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In The News Today

September 26, 2012, at 4:48 pm
by Jim Sinclair

Here is a key element of QE3 to consider.

"The final end game of QE3 to infinity, with a month or two off from time to time, will be a product of the long term viability of the Federal Reserve Balance sheet and the impact on the dollar there from."

I might add with less than 2 weeks of "QE to infinity" being openly practiced and every numb-nut yelling QE 3 will do nothing inside and outside our gang, you have to know it is an operation to make the most in gold over the shortest time by the Muktars of Wall Street. That would just be a redo of 1979.

 Jim Sinclair's Commentary

The madness of the crowd and the weakness of the sheeple give us our day at day markets.

The gambleholics are self-destructive and seek to lose all their money by assuming they are smarter than Goldman Sach's traders, so they love the futures and must love the pain of loss.

Gold is going to and through $3500.

BofA Makes The Case For $3,000 Gold Matthew Boesler

Everyone loves gold these days. Deutsche Bank sees $2000 gold soon. And Citi says it could go to $2500 in six months.

BofA, too: the firm recently initiated a $2,400 target price for the shiny yellow metal since the Fed's announcement of open-ended bond buying.

However, BofA analyst Stephen Suttmeier thinks there's a case to be made that gold goes even higher than the bank's official call.

In a note to clients today, Suttmeier writes:

The secular bull case for Gold $3000

We remain secular bulls on gold. Key chart and uptrend supports between $1600 and $1400 have held and we have viewed $1550-1500 as a good area to buy gold. The breakout above the year-long downtrend line completes the correction within the longer-term uptrend and targets resistances at $1800 and $1925. But, the secular bull market for gold points to a stronger rally to $2050-2300 and up to $3000 longer-term. The top of the rising channel from mid 2005 is near $2375 and reaches the $3000 area by early 2014. Key channel supports are in the $1600 and $1400 areas and rise ~$25/month. The chart below shows the secular bull market for gold.

Here is the chart Suttmeier is looking at:

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Gold is a Currency

September 26, 2012, at 12:16 pm
by Greg Hunter

Dear CIGAs,

We have long been told that gold is a commodity-that it is no different than a bushel of corn or a barrel of oil.  In many newspapers, it is listed under the commodity section.   With the advent of the Federal Reserve's recent announcement of "unlimited" Quantitative Easing (QE) or money printing, that has changed.  The view of gold as a commodity has circled back to what banker JP Morgan proclaimed to Congress in 1913, "Gold is money and nothing else."   Many folks in the blogosphere have long agreed with the original JP Morgan.  It was the rest of the fiat world that wanted us all to believe the enormous lie that gold was only a commodity and not money.  Never mind that every central bank on the planet holds gold (and have been buying gold hand over fist for the past few years).   

Now, a modern day version of JP Morgan is telling the world, "Gold is a currency."  That's what $120 billion hedge fund manager Ray Dalio said recently about the yellow metal.  Dalio, founder of Bridgewater Associates, doesn't give many interviews.  So, I find it very telling that when he does speak, he says, "It's not sensible not to own gold."  When asked if he owned gold, he quickly replies, "Oh yeah, I do," and said people should have "10%" in their portfolios.  (Click here to see the complete Ray Dalio interview.)  This is what Mr. Dalio said the day before the Fed announced its now infamous "unlimited" QE.

Just last week, Dalio was riding the gold bandwagon again and told CNBC the yellow metal "should be a part of everybody's portfolio to some degree, because it diversifies the portfolio. It is the alternative money."  (Click here for the complete CNBC story.)  I find it interesting the man Time Magazine included in its 2012 "100 most influential people in the world" is sounding this warning.  I can only speculate, but I wonder what he sees.  Is it a banking holiday?  Is it a Treasury bond bust as holders of U.S. debt sell in a panic?  Does he see inflation or hyperinflation down the road?  I wonder if he is anticipating a new currency, or a global derivatives meltdown that leads to a worldwide depression.  Maybe it's all of the above.  I don't really know what he sees, but he sees something, and gold is his choice to counter a black horizon.

You would expect someone like Jim Sinclair to talk up gold.  His nickname is "Mr. Gold."  And, if there were a "Mr. Silver," that would be Eric Sprott of the $10 billion Sprott Asset Management.  Sprott is heavily invested in physical.  Both men have been instructing investors to buy precious metals for more than a decade, and BOTH have been spot-on.  For these guys, it was never a simple commodity play, but a currency play against an enormous amount of global money printing.  For years, Sinclair has said the central banks would issue "QE to infinity."  The Fed calling the most recent round of money printing "unlimited" looks like a direct hit to me. 

More...

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Jim's Mailbox

September 26, 2012, at 12:08 pm
by Jim Sinclair

Jim,

We have seen a dramatic reset in the price of housing versus gold.  At the low in gold, it took 700 ounces to buy the average home.  Today, it takes only 133 ounces to buy a home.  Rental rates are good and the yield on owning a home (unleveraged) is pretty good compared to everything else.

