TheArt ofM:

That’s a great question. The price of gold (POG) began rising, after numerous years in decline, in 1999. Although the POG rose in 1999, 2000 and 2001, it actually underperformed the Bank of International Settlements bundle of world currency.

See this chart for an illustration:
http://www.sharelynx.com/chartstemp/Dabchick.php

But, at the end of 2001 the trend reversed. At this point, the POG began rising faster than the currencies were losing their value. Hence, the POG had ‘broken out’ against all combined world fiat currencies. This new trend, where POG outperforms fiat currency, took a major change in the summer of 2005 when the slope of the trend line radically turned up.

Luckily, the POG has been charted back for several hundred years, so you can back check the data. Further, pretty much every currency that has circulated over the last few hundred years is now defunct. That fact alone should basically answer your question. The POG can only be suppressed for a few years at a time, couple decades at most.

This gold market bull market is different only to the degree the world is different…

As far as storage costs, that is a red herring. You can purchase 100K of gold bullion for about 3% transaction fees and fit it into a shoebox. You could fit several million worth of numismatic gold into the same shoebox. For any investment in the six or seven figures, you should budget some maintenance time and costs, or that investment will eventually turn into five figures.

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Financing Reality through Precious Metals and Mining.

By the way, not one to blow my horn too often, but my first post on Trouble in the Bond Market came just six weeks after a 55 year low in the 10-year UST rate, marking the bottom of a 20 year cycle.

see here:

http://finance.yahoo.com/q/bc?s=%5ETNX&t=my&l=on&z=m&q=l&c=

Last week likely marked a brand new phase in worldwide derivative meltdowns. Time will tell.
i.e. I' ll comment on this post again in august 2010. Cheers.

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Financing Reality through Precious Metals and Mining.

I don't worry about things that don't affect me directly.

IMHO, Jim

Head of the US Federal Reserve Confirms Bank Failures Forthcoming

Did you hear Bernanke’s testimony yesterday (2.28.08) in front of Congress?
When asked about the possibility of US bank failures, he essentially said the event is not just a possibility, but likely. Have not seen this discussed very widely the financial press, for the obvious reasons.

“I expect there will be some (bank) failures”. He later went on to explain position Bernanke Panke, that he expects the large banks will come out alright but that small regional banks carrying real estate portfolios will go bankrupt.

Uhmm, Yeah.

The only reason the large banks won’t go out is because the little people (that’s you and I) will continue to subsidize the large banks. The fed has already injected over $50 US Billion into the banking system just to keep it afloat. That hasn’t been near enough to prevent he banks from selling part control to Middle Eastern governments.
Furthermore, the large banks have well-funded lobbyists already working on legislation they will ram through the puppet congress. This legislation, which will be called “Preservation of Homeowner Rights Act” or something equally vapid will, of course, have the exact opposite effect.

Spoke with a gentleman at length yesterday; he worked for Bank of America (BAC) for 17 years.  He completely agreed with my supposition that BAC took over the failing country wide for this expressed reasons:

BAC buys the debts and assets together at rock-bottom prices.

http://www.marketwatch.com/news/story/bank-america-buy-countrywide-financial/story.aspx?guid=39417545-5DC7-4CD1-862D-5939F89D9667

BAC will pass the legislation that underwrites their debts, while they re-sell the assets.  Socialize the losses and privatize the gains. Same as it ever was.

Start to watch you local bank very carefully…

Anybody think Visa (V) is going public, to raise the dough, to buy out some failing bank real estate portfolios, to ride the coattails of the BAC legislation?

BAC broke support today, entered bearish trend. Need more volume for confirmation, but looks ugly anyway.  Perhaps the market movers haven’t noticed the BAC lobbyists wining/dining/paying off the right politicians. Or mayhaps there has been a public rebuke noted on high; the crooked pols will not longer accept BAC ‘money’, and require gold bullion only. har!

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Financing Reality through Precious Metals and Mining.

MortMain: June 29, 2008

The market has not been able to digest the forced liquidation of Bear Stearns and therefore coughed up a rather large fur ball.

