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The advisor's goal is to provide gold and silver bullion investors with market commentary when significant developments warrant updates.
November 13, 2007,
SNIPPET: When Lenders Won't Lend AND Borrower's Can't Borrow.
I would first like to address the Chairman of the U.S. Federal
Reserve:
"Dear
Ben: I know you don't know me since I did not go to Princeton
and have never worked in academia or in Government, but you need to
listen for a few minutes even if I only have 6 years of study from
that old land grant college called the University of Michigan, very
un-ivy-like, I know. YOU
ARE PUSHING ON A STRING, BENNIE BOY.
The cost of money, as so readily manipulated by your minions at the
Fed on the short-end of the curve, is not the real problem
here. The problem O' Ivy Tower Economist, is that there is a
major deterioration in borrowers' overall confidence levels, in the
absolute ability of borrower to assume additional debt, in the
collateral required to secure additional debt in today's deflating
environment, and in the lending industry's ability and desire to
actually lend money out. Now I know that the Stock Market is
all giddy awaiting your next reduction in
below-inflation-interest-rates to keep the Wall Street Ponzi Scheme
going, but the die is already cast for the U.S. economy, financial
markets, and financial system. You may call me a Fear Monger,
but I would rather label my humble street-hardened-self as a Stark
Realist who has studied the history of men and money, and have had a
growing crowd of Fellow Seers and ezine readers over the last 8
years. I know it is in your job description that when
homeowners, mortgage lenders, realtors, builders, developers, hedge
fund managers, derivative issuers, credit rating agencies, GSE's,
banks of all genre, and investors start crying over very, very
poorly placed bets, that you must do something, even if it knocks
the last legs out from under the Currency of the Realm. But
often the greatest courage is summoned when one stands his or her
ground, maintaining their current position."
"We both know that Sir Alan Greenspan's flooding of the U.S.
financial system with cheap, cheap money and ultra-lax lending
standards for about 5 years is the real culprit in the unfolding debacle
squarely in front of us, but you did accept the job with your eyes
fully open (at least, I hope your eyes were open at the time!).
Often throughout history, it is the modest men of integrity that
come behind the naughty elephants to clean up their messes (not a
political statement on Bush/Republican free-spending for the last 6
years!). We hope you have the Right Stuff as Tom Cruise pines
for every day, as in the Wizard of Oz tale he is still looking for a
brain. But the ball is in your court, Ben of Princeton, and
you need to do the right thing ...... stand pat on interest rates
even if you need a supply of Pampers to weather the angry mob that
will form outside your Fed office window; the ones in Armani suits
are from Broad and Wall. To lower rates any further below the
True Inflation Rate (TIR) of 7% to 10% no contest, is to put the
incomes of all U.S. retirees and savers at risk (one more time) as
interest income is their safest bet in today's upside down
world. Interest
income from Treasuries, U.S., Canadian, Swiss, NOT FROM U.S.
COMMERCIAL BANKS OR S&L'S OR INTERNET INTERMEDIARIES SINCE I AM
AFRAID THESE BOZO'S HAVE SCREWED UP MONUMENTALLY ONE MORE TIME."
"Now as a Bullion Dealer whose phone has been ringing off the
hook for the last several months, I am grateful that your renewed
Interest Rate Cuts that keep the real rate of return of U.S. savers
below the 7% to 10% U.S. Inflation Rate (not B.L.S.!) are knocking
the stuffing's out of the U.S. Dollar. Since Gold and Silver
are the only real money that us poor men and women on the street can
turn to when EVERY GOVERNMENT ON THE PLANET CHOOSES TO DEBASE THEIR
DOMESTIC CURRENCY TO MAINTAIN THEIR SYSTEMS AND ECONOMIES, the
values of the bullion products I sell to clients are headed for new
all-time highs. Thank Greenspan for me when you see him at the
next Austrian Summit on Saving The Global Financial System!
Since foreign investors have come to the realization that the U.S.
really does not want a Strong Dollar Policy in actuality, and your rate
cutting drives that conclusion ever further home, various central
banks are beginning to increase their aversion for U.S. Dollar
holdings and the Buck sinks to new, all-time lows! Gold is
going to $2,500 within the next 10 years, Ben, nothing you can do
about it since it is a global market for gold and silver, and the
common folk are buying every ounce any central bank can or will disgorge. Silver is headed to $120 per ounce in my non-Ivy
League opinion, as good a guess as the recent estimates coming out
as to how many $100's of Billions of Mortgage and Derivative Related
Debt Instruments are going to vanish off many a financial
institutions' balance sheets."
"My hat is off to you, Ben, for taking the helm of the U.S.S.
Titanic just at the time that THE Iceberg had floated across the
dark financial horizon in a sea of excessive credit generation. Hopefully, you will not be blamed for the misery
that is going to spread across the Nation due to years of
ill-founded lending, borrowing, and spending. But at least you
have your generous Government pension to fall back upon should you
decide to abandon ship early in your tenure. And you can
always get a professorship at Princeton, specializing in Stable
Monetary Policy Theorems. In case you have
not noticed, the IceBerg, the one now named the Sub-Prime and
Derivatives Berg (not located in New Jersey!), has ripped open at
least 2 of your un-isolated, open bulkheads and the salty, corrosive
water is
pouring in. Greenspan should have closed those bulkhead
sea-doors years ago by taking away the punchbowl (aren't mixed
metaphors great?! starting to feel seasick?), but there was a
press conference on A Deck and he just had to attend. There is
little you can do to save the ship, the U.S. economy and financial
system, Ben.
All you can do now is provide lifeboats for the
women and children aboard and throw the Wall Street crew a leaden
buoy or two (although they seem to be quite good at throwing leaden
buoys at themselves decade after decade!). But we all know you will pander to the Wall
Street crew if history is any guide regarding Federal Reserve
reactions to financial crises, letting the citizens of the land suffer the consequences
of their own financial stupidity, the crookedness of real estate
transactors (new WCM word for Webster's), the stupendous greed of
debt packagers, and the irresponsible acts of government
hacks. Hopefully, I have not left anyone out, and I purposely
included the Citizens Of The Land (COTL's) since their "Spend
Everything Now, Pay Maybe Later" psychology and failure to read
loan/settlement documents is a colossal portion of these Titanic
miscues."
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Whew, that was almost therapeutic. We are firmly in a colossal
Credit Crunch, O' Loyal Readers and government spies. If you
are fearful of losing your job and/or your most valuable asset is
now worth less than you owe on it, are you really going to take on
more debt to spend on Xmas goodies or dining out or SUV's or
designer shoes in the 2007 economy?! The Sage thinks
not. Recession is not a probability now, it is a
certainty. The only real question, as has been my query for
almost a decade now, WILL THE U.S. AVOID A DEPRESSION? The
debt meltdown that is occurring in the financial sector is now
estimated to be on the order of $500 Billion in eventual write-offs
for some of the biggest banks and financial institutions in the
world. I will wager that it will most likely approach $1
Trillion or more by the time the dust settles.
