path to hyperinflation

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Dear reader in this musing you will find the following information

Economy
-Unemployment at depression levels
-reporting of retails sales and corrections of prior data
-reporting of the same figures by shadowstats
-economic situation still bad

Gold
- my musings
- Stansberry: Why I'm surprised gold isn't trading for $5,000 (must read)
- Richard Russels comment
- John Williams of Shadowstats: $7,150 is the inflation-adjusted equivalent to gold's 1980 peak.
- India buys 200tons
- Peak Silver and Mining

Banks and Banksters
- Goldman's Undisclosed Role in AIG's Distress
- Fed's Hoenig says significant weakness in economy
- my musings about Hoenigs comment
- Lloyds and RBS cut down to size
- GE's $19 Billion (And Increasing) Toxic Asset Sink Hole
- Fannie Mae Loses $18 BILLION, Needs $15 BILLION More In Aid (FNM)

Equity
- We will move higher, my musings

Commodity
-oil: Key oil figures were distorted by US pressure, says whistleblower



Economy

Unemployment
Dear reader please have a look at the following chart



The real unemployment rate, including all discouraged people is above 20%. Yes this is correct. That does mean that the US is in a depression. The high unemployment rate translates into declines in consumption, which means even more unemployment. The down spiral is on. Less consumption means as well that US companies will cut costs. The fastest way to cut costs is to reduce workforce. Every day you can find news about companies cutting thousands of workers. That means less people doing more work and they are doing it for less money. Well the combination definitely does not help to improve the economy.
Furthermore the growing mass of unemployed and the 35 million receiving food stamps are certainly not a happy crowd. This means an explosive social situation. History shows us that such situations can lead to revolutions. I still believe that in the coming months there will be situations like the ones that happened when Katrina has hit New Orleans. Anarchy will rather soon become common in the US and in England, which is in a dire situation too. New York will turn into a city like Mexico within a couple of months. Meaning that kidnappings of rich people will become a fact such. Sale of armored cars will increase considerably. Seing people moving around in these armored cars and with a couple of body guards will become a “normal”.





The FEMA camps (look like concentration camps) are ready to “host” these future kidnappers and outlaws. Most probably these outlaws will be joined by those refusing to accept the swine flu vaccine, which soon will be mandatory by law plus those that will decide not to finance the new medicare plans once approved. By the way do you know why this flu is called swine flu? My guess is, it is because of the swines that created the virus in order to sell the expensive vaccines.

U.S. retail sales rise faster-than-expected in October
WASHINGTON (Reuters) - Sales at U.S. retailers rose more than expected in October as consumers bought more motor vehicles and other goods, but the previous month's figures were revised sharply downward, a government report showed on Monday.

In a report that pointed to gradual improvement in spending, the Commerce Department said total retail sales increased 1.4 percent last month, the largest advance since August, after dropping by a revised 2.3 percent in September. Sales in September were previously reported to have declined by 1.5 percent.
Analysts polled by Reuters had forecast headline retail sales rising 1.0 percent last month. Sales in October were boosted by a jump in new vehicle and parts sales, which surged 7.4 percent.
Auto sales had slumped 14.3 percent the previous month following the expiration of the government's popular "cash-for-clunkers" incentive program in August that had buoyed demand for motor vehicles. Previously, the government had reported auto sales falling 10.4 percent in September.
With government stimulus behind the bulk of the economy's 3.5 percent annualized growth pace in the third quarter, there are fears that rising unemployment will continue to weigh on consumer spending and hold back the recovery.
Excluding motor vehicles and parts, retail sale rose by a smaller-than-expected 0.2 percent in October after increasing 0.4 percent in September, and advancing for a third straight month. Economists had expected a 0.4 percent increase.
Gasoline station sales were flat in October after rising 0.9 percent in September. Core retail sales excluding autos, gasoline and building materials rose 0.5 percent, advancing for a fourth straight month. Sales of building materials dropped 2.4 percent last month after falling 0.6 percent in September.



