Christmas shopping
Well dear reader we are close to Christmas. I guess you have bought your Christmas gifts already. Well as a gold bug, my favorite Christmas gifts are gold or silver jewelry or Gold and Silver coins. Both is always very much welcomed and in my opinion will at least keep the value. Well dear reader although I prefer gold and silver items, not everybody shares my view. Do you know what the best selling items were in the US?
Apart from the Treasury Bonds (more on that later) it was Guns and Home Safes. Well that does definitely tell us something, doesn't it?
Following an article about this topic
http://thetrumpet.com/index.php?q=5725.4074.0.0
Well talking about Christmas shopping before going to dive into the shopping please have a look at the following video which dear reader is a MUST watch in my opinion. I received the link from a friend and I am thankful for his having shared it with me. I hope that as many people as possible will see this video.
http://www.storyofstuff.com/Well when buying you Christmas gifts have in mind that "Products are going to be cheaper to buy soon. However guess what? You're going to need more dollars to buy them because your dollar's going to be worth less. There is no fiscal or monetary policy that can save this. You cannot save it by printing more money."
Maybe the only way to keep up your purchasing power is….. (yes you know it already)
Do start the musings, let’s have a look at last weeks markets:
Well dear reader the following is not new to you.
At this moment, and for the better part of 2009, we are passing through a period of great economic unrest—an unrest that will have social, political, and industrial implications.
Well we can feel already these implications. You certainly got across the information of Mr. Madoff who confessed of a USD 50 Billion fraud using a Ponzi scheme.
Well this Madoff guy moved from mad on to full madness and now slips into mad off. Seems like he will spend some time behind bars.
Dec. 12 (Bloomberg) -- Bernard Madoff confessed to employees this week that his investment advisory business was "a giant Ponzi scheme" that cost clients $50 billion before two FBI agents showed up yesterday morning at his Manhattan apartment.
"We’re here to find out if there’s an innocent explanation," Agent Theodore Cacioppi told Madoff, who founded Bernard L. Madoff Investment Securities LLC and was the former head of the Securities Industry Association’s trading committee.
"There is no innocent explanation," Madoff, 70, told the agents, saying he traded and lost money for institutional clients. He said he "paid investors with money that wasn’t there" and expected to go to jail. With that, agents arrested Madoff, according to an FBI complaint.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3uKf5P1lFmg&refer=homeWell dear reader that shows us that the system as such is bankrupt. Madoff and his hedge fund did have to file at the SEC on a monthly basis I believe. So how do there controls work? Futhermore what happened to the audits? To me it seems that Bernie Madoff's fraud may be just the foretates of what is to come.
Well there is a lot of people who lose money with this fraud. There will be more people losing money due to other frauds and failures. As mentioned a few times the balances sheets of the financial institutions do not show the real picture. Of course this can not necessarily be defined as fraud but in my opinion is very close to it. So be careful. Following an information about Goldman Sachs. It says that people are shocked by the news. Well they only can be shocked because they do take everything they get delivered as correct. If one looks a bit deeper into what is hidden in the balances sheets, one would not be surprised. At least, dear reader, to you it should not come as a surprise. Please be aware that more of the same news is to be expected over the coming months.
Wall Street shock as Goldman Sachs is expected to post losses of £1.35billionAs the shock waves of former Nasdaq chairman Bernard Madoff's arrest over an alleged £33.5billion fraud continues to reverberate around Wall Street, dealers in New York are braced for yet more grief from the battered banking sector.
For the first time in a decade as a publicly listed company, Goldman Sachs is expected to report a loss for the fourth quarter tomorrow.
http://www.dailymail.co.uk/money/article-1094726/Wall-Street-shock-Goldman-Sachs-expected-post-losses-1-35billion.htmlWell dear reader as I expect a lot more of the same news I like to emphasis once more that the only true safe haven and money is gold and silver. It does not matter if the price fluctuates and therefore is not always just going up. Gold and Silver are the investments to be in.
GoldWell dear reader this week I saw a message that worried me considerably. Mike Bolser an analyst I followed through www.lemetropolecafe.com until 2005 mentined that the IMF might sell 3,000 tons of gold the past week. On one side Mike Bolser did excellent research up until 2005 (seems that he lost a bit the case with gold after 2005) and on the other side Central Banks are known to manipulate markets and especially the precious metal market. Thanks god, it seems that Mike Bolser was not correct with his message. Well anyway Gold looks really good at this point. However we have to keep in mind that Central Banks will try to do whatever they can to keep the gold price down. Therefore corrections can always happen and might be excellent changes to go on building up a position in Gold and silver.