But there are
other large segments of the global credit markets that we have not
even heard from yet where improper risk analysis was performed by
both lenders and credit rating agencies (and don't forget the lying
borrowers!), and the financial icebergs are still floating out at
sea waiting to greet the hull of the U.S.S. Titanic. I think
many M&A financings since 2003 are going to go bad where the
junk rating turns into absolute stinking garbage and
default/bankruptcy ensues. But any time you have Billions of
Dollars in supposed "assets", these liars' loans with no
or questionable collateral AND very questionable financial
assumptions, disappearing on a quarter-by-quarter basis, the purse
strings of the Nation's lenders draw tighter and tighter. Case
in point, even the most creditworthy of homebuyers are watching real
estate closings melt away as the loan originator cannot find a buyer
in the secondary market for the origination! Without this
properly functioning secondary market to resell the loan, where is
this lender to obtain funds to make additional loans. The
lender will shortly be out of business. Bad
times indeed in CreditVille. But you, dear Bullion Market
Insights Reader, saw it coming years ago.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Keep buying the
metals on the way up; don't get too fancy with market timing and
technical hocus pocus. As we continue the current exponential
move, price volatility is going to knock your socks off! Since
financial types have been so creative for the last 30 years, God
only knows what icebergs are to break off the NON-Regulated
Financial Glacier and head out to sea. I do disagree with the
respected Stephen Roach of Morgan Stanley regarding the Dollar
retaining reserve currency status. I think we will see 2 or
more additional regional currencies a la the Euro in the next 5
years making a serious dent in the Dollar's current, albeit diminishing,
monopoly in international financial settlements. Money goes
where it is treated best. And when the country of issue is
dead set ........ out of necessity ........ to devalue its sovereign
currency and all outstanding debt denominated in it, money will flow
elsewhere.
It is already flowing readily into Gold and
Silver. We are just at the beginning of this process.
Heck, I may be too conservative as Jim Sinclair probably is in his
$1,650 target for Gold. We may see $3,200 Gold before the lifeboats
reach shore.
Back
to TOP
January
1, 2008, min-SNIPPET: Some Dire Forecasts from the Sage for
2008 (hold the Champagne).
I broke my index finger on Nov. 25th, so no updates have been
forthcoming since it is such a pain to try to type with 9
fingers. Modified hunt-and-peck. Here goes, but I must
say that things are going to be much worse in the years ahead for
the Citizens of this country since I never imagined the write-offs
of bad debt instruments were going to be in the $100's of Trillions
before all is said and done. Here is what I see as the major
events that will shape the landscape in 2008:
1. Multiple Bank and Financial Institution Failures
Whether it is Money Center/Major Banks or Regional/Local Banks,
the continual identification under GAAP accounting standards of
"mark-to-market" losses of over-priced/never-sound securitized debt
instruments/ derivatives will increasingly take its toll on all but
the most strongly capitalized institutions. AND VIRTUALLY NO
U.S. MONEY CENTER BANK WAS DEVOID OF MASSIVE DERIVATIVE EXPOSURE IN
RELATION TO CAPITAL ADEQUACY ENTERING SUMMER OF 2007. Sovereign Wealth
Funds will not be interested in taking equity positions in all U.S.
institutions, so there will not be avenues for bail-outs from
private sources for many banks. I
WOULD NOT HAVE FUNDS IN ANY SAVINGS ACCOUNT OR MONEY MARKET OF A
U.S. BANK AT THIS TIME.
Treasury Only Money Markets is where I have parked all of my
cash. The FDIC is grossly under-funded for a Debt Collapse in
the Tens and Hundreds of Trillions of Dollars, and I feel strongly
that in the future a bankrupt FDIC will pay depositors in 10- to
20-Year Treasury Notes, NOT HARD CASH, in the inevitable case many
U.S. banks fail. All efforts to re-liquefy the global cash
markets have failed, I will not even go into their merits since it
is like throwing a thimble of water on a forest fire. Bail out
efforts will fail, and have done so in the footsteps of failure of the Super SIV Fund
to date. Make a huge mental note here that we have entered the LOSS OF CONFIDENCE PHASE of this
recessionary cycle/ pre-DEpressionary cycle where Lenders are now
afraid to lend since they have $Billions of bad bets already on the
books to either work-out or write-off, AND Borrowers have compromised
collateral and income streams and no stomach for increasing debt
loads when they are already defaulting in record numbers ON THE DEBT
THEY HAVE ALREADY BITTEN OFF. Personal Note Here: The
Sage is now totally out of debt for the first time since graduating
from Michigan Engineering School. And if I can't pay cash for
something going forward, I don't need it. That includes
automobile and even home purchases! The Debt Monkey is off my
back, and I suggest that you get him off your back too. In a
depression with deflation, debt becomes more and more expensive to
service each year. First we inflate big time through 2008 and
possibly into 2009, then the destruction of many financial assets
and real estate values in a severe economic decline gradually brings
on deflation.
2.
Worsening U.S. Recession as 2008 Progresses
I get absolutely ill when I hear from Government Agencies that
all is well with the U.S. economy. At some point the
prevaricators in Washington are going to be tarred and feathered,
hopefully not literally, It is frankly one of the
most imbalanced economies on the planet that now has automotive,
real estate, mortgage lending, retailing, and the general financial
services industry well within recessive sales and earnings
trends. Inflation will exceed 10% in the world you and I live
in as we enter 2008, and with oil prices headed well north of $100
this winter, grain crops being bid to the moon by developing country
demand and misguided Ethanol producers, money being pushed at Rocket
Speed by the world's central banks into a "frozen-up"
global financial system, and Governments coming to the
"rescue" of all the poor victims of very stupid lending
AND borrowing decisions since 2001, I expect to see the Shadow Group
print 15% or higher inflation in the U.S. before the wheels come off
the cart. We will Hyper-inflate before we Hyper-DEflate.
The U.S. stock market, even the NASDAQ, did not provide investors
with a positive inflation-adjusted return in 2007, and earnings
disappointments are going to start coming fast and furious as we
enter 2008. The U.S. stock market has just topped out its Bear
Market Rally that started in 2003, nothing more, nothing less.
U.S. Consumers are beginning to panic about variable-rate mortgage
resets, continuing home price collapses, food & energy prices, job security, election
uncertainties, and debt repayment loads, hardly ingredients to keep
the resilient American spenders at their favorite past-time,
SPENDING MONEY THEY DO NOT HAVE. Go ahead, Uncle Sam, make it
okay to default on mortgages, auto payments, and installment
credit!!! See what the next generation of Americans become
when it comes to honoring financial obligations. Real,
inflation-adjusted GDP in 2008 will average NEGATIVE 5% IN 2008! ( I
can forecast as well as Sir Alan did and get paid much less money
when I am wrong. )
3. Many Money Market Funds Will Break The $1 per Share
Sanctity
Some high-roller funds that really play on the railroad tracks
of debt "quality" have already done so, but based on the
massive expansion in money market funds since Sir Alan decided to
trade the NASDAQ Bubble for the Real Estate/Credit Expansion Bubble
that just burst, many more money markets with non-Treasury paper are
going to return less than your principal this year. Now with
Bennie Boy Bernanke pushing yields down probably to 3% before he
sees the Inflation Monster on the cover of Time Magazine (Putin,
Schmutin, what a choice for 2007 Man of the Year!!! A KGB Kremlin
Despotic Oligarch!! who
hates American Influence!! AND is selling weapons to our enemies!!),
you will have both a loss of principal in many of these funds, not
FDIC-insured but who cares, but negative real returns also.
