Flying money is everywhere

The money is flying fast and furious as more and more schemes and emergency bailouts are brought forward to the market.
Citibank’s 4.9% sale to Abu Dhabi sovereign fund, Merrill Lynch scores $4.4 billion from Temasek of Singapore and a further $1.2 Billion to another firm today.


Morgan Stanley sets the stock price for a 5 billion bailout from the Chinese Government


Banks are in trouble and I’m telling you once again to diversity between banks, avoid the weakest banks, take out 2-3 months of cash if you have any savings and of course buy the anti dollars, Silver and Gold.

Who are the weakest banks? It is not entirely clear as many companies have yet to fully disclose their exposures to bad paper, I would certainly put Washington Mutual and CountryWide on my avoid list, In Canada CIBC looks to have the worst exposure and the National Bank has already taken considerable write downs considering it’s size. At this point the safest most conservative of the Canadian Banks looks to be TD.

In the U.S. the first of the new wave of low rate credit auctions intended to ease the credit constraints received bids from 93 different banks. These banks put bids in for over $60 billion when only $20 billion was up for auction ensuring the additional auctions planned for January should be fully subscribed. Some commentators have speculated the terms on this credit is destined to become long term.


The ECB has offered $500 billion in 2 week loans to European banks in order to ease them through any holiday liquidity issues. (Egad, that’s like the entire Canadian Federal debt.) Why is it no one will loan me enough for a ton of Silver or my dream farm below prime?

Very shortly I fear this will become an insolvency crisis not a liquidity crisis, borrow as the might from this emergency short term money pool, banks who have taken large loses from subprime products will eventually have to come clean with a full accounting.

The scariest news is the from the bond insurers. MBIA admitted to having a total of $30.6 billion in complex mortgage securities with $8.1 billion of those being the highest risk varieties, including CDOs backed by other CDOs. Should MBIA be downgraded every single one of its insured bonds will also be downgraded. When this paper starts going under the companies net worth of $6.5 billion will evaporate leaving bond holders and stock holders with nothing, already shares have plunged to near the $20 range from a 52 week high of $72.02.

Other insurers are in trouble and downgrades in this industry would be like pulling the lynch pin from some piece of machinery, expect gears, cogs and wheels to start falling off any time after.


Canadian markets can however breath a small sigh of relief from the claim today that a deal to unfreeze $33Billion in ABCP has been worked out. This is not a bail out however, people who guessed badly will take loses but it does give hope that normal trading of this paper in the spring will allow many organizations to recoup some or all of their investments.
http://www.reportonbusiness.com/servlet/story/RTGAM.20071223.wabcp1223/BNStory/Business/home

It’s a quiet day in the markets so far, Gold and silver are holding their gains from Friday and the office is not likely busy so please get your asses over to your coin dealer and buy your own Christmas gift. If you care, I’d like a couple of Sovereigns or perhaps a bag of Libertads, or DOS Pesos.

The Great Race to Zero

A little break from my 2008 predictions to take note of yesterday’s surprise interest rate decrease by the BoC.

While a 25pt decrease is not a big issue in of itself, it is a huge sign that the BoC is going to join the U.S. Fed in a series of competitive rate cuts to devalue the dollar in what I’m calling the “Great race to Zero”.

Why are they doing all this?

They claim that its simply an attempt to stave off an impending recession but in reality this is about saving a financial system that is all but dead. My bet is that the Fed will lower rates down near 2% by the next U.S. election but you will see the spread between the Fed rate and the street rate will grow giving the Banks a larger profit margin. The Banks will basically be fleecing those who can still pay their bills in order to cover off bad debts; the slight improvements in the street rates will hopefully decrease total value of defaults, making the potential 500 billion in bad mortgages somewhat smaller.

At the same time low interest rates will weaken the U.S. dollar and pump in liquidity in an attempt to inflate their way out of both Government debt and onerous public entitlements. Imagine that each time inflation rises by 10% you tell the public inflation is only 3%. This means inflation (even with a cola clause) is good for the Government and the management of its liabilities because they get to pay with freshly created/devalued dollars. What good is a promise of a $1000/month pension when after inflation it won't buy you more than 1 buggy of groceries.

In reality the U.S. is creating money at the blistering rate of 14%, making the real cost of living is far higher than stated by Gov. Shadow Government statistics claims CPI is really over 10%. Have no doubt Canada's stats are just as biased/corrupted/massaged/just plain wrong!

A low dollar will create export jobs, price imports higher and hopefully lower trade deficits.

“Surely you overreact?” you say.

No I don’t think I do. The U.S. Federal Gov has about 56-60 trillion in real debt (if they used the same accounting standards they demand from businesses) or about 3.5 x GDP
Add in municipal, state, business and personal debt and the U.S. tops out near 100 trillion dollars or about 7.5 time the U.S. GDP

That’s problem #1

Problem # 2

Housing: 2 more years of mortgage resets are still ahead which means 2 more years of foreclosures which could total 400-500 Billion in the subprime class alone, some higher quality paper may also take a hit including business loans, prime mortgages, and credit cards. If banks are in trouble now how will they fair when more of this paper goes bad. A perfect example is the desperation of Citi which sold 4.9% of itself (the max allowed without Federal approval) offering a staggering 11% interest.

Problem 3.

Derivatives: 400 Trillion dollars worth of unpricable paper, 90% of which trades in back rooms with no regulation certainly sounds like trouble to me. These guys are shady and manipulative when we can see what they are doing and yet they are trading 6 times the value of the world GDP in mystery paper. What’s next financial pixie dust to sprinkle on your portfolio?

Martin Weiss from Weiss Market Analysts has a great article on "Money Panic" that
states 5 of the biggest U.S. banks have exposure to credit risks that range from Wachovia’s mere 89% of their total capital to JP Morgan whose credit exposure is a whopping 388% of their capital. A 26% default rate is all that is needed to wipe out all of JP Morgan’s Capital.

We are on the verge of a fundamental change, nothing is certain and nothing is safe. The U.S. is desperate and is trying to wiggle out of financial troubles by screwing its debtors, citizens who save, citizens and employees who are owed medical coverage, pensions or welfare. The rapid and purposeful devaluation of U.S. debts is in effect a declaration of economic war. The U.S. is saying “Screw you Guys, we are paying our debts with half priced dollars and you’ll like it”

The BoC has taken the challenge and lowered rate ensuring that our citizens will also suffer the ravages of inflation, lowering the price of our wares for export, raising the prices of imports and taxing our savings by devaluing them. Of course this will give the Fed Reserve motivation to lower more and faster in order to stay ahead of the curve.

Inflation management is supposedly the goal of the BoC but its actions and explanation says economic stimulus is more important, screw the real costs of such a policy. It does however support my stance on buying silver and gold. The entire situation strengthens my belief that a major Fiat currency or three will be destroyed in the next 5 years.

Canadian Silver Bug- Predictions for 2008 pt2

Ok this installation is the big stuff, lets look at precious metals.



Gold,



based on U.S. dollar weakness, flight from risk and the instability of paper assets world wide I believe 2008 will see $1200 dollar gold. This of course is based on a continued, somewhat orderly fall in the U.S. dollar. That said there is still the chance of the Chinese nuclear option of dropping all U.S. debt or some other calamity still leaves the possibility of astronomical gains. 1980 saw what panic/mania/ can do to a market in a very short time and while destined to happen the risk of panicked spike is much higher than the chance of peace, goodwill and sound fiscal management fixing the worlds woes and dropping gold back down to $400.


Silver

Based on the same factors as gold, silver will go to $25 in 2008.

There are slight differences in the markets however, while I believe silver is money many still look at it as only a commodity so naturally in a crisis more money will move to gold than silver. This is where it gets complicated, first there is much less silver available in the world so it would take much less new investment to bid the price up, that’s good for us. The Nymex is evil and quite probably allowing manipulation, that’s bad for us.

The Nymex holds about 133M oz of silver and between it and the silver EFTs accounts for most of the available silver. The Nymex also has regulations limiting how much you can have delivered per month making it difficult for any one person or institution to accumulate large quantities or bleed off their stockpiles quickly.

Eventually however enough people will quit trading paper and demand delivery, a quick move towards delivery that takes down stock piles 20-30% would at today’s prices only cost 600 million, a drop in the bucket compared to the values of hedge funds, pension funds, and sovereign wealth funds. This kind of move will panic industrial users to secure a year or twos supply rather than accept the security of just in time delivery, the ensuing rush will push silver much higher. It can’t all be bought by one entity but it will get bought, delivery will be demanded and eventually there will be default as far more paper trades than silver exists.

I’m not saying this will happen next year but this is destined to happen. The default is the magic moment physical silver holder must wait for; the silver/gold ratio will go from today’s 55 to 17, 10, maybe 3.1212232332? I don’t actually know, I do know silver is way below it historical ratio, it’s natural ratio, and it’s above the above ground ratio.

While my status quo prediction for 2008 is $25, a silver default could price silver over $200.



Platinum and Palladium.

I don’t usually mention these because they are not now and have never been money. That said, there is a lot of risk with these metals, short supply, strikes, hostile and potentially manipulated producers, mine accidents all of which could pump the prices. I won't set a price for these but I do expect them to go up. Bang for the buck however, Silver has the most potential so I can't see any reason to bother with Platinum Group metlas.

