2010 European Stress Tests: Fail

In July of 2010, they came out with a European Stress Test of the banks. I made a prediction at that time where I speculated the results would come out positive even though I showed how the balance sheets of the major banks in each of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) countries showed the opposite. This article will reanalyze these banks with the addition of Japanese banks and let readers know where the Euro and Yen are headed and by default, the U.S. dollar.

The Euro at the time of the European stress test 1 1/2 years ago was trading at 1.2863. The stress tests revealed only 7 0ut of 91 European banks were found to be short of the required 6% Tier 1 capital needed. CNBC’s Steve Leisman I remember saying at the time that we were “making a mountain out of a mole hill.” Since that time the Euro, as seen in the chart below,  proceeded to move to a high of 1.48. The ECB had fooled the people into thinking everything in Europe was just fine. But everything in Europe wasn’t just fine. The important point to remember here is that one can be right about things, but the Central Banks and market makers can take your money through influencing “perception” of the general public to put their money in the places they want them to, all the while knowing where things are eventually headed. In other words, they were long the Euro and took their profit and are now short because they knew what I pointed out in my article in 2010; the banks were in trouble. So what’s going on today?

As you can see from the chart of the Euro above, the Euro has been in a downward trend since July of 2008, reaching a low of 119 in June of 2010, about the time of the European (fake) bank stress tests, and after heading up to 1.48 is now in a downward trend again because of all the issues that Greece, Portugal, Italy etc. are having. This fall in the Euro of course has been dollar bullish as seen in the chart below. Why? Because the Euro makes up 57.6% of the dollar.

The Yen, which makes up 13.6% of the dollar has had its glory days in the past as well. While I have been premature in my call for the fall of the Yen, at 230% debt to GDP ratio, the highest in the civilized world, the Yen’s glory days are numbered. The only thing keeping the Yen going is government intervention and to a lesser extent the fact they are a net exporter and their citizens buy 98% of their treasuries. There will be a lot more of that rising debt to GDP ratio coming America’s way as the Japanese example has shown it can drag out the game for awhile. But for now, especially being an election year, I don’t see too much more government spending. The Republicans can use it against Obama and this current administration knows it.

What Does the Future Fall of the Euro and Yen Mean?

What does the future fall of the Euro and the Yen Mean? It means, as mentioned before, that 71.2% of the Dollar Index is declining and thus, by default, the Dollar will rise. While gold and silver are still needed as insurance against future banking failures here in America, I believe the domino’s will start falling in the Eurozone and Japan first. People can talk inflation and deflation all they want, but if the banks implode, real money is what’s needed, and that’s why I call gold and silver insurance.

I have been in the deflation camp all along during this credit contraction. The quantitative easing is just keeping the game going a little longer, but is not stimulating any real growth (See Japan), just temporary pockets of success, usually in the government related sectors (military industrial complex, green technology, infrastructure). These can hardly be called a success when they are funded by debt to begin with. Yes, inflation will come. There has to be repercussions to what we see with quantitative easing, TARP and the following chart of M2.

Euro Banking Analysis Revisited

I did an analysis of various European banks in my 2010 article. Below you will see how these same banks have done of late. Please note that European central bankers pumped nearly $640 billion into the Continent’s banking system. So much for the success of the stress test and CNBC’s Steve Leisman’s claim of “making a mountain out of a mole hill.” The Central Banks know how important it is to keep perception positive. They have a tremendous battle ahead of them.

ITALY

Intesa Sanpaolo Bank – Italy’s largest retail bank

The bank’s shares have been battered this year, shedding 45 percent of their value amid worries over its exposure to bad European government debt.

Italy police seize 220 mln euro derivative contracts. 

SPAIN

Banco Bilbao Vizcaya Argentaria (BBVA)

Shares of Banco Bilbao Vizcaya Argentaria Under Pressure, Down 2.0%

BBVA Takes $1.3 Billion Charge for U.S. Goodwill Adjustment

The European Banking Authority said Europe’s banks will need to raise 114.7 billion euros in fresh capital as part of measures introduced to respond to the sovereign debt crisis. The new figure is over 8 billion euros more than previously estimated by the EBA in October. Among lenders needing to bolster their reserves Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), missed the target by 6.33 billion euros.

IRELAND

AIB – Allied Irish Banks

Total AIB Group – loss for 2010 was € 10.2 billion. 

Allied Irish loss soars to $15 bln

Irish state-controlled banks Allied Irish Banks and permanent tsb are in advanced talks with officials about putting their loss-making tracker mortgages in off-balance sheet vehicles of the former Anglo Irish Bank. The former Anglo Irish Bank, renamed Irish Bank Resolution Corporation (IBRC), which is being wound down, has cost the state nearly 35 billion euros to keep afloat.

PORTUGAL

Banco Comercial Portugues

Currently facing a EUR1.725 billion shortfall has acknowledged they could be forced to tap a EUR12 billion line under Portugal’s EUR78 billion bailout to cover the gap.

Revenues:

GREECE

I didn’t mention Greece in my 2010 article and there is no reason to mention them this time. Their ship has already sailed and sunk.

Japanese Banks

From Reuters;

BOJ Governor Masaaki Shirakawa, however, warned that Europe’s sovereign debt crisis remained the biggest threat to Japan’s recovery prospects, already clouded by recent yen rises against the euro and slowing global demand for Japanese goods. ”At present, Europe’s debt problem poses the biggest risk for the global economy, including Japan’s. If the situation worsens further, it may trigger a global credit crunch,” Shirakawa told a news conference after the BOJ’s widely expected decision to hold off on additional monetary easing.

With interest rates virtually at zero, the central bank put in place in 2010 a pool of funds to buy assets ranging from government to public debt to pump cash into the economy and shield it from the pain from a strong yen.

It last boosted the scheme in October last year and has been standing pat since then, but has expressed its readiness to ease again if Europe’s debt crisis and the market fallout threaten Japan’s recovery prospects. Many market players expect another expansion in its asset purchases by mid-year.

The Japanese government, to keep the game going as long as possible, with no success, is still trying to stimulate.

Eager to pass bills through parliament to raise taxes to fix Japan’s tattered finances, the government kept up pressure on the central bank to help support the fragile economy.

“In order to overcome the yen’s rise to historical levels and prolonged deflation we will fortify cooperation with the BOJ … and manage solid economic and fiscal policies,” Prime Minister Yoshihiko Noda told parliament.

I’m not sure how raising taxes and BOJ injections are “solid economic and fiscal policies,” but lets look at the banks balance sheets to see what’s really going on.

Mitsubishi UFJ Financial Group

52 week stock return is -13.46%

Return on Equity  5 Yr. Avg:  -1.13%

Sales %:  -7.52

EPS %:  -54.21

Debt has also risen since the 2008 crisis.

