Remember a few years ago when “alternative energy” was all the rage? With crude oil trading at $150 and gasoline prices above $4 a gallon in many places, breaking free from our dependence on fossil fuels seemed like a good business opportunity.

As someone who greatly enjoys driving, air conditioning and electricity, I totally agree that it would be nice to diversify our energy sources. The question is: How to do it cost-effectively?

I believe the answer is to let free enterprise do its thing. Remove the artificial barriers, and the laws of supply and demand will lead us toward a good solution. Entrepreneurs will sort out the details.

Unfortunately, not every alternative-energy pioneer can succeed. There will be winners and losers. And investing in single stocks from this sector is a high-risk game. The good news is that you can get involved while staying diversified through exchange traded funds, or ETFs. Today I’ll tell you about some of them.

First let’s take a quick look at the different sources of energy …

Conventional Energy Sources

Fossil fuels are messy and expensive.

Fossil fuels: Good old-fashioned oil, coal, and natural gas provide the bulk of the industrialized world’s energy. We have the infrastructure already in place to find, produce and distribute this kind of fuel.

There are two problems, though. First, the easily-tapped reserves are running low. Second, the whole process is messy and unhealthy for people as well as the planet.

Nuclear energy: The secrets of the atom can also produce energy, and in many places atomic power plants go a long way toward meeting the demand for electricity. However, nuclear is not so great in transportation. You can’t run your car on uranium — at least not yet.

Hydro power: As long as water keeps running downhill, hydroelectric dams will be a good source of electricity, with relatively low environmental and safety risks. Like nuclear, though, hydro power is of limited usefulness when portability is required. What’s more, the best running-water sources have already been dammed.

That’s where we stand right now. Everything else is an “alternative.” So let’s take a look at …

The New Energy Sectors

Electric cars: The big problem is that batteries with enough juice to power a car are heavy. So heavy, in fact, that carrying them around often costs more energy than it saves!

The holy grail of the electric car industry, then, is the lightweight battery — one of the highest-potential but most elusive goals of the sector. Such things are being developed but are still very expensive. Most use a metal called lithium.

The Global X Lithium ETF (LIT) is probably the best and easiest way to tap into advanced battery technologies. Although this ETF has “lithium” in its name, the majority of its investments are in battery companies. Think of it as a “lithium food chain” ETF.

The sun won’t run out of energy anytime soon.

Solar energy: The sun is always there and doesn’t run out — or at least it won’t for a few billion years. Meanwhile we might as well tap into it.

Using sunlight to heat water is fairly simple; turning it into electricity is more complicated. New technologies are making the process a lot simpler, though. As this challenge is met, solar power could grow to provide much more than the fraction of our energy needs that it meets right now.

Currently two ETFs focus on solar energy: Claymore/MAC Global Solar Energy (TAN) and Market Vectors Solar Energy ETF (KWT). Both were launched in April 2008 and both are down about 70 percent from then. Solar energy may sound like a great idea, but it’s not yet a profitable idea for investors.

Wind energy: Remember when every farm had a windmill? They were handy for running the water pumps before electric lines made it out to the boonies. Now they’re just antiques.

What a change — now wind is the reason some farms exist. Oklahoma billionaire Boone Pickens has poured a ton of money into vast “wind farms” in the desert Southwest where huge windmills generate electricity.

Windmills: An old idea seeing new growth.

Wind energy has its limitations, of course. But it could still turn into a big business. Boone Pickens is no dummy about these things …

According to his Web site, his Mesa Power Group continues to pursue smaller projects throughout the United States and Canada through the American Wind Alliance, a cooperative formed with General Electric.

First Trust Global Wind Energy (FAN) and PowerShares Global Wind Energy (PWND) both target this alternative energy source, and like their solar cousins have not had much financial success. Wind energy is actually one of the worst performing industries of 2010. FAN and PWND are both down more than 30 percent so far this year.

Keep in mind that even if these ETFs are “green” for the environment, they may not necessarily put “green” in your wallet. Just like an old-fashioned gold rush, the alternative-energy rush is prone to hype and overconfidence.

This year most of the ETFs covering this sector have been hit hard, and it’s easy to start thinking that they look cheap. Are they a bargain at current prices, or are they only beginning to crash? I wish I knew the answer to that one. The “value investors” haven’t started buying them up just yet.

A somewhat less aggressive way to get into the alternative-energy group is with broader ETFs that don’t specialize in one niche like wind or solar. Alternative energy means different things to different people and as a result there is not just one index. Green, alternative, renewable, and progressive are among the monikers used to describe these funds.

Here are a few ETFs you may want to consider. But before you buy I suggest you dig a little deeper to see if they target the industries you want to own:

• PowerShares Wilderhill Clean Energy (PBW)
• PowerShares Global Clean Energy (PBD)
• Market Vectors Global Alternative Energy (GEX)
• PowerShares Wilderhill Progressive Energy (PUW)
• iShares Global Clean Energy (ICLN)
• First Trust Nasdaq Clean Edge U.S. Liquid (QCLN)

Nearly all the ETFs I’ve mentioned today are thinly-traded, so be sure to use limit orders when you buy or sell. Be cautious and know what you’re getting into.

