False U.S. dollar hope

It get’s tough sitting down and never having any good news to share, each time I write it seems to be the same thing, housing down, bankruptcies up, inflation and unemployment up, so I took the last couple of weeks off giving all those who will not accept the reality of the U.S. dollar a little time to bask in their delusion that the U.S Dollar was putting in what they took to be a major rally, Major it was not!

I’ve responded several times in the last couple of weeks to people who write me directly but won’t post comments that nothing has really changed, that the fundamentals of a broken economy and a dying currency remained fixed, sure exports went up a bit, Chinese imports might be slipping a bit but each and every day borrowed money just barely keeps the wheels on the bus. As several people I read have asserted, the U.S. could have a 100% personal income tax rate, or close the military down and still not cover the government real financial obligations including unfunded liabilities. It’s quite simple there is no answer short of massive defaults or massive inflation with the intent to destroy U.S. Gov financial obligations at both home and abroad.

Right now this is a game of chicken, holders of U.S. dollars don’t want to piss of the U.S. or encourage a run which would cause financial earth quakes in the world economy, so the U.S. gets away with passing off its potential worthless script and debt vehicles. In the mean time the U.S. is obviously involved in massive debasement of their currency all while daring the world to pull their finger! Every one knows what will happen if the finger gets pulled but they also know you can only hold a stinker so long before it gets away regardless. It might be one hostile country who’s had enough and pulls the trigger, it could be a glitch in a trading program or it could happen incrementally like what’s happening so far, but in the end the US dollar will burn.

And don’t think the other countries of the world don’t know what’s happening and won’t eventually act to protect their self interest, even if they risk unraveling the entire system. An example would be the usually pro U.S. Philippines whose congress today urged their central bank to lower its ratio of U.S. dollar reserves. The Philippines are currently importing inflation with their current peg and the recent bans on rice exports by other countries is going to impact the Philippines very hard, they cannot afford continue riding the U.S inflation coaster and lose more buying power when they will require imports of 500,000 tones of rice to meet this years needs.

In the Philippines this conversation is happening in the open but I assure you this same conversation is happening in every central bank and in every government that has U.S. reserves, pegs to the U.S. dollar or worse still, don’t have a domestic currency and use the greenback instead. I still believe that country like Ecuador will create a domestic currency this year or change to Euros or join a new regional currency.

So what about the so called dollar rally?

The U.S. dollar index shows that 2/3rds of the recent one month rally in the dollar up to an anemic 73.757 has been washed away in the last 3-4 days of trading back to 71.888 by wed pm. The result has been strong bounce in gold and silver but since they are still below their recent highs and my predicted highs for the years definitely still a strong buy. We have another small dollar rebound this morning but it is definitely small compared to the drops in the 50 pt range the last couple of trading days and will be nothing but a speed bump on the way down.

The Canadian dollar is also strengthening from U.S. weakness and with an upward blip in inflation this month I hope the BoC stops its reckless policy lower interest rates in an attempt to catch a falling knife called the U.S. dollar.

Most years people say Sell in May and go away, but this year I’d suggest convert to gold and dig a bunker. I’m sticking to my prediction of more banks and at least one large home builder will be down for the count this year, probably sooner than later. Add into the mix insolvent high end retailers, more crashed airlines, the first wave of municipal bankruptcies and most States going into deficit and you’ve got the makings of one hell of a mess.

Not only do we have the Sub prime mess continuing but you also have bad Alt As, ARMs, commercial loans, car, credit cards and student loans defaulting and pension funds destroyed by investing in this bad paper. Do not be complacent and ignore the markets this summer the end is near and it will not matter what season we are in when the chain reaction starts. Prices are still well below their peaks and should be considered buys. Stocks, especially small producers and the better exploration plays are so far off their real value it is depressing, even more depressing that I don’t have the kind of cash available to take part in a private placement.

For those friends, family and readers who’ve ignored my calls to buy metals starting over two years ago, you’ve missed out on some serious profits, how are those bank stocks working out for you? Are they keeping up with food and energy inflation?

Summer is hard to post regularly, but I do post up relevant articles on my facebook on days I don’t have enough time to anything else, drop by if you like.

For those who were having problems sourcing physical silver, has the situation improved? Has NWT mint started delivering on time?