The bonds and equities demonstrate that Bernanke and fellow criminals badly executed their special blend of usury, equity stripping, malfeasance and larceny.

Larger markets realize the outright theft of shareholder value by the Federal Reserve, given to their cronies under cover of a Sunday night, underwritten by the US taxpayer and investors.

In turn the banking and finance sectors have gained momentum in their great downward spiral decent.

Indeed, as predicted here, BAC has ramrodded the poison-pill-laden legislation through the USHouse. This legislation will saddle the US taxpayers (those too dumb/poor to obtain the loopholes) with the debt while BAC strips the equities. = Free houses for the bankers while the poor working folks carry either $100k more than they own on their home, or lug around a bankruptcy for the next 7-10 years. Just one of the poison pills is the provision inserted by Criminal Senior Dodd which provides the US Government the ‘power’ to track and store in a database every electronic transaction conducted by the US citizenry (electronic payments, debits, ebay and paypal, electronic banking, etc.).

BAC was able to utilize the best politicians that money can buy (given the selction and sorry state of the money) to hand-carry the legislation off the banker’s shelf through the Peoples House. However, President Bush amazingly enough found what remains of his spine and threatened to veto the mess.

As such, you can see BAC has lost OVER a full third of its value since I pointed out the fundamental weakness and technical breakdown in the stock on Feb 29, 2008.

Here’s the performance.

http://finance.yahoo.com/echarts?s=BAC#symbol=BAC;range=6m

One thing yields clear to even the most casual observer – more banking failures are on the way.

The smart money has begun withdrawing their funds out of US banks…

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Financing Reality through Precious Metals and Mining.

7.16.08 Anatomy of a Bank Run

http://news.yahoo.com/s/ap/20080716/ap_on_bi_ge/indymac_customers

Folks hoping to play musical chais, pull the money out of one bank and deposit into another.

How do they know the next bank won't fail?

Here is the human emotion quotient revealed:

http://www.latimes.com/video/?slug=la-fi-indymac16-2008jul16-ktla

Financial Reserve Fiat Banking is nothing more than a confidence game.

When the confidence is gone...

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Financing Reality through Precious Metals and Mining.

9.13.08 Falling Financial Giants

Why did the dollar lose over a full percentage point on Friday?

You could say technical’s. Look at the 20 year USD chart and see 80 as a very critical support/resistance line.

However, you could also say fundamental reasons rule

It all comes down to the bond market. The bond market in the US is almost 10x the size of the metals and equity markets combined. All Fed actions undertaken are to expressly support the bond market. Once that fails the real troubles begin.

Look at how the 30-yr mortgage rate dropped 50-60 basis points this week when the US Treas. Sec. announced the nationalization (read: failure) of FNM/FRE.

The Fed CANNOT support a strong dollar here, no mater how many times Bernanke/Paulson and the other mouthpieces state it as policy. Should they truly support the USD the bond yield rise, and China/Japan stop buying the 10-year USTreatsury Note. Since the US has run on debt since 1973 (default on Bretton Woods agreement) they powers NEED international financing. Otherwise there is no more foreign infusion which enables serial bubbles and the debt bubble collapses completely. Of course, to some degree that has already started.

The short term view is that the lowered 30-yr mortgage is bullish for us housing as expressed by some here in this thread. However, why would the Japanese/Chinese continue to by collateralized debt obligations, and feed the middleman AND trust the failing CDO market (ala Bear Sterns and Lehman AND their underwriters such as AIG?) when they can lower their risk and continue to buy the 10-yr UST which is complicity supported by the FED. Answer is, they won’t – they’ll continue to by the 10-yr until they don’. And then it gets real interesting…

In the interim, we’ll have to satisfy ourselves watching financial giants fall. In the last week, Fannie Mae and Freddie Mac, the two firms I mentioned in my first post( noticed trouble on the horizon with these firms 4 years ago) finally fell. The government nationalized the firms, socialized the debt (to the taxpayers) and will eventually privatize the profit (amongst the good ol’ boys club among the big three banks).

