Wednesday, December 13, 2006

Fed Watching M3 Like A Hawk

The carry trade, repo purchases, coupon passes.
Is the US Treasury / Fed scared silly?

"We're convinced inflation absolutely is on the Fed radar
screen at all points in time. But not in the way most folks
might think. They are the provocateurs, not the policemen."

Tuesday, December 05, 2006

Reconstructed M3

Here is the March 16, 2006 press release by the Fed that they would be discontinuing M3:
M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.

What balderdash! They don't want people to see that the rate at which the "money" (digital tokens) supply increases is increasing, and that there is a compound curve going on in the last few years.

(click to enlarge)

Can you imagine what this is going to do to the US dollar price of gold? The thing is, there will be competitive devaluations amongst almost all government fiat tokens. It's just that the USD has the most potential on the down side.

Thanks to for the reconstruction effort.

Another source for reconstructed M3 is John Williams' Shadow Government Statistics:

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, 'Account overdrawn.' - Ayn Rand, author of Fountain Head, Atlas Shrugged, Capitalism: The Unknown Ideal, Philosophy: Who Needs It? and others

An example of what baseball great Yogi Berra says: "It's deja vue all over again.", what Ayn Rand is talking about, and probably what's coming is Mike Hewitt's Hyperinflation in China, 1937 - 1949

"Till 1927, China had a free banking system through the interaction of private banks operating in various regions of the country. Privately held banks operated like any other Chinese business and competed with one another to obtain customers. Most banks issued their own notes which were redeemable in silver, the traditional medium of exchange in China. The notes from each bank circulated freely with the notes from other banks.

These Chinese banks operated largely without state regulation. A free banking system has inherent checks against inflation - primarily because customers will flee from depreciating currencies - and instances of banks’ inflating their currencies were extremely rare."

More ...

"Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by a deluge of bank paper, as we were formerly by the old Continental paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who instead of employing their capital, if any they have, in manufactures commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs. Prudent men must be on their guard in this game of Robin's alive, and take care that the spark does not extinguish in their hands. I am an enemy to all banks discounting bills or notes for anything but coin. But our whole country is so fascinated by this Jack o' lantern wealth, that they will not stop short of its total and fatal explosion." - Thomas Jefferson

Saturday, December 02, 2006

The US Dollar Illusion

(click to enlarge)

The left hand chart is the Dow priced in US dollars. The right hand chart is the Dow divided by the price of gold. Most investors in the American stock markets do not understand inflation (increase in the supply of "money", tokens really) and what it does to the purchasing power of the dollar, their stock portfolios and their real estate. Therefor they do not understand that despite the nominal dollar recovery of their portfolio and the increase in the nominal dollar price of their real estate, they are still way under or behind in terms of the purchasing power of their stocks and real estate.

Because they do not understand the difference between supply inflation and price increases, they will turn to those that caused the problem (the combination of government and their central banks) to fix the problem when they are seriously economically and financially hurting.

There are 3 ways a government can get funds to operate.
1. Taxation which has its limits.
2. Borrowing funds which has its limits.
3. Creating "money" (tokens) for free which has its theoretical limits,
but those limits are really really far out there.

The worse the economy gets, the more the pressure on governments to create new fiat, which means creating new debt (increasing government expenses), to spend on stuff and payrolls to keep the masses calm. At the same time government expenses are increasing, their revenue is decreasing. A vicious circle, that the US is already in.

When Japan topped out and started its long decline, the world was not awash in Yen (wasn't the world's reserve currency, OPEC wasn't forced to demand Yen for oil), they had a high savings rate and huge savings, little debt, and a substantial trade surplus. Yet their national government felt compelled to go on a debt accumulation spree to enable a spending (construction) spree.

The US has topped out and is in the opposite position of Japan.

The US, prior to the start of its last great depression, had a small trade surplus.

Which way do you think prices of *necessary* stuff and services inside the US are going?


"The state -- or, to make matters more concrete, the government -- consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can't get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting 'A' to satisfy 'B'. In other words, government is a broker in pillage, and every election is a sort of advanced auction on stolen goods." - H.L. Mencken

Thursday, November 30, 2006

World Economic Slow Down

The BDI (Baltic Exchange Dry [freight] Index) is a good indicator of world economic activity. It put in a major top at the end of 2004. That can be seen here:

What can also be seen is that the BDI is currently up against a resistance level. It could be making a lower top.

Currently happening in the US - from The King Report :
(right now, on the home page, is the real scoop on the US government's just released employment numbers)

"Merrill’s David Rosenberg: "Truck tonnage for October just came out and looked borderline recessionary, for lack of a more polite term. It was down 4% y/y in the largest decline since February 2001 (-1.8% m/m, and down now in two of the past three months) - and now down for 10 months in a row y/y (!). You have to - again - go back to the March/00 to Feb/01 period to find the last time year-on-year comparables were in the red for such a long stretch of time (and guess what happened in March/01?)."

Mr. Rosenberg notes it’s "extremely rare to have truck tonnage decline in October ahead of the holiday shopping season." The last times this occurred were 1981, 1982 (recession years), 2001 and 2002…"

The inverted yield curve on US Treasuries for over 3 months is saying the same thing.

A serious decline in economic activity means a serious decline in tax receipts for national, state, local governments that, combined, have massive unfunded promises to keep.

This means that managers at the central banks of large, government top heavy, countries are going to have to crank up the volume of that old '60s Stevie Wonder song 'Fingers' - parts I & II to properly motivate the employee responsible for typing on the keyboard hooked up to the computer that creates digital fiat tokens.

Here's a whopper. The Fed is trying to maintain a credible deniability defense as it increases credit to record breaking levels. Check out:
Jesse's Interest Rate Lie Detector
"... Many market watchers had been anticipating the dollar's slide for months, none more so than Paul Volcker, former Fed chairman. He said: "It's incredible people have gone on so long holding dollars."

Saturday, November 25, 2006

New Steeper Silver Price Channel?

Gold broke its most recent short uptrend line 3 weeks ago while silver did not. This can be seen on this 6 month silver price chart:

Here it again can be seen on this 2 year silver price chart.

Silver, since the beginning of the bull market has moved up more powerfully than gold has, about twice the move gold has made. It should not surprise people if the silver price has started a new more upward sloping trendline and channel.

Gold and silver are your protection from the USD and all other government fiat because they are money itself. The Saturday, November 25 edition of the Financial Times:

Here is a 6 month daily bar chart of the USD as of the end of Friday:

A series 1957 A, One US dollar bill says this:
"This certifies that there is on deposit in the treasury of The United States of America One Dollar [a weight]". "One Dollar [a weight] in silver payable to the bearer on demand". This was not all that long ago. Now a days, all a US dollar can be "redeemed" for is another piece of US paper dollar. What is wrong with this picture?

For all practical purposes, the US Treasury has no silver left and who knows how much gold it actually has since the US Treasury's gold has not been audited since the 1950s.

Gold can explode to the upside due to the impossibility of the major central banks to suppress the price of gold for a much longer period of time, and that is without the USD going down, which has recently happened during gold's last significant run up. One of Europe's biggest banks 'Credit Agricole' early this year endorsed this concept.
The US dollar taking a dive just adds powerful fuel to the gold price and silver price rockets.

Monday, November 13, 2006

The Ugly Looking US dollar Index

Nothing but bearish head and shoulder patterns right now in the US dollar Index charts. Long term, intermediate term, or short term. No wonder the gold price is looking so bullish.

The long term head and shoulder pattern is projecting a US dollar Index down around 50, so there are a number of years to go in the gold and silver bull markets:
(click on 10 year chart for enlarged view)

The less valuable a US dollar is, the more US dollars someone is going to want for the same amount (weight) of gold.
(click on 2 year chart for enlarged view)

(click on 6 month chart for enlarged view)

The smaller Italian central bank announced a while ago that they will be diversifying out of US dollar. The smaller UAE's central bank has announced the same. If some one wants to get out the small door first, the smaller central banks have the best chance as they don't have huge amounts of USD denominated assets to get rid of. They will not move the price of gold up and the US dollar down as much as the larger central banks would. It could be that beads of sweat are collecting on the foreheads of central bankers. Meanwhile they are probably all hoping that a panic does not develope.