As weak as these financials are, what I found intriguing is Bank of Tokyo-Mitsubishi UFJ, a unit of Mitsubishi UFJ Financial Group Inc. is planning to domestically issue subordinated straight bonds for retail investors. What’s intriguing is the following statement where it says the bonds can’t be redeemed until the sixth year and beyond. In other words, loan us money so we can get through these trying times and we sure do hope to pay you back down the road…

The bonds, which carry maturities of up to 10 years, can be redeemed from the sixth year and beyond. The bank will issue Y110 billion worth of the bonds, according to a document it submitted to the Finance Ministry.

Mizuho Financial Group

EPS – 5 Yr. Growth Rate: -24.36

Sales – 5 Yr. Growth Rate: -5.70

Stock price 52-Week Change: -25.49%

Net income is half of what it was last year.

Sumitomo Mitsui Financial Group, Inc

Net Income: -24.8%

Qtrly Revenue Growth (yoy):  -8.80%

Qtrly Earnings Growth (yoy):  -47.90%

Stock price 52-Week Change:  -12.13%

This financial data doesn’t really scream BUY to me. What happens when interest rates rise? Will these banks be loaning more or less? If you are the owner of a bank today, do you really want to lock in a long term interest rate less than 5%? Too much risk.

While we don’t know exactly what Central Banks of the world are doing in propping up European, Asian and U.S. banks, we do know what happened in 2008 when they had to play catch up. But is was the U.S. dollar that people of the world ran to, even though our entire financial system was crashing. We also know, as far as the European banks go, the stress test of 2010 was a farce. When looking at what you can expect in the future, even though there might be short term manipulation to get you to think otherwise, look no further than the banks balance sheets. They tell the true picture.

The Ship Analogy

All currencies are on a ship. On one side we have the U.S. dollar and on the other side we have the Euro, Pound and Yen as the big players. Investors like OPEC  spend time running from one side of the ship to the other, looking to maintain their purchasing power. Right now investors are running to the U.S. side of the ship despite the last few days of Euro strength. The Euro is in trouble and soon the Yen will be in trouble. This represents 71.2% of the U.S. dollar. What would you do if you were OPEC? They may say one thing as the U.S. and Iran play chicken with the nuclear issue, but it seems logical enough to me that they are betting on the U.S. dollar right now.

But all of these investors chasing these currencies back and forth need to know that this ship is sinking. All currencies are in a mad dash to become cheaper to make their products more attractive to overseas buyers so that these countries can export more goods in trying to help their own economies. Investors don’t realize that this currency filled boat is taking on tons of water in the engine room. They don’t realize that the purchasing power of these currencies has been decreasing for the last decade. So while the U.S. dollar may be the current benefactor of the Euro and Yen decline, it too will eventually lose purchasing power. Investors need to turn to the lifeboat that gold and silver provide. No other investment has performed as well as gold and silver the last 11 years.

We’ve had a current upswing in the price of gold and sivler with the dollar fall the last week or so. I am still thinking we get a stronger dollar based on the above analysis. This could, over the short term, still have an effect on gold and silver prices to the downside. I have been waiting for that one last shake out in gold and silver. In my 2012 predictions article I said that I don’t see a terrible year for the  stock market because it’s an election year. Obama will do all he can to prop up the stock market. This can’t be discounted. Republicans would love for the stock market to fall, but they don’t hold the reigns to the Federal Reserve horses. The March – April time-frame will dictate where we go. It was in March of 2008 that we saw gold and silver get hammered with a stronger dollar. If the Euro does fall to the 118/ 119 level as I expect it to, the Dollar will rise to the 88/89 level. The Yen is the only wild card at this point and if it does finally begin to implode, it will push the Dollar Index up even more.

The ECB and IMF are trying to come to agreements as we speak with Greece. It has been a difficult situation for all involved. Greece is nothing compared to the other countries that are trying desperately to keep the status quo. They won’t be able to. This will be the big story of 2012. Not the U.S. dollar decimation as many other in the precious metals industry may claim. The dollar’s time will come. But for now, treasuries are still strong and “perception” is the U.S. is still the last bastion of safety. Till it isn’t.

1/25/2012 Addendum: The Federal Reserve, in their infinite wisdom (which I am saying sarcastically) has come out today and said they would extend the low interest rate policy into the end of 2014. This has been dollar negative and is just plain old stupid for them to say right now when everything was going fine, on paper at least. Interest rates were already low, the stock market trending up and gold and silver trending down. Then they do this. It makes no sense whatsoever, unless they had certain banks in position to profit from the news. There is no dowubt the Fed will do all they can to help the banks out. I still believe in what I wrote about above with the Euro, Yen and the U.S. Dollar. The U.S. will still be considered the last bastion of safety. And again….till it isn’t. But there’s time to play this gold and silver market. Fools rush in. Good investors dollar cost average in.

I do agree with Peter that these 1/2 ounce fractional coins are better for barter than the one ounce gold coins, but I also like the 90% silver bags which my customers can get for about 1% over spot, including commission. And old 1964 Roosevelt dime could buy you a loaf of bread in 1964. Today’s silver content, at just over $2, can still buy you a loaf of bread. These silver coins hold their purchasing power, and they only made so many of them which means there could be some scarcity appreciation associated with them in the future.

One can call Buy Gold and Silver Safely and buy these gold or silver coins today by dialing 888-604-6534.  No special pricing or time limits. Just everyday low prices.

While some well known trend forecasters like Gerald Celente were predicting a crash in 2010, I was taking the opposite side saying that “I don’t see it happening as quickly as Celente does.” In September of 2010 I cautioned traders in gold and silver mining stocks to think about taking profit. The HUI at that time was trading around 525 and today, 15 months later, it is trading at 516. I also at that time said the “ProShares UltraShort 20+ Year Treasury (TBT) is in uncharted territory. What this shows is that people still have faith in treasuries. In fact, what we are seeing is the perceived safety in treasuries as the deflationary credit contraction continues.” This concurs with what I wrote about in Chapter 4 of my book, “Buy Gold and Silver Safely” and how we were in the midst of an overall deflationary credit contraction. Today, TBT is trading right at 18.45 and within the next year will be a great long term buy.

We did get the Fed implementing quantitative easing since September of 2010, but the deflationary forces are still in play. Just look at the strength of the 10 year treasury which now has a yield below 2%.

I also said in September 2010 the stock market is trending higher. It was 10,800 then and today it is at 12,438. Regarding physical gold, I said the following;

Putting capital in precious metal stocks or leveraging gold and silver are trades, not investments. The only real investment one needs to make is in physical gold and silver. You buy it for that allocation to your portfolio and you forget about it while keeping tabs on political and economic happenings. This is what I call peace of mind.

Gold was trading at $1,310 then and today is trading at $1,644.