Here’s a graph of world gold mine supply from an article today in Gold World, by Luke Burgess.
Looks like gold is down 10% from the peak, which incredibly was in 2001, when the gold bull market started!
In 2008 alone, supply is projected to drop by 4%, and just wait until 2009-2011. I’ll bet supply falls off that chart, below 75 million, which will be particularly devastating given that demand is accelerating and Central Bank selling is coming to a halt.
Following an information from James Turk about a topic that has been discussed a lot lately. Backwardation:
James Turk
Over the last few weeks, there have been a lot of articles on the Internet about backwardation, i.e., when the price of commodities for delivery today is higher than the price of commodities for delivery in the future. Like nearly all the things on the Internet, most of what was written is useful, but some of it is total rubbish, and it takes time to sort through to find the gems from the rest. I offer the following in the hope that it clears up some of the confusion that has arisen about backwardation as well as to provide some insight into today's gold market.
http://www.marketoracle.co.uk/Article7755.htmlWell dear reader as mentioned many times, gold and silver is the true currency nothing else. Definitely not the FIAT currency. Did you know the following about FIAT currencies?
Ralph T. Foster’s important book, Fiat Paper Money—The History And Evolution Of Our Currency notes that paper money first appeared in China, which is also the first country to later ban its use.
Over the course of 600 years, five dynasties had implemented paper money and all five made frequent use of the printing press to solve problems. Economic catastrophe and political chaos inevitably followed. Time and time again, officials looked to paper money for instant liquidity and the immediate transfer of wealth. But its ostensible virtues could not withstand its tragic legacy; those who held it as a store of value found that in time all they held were worthless pieces of paper.
The use of paper money was formally abolished in China in 1661. But, like the proverbial bad penny, it reappeared again in the 1900s
General EconomyWell dear reader, as mentioned in my last musings, the new economic team appointed by President-elect Barack Obama is but a resuscitated version of the old team, the very ones responsible for the present system and its fatal problems
I mentioned as well a couple of times that markets are managed (to say it in a nice way). So some prices do not always reflect their correct price but be assured that all managed markets—whether managed by government allocation as under Communism or by government sponsored central bank credit as in Capitalism—are doomed to failure sooner or later. I truly believe that the triumph of free markets over managed markets is coming.
Latest Roubini Interviews at Bloomberg
http://www.rgemonitor.com/roubini-monitor/254764/latest_roubini_interviews_at_bloomberg_on_the_auto_bailout_and_global_economic_crisisPeter Schiff: A nightmare before Christmas
Like many pragmatic economists I have always warned that rapid expansions of government debt would result in inflation and higher interest rates. The explanation was always simple: rising supply of government debt inflates the money supply and weakens the government’s ability to service its debt through legitimate means.
But in recent months, government has flooded the market with hundreds of new Treasury obligations and telegraphed its intention to increase the deluge even more. In response, both bond prices and the dollar have risen. This benign reaction has led many to the happy conclusion that the doom and gloomers are wrong and that bailouts and economic “stimuli” can be financed with deficit spending without any adverse consequences on interest rates or consumer prices. Recent action in the foreign exchange markets suggests these hopes will prove illusory. The renewed strength in gold, together with the long over do rupture of the correlation between the movements of foreign currencies and U.S. equities, is further evidence that recent market dynamics are changing.
http://www.financialsense.com/fsu/editorials/schiff/2008/1212.htmlfrom Ellen Brown
www.webofdebt.com/articles/newdeal.phpObama has pledged to honor the commitments of the outgoing administration to rescue financial markets, on the theory that if we don’t, our credit system could freeze up completely. But as noted by Barry Ritholtz in a December 2 article, the bailout has already cost more than the New Deal, the Marshall Plan, the Louisiana Purchase, the moonshot, the savings and loan bailout, the Korean War, the Iraq war, the Vietnam war, and NASA’s lifetime budget combined. 1 Increasing the debt burden could break the back of the taxpayers and plunge the nation itself into bankruptcy.
legislators along with most other people have not understood how money creation works. Only about 3% of the U.S. money supply now consists of “hard” currency—coins (issued by the government) and dollar bills (issued by the private Federal Reserve and lent to the government). All of the rest exists merely on computer screens or in paper accounts, and this money is all created by banks when they make loans. Contrary to popular belief, banks do not lend their own money or their depositors’ money. They merely “monetize” the borrower’s promise to repay.
