September, Tuesday 20, 2011

The Corporate Bank Run Has Started: Siemens Pulls €500 Million From A French Bank, Redeposits Direct With ECB

http://www.zerohedge.com/news/shocker-siemens-pulls-%E2%82%AC500-million-french-bank-redeposits-direct-ecb

Greece Nears the Precipice, Raising Fear

http://www.nytimes.com/2011/09/20/business/global/as-greece-struggles-the-world-imagines-a-default.html?_r=1&partner=rss&emc=rss

Turnaround Tuesday - Greece is Fixed (again)
http://www.zerohedge.com/contributed/turnaround-tuesday-greece-fixed-again

Stocks Shrug Off Italian Downgrade

http://www.nytimes.com/2011/09/21/business/daily-stock-market-activity.html?ref=business

Bill Clinton’s Advice to President Obama on Jobs: Start With Clean Energy

http://finance.yahoo.com/blogs/daily-ticker/bill-clinton-advice-president-obama-jobs-start-clean-142127429.html;_ylt=AkKxIsraPGO2y2pwscOqBUi7YWsA;_ylu=X3oDMTE1YzduN2FkBHBvcwMzBHNlYwN0b3BTdG9yaWVzBHNsawNiaWxsY2xpbnRvbnM-?sec=topStories&pos=main&asset=&ccode=

Fed begins policy meeting, tiptoes toward easing

http://www.reuters.com/article/2011/09/20/us-usa-fed-idUSTRE78J3HB20110920

Global energy use to jump 53%

http://money.cnn.com/2011/09/19/markets/global_energy_use/

Guest Post: Will Tokyo Be Evacuated Due to Fukushima Radiation?

http://www.nakedcapitalism.com/2011/09/guest-post-will-tokyo-be-evacuated-due-to-fukushima-radiation.html

DOW + 7 = 11,408
SPX – 2 = 1,202
NAS – 22 = 2,590
10 YR YLD = 1.94%
OIL + 1.05 = 86.75
GOLD + 26.60 = 1,801.50

Stocks were in positive territory for most of the day and then prices faded into the close. Once again, the story is Greece. A teleconference between Greek officials and international lenders, may have spurred sellers late in the day.

After the teleconference, the European Commission said debt inspectors would continue to review Greece's progress on its budget goals early next week. So, there will be no resolution to Greece's debt crisis for at least the next few days.

When debt grows to certain levels, then default is almost inevitable. The only question is whether the default is quick and painful or slow an painful. And who feels the pain.

Greece is working frantically in concert with other European nations to avoid default, by embracing further austerity measures it has promised in return for more European bailout money to help pay its debts; but Greece keeps inching closer to default.

The FT reports that Siemens, the European industrial conglomerate pulled €500 million form a large French bank, either SocGen|Credit Agricole. Bloomberg reports that, in total, Siemens has deposited between 4 billion euros and 6 billion euros, mostly through one-week deposits, with the ECB. This means that European companies now refuse to work directly with their own banks, and somehow the ECB has become a direct lender/cash holder of only resort to private non-financial institutions. OK, maybe you heard that yesterday on Bill Tatro’s show. What this means is confirmation that credit is freezing up in Europe.

A default would relieve Greece of paying off a mountain of debt that it cannot afford, no matter how much it continues to cut government spending, which already has caused its economy to shrink.

Default may actually be good for Greece, despite a short-term shock to the system. The consequences of a default or a more radical debt restructuring, dire as they may be, would be no worse for Greece than the miserable path it is currently on. To meet its budget goals in a declining economy, Greece is being pressure to cut 100,000 public jobs by 2015. With just 11M people in Greece, cutting 100,000 jobs is like asking the US Government to cut 3M jobs - isn't that insaneNothing says "economic recovery" like firing 3M people. 

Other countries have defaulted on their sovereign debt in recent times without causing systemic contagion; so, what are the consequences of a Greek default?

