracking their American counterparts. The only bright spot in Asia came, paradoxically, from Japan, where the Nikkei made modest gains after a morning sell-off.
Meanwhile, across the pond in the other direction the BoE continues to demonstrate the famed British reserve when it comes to the stimulus bandwagon. The UK just avoided a triple-dip recession and inflation is accelerating, meaning that the BoE's Monetary Policy Committee (the FOMC equivalent in jolly old England) is reluctant to increase stimulus. The recently released MPC meeting minutes for June show that outgoing BoE governor Mervyn King was voted down for the 5th consecutive month in his quest to raise the current 375 million pound asset purchase target to a cool 400 mil. This was King's last meeting as governor, however, as Canadian (and ex-Goldmanite) Mark Carney prepares to take the reins of the Bank of England next month. Carney is perceived to be even more pro-stimulus than King, but it remains to be seen whether he'll have any more luck than his predecessor in convincing the MPC to boost stimulus spending. As it is, the pound is set to back off from the four month high it set against the dollar earlier this month on a range of technical data, making it even less likely that the MPC will want to engage in currency-debasing stimulus.
All of this gloomy data has of course reignited concerns about the European crisis which it turns out (to the surprise of no one reading this newsletter and everyone who believes the talking heads on TV) never really went away. The latest sign to emerge: cross-border interbank loans within the currency bloc are back down to all-time lows, at about 22.5% of all interbank lending, down from 34.5% pre-Lehman. Essentially, banks are afraid to lend to other Eurozone banks outside their own country. It doesn't take a genius to figure out why this would be, especially after the fiasco in Cyprus earlier this year. Nor does it take a genius to recognize that this is just another sign that the dissolution of the Eurozone is at this point only a question of timing. There is no common culture, no common market, no common monetary policy, no common interest and the common currency apparently has borders after all, at least as far as banks lending to other banks is concerned. At the very least, this just further illustrates the two-tier Europe that has always existed: consumer and business loans cost half as much in the north as they do in the south. The single currency has already failed in principal, despite whatever brave face they are putting on in the recent EU Finance Minister's meeting.
In Argentina, meanwhile, the drama over the country's 2001 foreign debt default has taken some bizarre turns. A group calling itself the “American Task Force Argentina” (co-chaired by Robert Shapiro, no less), has taken out an attack ad in Politico accusing Argentina of allowing global drug trafficking to fluorish. ATFA couldn't care less about drug trafficking, of course, but they do care about the incredible payoffs that will be available for bondholders if the country is forced to pay off foreign debt holders in full. For those who are joining the story mid-stream, Argentina swapped out defaulted bonds for new ones worth only 35% of the originals as part of their 2001 default. Those bondholders that didn't take the buyout (mostly vulture capitalists who bought the debt up after the default) have been in a protracted legal battle ever since to extract the full bond value. The stakes are huge: one investment fund that paid $50 million for the defaulted bonds stand to make a cool billion should the case succeed. Hence the attack ads about global drug trafficking and accusations that President Kirchner has been a little too cozy with Iran. Argentina for its part fired back with ads of its own in both Politico and the Washington Post decrying ATFA of being a front for “sovereign debt profiteers.” The legal case that will decide the fate of the bonds continues in a New York federal court.
Rates, Gold and Trouble
By Bob Rinear
I’d venture to say that just about everyone knows what happened on Wednesday. Without actually saying it, Bernanke hinted that he would like to see a tapering off the QE gas pedal by late this year. That caused all the fuss in the markets on Wednesday and Thursday.
Since MOST Americans don’t hold any gold or silver, but they might have stocks in their 401K’s, they sat there dumbfounded as the stock market fell 500+ points in two days. In fact I got an email from someone that summed it up quite nicely. “ It would seem that if the market fell 440 points in two days over mention of tapering, I believe your are right and when they actually do it we’ll have hell to pay”.
But if you paid attention, it wasn’t just stocks that were getting upended. Gold, silver, Copper, lumber, bonds, swaps you name it was getting hit. While most think only about their stock holdings, not many understand the unwinding of an out of control policy of trying to keep interest rates at 0 for too long. It isn’t pretty and will cause issues most don’t understand yet.
This could easily become truly catastrophic. The world is in a massive debt bubble and the Central banks are now officially losing control. The stage is now set for a possible collapse that dwarfs 2008. Now don’t get me wrong. I’m not telling you to dig a bunker and jump in with a year worth of food. What I’m saying is that all the pieces are coming together to form a picture… and the picture is very ugly if things don’t go slow. Speed is the real issue. If the wheels come off a little at a time, as has been the case in Europe, they will continue to plug the holes with more cash printed in a vacuum. They’ll kick the can down the road. But, if a chain reaction were to occur, where derivatives start to default left and right, that could freeze up the whole works. Again the speed is key.
I’m on record saying the Fed won’t stop printing. Do I still believe that? Yes. All along this rocky road there’s only been two choices. He either continues to print and “inflate” away our debts, or he stops and the economy goes from this deep recession into a depression. That’s it. The only two choices he’s got. Take the pain, allow business to fail, allow banks to go belly up, endure a year or two of horrible economic pain…or print money to keep the wheels turning. I elect to choose that he will print.