Part 3. will be along in a few days, it will be some general predictions, and a few what if's.

We are having a nice correction likely from Goldman Sachs self serving claim Gold has peaked and the markets are getting over the credit crunch, Bullshit!

My belief is this is a ploy to strenghten the dollar or to cover short possitions by driving the price down. Don't believe them and take this opportuntity to stock up.

Canadian Silver Bug- Predictions for 2008 PT 1.

I’m going to break my predictions for 2008 into a few bite sized posts, to make them easier to digest, discuss and to drag this out for more days of content, ha!


A Bigger war in Persia,

NO

While I do believe that Bush and Darth Cheney are stupid enough to do it, I don’t believe they can because of the weakness in the system. I think a war would cause Generals to quit, protesting bad orders. There has to be strife in the military, they are over stretched, they’ve been stealing tracks from armoured vehicles in Korea to meet their need for spares. They have too many soldiers putting in multiple tours, too many National Guard acting as full time soldiers, too many soldiers failing to re-up, too few new recruits and with the banning of Blackwater and possibly other contractors in Iraq, it is going to leave the U.S. with no wiggle room to enlarge the conflict.

Iran has them by the short hairs and the U.S. dependency on foreign oil from hostile states like Venezuela means any war would lead to an immediate energy crisis world wide.

Between modern air defense (unlike Iraq’s), subs, massive missile stockpiles, super sonic anti ship missiles, and suiciders, any fleet in Arab waters will be sunk, oil terminals for the Saudi’s , Kuwait, UAE, etc will all burn. China who would lose a lot of its energy supply and would likely pull the currency bomb destroying the U.S. dollar. There is no marginally winnable scenario for an Iran conflict up to and including enough neutron bombs to sterilize every town over 100 souls

Dollar Pegged Currencies

I expect to see most or all of the Gulf states turn on the U.S. and drop the dollar peg as Kuwait did in May. The massive devaluation and over creation of U.S. dollars is creating strong inflation and big losses in the currency reserves of Gulf states. As protection from a falling dollar many are already shifting reserve ratios to include more Euros, Pound, Swiss Franc, and Gold. This trend will continue further weakening the Dollar and the problem will snowball.

Other pegged countries include non oil producers like Lebanon, most of the Caribbean, and Jordon. Inflation will also force some of them to re peg to the Euro or mixed currency baskets.

Countries Using Dollars as Domestic Currency

Its one thing to peg your dollar to the U.S. but there are also a handful of countries that actually use the U.S. dollar as their own. These include British Virgin Islands, East Timor, Ecuador, El Salvador, and a few others. Panama's currency is U.S. notes traded in tandem with domestic coinage. I predict Ecuador and likely a couple of others on this list to institute new domestic currency or switch to Euros. These States are relatively small economies and the damage would be more image than substance. Still, as soon as one country make the move the chances that other will follow increases.

I suspect there to be some serious talk about a South American regional currency. I don't believe it will go anywhere however; Chavez and his big mouth will likely sour the process before a deal can be made.


Dollars for Oil

I also predict more States will begin to price oil and demand payment in Euros rather than Dollars. Iran has begun demanding Euros and soon other countries will follow. This is a huge market and the demand for Dollars will drop greatly when this break is made, the dollar with plummet. The last hold out will be the Saudis. Since Kuwait has already moved from the dollar peg I expect they will be the first, if not them, Russia.

U.S. Dollar

There will be ups and downs but buy the end of 2008 the U.S. dollar will have lost almost 15% putting the USD index about 11.3 lower than today's level of 75.75 or 64+-.

It would even be more but by mid 2008 both the ECB and the BoC will have no choice but to start cutting interest rates and weaken their currencies in response. I think China will make some small (under 5%) revaluation of the Yuan(Renminbi)upwards as a anti inflationary move that the west can claim as progress in trade issues.

The main factors of the USD index will be a worsening U.S. Economy and a drop in interest rates to 2% by 3rd Quarter

The Yen

You can't decrease your interest rate when you barely have one. The Yen will be the big gainer as other big players join in a new rate cutting cycle. Try as they might I don't think the Japanese will be able to indefinitely suppress the Yen against the Dollar.

That's enough for now, maybe I'll get the rest of it out by weeks end.

Remember remember the fifteenth of November

Remember remember the fifteenth of November
Derivatives and bad paper amount
I know of no reason
During reporting season
That losses not be taken account


The fifteen of November is going to a very important date when this debacle is writen up for the next generations economic text books. The day itself will probably be rather boring but its importance will come from the effect of the FASB (Financial Accounting Standards Board) statement 157 which changes the accounting rules for the reporting of asset values by companies.

The big losers from this rule change are going to be financial institutions now sitting on tonnes of bad paper which is not easily priced. Unlike Stocks and bonds which have know market values, the world of assets also houses other classes of assets that do not trade readily and are difficult to accurately price. This was a godsend for financial institutions because they could price these items to a model, or to reflect their own assumptions which generally meant they could be priced at what ever value the organization wanted, ie. much to high to hide losses. This Voodoo accounting is about to end.


The gist of the rule is to force companies to attribute fair value to assets based not on internal models or unobservable inputs but rather measure them at the best of their ability as the external markets themselves would price them. As of Nov 15 2007 they must factor in the same non-performance risk that the general market would attribute to this asset, not the original erroneous credit rating they were given on creation.

No longer will companies arbitrarily decide the value of CDOs in their portfolios, they now must report "fair value".

In coming months this new standard will force companies to expose all of their malinvestments and the increase in reported write offs will be absolutely huge in comparison to the losses they have already admitted.

The total could very likely be in the 400-500 billion range and should increase the body count as more than one bank could follow NetBank to bankruptcy. Sure there are funds building up capital to buy CDOs but they have no intention of paying anything near full prices for this paper. The vast amount of paper and the likely weak market for risk makes me believe this stuff will sell, (if it can be sold)at fire sale prices.

This is the big test.
Which Banks will crumble?
Will the Government step in and buy bad paper or bail out banks? Will this generate so much new money that the U.S. dollar collapses?

We had a heavy correction today and it would have been a good day to buy some more silver, unfortunately my bank is closed due to a carry over of the Rememberance day holiday.

If you have cash buy silver now.

Predictions Past and Future

In the past year I have learned alot from both writing this and reading other peoples work. What began as a silver blog has by necessity spread to comment on many other aspects of the economy, Canadian, U.S. and world.

Some weeks it's not necessary to mention what happened to gold and silver but little did happen, rather it's more important to highlight a greater trend, a new threat, or the corruption inherent in the system.

The past

With the year end approaching I thought it was time to consider past and future predictions. In mid 2006 I made a number of predictions to friends.

1. U.S. recession- While I can't prove it by Government stats- (they lie, they must lie: the current inflation numbers .8 percent is irrational,) a recession did start. Stats by John Williams of Shadowstats.com claim CPI of near 10% and negative growth for several quarters which feels correct to me.

2. Oil $100 - it's been too close to quibble- I made it

3. Silver $16- we've nearly hit it this week and I suspect we will break it by year end

4. Gold $900 , we've hit 840 and like silver I think the run will last till year end

5. A U.S. dollar melt down- this is tricky I said we'd break parity and might hit 1.10, we did but I did not expect it only last 1 day. I'll take this one too

6. I mentioned dollar melt down and U.S. fiscal crisis but I
apparently did not define myself well enough as some people have claimed these are too vague to quantify. I certainly think a 25%depreciation of the Dollar vs. the loonie counts as a meltdown, but to be honest I expected something much more drastic to happen to quality as a fiscal crisis.

7. I predicted lenders and banks would fail. This was a gimme to anyone who had read anything but my friends still did not
believe me. Well the number of mortgage companies that have disappeared, closed, filed for protection is actually quite huge and one bank,NetBank did indeed
file for bankruptcy protection. I felt we might get a big fist too but I have no doubt this will run 2 more years at least.

That was about it, I can't say I'm too pissed off about my predictions, I seem to have the trend right but I was a little to anxious or pessimistic for 2007. My biggest disappointment was my failure to see the credit crunch would weaken mining shares despite the actual metals preforming well. Equities are still far off 12 month highs despite metals are at 26 year highs. That sucks but does give us time to accumulate

The Future

I plan on building a very detailed list for 2008 with half a dozen trends, and particular price goals and even a series of expected political political moves. This is not going to be a road map for any ones investments other than my own but rather a fun little game to watch over the coming year.

For your part I'd like to hear some of your predictions. What do you see that I may not. What spoilt this years guesses. Mostly I'd just like some good natured discussion of the issues on the page.

Fractional truths

The U.S. Government, federal reserve and the world banking elites have finally run out of wiggle room and a drastic rewriting of the norms of fiscal culture about to happen.

Over the last few years there have been voices in the wilderness who have seen this coming and have been ignored, sneered at, decried as cynics, doomsayers, depressed, unpatriotic but rarely acknowledged as being correct. A few of the notables are

David Walker Comptroller General of the United States who has been railing against the debt and unsustainability of the U.S. financial system.