Total Greek public debt is about 370 billion euros, or $500 billion. By comparison, Argentina’s debt was $82 billion when it defaulted in 2001; when Russia defaulted, in 1998, its debt was $79 billion.

A Greek default could put further pressure on Italy is struggling to enact austerity measures and find a way to stimulate growth. Italy’s government debt is five times the size of Greece’s, and concerns about Italy’s ability to meet its obligations could grow if Greece defaults.

Yesterday, Standard & Poor’s on Monday cut Italy’s credit rating by one notch to A, citing its weakening economy and limited political response. The yield on Italian 10-year bonds was up slightly Tuesday, but at more than 5.6 percent, Italy’s borrowing costs are more than three times what Germany, the euro-zone anchor, pays. S.& P.’s A rating for Italy is still five steps above junk status, but it is three below that given by Moody’s, which is still assessing Italy’s rating.

Orderly or not, we have no idea what the effect of a default would be on other countries, especially Italy.

In part, what would happen in the wake of a Greek default would depend on whether European leaders could create a firewall to control the damage from spreading widely.

Here are two probable default outcomes. In the first, Greece forces private sector creditors to take a loss on their bonds of 60 to 80 percent but manages to stay inside the euro zone by keeping current on the smaller amount that it owes its official lenders, like the European Union and the I.M.F.

While technically a default, the loss would not be an outright repudiation of Greece’s debt and the contagion could, in theory, be contained.

One big unknown revolves around the fact that, unlike other countries that have defaulted on their debts in the past, Greece does not have its own currency.

If Greece either defaults or imposes a hard restructuring, banks would be forced to take a larger loss on their holdings. So, one of the more probable moves would be bank bailouts. The European Financial Stability Fund would try to fast track emergency loans to countries to buy European bonds and thereby inject capital into the banks. French and German banks would be the hardest hit, because they are among the biggest holders of Greek debt. Overall, European bank losses could top $500 billion – and maybe more if a contagion spreads.

Is any of this starting to sound familiar?  We are being threatened – or at least Europe is being threatened with the prospect of a global financial meltdown if Greece defaults. The only solution is to give billions of dollars to the banks.

For the moment, Greek officials are adamant that neither a default nor a euro exit and devaluation is in the cards. Now, here is the crazy part -  by next year Greece is likely to have achieved a primary budget surplus, meaning that after taking out the high levels of interest it pays on its debt, it will be running a surplus.

History shows that a country tends only to take such a drastic step as cutting ties with its international lenders when it has tightened its belt enough to achieve a budget surplus, and it is only payments to its bankers that is keeping it in the red.

Such was the case in most of the recent country defaults, including Argentina, Ecuador, Indonesia and Jamaica. The only question now is whether it will be quick or slow, and who feels the pain.

Well, it kind of sounds like the banksters are going to feel the pain – but we know that’s not going to happen – they’ll be standing there with their buckets ready to collect the bailout bucks. Of course, the Europeans might rise up and deny the banksters their bailout, so plan B is to earn their money the old fashioned way – by manipulating the markets.

Consider – the world equity markets were nervous and frightened for the past couple of weeks over whether Greece would get an $11 billion dollar bailout to fund itself for 3 more months. And the global markets gave up $1 trillion dollars in value because they weren’t sure the money in time to avoid default.

Turning a minor incident like Greek debt into a World-shaking economic crisis is BRILLIANT! If you want to by equities cheap – nothing better than the possibility of a global finanancial meltdown as the result of a sovereign debt crisis to push prices lower. This is the idea of shock and awe trading.

Here’s the best analogy I’ve heard. It's as if a used car salesman convinces you that your lost cigarette lighter will force him to knock 30% off the Blue Book on your trade in.  You may think you would never fall for that but what do you think you are falling for when you sell your stocks at 30% off the top because Greece may or may not get a $11Bn loan in a $60 trillion dollar Global Economy (0.18%).  That's right about the equivalent of losing the cigarette lighter in your car....