But for liquidity purposes for emergencies like when you break your
writing-hand index finger, stash some cash, just be extremely
choosey what the
fund is invested in. If a bank or fund cannot or will not tell
you what they currently hold in the way of debt instruments, vote
with your feet and move your monies elsewhere. America will eventually technically
default on its unpayable debt in the next decade by re-structuring
all payment dates and maturities, but until that dark cloud shows
up, STAY IN TREASURIES, because no one has audited the Fed's or
Treasury's books yet to see how many CDO's, CMO's, SIV's, or other
worthless derivative crapola they have bought to save the
system. Don't you feel much better when you know that you as a
taxpayer were willing to come to the aid of the Fat Cat Bankers,
Hedgefund Managers & Investors, Dumb-Dumb HomeStealers (aka,
Fraudulent Homebuyers), AND USE
YOUR TAX-DOLLARS, the ink not even dry on them! to BAIL THESE
DESTITUTE GAMBLERS OUT! Be sure to tell your grandchildren to
buy a 30-year-lived Hydrogen-powered Scooter for commuting, because
that is all they will have left to spend on after the American
Bankruptcy. Bernanke and Paulson, you are just making the size
of the final Turkey Coming Home to Roost the size of the Empire
State Building or the Sears Tower! Japanese-style Monetary
Policies since 1989 only prolonged the Japanese Depression.
4. GOLD AND SILVER WILL CONTINUE TO SOAR IN 2008
Of course, you would expect a Bullion Broker to say this, but I
think the U.S. public will finally realize there are few secure
alternatives for safe-keeping their money in the Debt Collapse we
are currently in. Only about 5% to 10% of Americans have
purchased any Gold or Silver since the bull began in 2001, so this
incremental demand in a country still flooded with cheap cash (Ben
your Xmas gift to a bullion broker just keeps on giving!) will keep
the after-burners glowing on the Precious Metals Rocketship.
My forecast for Gold's high in 2008 of $1,138 implies a 36% return
at some point during the year, with silver kicking up its heels as
the physically more rare metal (at least on the Nymex/Comex!) with a
31% return to just under $20 per ounce at $19.35 some time this
year. ONE SIMPLE FACT TO REMEMBER ABOUT PM PROSPECTS FOR
2008: THE GLOBAL ECONOMY AND FINANCIAL MARKETS WILL BE OVERALL
WORSE THAN THE WORST PERIOD EXPERIENCED DURING 2007!!! Bad
news will be a daily occurrence in the markets this 9th Year of the
New Millennium and of greater negative import to all of us. I
have been too conservative in forecasting the size of the financial
hole Americans and American institutions are in at this
juncture! The sun will eventually come out again, but we are just at the
leading edge of this Perfect Financial Storm System (PFSS).
Although I have been continually surprised about investors' penchant
for risk in buying stocks with both hands since 2003, this trend has
FINALLY reversed and will precipitate some breathtaking waterfall
equity declines in 2008. MONEY GOES WHERE IT IS TREATED
BEST. And precious metals have blown the doors off of stocks
that are basically flat to down since their peak in 2001. Gold
is up some 220% since it's bear market low at around $260 per ounce
as the Bank of England impoverished Brits for decades to come with
untimely gold sales in 2000. Silver, not to be outdone, is
some 230% off its cycle low. AND MANY MORE 100% GAINS TO COME
IN MY HUMBLE ESTIMATION.
The Nine-Digit Sage now targets Gold's peak to be
$3,200 per ounce and Silver peaking at $120 per ounce within the
next ten years. No
guarantees, but The Sage has been very right about a lot of topics
for the last 9 years. Just re-read some of the epistles
contained herein. A contribution to the V.F.W. would be
appreciated.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
AuAgUAGAUAGAUAGAUAGAUAGauagauagauag
THAT'S IT FOR NOW,
OH LOYAL READERS. GOT TO GO REST THE FINGER. DON'T FALL
ASLEEP AT THE WHEEL IN 2008, BECAUSE WE ARE ALL IN A SEA FULL OF
HULL-PIERCING ICEBERGS. MAN THE GOLDEN AND SILVERY
LIFEBOATS!
And Furthermore:
to
all the men and women in our armed forces that are in harm's way, i
say a resounding "thank you and god's speed" for a safe
return home. these are the true heroes of our age, those
willing to put their lives on the line for the safety and security
of their fellow citizens back home in the u.s.a. we
will prevail in our struggle against Islamic Terrorism, because any
enemy that kills the women and children of the populace they vainly
strive to control, is doomed to failure. History and freedom
are on our side even if the naysayers on Capitol Hill would rather
make political hay than save the day.
Happy New Year and thanks to all of the clients of Wexford Capital
Management for making 2007 another stellar year. Money goes
where it is treated best.
Back
to TOP
February 9,
2008: The Delay of Game Penalty Has Been Called.
This ezine is as
much physical therapy for my mending index finger as it is a free professional service from the Sage. I now have to relearn to
type correctly since for the last 10 weeks I have been using a
modified "hunt & peck" technique that would make a contortionist
proud. But on to the new Dewdrops of Wisdom that I know
everyone is waiting for with baited breath .......
(Stage Direction: The
dark, heavy clouds part ever so slightly, a bundle of encouraging
sunrays beam to the ground, and a deep, baritone voice booms forth
....... ) THE
DAYS OF DELAYING THE END-GAME ARE OVER, OH, MANIPULATORS OF THE
HUDDLED MASSES!
This observation,
heck, revelation, has been a very long time a' coming. Taking a
page from the Monetary Policy Guide of post-1989 Japan, beginning in
1998 with the Fed/Money Center Bank led rescue of Long-Term Capital
Management (which was hardly a Long-Term entity!), Sir Alan
Greenspan did everything in his power to avoid the evitable losses
and pain to risk-takers that inevitably flows from very poor
financial bets, grossly excessive leverage, and financially
engineered creations that few fully understand. Well, Sports
Fans, the Umpire called Due Reckoning has finally thrown the yellow flag
onto the field of play, in this instance, the Financial Markets and
the Economy. AND
THE PENALTY IS HARDLY ONLY GOING TO BE 5 LINEAR YARDS OR A 5% LOSS
OF THE PLAYING FIELD. (Beleaguered
Editor's Note:
Don't take my
play on words and analogies to sports/game terminologies to mean
that I am being frivolous about the current situation we are
in. Those who do not recognize the severity of this dire
economic and financial system calamity AND TAKE APPROPRIATE ACTIONS
as advocated by exceptionally wide-awake professionals such as the
Sage will suffer greatly in the years ahead. At a minimum they
will be working full time in retirement (an oxymoron?), and many
will have to declare personal bankruptcy.)