Dr. Doom aka Peter Schiff, stockbroker, analyst, writer and uber bear, president of Euro Pacific Captial

Ron Paul, U.S. congressman, libertarian, Republican Presidential hopeful, strict constitutionalists and one of the few people in modern U.S. Government you understands money and economics.

The list is huge and includes the people behind so many websites, blogs and newsletters that could not gain access to the mainstream media yet have been telling the truth and helped to make people's investment choices safer and more lucrative in recent years. The bottom tier is people like me who after wasting their time NOT convincing their friends and family to protect themselves turned to the Internet out of communal duty

I think this segregation between truth and spin is about to be broken. Over the few months the severity of the housing crunch could not longer be hidden and mainstream new outlets have daily housing gloom stories. The large financial entities have had to report huge losses and write downs related to bad commercial paper, mortgages and this is all before the true destructive power of derivatives have been demonstrated.

The real jeopardy of a U.S. dollar crisis is in the offing and when newspapers like the Globe and Mail state blatantly Greenback on the Brink you know the days of ignoring or hiding the problem are over.

Frational truths

So if reporting the problems is suddenly becoming Vogue when will we see answers and strategies coming from the mainstream media?

My bet is no time soon. The media is part of the system and the system is run by banks, investment houses, brokers, industrialist who want you to do several things which are not necessarily best for you. This is what will happen in my opinion. Remember as long as you stay in the market the big boys can make money on both the up and down ticks of the market as well as hefty commissions

They will continue to tell you "the worst is over", "we've hit bottom", "recovery is imminent", the same as they did during the crash of 29, and the entire first year of the U.S. housing bust.

They will lobby and pressure the Governments to do what is best for them, not average investors.

The Government will lowering interest rates, legislate bailouts, and inflate away their debts by destroying your savings.

Canadian and Europe Banks will lower the interest rates and join in the U.S. dollar's race to zero value for the sake of saving industrial jobs that would likely become irrelevant in the later stages of peak oil anyways.

How this will unfold cannot be predicted 100% by anyone. Once panic and desperation shows up it will be chaotic and unpredictable but I so believe there are a few safe decisions to make.

Shed debt, downsize, delay major purchase and increase savings.

Investment money should be moved away from the most dangerous currencies, U.S. dollar and probably the Sterling(which I believe is also headed for a break). This includes cash, bonds, equities priced in the risky currencies.

If you must play in equities such as a self directed pension fund, stick to commodities, food, energy, metals, maybe infrastructure, water, consumer staples. Tech(non energy), electronics, auto,banking, aerospace, luxury goods are all destined to be losers.

Precious metals, real money that cannot be devalued to nothing, something that will reactive inversely to the destruction of any particular currency, something that cannot be counterfeited.

If you have the option acquire productive land. Be it currency crash, depression, unemployment, peak oil etc the greatest asset one can have is even a few acres and the will and ability to feed oneself. Despite my belief that silver and gold are a great investment, it is just that, an investment and one you cannot eat. The ultimate asset is productive land, while silver might buy you food, it only works until you run out of gold. If you have land too garden on you can save your precious metals for property taxes, medical treatment or other emergency purchases.

So while the sickness has been diagnosed I don't think the mainstream media will ever tell us the solution. If main steet media ever tells you anything like I have that will be the signal that it's be nearly over and it's far too late for you to jump in. Don't wait, make what ever changes you can. If you wait for frational truths to become complete truths, you'r sunk!

Canadian Frustration with Precious Metals

There has been a lot of rumbling from Canadian investors that precious metals are not making them the kinds of gains that U.S. investors are having. I have to agree we are not making the same returns on our metals but I beg everyone not to panic, hold out a little longer and you’ll see the profit for your perseverance.

I also want people to recognize that while U.S. gold investments are doing great it’s at the cost of huge (but hidden) inflation as oil, food, imports all go nuts because of U.S. dollar devaluation. If your $10,000 of gold goes up 15% and all of your household expenses follow it up 15%, have you gained?

So how will we get rich? You ask!

I don’t claim we necessarily will get rich; I do believe that in the end we will do much better than those sitting on stocks, bonds and cash. The only way we will get rich involves huge positions or such economic calamity that while you might get rich most of your families and friends will get wiped out. Instead we should hope for healthy gains without an implosion as a preferable scenario to getting rich and watching the markets burn.

The first goal of metals investment should be to retain wealth; fiat money is devaluing around the world, even in Canada. Despite the insane strengthening in the Canadian dollar in the last year we still have inflation as oil, food, services have all increased in price in the last 12 months. While Canadian dollar strength has mitigates much of this inflation we are still losing value as we purchase our day to day needs. The chance of a calamity such as a U.S. currency collapse or hyper-inflation is not huge but big enough to warrant continued holding of a 5-10% in your portfolio, do not panic and sell.

Secondly, the BoC will eventually feel the heat from the tourism, manufacturing, and agriculture sectors that are already loosing customers and jobs due to the exchange rate. To fight this trend the BoC (and the ECB) will have no choice but jump into the U.S. dollar race to zero. Once again Canada will ease interest rates, pump monetary creation and allow our dollar to weaken towards some predetermined sub parity goal that is satisfactory to industry. I firmly believe that the Gov and industry would be quite happy with a long term 0.90-0.95 cent dollar.

Why Hold?

Recent metals strength supports the long term trend of higher prices.

Recent Canadian Dollar strength allows us to buy on the upward trend with more abandon than we would at a 0.90 dollar, use it and enjoy, more ounces is your goal

There is no danger of U.S. credit tightening; therefore gold will not weaken dramatically.

Should the U.S. dollar collapse in the interim the flood of money into metals will boost prices much faster than any other currency will move, there is still safety and potential in metals, even with a bloated Canadian dollar.

Eventually the BoC will have no choice but to weaken the loonie and when it does those who hold metals will see very large appreciation over a short period of time.

So have no fear folks, even we Canadians will have our opportunity to make money in metals. For the more adventuresome investor it might be time to buy U.S. dollar positions after Wednesday’s upcoming Fed announcement. Canadian industry cannot afford a 1.05 currency right now (which we did hit today) and something will be done to weaken its value. Had I more capital and the stomach for futures I’d be betting against the Canadian dollar very soon. Of course I’m no expert but consider these things before you bail on your pretty shiny bars and coins.

On other topics, I attended the Cambridge House Investment resource Conference show in Toronto last week and with the exception of one speaker with a silly and unrealistic view of the peak oil problem I enjoyed the speakers. Over the two days I gained a lot of information on various companies and an overall feel for the U.S. and global market. I look forward to next year’s conference and I recommend anyone who has the chance to attend any of the other shows in Vancouver, Phoenix, Calgary, to do so!

Despite my previous reluctance, I think I'll highlight a few of the companies I saw and discussed with reps at the show. I won't make any recommendations or speculate on prices I'll just show you the companies that rightly or wrongly appealed to me.

Institutional storage and defrauding metal investors

I’ve lashed out a few times against the idea of paper silver but nothing I could write would be any more compelling or accurate as this article by silver expert Ted Butler. If any of you have bought or have considered buying paper silver as an investment then I ask you to read the article in full.

If you currently hold these products please make the effort and demand proof of real, physical silver to back your claims. If silver appreciates these organizations likely have enough money to redeem your certificate, but that’s not the point! Simple supply and demand requires that a product bought on the open market decreases supply, as supply shrinks the price should go up. If the purchase is not made supply does not shrink and prices will not rise.

So while you might still see silver rising and you may have made some money your personal purchases and those of countless others who bought paper silver have taken no metal off the market therefore you’ve lost potential profit.

In this one case Morgan Stanely has potentially defrauded 22,000 customers by charging storage on metals that don’t exist. They also robbed these clients of potential gains because their purchases did not alter the price 1 iota. Granted these 22,000 clients were not all silver investors, probably the majority were not silver investors but if on average these 22,000 held only 100oz(a modest amount considering Morgan Stanely storage claims) that would be 2.2 million ounces less sitting in the Comex. The defence that this was standard procedure in the industry makes it safe to assume other companies representing tens of thousand other investors have not bought silver to match their pool accounts or certificates. With my meagre understanding of the law I would say this is fraud; criminal charges should be levelled against Morgan Stanely and regulators should demand full accounting of all products claiming to represent metals. The Judge involved should not allow a settlement that does not make Morgan Stanely admit guilt or make them immediately buy all outstanding metals.

Is it possible that there are more paper claims on silver than there is real silver to back them? Hell Yes.

Futures alone represent much more silver than exists but since few people trade futures to take possession it never seems to matter. This level of storage fraud however opens up the possibility that certificates, pool accounts etc. also represent all or at least a good portion of existing silver. Silver that has not been bought, silver that remains on the market to suppress the price, silver that enriches companies with so few ethics they will sell you nothing with a straight face or sell the same thing twice, thrice ……..!

If you know anyone with paper silver share this article, and the link to Ted Butler


If you have paper silver, demand proof it exists, demand delivery or cash it out and buy physical.

If you deal with Morgan Stanely, don’t!