Russia and China are making the same type of noises.

Remember a couple of years ago when Argentina announced more than once that they were actually buying gold for their central bank's reserves? Now that was getting a jump on their competition because there is not much gold out there compared to the monstrous amounts of US dollars that are going to increasingly be looking for gold.

Dubai gold trading volume reaching new highs:
"DGCX trading scales new heights"

"Something's up" and it's not the US dollar Index.

Sunday, November 12, 2006

Bullish Gold Price Charts

Most in the English speaking world are comatose, clueless about the 5 year old gold and silver bull markets that are underway. Is this merely because bull markets start in a stealthy manner with no announcements, horn blowing, bells, or fire works displays? Probably not, because of the age of these 2 markets. The English speaking world is probably just the part of the whole world market that will be getting on board during the mania (last) phase, probably because they don't care to "get it" right now, that they won't get it until they can't ignore incredibly high prices that cause a lot emotional pain to those that are still not in the bull market.

In between the stealth and mania phases is the wall of worry phase, where people worry about actually taking action, actually putting their "money" on the line, worry about whether the uptrend has ended. This recent gold price reaction since the top at the end of April of this year suggests that the bull is out of the stealth phase and into the wall of worry phase, particularly after gold's great run up from the time it broke up and out of its base late last year.

Has gold started a new more upward sloping trend line and channel on this 10 year chart:
(click on chart to enlarge)

Great looking bullish gold price action on this 2 year chart:
(click on chart to enlarge)

Bullish action to gold's right hand bottom on this 6 month chart:
(click on chart to enlarge)

Another indicator of a really good upward move in the gold price is the AMEX's HUI index of gold and silver equities. It looks to be chomping at the bit to make another substantial run up. A double from its break out level of the flag to around 700 by the end of 2007 could be conservative.
(click on chart to enlarge)

Why conservative? The combined value of world equities is estimated to be about $45 trillion. The combined value of gold and silver equities is estimated to be about $150-160 billion. It will take just a small amount of that $45 trillion to radically jack up the price of gold, silver and the associated equities as more and more eyes turn to the increasing gold price / silver price. 2007 should be one heck of a year. And even then there is still a lot more to go on the upside.

Thursday, November 09, 2006

Strong Second Gold Price Break Out

The gold price broke up and out (gapping up and out) of its triangle in early September only to immediately turn around and head down (closing the gap) to make a slightly lower price for this current reaction or base building period. This failed break out meant that gold's down trend line had to be adjusted just slightly upwards.

(A weekly bar chart. Click on graph to increase size.)

No big deal since the fundamentals are so screamingly good for the gold price and the silver price. That just meant that gold would take a little longer to turn around and start heading up in another major upward price move. 2007 should be an outstanding year for gold and silver.

This second break out is a biggy since gold moved up at least 3% ($18) above its break out level ($600), and held above the break out level plus 3% ($618) for at least 3 days.

The gold price highs of the last week in September and the 3rd week in October (which were lower than the earlier break out high), plus the downward sloping top side of the triangle, plus a Fib support level offer good support. Call that support a little above $600.

(A daily bar chart. Click on graph to increase size)

Sure, that 2 week break out up trend has just ended. That is a normal type of reaction for the latest short term gold price move. No big deal.

"What, me worry?" - Alfred E. Newman

Wednesday, October 25, 2006

Gold Price versus Silver Price

The gold price is in for a big change relative to the silver price. The gold price to silver price ratio now is about 50:1. Historically it was more like 16-17:1. Who knows, it could go to 1:1. The current world's financial system since 1971 is unlike it has ever been in history in that almost all of the world uses nothing but government fiat tokens redeemable in nothing. And almost all of those are nothing but digital bits on a computer's hard drive which is not in the hands of the alledged owner of the bits.

Silver is found in the earth's surface about 16-17 times more often than gold. For hundreds/thousands of years, the above ground supply of silver was a lot more than gold. So, naturally it was cheaper than gold, no matter how silver was related to some thing in order to get its price in order to compare it to gold's price. For instance, silver has a copper price or a milk price just like gold does. You can compare the relative values of gold and silver by pricing those metals in weights, or sometimes volumes, of milk, gasoline and many other things.

Over time man has found plenty of unique (there is no substitute) uses for silver. This mostly has not happened with gold. This explains a lot of the decrease in the above ground supply of silver. So much so that the above ground supply of silver is now substantially more rare than gold.

There are many products that simply must have silver or the product can not be made. Usually the product has only a tiny amount of silver in it so that the price of silver hardly matters to the overall price of the product that contains the silver. This means that a much higher price of silver can be tolerated for many industrial uses. There happens to also be huge amounts of silver being used that is consumed, meaning it is not recoverable. The amounts per product are incredibly small and the silver price is too low to make it worth while trying to recover these incredibly small amounts of silver per product unit.

Also, there seems to be a lot of politics involved in how the above ground supply of silver has gotten so low. Be that as it may, the above ground supply of silver has gotten into an opposite situation than it used to be relative to gold.

Right now estimates of the above ground supply of gold are about 4 billion ounces. Some estimates are as high as 5 billion ounces. 4 billion ounces times $600 = $2.4 trillion dollars.

Right now estimates of the above ground supply of silver are about 4-600 million ounces. Let us be conservative and call it an even 1 billion ounces. This compares to about 10 billion ounces available during WWII. 1 billion ounces times $12 = $12 billion dollars.

So, the market value of the supply of gold is 200 times greater than the market value of silver, right now. Or, the current USD value of gold is 200 times greater than the current USD value of silver. Or, the total value ratio is an historically whacky 200:1.

Historically this ratio is hugely different than what it was for 100s/1,000s of years. Considering all the increasing industrial uses of silver and the fact that it is also actual money like gold is, silver has more fiat price increase potential to the upside than gold does.

It is normal or it is human nature that most players in financial markets do not have respect for items that are low priced. Thus silver has no respect right now. It could be said that people think gold is more rare than silver because of gold's much higher price relative to silver.

It would not take much for people to change their perceptions.

All that is needed is for 1/2 of 1%, or less, of gold owners to decide to switch to silver. That would be the equivalent of the total USD value of silver in the world buying, going into, silver. For silver, that would be incredible demand and a huge massive silver price increase. There would be a radical reduction/decline in the gold price to silver price ratio.

Make sure you have some silver while you are waiting for the world to catch on to the real silver situation/story. Eventually world markets will force price rationing to happen in the silver world. That is just one of the iron laws of economics. Given enough time, there is nothing governments can do about it.

Never mind under $5. At $12/ounce, silver is still the Rodney Dangerfield of metals. It's current price is still "just this side of stealing". If you want to make huge percentage gains, buy something when nobody wants it, when it can't get any respect. In financial markets, the crowd is always wrong. Right now the crowd could care less about silver.


"...a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do." - Jesse Livermore, in Edwin Lefevre's 1923 classic "Reminiscences of a Stock Operator"

"A stock operator has to fight a lot of expensive enemies within himself" - Jesse Livermore

Think about the below when thinking about the US dollar:

"A democracy cannot exist as a permanent form of government. It can only
exist until the voters discover that they can vote themselves money from the
public treasure. From that moment on the majority always votes for the
candidates promising the most money from the public treasury, with the result
that a democracy always collapses over loose fiscal policy followed by a

The average age of the world's great civilizations has been two hundred years.
These nations have progressed through the following sequence: from bondage
to spiritual faith, from spiritual faith to great courage, from courage to liberty,
from liberty to abundance, from abundance to selfishness, from selfishness to
complacency from complacency to apathy, from apathy to dependency, from
dependency back to bondage." - Alexander Tyler

Teddy Roosevelt put it well:

"Not because of the ambition of Caesar or Augustus, but because it had already long ceased to be in any real sense a republic at all. When the sturdy Roman plebian, who lived by his own labor, who voted without reward according to his own conviction, and who with his fellows formed in war the terrible Roman Legion, had changed into an idle creature who craved nothing in life save the gratification of a thirst for vapid excitement, who was fed by the state, and who directly or indirectly sold his vote to the highest bidder, then the end of the republic was at hand. Nothing could save it. The laws were the same as they had been. But the people behind the laws had changed, and so the laws counted for nothing."