While many of my erudite comrades in the Prognostication Business
are calling for eventual write-offs in the $100's of Billions, even
as daring as to go as high as $500 Billion as of this date, the Sage
is the virtual Lone Ranger of Financialdom in forecasting the
disappearance of Trillions (THOUSANDS OF BILLIONS) of Dollars from
the ledgers of the world. By summer of 2008, the "T"
word will be regularly used in conjunction with the total bad debt
write-offs related to sophomoric lending and borrowing practices
employed since the dawn of the New Millennium. I will not go
into all the literal-string initials of poorly-conceived financial
products sold to unsuspecting investors around the world with
the "Made in America" label on it, they are too obtuse in how they
operate for the Sage's pea brain to comprehend. Obviously,
there is no shortage of pea brains in the world these days. If
all the Monday Morning Quarterbacks (my Giants won, so I is sticking
to the football analogies for a while longer!) who shamelessly
crucify George Bush for diminishing America's image in the eyes of
the world, MOVE OVER CRITICS. A trainload of Fee-Grubbing
Financial Wizards, Bankers, Rating Agencies, and over-accomodating Government
Officials are now on board the Train of Shame when it comes to
tarnishing America's image on terra firma!
When
that retired kindergarten teacher in Slovakia has to sell pencils on
the village streets to make ends meet since the Slovakian Retirement
Fund was full of toxic, Moody's or Standard & Poor's or Fitch's AAA-rated junk, THANKS TO AMERICAN
INGENUITY, BOY, ARE WE GOING TO BE POPULAR!!!
Plus, when the Sage is trying to keep his arss
from being blow into the Heavens by an Islamic Jihadist who has more
prospects in the after-life than the here-and-now, I REALLY DON'T
GIVE A RAT'S PETUIE (sp?) WHAT THE CANADIANS, THE FRENCH, THE
RUSSIANS, THE CHINESE OR WHOEVER THINK ABOUT MY APPROACH. IT
IS MY ARSS AND MY APPROACH. When they lose thousands of
civilians by these madmen on their own sacred soils, they will not be so sanctimonious.
A note to my fellow Americans: Always easier to be a critic in
life than a doer.
(Stage Direction: The Sage
takes a deep breath, puts less caffeine in his next cup of coffee,
and sallies forth, inadvertently insulting as many readers as humanly possible
....... )
Turn your attention and
slings & arrows to the real villains of our age, the Fed
officials such as Alan Greenspan who year after year, crisis after
crisis, DELAYED THE INEVITABLE CLEANSING OF THE FINANCIAL SYSTEM AND
THE ECONOMY OF POORLY-CONCEIVED AND POORLY-GRANTED FINANCIAL
INSTRUMENTS THAT PROVIDED $BILLIONS IN FEES TO THEIR FAT-CAT, WALL
STREET ORIGINATORS.
Now, I could
expand this list to include American Consumers who forgot long ago
how to save and purchased expensive items like houses they could not
afford, Realtors & Mortgage Brokers who make Pinocchio look like
a choirboy in their failures to disclose or outright obfuscations,
Investment Bankers who packaged I.O.U.'s written by hobo's as AAA
securitized "assets", Legislators who never said NO to
irresponsible allocations of Taxpayer Funds, and Rating Agencies
that operated under the most grievous conflicts of interest in who
paid them to rate companies and securities. But
Sir Alan stands out from the pack as the Single Most Guilty
Perpetrator of the Current Credit & Debt Collapse, bar none, who
should have know better based on his own former writings and since
he was a public servant not operating under profit or consumption
motives.
When the Sage, only known as D.W. Young at
the time before being Knighted by his legions of clients who have
made a mighty bundle following his rants since 1999, first started
yapping about the Depression coming sometime beyond 2000, he had no
fricking idea it would be this bad in magnitude and duration. Sports
Fans, if Alan Greenspan had let the Recession of 2001 proceed
to wash bad debts and excessive speculation out of the system to
make way for the eventual recovery, we would only be talking about
$200 Billion to maybe $300 Billion of total losses.
Now after
8 years of uncontrolled credit and monetary expansion, we are
talking Ten of Trillions of Dollars, at a minimum.
You probably wonder where this tirade is going, but the main point
of this missive (aside from getting my formerly lightning fast left
index finger back in racing form) is the following Sage-prescient
statement:
FASTEN YOUR SEAT
BELTS, THINGS ARE GOING TO START HAPPENING AT A MUCH FASTER PACE TO
THE DOWNSIDE. On the reverse of the downtrends in the economy,
stock market, bond market, real estate market, and money markets,
both Gold and Silver are going to surprise on the upside in
magnitude and rapidity. Next stops are $1000 Gold and
$20 Silver, to be followed by $1250 Gold and $27 Silver. (Or I
will refund you the price of this ezine! and in only air-pocket/
descending Dollars!)
When
the Sage puts one of his cauliflower ears to the railroad tracks,
trying to switch the rails to send the Train of Shame into the
Stockyard of History, he comes to the realization that there is
nothing anyone or any entity, private or public, can do to save the
world economies and financial systems from a very severe
retrenchment and REVALUATION.
That last word is key. Not only is the Dollar going to be
revalued to 50 on the Index in a matter of Quarters (holding 75 is
hardly a bullish reversal!), but the U.S. stock market is going to
take out the 2003 cyclical lows by 20% before Summer of this
year. And, a total market many fold the size of the equities markets, the
Bond markets of the world, are going to experience a re-pricing in
the $Trillions SINCE
THE ERA OF SIR ALAN GREENSPAN'S TUTELAGE WAS BASED UPON A MONUMENTAL
MIS-PRICING OF THE RISK PREMIUM ASSIGNED UPON ISSUANCE TO VIRTUALLY ALL DEBT INSTRUMENTS.
When debt instruments are considered to have little chance of
default due to either over-rating by a fee-grubbing Rating Agency or
a marketplace that mistakenly requires miniscule risk premiums on the
assumption that the music will never stop, yields can only adjust
upward as today's reality check on risk occurs (defaulting and
subsequently downgraded debt instruments skyrocket into the $100's of Billions) and debt instrument
prices or bids fall asunder
as yields have to
rise to reflect TRUE RISK OF NON-PAYMENT OF EITHER INTEREST OR
PRINCIPAL. While the bloodbath in the stock
market is going to produce a Hollywood movie before year-end
(starring Jim Carrey), the
carnage coming in the bond market will seal the fate of the global
economy and financial markets.
NOW SAY AFTER
ME: ALL OF THE SUPER-CDO/SIV RESCUE FUNDS, FEDERAL TAX
REFUND PLANS, NEGATIVE 'REAL' INTEREST RATES FROM HELICOPTER BEN,
AND ENORMOUS MONETARY EXPANSIONS FROM THE CENTRAL BANKS OF THE WORLD
ARE AKIN TO SPITTING ON A FOREST FIRE DUE TO THE UNPRECEDENTED
ENORMITY OF THE PROBLEM IN THE TRILLIONS OF DOLLARS. (And
spitting with your back turned to the blaze into a headwind while
you run from it! Yuck.)
Both Gold and Silver are going to
knock your socks off in this environment, because no one wants to
borrow to spend or expand when there is a loss of confidence in
economic prospects AND the inner workings of the vast credit markets
are freezing up due to no one rightfully trusting the institution or
entity requesting funds.
LENDERS DO NOT WANT TO LEND TO PRESERVE CAPITAL AND BORROWERS
DO NOT WANT TO OR CANNOT AFFORD TO BORROW. CONSUMER
CONFIDENCE JUST HIT AN ALL TIME LOW, THE LOWEST READING SINCE
PUBLICATION OF SAME BEGAN.