Another week closer to meltdown

We had a great metals week followed by a bad metals week which is to be expected as profit taking and a U.S. dollar bounce back were bound to eat away some of the gains. Does this mean it’s over? Hell no it’s just normal market action and it’s doubtful we will see a massive correction of recent gains considering nothing has changed to make things suddenly better.

The end of last week was a momentous occasion a real bank Failure! We’ve seen many non bank lenders close doors, go bankrupt or get bought in the last year but an announcement that NetBank had filed for bankruptcy was the first failure of a real bank in several decades and definitely a sign that problems are progressing up the food chain.

There are claims that the failure the failure of NetBank is a sign of the instability of the Net banking format and that the “branchless” bank business model is a failure. Is it a good sign or a bad sign that ING another bank of the same model is buying some of NetBank’s assets? The article claims ING is not a good performer compared to its peers and the business model as a whole is not a good performer.


On the U.S. economic front, today’s unemployment report shows the biggest jump of new claims in 4 months signaling further employment weakness.

In other relevant news Vietnam will refrain from buying anymore U.S. dollars in their attempt to keep the greenback strong. They claim the practice has been fuelling local inflation but the haircut they've been taking on the dollars value is just as likely a cause, Qatar move to divested itself of 59% of its dollar holdings in it’s $50 billion sovereign fund is another hit against the dollar

These moves cannot be good for the dollar's value and risks pushing other large dollar holders to follow their lead. A dollar run looks more possible every week, so don’t be fooled by this weeks dollar strengthening, the trend is and will remain downward.
Metals trend continues upward as will energy’s.

In fact, in the time it took me to write this the U.S. dollar has turned back down likely on the employment stats and metals regained their early losses and a bit extra. Don't worry, nothings changed.
PAPER BAD, METAL GOOD

The gold sovereign picture signifies nothing other than I think they are pretty and I'd like a bag of them.

Picking up Pennies

I was at the park with my boys on the weekend and as I crossed the road I saw a scattering of pennies on the ground. Now many people would sneer or make a snide comment that I bothered to bend over and pick them up considering how little a penny is worth. I do this habitually not because I’m that frugal but rather to see what I will find. This time I was quite surprised to find a rather nice example of a 1929 Canadian penny much like the image shown. If not for a recent blemish probably caused by a car driving over the coin on the road it might have been worth grading.

I found it interesting to speculate on how this coin escaped someone’s personal collection or how it managed to survive in circulation. It was an easily leap to believe that some light fingered child took them from home and dropped them, satisfying my curiosity by blaming someone’s else’s kid my mind then sped (crawled more like it) to new speculations to the relative value of this penny.

A little research today showed me that in 1929 Bread was 10 cents/lb, a cabbage 2 cents, coffee 45 cents/lb, round stake 51 cents/lb.

This of course was the end of the 1920’s boom just before the Great Depression and the decade of stagnation that would follow it. Look ahead a few years from the minting date you find beef, eggs, bread, lard, etc usually less than ½ of the 1929 prices. Cash was king in the thirties as low consumer demand, low liquidity, innovation all drove prices down and down. Those who held jobs often did well, they saved and could even buy up the assets from the less fortunate who had suffered unemployment, foreclosures, and hopelessness. People who had debts soon found that the assets they secured their loans with, land, stocks, etc had become worth less than their obligations and they defaulted. Like today’s victims of the housing bust many lost everything.

So what is that penny worth today? Measured by the Bank of Canada’s inflation calculator, similar goods purchased by my penny in 1929 would cost 12 cents today, representing 1200% of inflation or a 3.25% annual reduction in purchasing power of who ever horded that penny.

My penny’s real is worth only 8% of its original buying power

However once you realize that no one has any savings today and when money is spent it's actually money leveraged over the life of a 25y mortgage it would make a 1929 penny's equivelant value 24 cents, making todays penny worth 4% of the origian. Even better over one of those new 40y mortgages it would be about 36 cents, less than 3% or its original buying power. I don’t even care to figure out what a penny on plastic would be with all those minimum monthly payments. So my penny has gone from a real value of 1 cent or ½ a cabbage to next to nothing

What does this all mean?

Inflation is steadily eating away at any fiat money you attempt to save or horde

Fiat money is a scam that does not maintain its value over time.

Credit gives you at temporary consumer purchase “fix’, but unless you are buying a real asset that appreciates over time you are paying far too much and are even lowering you purchasing power more through your own impatience.

The system is not sound and despite claims that it can’t happen, fiat currencies have failed through out history, depressions and hyperinflation have occurred, fiat money will always lose value over time.

Gold and Silver unlike paper assets have always had a value.

Having some silver and gold is only logical given the historical precedents.

Bending over for a penny is really not worth it!

The Fed Panics and Blinks

Ok, I'm gonna start gloating at the water cooler tomorrow, "Oh, Things aren't that bad", "I can't happen in the developed word and certainly not in the U.S.", "but it's the worlds reserve currency" yada, yada, yada, I've heard it all.
"Ha" I'll say "you're all wrong and I was right", Dumb asses!

It's been a couple of rough days since the middle of last week, we've seen the run on Northern Rock in the U.K. with a reported 4 billion dollars withdrawn by clients in the last two days of business despite BOE claims there was no problem and a bucket of liquidity added to the sector.

Added to Northern Rock's troubles are the trouncing stock values of other U.K. banks are taking. Apparently both Alliance & Leicester and Bradford & Bingley have seen their stock values battered in trading today and a sector wide bailout will be needed or there will be failures.

With the worsening housing situation, disappointing employment numbers and the backdrop of U.K. banking chaos, the Fed saw the blood in the water, panicked and cut interest rates by 50pts to 4.75% for the overnight rate and 5.25% for the discount rate. Needless to say the stock market bounced, metals which had be placid all day took off after the Fed annoucement and the Canadian Dollar was up 98.69 vs the greenback at the time of this writing. In fact, every major Currency with the exception of the Yen ran down the U.S. dollar today with the U.S. Dollar Index landing just a blip above 79.

Silver out performed gold a little and the silver gold ratio is closing finally.

Silver was up .20 and Gold was up a solid 7.30

The BOC must be worried about our relative dollar strength and will soon do something to appease exporters, so you can expect the BOC to loosen credit as well. While we have dollar strength buy metals because when the average U.S. citizen begins to seek safe havens like gold to escape currency death, no other fiat currency will keep up. If you are planning a U.S. trip do some part of your currency exchange now. While we will reach U.S. dollar parity this has been too much to fast and I would not be surprised to see some retrenchment before we hit par.

Canadian Banks are relatively safe compared to most of the world, however it would still be prudent to check your depositor insurance caps, move to more than one bank and stash 3-6 months of cash in a home safe or safety deposit box. Should we ever have a run on banks there is simply not enough printed money to cover deposits, most money now is 1s and 0s floating in the ether. Northern Rock's computers crashed during this weeks bank run which would have meant no tellers/ATMS/debit cards. How much cash to you carry day to day.

Future warning signs to watch.

U.K housing could be reaching it's peak

Spain's current account deficit is growing and unsustainable

The possibility China is dumping U.S. treasuries

I told-you-so-ism? soon, very soon.

I’ve been holding off for awhile on whether I should begin to post the “I told you so!” articles. This is not the classic I told you so yet, but it certainly is a “why the hell have you not realized something is happening” post.

The U.S. dollar has not plunged yet like I expected, precious metals have not hit my projections for the year. Still a myriad of other signals are turning my way. Am I happy? No not really, what I’m feeling is anticipation and fear. I’m anticipating a major blow up very soon and this level of anxiousness has left me so fixated on keeping up with the news I’ve been remiss in posting. In fact I’m so amazed at the level of articles and growing panic building in some commentators that I can’t understand why the majority of people out there have still not gotten a whiff of the stench that is the world economic system. Why do I fear? I fear I have not squeezed hard enough and have not put aside enough metals or commodities stocks. I fear I’ve banked too much on the inflationary death of fiat argument and not the deflation cash is king argument. No one can know how this will pan out for sure but at least I’ve tried to do the right thing and inform others. I do know the “all is fine, let’s borrow more and worry later” mentality was wrong, which puts me ahead of the vast majority. Everyone chant, “I’m not the dumbest, I’m not the dumbest”


So what’s been happening? Well we’ve got the credit crunch and yes while the Central Banks of the world have been pumping lots of liquidity to the Banking industry there is still no guarantee that this money will be loaned to the holders of commercial paper. Banks seem reluctant to supply the amount of money needed and each month untold billions will need refinancing. A lot of this paper is not subprime mortgages but packaged credit card, car and other small loans which so far have not seen the default spikes like the mortgage market. In the near future you could see car dealerships, furniture stores, credit cards deals of no payments for 6 or 12 months fall apart for lack of credit, you might even see an inability to get substantial non asset backed credit hit the market. This will kill an economy based on not saving but buying forward against future earnings, retailers and car companies do not have the cash to personally hold all the loans they make and if the market won’t buy up this paper than no sales and a total collapse of the consumer economy. I expect within 2-3 months to have my unsecured credit line pulled, not because my credit is bad but rather credit is too tight to freely dole out to the likes of me. This is the time to put aside some cash, real cash, in safety boxes or home safes. U.S. readers especially saw the run last week at Country Wide and should take this as a warning, if you’ve got savings take 1 or 2 months worth out of the bank and grasp it close to your chest.

