in the toilet

Since apparently everything in America is going into the toilet except the public's faith in Barack Obama, it seems that the way to fix everything in America is to entrust it to Barack Obama.
Derek Thompson, The Atlantic Magazine, April 25, 2009


How much time will it take to have this particular faith in the toilet too? Is hope or faith a solution? As a positive thinking person I would say that faith, although not being a solution, might lead to a solution but certainly not as long as the policies of the person on which the faith is based are so intertwined with the interests of Wall Street bankers and the Fed.


Well dear reader I beg you pardon to start this musings with mentioning the toilet. Although the toilet is not really one of the topics of this blog, you will find another kind of information in this post that has to do with the same topic.

Well anyway, let’s start with the usual information. The last couple of days were quite bright, at least for those still invested in equities. It looks like we have already gone through the bottom. Well yes it certainly does look so but as a reader of this blog, you know that I do not believe that this is the case. Celente, maybe today’s most important trend forecaster, sees troubles with commercial real estate and food for example. To find out more listen to the interviews as per links on this blog.

Well equity markets did well over the last couple of weeks. Are we out of the worst? I am sorry dear reader but I certainly do not think so. As you know I believe we have not yet touched the lowest point in this bear market. Is it the moment to reduce positions? Taking into consideration that equities might, for the moment being, head higher (8,500 or 9,000 is a possibility), one could still wait some time. However be careful. If you like to be on the safe side, maybe reducing positions step by step is not that bad an idea.


Now to what the markets did last week (source www.prudentbear.com)
The S&P500 gained 1.3% (down 2.8% y-t-d), and the Dow rose 1.7% (down 6.4%). The Morgan Stanley Cyclicals jumped 3.3% (up 12.0%), and the Morgan Stanley Retail index added 1.1% (up 32.6%). The Utilities surged 4.7% (down 10.1%), and the Transports added 0.4% (down 10.9%). The Morgan Stanley Consumer index advanced 2.5% (down 2.3%). The S&P400 Mid-caps gained 1.6% (up 3.8%), and the small cap Russell 2000 rose 1.7% (down 2.5%). The Nasdaq100 increased 1.7% (up 15.3%), and the Morgan Stanley High Tech index added 0.3% (up 24.0%). The InteractiveWeek Internet index jumped 2.6% (up 34.2%), and the Semiconductors gained 1.8% (up 21.6%). The Biotechs rose 1.5%, reducing y-t-d declines to 3.1%. The Broker/Dealers dropped 1.5% (up 17.8%), and the Banks sank 7.0% (down 27.5%). With Bullion down $27, the HUI Gold index fell 3.0% (down 0.4%).




Gold

Well dear reader I mentioned a couple of times that the price of gold is managed in the sense that the Central Banks do not want the price of gold to go up too fast. The reason why Central Banks do not want a high gold price is because gold is competing with their useless FIAT regime. Once the trust in FIAT monies is gone the situation will be dire for the central banks. So how were they able to keep the price of gold and silver down?

How could the scarcity premium in gold have been annihilated such that it sells for cost?
The demand for gold is approximately 4000 tonnes per year. However, the supply from mines and recycling is only 2500 tonnes. What’s more because gold has been selling for approximately the cost of production, mine supply is declining at 10% or so per year. With such a large gap between supply and demand the scarcity premium should be very high instead of being zero. The only logical conclusion is that there is no scarcity. How is this possible? Western Central banks have been surreptitiously supplying their gold hoards to the market, without reporting it, to fill the gap between supply and demand. They have also encouraged the supply of paper substitutes for gold (such as Exchange Traded Funds, pool accounts, futures contracts etc) that many people have been prepared to accept as proof they own gold without actually verifying themselves. This has suppressed the price of gold with the result of boosting the apparent value of the dollar and keeping interest rates low which has allowed the US to live beyond its means for 15 years, importing far more than it exports. This has distorted almost every market in the world and this is now starting to come unraveled with disastrous consequences.

Silver used to be a pure collectable just as gold is. However, in the last 50 years many industrial processes have been developed that need silver. Just like Aluminum, silver passed from being a collectable to being a consumable. Well not quite. No one collects Aluminum as a precious metal anymore while 10% of demand for silver is for investment. The problem has been the 90% that has been demanded as a consumable. This brought the price of silver down to the cost of production plus a small or zero profit. The entire scarcity premium disappeared. As we discussed earlier the goal of suppliers of consumables is to ensure there is no shortage. However, there is a dirty little secret. Silver is scarce and getting scarcer! The demand for silver has exceeded mine supply by almost 250 million ozs per year for many years such that an above ground global stock pile has been reduced from 10 billion ozs in the 1940’s to less than 1 billion ozs today. Of the 1 billion oz only 300-400 million ozs are “available” for sale. This means that there is only about one more year left where the gap between demand and supply can be met with above ground stocks. Mine supply is declining especially as 60% of silver comes as a base metal mining by-product and base metal mining has contracted with the economic contraction. The bottom line is that silver is close to transforming from a consumable to becoming once more a collectable with a very high scarcity premium within the next 12 months or so. This is comparable to what has happened to the Model “T “Fords! Considering there is no substitute for silver in its industrial applications the scarcity premiums could go to unimaginable levels and not only be sustainable but go higher! Of course silver will still be used in industry but the industrial users will have to get accustomed to the price of their essential metal being governed by the scarcity premium. They will have to treat it as a collectable and recycle almost 100% of the silver they use instead of it being lost in land fills around the world and thereby being “consumed”. 100% recycling will become economical because of the huge scarcity premium silver will command.