Confidence at all levels is going to continue to head to new lows as
more and more bad news comes out day after day after day. The
reactions of the financial markets, a.k.a., frightened investors
(not Insights readers, of course) are going to be more massive in
magnitude and swift in occurrence. Once confidence is lost in
the Currency of the Realm, especially when you can't even obtain the
10% current rate of inflation while parked in cash, investors rush
to get out of Dollars, as more and more Americans are doing today.
While there might be some more gut-wrenching pullbacks in the
Precious Metals in the immediate future (Sage says this current
correction is already over, but what does he know!), the spurts to
new $100 levels in Gold and $5 levels in Silver are going to be
breath-taking. I have seen it before in the 30 plus years that
I have followed the Precious Metals markets, and it is going to
happen again, WITH A VENGEANCE. Because ..... the world has
never experienced conditions this grave in the financial markets
that will eventually spill over into all the economies of the
world. Emerging markets are going to be saved due to internal
savings??? Don't count on it or bet on it by staying in
equities ANYWHERE. THERE
IS NOT AN EQUITY MARKET IN THE WORLD THAT DOES NOT REQUIRE
REVALUATION IN THIS ENVIRONMENT.
My neighbors next door to me were just foreclosed on in a house that
cost them $446,000 in August, 2005. That same house would be
lucky to sell for $325,000 today, IF IT WOULD SELL. No
fricking joke. As
this reality of REVALUATION STRIKES HOME, LITERALLY, MORE AND MORE
AMERICANS ARE GOING TO RETRENCH AND SAVE MONEY TO PAY DOWN DEBT OR
MEET CURRENT, BASIC NEEDS, NOT SPEND IT AT THE MALL ON
NICETIES. The fate of the U.S. economy is now cast in stone,
even resurrecting the Ghost of Sir Alan in the Effigy of Ben
Bernanke, will not prevent a very severe recession at this
point. I know we have been in recession for well over a year
now, but the current recession is going to be a gut-wrencher.
I know when I began forecasting a Depression back in 1997 while I
started putting together a U.S. rare coin portfolio in gold and
silver, everyone looked
at me as if I was nuts. Well, that may be partially true due
to the evidence contained within these volumes, but I will,
unfortunately, be right in spades. THE TEN YEARS IT HAS TAKEN
FOR MY PREDICTION OF 1997 TO OCCUR HAS SEEN THE MOST RECKLESS CREDIT
AND DEBT EXPLOSION IN THE HISTORY OF THE WORLD. MY PREDICTION
WILL NOT ONLY COME TRUE, AND IS COMING TRUE, (REGRETTABLY, I AM NOT A
MASOCHIST) BUT THE SEVERITY OF THE SITUATION IS NOW BEYOND EVEN MY
HUMBLE DISBELIEF.
AuAgAuAgAuAgAuAgAuAg............................
My index finger
is getting sore, and some readers are getting sore at me, so I will
wrap it up. Do not ask me where either Gold or Silver is going
in the next week, next month, or next year. If I knew I would
not have to be available to even field your inquiry; there are a lot
of nice lakes I could be fishing on. The one truth I do know
is this: BOTH
GOLD AND SILVER ARE GOING TO PRICE LEVELS OVER THE NEXT 5 YEARS THAT
MOST OF US COULD NOT EVEN IMAGINE TODAY.
I still think
$3,200 Gold and $120 Silver is possible (no legal types are allowed
to read these pages!),
but I have no crystal ball or the one I do have needs Windex.
But in 2013, I want to be in much more Bullion than Dollars whether
they take the form of Stocks, Real Estate, Bonds, or Money Markets.
And do not attempt to time the Gold and Silver markets as to a price
to pick up x number of ounces of either. WHEN
YOU GOT THE DOUGH,
GO!
Now to go rest my
finger on a Bud pop-top. And that mending finger is pointing
to a lot of guilty parties for the fine mess we are in, even if it
is a little crooked still.
Back
to TOP
March 16, 2008:
THE END IS HERE! or Speculative Investors Now Have The
"Bernanke Put".
(Stage Direction: The Sage
walks to the front of the classroom full of eager, yet petrified
Investors, dressed in his tattered Sunday Best garb, worthy of a
Dickens character ...... taps his pointer on the blackboard and
begins his monthly ranting and raving ...... )
AH, being right about how things eventually turn out has its just
rewards, especially when that lake-side cabin far from the maddening
crowd looks more possible than ever thanks to my gold and silver
hordes buried in woods where few men tread. Any scumbag out
there that thinks I hide physical here in my
not-as-overpriced-as-before, poorly-constructed abode is sadly
mistaken (the Sage is stupid, I have heard your comments out there!,
but not dumb). If you attempt to find out for yourself, just
make sure you wear your Kevlar vest (and facemask!) and know how to
duck like a Presidential Candidate on the issues. As Gold and
Silver shoot ever higher, with only brief and shallow corrections
along the way, the amount of land the Sage will be able to acquire
in some 10 years when his nimble fingers are stiff as tree limbs
grows by the day. Heck, I will be able to buy an entire
construction company's earthmoving equipment to dig the perimeter
moat to be filled with mutated reptiles that have been swimming in
municipal water supplies. And for security personnel who I
will make grow their own food to keep in shape (no 300 pound cops on
my beat!), I will tap the "talent" pool on Wall Street for
Investment Bankers to whom I am now sending each a tin cup so
they don't evaporate before I can hire them.
Be it know (very Dickens-onian phrase I must admit), that the Sage
takes no satisfaction at the suffering of the Common Man and the
Average Joe (one of which he is), but revels in the misery being
visited upon the Fat-Cat Bankers, Bullion/Money-Center Banks,
Mortgage Lenders/Brokers, Investment Bankers, Hedge Fund Managers, and
Derivative Engineers to the extent that the system of fraudulent
finance that they helped create over the last 15 years is melting
away big chunks of the Global Financial System AND THEIR OWN NET
WORTHS and possibly their Freedom. Now we know that they have
moved much of their ill-gotten lucre overseas into Cayman Island accounts, hopefully in nuclear waste Dollars that will
diminish by the day until they can convert them into Tangible
Assets. But they are not as rich as before Summer of 2007, are
not as smug as before as the regulators, citizen-victims, and civil-law-suit attorneys come a' knocking, and not as envied as before as
sitting atop the Financial Heap. That very heap is turning out
to be the Garbage Heap. "Every dog has his day", my
Grandpa used to say, but as these are the very same dirt-bags that
contribute mightily to the Politicians of the Day, they will not get
their full and just desserts I am afraid. If history is any
guide, they will be the same players who resurface years hence
professing to be the best parties to put everything back together
again. But they are going
to sweat up a river in the days and months ahead!!! In fact, I
should start the Lynch Mob Party for the 2008 Elections while Obama
and Hillary duke it out, and run on a ticket of incarcerating the
maximum number of Financial Engineer Dirtbags (FED's?????) that have
brought us to the collapse of the credit markets, the money markets,
the supermarkets (still awake?), the equity markets, and eventually
will have played greatly in
the Greater Depression of
2009. If
I liked equity investments, which I don't because they are paper
promises, are valued based upon utter financial fairytales, have a possibly
failing intermediary between me and my money, and don't have
negative correlations to the overall gaggle of stocks when they
should (mining stocks come to mind!), I would do my own ELITE PRISONS
INTERNATIONAL initial public offering.