Best wishes,

Ron

Related posts:

1. ETFs Bring the Middle East to You
2. The Most Valuable Commodity is Not Oil or Gold
3. How to Trade China with ETFs

By Bob Bauman

Dear Sovereign Investor,

Yesterday I got a rare chance to talk to an old friend of mine who has by now become a household word to many concerned Americans — U.S. Rep. Ron Paul (R-Texas).

I first came to know Ron when we both served in the U.S. House of Representatives in the 1970s – and we almost always voted alike on the issues.

I am certain that most of you recall Ron’s 2008 presidential campaign and the surprising enthusiasm and support this avowed Libertarian was able to generate. While he did not come close to winning he received over $32 million in contributions, almost 99% from individuals — and he produced an army of true believers that is still around.

None of this surprised those of us who have known Ron for a long time, but his candidacy was a shock to the leftist elites and the liberal news media.

In my recent conversation with Ron, he made some startling revelations to me.

What Ron Paul Revealed
Exclusively in Our Conversation

He told me he is considering another campaign for president of the United States. “It’s something I think about every single day,” Ron told me.

Earlier this year, he won a somewhat surprising victory in the Conservative Political Action Conference’s (CPAC) presidential straw poll.

Political observers say that this two-time presidential contender could wreak havoc for Republicans if he decides to make a third-party or independent bid for president in 2012.

Ron cited an increased national awareness and new enthusiasm for his Libertarian views that he said resulted from his 2008 campaign. It will be a “tough decision” he said, but indicated that he thinks Americans are ready for a new direction in national politics.

Ron Paul’s Latest Demand May Send Gold Prices Soaring

What I found really interesting was that Ron called on the Obama administration to allow an audit of all government gold reserves. His goal is to determine their total amount and to see if there is official manipulation of gold prices.

Imagine what would happen to the price of gold, if true reserves turn out to be less than the stated amount.

Gold prices move the way most prices do – based on simple laws of supply and demand. If supply sharply declines, prices will soar. This could create a windfall for investors.

Earlier this year, Congress backed his call for an audit of the Federal Reserve. Chances are Congress will back his demand for the gold supply audit, too.

What an Audit Could Mean for the Dollar

If an audit showed the U.S. to have significantly less gold in reserve than stated, creditors world-wide may push hard for a new world reserve currency. They may demand that the U.S. increase its gold supply – a tough thing to do right now amid sky-high government debt.

Either way, the dollar will suffer.

Ron told me, “eventually the dollar is doomed” as the world’s reserve currency unless the U.S. government abandons its international “imperial” policies and leaves both Afghanistan and Iraq.

These are just a few highlights of our conversation. I recommend you listen to the full Ron Paul interview at

http://www.globalconferencecall.com/playback.html?m=sovsoc/conf84318_32013.mp3

Bob Bauman JD

Legal Counsel, The Sovereign Society

Related posts:

1. Ron Paul – Anything Less Than Full Disclosure is Unacceptable
2. Ron Paul – The FCIC: Passing the Buck
3. How Long Until We See $1,000 Gold?

Free Email Trading Course

… compliments of INO.com and MarketClub

Benefit from the knowledge of MarketClub co-founder Adam Hewison and other trading experts, with this FREE series of educational emails and online content.

Click Here

Related posts:

1. Why weekly charts work
2. Where should YOU be in the S&P 500?
3. Free Report – Learn How the Wave Principle Can Improve Your Trading

By: Adrian Ash, BullionVault

London Gold Market Report

THE PRICE OF GOLD and silver fell hard for Euro and Dollar investors Friday lunchtime in London, with gold unwinding this week’s 1.2% gains as world stock and commodity markets jumped in response to new US jobs data.

August’s Non-Farm Payrolls surprised analysts with a headline drop for August of 54,000 – half the losses expected – plus stronger-than-forecast growth in private-sector hiring, up by 67,000.

“The private sector has net created a total of 622,000 jobs since last November,” noted Deutsche Bank analysts ahead of Friday’s announcement.

“This is still fairly low compared to the 8.459 million private jobs lost during the previous two years.”

Overall, the US unemployment rate crept up to 9.6%, with average earnings rising more slowly than expected from a year earlier.

“[Gold] is what I call wealth insurance,” said Peter Hambro, mining-magnate and chairman of London-listed Russia gold miner Petropavlovsk Plc, to Bloomberg earlier this week.

“Everyone has health insurance, fire insurance…Gold is what is going to protect you from the ravages of government…There is no way out for these guys except to inflate away debt.

“I’m afraid that unless you have some real assets, you’re going to be in trouble.”

Elsewhere on Friday, new data showed Swiss consumer prices stayed flat in August, while German and UK service-sector growth was slower than expected.

Retail sales across the 16-nation Eurozone rose by 0.1% from July, the official data agency said – just half the tepid rate of expansion analysts forecast.