In January of 2011, and throughout 2011 I have been recommending investors in gold and silver dollar cost average into a position. I still feel this is the best approach today. Here is what I said;

The fact that price is secondary though is twofold. As the price of gold and silver move lower, you are obtaining a better overall price by dollar cost averaging in, waiting for the future price of gold and silver to move much higher.

So where are we today?

2012 PREDICTIONS

Things are shaping up nicely for some good moves in 2012. But this is a more difficult year to predict because it is a Presidential election year. I start my predictions off with what I think will occur politically because it is at the base of any gold, silver and stock market movement this year.

Many of you may not know, but I write quite a bit about politics too on my other blog We the Serfs! in preparation for a book I have been working on for 5 years now. It is a Christian/Political site that I hope brings awareness to people who are being influenced by the media to think the way they do. I have spent this time putting the pieces of the puzzle together the same way I clearly see how CNBC commentators criticize gold constantly.

There is no doubt in my mind that President Obama will pull out all stops to get elected again. If the stock market begins to resume its bear market trend like Dow Theory Letters writer Richard Russell thinks it will, then Obama will implement a third round of quantitative easing to “boost” the economy. All he really cares about is 4 more years. He doesn’t care about the economy. He, along with the Federal Reserve, are complicit in destroying the economy with all the easing they have been doing. They are only setting us up for a bigger fall, whenever that fall comes.

How do I know this? How can I predict that Obama would go so far as to hurt the economy to continue his quest for power? Because it was Obama who decided to announce the capture of Osama bin Laden to the world to make him look like a hero, rather than process the intelligence the military had gathered at the bin Laden compound and quash any remaining connections with Al qaeda. He was so excited to look good, he didn’t allow military intelligence to do their job. This is our “Commander in Chief.”

Obama also gave us QE1, QE2, secret bailouts by the Fed of the banks, and a second term of Ben Bernanke.  So while the stock market is temporary propped up, it is more a result of the Europeans putting their money in the U.S. while they sort their mess out, than it is as a result of any Federal Reserve action. That’s why the Fed is sending money to European banks. They can’t afford the domino effect to occur should some key European banks begin to implode.

Speaking of imploding, one cannot discount what happened to MF Global this last year. It is a sign of things to come and how complicated matters will be for the nations top banks that are playing the sub-investment grade derivatives market. These banks today have sub-investment grade derivatives coming due in the next 1-5 years and the only real counterparty to them will be the Federal Reserve. The dollar value of these derivatives is over $4 trillion which is more than at the height of the 2008 financial crisis.

When these banks start imploding, it will signal the beginning of the third, “euphoria” stage for gold and silver. They say that investors lost anywhere from $600 million to over a billion with MF Global. It’s also said that MF Global did a deal with Goldman Sachs just before the declared bankruptcy. Doesn’t it amaze you how much Goldman Sachs or their former employees are in the center of controversy? The CEO of MF Global was former CEO of Goldman Sachs, Jon Corzine. Corzine also spent over $62 million of his own money on his successful Senate campaign, the most expensive Senate campaign in U.S. history.

This is the day and age of big money or personal wealth getting what you want. Just ask Mitt Romney who spent $17,413,736 of his own money on the 2008 campaign and raised another $62 million from private donors and PAC’s. His campaign ended 2008 with $17,350,000 in debts. Ron Paul’s 2008 campaign raised $28 million by comparison and he ended up $4 million in the black by the end of the campaign, money that went to start Campaign For Liberty.

It is said that Obama will spend hundreds of millions to get elected to a second term. He’s already raised $99.6 million and Romney $32.6 million for the 2012 race. Ron Paul on the other hand has only raised $12.8 million, is polling consistently in second place and the majority of his contributors, a full 60%, have given $200 or less. 61% of Romney’s contributors have given the max of $2,500.

Presidential Prediction

If Obama is elected, make sure you are “all in” for your allocation into gold and silver. He has no plan for making the necessary cuts.

If Romney is elected, make sure you are “all in” for your allocation into gold and silver. He has no plan for making the necessary cuts except for Obamacare, but even that’s not enough.

If Paul is elected, it may take some time, but he will cut $1 trillion immediately from the budget, returning us to the 2006 budget. I would sell any defense related stocks, but wouldn’t necessarily sell your gold and silver because Ron Paul believes in the gold standard and competing currencies allowing gold and silver to trade right along side the U.S. dollar. This would be bullish for gold and silver as it would also eliminate the higher capital gains tax associated with precious metals.

If people had a chance to choose what currency they would want, then this would force the Fed’s and Congress hands and cause them to live within their means or suffer the demise of the dollar. The demise of the dollar would possibly mean a return to the gold standard, which the Fed does not want and neither does Congress. Austerity is nothing Congress wants. Ron Paul is good for the economy and will reduce the size of government. I see an eventual win for gold and silver but would think about converting that wealth to other beaten down investments like income producing real estate at some point (how many gold dealers do you know that would say that?).

Some of you may repeat the media mantra that Ron Paul can’t win. I have documented their attempts to influence the watcher of their shows to bring about awareness. The interesting thing is it’s not just the right leaning stations that do this to Ron Paul, but the left leaning one’s too. One has to ask why, collectively, they don’t want this man elected. One clue is simply this; they don’t want anyone to mess with the Federal Reserve. Without the existence of the Federal Reserve, Congress wouldn’t be able to cowtow to the special interest groups that throw millions at Congressmen to get what they want. It goes deeper than this, but you’ll just have to wait for my book as it is too much to talk about here and I’ve already taken up much of your time on this political issue. On a personal note, I am voting for Ron Paul and I hope he wins as I do believe it is the last chance America has to right the sinking ship.

Economy Predictions

While lately there has been some good economic news in unemployment and other areas, the cracks in this Humpty Dumpty economy are growing ever larger. As discussed earlier, banks are still not marking to market their assets (cheating) and they still have over $4 trillion in sub-investment grade derivatives coming due in the next 5 years, more than at the height of the 2008 financial crisis. The Dodd/Frank Financial reform bill did nothing to curtail these banks and this is an utter failure by Congress. They should have known if Dodd’s name was associated with it that it would fail. Dodd gave banks the ability to screw us all. Same could be said of Frank who told us Fannie and Freddie were fine.

The unemployment rate doesn’t take into account those not looking for a job any longer. How many people do you personally know in this situation? When you drive around town do you see empty office space windows with “For Lease” signs in them? Companies like Barnes and Noble, Kodak and American Apparel are on their last legs. Look at the cash flow for the last three years of these companies. Even GM is running negative. The U.S. owns 60% of GM and we have seen our investment lose about half its value so far. Thank you Federal Reserve for brokering that deal for us!

It is a cash crunch that many companies are feeling. If they are not prepared to weather this credit contraction, they are forced to lay off people in a last ditch effort to right the ship. Since banks aren’t lending in this kind of economy, the only thing left is bankruptcy or going out of business completely.

