May 28, 2009
The dollar is out. The U.S. dollar index has fallen 5% last week.
Treasury bonds are quickly falling out of favor. The yield on 10-year Treasury bonds has climbed from 2.5% to almost 3.5% since March signaling inflation fears and an unwillingness to fund ballooning government borrowing.
Gold is hot. Gold prices are back on the rise and gold stocks have done even better.
When Gold Climbs, Silver Soars
In the past few weeks gold has been getting a lot of attention. With all the big money finally taking a liking to gold, the attention is justified. Remember, a turn in the big money’s attitude towards gold must happen before gold can break through the $1,000 mark and stay there.
The excitement surrounding gold’s surge has only pushed silver further onto the back burner. (You don’t hear about any major hedge funds loading up on silver do you?) And that’s the point. Gold is hot and silver is – in a relative sense - not.
So if you want to find an investment which isn’t so hot but still has a lot of potential in an inflationary environment, you’d want to look at silver. When you do, it won’t take long to realize silver – at current levels – could easily trounce gold in the months and years ahead.
That’s right. Silver has a much brighter future than gold. All you have to do is look at the silver/gold ratio to see how potentially lucrative the situation has become. Full article here.
"Major dislocations are coming. Tremendous disruptions are coming. Price discontinuities are coming. Price chart patterns might be rendered useless soon. Last week, the case for a grand Paradigm Shift was made, covering many elements in order to paint a mosaic. Taken in isolation, any one point is important in its own right, but not enough to convince of a structural change. Taken in entirety, the many points create a full picture that is more easily recognized. The ruinous events of the Wall Street banks last September and October surely served as an extreme event loaded with profound disruption. The Chinese have proceeded with a transition to yuan-based domestic banking, with an installation of yuan swap facilities around the world, with an ASEAN regional fund again supplied by yuan for flexible purposes, with permission granted to two Hong Kong banks to sell yuan-based bonds, with an admitted rise in significant gold bullion reserves, and with continued verbal battles over legitimacy of the USDollar as the global reserve currency. These Chinese initiatives in recent weeks, occurring rapidly, are serving as a collective extreme event with the potential for profound disruption. A gold-backed yuan currency would surely cause massive disruption in a climax merger of events. The barter system set up between Russia and Europe will bypass the US$-based settlement system, as will the barter system set up between Russia and China. The avoidance of contract settlement in USDollars would result in extreme disruption to the global banking system. The creditor nations are plotting to organize and launch alternative currencies, maybe to fortify existing currencies (like the euro or yuan or ruble) with a gold component, maybe also with a crude oil component. A challenge to the USDollar by asset-backed currencies would result in extreme disruption to the global banking system. The hidden nitroglycerine to the disruptions is the Russian military, and any pledges of support for nations attempted to force systemic changes. These are just some important examples of change agents. All Paradigm Shifts result in extreme disruption. That is the essence of Paradigm Shifts. The entire table changes, like its shape, its seats, its location, even who sits at the table, and in particular who sits at the head of the table. Big disruptions are to come from the COMEX pit of corruption, the central nexus for controlling illicitly the price structure for gold, the USDollar, and the USTreasury Bonds. The COMEX in all likelihood is the weakest link in the US-UK chain of corrupted financial markets. For many months my view has been that gold fights the political battles, while silver gathers more than its share of rewards and spoils. Gold has a long history of experience fighting grand battles. It can be placed in dungeons, but not for more than a couple decades. The rot in financial systems without golden foundations forces gold to the surface!
THE HITMEN COMETH
It has come to my attention that several private parties have accepted contract assignments to neuter the COMEX and London Metals Exchange, to render ruin to its gold market. That bears repeating from the rooftops. MUTLIPLE HIRED HITMEN HAVE ASSIGNMENTS TO KILL THE COMEX GOLD MARKET. That is the lynchpin to control the USDollar, the USTreasurys, and the numerous mechanisms used by the New York and London financial centers of power. Their behavior is beyond the reach of those who seek justice and remedy, but they are not beyond the reach of hitmen. The USDollar has been in violation of the US Constitution since 1971, perpetuated by a series of wayward administrations. The global creditors for the USTreasury Bonds are so angry at the past suffered losses, the prospect of deep future losses, and the perceived impropriety laced throughout the US financial system, that they have hired third parties to kill off the US$-gold platforms, to harm the vehicles used by the US-UK bond peddlers who control the gold cartel itself. They have systemically been dismantling the COMEX pillars and levers over the last several months, quietly and without fanfare, surely without publicity. The upcoming events might be as swift as brutal.