“The truth is that we have not had much of a recovery in the first place,” says New York professor and economics consultant Nouriel Roubini, writing for Forbes magazine, “which might prevent the economy from falling enough to display what many would label a double dip [in the US] – although we are now assigning a 40% probability to such an outcome.”

Back in the gold bullion market, overnight trading in Asia was “cautious” according to one dealer’s note, but the US jobs data promised “an exciting close to the week”, especially with New York heading into the long Labor Day weekend.

Over in Mumbai, “There are no [gold] deals at these rates,” said a state-owned bank dealer to Reuters this morning. “There is an initial resistance from traders to accept near-record prices.”

Gold prices for Indian consumers – the world’s No.1 buyers, now entering the strong post-harvest festival season – held just shy of recent records at 19,200 Rupees per grams on Friday.

Ahead of the peak gold demand typically seen during Dhanteras in November, “We are expecting festivals like Ganesh Chathurti and Navratri may bring in sales,” said another dealer.

A Reuters poll of 10 analysts and dealers says Indian gold imports (it has next-to-no domestic gold mining output) will rise 5% to 504 tonnes in full-year 2010.

Elsewhere in the commodities market, New York crude-oil futures jumped through $75 per barrel on the US jobs data, with the broad hard-asset indices reversing an earlier drop to show a 0.5% on the day.

“We are bullish on silver,” says the latest technical note from bullion-bank Scotia Mocatta, “looking for an eventual test of the 2008 high of $21.35 an ounce.

Silver traded wholesale in London today gave back 1.1% from a new four-month high at $19.76. Supporting its bullish stance, says Scotia, the Gold/Silver Ratio “broke lower” on Thursday through August’s bottom, meaning that one ounce of gold is worth fewer ounces of silver.

Moving down to 63.75, the gold/silver ratio looks bullish for Silver Prices while it remains “below 64.90,” says Scotia, “and we see April’s low of 62.66 as the next major [level].”

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the gold-mining sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Related posts:

1. Gold “Caught in Bind” as Stocks Fall, Fresh Easy Money Looms, Dow/Gold Ratio Falls
2. Gold Extends 2nd-Best Annual Rise to End-Aug. as Physical Silver “Gets Tight” in Hong Kong
3. Gold & Silver Bounce vs. Falling Dollar as China’s Monetary Tightening “Runs to Stand Still”

By: Adrian Ash, BullionVault

Since gold stopped being money, it’s become 75% more valuable on average…

SO GOLD is now at “fair value” says Bill Bonner, long-time gold bug and my former boss/partner-in-crime at The Daily Reckoning’s London HQ.

No, he won’t sell yet…if ever…says Bill. But gold’s huge under-pricing a decade ago has clearly passed by. Value-hungry investors got their “reversion to the mean”, and in the form of 400% gains, too. What one ounce of gold bought 2,000 years ago – a good suit of clothes, in Bill’s oft-repeated example – it now matches, if not exceeds in price, here in late 2010.

From here, that makes it a “speculation”.

Never mind that, around the birth of Christ, all clothes were hand-cut and sewn locally…rather than glued together by the world’s cheapest labor, four or eight thousand miles away. A suitable outfit for visiting the coliseum or agora would have been made-to-measure, too…and today’s finest tailors, at least in London or New York, will ask much more than the $1240 you’d raise by selling one ounce at current “spot gold” prices.

Never mind all that. Because Bill’s point is well made, again…

Gold was a screaming buy at the start of last decade, sinking to its lowest price – in real terms – since the early ’70s, as the chart above shows (courtesy of the World Gold Council, and taken from Roy Jastram’s incomparable study, The Golden Constant).

But “Nobody cared! Nobody was interested,” as a (very drunken) London dealer cried at me late last year. “I’d email out jokes, porn-site links, anything to get clients reading so I could repeat three simple words: ‘Buy gold now!’

“But they didn’t care…I don’t even know if they looked at the porn…”

Today, in contrast, you can’t move for anxious investors and bullish hedge funds piling into gold. Or so the media coverage would make it seem. New gold dealers – online and on Wall Street – are meantime sprouting like fungus to catch the “retail dollar”, and the story’s grown so old, it’s even spawned its own calendar for financial hacks (the summer lull, India’s post-harvest festivals, quarterly data from the mining-backed World Gold Council, the Sept-end of each year of the Central Bank Gold Agreement). Wherever you look, the only debate that counts – “It must be a bubble, so when will it burst?” – rolls on for what is now more than two years.

As for the dumb lump of metal, yes – it continues to pull in new money, nudging its purchasing power ever-closer to the big top of 1980. But look again at that chart above. For while Roy Jastram saw a “golden constant” in his two centuries of US data (and four centuries of British gold prices), the shorter-term volatility is striking. Not least since gold ceased being money 39 years ago, and became mere trinkets and collectibles instead.

“In terms of what gold will buy, it does not seem undervalued to us,” Bill Bonner writes. “As near as we can tell, gold is now fairly priced.