The retail sales from this last Christmas season were disappointing despite the media’s attempt to make Black Friday look like the best day ever. If the media can convince you that everyone else is out spending, then maybe you will go out and spend too and we’ll all have a nice Christmas! However, retail returns were at a record and I imagine it was because the recipient would rather have the cash than a new blender or toaster.

As to our own government debt, the debt ceiling was lifted again in 2010 and will be lifted again here in 2011 to over $16 trillion.

To understand how Congress works versus the individual, take a look at this video which you will be glad you did;

There won’t be any job growth anytime soon. There won’t be any new manufacturing companies started in the U.S. to bring manufacturing back. The economy will sputter along and if we do get the pullback in the stock market, the Fed will implement another round of quantitative easing. The economy and stock market could benefit this year from the European and Japanese economic and currency shakeup. Because this is an election year, don’t expect Congress to do anything drastic. Obama is talking the game to get elected like cutting the size of the military, but I don’t believe a word he says. Politicians will always do what is in the best interest of the banks and the Fed will always drive us deeper into an economic black hole despite their claimed good intentions and mandates.

Stock Market Prediction

Valuations don’t matter any longer. A refresher in where historical returns came from might be in order to understand what I mean by that.

Stocks used to pay nice dividends. On average this accounted for 60% of stocks historical return of 10%. This means the remaining 40% of the return came from capital growth. Today, dividends amount to around 2%. This means that a full 80% of one’s return has to come from capital growth. There has been no time in the past 100 years where a price earnings ratio around the current 21 mark results in a positive stock market over the next 10 years.

From current and recent levels in the P/E ratio, expected returns will be disappointing for many investors. Pundits are professing: “Returns will improve when the economy begins to recover!”. Hope is not a strategy. Ed Easterling Author of “Unexpected Returns”

Do I think there is manipulation in the stock markets? For sure. I used to never talk about manipulations, until a recent Bloomberg article revealed what I had always speculated where via the Freedom Of Information Act (FOIA), they were able to obtain from the Federal Reserve the secret financing arrangements with banks and European entities. Of course Federal Reserve Chairman Bernanke denies this, but are we to trust one of the individuals who got us into the mess to begin with? While many in the investment world have known that market makers at the NYSE routinely front run stocks, and Congress even is allowed to trade on insider information, it’s the little guy who always ends up getting hurt. Is it a rigged game against the small investor? Not if you know how to play the game.

With all this in mind, I don’t expect the big downfall in stocks that Richard Russell and others say is coming. I do expect it to occur at some point in time, but as I mentioned above, Obama has the quantitative easing trick up his sleeve if he needs to use it to get elected again. This will help buoy any downturn in the stock market, and help lift it to levels he needs to get elected for a second term. It doesn’t mean anyone will get rich in the stock market this year. Eventually, all of this interference by the Fed will wreak havoc on the stock market and the resumption of the overall bear market that Richard Russell speaks of will come to fruition. My preliminary guess is this will occur in 2013.

Gold and Silver Predictions

There are so many gold bugs that talk about the fall of the dollar. But in a deflationary credit contraction, the dollar actually rises along with treasuries as the “safe haven.” Dollars still represent an asset. The dollar index, made up of 57% the Euro and 13% the Yen, has 70% of it countered by lousy economies that are sure to decline putting pressure on their own currencies to perform. By default, the U.S. dollar will benefit.

But there will come a point in time where gold and silver will bottom out and the dollar should continue to rise. This will break a near 40 year pattern that has the dollar and gold reacting inverse of each other. When do I think this will occur? I believe we get one more push down in gold and silver. This will catch all those who recently bought off guard, especially those on leverage. It will challenge them to keep their investment during the downturn and have second thoughts as to why they bought gold or silver to begin with. The financial media will say “the gold bubble has popped” like they tried to do last year and the year before. They will of course be wrong.

We have just had a nice downturn in gold and silver. I don’t have any clients selling and I have been telling them to dollar cost average into a position the last 15 months. Dollar cost averaging is still the call. There will come a time when I call a bottom on gold and silver and I think it will be this year. This will signal, in my book, the beginning of the third “euphoria” stage in gold and silver. This is where the prices will go to “undreamed of” heights as Richard Russell has said. The undreamed of heights won’t occur this year but I do think we break the all-time high easily by 2013. Can we break it this year? Sure. The banking system in Iceland caused the Krona to fall 75% in one year so things can happen quickly if the banks begin to implode because of the sub-investment derivatives ticking time bomb. This is why I recommend that no matter what the price is, you have some gold and silver in your hands.

Right now, dollar cost averaging means you take price out of the equation. You buy some gold and silver now, you hope the price falls lower so that you get an overall better price. Our government, sans Ron Paul, will see to it that the future price appreciation arrives. Unfortunately, it will lead us to a possible depression, especially if they keep implementing quantitative easing and Congress passes another TARP like program to help the banks. The medicine that’s needed for the economy is to make cuts and make them now, not to borrow more and spend ourselves into prosperity.

Just like you saw in the video above, we are enslaving our children and grandchildren with the nonsense the Federal Reserve and Congress are doing today. They are the ones getting fat off of their wheeling and dealing in bailing out their favored sons. Don’t let it happen again. But since we know Congress pretty much does what they want, with a complicit media, the insurance that gold and silver provides is the only remedy. One must protect themselves from the coming collapse of the economy. Buying gold and silver today at these prices or a bit lower will be the best move you ever made.

Have a great year and do your homework on the candidates. I will announce when my book “We the Serfs!” is available.

Most reading this might not realize that the Fed secretly gave banks and other countries $7.7 trillion during the 2008 financial crisis.

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day.

The reason you may not find many references to the Bloomberg article is of course Bernanke’s rebuttal claiming that “it’s not true.” He made reference to the steps that have been taken since the financial crisis of 2008 to shore up the banks and make sure something like this doesn’t happen again. But what he said, I have a huge problem with. Let me preference this analysis with the fact that it was the Fed Chairman policies of Alan Greenspan and Ben Bernanke that created the bubbles that eventually burst through their low interest rate manipulations. For more on this read “Meltdown” by Tom Woods, PhD. Bernake’s rebuttal:

The words by Bernanke I take issue with are “including enhanced supervision for large, systemically significant financial institutions.” The  Dodd–Frank Wall Street Reform and Consumer Protection Act did nothing to reduce the amount of sub-investment grade derivatives the nations top banks have on the books and in fact, they have more than at the height of the crisis! So how is Bernanke and the Federal Reserve doing in supervising these “too big to fail” banks? Not very well.