The HITMEN have been hired, with highly lucrative contracts and wide berth in methods to be put to use. Their assigned task is to neuter the major players who keep the gold price and silver price artificially low using illicit methods. A short list of targeted banks facing a sudden demise is already known, details for Hat Trick Letter members. Some detailed speculation will be devoted to the June HTL reports, since too controversial. This will be an evolving story, with new chapters soon written. The bank fatalities will be sudden. The missing US-UK levers will be immediate. Since last autumn, the global powers have aligned against Wall Street, even if the central bankers have supported it. If one wants to destroy a building, then weaken its pillars, cut a few support beams, then rush in a crowd of people, and wait for a turbulent storm. In the case of the COMEX, the accused players will crowd the corrupted building. They will sink into ruin and then oblivion.
The financial cartel dominated by the United States and United Kingdom is soon to suffer some serious blows. The list of their victims is long. The harbored resentment is great by many global players. They waited patiently for the Obama Admin to install a new group, but the old group remains due to a revolving door from the same smoky club, dominated by Goldman Sachs once more. Their influence of the USCongress is in continuation, sufficient for unwanted obsequious approval. The regulatory agencies are from the same encrusted chambers. The Coup d'Etat of the USGovt financial offices has not changed with Obama, who sounds like a refreshing leader but whose actions speak a message of obvious continuity. The channeled funds directed to Wall Street firms continue unabated. The bread crumbs to Main Street and the people continue unabated. The primary changes are boardroom involvement and hastened bankruptcies, if not bondholder violations.
Some might wonder what was the turning point that resulted in hired hitmen to be under contract against certain US financial markets. Some might say the failures of Lehman Brothers, American Intl Group, and Fannie Mae. Not so! In my opinion, it was the invasion in the South Osettia region of Georgia in August 2008. The events around Georgia lit a fuse that set off a chain of events, with reaction starting in Moscow. In time, events led to orders given by high level powers, for the US fraud kings on Wall Street to swallow the medicine no later than first thing Monday morning on September 15th. When the Jackass inquired as to the nature of the urgency leading into that understood stated deadline date, no answer was given. The guess of the Bank For Intl Settlements was submitted by me, and it was confirmed. Other sources, the USTreasury Bond creditors, also applied the pressure, it was told. The US financial sector has been under siege since last autumn.
COMEX STRESS NEAR A BREAKING POINT
Sources from GATA (the Gold Anti-Trust Action committee) report growing distress for participants in the COMEX gold contracts, where a commercial party is very short and in deep trouble. They have sold more gold bullion than they can deliver. They are likely one of the big banks which violate the law with impunity, with USGovt sanctioned protection. By that is meant they routinely do not post 90% of the metal as collateral that they illegally sell. This is naked shorting by any other name. There are reports of grave concern over the upcoming June gold option expiration. If too many deliveries are ordered, then the commercial shorts would be under stress for exposure for naked shorting. They will eventually be caught in a bind and default on contracts. The important loaded monthly contracts are March, June, September, and December. The COMEX has tried to limit the ability of buyers to take delivery, running them around in circles, and entangling them in red tape, all clearly restraint of trade endorsed by the USGovt. Such rules are not in effect for cotton or soybeans or crude oil or pork bellies.
Background inventory strain has come from unexpected sources. The Germans have demanded that gold bullion held in US custodial accounts be returned to their owners, with physical gold shipped back to Germany. The Dubai bankers have demanded that gold bullion held in London custodial accounts be returned to their owners, with physical gold shipped back to the United Arab Emirates. They are following the hired German counsel. In all likelihood, neither US nor London sources are in possession of all the gold held in those custodial accounts, since at least some of it probably was improperly leased. By that is meant without owner permission or knowledge. So an uproar could come soon with charges of gold bullion theft, or at least failure of fiduciary responsibility. Theft is a simpler description.