If you think there is no credit crunch why do you think Bell Canada is trading $2 below its agreed purchase price in recent weeks? It’s simple, enough people believe that 40 billion dollars in financing is not achievable and the sale will fail. There is a 2 dollar discount build into the stocks price today to offset this risk of buying Bell at this price.

The U.S. housing industry is continuing it’s plunge and 45-50 billion dollars of ARM resets will take place every month for most of the next 2 years. We’ve only seen the tip of this iceberg; unsold houses in the U.S. have reached 3.85 million units. I suspect 5 million is easily attainable and a deflationary spiral could endanger 20 million homes. The end is truly nigh.

There are all sorts of proposed bailouts of homeowners and lenders but I suspect they will help only the institutional players and make virtual debt slaves of the others.

You will note on the side bar the total U.S. debt. As I understood it 8.9 Trillion was the government legal debt cap and while probably not entirely accurate we should see a panicked congress recalled to up the limit within days as it will surpass 9 Trillion in hours of this post. The next cap will probably top out at 10 Trillion and will not hold even as long as the next election.

As for our lovely shinny metals the last 4 trading days have been up 3 for 4 and have gained about 26 dollars on gold and nearly .50 on silver. Silver is still under performing but last week with ratios about 57:1 I made a small purchase.

I also went bottom fishing last week and picked up a couple of junior minors, since my readership is so low and I don’t think any amount of manipulation could actually make be rich I think I will begin to discuss some of the companies I’m holding in future posts. Hell send me your favourites and we can discuss them. Paper assets are still in danger but I sure like a physically backed mine better than a financial backed by lies, junk bonds and fiat dollars. I also jumped back in on energy a number of weeks ago and even with today’s nat gas prices I would encourage everyone to consider these as an addition to metals.

Some day I have no doubt 2000 oz of silver could buy me a farm, until then I intent to accumulate.

Long fall to darkness

The recent bridge collapse in Minneapolis was seen by many as a simple accident or a one off example of poor management but in reality it was a symptom of a profound event that most of the public are blind to, the fall of the American Empire. For many years the U.S. has been burning the candle at both ends, with its endless cycles of spending and debt without ever maintaining the necessities of modern life. The recent collapse is not a one off item or an accident it is a symbol of the systemic rot taking place in U.S. There are estimates claiming that in the U.S. an astounding 73,000 or 12% of all bridges are structurally deficient.
Further 80,000 are functionally obsolete meaning they are not designed for the amount of traffic they currently carry. For years, be it slack highway maintenance or failing to fully fund the corps of engineers, the U.S. government has not been doing its job in maintaining the essential infrastructure of the nation, Minneapolis and New Orleans were just two of the many disasters that the U.S. is destined to suffer for the lack of money and planning.

There are the additional infrastructure problems regarding the power grid, city water supplies, sewage, refinery capacity, poorly maintained or insufficient rail lines and public transit.

Added to this infrastructure mismanagement is U.S. spending on the Iraq war and the normally huge military spending, which continues despite the apparent victory in the cold war. To date, the Iraq war is estimated by the congressional budget office is about 450 Billion That of course is the accounted costs, hidden costs for procurements, mercenaries like Black Water and long term costs of supporting military widows and cripples will add significantly to this stated cost. For decades The U.S. has been spending on its military as if they were on a war time footing and yet they never caught on to the concept of guns or butter but rather thought guns and butter with plasma screens and SUVs thrown in was a long term sustainable proposition; Morons the lot of them.

Peak oil and the dependency on foreign energy is a huge threat and there is no real plan to conserve, innovate, or diversify a means to self sufficiency..3


Another interesting item (as shown on the side bar with the debt clock) is the growing U.S. debt which as you read this sentence will climb by 100,000 dollars. The total debt at the time of my writing is $8.951 Trillion U.S. dollars, the total unfunded liabilities which include expected payouts of Medicare, government pensions etc is estimated by the GAO to be in the neighbourhood of $53 trillion, a staggering figure. For years the U.S. governments have been raiding various trust funds like those for pensions and health coverage, spending the money, not replacing it, and giving the funds IOUs in place of the interest baring vehicles that would make these funds at least partially self funding over time.
The U.S. has a hard choice ahead, renege on promised benefits, or devalue the dollar to the point that they will honour their commitments in word if not in value.

The U.S. has been selling U.S. debt to mostly foreign investors at a rate of over a billion dollars a day for many years. A new twist on this need for daily influxes of cash has been the U.S.’s recent trend of issuing and borrowing money through the Federal Reserve since fewer and fewer foreign suckers in the open market are taking part in treasuries auctions; this is simply printing money and devaluing all existing dollars. This monetization of debt is a sure fire sign of the coming collapse of the U.S. dollar and the ability of the U.S. to maintain it’s pretension of empire for much longer. Recent reports from China hint that they may be willing to use the threat or action of dumping of U.S. debt on the market as an economic weapon against the U.S. Even such threats could panic bond holders and crash the U.S. dollar in a flash of computer controlled trading.

There is also the spreading contagion from the sub prime mess which has reached French, German, and Canadian banks as well as hedge funds as far away as Australia. Estimates I've seen have priced the funds specializing in sub prime debt from about %50 down to virtually nothing like the case of the Bear Stearn's funds. The total losses are not foreseeable at this point since only a tiny number of the holders of these sub primes have announced warnings, there is however going to be a huge out cry in coming weeks as people begin to request redemption of invested funds only to find them frozen by the hedge funds trying to maintain solvency.

The distress has forced the selling of other assets to provide liquidity; the fear a stock crash has prompted Central banks around the world to provide billions in loans to banks so they will not crash the markets with panicked selling. In the last week the EBC, the Fed, the Japanese and Australian Central Banks have injected over 350 Billion dollars into the market in the form of loans to banks. This week South Korea and Malaysia have stated they will do the same to support the market if needed. Of course this is not old money they were hiding under their beds for hard times this is all freshly created money pulled out of their asses and thrown into the market to keep the bubble alive. This is just another inflationary practice which should support the prices of our lovely piles of silver and gold but you should also expect volatility as some organizations sell their holdings to make ends meet in the short term.

If you've watched the markets recently you've seen some hard falls followed by amazing end of days runs which attempt to erase the worst part of the loses, some analysts are claiming this is the work of the Plunge Protection Team a group reportedly put together by the U.S. administration to manipulate the market with the goal to moderate crashes.
How deep their recent interventions are is unknown but it is know that they don't have any real money but they do have the ability to create new money on a whim, more inflation, more bubbles and one more step from fiscal reality

The U.S. is heading for a long fall, which will likely include bankruptcy, a dollar crisis and certainly a diminishment of the roll of America in world affairs. Not unlike Rome did, the U.S. is fighting wars it cannot win with money it does not have and with citizens who no longer have the zeal, belief in righteousness or simple bloodlust required to be big dog on the street, for the most part they are only concerned with bread and Circuses. Rome collapsed by inches as measured by loss of influence, debasement of its money , military setbacks, social decadence, sound like anyone you know? Unfortunately today the markets are intertwined and risk is spread out to the entire world, if the U.S. goes the way it looks to be going everyone will get hurt.

What can you do?

Dump financials, go to cash, minimize debt, try to build up your metal holdings to 10% of your portfolio and hold on. There are still many questions, will banks go under? Will the U.S. Gov manufacture a bailout? Will they allow an orderly deflation or print their way to hyper inflation? Is Canada too dependant on the U.S. to survive their crash? Be defensive, be smart and be attentive, things will move quickly when it starts falling apart.

Damn I'm busy and so are the markets

Holidays, work, and home all keeping me too busy to say much on the metals markets the last few weeks but there was certainly lots to talk about.

Metals have taken a beating but so has the U.S. dollar so in my mind there is little reason for the recent slump other than the usual summer doldrums we have witnessed for the last few years.

Others might say that there has been some liquidation of metal positions to cover other expected losses stemming from the CDO/Hedge fund melt down underway. I suspect there is some fear and indecision in the market but there is no real sign of a huge sell off, I believe it's summer apathy, and market indecision.

Had I the funds I would have dived in heavily last Thursday which I believe was bottomish. Be assured that under no circumstances in today's age of flaky paper products would I be tempted to liquidate even a small portion of my position.

Oils States are dropping the U.S. dollar peg, the dollar itself is weak, banks, hedge funds, mortgage brokers are all going to shaken to their cores as the twin towers of debt and leverage come crashing down. Today I'm not worried about Jihadists in the streets but those Vikings in places of financial power who are in a war to download their debt and losses onto unsuspecting investors and fund managers. Their war will also be taken to the halls of government as they demand and beg money and concessions that can only reward them for misbehaviour and further fan inflation.

There is no rational reason to expect metal weakness, while markets can be irrational they can only fake it so long before reality bites them in the ass. Today Wall Street is walking quickly and often checking over their shoulders.

I'm at my wits ends and I don't know which threat to worry about next, financial chaos, or peak oil and eventual starvation Read This for a scare. I've noted before that the money contrarians and the environmentalists don't communicate and specialize in their own worlds. Perhaps the level of dread is too much for them but the big picture is ugly and must be seen.