Future Federal Reserve Intervention Assumed

There is no doubt in my mind there will be a future need for Fed intervention in implementing emergency lending programs as they will be the only counterparty to these sub-investment grade derivatives. The question is, will it be secret since the Fed can never be audited and can pretty much do even more to “stabilize the markets” thanks to both sides of Congress who gave them additional powers via the Dodd-Frank bill, or will it take the form of another TARP bill funded by the taxpayers via Congress again? My guess is they’ll choose the secret route. Don’t want people to panic.

There is one more statement that Bernanke made in defense of the Federal Reserve from the Bloomberg article.

Here is what you need to ponder; if the Federal Reserve did in fact lend out $7.7 trillion, the lowest of the figures thrown around by the media (which were as high as $24 trillion), this accounts for $24,000 for every man, woman and child in the U.S. Now we know that 50% of these loans, if the money was just handed to individuals, wouldn’t be paid back, but just spent if handed to U.S. citizens. But the loans were made to banks, businesses and other countries with the assumption they would be paid back. What makes anyone think that Greece would pay back what they already owe the IMF? What about the other PIIGS that would receive handouts from the Fed (like their main banks that passed the stress tests not too long ago, which of course I knew they would because that’s how things work.

Another good question is, what would happen if the Federal Reserve did suffer a credit loss? The answer probably lies in the fact that they would somehow, publicly, never allow that to happen as they can always create money via some magical wand and press a button to have it appear to pay the debtor. The fact that they bail out their favored sons shows you to what lengths they will go to in protecting their interests and that of their connected friends. Instead of letting those banks (and businesses) that make mistakes fail, and allow the financial system to weed out the bad associated with it so the good can thrive (like credit unions), the Fed claims they must intervene. Their in lies our future. Ther in lies the reasoning to own gold and silver.

The Gold and Silver Market At Present

I am still looking for the 88,89 figure on the Dollar Index as I mentioned in my last article Confused About Falling Prices Of Gold and Silver? This would coincide with the Euro falling to the 118,119 level. The Dollar Index moving back up to these levels could also have a further effect on the prices of gold and silver.

The hard part to predict is how much of an effect because one has to remember there will be those in Europe clamoring to buy gold (primarily). Since I can say that no one is selling their gold and silver here at Buy Gold and Silver Safely, only buying, I have to turn bullish at some point, and I will.

I do expect a little bounce now after this last downturn in gold and silver, even with the dollar moving past 80 again. Silver is close to the 50% retracement which would be a good buy at $25 in my opinion. For both gold and silver though, I do expect to see that one last washout that market makers love to do with investors. They like to see “panic” and we might be getting close to that.

This current downturn is definitely going to have some hedge fund managers deleveraging (again) and mutual fund managers possibly doing some year end tax loss selling that could further put pressure on gold while the dollar moves higher with the Euro mess.

The best way to play this precious metals market, as I have said countless times, is dollar cost averaging into a position where you really don’t care much of what happens with price except that you get a better overall price as gold and silver falls. The future price appreciation is baked into the disastrous economic policy cake. So if we do get that last “blood in the streets” pullback in gold and silver, BUY!

My next article will be 2012 Predictions. My 2011 predictions for gold told investors to dollar cost average into a position. It was another good year for gold. With an election year coming, and Obama pulling out all stops for reelection in 2012, including keeping the stock market propped up, it won’t be an easy year to make predictions.

Happy New Year and have a prosperous 2012!

While many other gold guru’s, the one’s who say “the dollar is toast” or “doomed” have been telling everyone to load up with gold, I have been trying to tell people to be patient. I have likened it to the tortoise versus the hare approach to investing in precious metals. The key for me has been the strength of  U.S. Treasuries and the fact that Europe has more problem issues to deal with than the U.S. You don’t see dollar doomsday scenarios in my articles and I have only written one article on hyperinflation. This is because all along I have been in the deflation camp. But don’t get me wrong, at some point all currencies will fall collectively versus gold and silver.

Deflationary Credit Contraction

I clearly laid out what is occurring in Chapter 4 of my book “Buy Gold and Silver Safely.” It has been clear to me that the quantitative easing the Fed has thrown at the markets hasn’t worked. Real estate is still declining. Banks aren’t marking to market their assets. Businesses are still struggling to make ends meet as they try and unwind their debt. Unemployment (the real figures) is still high. All this and interest rates are at historic lows. The Fed can’t make people or businesses take out a loan, and consumers and businesses are busy reducing debt instead of making purchases or expanding. The economy is not growing as some would have you think, except for the government subsidized one’s of course.

What this means, is people are more concerned with conserving their wealth. This is what occurs in a deflationary environment. It isn’t about how to make money as it is about how to not lose money. While you will see that many financial advisors and journalists will come out with their “the gold bubble has popped” articles, keep in mind that this will be the 11th straight year that gold has finished higher with another double digit return. No other asset can lay claim to this track record the last 10 years, but some investors may still think the gold bubble has indeed popped.

Tortoise vs. Hare

The reason I continue to use the tortoise vs. the hare analogy with gold and silver is I don’t want people to think of gold and silver as much as a “get rich quick” investment, but rather, insurance against the United States unsustainable economic future. For me, it’s simple math. Perception though is another term I use often. People still perceive that U.S. Treasuries are strong and of course safe. This perception would change overnight if people knew what was on the Fed’s balance sheet and how they continue to secretly try and manipulate the economy as was just reported by Bloomberg. But you won’t hear the media talk about what the Fed does. Go ahead and Google Bloomberg’s story below. There are very few references.

Federal Reserve As Saviour?

Most reading this might not realize that the Fed secretly gave banks and other countries $7.7 trillion during the 2008 financial crisis.

Continue reading Part 2 - Including gold and silver market analysis

How Far Can the Euro Sink?

There are two key areas in the charts below that we need to keep an eye on, the 6/10 low of 1.19 and the 11/05 low of 1.16. If these are breached, could it be game over for the Euro? How much money will Central Banks and the IMF throw at the Euro to keep the game going? What will France and Germany do? We already know their citizens don’t want to throw money at countries that can’t handle their own affairs through austerity.

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Where Does This Leave Gold and Silver?

One has to realize that those in Europe are buying gold. Those here in the U.S. are somewhat confused as to what to do. They hear on one hand about all this inflation coming, but can’t understand how Treasuries have been so strong. This is all about perception. People still believe Treasuries to be safe, so foreign money is flowing into Treasuries. You can also bet that the OPEC countries have been getting out of the Euro and buying the dollar. They sold the dollar and bought the Euro when the Dollar Index was in the upper 80′s. We’ll find out soon enough, in my opinion, that they have been buying the dollar since the low 70′s.

One also has to realize that gold is still up double digits for the year. It is still viewed as a safe haven the world over, despite what CNBC might have you think. I’ve never seen a group of people so adamantly against gold.