"How did you go bankrupt?"
"Two Ways. Gradually, and then suddenly."
- Ernest Hemingway, The Sun Also Rises

Saturday, October 07, 2006

Screamingly Bullish Gold Price and Silver Price Formations

The gold price and silver price triangular flags are very bullish.

The gold price is down at the bottom of the bull market downward sloping triangular flag as well as being at the support provided from the prices of the first quarter of this year, and only about 4 weeks to go to the US elections for congressman and senators.

Silver is down at its 1 year long uptrend line as well as being at the bottom of its triangular flag. It is also down at its Fib 23.6% level of retracement of its decent from its May high, and only about 4 weeks to go to the US elections for congressman and senators.

The US dollar **is up** to an important Fib 38.2% resistance level in its attempt to retrace the dive it took from the end of last year. The dollar got knocked back down from this same level back in July. Oil **is down** at major support that it bottomed at back in the beginning of 2005, a Fib 23.6% retracement level.

The whole picture is screamingly bullish for the gold price and silver price.

Thursday, October 05, 2006

Huge Gold Price Bear Trap

The gold price and silver price moves since Labor Day are all about the coming US elections. These are wonderfully low gold prices to be buying at but few in the English speaking world realize it. A second chance. A second gift.

"Driving gold down via the US futures market is not much of a trick. Keeping it down will need a great deal of physical." - Bill Murphy, Le Metropole Cafe It looks like the central banks did not sell the full 500 tons (WAG2, the 2nd World Gold Agreement) that they were capable of:
"... latest figures from the ECB covering the year to September 22 showed total sales by central banks had reached only 398 tons.

According to Numis Securities analyst John Meyer, European central banks, particularly Germany, had decided to retain some gold reserves.

"This is an indication that banks in developed economies see a need to hold back on gold sales, perhaps to protect against economic risk or for higher price levels," he said."

Paul Volker, former head of the Fed, is one of the few that talks reality. His past statements:

"There are disturbing trends: huge imbalances, disequilibria, risks -- call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot."

"I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change."

"We are skating on increasingly thin ice".

Bush and the Republicans need a rising US stock market, low interest rates because of the bursting of the real estate bubble in the US, low commodity prices to suggest that inflation is under control (when actually inflation is the "money" supply, not prices), to keep Americans deluded and to maintain the illusion to foreigners that everything is alright with the US economy so that the Republican representatives and senators have a better chance of winning the elections in early November.

Paulson was brought over from Goldman Sacks to orchestrate the markets from the US Treasury via the Counterparty Risk Management Group, Exchange Stabilization Fund, the Fed, and The Gold Cartel. As an orchestrator he is doing pretty good. Not to worry. This is all just temporary. The US economy is going down the tubes and the Federal government's revenue will be taking a huge hit putting huge pressure on the Feds to create huge amounts of USD out of thin air to pay its bills thus continueing the devaluation of the USD, thus increasing the USD price of gold. Remember, basically, there are no free markets in the US anymore.

Good article here in a .pdf file by John Embry: Despite Fed talk, there'll be no more rate hikes

"Either you think - or else others have to think for you and take power from you, pervert and discipline your natural tastes, civilize and sterilize you." - F. Scott Fitzgerald

The gold price "C" uptrend line on the "Gold Price Break Out" post was broken to the downside by at least 3%, so it is diffinately broken.
We are going to have to simply wait to see when a new dependable one developes. It will probably develope after the US November elections. It should be a good guide for 2007 and 2008. 2007 should be an outstanding year for the gold price and the silver price.

Wednesday, September 06, 2006

Gold Price Break Out

Tuesday, the gold price broke out above its 4 month long triangular flag pattern. Very bullish, particularly since it gapped up and out of the pattern. It should not be surprising if gold does not come back down to close the gap. It still has not closed the gap up it made back during the last week in June despite trying 3 times at the 61.8 Fib retracement level.

South African gold production has been in decline for a decade. Australian production is now down to its lowest in 10 years. The Indian central bank just announced an increase in its gold reserves. This is the beginning of the season for increased Indian gold demand. Turkey, a major importer, just keeps increasing the amount it imports. And, the AMEX's HUI index of mostly non-hedged gold and silver companies has been leading the gold price. The gold price breakout makes sense.

"The combination of artificially low interest rates, foreign central bank intervention, an irresponsible Fed, excessive credit availability, the proliferation of low or no-down payment, adjustable-rate, interest-only and negative-amortization mortgages, a can't-lose attitude among speculators validated by ever rising 'comps,' [comparables] the complete abandonment of lending standards, widespread corruption in the appraisal industry, rampant fraud among sub-prime lenders and the moral hazards associated with loan originators reselling loans to buyers of securitized products who perceive minimal risk and an implied government guarantee, has produced the mother of all bubbles." - Peter Schiff on the current real estate scene in the US

Saturday, September 02, 2006

US Decline Good For The USD Gold Price

"Investors who learn the truth and ignore or avoid the spin make the money. Those who don’t get to the truth or who listen to and believe the spin are going to have a hard time." - Monty Guild

A US economic decline is good for the USD gold price? As nutty as it may seem to some, yes. Read on.

Despite what the financial media, let alone the mass media, in the US tell you and despite what the US government's number crunchers and statistic gathers tell you, the US economy is in decline, rolling over. This roll over should pick up speed as time goes by. Think of a compound curve heading downwards.

If the federal government's Bureau of Labor Statistics tell you that there has been 200,000 jobs created last month, about the opposite is true. About 200,000 job have been eliminated. If you find this surprising, pay attention to John William's Shadow Government Statistics

The fraction of the population participating in the labor force has been heading down since about 2001. To see this go to 'Jesse's CrossRoads Cafe'. Here is his labor force participation chart. Meanwhile the US financial mass media is saying that economic growth is steady to increasing and that the US has roughly full employment while the chart looks to be developing a massive multi-year head and shoulders topping pattern.

First of all, US interest rates are rising:

What do you expect after a 25 year decline in rates? It looks like the chart is putting in a massive 40-45 year double bottom.

This should not be surprising considering the massive amounts of US dollars the US Treasury/Fed have been creating, particularly since the early '80s. The more there is of something, the less it is worth. So, the higher the interest rate loaners want for compensation for the less valuable dollars they are to receive in the future when the loans are paid off.

Check out the St. Louis Fed's Monetary Base numbers on this chart starting just after the US Fed was created. Wait till all the overseas US dollars start flooding back to the US.

Rising interest rates means a decline in business activity and a decline in jobs.

Rising interest rates means a decline in federal and state government tax receipts from both businesses and individuals, usually at a increasing rate of decrease.

Declining federal and state tax revenue while federal and state spending is increasing means exploding budget deficits. States get a lot of their dollars from the Feds.

Add an increasing federal budget deficit to an increasing US trade deficit and you have an increasing current account deficit.

The current account deficit measures how many US dollars are leaving the US to buy goods and services over and above the goods and services foreigners are buying from the US. This number is balanced by the amount of US dollars that are coming into the US as investments in US businesses, equities (shares), US treasuries (debt), etc.

At some point the rest of the world decreases or stops, eventually, its loans to and investments in the US since it is the biggest, baddest, dead beat (it keeps borrowing knowing it does not have the wealth to repay), record breaking debtor nation in the world.

When the rest of the world says no more (and even before this), the federal and state governments have to find financing internally which means they have to ***increase*** interest rates offered on their debt. This leads to a further decrease in business activity and a further decrease in federal and state tax receipts, a further downward US economic spiral.

This leads to increasing pressure on the US Treasury and Fed to create humongus amounts of debt and US dollars (a dollar can't be created without a dollar's worth of debt being created first) further devaluing the US dollar.

The less value the US dollar has, the more of them are demanded for the same weight of gold and silver. Thus the gold price and silver price go up, even eventually rocketing up if the value of the US dollar is rocketing down.

Unfortunately there is going to be an ugly economic downside for the US when the gold price and silver price are sky high. Probably the federal government knows this, thus the hiring of Haliburton to build concentration camps within the US.