“[So] the reward now is different. It is speculative…not inherent. We cannot expect to make money by waiting for the metal to revert to the mean. It’s already at the mean.”

But what is gold’s mean purchasing power – the “golden constant” of Jastram’s peerless research? By our reckoning here at BullionVault today, it has risen sharply since the US abandoned its last pretence of a gold standard and floated the Dollar in August 1971. Compared with the first seven decades of the 20th century, in fact, gold’s real purchasing power has stood more than 75% higher on average. Which seems odd. Because without being used as money – its only utility beyond decoration – gold became only more valuable. So while its purchasing power may have looked “constant” across long historical periods from Roy Jastram’s vantage of 1977 (and again to die-hard gold bugs 20 years later), its utility had in fact changed.

Gold became more useful as a way of storing purchasing power, even though it was no longer money. Or rather, because it was no longer money, in an age where “Every morning, when you look in the mirror, I want you to think ‘What am I going to do today to increase the money supply?’…” as John Ehrlichman, assistant to Richard Nixon, apparently told Fed governor Charles Pardee, sometime in the early 1970s. Post-war economic policy across the West was haunted by the Great Depression, and thus flowed from the fear that, unless money was losing value, then spending and particularly investment growth would grind to a halt.

Without the spur of inflation, capital would choose to sit tight – in purses, pockets and deposit accounts – because its purchasing power today would be retained tomorrow. Savers could thus spend (or not) as they chose, rather than being forced to exchange or grow their money to realize or maintain its present value. Devaluing their money, in contrast, via persistent (and obvious) inflation would force savers into the stores and stock-broker’s office. And thus today’s targets for persistent (and obvious) inflation were born.

“[Harvard professor] Kenneth Rogoff is proposing that the United States use a burst of inflation to get out of its slump,” writes Princeton professor Paul Krugman. “I agree…[but] if central banks can gain any leverage at all, it’s only by credibly committing to inflation over a fairly sustained period…[not Rogoff's] two or three years of slightly elevated inflation.”

Bill Bonner’s bang on the money, in short. Gold from here is a speculation, but a speculation only on academics getting their inside man (whether Mervyn King in London or Ben Bernanke in Washington) to apply their latest hare-brained scheme – massive new money inflation.

What price gold’s utility as a store of real value if…when…they succeed?

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Related posts:

1. Gold “Caught in Bind” as Stocks Fall, Fresh Easy Money Looms, Dow/Gold Ratio Falls
2. Gold Extends 2nd-Best Annual Rise to End-Aug. as Physical Silver “Gets Tight” in Hong Kong
3. Gold Ignored & Dismissed by US Media as Good Harvest Points to Strong Indian Demand

By: Adrian Ash, BullionVault

London Gold Market Report

THE PRICE OF GOLD rose back above $1250 an ounce for the second time this week – and the sixth time since May – on Thursday morning in London, as government bonds ticked lower together with energy prices.

Soft commodities rose, as did base metals and platinum. Silver prices touched a new 16-week high at $19.57 an ounce.

In the US, an article from Forbes magazine highlighting “Six Ways Retirees Can Beat Inflation” today does not mention gold investing.

“Gold has doubled since 2006,” adds a personal-finance video at Yahoo.com, sponsored by the Fidelity fund group. “This train left the station a long time ago.

“So before you pour your savings into gold, be careful…A lot of the money’s already been made.”

Asian stock markets meantime closed Thursday 1.5% higher, but European shares stalled after Wall Street closed last night with its fourth-best one-day gain of 2010-to-date on what one London analyst called a “rather selective” reading of Wednesday’s global economic data.

UK house prices today showed their second month-on-month drop in a row, while British manufacturing also contracted.

Swiss GDP growth jumped however to 3.4% annually, and the 16-nation Eurozone also grew faster than expected, with GDP rising by 1.9% year-on-year to end-June.

Inflation in Eurozone factory-input prices jumped from 3.0% to 4.0% per year in July.

Today the European Central Bank voted to keep its key interest rate on hold at 1.0% for the 16th month running.

Sterling and the Euro both fell vs. the Dollar, nudging the price of gold bullion up to £812 an ounce and €31,380 per kilo respectively.

“The maintenance of easy monetary policies and the likely reintroduction of quantitative easing policies provide the rationale for stable if not higher gold prices,” says London market-maker HSBC in a note today.

Reviewing interest rates outside the US, Eurozone, Japan and UK, “Many policymakers seem to have been surprised by the strength of growth in Q2, but are also somewhat skeptical that the strong pace can continue,” says Standard Bank’s chief currency strategist Steve Barrow.

The Reserve Bank of Australia – where GDP growth has jumped to a 3-year high – last raised its key lending rate in May at 4.50%.

Sweden’s Riksbank today raised its lending rate to 0.75%, saying that GDP growth will improve and labor demand look “substantially” better.

Over in India on Wednesday – where GDP growth for 2010 is pegged at 8.2% by Goldman Sachs’ analysts – local gold prices reached new record highs above 19,230 Rupees per 10 grams, The Asian Age reports.