Well the below chart where you can see clearly the attacks when the US opens, is in my opinion once more, a clear example of market manipulation. NY is where paper gold is traded. The physical market is a complete different story.





Well dear reader it is no secret that I am a gold bug. The governments can produce whatever nice information they like to deliver, but as mentioned a couple of times, that does not change anything at all. The crisis is not over yet. Gold and silver are the only real safe haven investments. Of course there are other tangible investments too such as, for example land. Anyway I still believe that it is wise to hold at least 1/3 of its assets in tangibles and thereof at least a 20% in gold. Although being a gold bug and forecasting much higher gold prices, I am not yet at the price target as per the following headline. Well anyway the report is very interesting


How Does $9000 Gold Sound?
In recent days the Canadian and Swedish central banks have joined the majority of other G10 central banks by indicating that they too may engage in quantitative easing now that the interest rates have been reduced to 25 and 50 basis points respectively. The ECB is wrestling with ways to extend its own form of quantitative easing and an announcement is likely at its next meeting on May 7th.
http://seekingalpha.com/article/133096-how-does-9000-gold-sound

Well the target price as per above article and my own target price do seem too high for many. Well dear reader the same was true when in 2001, with a gold price per ounce of around USD 300, I was telling everybody that we will see a price above USD 850 within a couple of years. Gold and Silver are investments that in general terms are not researched well. There are a couple of excellent sources but it is the clear minority that does a serious research and therefore gets to a serious conclusion. Following an interesting article. If you would like to get more information about gold, I am glad to send you links to excellent presentations.

World Gold Markets: How Lack of Transparency Translates into Poor Analysis
Every precious metals trader that has analyzed gold prices over the past several decades knows that a common ploy the IMF and leading global Central Banks utilize to suppress gold prices in the COMEX futures markets is to announce plans to sell gold despite their total lack of commitment to executing their announced plans.
http://seekingalpha.com/article/133504-world-gold-markets-how-lack-of-transparency-translates-into-poor-analysis


Swine Flu

Well dear reader it seems that the panic is not really justified. On the following link you find an excellent piece of information which in my opinion is a clear MUST READ because it does not only show you that the whole thing with swine flu might be exaggerated but it shows you as well that we have to be careful what we eat. My recommendation is to eat your own grown food and meat that does not come out of animal farms.
Flying Pigs, Tamiflu and Factory Farms 
by F. William Engdahl
http://www.financialsense.com/editorials/engdahl/2009/0429.html





Banks and banksters

Icelanders, whose economy went from powerhouse to basket case in a matter of weeks last year, have a new way of taking out their frustrations – or relieving them, as it were…




The urinals at the Sodoma bar in Reykjavik are now outfitted with photos of former bankers who’ve fled the country. All three of Iceland’s major banks collapsed late last year and the IMF had to bail out the government.
Well dear reader I truly hope that you never will find the foto of the CEO of the bank you work with in such a way as the example from this bar in Reykajavik.

Well dear reader, do you remember? The actual stock market rally started a couple of weeks ago due to the wonderful news from Citi and Bank of America based on supposed USD 3 billion earnings. Well, as you already must have expected, they now need billions. At least that is what the leaks regarding the stress tests say. Both banks are under capitalized while most people still believe that they are rock solid.

Bank of America (BAC), Citi (C) told they have capital shortfalls - WSJ
People familiar with the situation say regulators have warned the banks they may need more capital based on early results from their stress tests. People familiar with BAC say its shortfall is billions of dollars; Citi's deficit is unclear. Both banks are objecting to the preliminary findings. Sources say Citi wants credit for for trying to shrink its balance sheet recently by selling Smith Barney and its Japanese brokerage arm.