"During Greenspan's tenure, America was transformed from the world's largest creditor to its greatest debtor, from the world's mightiest industrial power to a second-rate service provider, and from a nation of responsible savers to one of reckless spenders," - Peter Schiff

Tuesday, August 15, 2006

100 and 25 year gold price charts

A 100 year chart on logarithmic scale. In other words, there is a good chance that gold is going to the USD 7, 8, 9, 10,000 per ounce price.

The odds are that gold has established a much higher sloping uptrend line.
Why do you think the US Fed stopped publishing the M3 "money" numbers?
Not that the USD is money. It's just mostly digital tokens easily created in vast quantities by somebody typing on a key board at the Fed.

Dr. Ron Paul is a Republican member of Congress from Texas and is probably the only honest person in the US House of Representatives. Here is his take on gold and the US dollar. A really good read. He gets reality:
What the Price of Gold Is Telling Us

Thursday, July 27, 2006

New Gold Price and Silver Price Trend Lines

(There are 5 graphics that load for this post.)

It looks like there is now a new, significant, more upward trending gold price trend line that has been established:

It looks like there is now a new, significant, more upward trending silver price trend line that has been established:

These new gold price and silver price trend lines should last long enough for the gold price and silver price to make serious/significant moves to the up side. It looks like new highs for both the gold price and the silver price before the end of this year.

"NEWS is what someone wants to suppress. Everything else is advertising."
Reuven Frank - Former head of NBC News

Sunday, July 23, 2006

The Gold Price Will Soar

The gold price is going to soar to US dollar prices that most people have never even dreamed of yet. That is because the US has so much debt and unfunded liabilities that the US federal government has no "money" to pay for. Nor does America have the savings to pay for. Most Americans have been dumbed down so badly by government schools, are so complacent that they have no idea of what they are facing and their government is not about to lay the bad news on them.

Most Americans have no idea what their Federal Reserve Bank is for, the damage that it has **already** done (in combination with their US Treasury Department) nor that it is screamingly illegal, un-Constitutional, the Constitution being the law of the land. Now a days, most Americans simply are ignorant of the Constitution, therefor ignore it, and are about to pay a massively huge price for their ignorance and complacency.

They do not know that the only point for any government to have a central bank is so that the government can create out of nothing more of the "money", "currency", or in reality tokens that the country's government uses for its own use, virtually for free, like buying votes.

The US since 1944 is the first country in the history of the world whose "money" or "currency", tokens really, are central bank's reserves, is forced on many countries for payment of their goods and natural resources, like oil. A huge advantage over all other countries in the world. This can't go on for ever; and for how long is the rest of the world going to sell the US things of real value for US dollars that are created out of nothing, that America did not work for. The total amount of those goods and services, the trade deficit, keeps growing year after year. And the annual deficit keeps growing, never mind the overall total.

Since there are no longer any free markets left in the US, just what is it that it has going for it besides the ability to create US dollars out of thin air?

During the last half of 1929 (just before the start of America's Great Depression) total US debt was about 270% of GDP, and there were no unfunded liabilities. Right now in 2006 total US debt is about 400% of GDP, and there is about $57 trillion of unfunded liabilities. The US can not afford higher interest rates; but, America is going to get them anyways.

Got enough gold and silver? Governments might be able to create their tokens out of thin air, here is an example:

(click on the M3 chart to see it completely) but they can not create gold and silver out of thin air.

Bernanki is just a puppet. He will do what he is told to do, like Greenspan did.
Greenspan was just a run of the mill lousy economic consultant whose business was just about dead. He was basically out of a job till the head of the Fed job came around.

""Weimar Bernanke", the man has no business experience, no banking experience, no financial market experience, yet is named to the most important central bank post on earth." - Jim Willie CB

It is too late. The US has too many obligations without the wealth (net worth) to go with them. The only thing the country can do is hyperinflate the US dollar to make it appear as though it is meeting its obligations. Why do you think the "Fed" has stopped publishing the M3 "money" supply numbers? The US dollar is going to become more cheap than dirt cheap which is why the US dollar gold price is going to soar like a rocket.

John Conolly, treasury secretary in the Nixon Administration, put it bluntly in 1971 when the US decoupled (broke its word/promise) the dollar from gold: “The dollar is our currency but their problem.”

"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." - Ben Bernanke remarks before the National Economists Club, Washington, D.C. November 21, 2002

Thursday, June 15, 2006

Gold Bottom

Gold is in a channel that slopes downward a bit more than its primary down trend line and looks to have bottomed.

[click on graphics to enlarge]

End of downward trend points:

By Wednesday gold was down 7 days in a row, and had gapped down on Tuesday. Tuesday was a big volume day in the gold markets. Volume is a sentiment indicator. Lots of fear showed up on Tuesday which is indicative of important bottoms. Gold hit the bottom of its channel. It's a good bet that gold has bottomed. Right below gold is its 200 day moving average line. A little further below that is its upward trend line of about 10 months in length. There is also support right here from the double bottom base that gold made several months ago. IBD's (Investor's Business Daily) proprietary momentum indicator shows gold deeply oversold right now.

Probably for the first time there is now fear of inflation in the financial media which is not good for the US dollar which is one of gold's main prices:

DJ WORLD FOREX: Dollar Down As Inflation Concerns Grow
Wed Jun 14 16:30:06 2006 EDT
By Isabelle Lindenmayer

NEW YORK (Dow Jones)--The dollar is lower late Wednesday after a choppy North American session kicked off by stronger-than-expected U.S. inflation data.

Silver is in a similar situation except that it did not generate standout end of downward trend signals, but is providing a great second chance.

Gold is at a great buy price right now and is providing a great second chance.
Those buying right now are going to be happy campers by the end of this year.

Saturday, June 10, 2006

Interest Rates Rise With Gold

Yields on USD denominated financial instruments rose during the last bull market in gold because the US dollar was loosing value. Despite what the financial media, mass media, hedge funds, mutual fund managers think or are telling you, rising interest rates/yields are a negative for the US dollar and a positive for gold and silver.

[Open the below charts in another browser window so that you can increase their size to see them better.]

Never mind gold and silver, the US dollar during the last gold and silver bull markets lost a lot of value against other government fiat tokens.

What did gold and silver do during the rising interest rates and yields during the decade of the '70s?

As interest rates rise the US stock market will crash, as well as the price of US government notes and bonds (the "safe" stuff), as well as the price of houses in the US. The US was not a net debtor nation at the beginning of the '70s. This time around it is not only a net debtor nation, but a huge record breaking net debtor nation with , so far, no intentions of changing. The US has so much debt now a days, not only is it going down the tubes, but it should stay down for a number of decades. Many many decades.

When most everything around you is crashing down, real non-leveraged stuff (most real estate is highly leveraged and illiquid) becomes a safe store of value. Not only are gold and silver the best safe stores of value, they happen to be the historically best medium of exchange (real, actual money). At some point poeple will be happy to accept these metals instead of lousy government fiat tokens.

Wednesday, May 17, 2006

There is No Gold Bubble

These are items the US mass media and financial media do not want you to know about:

The production of gold in the world is substantially less (about 1500 tons per year) than the amount being bought. It has been that way for years. Where is all that extra gold coming from?

There is a huge short position in gold that was slowly put on over years and years to artificially depress the price of gold, to artificially depress interest rates in the US, to artificially keep the US economy going long after it should with out a healthy correction of all the excesses built up in the economy (read massive amounts of debt).

What is currently a big driver of higher gold prices is the gold shorts trying to get out of their short positions. This is going to take years as total short positions are about 10,000 tons worth.