Canadian Silver Bug- Friday files

Bloomberg reports that other Gulf States may soon follow Kuwait’s lead and drop their dollar peg (another one of my predictions for the year)


In the words of Kuwaiti Finance Minister Mustafa al-Shimali

``Yes, there are some'' Gulf Cooperation Council states considering dropping their pegs to the dollar, which has fallen 13 percent against the euro in the last 12 months. Some countries will do what we are doing”

The problem for the Gulf States is that their peg to the U.S. dollar has them importing double digit inflation resulting from the prolonged devaluation of the U.S. dollar. The Kuwaiti's acted on this danger almost a year ago when they moved their peg to a mixed basket of currency. As a result the Dinar has appreciated nearly 8% in the last year and though I could not find the numbers must certainly have decreased their non food inflation rate since.

This is definitely bad news for the U.S. dollar and it’s probably a good bet that rampant inflation will encourage the Gulf States to move more actively towards a proposed regional currency which I doubt would be pegged to the dollar. Even before the 2010 deadline for the new currency I believe some if not all Gulf States will move to a variation of Kuwait’s currency basket peg.

Liquidity

Despite the claims bottom and a quick end to banking problems the E.U and the Fed have increased their injections into the market with announcements the Fed will increase the Term Auction Facility to $150 billion this month from the previous $100B and the EU will increase their equivalent program from the $15 Billion range to $25 billion. Yep every looks fine here.

Bottom? What bottom!

For anybody keeping track apparently Las Vegas is winning the, who can lose the most in home value contest with a whopping 22.8% loss in one year, close runner ups are Miami and Phoenix.



2.9% of non rental homes in the U.S. are now vacant and up for sale, that’s some 2.28 million houses.

We have finally reached the half way point for ARM resets and while resets will start dropping off in the future, there are still a substantial number of ARMs yet to reset. Also don't forget it takes 3 months or so for arrears to turn into defaults, and even longer for defaults to turn into foreclosures. The peak in resets equals neither the peak in defaults nor foreclosures; that may have to wait until the end of the year or the beginning of 2009.

We've not even seen any major job loss related foreclosures yet, I have no doubt that numbers will reach at LEAST 4 million vacant homes before this is over.

Food prices.

I’m all for farmers making a decent living and I know they’ve been had it hard over the last decades but the rampant speculation that is going to cost millions of lives concerns me greatly. The west systematically destroyed domestic agriculture in the third world through the use of mechanized agriculture, subsidizing cheap grain production and globalisation; in the end foreign farmers could not compete with government supported imports and went out of business, but at least they could eat cheap.

This decade after they’ve lost the skills, the access to locally adapted seed, and often even the land to farm, bio-fuels and speculations rips their means of sustenance from their mouths. While there is certainly money to be made here I’m not comfortable doing it.

Metals

We’ve taken a beating this week and my only solace is its Friday (the usual suppression day for metals) and we are holding with a little strength.

What is really annoying me is some of my stocks are at prices not seen since gold was $600 and silver $10. I honestly think the big players are shorting the juniors to cripple them in a bid to snatch up cheap resources. The juniors have operating costs, drilling to do, but they can’t borrow right now and if you depress their price enough that share offer would cause too much dilution you just might squeeze them into a corner where a cheap take over is possible. It stinks, half the shorting is probably naked and we small investors are being brutalized.

Have a good weekend,
Do yourself and the world a favour, dig up part of your lawn and plant some veggies.

I got one right!

This is what I hope will the first of many "I told you so" posts for the year.

Today’s note is in response to the Feds action today lowering interest rates again by a more modest .25% bringing the prime rate down to my predicted 2% for the year. This makes me something like 2 for 20 on my predictions so far this year. 2% prime rate and a major bank failure (Bear Stearns), that's 10% probably better than Bernanke:)

One thing I can’t understand however is the recent strength in the U.S. dollar, $160 billion or so for stimulus package, 2% interest rates a full quarter before I expected them, banks taking loses weekly, another 3 billion loss for GM the list goes on and on. A full ½ of American’s trade deficit is now based on energy imports and with no chance of a 200 billion barrel oil field being found under the White House, this is not going to change anytime soon.

The fundamentals say the dollar should be weaker but since the Canadian and British Central banks have decided to hold hands with Bernanke as he skips down the path of currency debasement the weakness is camouflaged.

It still looks however that a crunch is coming as treasury auctions continue to be under subscribed, if they can’t borrow it they will have to print it. The U.S. has a large leaking wound which is draining its blood, the blood bank has been emptied and now they just keep topping it up with more and more saline solution watering down what little blood is left. Eventually the body will die!