Interesting the piece of information, isn’t it? Why so? To me it shows clearly that one cannot trust any of the official US statistics. As usual they revise previous figures and as usual the previous figures were reported much better than it really was. Of course the masses only look at the actual figure, which came out much better (let’s see what the real figure is once we get the revised numbers which still will much better than the real figures). Who cares about the previous figures revised down if the “official” actual figure is much better? Who cares if this figure is really correct or maybe not? Important is that the illusion is kept on, right?

Following some information from John Williams www.shadowstats.com
This information certainly is realistic while the official ones are outright lies
October Retail Sales Boosted by Downside Prior-Period Revisions. This morning’s (November 16th) Census Bureau report showed a statistically-significant monthly increase of 1.37% (0.81% net of revisions) +/- 0.6% (95% confidence interval) in seasonally-adjusted October retail sales. Such followed a downwardly revised 2.29% (previously 1.49%) monthly decline in September.
Suggestive of reporting-quality issues, the magnitude of the downside revisions to September (heavily in motor vehicle sales) exceeded the 95% confidence interval.
On a year-to-year basis, the October year-ago comparison was against collapsing gasoline prices and gasoline station sales. October 2009 retail sales were reported down by 1.74% from October 2008, following a revised annual decline of 6.31% (was 5.67%) in September.
Real Retail Sales. Removing the effects of inflation, October retail sales activity should show a monthly gain, but an annual contraction. The pattern of ongoing, inflation-adjusted activity remains one of bottom-bouncing/plateauing at extremely low levels. Details will be updated and graphed with the Commentary following the CPI release on Wednesday (November 18th).
Core Retail Sales. A change in "core retail sales" methodology was introduced two months ago, where the net relative monthly increases and/or decreases in gasoline station and grocery store sales were subtracted from the full monthly retail sales number, instead of the total of gasoline station and grocery store sales each month. Assuming that the bulk of non-seasonal variability in food and gasoline sales is in pricing, instead of demand, the revamped reported "core" change more closely reflects the actual retail sales experience. This remains a work in progress and eventually will be used in the development of additional SGS alternative economic measures.
For the near-term, the "core" retail sales is reported in two versions, where Version I uses the original methodology, and Version II version appears to provide a more balanced picture of the impact food and energy inflation in the standard retail sales reporting.
For more information I do recommend to subscribe to the excellent service of www.shadowstats.com


The worldwide economic situation is still in troubles. The OECD is clear that Western countries ill have to proceed to drastic cuts in education, health and social programs in order to get over it. It seems that Ireland, ultimate model for the OECD, EU or IMF just two years ago, might lead the dance as being the first country applying a severe austerity program.


Well dear reader reading the above information we can see that the economic situation still is not improving. So one would expect that stock markets and stock prices should go down. Well we now know that this is not the case and that due to the newly created dollars stock markets move up. More on that later. First let’s have a look on the news about gold.


Gold

Well my call in my last post saying that gold and silver will move up because the option expiry and the Treasury auctions have passed was correct. As mentioned in my previous post I do expect that by the end of November we will be above 1,150 and maybe above 1,200 per ounce gold. Silver could reach the 22 to 24 mark. What is now clear is that central banks that wanted to buy gold and waited for mayor fall backs most probably will not get the gold for a price below 1,100 as the opportunities to buy gold under 1,100 and silver under 18 are fast vanishing. It seems that anyone who wants to buy gold in size needs to step up and pay for it. The market will not come down in a considerable way anymore. This will also light a fire under all those central bankers waiting to buy at lower prices. They now know that there is competition for the physical gold. The buying will get more frantic. With the purchase from the Indians, we are now clearly in a different environment. Unless we will see an exceptional strong move up within a very short time, which could lead us into an exhaustion situation, we will not see mayor corrections as some do expect. As mentioned in one of my posts a couple of weeks ago, 1,000 is the new floor. Today’s prices will look very cheap a year from now. Don’t trust those precious metal “gurus” who have been on the wrong side for the last 8 years. If these “gurus” tell you that we are in a bubble they should rather look into the bond and especially the treasury market. These are the markets that are in a bubble. I am somehow surprised that there are people who believe these gurus who have been on the wrong side for so long. Well of course at some point in the future they will be right but this to happen will take years. As many times before, those who have been on the wrong side during basically the whole primary move, most probably will become either bulls (when they preached lower markets before) or bears (when having done the opposite for years) at the top (the mega bears now becoming bulls) or at the bottom (having been a bull and now becoming a bear). Or with other words, these gurus will change when they should not and therefore will be on the wrong side again.