There is no bubble in the gold and silver markets because there is no excess speculation going on in the gold and silver markets. Gold and silver market bubbles are years away from now. Sentiment indicators are very bearish (which is very bullish in reality) for gold, silver and the shares. Most people in the English speaking world can not understand why anybody would want gold and silver because they can not understand what anybody would do with the stuff. That is like sayiing why would anybody want real money (which gold and silver are) because they can not understand what anybody would do with real money. Most people in the English speaking world have been brain washed over a number of generations now into valuing digital token bits on some company's or government's hard drive (which they have little control over) over real gold and silver. Most US dollars, Euros, mutual fund shares, stock shares, bonds are nothing but digital bits on a hard drive in some computer somewhere. The entities that actually own, have real control over, the hard drives actually own all those digital US dollars, Euros, mutual fund shares, pension funds, stock shares, and bonds. Most in the English speaking world have been conned into giving up real ownership of the value they produce every week, conned into putting it into the control (real ownership) of other entities for safe keeping. Conned into believing that they do not have to think or worry about or work at their future retirement and healthcare funds. That those are all being taken care of by entities that they can trust. Well, who takes better care of property? The owner or a non-owner? There are hundreds of millions of people that are in for a rude awakening when they realize they have had massive amounts of value stolen from them. Gold and silver, that you actually own because you actually control it, are the ultimate safe store of value.
Yes, it is a radical idea for most English speaking people to actually go out and buy the actual metal. They are quite uncomfortable with this idea. Which is another reason why there is no bubble in the gold and silver markets. And, there is only a tiny minority of people in the English speaking world that actually take responsibility for themselves and the safe keeping of their own wealth, that are storing a large percentage of their wealth in gold and silver right now. Which means there is no bubble in the gold and silver markets.

There should have been mass liquidation of long gold positions on Tuesday. The open interest only went down a measley 1505 contracts to 342,608. There was no "massive liquidation" as the financial media would have you believe. There is no bubble because there are hardly any new specs to liquidate. What is normal in the past is to see OI rise 100,000 contracts on a $30-$50 up move. This type of thing is not happening any more. This reaction was just another huge short selling wave by the dumb or the market manipulators, riggers, managers.

From the BIS (Bank for International Settlement):
"And last, the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful."

There is no bubble. Gold and silver are about to take off to higher levels **days** from now. This reaction is going to be short, and sweat to those smart enough to be buying weakness.

Are they stupid or are they doing this on purpose:

"The seven large TOCOM gold shorts increased their net short position by a quite substantial 11,563 contracts on May 15 to a total of 201,365 contracts or 6,474,025 troy ounces. Goldman Sachs was the ring leader with an increase of 3,774 contracts to a total of 45,285 contracts or 1,455,944 troy ounces." -

Right now oil is about USD 70, up about 75% from 1980 highs of USD 40.
Gold should be up 75% from its 1980 highs, also, or around USD 1,500.
No way is there any bubble top in the gold and silver markets. Gold and silver have a long long way to go on the upside. And, it's going to take years.

If the gold and silver markets are confusing you, buy the Gold Rush 21 Conference DVD set. Then, what is going on in the markets will make sense to you.

Friday, May 05, 2006

Silver Bottom

Silver's reaction looks to have put in a bottom. If you measure silver's retracement to the December low, it put in an about 50% Fib retracement. If you measure silver's retracement level to the late August low of 2005, it put in an about 38.2% Fib retracement. The two levels are very close to each other; strong support. Silver can streak to the upside in a heart beat.

Gold can keep on moving higher since the US dollar did not stop at the 86 horizontal support level. It went down 8 days in a row and through it. Then had a little up day; then on Thursday had a good down day and new low to almost 85 on the USD Index. I don't think this much speed to the down side is what central banks had in mind.

ACU Asian Currency Unit

Single Asian Currency Comes a Step Closer to Reality

The Asian single currency, which so far only exists in the minds of economists and officials with international organizations, will take on more concrete reality soon. The Asian Development Bank plans to publicize the Asian currency unit (ACU), a notional unit of exchange based on a "basket" or weighted average of currencies used in the 10 ASEAN member countries plus South Korea, China and Japan, the Yomiuri Shimbun and others reported Friday.

Monday, May 01, 2006

Why the Gold Price Is Rising

From Le Metropole Cafe:

"We have often talked of THE PERFECT STORM when it comes to outside markets fueling the prices of gold and silver. The clouds continue to darken on the horizon and are pitch black at Goldman Sachs and JP Morgan Chase, the key players in The Gold Cartel. For the dollar to be sinking, while US interest rates are making new highs for their moves, means all is not well in US financial market land. Planet GATA has seen this coming for some time. Planet Wall Street has a few shocks coming its way.

Meanwhile, as far as the gold market action is concerned, it could also not be worse for The Gold Cartel. Gold traded today like copper has for some time … going up steadily and VERY QUIETLY. Specs are somewhat hesitant to follow the move up, but there are few sellers. What is occurring is The Gold Cartel, led by GS and JPM, are trying to cover shorts, so there is not much for sale since they were the ones doing much of the selling for so many years. The other usual sellers in years past, the hedgers, have also withdrawn from selling (for the most part), so you have the bad guys trying to cover in somewhat of a vacuum.

This is exactly what MIDAS pounded the table on for a long time. This is what HAD TO HAPPEN at some point and it is occurring as Frank Veneroso predicted at the GATA AFRICAN GOLD SUMMIT in Durban, South Africa on May 10, 2001:

Facts, Evidence and Logical Inference

A Presentation On Gold Supply/Demand, Gold Derivatives and Gold Loans


Frank A. J. Veneroso


This is the key to the gold price at the moment and the main reason for why it is moving up so much. The Gold Cartel, and others, borrowed approximately half of the gold in the vaults of the world’s central banks, sold it into the marketplace to suppress the price, and invested the proceeds in various manners. They leased the gold from the central banks. The gold is technically owed back to those same banks.

The problem is there is a 1,500/2,000 tonne annual supply/demand deficit, which can only be met by MORE central bank selling, or leasing. But instead of selling, the bad guys are trying to cover shorts, adding to their own precarious situation. They are trapped and cannot cover their shorts without driving the price WAY, WAY UP. That is the process, long predicted by the GATA camp, which you see unfolding.

When you actually work with the numbers, what lies ahead is STAGGERING. How does one cover more than 10,000 tonnes of gold when mine supply is less than 2500 tonnes per year, and scrap supply is probably running around 800 tonnes per year, and the deficit is running at least 125 tonnes per month? YOU CANNOT … which is why the price of gold could do anything to the upside at any time.

Now, what the GATA camp does not know is how much of this 10,000 tonnes must be paid back with physical gold versus payments allowed to be made with cash. We also don’t know which central banks will demand they be paid back with physical gold, as they might be petrified to let their citizens know their gold is gone in the coming gold mania environment.

Yet, either way, the shorts have to cover short positions in the derivatives markets because their losses are MOUNTING. Whether they able to account for the leased gold by paying cash, or with physical gold, they want to stop the price bleedingof the short positions on their books, which is considerable and growing. Better to cover between $640 and $800 per ounce, than at $1800, which they might have to do in part anyway.

What we are looking at is unprecedented … a market that has a short position that is 4 to 7 times the annual supply for that market."

Friday, April 28, 2006

Liar's Poker

Below is an article by John Hathaway, manager of The Tocqueville Gold Fund:

How Central Bankers Fritter Away Their Time (and Ours)

*A trivial game of bluff. It is played using randomly picked currency from your wallet. The denomination does not matter.

Gold has topped $600/oz. for the first time in 25 years. Unfortunately, for real contrarians, it is making front page news. However, financial media commentary remains fairly ignorant on the subject. The preferred explanations for gold’s rise are mostly benign: it’s the Chinese and the Indians (ooh, they just love bangles, it’s part of their culture); it’s the allocation to commodities that has grown so popular (tangible assets are the rage with all the savviest hedge funds-the Chinese need so much more stuff); it’s the difficulty of bringing new mines into production (you know, the tree huggers hate mining so much); it’s the central banks who have decided that selling gold was not such a great idea in the first place and have now shied away from dumping their reserves (just a bunch of stupid bureaucrats, anyway). These “explanations” all have an element of truth. Any reader of our past website articles would have seen it coming.

However, the Wall Street Journal, CNBC and the equivalent will not tell you that gold is rising because there is a surfeit of paper assets. They will not tell you that a rise in the gold price has historically been a harbinger of bear markets in bonds and stocks and hard times for the financial business. The Pavlovian response of the financial media to the crossing of the $600 threshold was as predictable as their inability to comprehend or to portray the significance.

In truth, the price of gold at $600 is no big deal. In 1980 dollars, it is only $300. If prior highs mean anything, a target of $1700 in today’s dollars is what investors should be thinking about. In our view, gold remains cheap, another sign that the financial markets continue to under-price risk. Investors should worry less about whether this particular moment is a good or bad entry point and ponder the implications of sailing through uncharted waters without a lifeboat.