China is the biggest gold producer in the world now, but none of its output is directed to the open market. Russia is a significant gold producer also, but none of its output is directed to the open market either. A near default occurred in early April from a close call to Deutsche Bank on 850 thousand ounces of gold. The tarnished bankers at D-Bank dug up over a million ounces on the quick from the ready Euro Central Bank mine shifts in the nick of time. Never ignore the basic fact that COMEX has no vested interest in truthful accounts of the gold bullion in its vaults, since audits do not occur, some is leased (replaced by paper certificates)
FEEDERS FOR GOLD FULLY LOADED
Two important feeder systems continue to be USDollar weakness and USTreasury Bond weakness. More important than these is the systematic ruin of the major global currencies generally, but a convenient chart is not offered to track it. Just note the near 0% official rates dictated by the central banks in most countries, or the movement toward 0%. They are Politburo look-alikes, in reality. The USDollar has broken below important support at 81. Expect it to fall further after more dithering. The long-term USTreasury Note has suffered a fast rising surge in its bond yield. Its target from different perspectives is 4.1%, and right quick. These two highly favorable charts will power the gold price to new highs very soon. Nobody knows how soon, but soon. Rarely does one see both the USDollar and USTreasurys fall in value simultaneously. They are now, and will provide a jet assist to gold, which is held back only by COMEX price suppression. Their illicit maneuvers are more obvious and desperate with each passing week. Someday their actions might even be on the news. The imminent Standard & Poors debt downgrade of the UKGilt (bonds from British Govt) hit the credit market last week like a bolt of lightning. My belief is that it might have short-circuited the US-UK financial foundation, and burned out some major circuit boards. The US and UK share Third World finance characteristics.
The gold price is on the verge of a breakout to new nominal highs. The chart demands it. It needs only a trigger, in a land where potential triggers dot the charred landscape. A gold event will be unavoidable. Its chronic strain has derived from the extreme disparities between the physical market mired in shortage, versus the paper market with unlimited supply. The tail is wagging the dog here, as it has been for years, soon to end. The silver price will easily recover to the 17 level in a flash. It has already surpassed the February high. It is loading up for the next little surge to resistance that awaits at the 17-19 range. The potential sling shot momentum boost for silver will be powerful, enough to send its price to 30 with ease. Think pendulum.
NOW FACTOR IN DISRUPTIVE EVENTS, THE PRICE DISLOCATIONS, AND THE OVER-ARCHING PARADIGM SHIFT IN PROGRESS. THE GOLD PRICE COULD REACH 1300 SUDDENLY. WITH EXTREME CONTROVERSY FROM COMEX, LIKE DELIVERY DEFAULTS, PUBLICIZED CORRUPTION, AND EVEN FRAUD INDICTMENTS, THE GOLD PRICE COULD OVER-RUN THE 1300 TARGET AND HEAD FOR 1500 AND BEYOND. SILVER COULD AS A RESULT FOLLOW ITS WARRIOR BROTHER, HEAD PAST 20 IN A FLASH, AND PURSUE 30 EASILY.
Little attention has been given lately to one of the most reliable time-tested forward indicators of the gold price. The ratio of the 10-year USTreasury Note yield to the 2-year USTreasury Bill yield has always been highly reliable in predicting a move in the gold price. The simple chart of bond yields versus maturity years is known better as the Treasury Yield Curve. The ratio is more amenable to chart analysis. A breakout in the Treasury Yield Ratio is in progress. All benefits from the mid-March monetization announcement have vanished. If the 2-year bond yield remains near 1%, where it appears stuck, then the breakout target would indicate that the 10-year bond yield is heading to 4.1% at least. Yet another method targets 4.1% in the long bond yield. The presented ratio contains information on the future prospect of price inflation, in a reliable contrast of time perspectives. Knuckleheads who insist on pounding the Deflation Tables might want to check this indicator, and look at the crude oil price. It is $63 per barrel, not the $20-25 predicted by these lost troopers. Yo Mish Bro, can you spare me a deflating dime? The strict definition of money is useless anymore. The Shadow Banking system is an actual part of the real world, which you do NOT count.