Not only are banks merely pretending to have the money they lend to us, but today they are shamelessly demanding that we bail them out of their own imprudent gambling debts so they can continue to lend us money they don’t have. According to the Comptroller of the Currency, the books of U.S. banks now carry over $180 trillion in a form of speculative wager known as derivatives. Particularly at issue today are betting arrangements called credit default swaps (CDS), which have been sold by banks as insurance against loan defaults. The problem is that CDS are just private bets, and there is no insurance commissioner insuring that the “protection sellers” have the money to pay the “protection buyers” if they lose. As loans have gone into default, the elaborate gambling scheme built on them has teetered near collapse, threatening to take the banking system down with it. Now the players are demanding that the government underwrite their bets with taxpayer funds, on the theory that if the banking system collapses the public will have no credit and no money. That is the theory, but it misconstrues the nature of money and credit. If a private bank can create money simply by writing credit into a deposit account, so can the federal government. The Constitution says “Congress shall have the power to coin money,” and that is all it says about who has the power to create money. It does not say Congress can delegate to private banks the right to create 97% of the national money supply in the form of loans. Nothing backs our money except “the full faith and credit of the United States.” The government could and should have its own system of public banks with the authority to issue the credit of the nation directly.
Mr Mortgage is astute in analyzing banks and balance sheets. He explains a prima facie motive for the Czar Paulson confiscation of $125 billion, in the scrapping of the TARProgram first tranche. See the article entitled "America's Mark-to-Model Banking System”. He points out that everybody is focused on Level-3 assets, which are the obscure asset backed bonds veiled in price model chicanery, loaded with leverage, but worthless beyond argument. The subprime loans are laced within this level of asset, given cover by false AAA-ratings and obscured by bond packaging, often structured with leverage. What has not received with much publicity is that the Level-2 assets might result in similar volume losses to banks, but not yet realized. They are loaded down by Alt-A loan portfolios. To be assigned an Alt-A loan, a borrower must have inconsistent records of income, typical of the self-employed, or have a blotch in the credit history, like with a judgment against, or have incomplete records required by bankers from their many unique situations. The Level-2 assets are soon to explode onto the scene, with losses that in all likelihood will eclipse the subprimes losses. Could it be that Czar Paulson might have changed course on TARP fund usage when he realized that the US banking system is due for the next painful round of crippling losses? He might know the US banks are zombies, surely not revived by a cover by a tarp.
Jim Willie from the Hat Trick Letter has the following to add
Details are in the article, with analysis to be included in the December Hat Trick Letter report due out in mid-December. Let it be clear that the Level-2 assets held by banks are much larger in magnitude than the subprime loan portfolios, like 8x to 10x larger. Wachovia is in possession of $160 billion in Level-2 assets on their books, most likely dominated by Pay Option adjustable rate mortgages. A mere 7.5% writedown in Level-2 assets on bank balance sheets would equal the total writedowns by banks worldwide to date!!! Some argue without basis that the Alt-A mortgages have a significantly lower default rate. NOT TRUE! As of October 2008, serious delinquencies for Alt-A pools that include Option ARMs averaged 20.3% for the 2006 vintage loans and 17.5% for the 2007 vintage, up from 16.9% and 12.2% six months ago, all according to Moodys. These delinquency rates are equivalent to subprimes, and indicate equally high defaults. Thus the volume of bank losses should be expected to be much bigger.
Well dear reader what does that mean. to me it means that we have only gone through wave I of the problems that have hit Wall Street. Wave I the subprime wave is more or less absorbed but at a cost that nobody ever expected. What will Wave II be? Well it very well can be the Alt-A wave. What does that mean? It will mean more banks will fail and more money is needed to bail out the few that the FED and Treasury feel worthy to be bailed out. The few that be pure coincidence are member banks of the FED. It will mean more money has to be printed and can lead to the hyperinflation later on. However we first will see some spectacular failures. Well dear reader, once again, my best recommendation is to be prepared. At least psychologically, but if possible try to be prepared financially as well.
