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Regularly Updated Commentary on Gold and Silver Bullion Markets


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.


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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.



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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.

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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.


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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 REVALUATIONThat 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.


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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



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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.  


Graph: Net Free or Borrowed Reserves of Depository Institutions




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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April 21, 2008, SageAdvise:  Gold and Silver will shoot back to prior All-Time Highs in the time it takes for another major financial institution to become insolvent.  As a taxpayer, the thought of Central Banks taking near-worthless Collateralized Garbage Derivatives to secure short-term loans that will become very long-term and implicit Taxpayer Bailouts is sickening.  How will this affect Tax Compliance in the future?????


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Regards,
The Sage

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