The Clinton Global Intiiative’s annual meeting is going on in New York. Former President Bill Clinton is hitting the news shows. A couple of interesting comments from Clinton:

To a large degree Obama is a victim of circumstance, the former President says. "The average financial crisis takes five years to get over," Clinton notes. Plus, the official government revisions have shown that when President Obama entered office, the economy was about twice as bad as everyone thought. Notice, Clinton did not call this a recession.  And Clinton is not crazy enough to say that the average recession takes 5 years to get over. He called it a financial crisis. Nobody wants to call it a depression, but that is what it is.

Clinton also said, "I think we have to flush the debt, that is accelerate our resolution to the housing and mortgage problems."  Again, this is how you deal with a depression, this is not how you make adjustments for a recession.

Clinton suggests that President Obama focus on creating jobs in two ways:

1.Create more public-private business partnerships. Clinton points to several so-called "prosperity clusters" throughout the country where government incentives and private investment have created growing industries.

2. Clean energy. President Clinton recommends retrofitting aging buildings and infrastructure with clean energy alternatives that will allow the country to become more energy efficient and also create jobs. The key to doing that he says, is to couch the clean energy conversion as an economic issue -- not an environmental one.

President Clinton claims clean energy alternatives such as wind and solar "would create 6 to 8 times as many jobs" as conventional carbon-based energy.

So, do you rush out and buy solar energy stocks tomorrow? Sure, I got some shares of Solyndra right here

The Energy Information Agency says global energy use is expected to jump 53% by 2035, largely driven by strong demand from places like India and China. Combined, developing nations currently use slightly more energy than those in the developed world and by 2035, they are expected to use double.

EIA sees energy-related carbon dioxide emissions rising 43% by 2035.

Fossil fuels will continue to be the dominant fuel choice in 2035, with nat gas and coal constituting half of the world’s overall energy consumption, and renewables constituting just 14% to the world's overall energy consumption. EIA predicts shale gas and other unconventional forms of natural gas will make up three quarters of U.S. natural gas production by 2035, up from about half today.

But that's a substantial jump from renewable energy consumption in 2008, which stood at 10%. That growth rate makes renewables the fastest growing of all the energy sources, but it still seems pathetically small.

The agency says most future renewable energy supply will continue to come from wind and hydropower. It did not include biofuels like ethanol as part of its renewable catalog, instead lumping it in with liquid fuels like oil.

EIA does not expect solar power to become a significant energy source by 2035. That runs counter to the opinion of solar power supporters who foresee rapidly declining prices for solar panels in the coming years.

The agency predicts nuclear power will go from about 5% of overall energy consumption in 2008 to about 7% in 2035.

I don’t think the report really considered the fallout from the nuclear plant problems in Japan. A report from Al Jazeera

pointed out:

Experts estimate the radiation leaked from Fukushima nuclear plant will exceed that of Chernobyl.

***

The need to evacuate parts of the sprawling capital of 35 million may have once seemed an incredible prospect, but some experts say the possibility can no longer be ignored.

Indeed, as Japan Times reports today, the Japanese government started discussing the potential need to evacuate the 30 million residents of Tokyo soon after the quake hit:

Well, not yet but there is a typhoon headed for Japan, and the government is calling for one million people to be evacuated. These are difficult times for Japan.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Well, I Guess I'll Just Take My Business To Another Soulless Multinational Corporation

http://www.theonion.com/articles/well-i-guess-ill-just-take-my-business-to-another,21357/

The nerve of you people. Treating a longtime patron with so little respect, like I'm just another walking dollar sign. If that's what passes for customer service around here, you sadly leave me with no choice but to have the exact same experience at another giant soulless multinational corporation somewhere else.

Maybe one that knows how to rob its customers of a fraction less dignity.

Every single time I'm in here—without fail—it's been the same god-awful experience. But this! This is a new low for you guys. I don't even know why I still bother coming here when I could happily take my business to one of the faceless global entities around the corner and be equally insulted and dehumanized there. My insignificant contribution to the bottom line could easily be theirs for the taking!