To the dreamweavers out there who cling to notions of recovery and Green Shoots, bless your heart. Hope has clouded your minds. Once more you believe the purveyors of propaganda, after being nearly fatally burned. The Case Shiller housing price index this week reported a 19.1% annual decline in 1Q2009 from Q1 last year. Foreclosures in April were up 32% over last year, as the nightmare continues. That is 1 in 374 homes with mortgages in America in some process of foreclosure. A relentless decline in home prices erases household wealth, and the source of consumer spending. Consumer confidence is ephemeral and baseless. The mortgage rate has just gone above the pre-March levels, when the USFed announced they would monetize $1050 billion in both USTreasury Bonds and USAgency Mortgage Bonds. The benefit has been erased. Today's underwater mortgage is tomorrow's foreclosure, made worse by job losses. The FDIC this week reported a 25% rise in non-current loans in 1Q2009 from Q4 of last year. Greater bank losses will come, much like floods follow hurricanes. And lastly, give credit to the USGovt statrats in their busy laboratories. They decided to ramp up the Q2 Gross Domestic Product by including all USGovt rescue funds for the big banks, including the diverse funds from the many liquidity facilities. All those funds will go directly into the GDP for Q2 as a special line item. Expect a miraculous economic recovery in the second quarter, based in vapor. The stock rally since March was based in accounting fraud. These are true American innovations! They are not exportable.
CREDIT CRISIS AUTOPSY
Trace Mayer comes to the gold community with a different slant and background. He has a law scholar with emphasis on the Constitution, especially how it applies to the gold and currency topics. In his e-book entitled "The Great Credit Contraction" one can read about the historical significance of a crisis that will surely reshape the world. The global economy is built upon a currency whose illusion is evaporating before our very eyes. This book is an autopsy of the current worldwide systems and begins with financial history, discusses the current great deflationary credit contraction, projects the future environment, and concludes with suggestions on how to generate and preserve wealth in this challenging time. An appendix analyzes important topics. (CLICK HERE TO ORDER)
Jon Boone in Herat guardian.co.uk, Monday 25 May 2009 22.10 BST
United Nations officials in Afghanistan are attempting to create a "flood of drugs" in the country intended to destroy the value of opium and force poppy farmers to switch to legal crops such as wheat.
After the failure to destroy fields of the scarlet flowers in Afghanistan's volatile south, the United Nations Office on Drugs and Crime says the answer is to stop the drugs from leaving the country in the first place.
"Manual eradication is incompetent and inefficient," UNODC chief Antonio Maria Costa said during a visit to the western Afghan province of Herat. "So we want to see more efforts to stop the flow of drugs across Afghanistan's borders and the hitting of high-value targets to create a market disruption.
"We want to create a flood of drugs within Afghanistan. There will be so much opium inside Afghanistan unable to go out that the price will go down."
Officials admit that the plan is a second-best solution to intensive eradication campaigns. Last year the Afghan government succeeded in destroying only 3.5% of Afghanistan's 157,000 hectares of poppy because eradication teams were either attacked or bought off by local drug lords. But the attempt to use brute economics to tackle the country's $4bn (£2.5bn) narcotics industry instead is fraught with problems – not least Afghanistan's thousands of miles of porous borders...
...The governor of Herat province, Ahmad Yusef Nuristani, said young people in the border areas had no choice but to join the drug smugglers to survive. "They were trading areas that kept people busy with legitimate businesses so they would not be tempted into employment by the drug traffickers," Nuristani said.
Even without attempts to disrupt the flow of drugs out of the country, Afghanistan is doing a good job of destroying the value of its main export. Huge overproduction, which by some estimates twice outstrips world demand, has led to a steady fall in the value of opium. A kilogram is now worth less than one fifth of what it was in 2001. The slump in opium values, combined with last year's soaring worldwide price of wheat, fuelled hopes that farmers would switch crops. However, wheat has fallen by 30% since October and humanitarian handouts of imported wheat last winter also helped to keep prices in Afghanistan low.
Costa said his request that the World Food Programme buy only Afghan wheat had been rejected by "free market ayatollahs who think political stability is less important than free market principles".
The UNODC country chief, Jean-Luc Lemahieu, also warned that the strategy of capitalising on falling opium prices could be torpedoed by Chinese drug dealers looking to Afghanistan to supply China's growing army of heroin addicts. "I think we have a two-year window before the Chinese pick up on the Afghan market. Currently the Chinese dealers source their heroin from the Golden Triangle. The networks have not yet been established." Read all here
THE NUMBER ONE TREND-A WEAK DOLLAR
The U.S. dollar is weak, and the U.S. administration has no choice but to continue to allow the currency to weaken.