Following a must read article
Stansberry: Why I'm surprised gold isn't trading for $5,000
Lots of people realize the government is propping up the banks with their
repeated bailouts. But most folks don't understand the real way the
government is saving the banks. It's not the shares the feds bought (and
paid too much for). It's the whole system of paper money.
http://www.thedailycrux.com/content/3396/Gold


Richard Russell
Thus, we have a strange and ironic situation. We have world deflation, and a Fed Chairman who believes he can manipulate the primary trend. Bernanke's strategy is leading to a weakening dollar. The more dollars that are created, the weaker the dollar. As the dollar's very status comes into question, wise and seasoned investors move to protect their wealth. They move to the time-honored "safe haven": the one unit of wealth that cannot be destroyed in that it is not a liability of any government. And, of course, I'm talking about the one unit of wealth that is never questioned -- gold. 

So it's the gold bull market that I trust and believe in. I think and I ponder -- what can halt the gold bull market?

The only thing that can halt the gold bull market is a complete reversal by the politicians and the Fed, and that would allow the US to sink into a state of deflation and depression. Unthinkable.

The chart below outlines the great gold bull market. I've drawn three rising trendlines, each steeper than the preceding. The latest trendline is moving toward the vertical or parabolic. If gold goes parabolic, we will be in the third speculative phase of the gold bull market. This will be the final phase in which gold "blows its top." No tree grows to the sky, and neither will gold.

 Question -- Wait Russell, why do you think there will be a third speculative phase for gold? Many experts, even gold experts, are saying that "gold is overpriced now." 

Answer -- First, I've never seen a big bull market that has not ended with an emotional, wild third phase. Just as gold got ridiculously undervalued (below 300) in 1999, it will become overvalued in the years ahead. Human nature tends to go to extremes. And there's "no fever like gold fever." 

As gold closes at record highs day after day, it makes the newspaper headlines. People (after 20 years of a bull market) are finally noticing gold, particularly as it climbs above 1,000). Ninety-six years of Fed anti-gold propaganda is losing its clout (the Fed was established in 1913). In London, Harrod's department store is selling gold bars and coins to the public. How long will it be before gold is sold in stores in the US? Central banks who were sellers of gold for years have done a flip-flop. Now central banks are swapping their unwanted dollars for gold (they politely call it "diversification"). As for the rest of the IMF gold that India did not buy, China, Russia, Sri Lanka, and Brazil are lined up and eager to buy it. The cold reality of rising gold prices is demolishing decades of anti-gold nonsense put forth by the central banks of the world.

 Yesterday's New York Times featured a full-length article on gold, headlined, "Inside the Global Gold Frenzy." I noted that they called it a "frenzy," but did anyone ever talk about the "frenzy" to accumulate dollars? The article runs, "In the United States, ads promoting high prices for gold are regular fodder for late-night TV spots, where buyers are setting up tables at shopping malls or hosting gold-buying gatherings in private homes -- like recession era Tupper-ware parties. . . Everyone and their grandmother has a sign out saying 'We buy gold.' Said Ron Lieberman, the owner of Palisade Jewelers in Englewood, N.J. He estimates that 10 times as many people come into his store to sell gold as when the metal was selling for $300 an ounce at the beginning of the decade." 

Russell Comment -- The public is hardly bullish about gold. If they were, they'd be buying gold now instead of selling it a the "new, fat price" of over $1,000 an ounce. 