What do you think about that, you crooks? I don't have to bend over and take this from you. I can bend over and take this from one of your sprawling, heavily franchised rivals.

Do you think you're my only source for generic, mass-produced merchandise? You're not the only vertically integrated international conglomerate with retail locations on five continents in this town, you know. Maybe you weren't aware, but there are three or four morally bereft megacorporations hawking the same stuff within 10 minutes' drive, and quite frankly, I'd be glad to engage in an emotionless transaction with any of them.

Okay, sure, I'll concede that it was your competitive, high-volume discounts that got me in here in the first place. But that's not the point. The point is that I'm an individual— an individual who has free will in choosing which uncaring global monolith to spend  money at.

Face it, you're a disgrace, and I'm going to tell everyone I know not to shop here and these actions will affect your multibillion dollar company in no way whatsoever.

So there!

And you know what? Have it your way. Don't bring out your supervisor. I'd much rather stand in line at some other big-box store, ask the same question, and eventually be told to just call the company's 1-800 number. There are plenty of other chains I can go to that are probably owned by the same parent company as you are and would no doubt be thrilled to abuse my loyalty at the drop of a hat, leaving me in the very same predicament I'm in now.

Well, this has been a complete waste of an afternoon. What a shame that I'm now going to walk out of here humiliated and totally empty-handed. You see what's happening right now? This is $26.99 putting away her wallet, getting in her car, and driving to one of your competitors, who truly won't give a shit.

So I hope you're all really proud of yourselves. Because you just lost an instantly replaceable customer for good.

What is the best investment?

Hi, I’m Sinclair Noe. Over the past 10 years, the best asset class was precious metals. Gold returned more than 650% and silver is up more than 950%.

So, should you have some precious metals in your portfolio?

Absolutely.

And the best place to buy or sell precious metals?

That’s easy – Resource Consultants in Tempe

For the past 20 years, Pat and Linda Gorman at Resource Consultants have been providing education, information, and great customer service, whether you’re looking for gold, silver, platinum, coins or bullion. They can even show you how to hold precious metals in your IRA. They do it all. visit the website – buysilvernow.com  or better yet, Call 480-820-5877, tell them Sinclair sent you. I’m proud to recommend Resource Consultants - 480-820-5877

December Gold closed up 27.10 at 1806.00 per ounce
December silver closed up .69 at 39.85 per ounce.

Precious metals Prices are brought to you by Resource Consultants.

Today, the S&P 500 closed at 1202. The first time the S&P 500 hit 1200 was in 1998. That means the S&P is at the same level it was in 1998. That does not mean that if you invested in the S&P 13 years ago, that you break even over 13 years – after inflation – you lose a ton. The official inflation rate between 1998 and 2011 was about 2.4% That’s the government’s official inflation rate. You know inflation is worse than that. What does this mean for you? Well, if you put $100,000 in the S&P in 1998 and waited for 13 years, you’d only really have $73, 560 in buying power – that is a losing proposition.

Over that same period, gold prices are up about 325%. Over that same time, silver prices were up about 600%.

Does this mean you shouldn’t own stocks? Of course not.

Does this mean you should own gold and silver? Abso-friggin-lutely.

And I’m not talking about holding gold or silver in an exchange traded fund. You need to have some physical gold or silver in your possession

Okay, how do you do that?

Easy, you call Resource Consultants in Tempe. What is Resource Consultants? Well that’s Pat and Linda Gorman. And over the past couple of decades they have been a trusted precious metals dealer. When it comes to buying and selling precious metals you can have the knowledge, experience, and integrity of Resource Consultants working for you. And whether you’re buying or selling, you won’t find better pricing than with Resource Consultants. I’m proud recommend Resource Consultants to you. Give them a call at 480-820-5877. that’s 480-820-5877. Or visit the website buysilvernow.com, that’s buysilvernow.com. And when you call, be sure to ask about their free newsletter. Just say, Sinclair said I could get a free, no obligation newsletter. It’s a monthly newsletter – with lots of good solid info. Call 480-820-5877, Resource Consultants, 480-820-5877