The answer

Get out of debt - a depression is coming and debt will strip you of your property. I've managed this but keeping out of debt is also an issue, some day soon (1-2 years) I'll need a new car.

Buy some metal- Since we can't trust the counterfeiting governments to maintain a valid currency with the ability to maintain it's value, we must divert some portion of our wealth into something they can't forge, silver and gold. I've done this but can one ever really know how much is enough? As of today Silver and Gold are certainly good buys, the market chaos is giving everyone both warning and opportunity to buy, don't ignore the gift.

Self sufficiency - If you have the means, buy land and learn how to use it. Buy it collectively if you must but access to land is life. All the silver in the world is useless if there is no food to buy, no power to heat, no place to live.

Depressing post, sorry it's that kind of week.

There is still a bright future for silver and gold

Overall, May has been a poor month for Gold starting about 680, peaking at about 688.80 and falling to 652.50. There certainly have been some good dips for buyers and with the added strength of the loonie in recent weeks now certainly looks like a great time for Canadians to add a bar, coin or nugget to their stash. For Americans however, they’d better RUSH to get into the market before the dollar totally dissolves.

Silver was similarly brutal this month but with yesterdays and today’s move back up towards 13.44 it’s nearly recovered it’s entire months loses in 2 days, I hope it holds. The gold silver ratio is almost back to 49, a signal that silver will continue to out perform gold?

Recent reports on the silver industry have disputed the arguments that silver stocks are declining. My take on this issue is; if 77 million ounces of government sales are required for supply to meet demand, then the shortage is still growing. These governments’ vaults are not endless and will be drawn down to nothing eventually, likely sooner than later.

Silver investment demand is raging (64.5 million oz) and if the market thinks greedy little investors like me are going to part with our hoards before we see multiples of 10 they’ve got another thing coming. They assume that invested silver will be available to the market when they need it, yes it is available, but certainly not at today’s prices. As prices rise more investors will see the trend and will jump in making it harder for silver users to shake loose supplies. Once that silver vault in India runs dry or the demand for the superconducting cables from AMSC takes off prices will run and run hard. Supply is tight and a relatively small investment fund of 500 million could suck up 27% of NYMEX’s 130 million oz supply at today’s prices. If each Canadian tried to buy 4 ounces or $60 worth they would run out. Less than ½ of all Americans could buy 1 ounce before they ran out. Now imagine the world population…… WAITING……..STILL WAITING…… ah, now you get it, there is almost none left. In pure, deliverable form there is less silver in the market place than gold. Today's price does not reflect this and I'm not selling until it does.

So why haven’t you bought any yet? Yes I mean you, and you too Lois.

There has been a lot of waffling by metal commentators in the last 2 weeks, I guess they are taking heat from their subscribers and are trying not to over inflate expectations of an immediate rally but I don’t see anything to worry about long term, which is the only thing I’m concerned about.

I see Spain verging on bankruptcy as bullish for metals and dangerous for the Euro

I see the U.S. Democrats bending over backwards to let Bush continue his war and his spending, as adding more market risk, more debt, more chance of a U.S. fiscal crisis, and in the end more need for a metals hedge.

I see reports of 6.7% food inflation in the U.S., U.K. 6%, and China 7%, Government claims of 2-3% core inflation are garbage.

This week Kuwait unpegged its currency from the U.S. dollar and has moved to a basket of currencies. If the other oil states go this route it will signify a vote of no confidence in the greenback and greater weakness will follow.

Iran’s move to no longer accept the dollar for oil is gaining momentum as current figures has non dollar transactions near 70%.

All these things paint a picture of fiscal mismanagement, political risk, and inflation. Sounds like trouble to me.

When troubles hit you want to be debt free, have real money, and even better your own productive land, if you have all 3 you’re laughing.

The Pain in Spain is an anti Fiat Refrain

I've mentioned before about the high level of gold selling over the last few months and now the who and the why of this selling has finally come to light. On first look it appeared to just the run of the mill gold liquidation used by many central banks to weaken gold and in turn strengthen the U.S. dollar. The U.K. Telegraph however reports that 80 tonnes of the recent selling can be attributed to Spain, further they claim that it’s not dollar motivated but pure survival as Spain struggles with a burgeoning account deficit that as recently hit 9.5% of GDP

Spain in order to cover its expenses has been selling off its gold. These sales have resulted in Spain’s foreign currency reserves falling from 41.5 Euros to a meagre 13.2 Billion since 2002. This amount is only 12 days of imports and the continued shrinkage of these reserves could jeopardize Spanish Economic stability.

Portugal and Greece are reported to have similar reserve shrinkage problems and should they run out of cash the other EU Central Banks are obligated to act as a “lender of last resort”. Should any one of these countries falter it will spread the pain over the entire Euro Zone.

What does this matter to silver and gold?

1. We know that the Euro is not necessarily a risk free alternative to the U.S. dollar
2. We see the real instability of the Euro which is a further indictment of Fiat currencies in general
3. More people will get scared as the 18 month window for Spain’s shrinking reserves approaches, some of these scared people will invest in metals, earning early investors a healthy profit.
4. We learn it was not a deliberate attack on the gold price, not that it’s relevant. Still it got sold softening the price so now we should take advantage of their misfortune.

Prices look soft; paper looks suspect, do your self a favour and go buy some silver.

Update

I tripped onto another reference to this story
http://news.goldseek.com/GoldForecaster/1179936000.php

It's is believed that a Spanish housing boom that has tripled prices in recent years is about to pop after anti speculation laws were passed. If spain should have a housing slump like the U.S. is suffering now it will certainly be a likely trigger for finacial crisis.

Hell even Mogambo commented on this today, Ha I beat him to it, so I get to say "We're freaking doomed!"

Gold Catalyst equals more demand

I've poached this from the Telegraph in the U.k. rather than link to it because often newspapers hide articles behind a subscriber wall after being online for a couple of days.




Gold glows on back of clean-air movement
By Ambrose Evans-Pritchard

Gold is coming of age as an industrial metal in a host of uses from car catalysts to air conditioning and health care, adding 451 tonnes to global demand last year - roughly offsetting sales by central banks.

The World Gold Council is counting on a future surge in demand for use in diesel catalysts following the invention of a new technology by the US firm Nanostellar that is more efficient and cheaper than platinum.

Gold costs $663 an ounce, while platinum has soared to $1,320 as car companies scramble to meet stricter clean-air rules.


James Burton, the WGC's chief executive, said the design could cut noxious emissions by 40pc more than existing platinum catalysts. "With the diesel automobile market continuing to grow strongly across the globe, this is very exciting," he said.

For now, however, investment demand remains the key hope for gold bugs waiting to see the metal break out of its lacklustre trading range.

Rob McEwen, chief executive of US Gold Corp, predicted that gold would soon smash through its 25-year peak of $730 in May 2006. "I expect it to test $850 by the end of 2008, and by the end of 2010, north of $2,000, possibly $5,000," he said, insisting that dollar troubles would eventually prompt a flight to the safety of bullion.

Yesterday, however, the dollar was in fighting form after robust housing data in the US, sending gold tumbling $12 an ounce to $661. The shares of Peter Hambro Mining sank 11.2pc in London on fears of a fresh dispute with the Russian government over stated reserves.

The WGC said consumer demand in India and China was the key impetus for growth of the gold market in the first quarter of 2007. India's thriving middle class drove up sales by 50pc year-on-year, snapping up jewellery in advance of the Akshaya Thritiya festival.

In China, the Year of the Golden Pig has boosted Chinese demand by 31pc, with affluent city buyers opting for 24-carat bars of pure gold.

The red-hot flow of funds into Exchange Traded Funds has slowed to 36 tonnes, suggesting that western investors are becoming sated with holdings after accumulating nearly 700 tonnes in ETFs since 2003.

One of the properties of gold is that it can serve as a catalyst at low temperatures. Japanese toilets now use gold filters to break down smelly nitrogen compounds, purifying the air. Gold particles can clear smoke in air conditioning systems in buildings, or in gas mask respirators to prevent CO2 poisoning down mine shafts or in airplanes.

The pharmaceutical company CytImmune has developed a new cancer treatment using gold nanoparticles to target tumours, a treatment that appears to reduce toxic side effects.

This be will be very bullish for gold if it can begin replacing Platinum as a catalyst (not so good for Platinum however) and it will also be a great improvement for diesel engines that constantly have to fight their dirty image.

All the other precious metals have had the advantage of strong industrial usage creating a base demand. These new catalysts and medical uses will finally create a strong non jewellery base demand onto which investment demand can be added. The only problem I see however is this company is banking on gold remaining stable. Should gold take off like many people believe, these Catalysts may become prohibitively expensive.

Silver and stuff, Early May

Gold

Over the last few weeks I've mentioned Central Bank Gold sales as the reason for the downward pressure on metal prices, Gold directly and Silver by association. Apparently 89 tonnes of Gold has been sold into the markets in the last 7 weeks raising the weekly average sales from 7 tonnes to over 12 tonnes per week.