For those of you who are in love with Goldman Sachs advice, I refer you to what I wrote about their comments on gold just one month ago via CNBC;

Just heard CNBC say that Goldman Sachs is reiterating their call for gold through 2012. Personally, I don’t trust anything Goldman Sachs says. They are a holding bank and a puppet of the Federal Reserve. The same goes for J.P. Morgan. Why exactly are they both holding banks? Why have they involved themselves heavily into the gold and silver markets? Again…stay tuned… Reference spot price of gold right now $1,780.90 and silver $34.28 with the U.S. dollar index sitting at 77.53.

While one can give Goldman Sachs the benefit of the doubt about holding through 2012, I found their timing rather odd to announce this “reiteration” of their point of view at a time when the dollar was moving higher because of the mess in Europe. Anytime I hear things that don’t make sense like this, I immediately think market manipulation. My brain is trained to hear the opposite. In this case, I was right. Gold is down $180 from that point in time and silver fell 24% since that call hitting a low of around $28.90 this week. Meanwhile, the Dollar Index has continued to climb past the 80 mark. They didn’t see this coming?

No One Is Selling Their Gold and Silver

I have been writing articles on the potential of a gold and silver decline with the rise of the dollar. This is what’s occurring. I don’t have any clients or anyone else calling me to sell their gold and silver. They understand what a mess our banks are in. They understand the Fed just gave the banks and other countries $7.7 trillion, accounting for over $120,000 per man, woman and child in the U.S. They understand there are eventual consequences to this.

Dollar Cost Averaging in on these pullbacks is the way to play this market. You buy and actually hope it goes lower to get an overall better price. I expect we get one more washout in gold and silver, possibly coming at the end of this year when you’ll see some mutual funds and hedge funds that were late to the gold and silver game (especially silver) sell their metals and take advantage of the fact they can write off the losses. This could definitely put some pressure on gold and silver prices into the beginning of 2012 along with the dollar index pushing towards the upper 80′s mark. I continually remind investors this is the tortoise versus the hare one should take with investing in gold and silver. We’re not going to fall apart as a nation overnight, but I do keep a close eye on the Treasuries for keys as to what’s going on. One can’t ignore perception. But once this perception dynamic changes, hold on to your hat.

Political Talk

I have to get political here for a moment…and for good reason. My goal is simply to bring awareness and help one decipher what they are really hearing on television versus what’s really going on in the real world.

There is no doubt in my mind that Obama will pull out all stops to get reelected in November of 2012. He still has another bout of quantitative easing as a card to play should the stock market stumble. The economy will be the key issue of the 2012 election. On the Republican side, no candidate but Ron Paul and Gary Johnson have any sense about what’s really going on with the economy and the cuts that need to be made. Gary Johnson isn’t even allowed to debate and Ron Paul is constantly criticized by the media because he wants to save money by not being the policemen of the world. He understands that these wars are unsustainable and he can do simple math. Sean Hannity, Rush Limbaugh, Bill O’Reilly, Dick Morris, all think Paul would lose to Obama. They critique his foreign policy because they love the Fed and wars. 

Obama doesn’t have a clue as to what to do either, except spend, spend, spend. Even in this last Trillion dollar budget that just passed, he is hurting those who want to buy real estate by raising the fees by thousands of dollar for loans made through Fannie and Freddie. How is this going to help the housing market when you make it more difficult to buy? But it is under Obama’s watch that we have the Fed doing two rounds of Quantitative easing that have done nothing but dig us deeper into debt and only put band-aid’s on the banks real problems. No cuts have been made or promised.

The national debt currently sits at over $15.12 trillion. The interest alone on that is $220 billion. The budget deficit we are presently running under Obama is $1.3 trillion. You can’t blame all this on Bush. Both parties are driving this country into the proverbial toilet. Don’t listen to what the media tells you. Do your own homework on the candidates and their economic plans. Only one candidate wants to cut $1 trillion immediately and that is Ron Paul. We either cut now or take the consequences of what’s to come through higher inflation and a reduced quality of life here in America. We are the world’s largest debtor nation and can’t afford the policies our government is putting on us. This is supposed to be a country run by We the People, but more and more we are all becoming We the Serfs, the title of my forthcoming book.

The charts below show what things looked like when the Dollar Index rose sharply and gold fell in 2008 from March to October where we saw the Dollar Index go from 70.27 to 82.89 and gold fall from $968 to $731.

So where are we today with the Dollar Index? The chart below shows we bounced off the low 70′s and are now heading back above 80. The question to answer is, where will it stop?

The high for the Dollar Index during the last two run ups was 89.62 in March of 2009 and 88.70 in June of 2010. These are the two areas where I would keep an eye on to see if they are breached. What would cause the surpassing of these marks? To answer this one needs to understand what makes up the Dollar Index to begin with. Why does the Dollar Index go higher or lower? It is what the Dollar Index is priced in that matters.

From the above chart you can see that the Euro makes up 57.6% of the Dollar Index. Needless to say, Europe has been struggling of late causing the Euro to fall to the 1.30 level against the dollar. The chart below shows how quickly the Euro has fallen.

The problem for Europe as a whole is that the individual countries that are causing the problems, Greece, Portugal, Italy, Spain, Ireland, etc., can’t print themselves out of this mess. So their only hope, outside of France and Germany along with outside investors, is to rely on the only one’s who can possibly help them, the ECB, the Fed and the IMF. We already know the IMF has been selling gold to raise cash to help Greece and other European countries. I pointed this out in IMF Gold Sales and Credit Expansion Maneuvers Show How Desperate Situation in Europe Is – Central Banks Step In. European Central Banks have been selling gold the last 10 years at a time when if they would have held the gold, they would have been better off today. Switzerland was forced to sell much of its gold and I’m sure the Swiss today aren’t too happy about that.

But to understand how far the dollar can go higher, and thus possibly have a further downward effect on gold and silver prices, we need to see how far the Euro could move lower.

Continue to Part 2

What he did was put those proceeds into the stock market. For reference purposes of those reading this email at a later date, the DOW at the time of his remarks was at 12,195.

What I Find Interesting About Gartman’s Decision To Sell Some Gold

Personally, I don’t think those who invest with Gartman are doing that well of late. He has said to buy gold in Euro’s, but the Euro hasn’t dropped by that much. He didn’t say to buy U.S. equities when the DOW was approaching 10,000, but says to now that it is 20% higher. Why? Is the stock market going higher because companies are producing things people want, outside of iPads and iPhones?

I don’t know about you, but I see the effects of the recession everywhere I go. I continually ask people, how is business? The answer is always the same; slow. It’s especially slow right now as the Christmas season is upon us. People are cutting back on those things they might normally do. This is deflationary. The DOW will be below 10,000 again and Dennis Gartman will be wondering what went wrong.