The title of this month's missive refers to the End of the U.S.
Dollar as a store of wealth/value and, eventually, as the Reserve
Currency for international trade. Since each of our daily
lives and our financial net worths are based in Dollars, this is a
seminal event for Americans. Most are still unaware of the
daily erosion in their buying power versus the rest of the world,
but many are cognizant of the absolute magnitude of price inflation
at work in all goods sold within this country. Since oil and
most imported goods cost at least 10% more than a year ago, their
contribution to U.S. inflation is a constant drag on American
consumers' abilities to make ends meet in the recession that is now
well underway. But all actions by Federal Officialdom since
Summer of 2007, have been totally Dollar Negative.
(I now find out
that Ben Bernanke cut the Discount Rate over the weekend and is now
going to lend funds to Wall Street securities firms, a move not
taken by the Federal Reserve since the GREAT Depression; can't turn
my back on these Liquidators for one minute!)
Bernanke's
sizable and rapid cuts in short-term interest rates guarantee that
yields on global money market funds denominated in Dollars will be
substandard in comparison to our largest trading partners'
currencies. Helicopter Ben has made it very obvious that he
will reduce U.S. rates well below our internal inflation rate of 8%
to 10% per annum in an attempt to prevent economic and financial
system collapse. His plan is not working as one credit market
after the other has frozen into inefficient operation where former
lenders no longer have the liquid capital or lax lending standards
to permit new credit originations; AND THERE IS A PAUCITY OF WILLING
AND QUALIFIED BORROWERS TO BOOT. The Federal Government and
U.S. Treasury have been feverishly working on bailout plans to both
borrowers and lenders, but when a problem in priced in the Trillions
of Dollars as I surmise, Billions of Dollars of newly printed money
or lending facilities are too little, too late. Many taxpayers
have already said they intend to use their whopping $300 to $600 Tax
Rebate Checks coming in May to pay outstanding bills, not to go on an
economy-saving spending spree at the mall. This is
reality. Americans are having a harder and harder time meeting
their monthly expenses, partially due to excessive borrowing at
below-inflation rates for the last 7 years encouraged by none other
than former Fed Chairman Greenspan.
For the Federal Reserve to accept Debt & Mortgage Derivative
Paper as collateral for new lending to cash-strapped financial
institutions, it is an implicit Government Bailout. Unless Fed
officials have been living on a different planet since Summer of
2007, they know full well that the market value of this CDO,
whatever, paper is virtually zero since the market has slammed shut
on the majority of this nuclear waste with no bids forthcoming
whatsoever. Using taxpayer money to make loans, even if very
short-term, to entities such as Bear Stearns that is already
technically bankrupt and totally insolvent, is nothing more than
another grievous breach of their fiduciary duties to American
citizens. The $200 Billion cash infusion the previous Friday
by the Central Banks of the World is another prime example of
pushing endless amounts of freshly printed " FIAT money" into
the global financial system to avoid partial or total collapse (or
freezing-up, same thing). Global inflation will not subside
any time soon. Say those words 5 times when you get up each
morning. The classic reduction in inflation due to a decline
in economic activity is not going to happen this time, or at least
for a good while. When such massive amounts of fiat money are
created out of thin air in less than a year, I would say at least
$500 Billion to $750 Billion since August, 2007, on a global basis,
there is little pressure taken off of goods prices because
short-term money is as plentiful and cheap as ever to those with
good credit. And there are plenty of non-American entities
that still have excellent credit standings and a wIllingness to
borrow because they did not gouge themselves in the U.S.-generated
Derivatives Explosion. Global government actions aimed at
avoiding a lock-up in the capital, credit, and money markets are not
going to work, but will only exacerbate the developing problems with
more global inflationary pressures from panicked money creation. Declining economies AND
rising inflation, aka STAGFLATION. Jimmy Carter would be proud.
Look for the U.S. intermediate and long-term bond markets to start
taking it more on the chin in the weeks ahead. Sell stocks and
seek safety in the perceived security of Treasury Note & Bonds,
me thinks not! The steepening of the yield curve will
accelerate as Bernanke & Crew cuts rates again this coming week
(by as much as 100 basis points) with credit concerns even of U.S. Treasuries and a newly revitalized
Inflation Premium entering the pricing of longer-term yields.
Credit/Default Risk plus Inflation Risk will increase 10-year yields
on out even more than what Mortgage rates have shown of late.
There is no real safety in U.S. Treasury debt other than the
shortest of terms, since 10-year Notes will eventually become
20-year durations from a cash-strapped America and 20-year Bonds
will become 30-year and on and on and on. Ready for the
50-year Treasury Super Bond??!!! What does a bankrupt
party do when it can't meet its obligations for principal
repayment? It lengthens the final payment period to attempt to
get more time to regain solvency. That is what the U.S.A. is
going to be forced to do with all outstanding debt in the years
ahead. Not only debase the value of the repayment currency,
the Dollar, by cutting rates well below inflation and flooding the
system with newly-printed money, but lengthen the time required to
pay the entire principal due. Expect any U.S. paper longer
than 90 days in duration to start the upward climb to 10% plus
interest rates in the next two years. I see no other avenue
for U.S. debt, public and private, to continue to have buyers around
the world with a
currency headed for another 30%+ devaluation.
(Stage Direction: The Sage
is now in his Nike running gear, panting bent over with his hands resting on his knees, sweating profusely, too tired to continue the
Tirade Marathon Race. At least for the moment.)
Look for the U.S. intermediate and long-term bond markets to start
taking it more on the chin in the weeks ahead, making an already
deteriorating U.S. economic picture even worse. The U.S.
Government and U.S. Federal Reserve will pour $100's of Billions
into the system to keep the country afloat, but I do not think these
efforts will succeed. We are destined for very hard times
Stateside for the next decade, hopefully not longer.
Keep acquiring
physical Gold and Silver even if you have to hold your nose at
buying $1000-plus Gold and $21-plus Silver.
Personally and professionally, I have never been very good at timing
purchases of either precious metals. When I got the dough, I
go, ...... then I go fishing. You will be doing Dollar Cost Averaging
no matter what method you employ in trying to time price entry
points, so a blindfolded monkey may even beat us Homo Sapiens at
this game. In late 2007, the ever-so-popular Sage forecast a
2008 high for Gold of $1,138 and for Silver of $19.55. I think
we will break the Gold target by summer. New targets:
Silver at $27.50 on a panic-buy high and gold at $1,300 before
year-end. No, I am not smoking one of Bill Clinton's Oxford
party favors. You pay me the big bucks to come up with
forecasted prices, so here they are. The bull market in
precious metals has cyclonic winds at its back: an
unprecedented Debt Collapse in the Trillions of Dollars, a domestic
currency suffering from persistent Devaluation, Raging
10%-plus Inflation and a Recessionary U.S. Economy.
THE PUBLIC WILL FINALLY ENTER THE PRECIOUS METALS MARKETS IN A
SIGNIFICANT WAY IN 2008. Why? BECAUSE THEY WILL HAVE FEW
OTHER PLACES WITH ANY DEGREE OF SAFETY FROM A HISTORICAL
(HYSTERICAL?) STANDPOINT TO PUT THEIR MONEY!!! Many bank and
financial institution failures of note to come, stay tuned.