US Treasury to default?Impossible you would say. Never happened and never will happen. How could the US Treasury default? No way!
Well dear reader the USTreasury Bond credit default swap tells us something else. The CDS used to cost only 1 or 2 basis points or 0.01% to 0.02%. Nowadays it costs 50 basis points which is far higher than for example Germany or France. Well that means that the market prices in a much higher risk of default of the US Treasury than a couple of months ago. One more argument that the "market" see the risk for default is given as follows by Jim Willie
Many dismiss the threat of a USTreasury default, but they do so in blind faith. They ignore confirmation signals, such as the in the 30-year USTreasury swap spread. It has been negative for a few weeks. Some call this development inconceivable, illogical, impossible. Yet it is the reality. The swap contract exchanges a floating rate for a fixed rate, and pays a price to do so. Imagine paying a small fixed amount to render an adjustable ARM mortgage loan with a fixed rate, a similar concept. Some experienced analysts have interpreted this as meaning that investors are somehow reckoning that they are more likely to be redeemed on their USTBond investments by a private counter-party than by the government itself! One can call this event the 'proverbial canary in the coalmine' as a threat to the current system. Last week, arguments were put forth that the central bank franchise concept is in danger of demise. Evidence in the signals supports the view. Currency wars are heating up, even as investors are anxious about fiat currencies in general, and their offered debt securities. The Iceland situation rocked the system, to be sure.
Well dear reader although Jim Willie believes, and he certainly has many arguments, that the US and its T bonds will default, there is still a historically high demand for T Bonds/Bills/Notes. On one side it seems that these investments are still the preferred save haven investments although the US debt is at levels never seen before. Another reason for this high demand of these T papers is the demand from banks. Banks that have received cash from the government are not passing on these funds in the form of new credits to the broad economy but are rather using the money to their benefit and invest in the T papers. Will this demand keep up strength? My guess is, over time it will not. Therefore I still believe that we will see much higher yields for the T papers soon. Agency papers have already corrected and yields are accordingly much higher.
FEDBloomberg: Fed refuses to disclose recipients of $2 trillion
"The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from US taxpayers and the assets the central bank is accepting as collateral.
"Bloomberg filed suit November 7 under the US Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.
"The Fed responded December 8, saying it's allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests.
"If they told us what they held, we would know the potential losses that the government may take and that's what they don't want us to know," said Carlos Mendez, a senior managing director at New York-based ICP Capital, which oversees $22 billion in assets.
"The Fed stepped into a rescue role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program. The central bank loans don't have the oversight safeguards that Congress imposed upon the TARP.
"Congress is demanding more transparency from the Fed and Treasury on bailout, most recently during December 10 hearings by the House Financial Services committee when Representative David Scott, a Georgia Democrat, said Americans had 'been bamboozled'.
Well dear reader I leave it to you to judge why the FED does not want to disclose.
CurrenciesWell dear reader it really looks like the USD intermedium strength has stopped. Technically speaking it looks like we will see a lower USD as per January this in a couple of months. Therefore I would hold on to any non USD positions and personally I would build up the non USD position. Although the other paper currencies are FIAT currency too, it looks like there is at least for the moment being a better place to be invested than in USD. The Swiss Franc and Canadian Dollar might be an excellent alternative. There might be an opportunity with Canadian Income Trust of Oil & Gas. On one side the CAD has suffered and on the other side the shares are down due to lower oil and gas prices. For investors that are willing to hold these shares for a couple of months I believe the return, apart from the high dividend yield, will be fine.
SilverSource CFTC for Bank Participation, Cash Market for silver.
Exactly two U.S. banks have practically all the COMEX commercial net short positioning on silver. For a little context, 24,555 net short contracts means that the two banks held net short positions on December 2 for 122,775,000 ounces of silver with silver at $9.57. The COMEX said on December 4, that there were 80,239,857 ounces total in the "Registered" category, so these 2 malefactor banks held net short positioning equal to about 153% of the amount of deliverable silver in ALL the COMEX members’ accounts…
http://www.resourceinvestor.com/pebble.asp?relid=48524It is beyond bizarre. Hardly any dealers are short silver because they know of the real shortage, so the US Government has become THE SHORT. What kind of free market is that?
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