The rest is at:

From Russia With Love

Sledge hammers raised over America. The Russians ain't the only ones.

The threat to a fistful of petrodollars
By Liam Halligan (Filed: 23/04/2006)

From Russia, you might say, with love. This weekend, Alexei Kudrin, Russia's finance minister, dropped a bombshell in Washington.

Attending the annual meetings of the World Bank and International Monetary Fund, Kudrin caused his American hosts discomfort by openly questioning the dollar's pre-eminence as the world's "absolute" reserve currency.

The greenback's recent volatility and the yawning US trade deficit, "are definitely causing concern with regard to its reserve currency status," he said. "The international community can hardly be satisfied with this instability."

Kudrin's intervention coincided with another meeting, also in Washington, of finance ministers and central bankers from the Group of Seven - which doesn't include Russia.

Top of the agenda: the effect of ever-rising oil prices on inflation and interest rates.

G7 countries are worried the spiraling price of crude - which closed at $72.79 a barrel on Friday and which has now trebled in three years - could inflict real economic damage. The US Federal Reserve, in particular, has been forced to take drastic action - raising interest rates 15 times since June 2004 to keep inflation in check.

Given that fragility, it is significant that Kudrin is now wondering aloud if the long-standing dollar hegemony can last. For him to do so is to highlight that America is vulnerable should that status be lost. That's because Russia, with its awesome oil and gas reserves, could kick-start a challenge to the dollar's supremacy.

Most nations stockpile their foreign exchange holdings in dollars. The US currency accounts for more than two thirds of all central bank reserves worldwide.

This reserve status means that the dollar is constantly in demand, whatever the underlying strength of the US economy.

And now, with massive trade and budget deficits to finance, America is increasingly reliant on that status. The unprecedented weight of US liabilities means a threat to the dollar's dominance could result in a currency collapse, plunging the world's largest economy into recession.

That won't happen immediately. The dollar has sat astride the globe for some time now - in fact, for most of the last century. But this statement from Russia - a country of growing financial and strategic significance - still caused the dollar to slide. It also fuelled speculation that central banks could increasingly diversify their holdings away from dollars.

Kudrin's statement followed news that Sweden has cut its dollar holdings, from 37 per cent of central bank reserves to 20 per cent, with the euro's share rising to 50 per cent. Central banks in some Gulf states have also lately mooted a shift into the euro. Such sentiments helped push the dollar to a seven-month low against the single currency last week.

But Russia's intervention will have raised eyebrows in Washington because the backbone of the dollar's reserve currency status - the main guarantee that status continues -is the fact that oil is traded in dollars. And that is something the likes of Kudrin can directly affect.

For historic reasons, the dollar remains the world's "petrocurrency" - the only currency for the settlement of oil contracts on world markets. That makes the EU and Russia dependent on it. But with central banks switching to euros, the logical next step would be for fuel-exporting countries to start quoting oil prices in euros too.

The EU is Russia's main trading partner. More than two thirds of Russia's oil and gas is exported to the EU. That makes Russia a strong candidate to become the first major oil exporter to start trading in euros. Such a scenario, in recent years, has become theoretically possible. But now, with these latest comments, Kudrin has thrust that possibility into the open.

The G7 meeting was dominated, of course, by concern over Iran's nuclear programme. The threat of military action against Iran, itself a major crude exporter, is one reason oil prices are now testing record highs.

It is worth noting that Tehran has ongoing plans to set up an oil trading exchange to compete with New York's NYMEX and with London's International Petroleum Exchange. In the light of Kudrin's comments, it is significant that the Iranians want to run their oil bourse in euros, not dollars.

Were the Iranians to establish a Middle-East based euro-only oil exchange, the dollar's unique petrocurrency status could unravel. That, in turn, would threaten its broader dominance - which, given America's groaning twin deficit, could seriously hurt the US economy.

Some cite this as the real reason the US wants to attack Iran: to protect the dollar's unique position. I wouldn't go that far, but the prospect of a non-dollar oil exchange in Tehran is certainly an aggravating factor.

The opening of Iran's new oil exchange has recently been delayed. But, having spoken with numerous officials in Tehran, and western consultants who've been working with the Iranians for several years, I think it will go ahead. The exchange entity has already been legally incorporated in Iran and a site purchased to house administrative and regulatory staff.

The reality is that as long as most of Opec's oil - read Saudi Arabia - is priced in dollars, the US currency will retain its hegemony. But the opening of an oil bourse in Tehran, which now looks likely, will signal at least tacit Saudi consent for euro-based oil trading. The US knows this, which is why it is nervous about the dollar's status being questioned.

From the G7's fringe, Kudrin has now touched this raw nerve. This weekend's meetings have been dominated by questions of global financial imbalance - in particular, America's huge deficits.

Kudrin's missive comes as central bankers, and currency dealers, start to conclude the only way to resolve the massive US external deficit is a somewhat weaker US currency. As the IMF itself warned yesterday, a "substantial" dollar decline may be needed.

One way to bring that about would be for the euro to enter the global oil trading system. This is unlikely to happen soon. It might not happen at all. But the idea is now not only realistic but firmly on the table in Washington. Perhaps not with love, but it was placed there by the Russians.

Liam Halligan is Economics Correspondent at Channel 4 News

Wednesday, April 26, 2006

Wiemar, Germany Gold and Silver Prices

German Mark prices of Silver and Gold from January 1919 to November 1923:

Jan. 1919 Silver 12 Gold 170
May. 1919 Silver 17 Gold 267
Sept. 1919 Silver 31 Gold 499

Jan. 1920 Silver 84 Gold 1,340
May 1920 Silver 60 Gold 966

Sept. 1921 Silver 80 Gold 2,175

Jan. 1922 Silver 249 Gold 3,976
May. 1922 Silver 375 Gold 6,012
Sept. 1922 Silver 1899 Gold 30,381

Jan. 1923 Silver 23,277 Gold 372,447
May. 1923 Silver 44,397 Gold 710,355
June 5, 1923 Silver 80,953 Gold 1,295,256
July 3, 1923 Silver 207,239 Gold 3,315,831
Aug. 7, 1923 Silver 4,273,874 Gold 68,382,000
Sept. 4, 1923 Silver 16,839,937 Gold 269,429,000
Oct. 2, 1923 Silver 414,484,000 Gold 6,631,749,000
Oct. 9, 1923 Silver 1,554,309,000 Gold 24,868,950,000
Oct. 16, 1923 Silver 5,319,567,000 Gold 84,969,072,000
Oct. 23, 1923 Silver 7,253,460,000 Gold 1,160,552,662,000
Oct. 30, 1923 Silver 8,419,200,000 Gold 1,347,070,000,000
Nov. 5, 1923 Silver 54,375,000,000 Gold 8,700,000,000,000
Nov. 13, 1923 Silver 108,750,000,000 Gold 17,400,000,000,000
Nov. 30, 1923 Silver 543,750,000,000 Gold 87,000,000,000,000

These numbers are from an article at Le Metropole Cafe

The huge payoff, protection that gold and silver provided as real money for those that had the forsight to make sure they acquired substantial amounts back when silver and gold were cheap occurred during 1923.

This is what can happen when a government fiat token is not tied in any way to something (like an amount of gold and silver) that restrains a government from creating at will as many tokens as it wants to. No wonder the US's Federal Reserve bank, the creator of US Dollar tokens, is illegal, unconstitutional.

And now America has Bernanke at the head of the Fed:

"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." - Ben Bernanke remarks before the National Economists Club, Washington, D.C. November 21, 2002

"Those who create and issue money and credit direct the policies of government and hold in the hollow of their hands the destiny of the people." - Rt. Hon. Reginald McKenna, Chancellor of Exchequer, England

Thursday, April 20, 2006

Converging Silver Price Indicators Update

The right most dot provided by the equal spacing tool turned out not to be a 10th and final up day, but a reaction day. There was plenty of warning what silver would do by the silver overnight price action between the close of the COMEX on Wednesday and its opening on Thursday.

The next job is to determine when silver has bottomed and to draw what is probably going to be a more upward sloping longer term trend line.

otc Derivatives War Games

Europe simulates financial meltdown
By George Parker in Vienna

VIENNA -- Europe's financial regulators have held a "war game" exercise, simulating a continent-wide financial crisis, amid fears they are ill- prepared to stop a problem in one country spreading across borders.