Beleaguered Bellweathers
First you read about Bear Stearns sold off at the point of a shotgun. This weekend the chief criminals are discussing the most expeditious way to carve up Lehman Brothers (what remains) for themselves. Bear Stearns was the country’s fifth largest commercial investment bank and Lehman Brothers is the fourth largest. So, now two of the five largest banks in the US have failed this year.

Additionally, two large institutional banks are in trouble. Will be surprised if Washington Mutual makes it through the elections.

And even more troubling, AIG, the worlds largest insurer lost almost a Full Third of its market cap Friday. Not good.

Have you every wondered who – exactly - was behind, who wrote the insurance policy – for all those credit default swaps that emerged from the collateralized debt obligation market? Yep, AIG was a big one. Lehman is taking them down.

That’s the thing about to big to fail. These financial giants all have interlocking root systems.

When one goes down…

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Financing Reality through Precious Metals and Mining.

bump 4 newbie

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Financing Reality through Precious Metals and Mining.

3.18.09 The Fed announces it will buy $300 Billion in Treasury notes.

This is the turning point, the Fed now publicizes that they will begin to monetize the debt. The have no other choice in order to save their own gravy train. All covered under the Federal Reserve Act and the Monetary Control Act.

Fact is, the US Treasury has ran out of buyers (see the T-bill Yield almost hit 3% again today). As the US, Brazil, Japan and China ‘sitmulate’ until the paper reaches to the sun and back, there are no large buyers of other’s debt.

IF they lose control over the price of Treasury’s the housing and equity markets further tank in a big way.

There are so many dead dollars out there, the logical home is the UST

Dead Paper.

Interestingly enough, yesterday Russia announced –right on cue- that they want a one-world currency. Eventually they will get it. Supposedly tied to gold, but it will be the next largest swindle the world has ever seen. The former Treasury Thief, Paulson , last week announced he was buying gold. If you begin to compare the Price of Gold vs. the price of all other assets, you will begin to realize that the Fed (with the help of Russia) has also began to re-monetize precious metals.

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Financing Reality through Precious Metals and Mining.

The week that was, May 2-May 6, 2009 (Not posted until May 13th)

Bond Funnymentals: Week of May 2

Bond auction on May 6 was rather anemic. The story was that bid coverage was 2.14, better than recent ratios. Here are the two stories that did NOT make daylight:

1. Spreads and price action is terrible; more importantly
2. Remember those happy-talkers pushing the story that the government wanted you, their loyal subject, to have a sweet little 4.5% interest rate? Bond market squelched that one, baby. 30-year rates just about there now! On Thursday there was A FULL POINT move in the 30-year yield!!! (Which also happens to be the at current trend line of the ten year [declining] average). Did you hear about that on the radio/tv/newsie? Nope – but it rules YOUR life (Note: This only applies to folks that hold debt paper or invest or have savings or an ARM or variable contract or hold a bank account. If you are scavenging garbage stuffs in northern Rio, or eastern Mazatlan slumburbs, please ignore).

Bent Politik

Even more damaging than the reckless fiscal policy, corrupt politicians and a wayward citizenry is a government without checks and balances. This has emboldened the parasite class and administration to strip assets from both the big boys and little people at the point of a gun.

The treatment of Chrysler private equity – THE BONDHOLDERS – proves an abomination which has cast a very long pall over the bond market.

One cannot ignore the leader of this nation eviscerating bondholders for ‘being greedy speculators’ when they refused to accept offers of 8-10 cents on the dollar. That is not only their RIGHT, it is their fiduciary duty. What a breath of fresh air for the bondholders to say NO to further pillaging of THEIR trustees. What should they say” Oh, the prez asked nicely so we threw away 90% of your equity position so that Ben/Obama/Timmy could have a nice press conference this week”. NOT.