The Central Bank Gold Agreement (CBGA) allows a total limit of 500 tonnes to be sold by it's members this year and sales would need to continue at this volume to meet this years cap. This article at the Resource Investor fills out all the details and looks at the probable inability of Central Banks to keep up this pace and liquidate the full 500 tonnes allowed this year. Inability to keep up the pace of sales should lower the pressure and allow the continued appreciation of Gold

I'm quite surprised at Golds strength recently considering the impact that Gold sales of this size have made in previous years. This in mind, I'm also amazed Central Bankers have not got the message that they've lost control of the market. 2005 was an important year for Gold, for the first time ever, investors own the majority of Gold not Central Banks. In years of trying to manipulate the Gold market the banks sold their leverage, now it's no longer their game and yet they are still selling.

Silver

Silver is still echoing Golds weakness but it should be noted that silver stockpiles will likely be flat this year or continue to decline while Gold supplies continue to accumulate above ground. As it is, Gold production has not kept up with population increases, meaning less bullion per capita and increased rarity, even though it's supply is growing.

Silver supply is still in a deficit situation demanding Government sales to meet demand each year for well over a decade, silver is becoming rarer. When you consider population is growing, industrial uses are increasing and silver supplies are not meeting current demand, Silver will continue to become rarer for some time. If gold supplies are growing and silver supplies are shrinking would this not be a good time to invest new money in Silver or at least flip a modest portion of your Gold to Silver?

Canadian Dollar

David Dodge has stated he will not actively intervene against the strengthening dollar at least up to the 92.5 mark.

I assume with recent concerns over inflation risk the trend should be towards higher interest rates but higher rates would only push the dollar up. Lowering rates to weaken the dollar would only pump inflation so there would appear to be no safe decisions other than let the market decide and wait.

With 10.4 % monetary creation I personally believe tightening is the rational course, unfortunately with the current level of global liquidity it might make no real impact on our inflation. Inflation is not a local issue right now but one of global proportions as nearly every major economy is creating money in double digits. As long as this kind of monetary growth continues it is clear sailing for metals and a long term reduction of the buying power of paper currency.

Misc

I did a little research last week only to find Canada is still weighed over 50% in U.S. dollars reserves and we have a meagre 3 tonnes, or $76 million in Gold reserves. With no hard asset backing our country or currency and a heavy weighting to U.S. dollar reserves it's all the more important that you take care of your financial security.

You have to wonder why the average person fails to see the dangers signs. Just last week a free Readers Digest I was handed in the GO station had a chart showing international savings rates. It showed countries like France were still large net savers but it showed the U.S. and Australia with negatives savings and Canada way down at just over 1%, way down from our historical savings rates. We have fallen into the living beyond our means consumerism spiral that will lead many to crash and burn. The purchasing power of our money is being destroyed and we as a whole do nothing to protect ourselves and refuse to change our lifestyles to meet this new reality.

The argument for Silver

I tripped over this article today and it’s certainly is as detailed, competant and literate as anything I could pump out(If not more so) and since I’ve touched many of these issues before I’m sure as hell not eager to write it up again, so I won’t, enjoy!

I like to find these kind of articles, first, it leaves me with the feeling I’m not alone and second, it give me time to finish what I’m writing from scratch.

It should be noted the article is from a U.K. site, so any bias against physical silver is not just about the weight and storage issues as stated but also that the U.K. applies a steep tax to physical silver sales. While they did not deride physical silver they also did not look at the danger of accepting paper silver the equivalent of the real thing. The kind of silver you choose can be as important as making the decision to invest in silver, be informed.

Silver Questions

I’m in a bit of a mood today totally unrelated to the drop off in metal prices. I’m wondering why are my hits are going up yet the comments are minimal.

That in mind I have some questions I would like answered.

Have you accepted the argument of metals as a sound investment or at least economic insurance?

Do you hold Gold or Silver or both?

If Silver, are you basing your investment on the belief in a probable eventual silver shortage or simply as real money and a hedge against the dollar?

What are your favourite products, why?

How are you dealing with storage?

How do your perceive the relative safety of paper silver/gold?

Do you dabble in metal equities or purely bullion?

What are your target prices, short and long term?

Off metals for a second, should we expect an inflationary or deflationary sprial to bring this mess to crisis?

I should really do this in a survey form but this will have to do. I hope to get some feedback about these issues, after all I know what I believe but I’d like to know what the bigger consensus is.

What if anything do you wish to see discussed on this site?

Thanks
Kubera Jones
Lord of Wealth

Silver and stuff april 23

So we got beat up a bit at the end of last week but we still managed make back the vast majority of on Friday so I’m not too concerned, There was news of more French Central Bank gold sales so fact that the big dip was only 1 day long shows that there is real strength and enough demand in the market to suck up excess supply nearly as fast as it be added to the market.

Gold is down just under 2 dollars again today yet silver is up .13 and just off last weeks highs. I’m convinced that metal strength is real and will remain strong but it appears that flooding of the market to suppress the price could continue this year so I won’t get too cocky and mortgage the house just yet. Last week we saw the Japanese come out in support of IMF gold sales to cover operating losses (and no doubt bolster the U.S. dollar). How much will gold the IMF sell is anyone’s guess. I still think the bigger question is the relevance of the organization!

On the other side I’ve seen predictions that gold sales will follow last years trend and continue to drop. There are two reason for this I suspect, 1 the banks are running out of bullion to sell, 2 self interest- since bullion selling seems to be having less and less effect on gold or the dollar so it’s in their best interest to hold and capitalize on gold’s appreciation.

The financial breakdown in Zimbabwe has reached a new stage with the closing down of all major gold mines in the country. The Government has not been paying the miners for the bullion since January creating cash crunches for most operations. It’s also been reported that the government has failed to fulfill their agreements to make 67% of payments in foreign currency. The lack of cash flow, the constant devaluation of the currency from the 1700% inflation rate and a fixed price for gold in Zimbabwean dollars left miners finding it hard to produce gold at a profit. The final straw however was the lack of foreign currency which left the miners unable to purchase cyanide for leaching gold ore. While Zimbabwe is only a small piece of the supply picture no drop in supply can be ignored.

If I had any cash available I would still be comfortable buying at this point. Of coursem, what do I know;)

Silver and stuff

Recent Silver news has Toronto brokers GMP (Griffiths McBurney Securities) predicting an average silver price of 14.25 with peaks of $20 for 2007. That is certainly news to warm the heart. Studies show that both jewellery and industrial use of silver is growing faster than new mine supplies, all of which looks good for continued strength of silver this year. Silver looked flat and steady for most of last week but Friday’s jump over the important 14 dollar mark is significant, give it a few days and if it holds or continues up I think we are on the annual spring run which I predict will take us to near $17 U.S.

It’s my belief that India will stop or greatly lower government silver sales this year. With the natural yearly deficit and no Indian sales to fill the gap supplies could shrink by 100 million ounces this year, or 80% of the NYMEX holdings. No one knows or is saying how much silver India has but they have to see eventually that they are giving it away at today’s prices. It only makes sense that at some point they will see the coming shortage and hoard the remaining silver to exploit the price at a later date. Then again who says governments make the correct decisions, and who says they are not selling it to friends so they can exploit it personally rather than have the Government profit?

What is knowable is that India is in the position the U.S. was in for decades as the supplier of silver to make up for supply deficit. The U.S. with billions of ounces of silver eventually ran out so will India! The year India gets smart or runs out will be the beginning of the parabolic rise for silver prices. I only hope I can increase my position before that moment.

In the Gold world at least 29 tonnes of bullion has been released for sale in the last couple of weeks and the markets did not even flinch. Last year this kind of selling would have caused a severe price hit but this year nothing there was nothing but salivation as someone gobbled it all up. Aggressive central bank gold selling is not going to have the desired effect in dropping the price by flooding the market, 1 they don’t have enough left to do the job , 2 other central banks are the ones buying it up. If it was only funds and retail buyers the prices might have tanked but big money is in the buying mood and a meagre 29 tonnes is not enough to satiate them.

There is danger however that the IMF will open the vault and start selling its gold to cover operating expenses. The IMF should be put down like the sick animal it is, it has very few clients beyond Turkey and the bureaucracy continues to grow and suck up profits. This gold was deposited by the U.S. as collateral to open the IMF, this is loaned gold and I don’t see how the IMF thinks it can sell someone else’s property to cover their debts. If I was the U.S. I would be demanding the IMF close and return my gold. Or perhaps they intend to turn a blind eye to the bullion sales in order to temporarily support the strength of the dollar. It seems they are so intent on continuing the charade of U.S. economic strength they will sell their future in the form of gold reserves to fool the public until the next election. As long as the sales are not huge volumes I think they will have a minimum impact, but if they manage to coordinate with central banks to make a splash, who knows?

The U.S. dollar was getting killed on tough protectionist talk last week. When you add in the debt, war, trade imbalance and the over creation of money factors, the U.S. dollar looks like it has no where to go but down, which is good for those of us holding metals. This however will not be good for export economies like Canada, Yes they will continue to buy our oil and steel etc but our meagre manufactured goods sector will be hard pressed to maintain business as the Can dollar appreciates against the Greenback. The impending recession will also hurt Canada unless we start making more effort to market ourselves and our goods in Asia.