September, Monday 19, 2011

Obama proposes new taxes on wealthy for half of debt plan


Why the White House changed course


Fed Runs Risk of Doing Less Than Investors Expect


Rearranging the Deck Chairs


Treasury bond yields dive as market bets on new Fed buying plan


Greek creditor talks to continue Tuesday

Greek creditor talks end without decision on return of inspectors, to continue Tuesday
Soros: Crisis 'Worse Than Lehman'

Geithner denies ignoring Obama's request on banks
Geithner denies new book's allegations that he ignored Obama's request on banking industry
Obama’s Economic Quagmire: Frank Rich and Adam Moss Talk About What’s Really in Ron Suskind’s Revealing New Book About the White House

SEC moves to limit firms' bets against clients
News International to pay $4.7 million to settle hacking

Wall St. Protesters Say They’re Settled In


DOW – 108 = 11401
SPX - 11 = 1204
NAS – 9 = 2612
10 yr. Yld = 1.94%
GOLD – 30.40 = 1788.00
OIL - .14 = 85.56

We have three major stories in today’s market: President Obama’s debt plan, the Federal Reserve’s two day FOMC meeting later in the week, and the European meltdown.
Let’s start with the President’s plan: Obama came out with a plan to cut the deficit by $3 trillion dollars; half with spending cuts and half with tax increases.
Obama threatened to veto any plan to tame the debt that does not pair cuts to Medicare and Medicaid with increases in taxes on the rich.
“We can’t just cut our way out of this hole,” Obama said. “It’s going to take a balanced approach.”
So, Obama is taking a populist approach, diametrically opposed to many of the views supported by Republicans, who want to balance the nation’s books mainly through cutting spending, particularly in Medicare and Medicaid.
Republicans argue that Obama’s plan to tax the rich is a divisive political strategy. But Obama rejected that view Monday.
“This is not class warfare,” Obama said. “It’s math.”
Obama proposed new taxes on the wealthy, a new minimum tax rate for millionaires as part of a rewrite of the U.S. tax code, eliminating or scaling back a variety of loopholes and deductions for those making more than $250,000 a year. About half of the tax savings would come from the expiration next year of the George W. Bush administration’s tax cuts for the wealthy. The proposed tax will target the top 0.3 percent of American earners, whose income often comes from investment profits, which are taxed at 15 percent — compared with the top tax bracket of 35 percent that the wealthiest Americans would ordinarily pay.
Obama is calling the special tax the “Buffett Rule,” in reference to billionaire investor Warren Buffett, who has said that the richest Americans should pay more in taxes.
But the president did not call for any changes in Social Security and is seeking less-aggressive changes to Medicare and Medicaid than previously considered. Ninety percent of the Medicare savings comes from reducing overpayments.
Any reduction in Medicare benefits would not begin until 2017.
Other cuts in domestic spending would bring the total spending savings to $580 billion. These cuts include scaling back farm subsidies, altering pensions and benefits for members of both the civil service and military service, and other changes in government operations.
About $1.1 trillion in savings is also expected from winding down the wars in Iraq and Afghanistan.
Combined with the debt deal this summer, Obama’s plan would reduce the federal debt by $4.4 trillion over a decade.
At least in theory. In the real world Obama’s plan has little chance of passing. Republicans have vowed to oppose any new taxes, and even more strongly – they are just opposed to anything from Obama. If this sounds like political posturing – yep, that’s about right. Last week, Obama told supporters at a fundraiser in Washington that the upcoming debate would crystallize the difference between his views and those of the GOP. Nothing is going to get done, and the situation will be left to the SuperCommittee of 12, and nobody will be happy with that deal.
A deal this summer to raise the federal debt ceiling included nearly $1 trillion in cuts in domestic spending and the creation of a congressional committee to find between $1.2 trillion and $1.5 trillion in additional budget savings.
President Obama’s deficit-reduction plan is most interesting for what’s not in it. It does not cut Social Security by “chaining” the program’s cost-of-living increases. It does not raise the eligibility age for Medicare from 65 to 67. Nor does it include any other major concessions to Republicans. Rather, the major compromise it makes is with political reality — a reality that the White House would prefer not to have had to acknowledge.
Since the election, the Obama administration’s working theory has been that the first-best outcome is striking a deal with Speaker John Boehner and, if that fails, the second-best outcome is showing that they genuinely, honestly wanted to strike a deal with Speaker John Boehner.
That was the thinking that led the White House to reward the GOP’s debt-ceiling brinksmanship by offering Boehner a “grand bargain” that cut Social Security, raised the Medicare age, and included less new revenue than even the bipartisan Gang of Six had called for. It came close to happening, the “grand bargain” ultimately fell apart. Twice.
The collapse of that deal taught them two things: Boehner doesn’t have the internal support in his caucus to strike a grand bargain with them, and the American people don’t give points for effort.
The new theory goes something like this: The first-best outcome is still striking a grand bargain with the Republicans, and it’s more likely to happen if the Republicans worry that Democrats have found a clear, popular message that might win them the election. The better Obama looks in the polls, the more interested Republicans will become in a compromise that takes some of the Democrats’ most potent attacks off the table.
But the second-best outcome isn’t necessarily looking like the most reasonable guy in the room. It’s looking like the strongest leader in the room. That’s why Obama, somewhat unusually for him, attached a veto threat to his deficit plan: If the supercommittee sends him a package that cuts benefits for Medicare beneficiaries but leaves the rich untouched, he says he’ll kick the plan back to Congress.
In other words, it’s the triumph of the old way of doing things, partisan politics and let the voters decide.