The only logical way of explaining a tapering of QE is if because Bernanke wants to step down in January, so he cuts a bit of stimulus on his watch, then the new Fed head that replaces him can make a “bold” determination that we are just too early for less stimulus and jack it back up. ( or even higher) That’s it. Why do I think he won’t just stop the printing? His entire career was based on supposedly knowing what the Central bank did wrong during the great depression. He told anyone that would listen that he had tricks and gimmicks and could solve any depression. He taught about it in colleges. He would look mighty mighty bad if he quit printing and the economy imploded on him. The show must go on.
Similarly, his replacement isn’t going to want a world depression on his or her watch. So, the only way they know to ward that off is to print more and more. Thus, it is my opinion that talk is cheap, but a year from now QE of some form will not only be in place, it will probably be bigger than it is now.
Which makes things even more bizarre. Look at what happened to Gold this week. On Thursday alone it was down 90 bucks the ounce. Yet once again people were clamoring for it. Physical gold sales once again boomed. Now, we’ve talked about the idea that the Central banks want people pushed out of gold and silver. This isn’t’ a joke, you don’t naked short the paper gold market time after time, pounding it lower because it’s the fun thing to do. No, you do that when you have an agenda. So, what is the agenda?
Gold is migrating from West to East. Places like China have been around a long long time. They have many thousands of years experience seeing what different dynasties have done with “money” and also know that gold got them through it all. China wants all the gold it can get, as it is of my opinion that they want the Yuan to be part of the global reserve and they want to back it with some percent of gold. But that has created a problem for the European central banks. They want gold too. So, how are they going to get it?
We know Central banks have been buying gold this year. Actually they’ve been quite aggressive about it. But there’s only “so much” that they can lay their hands on. While I don’t totally believe the estimates, but it is said that all the gold ever mined would fit in my back yard. Maybe, maybe not. What I do know is that there isn’t a whole lot of it out there. Now, if you’re a Central banker and you’re trying to get more gold in your vaults but it is expensive and there’s not much around… what do you do? You get together and pound it. Drive the paper price lower. Drive folks out of it. Show them it’s junk and they should buy currency and stocks.
Along with attacking the prices, if you pay attention you see they’re doing things in the background that get me having flashbacks from the 30’s where the US confiscated everyone’s gold. Many don’t know that FedEx has stopped delivering precious metals to individuals in the UK and Germany. On May 23, France passed a law saying their postal can no longer deliver gold to the public. Over in India, their Government is trying to find ways to push people away from gold. Little by little they’re doing their best to discredit it, and make it harder to obtain. The CME just hiked margin requirements on Gold by a whopping 25%. Again this isn’t by accident. They don’t want “people” buying gold; they want it all for themselves.
So, where are we? We’ve got Bernanke winking and nodding that QE is going to start to taper. The market has panicked. Gold and silver were sold off in the upside down belief that there won’t be so much Fed inspired inflation floating around. Interest rates are soaring. From just 3.5% a couple weeks back, most mortgages were pricing at 4.12% by Thursday morning. Everywhere we look we see trouble. They’re trying to tell us that the economy is going to roar on the back of housing. Well this latest little increase in interest rates is bad enough that depending on the house you buy, could mean 200 – 300 dollars more per month. Who’s going to be credit worthy enough and job secure enough to buy them? Who’s got the cash? Housing will die on the vine
If indeed the Fed was to stop QE, who would buy the treasuries that Japan and China don’t want any more? At what interest rate would they have to pay to lure in buyers? We’d look like a 3rd world nation. Is this where we start hearing about a “new Government program” to make you buy bonds in your retirement fund, like they are making us buy Obama care?? Do not laugh, that day is coming. They’ve laid the groundwork for it.
Here, just consider this for a minute. You all know how CNBC and their ilk have been touting all the stock buy backs announced lately? They tell us how incredibly bullish it is and blah blah blah. What they always seem to forget is to tell you “how” they’re doing those buy backs. See, they don’t take company cash and go out in the market. No way. They SOLD DEBT notes to raise the money. Yes folks you read right, 90% of all the buy backs were done via raising cash through different bond offerings. They didn’t mind that when a ten-year would cost them 1.7%. They might mind a lot at 3%. So is it possible that the avalanche of stock buy backs is over? You bet.
Just last week some 13.6 Billion dollars fled the bond markets. After this week, it will be considerably more. People are frightened in this day and age about a lot of things and rightfully so. Benghazi, the IRS attacking tea party folks, the NSA spying on everyone, then of course there's Afghanistan, Iran, Syria, then employment jitters, debt jitters, higher taxes jitters, obama care jitters. The ONE thing they've been able to feel better about has been the market and it is now scaring the hell out of them. That "could" have repercussions
People are really quite confused. They think they can’t hide in gold or silver, Bonds are plunging, stocks got whacked…they don’t know what to do. I certainly understand that, unless you play in this financial sewer daily, it is tough to understand what’s truly going on. But for weeks now we’ve made mention that you could “feel” like they’re losing control. The Japanese bond market sending the Nikkei up and down in 1000 point swings, the more talk of Cyprus like “bail in’s”, it just comes faster and faster.
I want to end on a positive note, but it is hard. The pieces of the puzzle are coming together faster and faster and the picture they create is one of deep economic troubles ahead. One thing I would challenge all of you to do is this. For the next several months, you should really consider putting about 6 months worth of living expense cash in good home safe or hidden where even the roaches couldn’t’ find it. If a cascade of crazy stuff happens one night, starting in Japan and spreading across Europe and into the US, I could easily see a banking “shut down” for several days as they try and sort out derivative nightmares. This is a pretty good time to really be cautious folks. Sorry to have to say that, but it just feels that way. Good luck.
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