I attended a party yesterday, and at a gathering of seven people at my table I was asked, "Russell, what should we buy now?" I answered, "Gold coins." Every face looked blank. It was as if I had told them to buy a hippo. Nobody at the table owned an ounce of gold.


That certainly does not look like being in a bubble to me


John Williams of Shadowstats: $7,150 is the inflation-adjusted equivalent to gold's 1980 peak.
"If the methodologies of measuring inflation in 1980 had been kept intact, gold would have to hit $7,150 to be the equivalent of the 1980 record," Williams said.
Gold would need to rise more than sixfold to top the 1980 record, using a more accurate inflation-adjustment, said John Williams, an economist and the editor of Berkeley, California- based Shadowstats.com. He said the government has understated the cost of living over the past two decades with adjustments in the way it measures the basket of goods and services monitored by the U.S. consumer price index, or CPI.

Although old news, just for the record, following news about the IMF sale of gold to India

IMF sells India 200 tonnes of Gold for $6,7bn
Reuters
Published: 2009/11/03 01:08:49 PM
The International Monetary Fund has sold 200 tonnes of gold to the Reserve Bank of India for $6,7 billion, quietly executing half of a long-planned bullion sale that has threatened to slow gold’s ascent.
The deal, which surprised traders who expected China to be the most likely buyer, will relieve the gold market of some uncertainty over how and when the IMF would sell 403,3 tonnes of gold, about one-eighth of its total stock. The deal will increase India’s gold holdings to the tenth largest among central banks.
It also fuelled speculation that other governments — including Beijing — may be ready to diversify their reserves even at near-record gold prices, helping soak up IMF supply that the fund may otherwise be forced to sell on the open market.
"Central banks in India and China will be happy to accumulate gold at these levels. I will not be surprised to see even some Southeast Asian banks buying gold," Aaron Smith, Asia head of the $1,65 billion technical trading fund Superfund, told Reuters…
http://www.businessday.co.za/articles/Content.aspx?id=85875

Gold suppression is public policy and public record, not 'conspiracy theory'
http://www.gata.org/node/8001

Silver



Following an interesting article using another method to explain Peak Silver production:

Peak Silver and Mining by a Falling EROI
EROI = Energy Returned On Energy Invested - The Peak of World Silver Production may be just around the corner due to a falling EROI (energy returned on energy invested). This will also be true for most industrial metals. I may go as far as to say, if the Global Economy does not make a full recovery shortly (which I doubt), 2008 could be the all time peak for world silver production. At least, the world production of silver will be in a plateau as unconventional oil supplies start to peak and decline.
http://www.marketoracle.co.uk/Article14756.html


Banks and Banksters

Goldman
The following quote is from www.zerohedge.com
"My name is Goldman Sachs. I am a taxpayer-sponsored survivor living in New York City. I am blasting on all Bloomberg frequencies. I will be at 85 Broad everyday at mid-day, when the sun is highest in the sky. If you are out there... if anyone is out there... I can provide SPY bids, I can provide SPY offers, I can provide securities and just a little liquidity. If there's anybody out there... anybody... please. You are [not] alone."

More on Goldman
Goldman's Undisclosed Role in AIG's Distress
http://www.zerohedge.com/article/guest-post-goldmans-undisclosed-role-aigs-distress


Before going to more news about the banksters following a link with videos from Celente. These videos are in my opinion clearly a must view. I certainly can understand why Celente is so angry and he certainly does have all the reasons for being so.
http://www.lewrockwell.com/celente/celente19.1.html



Fed's Hoenig says significant weakness in economy
ABU DHABI (Reuters) - A Federal Reserve official said on Monday that the U.S. economy still faced "significant weaknesses" and urged policymakers to allow large financial institutions to fail if needed.
"We still have significant weaknesses to work through in the economy in the U.S. and coupled with a rapidly rising level ... (of) debt and enormous moral hazard issues, we have a great deal of work ahead of us," said Kansas City Fed President Thomas Hoenig.
Data showed last week that U.S. consumer sentiment had soured in early November on grim job prospects while a larger-than-expected trade deficit had analysts scaling back estimates for third-quarter U.S. growth.
Turning to regulatory issues, Hoenig said that all financial institutions needed to be allowed to fail, no matter their size.
"As we look at reform and the way forward I think the most important think we need to do is to make first of all an accurate assessment of fundamental weaknesses in our financial system and then begin to create better foundations," he said.
Hoenig was speaking at a central bank event in Abu Dhabi, the capital of the United Arab Emirates.
"Our institutions must be allowed to fail no matter what their size or political influence," he said…