Bank of America, Citigroup may need more capital
Fed officials told reporters Friday that all 19 banks that took its "stress tests" will be required to keep an extra buffer of capital reserves beyond what is required now in case losses continue to mount. That would mean some banks will likely have to raise additional cas
http://apnews.myway.com/article/20090428/D97RF22G1.html


QUESTIONS ABOUT GOLDMAN SACHS' ROLE IN MARKET
http://www.nypost.com/iphone/story.php?feed=business.xml&id=166505&pos=business_topstories_03

GM/Chrysler
Found on www.lemetropolecafe.com
quote
The U.S. government added 2 new members to its subsidized debt club. According to Obama's announcement today regarding the Chrysler bankruptcy Chrysler Financial will be rolled into GMAC Financial Services, with the amalgamated stinkpot of loans to be subsidized by the U.S. taxpayer. No wonder car companies have been offering to pick up your payments if you lose your job. Hell, it'll be OUR money they're kicking in. Subsidizing GMAC is yet another bottomless pit of taxpayer money. Like Fannie and Freddie the government has now created "Gmackie". No doubt the derivatives of these (former) auto titans will disappear into the same black hole Fannie and Freddie jumped down. Translation: look for another jump in JPM derivatives on their next quarterly report. The usual gang of counterparties to GMAC's derivatives will once more skate on their real losses.
unquote


Crisis

The reason behind the current catastrophe is FRAUD. Beneficiaries of this fraud deliberately resisted regulation that would prevent the fraud from being perpetrated or deliberately did not impose the existing rules and regulation so that the fraud could continue and colluded to cover up that the fraud was being committed. The fraud was to develop a system of leverage that allowed a select few to loot the wealth of the many.

Gerald Celente with his forecast
http://geraldcelentechannel.blogspot.com/2009/04/gerald-celente-on-colbert-report-from.html


Quantative Easing

Now that the entire world is on the thin ice of central bank fiat money, the ice is rapidly melting and when it does, everyone will be affected. Previously, currency crises happened in specific countries. The next currency crisis will be global.
Well dear reader the central banks are printing like crazy. Thanks god in order to increase the money supply it is not necessary anymore to print all these dollars or Euros or whatever currency it is. Today it is done simply by adding a couple of zeros on the computer. Why do I say thanks god it is so? Well I guess that our forests would diminish considerably if all this money would be printed on paper.

Well quantitave easing is still ongoing. Sweden and other countries use now the same strategy.
Does this really help? Is increasing the money supply the solution? Of course for those that receive funds it certainly is but is it a solution long term? Well according to history these experiments did not solve any problems at all and on the contrary made the whole situation worse. Be it John Laws experiment in France (http://en.wikipedia.org/wiki/John_Law_(economist)) or the Weimar Republic (http://en.wikipedia.org/wiki/Weimar_Republic) or other examples. All of them ended in an ugly way. Well I guess that this one will end as the ones before.

Bill Bonner from dailyreckoning has the following words
All over the world, governments are desperate to get out of the mess they've gotten themselves in. Argentina and Ireland just got handouts from the IMF. Other countries are getting in line. Having spent far too much in the past, they now spend more - hoping that spending will miraculously bring about economic growth. We say "miraculously" because there is no other way to explain it. When economic growth results from saving, investing and hard work you can describe it in terms of 'cause and effect.' But if you ever get economic growth simply by spending money, you can only refer to it as an act of God...or the devil. Black magic, maybe. Voodoo economics.

Hardly a day goes by without some abracadabra or hocus pocus announcement. The feds bail out the banks on Monday. On Tuesday, they take over the auto industry. By Wednesday, they're passing out money on Wall Street. If any of these tactics result in greater wealth or more output - it will be a miracle.
One question that has so far been avoided by practically all the commentators and well-wishers is this: where's the money come from?


GDP

Well dear reader according to the government the GDP for the first quarter 09 declined by 6.1% annualized. Following comment from www.shadowstats.com
Based on removal of the effects of some reporting gimmicks and unfortunate methodological changes of recent decades, the SGS-Alternate GDP estimate for first-quarter 2009 is for an annual (not annualized) contraction of roughly 5.1% versus a 4.1% contraction in the fourth quarter, against official respective annual estimated declines of 2.6% and 0.8%. Against reporting of underlying economic series, the annualized quarterly contraction likely was in excess of 8% for the first quarter. Nonetheless, GDP reporting remains virtually worthless and is little more than political propaganda.
Equity
The bulls will be killed in the classic way. A strong rally on Wall Street...or a series of minor ones... will lead them to believe that "the worst is over." They'll get back into stocks after a 20% or 30% advance - hoping to recover what they lost last year.

Then, the stock market will make a new dramatic move to the downside. This will probably happen several times...each time leaving bullish investors with more losses. Finally, the bulls will give up. They will sell stocks...driving prices down and dividend yields up. By the time the bottom is reached, former investors will neither know nor care. P/Es will be scarcely more than 5. Dividend yields will rise above 5%. The Dow will sink to 3,000 - 5,000.


Commodities



Oil
Last weeks review on below link
http://energybulletin.net/node/48839