The Federal Reserve has two days of meetings this week. Expectations are low. The idea is that they will do something – not that anybody really thinks there is anything great to be done but rather because it would be bad form for the Fed to meet for two days and then announce “Hey, we got nothin’.”
The overriding argument for action is the persistent weakness of the American economy, which has left more than 25 million Americans unable to find full-time work. If the Fed were not to do anything having built market expectations to a pretty decent level, I think the markets would react quite negatively to that.
But the Fed also faces mounting pressure against additional action. Moreover, the options available to the central bank have less power to generate growth, a greater chance of negative consequences, or both. In other words, they are running out of ammunition.
The move markets are anticipating is called Operation Twist, a new effort to reduce long-term interest rates, which would allow businesses and consumers to borrow more cheaply. Yields on the benchmark 10-year Treasury note fell to a record low of 1.88 percent at the start of last week, reflecting the Fed’s earlier efforts to lower rates and investors’ pessimism about the economy.
The hope is that an additional reduction in rates will provide a little more encouragement for companies to build factories and hire workers and for consumers to buy cars and dishwashers.
The Fed has held short-term rates near zero since December 2008, by increasing the supply of money.
To further reduce long-term rates, the Fed bought more than $2 trillion in government debt and mortgage-backed securities, reducing the supply available to investors and thereby forcing them to pay higher prices — that is, to accept lower interest rates.
The Fed could seek to amplify that effect by adjusting the composition of its portfolio, selling short-term securities and using the proceeds to buy long-term securities, which it predicts would further reduce rates.
An analysis by the forecasting firm Macroeconomic Advisers estimated that such an effort by the Fed could raise gross domestic product by 0.4 of a percentage point over the next two years, and create about 350,000 jobs. That is comparable to estimates of the impact of the central bank’s most recent aid campaign, the QE2, or quantitative easing, purchases of $600 billion in Treasury securities, which concluded in June.
Studies also have found the Fed’s success in reducing rates has not yielded the full measure of predicted benefits. There is this ongoing concern the Fed is doing nothing more than aggravating the lending situation by crushing down longer-term yields. The logic is that banks need some interest rate spread to justify lending. Mortgages and small business loans may be cheap, but lenders aren’t lending.
So, look for some kind of compromise announcement; the Fed could mollify the markets by announcing what amounts to a preview, by investing the proceeds of maturing securities — about $20 billion each month — in longer-term debt.
Such a move might not do much to move the economic needle, because the amounts involved would be minute by the standards of monetary policy, but it could be enough to preserve the valuable conviction that the Fed will do more soon. Whatever money the Fed has injected into the economy via QE2 has been reabsorbed by the Fed in the form of excess reserves rather than supporting loan growth in the economy. To solve that problem, charge banks for holding reserves at the Fed, thus inducing them to get their acts together and start lending.
If we hear this one, you can also expect a loud rumbling noise from the bankers screaming bloody murder – and the people holding short positions on financials crying hallelujah.
And if consumers are only charged for money they hold in the bank, effectively earning negative interest rates themselves, will they spend more money, or just start stuffing their mattress? And maybe start stuffing it twice as fast. You know its bad when banks won’t take your money. So, for anything to change in the economy we probably need to see additional monetary policy coordinated with additional fiscal policy – and what we’re seeing in Washington means it is probably time to dust off the Roubini portfolio – dried food, ammunition, and gold. I guess that is how gold can go off the charts in both an inflationary or deflationary environment.