As we have pointed out in these pages many times, the U.S. has to finance huge budget deficits for this year and for the foreseeable future. This must be done by selling bonds. Primarily, the sales will be made to non-U.S. buyers. The U.S. has two options if it wants to sell trillions of dollars in bonds to foreigners:
1. Raise interest rates substantially.
2. Let the dollar decline and make U.S. bonds cheaper to foreigners who hold foreign currencies. When the dollar is cheaper, the bonds become more attractive as they have fallen in price in Euro, Yen or other foreign currency terms.
We have previously gone through the details of why raising interest rates is not viable. In short, it is too expensive, it damages current and future business conditions, it hurts exports, etc. (You may look our discussions of this topic in the Guild Investment Management archives on our website: Guild Investment)
THE ONLY REASONABLE CHOICE FOR THE U.S. IS TO LOWER THE VALUE OF THE DOLLAR.
INVESTMENT OPPORTUNITIES PRESENTED BY A WEAK U.S. DOLLAR
In our opinion, the way to hedge the weak dollar is to invest in oil, precious metals, foreign currencies, foreign stocks, and markets [if the country and the company in which you invest can grow through the current period of depressed global economic activity].
It is a simple formula: just avoid the U.S. dollar. Invest in assets that go up as the dollar falls. Oil is denominated in dollars, and it gets cheaper for foreigners as the dollar declines. Gold and other currencies [gold acts as a currency-and a very strong one at that] rise in value versus the dollar. We prefer to stick with the oil producing countries’ currencies, strong commodity currencies, and the better emerging market currencies.
We own gold shares, oil shares, Chinese stocks, Brazilian stocks, Indian stocks, Canadian dollars, Australian dollars, Norwegian Krona, and Euros. We consider Norway, China and Brazil to be well managed economies. We believe that India’s economic management is improving. The Euro represents a big and liquid alternative to the U.S. dollar, even though some of the countries in the Euro zone are not well managed.
We may change our positions at some future time, but currently this is our approach and we expect it to work very well in coming months. ...
...GOLD AND THE U.S. DOLLAR, INTEREST RATES ALL TIED TOGETHER
Interest rates have been rising in the U.S. People must have come to the realization that there is going to be a big auction of U.S. Treasury bonds this week, and the U.S. government had been doing less quantitative easing than had been hoped for. This has caused U.S. interest rates to rise and will undoubtedly cause the U.S. dollar to continue to fall over the longer term as the U.S. tries to sell trillions of dollars of bonds to an unwilling buying public. As we mentioned earlier, there are two ways to entice buyers from these bonds.
1. Raise interest rates substantially. Interest rates are rising somewhat, but raising them substantially is not an option because it would stifle U.S. economic growth and cause an even longer and more difficult depression than the one we are currently enduring.
2. Lower the value of the dollar makes it less expensive for those who have foreign currencies to buy our bonds.
Both #1 and #2 are happening, but #2 is happening more rapidly.
We always like to follow the money. U.S. money and U.S. power have been leaving for some years, much of it headed to China. The current decline in the U.S. dollar is part of a long term process…a process that includes rising oil, gold and other currencies, as well as other commodity prices. Gold is being acquired by China and other surplus countries. Deficit countries like the U.S. and Europe will be tempted by short sighted political advisors to sell gold. If they choose to do so, their currencies will fall more rapidly, and gold will rise faster. We can rest assured the China and other surplus countries will buy all of the gold before it hits the public market.
The following article from last Friday’s Financial Times discusses the dollar’s predicament.
THE FINANCIAL TIMES , "Dollar’s fall reflects loss of haven appeal"
May 22, 2008-By Peter Garnham
27 May 2009 The Pentagon is prepared to remain in Iraq for as long as a decade despite an agreement between Washington and Baghdad that would bring all American troops home by 2012, according to the US army chief of staff. Gen George Casey said the world remained "dangerous and unpredictable", and the Pentagon must plan for extended US combat and stability operations in both Iraq and Afghanistan that could deploy 50,000 US military personnel for a decade.
Hat tip to CLG
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