Saturday, September 29, 2007

Gold Bull Perspective

This gold bull market is about six years old. Some other bull markets out of the past to relate this gold bull to: Still, it is just "jacks for starters".

S&P 500 July 82-Aug 00 - 1,366%
Nasdaq Oct 90-Feb 00 - 1,324%
Bonds Jan 81- Sept 98 - 1,241%
Homebuilder Index Feb 00-July 05 - 954%
WTI (oil) Jul 70-Dec 79 - 882%
Hang Seng Dec 87-July 97 - 665%
Dow Tranports Jun 49-Feb69 - 529%
Japan Land 1q75-3q90 - 467%
Nikkei Sep 82-Dec89 - 463%
Gold July99-current - 161%

(source: DataStream, Haver Analytics, Merrill Lynch)


Bloomberg news:

Commodities Head for Biggest Monthly Increase in 32 Years Sept. 28 (Bloomberg) -- Commodities headed for the biggest monthly gain in 32 years, led by wheat, crude oil and gold, as the dollar's slump enhanced the appeal of energy, grains and precious metals as a hedge against inflation.


The investing public is still comatose. Alexa's daily reach for Kitco's site:

Still, just "jacks for starters".

Monday, September 17, 2007

Warding Off Dark Fears

"It's not like the 1930s, is it? Their money isn't actually sitting there. They shouldn't panic. It's just the way it is today. The Bank of England don't lend money to just anybody." - a 63 year old woman who used to work as a teller at a Northern Rock branch.

"Their money isn't actually sitting there." - That part she got right.

Some realism:

"Yesterday something happened that I have not seen in my lifetime, a run on a major British bank."
Panic on the streets of Britain: Northern rocked, City shocked
Hamish McRae - The Independent (UK) - September 15, 2007

The Bank of England is trying to unfreeze a major bank's financial paper while the US Fed is trying to unfreeze much of the world's financial paper. Other central banks are trying to do the same. Simply creating more credit and debt is not going to solve the problem of too much credit and debt.

Tuesday, September 18, the Federal Open Market Committee meets. The Fed is universally expected to cut US official interest rates at this meeting.

A few days ago a US Senate panel very quietly approved an $US 850 Billion increase in the US Treasury's "debt limit", raising it to $US 9.82 TRILLION. This will be the fifth debt limit increase since Mr Bush first took office in January 2001.

"It'll work. It has to work. WE WANT IT TO WORK!" - a financial official in Atlas Shrugged.

"First, the deflation and liquidation progression is from stocks, to bank deposits, to currency, to gold; and, from bank deposits to currency to gold can happen with lightening speed."

Sunday, September 09, 2007

Bank Runs

The other week people in California were lining up at Countrywide Bank branches trying to get cash out of their accounts.

Countrywide Financial Corp (NYSE) - Symbol: CFC

Here is its awful looking chart:

This is not the only bank run going on out there in financial land. Some are happening kind of behind the scenes since the mass media is not picking up on it. Heck, the financial media is barely picking up on it.

"Those who do not read the news are uninformed. Those that do read the news are misinformed." - Mark Twain

"I don't make jokes. I just watch the government and report the facts."
- Will Rogers

Banks are stepping back from loaning each other funds and therefor their commercial customers. Many of these otc derivatives (assets) that banks own and thought had value, do not have value. So, there is a mad rush for cash by all kinds of entities. Credit Suisse warned on August 15 the global financial order could be on the cusp of "a system changing crash". They are simply too scared to lend like they did before. There is a freeze up in commercial paper going on. The total US decline in the past three weeks is about $US 244 Billion - or 11.0 percent - as reported by the Fed on Thursday, August 30. At this rate almost half the commerical paper, about two trillion dollars worth, will cease to exist three months from now. Business' other option is to borrow directly from banks at a higher rate, about 8.2%, up from about 6.5%, that they can not really afford, assuming cash short banks would make the loans to begin with.

In the Eurozone money market on September 2, the Euro Libor three-month rate widened to its highest since May 2001 at 4.74 percent, with the European Central Bank's base rate being at 4.0 percent. This is commercial banks finding it more risky to lend to their peers, or not trusting their peers. Heck, then why should the average Tom, Dick and Harry trust these banks. Tom and friends do not know what is going on in the banking system right now. That could change fast if just one commercial bank publically has to admit banckruptcy, or if the public suspects that the Treasury/Fed is covering a bank bankruptcy up, like what could possibly be happening with Countrywide now.

Jim Sinclair gets right to the point:
Wednesday, September 5, 2007

Day of reckoning for derivatives has arrived

It is not just coming -- it is already here.

I am convinced that all that has been anticipated since 1968 has now occurred. I see the mountain of over-the-counter derivatives that, including all types, exceeds $30 trillion. The mountain is shaking badly.

The situation now resembles the Weimar Republic (the German state from 1919-33) in the sense that the Weimar case study is predicated on planned currency destruction to avoid war reparations that got out of control.

The present situation is based on the ultimate sin of greed called over-the-counter derivatives. This mountain of unfunded special performance contracts is shaking and, as a product of declining US business activity and profits, will fall precipitously.

Before the fall of this unimaginably large mountain of garbage paper, all central banks in concert will prime the pump any way they can. Priming for this
purpose has no practical way of being drained. What is going to get out of control now is monetary inflation to offset the shaking mountain of over-the-counter derivatives. The beginning of this fall is in progress and will be history by 2012 or sooner.

Simply stated: This is it, today, now! Think the best but protect yourself under a worst-case scenario.

There is no more "if this happens, that will happen" scenario. It has already started to happen and the result will be a bull market for all commodities to a level that even the wildest (rational) bull cannot even imagine. The dollar is headed below the estimates of the biggest (rational) bear.

I take very seriously what I have said here. What I have just said I have never uttered before.

The over-the-counter shaking mountain of derivatives can't be fixed by trying to hide it. The problems cannot be fixed by any interest rate action. The problem will not even be fixed by a monetary inflation of unprecedented scope. The problem is coming home by 2012 or much sooner.

Keep in mind that the $20 trillion-plus over-the-counter credit and default derivatives generally have the following characteristics.

They are:

-- Without regulation.
-- Without listing on public exchanges.
-- Without standards.
-- Not in the least bit transparent.
-- Without an open market of the bid/ask type.
-- Dealt in by private treaty negotiations.
-- Without a clearing house.
-- Unfunded without financial guarantee of any kind.
-- Functioning as contracts of specific performance.
-- Of a character or ability to perform that is totally dependent on the balance sheet of the loser in the arrangement.
-- Evaluated by computer assumptions made by geeks, market-inexperienced mathematicians who assume religiously that all markets return to their normal relationships regardless of disruptions.
-- Now in the credit and default category and are considered by accepted authorities as totaling more than $20 trillion in notional value.
-- Notional value becomes real value when the agreement is forced to find a real market for ending the obligation, which is how one sells it.


"You have to choose [as a voter] between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold." - George Bernard Shaw
Even a famous Fabian socialist values gold over statist government types:

There is no counter party risk to gold. The "barbarous relic" is looking pretty sexy right now. There is no fever like a gold fever.

Gold and silver are 2 of the few ways to protect yourself from the rampant fraud in the world's financial system, particularly since 1971 when the US broke its promise to redeem dollars in gold to foreign central banks. Since then, the world's financial system is essentially a Ponzi scheme. Something (no gold or silver reserved currencies that can be fled to in times of financial repudiation) that the world has never experienced up to 1971. How long can this rampant fraud last?