Does this imply housing it at the bottom?

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How Gold Has Measured Currency Performance...Since 1971, When It Became a 'Barbarous Relic'

by Julian D. W. Phillips - Gold Forecaster

Published : September 25th, 2012

In 1971 President Nixon closed the window that allowed U.S. dollars to be sold for gold owned by the U.S. Just before that, the price of gold was $35 an ounce. Since then gold has been called a 'barbarous relic', a term used by Keynes, the famous economist.

From that time on, the world's currencies stood merely on the confidence their governments engendered and the control they exercised over international financial dealings of all kinds. That confidence lasted until 2007 when the credit crunch brought government financing on both sides of the Atlantic into question. Up until now the performance of the underlying value of currencies has hidden these questions as exchange rates are adequately 'managed' through swap arrangements to stabilize exchange rate movements to the extent that violent moves don't happen. But the real value of currencies in terms of their real solvency is now a matter of open debate. As of now, relative to the amount of gold available to markets, the price of gold is the only measure of value that currencies can be held to. We look at that and look at the conditions that are determining the value of currencies now and in the future.

The Currency Experiment

When Nixon closed the 'gold window' to European governments in 1971 he relied on the oil producers of the world to price oil in U.S. dollars only. This made the USD a necessity. Except for the few oil producers who refine their own oil, every country needs to import oil after using the U.S. dollar to buy it. This gave the U.S. the control they needed over currency markets, to ensure that the dollar became and remained the sole global reserve currency until now.

A look at the euro, which -although the world's largest trading bloc- shows that if a currency is measured solely on the performance of its government and Balance of Payments, it remains vulnerable to market forces that react to that measurement. With oil in backup, that vulnerability fades. That is, until profligate printing of that government's currency becomes so obvious that it cannot be ignored. This is where the U.S. dollar is coming to now.

The 'currency experiment' has persisted for 41 years, but for the last five, it has faltered and continues to do so. With the focus on the short-term, the real consequences of that experiment have been largely ignored. It's time to take a more distant view of what has happened so that we can get a balanced perspective of its cost.

Value of Paper Money - The Harsh Reality

During the 42 years of the currency experiment with no gold or silver standing behind currencies we have seen the gold price multiply from $35 to $1,770. That's over 50 times in 42 years. And there's still much more to come it seems, with the assistance of governments. 

If one was fortunate to get out at anywhere above $800 back in the eighties and back in at $300 in the next twenty years that number goes up to 64 times $35. That's what solid long-term funds should have done, to maximize profits. (It is far better than trading and far less nerve-racking.)

But don't look at that as a profit figure. That's not the point we are making here. Look at it as a statement on the failure of the currency experiment and currencies' ability to measure value. Now translate that into the value of savings over that period -a harsh reality indeed!

Pension Funds

A Pension fund is measured on the money flowing in and less the money flowing out. The assets in the middle should be rising to cover the additional costs of paying pensions when the workers retire and the cost of living increases. That's why they depend on Pension Fund Managers and Pensions. If the money leaving is more than that coming in, then the fund is moving to insolvency.

As Alan Greenspan pointed out so strongly, this is happening now and with 'baby boomers' retiring now, that is the current situation in most Pension Funds (such as is now reported about the Chicago Teachers). The future of such Pensioners even now as well as the Pensions of those working now looks bleak.

If you strip out the causes of higher prices that are due to supply and demand factors (which usually readjust over time) then you are left with monetary inflation. A rate of monetary inflation of 2.5% has been deemed acceptable because it is manageable and gives the impression of growth.

Today's quantitative easing in the U.S., Europe, Japan and China has now accelerated to a much faster pace in the hopes of stimulating faster, sustainable growth. QE1 and QE2 may have staved off a depression, but they have not translated into sustainable growth. We are all now waiting to see if QE3 will do so.

We've all become aware that money printing lowers the value of a currency; however, the benefits of increased liquidity in the system -it is hoped- will compensate for that. Savers are the victims of such a policy, if they save those currencies even when growth is resuscitated.

Some savvy enough may turn to currencies, which they believe will not be devalued in the same way and retain their value, i.e. Yen or Swiss Franc. But for the last year or so, both the Swiss and Japanese governments have interfered in the market place to lower the value of their currencies internationally, so they can retain their international trade competitive levels. The Yen is still being treated as a 'safe-haven' currency even though the Bank of Japan has made it clear that it will engineer a weaker Yen for a long time to come. The same is true of the Swiss Franc, both countries placing their export competitiveness above the value of their currencies.

We can therefore state: The concept of a currency as a measure of value has now departed completely.