There was a conference call today between the European Commission, the IMF, and the European Central Bank, and the Greek Finance Minister.
The three institutions have to finish reviewing Greece's effort. Without a positive recommendation, the country won't get the next ($11 billion) aid installment and most likely default on its debts within weeks.
Greece's European eurozone partners and international creditors were stepping up the pressure at the start of a crucial week in Europe's nearly two-year debt crisis. Out of patience with the Socialist government's delays on promised reforms, creditors were threatening to cut the country's cash lifeline, which would force Greece to go bankrupt in less than a month.
Athens is struggling with a deepening recession that is eating away at the impact of its austerity measures while also causing unemployment to spike and public anger to grow.
Greece's economy is expected to contract about 5.5 percent this year and a further 2.5 percent in 2012.
The Greek government has hurriedly announced an extra two-year property tax -- payable through electricity bills to ensure its collection -- to compensate for the shortfall.
But the news was greeted with a fierce outcry from a public already reeling from salary cuts and the recession. State electricity company unionists also threatened to refuse to collect the taxes.
Yiannis Panagopoulos, head of Greece's largest trade union, GSEE, said further revenue-boosting levies would be "unfair and imbalanced."
"Our country has recently been undergoing a weekend nightmare: every weekend there is the threat of bankruptcy, whispers of a coming bankruptcy, we hear again and again that everything is about to collapse," he said. "What our creditors are asking of the country is unthinkable ... a country is its people, and above all it is they that must be saved."
A Communist labor union is holding a protest against the tax outside parliament Wednesday.
The backlash from ordinary Greeks has led to skepticism among Greece's creditors about whether the government would manage to raise the projected revenue.
Quote of the Day
Daniel Gros, director of the Center for European Policy Studies in Brussels, had a blunt explanation of why European governments have so far refused to recapitalize their banks.
“They don’t have the money and they are in the pockets of their bankers,” Mr. Gros said.
Best guesstimate is that European banks needed to raise at least 150 billion euros in new capital, even if they do not experience large losses on sovereign debt. With stock prices so low, though, that is difficult to do, and any new offerings of company stock would dilute the value of existing shares.
American money market funds, long a reliable financing source for capital starved European banks, have sharply cut back on their exposure — starting in Spain and Italy but now also France — making it harder for European banks to loan dollars.
The 10 biggest money market funds in the United States cut their exposure to European banks by a further 9 percent in July, or $30 billion, after a reduction of 20 percent in June.
Nevertheless, American institutions remain vulnerable to problems their French counterparts might encounter. At the end of the second quarter, JPMorgan Chase reported total cross-border exposure of $49 billion to France, while Citigroup had $44 billion and Bank of America had $20 billion.
French banks, which have huge holdings of sovereign debt from countries across Europe, have been among the hardest hit, despite the French government’s efforts to protect them. The authorities imposed a temporary ban on short-selling last month after shares in Société Générale, a bank considered too big to fail, tumbled on rumors it may be insolvent.
But shares of Société Générale are still sliding amid concern that it, like BNP Paribas and other major French banks, is having trouble raising dollars to finance its American and other dollar-based operations.
Société Générale officials say that the market’s fears are unfounded. The bank’s chief executive, Frédéric Oudéa, has described rumors that Société Générale was having trouble raising money as “fantasy.”
What is more, French banks, like other European banks, are able to obtain financing from the European Central Bank if necessary.
Meanwhile, problems in Spain were highlighted on Tuesday when one of Spain’s largest savings banks, Caja de Ahorros del Mediterráneo, reported a startling increase in bad loans to 19 percent of overall lending from 9 percent at the end of last year.