James Turk of Gold Money is calling for a “Major Dollar Crisis” within 3 to 6 months and a return to $1000+ gold and silver over $20. When smarter people than me still see problems I think my $1200/$25 prediction for the year has hope.

The only other tidbit of U.S. dollar news is Iran claims that all transactions for oil are now non dollar denominated, Euros in Europe and Yen in Asia. While they announced this last year I appears to have taken some time to get everyone onboard with the idea.

What are you doing with your rebate?

I know from the hit tracking program that a fair number of my readers come for the U.S. and I was just wondering what our American friends were doing with their freshly counterfeited rebate money. Those who have direct deposit apparently have started receiving their cash and the cheques are probably in the mail now.

My best guess is that a good portion of this stimulus package will end up covering already purchased merchandise on credit cards and credit lines and the remainder will end up going towards more expensive food and fuel. That small portion of the population who can actually spend this money on new stuff will just end up supporting the Mao Kai Shek exploitation corporation somewhere in the orient, so who's economy is going to get stimulated?

Wal-mart is so eager to get people in and spending that they are offering to cash the cheques for free and offer deals. (you pay to cash cheques?)
Other retailers are offering special deals but only if you cash and spend part of your rebate with them, Sears for example will give you 10% if you convert your cheque into Sears gift cards as will several grocery chains. That’s how desperate retailers are to get a piece of the government largess, god forbid people save it or pay off debts.

I really enjoyed the Comments by Wal-Mart CEO Eduaro Castro-Wright

People don't have as much access to credit as they used to, Clearly that is having an impact on how consumers behave.

He was complaining at the time that lenders are not allowing people to extend their credit after maxing out and could not continue to splurge on nonessential or big ticket items. Duh, that’s how everyone got in this mess to start with, asshole!

So what’s up people, how much did you get?

How will you spend it?

Tell us some horror stories about what your non metal investing friends and families are doing.

New silver catalyst for diesel emissions should pump demand

As reported yesterday Mitsui Mining and Smelting claims to have developed a new form of catalytic converter that would use silver instead of Platinum.

Should this technology be proven it's obvious car manufacturers would flock to a technology using a silver which is currently less than 1% the price of Platinum.

Mitsui Mining new autocatalyst uses silver, not platinum
Wed Apr 23, 2008 3:47am EDT TOKYO, April 23 (Reuters) -

Mitsui Mining and Smelting Co Ltd (5706.T: Quote, Profile, Research) said on Wednesday it has developed a new catalyst for diesel engine cars that replaces the use of platinum with silver, a less conventional but much cheaper metal.

"Silver will totally replace platinum in this new autocatalyst that we've developed," a company spokesman said.

By substituting platinum with silver, the cost of precious metals in the production of autocatalysts, which clean car exhaust fumes, would be cut by more than 90 percent, the company said.

Spot silver is currently trading at around $17.70 an ounce, compared with platinum at around $2,030.

The spokesman said Japan, Europe and the United States are all planning to impose tighter rules on exhaust emissions for heavy-duty vehicles, such as those used in construction and farming, from 2012.

"We hope that this catalyst will be used in diesel engines for those vehicles, and this is the market we are targeting," he said.

Platinum specialist Johnson Matthey Plc said last November that platinum demand from automakers for catalytic converters would climb 2.3 percent to 4.24 million ounces in 2007 on the back of robust sales of light-duty diesel vehicles in Europe.

Platinum and its sister metal palladium are employed in varying amounts in autocatalysts to filter out carbon monoxide and particulate emissions.

I have a couple of questions about this technology

1. When will we see this go commercial?
2. How much silver vs. Platinum is needed?
3. Will the cheaper price encourage poorer countries to adopt emission controls?
4. After the useful life of the device will the silver recoverable if so how much?

Yet again we have another potential industrial use for silver and with the current cost for platinum there will be a huge incentive for substitution. If this technology if brought to market in a timely manner (before oil runs out) it has the potential to add a couple million ounces a year to silver demand, Good news in a month where prices continue to get the shit kicked out of them.

I was expecting another run up before the summer doldrums set in but unless investors catch on that the dollar can't improve for any fundamental reason, we could be facing a long sideways trading season.

Today's break below $17 and $900 does not look to be a good short term signal, but does give us some extra time to accumulate, make use of your opportunties!

This might also be a sign to take profits on Platinum if you have any,