I’ve noticed a spike in hits to my site and to the feed services. I hope all my readers are getting something out of my ranting and I would appreciate comments and discussion on these or any related topics. I’m also willing to post full articles for anyone not inclined to build their own blog.

With the renewed level of hits I will try to write more, I blog politically as well as on Silver and since the Canadian scene for the last couple of weeks has been rather interesting I’ve been torn between reading metals and economic material and posting political. I can’t seem to post on all topics and research all topics within the time I have.

I’ve added some auction links which seem a little erratic. They are supposed to show silver bullion auctions but occasionally show other things, fortunately no sex toys yet! Do people think they are distracting or acceptable?

I’m just adding this at the last moment before I post. Gold went on a run last night in overseas trading (up 7ish) and seems to be holding early, silver moved little but is also holding.

Good news, I sold my second car (an attempt at frugalizing and being Greener) so now I can go shopping today, mmmm, coin store, the bullion counter, or Ebay? Decisions, decisions!

Silver a calm happy week.

As far as I’m concerned this has been a good week for metals. Silver has been solid, no jumpy volitility and yet it managed to make a tidy little gain. I like this kind of week as it’s easy on the gut. I’m not expecting any sort of crazed parabolic climb just yet but I do expect more growth into the late spring. I doubt however we’ll have calm happy weeks like this too often. Will we see an attack on metals again by summer? Yes without doubt, the short possitions and the Central Banks all have a vested interest in seeing metals lower but with silver supplies shrinking and sellable Central bank Gold holdings also shrinking this reign of terror is nearing at the end.

Silver stocks are still acting flakey as companies with proven resources, good development news and even growing cash flows are not nessessarily reflecting the rising bullion price. Some of this is a reflection of base metal prices but even some pure silver plays don’t match the price action. I swear I’ve seen some price actions that look like manipulation, is it? I don’t know but with what I’ve seen recently on naked short selling I’m always paranoid when I see mindless swings

I’d like to ask for some reseach help. I was wondering if people have watched the Bloomberg Video on naked short selling called Phantom Shares ? If you have not seen this and trade stocks, please watch this, it’s unbelievable yet apparently true.
Phantom Shares video

I generally avoid buying U.S. dollar valuated stocks on currency concerns so I have little exposure to the U.S. exchanges, but I’d really like to know if this kind of fraud is practiced on Canadian markets? Is there anybody in the know that can tell me if they trading and settlement mechanism on the TSX is better than or just as bad as the fraudulent practices on the U.S. markets?

My last post was on silver equities and I neglected to mention one of my other rules for investing that I think is important. I always try to find out how much insider ownership there is in these companies. While it’s not always the case, I believe insiders with substantial stakes in the mine will have better motivation to improve your share price. No doubt there are well run juniors with low insider ownership and high ownership juniors operated by loons and fools but I still feel better knowing that the people running it are sharing my risk.

I’ve had 2 people write me directly asking for either my opinion on a junior or a list of what I hold. I’m loath to do this as I’m an amateur investor not an advisor. This kind of discussion invites abuse and trolls intent on pumping stocks and I’m not ready to deal with these issues on this site at this time. I don't do primary research on my stocks but poach information from others when I can then follow it up with other sources. I can’t authenticate everything I use so I would be uncomfortable making equity recommendations. I admit I do quote and discuss other peoples silver analysis but I have done enough research to accept the silver argument as true, I cannot be so adamant on all the equities I’ve taken the plunge on.

It’s funny that I believe the silver story so much and yet my best pick in the last year was Lionore a nickel play now about to be purchased. Nickel worked down to a ½ day supply and its price when nuts, Silver will have a similar supply crunch in a couple of years and my 300% gain on Lionore will look like a joke. Shortages do happen, look to nickel or better yet uranium, for an example of what will happen to silver when the deficit eats up the last above ground supply. Buy physical, accumulate and hold. Repeat for several years, and then retire.

Precious Metals Bargain Hunting

We’ve had a rocky few weeks but I’m convinced that bottom has been hit for this year and we are on the way back up. My belief is that Silver and Gold will begin to reflect their inherent strength despite the over all market condition. Our recent drops have been caused by funds liquidating to cover other paper losses, these were weak hands and flushing them out of the market will in the long run makes the metals market more stable for the next run up. In my little circle of metal owners, nobody has panicked or seems on the verge of dumping their physical positions. Staying the course is the rational thing to do as there is no data showing the U.S. dollar is in better shape; there is however data (U.S. gov) that says Consumer inflation is rising at about 2.2% and more accurate data (Shadowstats) showing U.S. consumer inflation hovering about 10%.

Inflation is good for metals as they are a physical asset that will appreciate with inflation while dollars loose their value during inflation. The shaky stock market and housing market cannot withstand the higher interest rates required to check inflation leaving the Fed in a serious predicament. To raise rates will kill the domestic economy; to lower rates will fan inflation, weaken the carry trade and the U.S. ability to borrow, feed its gluttony all while weakening the dollar making creditors less than happy.

The supply/demand situation for silver is still the same and no big move away from deficit usage is expected as far out as the end of the decade. Gold supply from South Africa is way down; Zimbabwe’s entire mining industry has almost shut down; Central Banks sales are expected to decline in Europe while other countries are increasing gold reserves. Support from the IMF for GATA’s position on gold price manipulation and the IMF call for more honest and transparent accounting of Gold loans, leases etc will be nothing but bullish for the price of Gold.

All these factors make me more than content sitting on my physical position knowing that the reasons I bought in the first place have not changed.

In Silver: I still expect strong long term price growth with a likely shortage and mega price spike.

In Gold: I expect an honest accounting of Central Bank gold will shrink the world’s real supply and raise prices regardless of the U.S. financial situation.

In Silver and Gold There is a reasonable potential for the monetization of metals stemming from some form of U.S. fiscal crisis which would result in massive spikes for both Silver and Gold.

PM Stocks

I’ve said before that physical silver is safer than paper products, this is still true. However, once you have attained your goal for a base physical position there is great potential for generating wealth from the leverage inherent in precious metals stocks, despite the risk. My methodology was to acquire a bare minimum physical position in my case weighted 10% gold, 10% junk silver, 10% 1oz silver rounds and maples, 70% large silver bars. Once I had acquired my target number of ounces I began splitting any new investment money 50/50 between mining stocks and a larger physical position. This allows me to grow my physical position to maintain a fixed percentage vs. my net worth for safety sake making me feel better about taking on the added stock risk as my portfolio grows.

The main point for my writing today is the apparent disconnect between bullion prices and the price of Silver and Gold mining shares. Before the big melt down two weeks ago I found the stocks of some producing mines and certainly most juniors were either not keeping up with bullion prices or sliding in the opposite direction without any news justifying the drop in share prices. Some stocks would even announce results I thought were favourable yet the stocks still headed south, I don’t get it. When the big blow off came, many of the stocks I own or at least follow took a complete nose dive way out of proportion to the price drop in bullion.

While I feel this recent run down in prices has once again made physical bullion a good buy, the unbalanced drop in many precious metals stocks has created some great buys. I picked a couple of my favourite stocks and increased my meagre little positions as much as I could. People will eventually catch on that Gold and Silver mines don’t just produce a commodity they produce real, honest money distinct from the constantly devaluing paper currencies of the world. The world wide money supply is growing at more than 10% per year debasing paper money and making metals with their 1.5 % supply increase year over year, even more valuable.

I’m not going to flog or pump any particular stock, I’m not qualified and there are already too many unqualified voices doing so. My rational in picking stocks has yet to be proven particularly good or bad but is as follows.

I don’t usually (with 2 exceptions) buy stocks in South America, Asia, or Africa. It’s not that they don’t have good resources and cheap labour but they do carry various political risks ranging from, Government seizure and Nationalization to civil war. There are enough good viable juniors in Canada, U.S, Australia, and even Mexico that I can’t follow let alone purchase all the ones that sound like possible producers and 10 bangers. Keeping up on the domestic news of dozens of countries is impossible for a part time investor, so I suggest pick your markets, learn about them then look for good choices in that region. The reverse is finding a couple of miners you like in one region and then research the political situation before buying.

Personally I try to avoid as much political risk as possible but it is impossible to avoid it entirely; you may be more willing to accept high risk than I.

I like Mexico for reasonable labour cost, good resource base, qualified experts, and a pro mining stance by government, there is some political risk however.

I like Canada for stability, huge untapped resources, a reasonable tolerance for the mining industry, and especially in Quebec with a great tax structure for exploration and the mothballing mines during periods of low prices.

The U.S. has many great untapped resources but many states are a bitch to get permits in. You have to go state by state. Mine shut downs usually invite a visit from the EPA and huge clean up costs.

Australia has great resources, lower P/Es than many stocks trading in North America but generally trade on their own exchange making it harder for part time investors to follow and trade.

Juniors have a greater potential and a greater risk than senior mining companies; while this should not dissuade you from dabbling, don’t put all your eggs or even more than 5% of your eggs in one basket. Another consideration is the kind of mines you invest in, if you are trying to play a precious metals position do not buy base metal miners with gold and silver as a by product, stick to specialists.

Bargain hunt while you can.