“However, the report warned that hedge funds and credit derivatives were sources of concern "as related risks remain opaque and they have become extremely relevant in assessing financial stability both across borders and across all financial sectors."

It said that, while hedge funds could contribute to market efficiency, they "can also be sources of systemic risks."

Credit derivatives markets were said to have grown by 128 percent in 2005 compared with the previous year, with a nominal value of 12,430 billion Euro ($14,900 billion, £8,700 billion) in June last year. ...,1&ARList=1&cTID=0&cCat=&PRID=0&cSubCat=&Full=1&Archive=&ArtSel=$$$3596$$3595$$3594$$3593$$3592$$3591$$3590$$3589$$3588$$3587$&location=http%3A//

"Be prepared for a crisis, EU regulators are told",,13130-2124232,00.html


It looks like some in the financial industry think that there still are not enough otc derivatives in the world: "exotic equity derivatives ..."

BNP Paribas to Hire 200 People to Boost Equity Derivatives Team

Hedge funds in view as Fed ponders systemic risk


Gathered at a two-day conference hosted by the Federal Reserve Bank of Atlanta on systemic risk, senior policy-makers said that the unregulated activities of hedge funds could have serious implications which are still not well understood.

"There is a dark side connected to financial integration. If shocks are large enough, the financial system becomes a risk-transmitter rather than a risk-disburser," said Nigel Jenkinson, a director of the Bank of England.

"We may have fewer systemic events, but they will be larger," he told a dinner at the Atlanta Fed on Monday.



Tidbit from the Cafe:

"You have to wonder what cigarettes these people are smoking! As long the world economy is growing then the debt and the trade imbalances are just fine! Has no one realized that this is a giant Ponzi scheme, or Enron style accounting. The financial system creates debt and reports it as income and then tells everyone that the debt doesn’t matter. Great scheme until the day that it doesn’t fool anybody anymore.

The IMF chief Rodrigo Rato seems to have understood "I find these views optimistic to the point of willful blindness," he said, referring to the idea that the imbalances could either go on indefinitely or dissipate painlessly."

Tuesday, April 18, 2006

Converging Silver Price Indicators

As of the end of Monday the 17th, silver is getting up near a vertical tangent to the french curve drawn on the above chart. Prices do not move vertically on financial charts. Something is up! Also, it can be seen that silver is near the top of its short 3 week long channel, not that prices can not move out and up from a channel some. What else can be seen is an equal spacing tool puts a point a hair to the left of the vertical tangent to the french curve.

On top of those 3 elements, silver is up 7 days in a row which is rare. 8 and 9 days in a row have happened on charts, but rarely. In silver's channel, silver has gapped up 4 times.

These 5 indicators say silver is getting close to a top. History says 2-4 days more. How about Thursday or Friday of this week.

This top is just a temporary one. Who knows how long or how low the reaction will be. Ultimately, silver should make it up to around US$ 200-300 per ounce. Maybe a whole lot more if the Fed really gets carried away with hyperinflation: creating US dollars out of thin air, competing with US dollar counterfeiters, in much larger amounts than normal.

Friday, April 14, 2006

Silver Price Prediction and French Curves

It is possible to fit a french curve to a 6 month silver chart that touches intra day lows 5 times before it starts to really head upwards. By thursday or friday, silver can be touching the part of the curve that has a tangent that is vertical. Another possibility is that it shoots straight up from here and hits the part of the curve that is heading up and back to the left. Another possibility is that silver breaks downward and to the right through the curve. Whatever silver does, the odds are extremely good that when silver breaks through the curve, no matter which part, a reaction has set in. It looks like this could happen by the end of next week, Friday, April 21, 2006.

This is a facinating time for silver. It is already up 6 days in a row and has left 3 gaps over the last 3 weeks; end of trend signals. There also are rare charts that exist showing prices that moved up 8 and 9 days in a row. This is possible with silver, too.

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, 'Account overdrawn.' - Ayn Rand, author of Fountain Head, Atlas Shrugged, and other books

US Trade Deficit

Pure communism wanted, central command of prices:

In this article Caroline Baum (a columnist for Bloomberg) reveals communist ideology by stating

"If the long rate really influences the economy, encouraging corporations to invest and consumers to finance home purchases, why not put that rate where the Federal Reserve wants it rather than leave it to the whims of the market?"

The strangest thing is that the USSR imploded on itself without getting involved in some huge war and almost nobody was astounded or asked how could that have happened. Especially in the US. Most in the US simply thought "Oh, isn't that nice." and went on about their day.

No wonder the US is going down the tubes.

Now to the US's trade deficit:

The US trade deficit number came out the other day and the US financial media tried to spin the number as good merely because the number was less than the previous month's number. That's all there is to it? It's that simple? We don't have to worry about the trade deficite anymore? The same thing happened to the March, 2003 number.
And January of 2002 was less than January of 2001.

First, look at the trends in place:

Jan. - Dec. - 357,819, January - 33,736, February - 27,865, March - 31,840
Jan. - Dec. - 418,038, January - 28,299, February - 31,049, March - 30,704
Jan. - Dec. - 494,814, January - 41,218, February - 40,073, March - 43,543
Jan. - Dec. - 617,583, January - 46,053, February - 45,834, March - 46,966
Jan. - Dec. - 723,616, January - 58,267, February - 60,114, March - 53,745

Wednesday, April 12, 2006

Silver Price Prediction

If you look at a 5 or 10 year chart of silver, what the price of silver is doing now is moving almost straight up compared to its movements over the last 5 years. This type of movement in financial markets halts abruptly and a reaction (a rest) to too fast of an upward move sets in.

Since the beginning of the gold bull market, very roughly speaking, gold is up about 100%. In just over about 3 years, silver is about 200%.

The high point silver is now probably putting in could very well be the top of a more upward sloping channel than the channel that it has been in since 2003. The new more upward sloping trendline (bottom of a channel) should be the new low of a reaction that has or should set in shortly in silver, and the low that silver put in in the middle of 2005.

Friday, March 24, 2006

Vietnam Gold

The Vietnamese central bank has been creating too many Dong out of thin air so that the Dong has been losing its value rather fast. This creates a problem in Vietnam for Vietnamese who need to buy gold to pay their mortgage payments. Just another example of government central banks screwing up an economy and stealing stored value from people who have in their possession government fiat tokens. No wonder so many important transactions in Vietnam are done using gold as smart Vietnamese know not to trust their central bank and its Dong.

"Gold price rise pressures house loans

Skyrocketing global gold prices have boosted prices in Vietnam, causing concern for those who took out gold loans to buy houses as their debt rises.

Sharp climbs in the price of gold, which is widely used in housing transactions in Vietnam, threaten thousands of households as they face losing homes if they cannot handle the increased debt.

The price of pure gold currently stand at VND10.6 million (US$666) per tael (1.25 oz), while that in 1999 was only VND4.9 million.

Mrs. Anh from District 1 who bought an apartment on gold loan in May 2002 told Thanh Nien she had seen her debt in Vietnamese dong almost double.

She borrowed 27.5 taels of gold in May 2002, priced at VND5.9 million per tael, or VND162 million in total.

The loan was to be paid in installments over 10 years to buy an apartment in a building on Cong Quynh Street.

After four years of paying down the debt, her loan later was now VND288 million, an increase of VND126 million due to surging gold prices.

The worst case scenario is having to leave her house, after failing to pay the housing company contract after 10 years due to rising gold prices.

In another case, Mr. Luy from the Hiep Binh Chanh building, the Thu Duc District, said he bought the apartment worth VND122 million on a rent to own contract in 1999.

In the first months he had to pay VND400,000 per month to the bank but the sum later climbed over VND1 million, fueled by rising gold prices.

No solution yet

Real estate companies said thousands of households belonging to site clearance for projects and purchasing re-settle houses in the city fall into a situation like Anh’s.

The city’s District 1 housing management company has managed nine apartment buildings with the majority of house owners paying in installments.

Failure to pay house loans is common situation among households located in the building, according to Luy. Many had to sell their houses to pay off the debt.

Nguyen Quang Van, deputy director of the District 1 housing management company, said the company has submitted to the authorized offices solution on changing loans in gold into loans in dong, helping households escape the financial burden.