Such currency market changes leave room for gold and silver to act as that measure of value, as currencies fall against them. Look again at the price of gold before 1970 and now. It translates into a 100%+ gain every single year for the last 41 years. (So much for an item you dig up, then put back in the ground.) But this is a measure of decline in currency value over that same period! The culture that precipitated this history is still in control and certainly intends to continue down that road. Some commentators believe that the gold price can triple in the next few years. That would change the rise from $35 until then to 317% per annum since before the 1970's. What will that tell you about the value of currencies the world over? And what does that point to in the future?

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Lemmings, Investors and Gold

Tuesday September 25, 2012 09:45

Investors (sometimes called lemmings) since time immemorial, have a distinct propensity to blindly follow the herd, propelled by corporate-banker-media public relations fiction.

A continuing stream of packaged news is designed to bend ideas and thinking because they, of course, know better than us. The reality is "they" are determined to install "their" thinking and ridiculous unreality into our minds and pocketbooks...in a serious effort to empty it for their benefit. Mostly, this is old paradigm stuff with rules and ideas drilled into peoples' heads for decades. Changing times call for changing ideas. If you're stuck in the last decade you might pay a hard price.

When some public figure in government, in higher education or in a corporation makes a statement that has no reason for utterance, most often there is an agenda behind the words. When some lackey is repeating himself with vigor, it's normally to sell an idea that aligns with their schemes or attempts to get you to think like them. For investors and traders this can be very dangerous to your accounts. Face reality and understand it on your terms.

The winners in trading and investing take the time to assess situations and read about those relative ideas (both positive and negative). Each of us has different objectives, varying account sizes and contrasting appetites for risk. In our current environment a one-size-fits all fund for your money is really scary.

"Lemmings became the subject of a popular misconception that they commit mass suicide when they migrate. It is not a mass suicide, but the result of their migratory behavior. Driven by strong biological urges, some species of lemmings may migrate in large groups when population density becomes too great. Lemmings can swim and may choose to cross a body of water in search of a new habitat. In such cases, many may drown if the body of water is so wide as to stretch their physical capability to the limit.

"Because of their association with this odd behavior, lemming suicide is a frequently used metaphor in reference to people who go along unquestioningly with popular opinion, with potentially dangerous or fatal consequences."  - Wikipedia

Common Misconceptions in Today's News - PART ONE

Fund managers know better than you where your hard earned money should reside. They prefer that it be in their fund where you must park it for years. This way they can take their 1-2% annual fee plus an average 20% of the net. While we are certain they would like to earn nice gains for you, the reality is, many of these managers could care less as long as they get theirs. This game is a goner in our view. We are not totally against buy and hold but rather suggest that trading often (not day trading) has distinct advantages. Look over the following ideas and misconceptions we think are fraught with wild risk.

1. Bonds are a safe place to earn money. They contain less risk than stocks, particularly municipal bonds.  Both Meredith Whitney and Trader Tracks said years ago that when communities had the inability to keep taxing and taking, they would be in a world of hurt. It's happening now and spreading fast in California. Yet, more bond paper is being sold to credit-buying lemmings. Bond interest is paid from taxes. Taxpayers cannot pay as they are broke in increasing numbers. We strongly advise against these kinds of trading products. 

2. Forex trading is great fun, quite safe and risks are contained. There have been several of these Forex wild-west types of trading operations that have closed down. If you want to trade currencies, get an experienced broker, learn about 2-3 currencies and focus on trading the big futures currencies markets. Stay away from cartoon trading.

3. You can earn money with no risk.  We don't care what anyone says; even the most conservative trading and investing ideas have some risk. There is risk every day in the morning when you arise to meet the day and go to work.  If you are trading or investing you have some degree of risk. Learn to control it as best you can. Trade or invest with a solid plan and a strong focus.

4. Big banks are solvent and have cleaned out all their bad debts from balance sheets. There are trillions in bad debts hidden in the back rooms of global banks all over the world. In our opinion, they dumped all their toxic debt trash off the balance sheets and are currently reporting in denial of horrid bad debts existence. If all toxic derivatives and bad loans were recorded and reported on updated balance sheets, in essence, these banks would be insolvent and bankrupt. They are living on fiat paper from the Federal Reserve and US bond spreads.

5. Gold and silver are dead products. They don't earn interest and are for fools. This one is simple. Look at gold's value in 2000 and what it's worth today...the same for silver. We will compare those gains against most anything else spanning more than a decade. Guess what? The best is yet to come as 80% of the whole upside historically lands in the last six months of a multiple years' rally.

6. Gold and silver shares are a poor investment. This is a precious metals' stock market. You can buy and sell companies of all sizes. Those who made good decisions have earned a pile already.  If you've made serious gains and have given the upside back, stay in the game, be selective and trade less. We like a handful of juniors and a few more senior stocks as good choices. Faster traders can buy call options. 