Can the DOW move higher on a temporary basis? Sure it can. Obama is in a reelection year for his 2012 run for the Presidency. He will pull out all stops to keep the DOW propped up, even going so far as to tell Bernanke to implement QE3 if necessary. While Bernanke will deny that he is propping up the stock market, we already know he denied helping the banks with the $7.7 trillion he gave them in the last few years.

I wish Bernanke was forced to not tell a lie like Jim Carey in the movie Liar, Liar. That would be a fun day for me. I’d especially like to hear him speak to what he has bank holding companies, Goldman Sachs and J.P. Morgan do in propping up markets, or shorting silver and gold.

What Does Dennis Gartman, Mitt Romney and Newt Gingrich have in common?

They are all flip flopper’s. I wrote about Gartman’s flip flopping on March 19, 2010 in Dennis Gartman Flip Flopping On Gold and U.S. Dollar.

We, however, are making a material shift in our sentiment toward gold this morning and we shall again mince no words as we make that shift: rather than owning gold in foreign currency terms, we wish to own it in US dollar terms, for we now fear for the dollar rather than cheer for it in the light of this battle between the President and the Banks. Where we once wished to avoid the bearish dollar bet that one is making when one owns gold in US dollar terms, in light of the battle that is shaping up between the President and the capital markets, we shall instead embrace that dollar risk.

The dollar has done nothing but go up from when he said those words. I have since heard him getting out of the dollar gold and back in again, just before gold started to fall. It’s hard to keep up with what he says, but you won’t find too many people on CNBC’s Fast Money program who are long gold and short the stock market, that’s for sure. You have to be a CNBC team, stock market cheerleader to be on that show.

Melissa Lee Up To Her Old Gold Bashing Tricks

If you watch the CNBC Fast Money show video of Melissa Lee interviewing Gartman, you can hear her try and get her digs in on gold as she is a perennial hater of it.  Here is what she asked Dennis Gartman; “You saw the price action in gold and that’s what troubled you?” Her insinuation was that because the price of gold has fallen the last month, it’s time to get out. Excuse me Melissa Lee, did Congress somehow balance the budget? Did Congress somehow get rid of the $15 trillion debt? Did the Fed not just get caught handing the banks $7.7 trillion? Do you not understand what the future holds? Evidently not, as you were the one who told everyone to get into equities right before the stock market crashed. The interest on the debt alone will be a huge future problem once interest rates start to rise. That’s why the Fed is pulling out all stops today to try and keep them low….to “stimulate’ the economy, leading to only temporary bumps in business. By the way, the $7.7 trillion the Fed gave to the banks….comes out to about $2,400 per man, woman and child in the United States. If they wanted to stimulate the economy, that would have been a better plan. Instead, the Fed’s favored sons got to give their executives bonuses. The Wall Street Journal estimates that total compensation at large financial services companies rose 5.7 percent to a record $149 billion in 2010.

All data below from; AFL-CIO

Goldman Sachs CEO in 2010, Lloyd C. Blankfein received $14,116,423 in total compensation.

JPMorgan CEO in 2010, James  Dimon received $20,816,289 in total compensation.

Wells Fargo CEO in 2010, John G. Stumpf received $18,973,722 in total compensation.

and the kicker; now bankrupt MF Global CEO in 2011, Jon S. Corzine received $14,245,157 in total compensation. For those that haven’t been following the MF Global bankruptcy and the lost money, if you have the time, this is a good synopsis: MF Global and the great Wall St re-hypothecation scandal.

CNBC Spins Headlines of Gartman Selling Gold

Of course CNBC itself, as a media outlet, had to spin in their headlines what Gartman said. The entire story said nothing about Garmtan selling 1/4 his gold, but rather just that he sold it. Check out what they said in the screen capture of their article below.

The media also spends most its time promoting Newt Gingrich instead of someone like Ron Paul who can help get this country back to the glory days again. Newt Gingrich will drive this country into the ground if elected President. So will Obama if reelected. They have no concrete plans to fix this economy. So while CNBC mocks gold on a daily basis, they can’t hide the fact that our country is broke and the banks are skating on very thin ice. But for the meantime, the dollar is moving higher because Europe is skating on thinner ice. While this is occurring, as I have been saying, gold and silver will feel the pressure. This is the time to dollar cost average into a position if you haven’t bought any gold or silver yet. The debt isn’t going away and will get worse once interest rates start to rise and inflation rears its ugly head. We are a ways away from that. The banks aren’t going to see the real estate they have on their books at much higher valuations, return to those once lofty prices anytime soon either.

Deflation still has it’s hold of this economy as we weed out the bad either by default or by bankruptcy. But the Fed will always be there to bail out banks and countries. The world’s Central Banks and the IMF will put together some sort of package to help out the Euro. It won’t work. The only thing these cats do is put temporary fixes on things and get the media to hype it. In the long run, none of these things fixes anything. That’s why you own gold and silver. It’s insurance against what’s to come. It won’t be pretty. Dennis Gartman can sell his gold today, but he’ll be buying it back in the near future once the trend reverses.

Can the IMF save Europe?

In one sense, the IMF is looked upon as the worlds’ Central Banker. When countries need funds because of a financial/monetary/natural crisis, the IMF is ready at the door to lend, as long as they get a payment in return known as interest. So this is who Europe is looking to in helping out even more than they already have with Greece by possibly loaning to other Eurozone countries and helping to stabalize the Euro (or save the Euro).

Continued from the article referenced above, Euro zone leaders have agreed belatedly on one half-measure after another but have failed to restore confidence and someanalysts now see a Dec. 9 Brussels summit as a make-or-break moment for the euro. Finance ministers agreed on Tuesday night on detailed plans to leverage the European Financial Stability Mechanism (EFSF), but could not say by how much because of rapidly worsening market conditions, prompting them to look to the IMF.

This begs the question, can the IMF save the Euro?

The short answer is, not if the Central Banks don’t step in and help fund them. The long answer reality, as explained in this article, is the IMF is only as strong as the funds that come in from other countries continue to support it during this world wide recession and that’s hard to do as the IMF balance sheet shows declining income and assets while they try to help save all these faltering nations, including most recently Iceland.

IMF Income Declining As Unrealized Losses Mount

By looking at the following chart, one can see the IMF balance sheet is not one an average “astute” investor would want to put their hard earned dollars into, if in fact it were a company one could invest in. Interest Income is down considerably and Unrealized Losses dwarf any future income potential.

The numbers are priced in Special Drawing Rights (SDR’s), a unit of account used by the IMF which presently consists of the Euro, Pound, Yen and Dollar. According to the IMF, the value of the SDR was initially defined as equivalent to  0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however,  the SDR was redefined as a basket of the four currencies just mentioned. The U.S. Dollar Index is similar in that the dollar is priced in a basket of other currencies;

So the Euro is part of the IMF accounting unit that all countries are bailed out in, as well as the major portion of the U.S. Dollar Index. Is it no wonder the Central Banks are pulling out all stops to try to save it? On another note, ever wonder why CNBC always talks about the dollar falling or rising, but never puts the Dollar Index on their moving ticker? Why is that? It’s only the most important financial baramoter in the world. Instead they put the price of other currencies, primarily the Yen, Pound and Euro on the ticker, but never the Dollar Index. I personally look at the Dollar Index every day, along with many other things. The dollar is not just the Yen, Pound and Euro. Wake up CNBC!