“Apart from bad economic news globally, a weak Rupee is also pushing up prices in India” – home to the world’s hungriest gold-consumer market – the newspaper says.

Going into the traditionally strong autumn gold-buying season, “Gold consumption is expected to be strong in India this year,” says Kuljeet Kataria at Motilal Oswal Securities in Mumbai, “because the monsoon has been good.

“That should lead to higher rural incomes – places where there is no [formal] banking.”

“This demand from emerging countries – if it’s really going to stop and fall off a cliff, it’s going to be because of economic developments, not high prices,” says US Global Investors’ Frank Holmes, speaking last night to South Africa’s MineWeb.

Worldwide, “Gold is basically looked and perceived more and more as a safe-haven investment,” he adds. “The US, Western Europe and Japan are close to buckling under the weight of their own sovereign debt issues, and government budget deficits remain large and persistent and, as a result, the major paper currencies are low.”

The world’s seven most populous countries also have the strongest “emotional attachment” to buying gold, notes Holmes.

“The gold price could go up further…going into the Labor Day weekend,” reckons Jeffrey Christian of New York’s CPM consultancy, speaking to TheStreet.com and comparing this year’s action “to some extent to August of 2007, when gold didn’t really take an August pause.”

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Related posts:

1. Gold & Silver Fall on US Jobs Data, But “Wealth Insurance” Needed as “Double-Dip Recession” More Likely
2. Gold “Caught in Bind” as Stocks Fall, Fresh Easy Money Looms, Dow/Gold Ratio Falls
3. Gold’s Goldman Drop Blamed on Strong Correlations, Chinese Whispers & ETF Exposure

By Elliott Wave International

Stress test results for the biggest European banks were recently released, while the largest U.S. banks took their first stress tests in May 2009. But most people don’t really care how much stress their banks are under; they are more worried about their own stress levels. One thing that adds to personal stress is worrying about whether their deposits are in a safe place. Bob Prechter has encouraged people to find the safest banks for their money since he originally wrote his New York Times best-selling book, Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression in 2002. This excerpt explains why banks of all sizes are riskier than they used to be (think about portfolios stuffed with derivatives, emerging market debt and non-performing commercial loans). You can also get a list of the Top 100 Safest U.S. Banks — two banks per state — that was just updated in late June with the latest available data by joining Club EWI and receiving EWI’s Safe Banks report.

* * * * *
Excerpted from Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression, by Robert Prechter

Many major national and international banks around the world have huge portfolios of “emerging market” debt, mortgage debt, consumer debt and weak corporate debt. I cannot understand how a bank trusted with the custody of your money could ever even think of buying bonds issued by Russia or Argentina or any other unstable or spendthrift government. As At the Crest of the Tidal Wave put it in 1995, “Today’s emerging markets will soon be submerging markets.” That metamorphosis began two years later. The fact that banks and other investment companies can repeatedly ride such “investments” all the way down to write-offs is outrageous.

Many banks today also have a shockingly large exposure to leveraged derivatives such as futures, options and even more exotic instruments. The underlying value of assets represented by such financial derivatives at quite a few big banks is greater than the total value of all their deposits. The estimated representative value of all derivatives in the world today is $90 trillion, over half of which is held by U.S. banks. Many banks use derivatives to hedge against investment exposure, but that strategy works only if the speculator on the other side of the trade can pay off if he’s wrong.

Relying upon, or worse, speculating in, leveraged derivatives poses one of the greatest risks to banks that have succumbed to the lure. Leverage almost always causes massive losses eventually because of the psychological stress that owning them induces. You have already read of the tremendous debacles at Barings Bank, Long-Term [sic] Capital Management, Enron and other institutions due to speculating in leveraged derivatives. It is traditional to discount the representative value of derivatives because traders will presumably get out of losing positions well before they cost as much as what they represent. Well, maybe. It is at least as common a human reaction for speculators to double their bets when the market goes against a big position. At least, that’s what bankers might do with your money.

Today’s bank analysts assure us, as a headline from The Atlanta Journal-Constitution put it on December 29, 2001, that “Banks [Are] Well-Capitalized.” Banks today are indeed generally considered well capitalized compared to their situation in the 1980s. Unfortunately, that condition is mostly thanks to the great asset mania of the 1990s, which, as explained in Book One, is probably over. Much of the record amount of credit that banks have extended, such as that lent for productive enterprise or directly to strong governments, is relatively safe. Much of what has been lent to weak governments, real estate developers, government-sponsored enterprises, stock market speculators, venture capitalists, consumers (via credit cards and consumer-debt “investment” packages), and so on, is not. One expert advises, “The larger, more diversified banks at this point are the safer place to be.” That assertion will surely be severely tested in the coming depression.

There are five major conditions in place at many banks that pose a danger: (1) low liquidity levels, (2) dangerous exposure to leveraged derivatives, (3) the optimistic safety ratings of banks’ debt investments, (4) the inflated values of the property that borrowers have put up as collateral on loans and (5) the substantial size of the mortgages that their clients hold compared both to those property values and to the clients’ potential inability to pay under adverse circumstances. All of these conditions compound the risk to the banking system of deflation and depression.