Oh, how could I
have forgotten to mention my favorite investment venue: THE
U.S. STOCK MARKET, AND MAYBE EVEN THE GLOBAL STOCK MARKET, HAVE
ENTERED PHASE II OF THE 2001 BEAR MARKET THAT WE NEVER LEFT!!!
YIPPEE AYE YAYE (ask a nearby cowboy about correct
spelling).
Until next time, irreverently,
THE SAGE OF WEXFORD
Back
to TOP
April 20, 2008:
Just In The First Inning Of A Nine Inning Event.
(Stage Direction: Even
with billowing Storm Clouds above, complete with rumbles of thunder
and flashes of lightning, The Sage winds up his pitch after checking
the runner on First getting ready to steal Second. On second
glance, he discovers it is an Investment Banker in baseball disguise
trying to run away with the First Base bag itself! Have they
no shame?!)
While I am
not a big baseball fan since I was terrible at the game growing up (
5 letters in track and football, though, so I am not a total spastic
), I will spare most fans many more baseball analogies during this
monthly work-out of pent-up frustrations as a citizen of the
Financial Realm. But, everything is about perspective in these
very trying times. Or at least it should be. One has to
get to the dugout as often as possible during any physical (or
mental) activity and peer out onto the field of play to take in the
broader scope of things. When you are on the field of battle,
there are too many balls (aka, minute-by-minute news
releases/stimuli) zinging toward an unprotected part of your body to
allow you to get any perspective on the total event unfolding.
As a player on the field, you really have tunnel vision,
concentrating on an arch of view of approximately 40 degrees in
front of you. You are decidedly focused, but you seldom see
what is occurring to your rear or left or right. You are
fixated on the batter and the base runner(s).
So, Welcome to The Sage's Dugout this rainy Sunday afternoon, grab a
Gatorade or like, and take a few moments with me to reflect on where
we stand in the history of events, both financially and
economically:
FIRST,
and since it is already a gloomy day I will stay in character, THE
U.S. FINANCIAL SYSTEM IS AT RISK OF COLLAPSE. See how easy
that rolls off the tongue when one is relaxed and sitting
down. I saw a graph of Net Free Reserves in the U.S. banking
system the other day and this classic measure of system liquidity
was in Negative Territory to a degree equal to the era of the Great
Depression.
The $16 Billion of Total Reserves currently being borrowed to meet
Reserve Requirements is an historic event. (Note how the Fed
pushed liquidity into a system that could absorb it in 2001/2002 to
save the system that time; another example of Fed Panic (FP) which
cratered real interest rates into negative territory and helped put
us in the mess we are in.) At a minimum, this means that the banks are in no
position to expand their book of business, i.e., lend money to a
receding economy, but necessarily must shrink their balance sheets
through the sale of assets and pay-down of liabilities. U.S.
BANKS ARE BASICALLY ILLIQUID AND A GIANT DISCONNECT EXISTS BETWEEN
LOAN AVAILABILITY AND DEMAND.
How are Variable Rate Mortgagees going to refinance when the lending
window is slammed shut! Shrinkage is naturally occurring through the evaporation of Billions
of Dollars of collateralized securities purportedly on the Asset
side of the ledger, but that event has a one-on-one shrinkage of net
capital, a persistent force at direct odds with liquidity/capital
replenishment. U.S. BANKS ARE CLEARLY IN A CASH-CRUNCH THE
LIKES OF WHICH HAVE NOT BEEN SEEN SINCE THE GREAT DEPRESSION.
Since only the dumbest of the banking community is unaware of the
Hundreds of Billions of Dollars of write-downs yet to come in
unmarketable, worthless Derivative-Spawned Paper, their formerly
insatiable appetite for risk has turned into a very bad case of
indigestion, a condition that freezes their proclivity to take even
the most modest of risk for fear the stakeholders are already
outside the bank's door with Tar & Feathers. More likely,
it is Regulators & Authorities with Shackles and Chain, but that
much-deserved result in Breach of Fiduciary Responsibilities/ Book
Fudging/ Conflicts of Interest will take the better part of the next decade to incarcerate.
So says the 100
mph fast-ball pitching Sage: DO NOT KEEP MONEY IN BANKS EXCEPT
FOR MONTHLY EXPENSES. FDIC IS GROSSLY UNDERCAPITALIZED AND YOU
MAY GET TREASURIES INSTEAD OF CASH, 10-YEAR NOTES, NOT 90-DAY BILLS
IN REPAYMENT!!!!! GREAT STUFF.
While Bear Stearns was more of an obtuse financial entity for the
average American as to its day-to-day activities and its risk to the
entire financial system should it fail, a major Money Center Bank
Failure ( MCBF ) such as Citigroup would be more comprehensible,
revealing, and shocking to the general populace. You just have
to love it when Citi reports a $5 Billion Quarterly write-down and
the Better-Than-Expected Crowd rallies the stock market. Pass
whatever they are drinking to The Sage!! There is an entire batting
list of large U.S. banks that may likely become illiquid in the
months ahead; they include such perennial derivative-laden favorites
as JP Morgan-Chase, Bank of America, SunTrust, CapitalOne,
Washington Mutual (actually an S&L), and of course,
Citigroup. While our Federal Reserve, Treasury Dept., and
Capitol Hill are currently on a path that sets in stone that every U.S.
financial-system entity is Too Big To Fail, there comes a point
where the persistent pursuit of these near-sighted monetary and
fiscal policies cannot be implemented without severe consequences in
other key financial markets. By ramping up the M3 Money Supply
at a rate of growth well over 20% per annum up to over 30% of late,
the authorities have flooded the world with more Dollars at a time
when the world's appetite for the Greenback is in reverse as a store
of wealth. THE U.S. IS DETERMINED TO DEVALUE ITS WAY OUT OF
THE CURRENT CRISIS AND THE WORLD IS FULLY AWARE OF THIS
STRATEGY. The Dollar will have its Bear Market Rallies, as
will the Stock Market as exemplified this past week, but the trend
is decidedly down based on the $100's of Billions the U.S. is
throwing at the current Credit and Debt Market Crises. The
U.S. stock market has yet to comprehend what happens to Corporate
Profits, coming to a venue near you in the next couple of weeks,
during an In-Progress Recession ( IPR ).
Oh, did I mention that Panic Flooding With Multitudes of Dollars (PFWMD)
will eventually whack the Bond market and send intermediate- and
long-term interest rates much higher. 12% to 15% inflation in
our immediate future will be the other part of the Higher Interest
Rate Equation. RISK
PREMIUMS IN U.S. DEBT SECURITY ARE GOING MUCH HIGHER, SPORTS FANS!!!