However the solution has yet to be approved.

The domestic market saw gold price hikes mirroring global prices towards the end of 2005 as demand outstripped supply – pushing the metal to a 24-year high of $541 an ounce Dec. 12.

Vietnamese gold rates have scaled to fresh new highs several times recently, peaking at VND10.9-10.91 million ($688) early this month.

Experts predict gold could climb as high as $600 per ounce this year, driven by fund hoarding, a weakening US dollar, and geopolitical tensions.

Reported by Thanh Xuan – Translated by Ha Viet"

"At any given moment there is an orthodoxy, a body of ideas which it is assumed all right-thinking people will accept without question. It is not exactly forbidden to state this or that or the other, but it is 'not done'... Anyone who challenges the prevailing orthodoxy finds himself silenced with surprising effectiveness." -- George Orwell

Gold Price Prediction

Ian Telfer has made a gold price prediction that is not out of line with other quite knowledgable experienced people in the industry.

"NP/DJ say ex Goldcorp CEO sees gold at $5,500 (U.S.)

Thursday March 23 2006 - In the News

The National Post reports in its Thursday, March 23, edition that former Goldcorp chief executive officer Ian Telfer can see gold trading at $5,500 (U.S.) an ounce. A Dow Jones dispatch to the Post reports that Mr. Telfer suggests a perfect storm is in place for gold to replicate exponential gains seen at least twice in the past century. "I happen to be bullish on gold," said the former chief of Goldcorp and current chairman of U.S. Gold Corp. Mr. McEwen is adamant that a number of key fundamentals have changed over the past six years to create another gold rush. Mr. Telfer says in 1966, it took 28 ounces of gold to buy the Dow Jones index. But in the 1970s, gold went from around $41 (U.S.) an ounce to more than $840 (U.S.) an ounce by 1980. That was a year when one ounce of gold could buy the index. In the late 1990s, it took 44 ounces of gold to buy the DJI. These days? it takes about 19 ounces to buy a DJI. Mr. McEwen said gold investors should watch this ratio carefully. If, down the road, the gold-to-index ratio moves to 5:1, investors should start thinking about an exit out of gold. If it moves to 2:1, investors should take their money off the table, Mr. McEwen said."

Further out in time, if the gold/Dow index is down to 2:1, the gold price predictions should be astronomical at that point in time from those that do not understand that the top of the bull is about in place.

Thursday, March 16, 2006

Fed to Discontinue M3

Yes, the Fed will be discontinuing M3 but some will be able to reconstruct the number since the components of M3 will still be published although spread amongst different places. The bottom line being that the number will not be readily available to the masses.

Robert McHugh, Ph.D. at:

in the context of the Fed wanting banks to restrict commercial real estate loans (a good read) writes:

"The Fed announced again on March 9th, with no palatable explanation, that they will no longer publish M-3 as of March 23rd. While they claim that M-3 is useless, in the blurb on their website, the fact is banks are still reporting all the data on their Call Reports used to calculate M-3. The Fed has not eliminated the unique M-3 components from the Bank Call Reports.

Why don’t they want to be transparent with the most important statistic, the very measure of why they were established by a minority of Congress during a late night session back in 1913? Because they cannot wait to pump money to high heaven like some sort of fiat tower of Babel.

M-3 was increased by $28.3 billion last week, a 14.2 percent annualized rate of growth. Over the past 2 weeks, M-3 was boosted an amazing $81.9 billion, for an annualized rate of growth of 20.7 percent! Over the past 8 weeks, M-3 is up 129.6 billion, an 8.2 percent rate of growth, and is up a whopping $249.7 billion over the past 12 weeks, a 10.7 percent annualized rate of growth, a $1.0 trillion annual expansion."

Wednesday, March 08, 2006

otc derivatives

The BIS (Bank for International Settlement) is saying that their total of otc derivatives in the world are around $300 trillion. otc derivatives are a zero sum game like futures and options. There is no way that there is a group of entities out there that can take a $150 trillion dollar hit and still stay standing.

The following is a bit from Berkshire Hathaway's recent report. All this in a relatively calm financial environment:

from page 11:

"Long ago, Mark Twain said: “A man who tries to carry a cat home by its tail will learn a lesson that can be learned in no other way.” If Twain were around now, he might try winding up a derivatives business. After a few days, he would opt for cats.

We lost $104 million pre-tax last year in our continuing attempt to exit Gen Re’s derivative operation. Our aggregate losses since we began this endeavor total $404 million.

Originally we had 23,218 contracts outstanding. By the start of 2005 we were down to 2,890. You might expect that our losses would have been stemmed by this point, but the blood has kept flowing. Reducing our inventory to 741 contracts last year cost us the $104 million mentioned above.

Remember that the rationale for establishing this unit in 1990 was Gen Re’s wish to meet theneeds of insurance clients. Yet one of the contracts we liquidated in 2005 had a term of 100 years! It’s difficult to imagine what “need” such a contract could fulfill except, perhaps, the need of a compensation conscious trader to have a long-dated contract on his books. Long contracts, or alternatively those with
multiple variables, are the most difficult to mark to market (the standard procedure used in accounting for derivatives) and provide the most opportunity for “imagination” when traders are estimating their value.
Small wonder that traders promote them.

A business in which huge amounts of compensation flow from assumed numbers is obviously fraught with danger. When two traders execute a transaction that has several, sometimes esoteric, variables and a far-off settlement date, their respective firms must subsequently value these contracts whenever they calculate their earnings. A given contract may be valued at one price by Firm A and at another by Firm B. You can bet that the valuation differences – and I’m personally familiar with several that were huge – tend to be tilted in a direction favoring higher earnings at each firm. It’s a strange world in which two parties can carry out a paper transaction that each can promptly report as profitable.

I dwell on our experience in derivatives each year for two reasons. One is personal and unpleasant. The hard fact is that I have cost you a lot of money by not moving immediately to close down Gen Re’s trading operation. Both Charlie and I knew at the time of the Gen Re purchase that it was a problem and told its management that we wanted to exit the business. It was my responsibility to make sure that happened. Rather than address the situation head on, however, I wasted several years while we attempted to sell the operation. That was a doomed endeavor because no realistic solution could have extricated us from the maze of liabilities that was going to exist for decades. Our obligations were particularly worrisome because their potential to explode could not be measured. Moreover, if severe trouble occurred, we knew it was likely to correlate with problems elsewhere in financial markets.

So I failed in my attempt to exit painlessly, and in the meantime more trades were put on the books. Fault me for dithering. (Charlie calls it thumb-sucking.) When a problem exists, whether in personnel or in business operations, the time to act is now.

The second reason I regularly describe our problems in this area lies in the hope that our experiences may prove instructive for managers, auditors and regulators. In a sense, we are a canary in this business coal mine and should sing a song of warning as we expire. The number and value of derivative contracts outstanding in the world continues to mushroom and is now a multiple of what existed in 1998, the last time that financial chaos erupted.

Our experience should be particularly sobering because we were a better-than-average candidate to exit gracefully. Gen Re was a relatively minor operator in the derivatives field. It has had the good fortune to unwind its supposedly liquid positions in a benign market, all the while free of financial or other pressures that might have forced it to conduct the liquidation in a less-than-efficient manner. Our
accounting in the past was conventional and actually thought to be conservative. Additionally, we know of no bad behavior by anyone involved.

It could be a different story for others in the future. Imagine, if you will, one or more firms (troubles often spread) with positions that are many multiples of ours attempting to liquidate in chaotic markets and under extreme, and well-publicized, pressures. This is a scenario to which much attention should be given now rather than after the fact. The time to have considered – and improved – the reliability of New Orleans’ levees was before Katrina.

When we finally wind up Gen Re Securities, my feelings about its departure will be akin to those expressed in a country song, “My wife ran away with my best friend, and I sure miss him a lot.” "


Smart people already have been aquiring small, if not large, pieces of gold and silver as a store of wealth that they can actually own, that is actual usefull money, also. You sure do not **own** your wealth that is stored as digital bits on the hard drives owned by the world's big or small financial institutions. If you don't own the hard drive that your digital bits are on, you don't own your digital bits. That's for sure.