7. Get into blue chip companies and hold the shares forever. How many big blue chip companies trading in 1925 lasted until 1946 after the war was over? They have risks too, just like any other stocks. Watch the Nasdaq 100 for trading signals that forecast trends for the stock indexes as an entire group. It's reported some billionaire traders are in precious metals and nothing else. We are not so sure of that, but it is a trend.

8. Your 401K and IRA funds are totally secure. You cannot lose whatsoever. We can see potential for mismanagement of these funds just like any others. Those managers try to do a good job but they are at the mercy of credit markets, international politics, tax changes, etc. They have advantages, but it is advised you understand the fund rules and exit strategies.

9. Real estate keeps rising with inflation. Buy now with a cheap interest loan and borrow to the hilt. Inflation will grow and pay off your home. Real estate is a great investment. Ask a homebuyer in Las Vegas who purchased at the peak between 2003 and 2006 how well that worked out. That cycle saw +100% gains in housing values. Then, with the following crash, many held mortgages owing thousands above current values. With mortgage derivative slicing and dicing of loans, many do not know whom they should pay on open mortgages. This industry is a gigantic mess that won't be untangled for a decade. If you are a buyer, know the values and expect to be in that place for a very long time, as it may not be eminently saleable.  

10. Stock and bond markets cannot crash. The Federal Reserve will prevent major damage. We have all seen scary stuff in 1987, 1996, 2000 and 2008. The next one could be only weeks or days away. On the other hand, we could mush along in rising interest rates, inflation and depression for years...until the next war starts for a new jobs program. Nothing is crash proof.

11. All major international currencies are safe. Be in a money fund for growth. We've all seen and heard about the Zimbabwe currency. Toilet paper is worth more. How about disasters in South America, Greece, Iceland, Ireland, Venezuela and a few other nice places where currencies were previously viewed as safe? Tragedy has ripped apart the economic and social fabric of those nations and has left their money degraded.

12. Your Social Security is secure. In a few years it will be there for you for sure. It's common knowledge that Social Security is not safe in an account somewhere, but was deposited directly into the US Treasury General Fund where spending has gone wild. Which would you rather own: $100,000 in future social security payments or physical gold and silver paid for with your Social Security money?

13. Taxes are fixed. They won't go up any more. We've heard that story before and can observe the aftermath: Herculean debt. Congress and the local states and communities cannot seem to control spending so they keep raising taxes and installing new ones. You have no choice but to pay or move out. Look at Europe. How much longer can they remain standing?

14. Congress contains a hard-working group of people who have your welfare at heart. By law, members of congress have to pass a national budget, yet they have not done so in three years. Next, they continue to add taxes to maintain raises and perks for themselves not available to the folks who pay them. They argue and fight over stupid stuff, pass more stupid rules and take more days off than ever. This is not a responsible body of people elected by the taxpayers to do a job. They should get one term only and be obliged to pass the necessary minimum rules or return their salaries.

15. The Federal Reserve is a division of the federal government designed to regulate and control the national economy and prevent recessions and depressions. The Federal Reserve is a private banking cabal that is set-up to enrich private bankers and their colleagues at the expense of the national citizens. Since 1913 they have been robbing the electorate by printing phony fiat money and bond paper and lying about it.

16. Central banker bonds, bills and paper are super safe and very liquid for entry/exit. Some of it is for now, but this will change with the amount of confidence buyers have in the paper. As risk increases, investors demand higher yields. If the seller cannot pay the interest or the confidence is lost, the paper is just junk. That's why some high yield paper is called junk...because it's junky.

These ideas are common in the news and on the street.  If you believe this nonsense, you will believe anything. Wake up!

Stuff That Works

Understand your market and educate yourself to do a few things right. You do not need 50 stocks and 40 others to make money. Some of the best of the best do only one thing.  Look where you would be right now if you had piled into physical gold and silver in the year 2000.

While all eyes are on Europe's destruction, the USA's test comes November 6th. It might even arrive sooner if the broader stock markets slide out of control during September 23-25.

Meanwhile, we suggest you gravitate toward physical gold and silver and only the best-of-the-best of related stocks supporting that view.  In our work, we are busy looking for options and selling ideas for the broader stock markets heading toward the dustbin of destruction. Last week we recommended two new ones in Trader Tracks Newsletter. We see more coming in this new seasonal beginning.

The Greater Depression Repression II is swiftly taking hold now and layoffs will be legendary. Housing has an additional -20% drop from the current USA national average.  Joblessness goes to 30%-35% and food stamps reach over 50 million to 60 million. We will get a 2013-2014 World War in the Middle East and when Obama is reelected, inflation goes to hyperinflation. Not happy stuff but it's not the end of the world either. 

Somebody please tell us when the global bond markets crash for good and we'll tell you when this can all get better and we can start all over again, maybe with a partially backed fiat gold currency.

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