There is a huge lesson to have been learned from the Current
Japanese Depression that started in 1990 and has yet to end. IF YOU KEEP THE GARBAGE ON THE BOOKS OF THE NATION'S BANKS, THERE IS
LITTLE HOPE FOR A SOLID AND SUSTAINABLE ECONOMIC RECOVERY SINCE THE
LENDING INSTITUTIONS ARE IN NO SHAPE VIS A VIS CAPITAL REQUIREMENTS
(Net Free Reserves??!!) OR RISK PROPENSITY TO PROVIDE THE TINDER
WITH NEW, ACCELERATED LENDING. And Borrowers have long
memories also, that when an economy has limped along for almost two
decades, sticking one's head out of a financial foxhole when
ordinance is still going off does not appear a noteworthy action
(maybe a Foul Ball analogy here?). We are on the road to papering over the Collateralized
Garbage that is littering the balance sheets of U.S. Banks and
financial institutions, and in the end, the length and duration of
the in-process Debt Collapse and Credit Freeze are only going to be
greater. Alan Greenspan can attest to what monetary
procrastination can do to a financial system and economy. We
should plot Sir Alan's Lucre Per Speaking Engagement as time
progresses.
SECOND,
in direct contradiction to what Chairman Bernanke has told us, THE
U.S. ECONOMY IS IN RECESSION DUE PARTIALLY TO THE SUBPRIME LENDING
SCANDAL. That there would be no contagion effect from such a
massive and global mis-allocation of capital is preposterous to even
the most casual observer. Any economic system cannot withstand
$100's of Billions of asset-meltdowns without some pretty drastic
effects on key financial service segments, not to mention a housing
industry that was already in recession as early as late 2006, early
2007. The housing recession began as a result of overcapacity
and overpricing, but continues and gathers momentum today as
tightening of credit enters the picture. If we are truly a
"services-oriented" economy, and thanks to money provided by the Fed
at some 4% to 5% below the existing inflation rate for a period of 5
plus years, then the persistent demise of the financial services
segment over the last 18 plus months cannot but have a significant
adverse effect upon overall GDP growth in the U.S. What began
as mortgage lender/ mortgage broker/ realtor/ homebuilder layoffs in
mid-2007, has contagioned (new Sage word, use it, it will get into
Webster's!) over to investment bankers, stock brokers,
M&A lenders, CDO originators, and bank employees. We are
still in the First Inning of the current economic retrenchment, and
the BLS statistics are so flawed in their misuse and miscalculation
that they have been and will continue to be worthless as to
informing anyone of the status of the 2007 Recession. Yes, the
current recession began in 2007, it is just gaining speed to the
downside in 2008 to a point where the politicians can't lie about it
any longer by Election Time. But God knows they will try!
I now have my CarMax Pricing Indicator (CPI) to show me how bad things are
in auto-land. If you look at the discount to Blue Book that
they show for any given vehicle, my favorite is the Lexus ES330 with
under 30k miles, you will see that the discount is growing by the
month. What was $550 under Blue Book in November, 2007 is now
$1,500 under today. It has been growing since the beginning of
the year as used car dealers are flooded with autos even in the
strongest of markets such as Washington, D.C. The Blue Book
numbers will always be slow to adjust to reality, since banks use
them to determine loan amounts and terms on used autos and there is
tremendous pressure from dealers and the banks themselves to
maintain prices. What loan officer wants to tell his
superiors that a car loan is underwater where the outstanding
balance has become greater than Blue Book.
Speaking of Errors, home prices are far from a bottom in most markets. My home
peaked at $415k in August, 2005, and now a market-clearing price
would be $285k, no kidding. There are over 100 homes for sale
in this price range within a mile radius of my house, and average
discounts to asking prices are easily 5%. This is a 30%
retracement in less than 3 years, a event I am sure will hit all
markets before the dust settles and supply is reduced to the
days-in-inventory of aggregate demand. And this area has an
employer, the Federal Government, that has no lack of funds to spend
at any given moment. The Bottomless Checkbook, offspring of
the Bottomless Coffee Cup. I fully expect to lose some money
when I finally exit to that cabin in the woods by the lake with the
20-acre perimeter with alligator moat with
..........................
It helps not a single American to make them believe that the economy
is on a firm footing right now. In fact, it is a grievous
disservice to Americans to paint a rosy picture at a time when they
should be paying down debt, getting liquid, and preparing for worse
times ahead. And this means spending less and saving
more. WOW! What a novel concept!!! Won't do much
for economic growth though.
THIRD,
and in baseball it is three strikes and you are out ( or out of here
), THE PRECIOUS METALS ARE JUST TAKING A BREATHER IN THE BIGGEST
BULL MARKET THAT GOLD AND SILVER HAVE EVER BEEN IN.
Whatever
caused the current correction does not matter. The simplest
and probably most correct observation is that the spurt in prices
eventually brought more sellers than buyers to the bullion counter,
at least that fictitious bullion counter that is supposed to exist
at the Nymex/Comex. Not to mention margin calls on
highly-leveraged speculators when their lenders had to tighten
standards due to other messes they were in. And while the
paper, promise-to-pay/ futures markets in Gold and Silver still
exert undue influence on spot prices during the U.S. trading day,
that day is going to eventually end as physical demand goes off the
charts.
Physical demand for Silver refined and minted products has gone off
the charts since the shiny metal pulled back from $20 plus to the
upper $17 area. Patient investors finally had an entry point.
A KEY FACT
HERE: WE ARE NOT YET IN A PHYSICAL
SILVER SHORTAGE. WE ARE IN A REFINED PRODUCT SHORTAGE AS THE
BULLION DISTRIBUTORS AND REFINERS/MINTS SUCH AS JOHNSON-MATTHEY AND
SUNSHINE MINTING GOT CAUGHT WITH THEIR INVENTORIES DOWN DURING A
SPIKE IN ORDERS WITHIN A PRICE PULLBACK.
When an industry had
been in a stalled market for some 20 years, just-in-time inventory
has been the rule and not the exception. You only keep enough
product on hand to meet about 2 weeks worth of sales and not much
else. When demand surges to some 8 weeks worth of prior sales,
you are going to have 3- to 4-week delays in restocking inventory
for shipment. Unlike the U.S. Mint which can't seem to get its
act together with production ramp-ups on American Silver Eagles, the
private refiners and mints are well-driven by the profit
motive. They have not seen demand like we have seen over the
last 6 weeks in silver since 1980/ 1981. Give them a chance to
ramp-up production to include weekend shifts and possibly 3rd
shifts, and you will not be disappointed by locking in prices in the
$18 range. And expect delays in shipments in the months and
years ahead. There is no
better sign of demand for a product than a backlog situation.
No reputable bullion dealer is not going to deliver the locked-in
silver at the price agreed upon. Word spreads on the internet
like wildfire, and this is one reason the Northwest Territorial Mint
may not survive as a retail bullion dealer. We
are going to see $3000 plus Gold and $130 Silver before 2020.
I am as sure about this as the nose on your face, which I can't see,
so any prediction is a matter of faith in the prior record of the
predictor. BUT WHAT ELSE IS GOING TO PRESERVE YOUR BUYING
POWER IN TODAY'S 12%-PLUS INFLATION AND PERSISTENT DOLLAR
DEVALUATION??!!!
These are the ultimate currencies of last
resort. Frankly, you can have the Euro and the Swiss Franc, I
will take Gold and Silver over paper every time. Watch what
these entities' Central Banks have done with their bullion
reserves. But it soon and probably already is "buying
time" for the world's best-managed Central Banks (China,
Russia, Singapore, Brazil, Dubai, Saudi Arabia) regardless of what a
non-governmental organization such as the IMF may say it is going to
do regarding Gold sales.
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