Financial companies are enjoying big advances in the current stock market rally. Depositors today trust their banks more than they trust government or business in general. For example, a recent poll asked web surfers which among a list of seven types of institutions they would most trust to operate a secure identity service. Banks got nearly 50 percent of the vote. General bank trustworthiness is yet another faith that will be shattered in a depression.

Well before a worldwide depression dominates our daily lives, you will need to deposit your capital into safe institutions. I suggest using two or more to spread the risk even further. They must be far better than the ones that today are too optimistically deemed “liquid” and “safe” by both rating services and banking officials.

Related posts:

1. Deflation: How To Survive It
2. Elliott Wave International’s Understanding the Fed eBook is now available
3. Valuable Investment eBook Free Until Jan 12

If Fed Chairman Ben Bernanke honestly believes what he said at Jackson Hole on Friday — that he can save the economy by printing more money and buying more bonds — he’s hallucinating.

Through the first quarter of this year, he printed $1.5 trillion of paper money and promptly bought $1.5 trillion in mortgage bonds, government agency bonds, and Treasury bonds.

But the entire effort was a dismal failure; the U.S. economy is still sinking and most large American banks are still weak.

The underlying reason: While the government has been borrowing massively, nearly everyone else has embarked on unprecedented debt LIQUIDATIONS.

In other words …

While Washington is gorging itself on new debts, nearly every other sector is undergoing massive liposuctions.

How do we know? Because that’s what the Federal Reserve itself is reporting — unambiguously and conclusively.

Based on the Fed’s latest Flow of Funds report (Table F4, “Credit Market Borrowing”), governments are borrowing massively.

But the collapse in private sector credit is so dramatic that among ALL the major categories the Fed tracks, NOT ONE is expanding its debts. Rather, every single sector is in advanced stages of unprecedented and massive debt liquidations!

Specifically, as you can see in the chart above …

• Corporations are cutting back on their bonds at a record pace of $355 billion per year …
• Banks are cutting back on their lending at the yearly rate of $273 billion, and …
• Worst of all, mortgages are being liquidated at a record-smashing pace of $560 billion annually.

In addition, the Fed is reporting net cutbacks in consumer credit ($39 billion), open market paper ($154 billion), agency bonds ($16 billion), and other loans ($174 billion).

And remember: We’re not just talking about a slowdown in the pace of new borrowing — the pattern we used to see in typical recessions of the past. No! These are actual net reductions in debts outstanding — the basic stuff that depressions are made of.

In sum, nearly all the money Bernanke has printed — plus all the money he has supposedly poured into the economy — is going nowhere, except perhaps down the drain. He’s clearly running on a treadmill … pushing on a string.

Whatever you do, do not underestimate the potential impact of this situation. It is …

Huge! Including both the government and private sectors, the total new credit created in 2007 was $4.5 trillion. Now, it’s running at an annual pace of about ZERO! That $4.5 trillion was LOT of money — and it’s all money that’s NOT pouring into the economy any more.

Unprecedented! This has never happened before in modern times — not even during the deepest recession of the postwar era. During the Great Depression? Yes. But in proportion to GDP, the debt buildup before the Depression — as well as the debt liquidations during the Depression — were not as large as they are now.

Getting worse! Despite everything Bernanke has done to try to stop it, the debt liquidations are accelerating — especially in the mortgage area. Consider these basic facts:

Back in 2005, lenders issued $1.4 trillion in new mortgages over and above those that were paid off or went bad — a fantastic amount of fresh new money pouring into the housing and construction markets.

But by 2008, they had cut back their new mortgage lending by a whopping 94 percent. The industry virtually died — an unmitigated disaster for the economy.

At that point, pundits assumed it was the end of the decline. On a net basis, the creation of mortgages in the U.S. was practically down to zero. “So how much further could it possibly fall?” they asked.

Meanwhile, Bernanke apparently assumed that, by buying crazy, unprecedented amounts of mortgage bonds, he could somehow stop the decline — or at least offset its impact. But the decline in the mortgage market didn’t end there in 2008 …

In 2009, it got worse — a lot worse! Not only was new mortgage money largely unavailable but OLD mortgage money was pulled out. Result: We saw net mortgage liquidations of $283 billion!

And for the first quarter of 2010, as I highlighted earlier, the Fed reports net liquidations running at an annual pace of $560 billion, the worst in history.

The Unavoidable Consequences

These forces are more enduring than any monetary policy, bigger than any government. They are unmistakable, unavoidable, and overwhelming.

Bernanke can try to make believe they don’t exist. But you cannot afford to take that risk. You must recognize the truth and consequences that he’s not talking about …

Consequence #1. Bernanke’s nearly powerless. No matter how many more bonds he buys, Bernanke cannot save the recovery. Sure, he could push 30-year fixed mortgage rates down some more. But even the lowest mortgage rates in recorded history haven’t made a bit of difference. In fact, despite low rates, mortgages are being liquidated at an even FASTER clip. Home sales falling even MORE rapidly.