Thankfully there still is a class holding onto market principles (more likely greed, but you can’t always choose your allies). Nevertheless, these mutual and hedge funds are not pirates, they hold a SECUED debt. They are playing chicken with the administration and want to push the slowdown into federal court – where it belongs. (the lawyers will take $900 per hour). And for your billions of investment in chrysler, you get an 8.9% unemployment rate.

Bottom line: Why buy corporate secured debt, when private market forces and contract law have been replaced by political favoritism.? We are at an extremely dangerous precipice. May the judicial branch step up to the plate, our greatest (if tenuous) hope at this point. If not, our military will need to make some very difficult decisions regarding their loyalties.

For more proof in the pudding – the truly disturbing scenario plays out here:
A bloc of 20 members (hedge funds) holding Chrysler debt has now evaporated to 5. How do you think that happened? Did 75% of Chrysler bondholder overnight decide they didn’t need the money (their jobs) after all? Hah, likely the government offered a deal they couldn’t refuse, and the rats scattered.

http://dealbreaker.com/2009/05/the-national-spotlight-emits-u.php

Many more acts yet in this particular play.
Remember, this is just a prequel for the remain act: GM Bankruptcy


Crumbling Paper
Given the current circumstances and future likely events, who can really afford to hold paper? Waves of higher inflation and interest rates. Conventional wisdom is that the markets are calling for increased inflation downs the road due to higher budget deficits and

Who will put money into 30 year positions, commercial RE, etc. with rising 10-yr yields and 30 year yield now over 4%? Doesn’t make sense, factor of safety is too out of whack. BTW, you know who sets the commercial real estate rates? The same folks that are getting screwed on the Chrysler deal. You think the single family market was nasty – just watch the commercial rates over the next 12 months.

Look at the price action in gold, silver, oil and natural gas for some verification of that thesis. Nat gas up 15% this week, oil at yearly highs, etc.

The Chinese now hold about 2$Trillion USD. What do you think they are buying now? (hint: not more dollars). The average Central bank on this planet holds about 10% of reserves in gold (‘fractional banking basis’). China only holds a little under2%. Sources; 5.5.09 Financial Times.

http://www.ft.com/cms/s/0/433a92b4-3a67-11de-8a2d-00144feabdc0.html?nclick_check=1#

So, what do you think the chinese are buying? GOLD.

Gold is and has been the world currency since the beginning of written financial transactions.

What is the source? Those fools in England who sold into pools at the lifetime low in gold (about $260), courtesy of their financial engineer of disaster: Brown. So what did the cagey brits do? They then elected him Prime Minister. (and get what they deserve). For the record, the US has been shipping gold out of this country into Asia for quite some time. We are in the same (sinking) boat..


Locking in Interest Rates Now?
On the surface it looks like a low brainer. Only problem is, that strategy has been valid- but incorrect – for the past seven years! How many times have the pundits pushed the theory that “rates are going to go up, they can’t get any lower form near record lows”. Well, actually they can go to new record lows – and stay there for decades. Look at Japan.

Changes in Equities Positions

All the hype this week about reflation trade, ‘spring green shoots’, lower unemployment numbers, rising consumer confidence, etc.

HAR! Sell into this rally. The unemployment numbers were the canard floated by the press wing so that GS and the other biggies could scalp a few quid. Very generally - the number was leaked, GS took their positions, and forced market shorts to recover. Even as I type, Obama just came on the tv and spouted all kinds of economic fairy tales (and may favorite, new ‘government re-education camps (anyone remember that book?), starting with the unemployment numbers. This figure served as a bookend for the week. Benranke started the week out by laying out the pillars of the administrations ‘Economic Recovery”:

- Improved Economy
- Higher Unemployment
- Difficulties Obtaining Credit
- Flat and restrained housing values
- Higher taxes, fees and licenses
But hey - its a recovery!