SDR’s, the Dollar and Gold

But here’s where it gets interesting. The U.S. dollar used to be redeemable in gold and equivalent to one ounce of gold or 20 Federal Reserve Notes (FRNs). Today gold is around $1,740 while 20 FRN’s are still… 20 FRN’s but with one caveat…they are no longer redeemable in gold.  In 1944, SDR’s used to be the equivalent of 1/35 an ounce of gold or 0.888671 grams which today is the equivalent of about $50.00. In 1971 Nixon refused to redeem any dollars for gold. In 1973 SDR’s severed its relationship with gold. The collapse of Bretton Woods was the result.

What Does the IMF Think of Gold Today?  

While the IMF might have cut the SDR ties with gold, just like all Central Banks, they kept the asset on their books. Why is that? The answer is because it gives the perception that gold have value. It gives the perception that gold backs currencies, even SDR’s. Nothing could be further from the truth. Currencies are only backed by the full faith and credit of the issuing government and their Central Bank printing presses. But while the IMF may be perceived as the world’s Central Bank, they have to manage their financial affairs just like any other country. We’ve seen above what their balance sheet looks like, but does that tell the whole story of what the IMF is up to?

It might be a surprise to some that the IMF has been dumping over 400 metric tonnes of gold the past few years. Germany, the so called savior of the Euro, has also been selling gold. Isn’t this what a family does when they run out of cash to pay bills? Don’t they dig into the jewelry box and head to the pawn shop to raise cash? But that family looking to cash in valuables can’t do what Central Banks can do; print money. And they can’t create credit out of thin air either like the IMF just did by asking other countries to chip in more. So who will chip in more? The good ol USA of course. Your Congress gives the IMF billions.and will continue to do so unless you stop it. Are you happy bailing out Greece? How about

The IMF has 2,814 tonnes of gold left today.

IMF Expand Credit 10 Fold

On March 11, 2011, a ten-fold expansion of the IMF’s New Arrangements to Borrow (NAB) became effective, increasing available borrowing lines under the NAB from SDR 34 billion to SDR 367.5 billion. Haven’t we seen this before? How can more debt added to debt solve anything? Who the heck do you think will pay for that debt?

Answer; YOU!

There’s nothing in the street
Looks any different to me
And the slogans are replaced, by-the-bye
And the parting on the left
Is now the parting on the right
And the beards have all grown longer overnight

I’ll tip my hat to the new constitution
Take a bow for the new revolution
Smile and grin at the change all around me
Pick up my guitar and play
Just like yesterday
Then I’ll get on my knees and pray
We don’t get fooled again
Don’t get fooled again
No, no!

YAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAH!

Meet the new boss
Same as the old boss

Won’t Get Fooled Again, The Who

Ironically, this song came out in 1971….the year Nixon separated the dollar from gold.

Gold and Silver Correction

I thought it might be appropriate to quote from Rogers book Hot Commodities where he wrote a section called “Warning! There Will Be Setbacks.”

P. 26,27

I cannot promise a stairway to heaven. No bull market in any asset has ever gone straight up; periodic corrections will always occur. In this bull, too, there will be corrections; things will go down. And when they do, the smart investor will buy more. In the last commodities bull, which ran from 1968 to 1982, commodities went up and down slightly for the first three years and then spiked more than 200 percent on the CRB Index, went down a bit, then up a bit–and then plunged 53 percent over the next year. Commodities gained 22 percent on the CRB by 1977, only to lose 15 percent of that gain the following year. After five years of ups and downs in the same range, one might have thought that commodities had stalled. But one would have been very wrong–and would have missed another 104 percent spike in prices before that bull market ended in 1982.

The bottom line, is we are in one of those gold corrections that Rogers warned about. At the same time, we have a dollar bounce seeing the index march towards the 80-85 range. This is a normal pattern whereby when the dollar bounces, gold and silver move in the opposite direction. Gold in the $1,500 range and silver in the $25 range would be a screaming buy and I hope we get there.

Reminder of Why Gold and Silver Will Move Much Higher In the Years To Come

The following links lead you to the big picture in understanding what’s going on in our economy. I wrote about these in an article on January 11, 2011; Money Magazine Joins The 2011 Gold Bubble Crowd – Deja Vu

• Double dip in housing is almost here
• Commercial real estate loan delinquencies are rising with more problems ahead
• Government spending is still what’s propping up GDP
• Banks have more sub-investment grade derivatives than at the height of the financial crisis
• Manufacturing recovery dies in terms of unemployment
• The American Recovery and Reinvestment Act (more stimulus) is only a temporary solution
• U.S. States continue to face large budget gaps
• Despite seasonal job growth, future employment looks dim
• Pension plans are underfunded
• Medicare is gaining 7,000 new 65 year old baby boomers a day

Being that it is an election year in 2012, you will find Obama pulling out all stops to get reelected. You won’t find a Republican candidate, sans Ron Paul or Gary Johnson, who will make a difference in cutting what needs to be cut. Just look at the failure of the Super Committee to make simple cuts to the deficit. They aren’t even addressing the debt! How can Congress be taken seriously when they don’t take the necessary steps to reduce debt? This is a joke…on us.

Race To the Bottom

There is another section of Rogers book warning how China has caused some of the gain in commodities and they will also cause some pain; “When China sneezes, the rest of the world will be reaching for Aspirin.” We may be seeing some of this occur now. Rogers advice is to simply buy the dips. He says that prices should continue to rise through the year 2015 and the Chinese are not about to disappear. It’s where most of us Americans get out stuff from still right? While not all Chinese benefit from being the producers for the world, their people’s overall wealth will continue to increase and they do have access to gold. The students their also know the value of the dollar and mocked it when Timothy Geithner was giving a speech to them when he mentioned a “strong dollar.” We Americans should mock him too..as this strong dollar we are currently experiencing is only at the expense of the weaker Euro. Soon, it will be a race to the bottom.

Euphoria Stage for Gold and Silver

Despite these gold and silver corrections that we are experiencing, even though today we have an uptick in gold and silver somewhat flat, we have not even come close to entering into the “euphoria” stage for gold and silver yet. While the euphoria will be there for those who own gold and silver, it won’t be there for those who haven’t planned ahead and acquired any of the metals. Patience will pay off in acquiring and the prices you get by dollar cost averaging into a position over the next few months will see you being a part of the excitement in the years ahead. Your hardest decision will be, “when to sell.”