Consequence #2. Double dip. The double-dip recession we’ve been warning you about is now on its way. Meanwhile, administration economists still swear on a stack of Bibles that the double dip is not in the cards; and private economists think the probability of a double dip is only 20 to 30 percent. They must be getting their hallucinogens from the same source as Bernanke.

Consequence #3. More bank failures! As a whole, despite government bailouts and regulatory reform, the nation’s banks and thrifts are no healthier today than they were before the onset of the debt crisis. The big difference: This time the government is unlikely to have nearly as much political or financial capital to bail them out.

What To Do

First, reduce your risk exposure. Sell any stock or investment that may be vulnerable to a double-dip recession and all its probable consequences.

Second, hedge. If you are unable or unwilling to sell, buy some protection. The most convenient vehicle: Inverse ETFs — exchange traded funds that are designed to rise in value as markets decline.

Third, get your money to safety. Despite the near-zero yields, short-term U.S. Treasury bills or Treasury-only money market funds are still the safest parking place.

Fourth, check your bank. Click this link to review our list of the Weakest Banks and Thrifts in the U.S.

This list includes only institutions with a Weiss Rating of D+ (weak) or lower — institutions we believe to be vulnerable to future financial difficulties or even failure. To be sure, many vulnerable institutions will NOT ultimately fail. However, we believe that their risk of failure is high.

For your convenience, we’ve listed them by state, then in alphabetical order. Plus, with each institution, we provide not only the company name, but also their state of domicile and their total assets.

This extra information is important because there are many banks in different states that have very similar names, and we don’t want you to make a critical decision based on a case of mistaken identity. So make sure you’ve got the exact name of your institution. And if you’re still not certain, double-check by asking your banker to identify their state of domicile.

So … is your bank on our Weakest list? Or not?

• If your bank is NOT on Weakest list, it’s because it has received a rating of AT LEAST C- (fair). Now, C is not a good rating. But it means that we believe your bank is stable and not currently vulnerable.
• If your bank IS on the Weakest list, it means we believe your bank is vulnerable.

If so, we recommend you click here to review our list of the Strongest Banks and Thrifts in the U.S.

This list includes only institutions with a Weiss Rating of B+ (good) or higher. We do not guarantee that all of these institutions are completely safe. However, we believe that their risk of failure is very low.

At the top of the page, click on your state. Then, shop among the listed banks in your area.

Finally, above all …

Do not believe Bernanke! Given all the facts he has at his fingertips — the same ones I’ve just presented here this morning — I doubt he even believes himself.

Good luck and God bless!

Martin

Related posts:

1. Breaking news: Bernanke slams U.S. economy! What to do …
2. 14 Risks with Supposedly “Safest” Securities
3. Budget-Busting Bailouts in Europe to Drive Global Debt Burden Higher!

By: Adrian Ash, BullionVault

London Gold Market Report

THE SPOT PRICE OF physical gold bullion touched its highest level since late-June’s record peak early in London on Wednesday, extending August’s record-high monthly close as world stock markets rose together with commodities and government bond yields.

New data showed rapid growth in Chinese manufacturing and Australian GDP.

Friday’s key US employment data was preceded however by the private-sector ADP Payrolls Report, which showed its first loss since March, down by 10,000 jobs against the 20,000 growth expected.

“We are in a bind,” writes Bill Gross of bond-fund giant Pimco in his new monthly outlook, urging fresh quantitative easing of mortgage-backed securities.

“Having grown accustomed to a housing market aided and abetted by Uncle Sam, the habit cannot be broken by going cold turkey into the camp of private lending…crippling any hopes of a housing-led revival to the economy.”

The Dollar dropped to a 1-week low vs. the Euro on the news. The Dollar gold price retreated from $1254 to $1249 an ounce.

“[Last night's] $1247 is a new record-high monthly close,” notes Russell Browne in his technical analysis from bullion-bank Scotia Mocatta, “beating June’s $1241.

“Although gold price action is stepping up, we remain cautious around month end. [But] the bullish close increased the pressure for a test of the record high of $1265 and beyond.”

The gold price in Dollars ended Tuesday with its best August performance since 1986, gaining 6.6% for the month.

Year-on-year, last night’s record-high monthly finish saw gold stand more than 30% higher, its second-best August-to-August after 2006’s 43.9%.

“Gold convincingly broke through a downwards sloping trendline yesterday,” sayss a London dealer today. “The $1250 level now remains the last technical barrier to a return to the record highs of June.

“With September inflows expected, continued strength may be in store.”

“Also of note is a tightening in the physical silver market,” says Standard Bank’s senior commodity analyst, Walter de Wet, ”with increased demand from mainland China absorbing much of the silver supply traditionally coming to the wider market from Hong Kong.”

Silver bullion traded in London touched a 16-week high of $19.55 an ounce on Wednesday – a level last seen at May’s 14-month peak.

World stock markets meantime shot higher, with London’s FTSE-100 gaining 1.5% by lunchtime.