I am glad that my new positions bought in February have paid off (after mostly tanking right after immediate purchase). However, the equities markets are up almost to the fibonacci retracement since the March 9th low. Sell in May go away may once again trump the other proffered pabulum making the rounds. There are way to many optimists out there right now getting ditzy about the recent runup in stock prices. From my experience you are better off opening new stock positions when folks are scared (stock prices climb that wall of worry) versus jumping in when stocks have just had a 30% increase. Note, when this post started would have been a very good entry point into the stock market: everyone was concerned. Take the opposite position and make a quick buck (of course, this tact only works on the short term – long term we continue to trend down in VALUE – irrespective of price),

Just this week sold SPY, FXP, IAG, HL and have gone from overweight equities to overweight cash (and still overweight silver). If these markets overshoot the 32% Fib lines on volume, I can re-deploy cash.

Look at it this way. This year short term bond yields are up 50% and so is the S&P. Will that continue forever? Anyway the next coupon auction isn’t for another couple weeks so we will watch together. Now keeping my eye on 200DEMA support for the USD and Bond ETFs:

USD, RBS, TLT, TLO, TBT

Today’s collapse of the USD may provide the start of a new impulse wave down.

CODA
If the powers that be really wanted to restore lasting market confidence, they could do so in one very simple move: Indict members of the previous administration responsible fore banking oversight. Let’s face it, the current crop of criminals look like mere pikers compared to the last bunch (though I agree the term is but a fetus)

You rob a 7-11 store and you get 2 years in jail. Rob the nations savings account (and cheat on your taxes), and you get a cabinet post (Geitner).

Are there really any more issues more elemental than that?

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Financing Reality through Precious Metals and Mining.

How to Devalue a Currency

Step One, take the specie backing away.
Status: Completed in 1913/1964/1971

How Fallen Empires Devalue their Currency, leading to collapse -

"Silver coins were a basic medium of exchange during the empire, and one of the major Roman coins, a denarius (plural, denarii), equaled four of the smaller silver coins called sesterces. During the reign of Augustus (circa 30 B.C.), a silver denarius weighed 5.7 gm (.20 oz) and was 99 percent pure. By AD 193 it had dropped to 4.3 gm (.15 oz) and was only 70 percent pure. The deficit spending of later emperors nearly halved the silver value of the coinage.”

The soldier-emperors who followed the Severan rulers continued to treat the military generously, but as tax collections fell and silver mines were exhausted, imperial funds disappeared. The treasury melted down available coins and issued new money that had less real value. By 270 the silver content of the coinage was only 1 percent. This devaluation of the currency soon had a terrible effect on Rome. As money became worthless, much of the empire was reduced to a barter economy. The state collected food, animals, and other supplies instead of tax money.

http://www.crystalinks.com/romanempire.html

The marketplace last devalued paper relative to metal in 1964 and 1965. According to Burton Hobson in International Guide to Coin Colleting, [First Edition. New American Library. New York. 1966]:

"..we had a coin shortage so severe that commercial banks at one point were forced to offer a few cents' premium for every dollar's worth of coins turned in, so that payrolls could be met and change made to the penny."

Step Two: Remove Larger Denomination Currency so that all Transactions Must go through a Central Clearing House (federal reserve system).

Status: Check. Completed via removal of the $10,000 $5,000 $1,000 and $500 dollar bills, in 1934.


Step Three: Eliminate Coinage
Status: Almost complete.

Should the penny be removed from commerce?

well,
A one ounce gold American Eagle has a denomination of $50
whereas the market value is roughly $630.

Is this a problem?

Um, yep.

But don't take my word for it...

Let's see what Charles Jenkinson had to say about the general subject in A Treatise on Coins of the Realm:

"A difficulty then existed, and continues to exist, which must necessarily be removed, before any plan can be adopted for the improvement of the silver I have already observed, that silver and gold, in reference to each other, are estimated at Your Majesty's mint at a different value or price, than these metals are generally sold for at market. As long as this difference subsists, both of these metals will not be brought, in a sufficient quantity to the mint to be coined: that mineral will only be brought which is estimated at the lowest value with reference to the other: and Coins of both metal cannot be sent into circulation at the same time, without exposing the public to the traffic of one sort of coin against the other; by which the traders in money would make a considerable profit, to the great detriment of Your Majesty's subjects.