Well dear reader, what does the message from Hoenig tell us? Before telling you how I read this message, I’d like to remind you of the Fed’s way to say certain things. Looking back over the past years I recognized a certain pattern in the way the Fed fed us with messages. To me it seems that the pattern is in such a way that they do prepare us for bad news in a step by step way. Normally there was one Fed member who told us the bad news. Shortly after another Fed member denied the news or gave us contra dictionary news or reasons. This went on for a couple of times until it finally happened. When it finally happened, the public was already prepared in such a way that the bad news did not have the devastating effect it would have happened without preparing the public step by step. So what does the news from Hoenig tell me? It tells me that a major US financial institution will fail over the coming months and the Fed knows already which one(s) will fail. This Fed statement is the first step to prepare us for this event. Could it be Citibank? Or Wells Fargo? Or any other big institution? In fact any of those could be the bank that will fail. We will see soon what’s going to happen.



INDIA BUYS GOLD – UK BUYS BANKS
by Egon von Greyerz
India, like China, understands the virtues of gold. This is why they have snapped up 200 tons of gold from the IMF at around $1,045 per ounce or $6.7 billion. The UK does not understand gold, that is why Gordon Brown sold most of the nation’s gold in 1999 at virtually the low of $250.
Instead the UK has today spent $51 billion on propping up bankrupt banks. Royal Bank of Scotland received another $41 billion today making it the costliest bailout worldwide with a total of $75 billion. Lloyds Bank received another $10 billion. The US is of course also spending printed money on rescuing bank creditors with 115 bank failures so far in 2009.
So who is likely to make the best return on their investment, India with their gold or the UK or US with their bankrupt banks. We certainly know who we will put our money on.

Lloyds and RBS cut down to size
Royal Bank of Scotland (RBS) and Lloyds Banking Group are to sell off hundreds of branches in another major shake-up of the UK banking industry.
http://news.bbc.co.uk/2/hi/business/8339371.stm




CIT
If people were pissed off about AIG's temporary decline and permanent bonuses, CIT's bankruptcy ought to enrage them.
The giant lender to businesses is heading for a quick in-and-out in bankruptcy court, and when it emerges, taxpayers will be the ones who have gotten the ol' in-out: CIT won't have to repay its $2.33 billion TARP bailout.
http://www.opednews.com/articles/CIT-Bankruptcy-Taxpayers-by-Ward-Harkavy-091102-581.html

GE's $19 Billion (And Increasing) Toxic Asset Sink Hole
One, and maybe the only, of the recent benefits of the FASB's meager attempts at providing balance sheet transparency has been the requirement for banks and financial companies to disclose the difference between the Fair Market Value and the Carrying (Book) value of their assets, especially as pertains to loans held on the balance sheet. And while even the FMV calculation leaves much to be desired, it does demonstrate which companies take abnormal liberties with their balance sheets, instead of performing needed asset write-downs as more and more loans turn toxic. A good example of just such optimism appears when one evaluates the disclosure by "banking" company General Electric. On page 38 of the firm's just released 10-Q, the firm indicates that the delta between its loan portfolio FMV and Book Value continues increasing, and as of September 30, hit an all time (disclosed) high of $18.8 billion. In other words, General Electric, whose market cap is about $150 billion at last check, is likely impaired by at least $19 billion if it were forced to access the market today and sell off its loans. The $19 billion is 13% of its entire market cap. And the real number is likely much, much worse.
The delta between the Carrying and Fair Market Value of GECC's loans can be seen on the chart below:



A reminder of how GE calculates loan FMV is taken from the company's 10-K:

Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates we would charge to similar borrowers with similar maturities.
In other words FMV uses the traditional Level III evaluation methodology. And even when using DCF (we assume that was used as it will always give the firm the "best", most palatable value reading), GE is still seeing a nearly $20 billion balance sheet shortfall?
What is more troubling, is that even as GECC has been collapsing its balance sheet, with book value of loans dropping from $305 billion to $292 billion from FYE 2009 to Q3 2008, the FMV-Book delta has increased from $12.6 to $18.8 billion. And this is occurring in a time when the credit market is presumably surging? Is there something wrong with this picture? As we pointed out, the $18.8 billion is likely a gross underestimation of the real valuation shortfall, if one were to really mark all of GE's myriads of illiquid loans to market.
Yet if nothing else, this shortfall should explain GE's urgent desire to sell NBCU and to use the ~$30 billion in proceeds to plug what is becoming an ever growing hole.



Fannie Mae Loses $18 BILLION, Needs $15 BILLION More In Aid (FNM)
WASHINGTON (AP) -- Fannie Mae is asking for an additional $15 billion in government aid after posting another big loss in the third quarter as taxpayers' bill from the housing market bust keeps getting bigger.
http://www.businessinsider.com/fannie-mae-loses-18-bil
lion-needs-15-billion-more-in-aid-2009-11


Equity

On Tuesday November 18, we saw the Dow power not only to a new closing high but that closing high was more than 70 points above what so far was very strong resistance at 10,334. Furthermore the Transports made a new closing high by one thin point, thereby confirming the closing high in the Dow. So what does it all mean? With a close above the 10,334 mark the Dow has recovered more than 50% of the decline from October 2007 to March 2009 indicating the secondary trend remains up and the primary trend is now up as well. That does, from a technical analysis point of view mean, that the chance for a test of the October 2007 all-time high is now a real possibility.
With the up move in the Dow and Transports, we now have a major buy signal in the DOW and the S&P500. Yes dear reader it looks like the market want to go higher although the stocks in fact are still way overvalued. PE ratios are still too high and in fact it is a surprise to see the markets rally with PE ratios above 30. From a technical point of view there is now no real resistance until the Dow hits 10,633. This buy signal might power the Dow to a minimum of 11,245. Maybe even as high as 12,339!
So dear reader if you hold stocks enjoy the ride. As there indeed is no real value I would however put some stop loss orders just in case.

As I do not see real value, I prefer to stay on the sidelines for the moment being. I might miss a couple of points but I want to be sure before going in. I prefer to have an opportunity loss than real losses. However I might have to change this position in a couple of weeks or days, as it really seems that the Quantitative Easing will lead us into a inflationary/hyperinflationary scenario. That means we will not only see higher stock markets but as well rising commodity prices. The question now which asset class will increase more in value? Well as mentioned stocks and commodities should move up. Gold and Silver will move up as well and I have no doubts that both will move up much more than stocks and commodities (I still believe that we will see a DOW/Gold ratio at 1 to 1 in max 5 years). The Dollar however is on it’s path to the graveyard as James Turk says. The Dow and commodities moving higher do in my opinion confirm that. Investment categories that will not do well in such a scenario is fixed income and cash. There will be a flight to tangibles and holding debt and cash possibly is not such a good idea. It makes more sense to hold the cash in Gold or Silver.


Commodities
Oil:

Well dear reader in my past musings (2008) I have been reporting many times about oil reserves being reported too high and about Peak Oil. I still believe that we passed peak production in 2006 and that production is in decline now. If the demand due to world recession would not have fallen faster than production we would see much higher prices. Sooner or later demand will pick up again while production will not. That means that in a couple of months or maybe years we will see much higher oil prices. Following an information confirming that oil reserves have been reported too high.

Key oil figures were distorted by US pressure, says whistleblower
Terry Macalister
9 November 2009 21.30 GMT

Exclusive: Watchdog's estimates of reserves inflated says top official

The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying....
http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-international-energy-agency


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