In Athens, short-selling of Greek stocks was again allowed today, with the main index trading some 12% below the level of late-April, when a ban on “speculation” was imposed.

Alongside the Euro and Sterling, the Japanese Yen also rose again on the forex market, edging towards last week’s 15-year highs at ¥83.70 to the Dollar despite Tuesday’s announcement of €11 trillion ($127bn) in new fiscal and monetary stimulus.

“Too little, too late,” is how former Bank of Japan policymaker Noboyuki Nakahara described it.

Faced with flagging export sales, “The [Tokyo] government is running out of policy options with interest rates this low,” says CLSA’s Greed & Fear analyst Christopher Woods in Hong Kong.

Reversing Tuesday’s losses, the three central-bank reserve currencies knocked the gold price back by 1% from near two-month highs at £816 per ounce, €31,687 per kilo and ¥3145 per gram respectively.

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-industry’s World Gold Council – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Related posts:

1. Physical Buying “Supporting Gold” Amid Slow Summer Dealing
2. Gold & Silver Fall on US Jobs Data, But “Wealth Insurance” Needed as “Double-Dip Recession” More Likely
3. Gold “Caught in Bind” as Stocks Fall, Fresh Easy Money Looms, Dow/Gold Ratio Falls

By: Adrian Ash, BullionVault

London Gold Market Report

THE PRICE OF GOLD held in a tight range as London re-opened after the Summer Bank Holiday on Tuesday, slipping $3 an ounce to $1235 as world stock markets fell again to near the end of August some 6% down on the month.

Silver prices reversed an earlier 1.5% drop to trade back at $19.12 an ounce.
“A disappointing day for precious metals,” says one Hong Kong dealer in a note.

“Despite its safe haven status, gold came off in tandem with stocks, re-visiting Friday’s low.”

The US Dollar slipped back against the Euro today, but crude oil dropped back through $74 per barrel and government bonds rose everywhere, nudging 10-year US Treasury yields back down to 2.50%.

“Gold is caught in a bind,” reckons Tokyo trader Kazuhiko Saito at Fujitomi, speaking to Reuters.

“Slowing growth and deflation worries are generally negative for commodities, putting a cap on gold prices. [But] at the same time, easy monetary policy continues to keep expectations alive that investment funds will return to gold, putting a firm floor under the market.”

A raft of better-than-expected data from Japan and Germany was outweighed according to several London analysts by Monday’s poor Personal Income stats in the US, where income-growth continues to lag price inflation.

The Bank of Japan said yesterday it’s injecting ¥10 trillion ($117bn) into commercial banking loans, with a further ¥920bn ($10bn) of economic stimulus promised by the Tokyo government.

But the Nikkei stock index still sank 3.6% on Tuesday, however, falling to a new 16-month low – even as the Japanese Yen eased back on the forex market – after New York’s Dow Jones Industrial Average closed Monday down 1.4% to finish just a few points above the 10,000 mark, unchanged from April 1999.

The Dow/Gold Ratio ended Monday down at 8.1, meaning it would take a little over 8 ounces of gold at current prices to purchase one unit of the DJIA.

The ratio peaked just shy of 43 ounces in Sept. 1999. Averaging 12 ounces since 1928 – and falling to record lows of two ounces and then one ounce in 1932 and 1980 respectively – the ratio fell to a 19-year low of 7.4 ounces in Feb. 2009.

“It is a data-heavy week,” says Walter de Wet at Standard Bank today, noting the release of manufacturing indices for all major economies, plus US jobless data on Friday.

“This could keep the market nervous…and US equities remain under pressure. The strength in US Treasury bonds is supported by expectations of possible bond purchases by the US Fed, and [we] view these expectations of further monetary easing as positive for gold.”

Meantime, says Standard Bank’s commodity team, “We continue to see gold buying in the physical market, although it has slowed. With gold closer to $1240 an ounce, there also appear to be some gold scrap-selling coming through.”

Tuesday morning’s sharp drop in Sterling pushed the gold price in British Pounds back above £800 an ounce – more than 8.4% above late July’s three-month lows.

Euro investors wanting to buy gold today saw the price tick back towards €31,300 per kilo, meantime, just shy of last Thursday’s eight-week highs.

In Germany this weekend, a row erupted over Dr Thilo Sarrazin, an executive member of Germany’s central-bank, whose new book – which accuses Muslim immigrants of being a drain on the economy – has shot to the top of the best-seller charts.

A former member of the Berlin Senate, Dr Sarrazin “has repeatedly and persistently made provocative statements, especially on issues relating to immigration,” the Bundesbank said in a press release on Monday, “categorically distancing” itself from his comments on Islam and “the Jewish gene”, and threatening to take “prompt action”.

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Related posts:

1. Gold Falls with Stocks & Euro as Yen Hits 15-Year High, US Fed Prepares Fresh Quantitative Easing
2. Gold & Silver Fall on US Jobs Data, But “Wealth Insurance” Needed as “Double-Dip Recession” More Likely
3. Physical Buying “Supporting Gold” Amid Slow Summer Dealing