And this mischievous practice, and the frauds committed in carrying it on, are the more to be apprehended in this country, where the Mint is free: - that is: where every one has the right to bring gold or silver to the mine to be converted into coin; not at the charge of the person who so brings it, but of the public: for,...the charge of coining Gold and Silver has been born by the public; and, contrary to the practice of most other countries, no seignorage has been taken.

To prevent this evil, it is necessary to determine, whether there must be a standard, or superior Coin, made of one metal only; and whether the coins of other metals must not be made, and take their value, with reference to this standard Coin, and become subservient to it; - and, in such case, of what metal this standard Coin, to which the pre-eminence and preference are to be given, should be made."

Now, substitute copper for silver (or metal - such as it is, for paper notes) and talk about removing the modern cent from circulation...

In the 1950's, Japan introduced aluminum coinage into circulation for the first time in her history.

Source: Coins through the Ages. Laurence Brown. Bonanza Books. New York. 1961

Don't take my word for it, Part II:

The Silver Dollar Epitaph
Born - 1794
Died - 1935
Buried - 1964

- William L. Graham Jr.

The Silver Crisis. Hickory Press. Lake Forest. Il. 1964. 134 pages. Softcover.

"At the end of February, 1933, just before we went off the gold standard, there were in the United States a little over 8 Billion Dollars of money (aside from that held in the US Treasury). Of this sum about two-and a third billion dollars consisted of gold coins and gold certificates."

- Edwin W. Kemmerer.
Kemmerer on Money. John Winston Company. Chicago. 1933. Hardcover. 197 pages.

With the following inscription:

-Dedicated to the Memory of Grover Cleveland: A fearless and valiant champion of sound money.

No wonder Cleveland is seldom mentioned in the top five presidential rankings...

"The evil effects of such decline (silver and gold against available commercial monetary expanse) were enormously increased by the shortsighted, crafty manipulation of currency by the european rulers. ..and by the inability of the age to understand, or even to perceive, the hidden working of two metals see-sawing against each other -acting as levers against each cutting each others throats. The discovery of America corrected the fall of prices and saved europe, but it left her rulers as deadly ignorant as before of the workings of bi-metalism to give a name to what they had not even perceived as a phenomenon, much less system."

The History of Currency: 1252-1896. W.A. Shaw.

Step Four: Establish a two-tier currency system, one for international settlements and one for internal trade.

Status: Partially completed via the Bank of International Settlements. The next step will be to establish one currency for trade and one currency for day to day transactions.

The day to day currency (a newly introduced red-back) will immediately plummet in value and continue to erode until, eventually, the public will abandon it all together.

The currency for international trade (the greenback) will be backed by actual US assets. This has already occurred to some degree via locking up western BLM-managed lands containing mineral ores for eventually hand-off to the Chinese.

A better solution, but politically unpalatable, is for the US to call a spade a spade and devalue the US 'dollar' (the Federal Reserve Note) by one significant digit. At one point a (large) cent could buy a loaf of bread. A loaf of bread nowadays is $3. So, =
knock off two digits from the dollar, and that FRN would be worth what a post 1982 cent is worth today - one cent. Although, you would still need 3.5 cents to buy the loaf of bread, look at it this way, now the loaf comes with slices so it is 'value added',
part of the productivity daydream nightmare that has allowed flawed logic to devalue the dollar some 97%.

At some point the Red Note Federal Reserve Note will circulate outside the country at some discount, or premium to, the domestically traded greenback. We may as well position ourselves for this eventuality and influence its due course to whatever degree possible.

Step Five: The greenback stops trading. Most citizens readily accept the Iris scan and carbon credit allocation system. For those that won’t (religious objection or those in rural environments) the Government takes, instead of your useless scrip, actual material such as ammunition, food, stored goods, etc.

The way this is introduced is by first eliminating, or more likely, making non-palatable, any non-government spending accounts.

nah, Could Never Happen Now/Here…

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Financing Reality through Precious Metals and Mining.