September, Friday 09, 2011

DOW
SPX
Nas
10yr Note
Gold
Oil

Stocks decidedly lower today. The Dow Industrials with another triple digit move. We haven’t seen this kind of volatility since October 2008. And there are some other things going on here. Treasury debt prices rose and that pushed the yield on the 10-year note to the lowest levels in 60 years.

The dollar moved to a 6-month high against the Euro. This is not so much a move based on the strength of the dollar, but rather the weakness of the Euro.

President Obama took his $447 billion dollar jobs plan on the road. The package includes $245 billion in tax cuts, $140 billion in infrastructure improvements, and $62 billion in unemployment assistance. Specific items include cutting the payroll tax for employers and workers, as well as projects such as roads, bridges, and schools. It was a good speech, as speeches go. The next question is whether the other politicians can manage to get behind the President’s plans or any plans to deal with the unemployment problem. Still another question is whether any plans will be enough to make an appreciable difference in actually lowering the unemployment rate substantially. I don’t have great confidence in the Job Plan to actually create jobs. I don’t have great confidence in the plan’s ability to lift the economy out of the downturn. I do have great confidence in our politicians… to continue being completely dysfunctional.

Another question on investors’ minds this week was whether the Federal Reserve would weigh in with some type of stimulus that would shower money down on Wall Street. It looks like the Fed is waiting to see if something happens to force them to crank up the printing press.

We look to Europe, which seems to be crumbling. There's a lot of nervousness that Greece could default this weekend, and Greek bonds yields keep rising. One week ago, the 2-year Greek note demanded a 50% yield. Today, the one-year note demanded 87-percent return. If Greece's bonds become worthless, that can trigger capital-requirement problems, and a lot of major banks could go under. At that point we would be looking at a contagion problem – much like the Lehman Brothers meltdown from 3 years ago. Nobody knows what exposure a given bank has to the Greek problem or the Credit Default Swap problem that would arise from a Greek default, and then interbank lending freezes.



Right now, Greece is on the roof. Greece is tap dancing around the edge of the roof, and they are wobbly. Meanwhile, Portugal and Ireland and Italy and Spain are all up on the roof as well. Now, something to keep in mind – defaults happen. Predicting the exact timing of a default is tricky but defaults are fairly. There is no clear make or break date for Greece, still I’d be a little nervous about being long over the weekend. It might be the way to go, but I’d be a little nervous. Which means it is unlikely to happen this weekend.
Best guess is between now and October 17th.

The government is facing the possibility of not being able to pay wages and salaries in October if its international creditors do not approve the pending 8-billion-euro sixth installment immediately.

The country’s foreign lenders have made disbursement conditional on the government’s adoption of new measures that will target the collection of at least 1.7 billion euros. Without the sixth tranche, the public purse will be 1.5 billion euros short on October 17.

The prospect of a freeze in payments appeared even more serious after Greek commercial banks failed to cover the sum of 300 million euros of supplementary, noncompetitive bids for Tuesday’s auction of T-bills, providing only 155 million. The shortfall is interpreted as a clear message by banks to the government that they are unwilling to fund future issues of T-bills.

In July, European political leaders announced a set of proposals to address the crisis, including a second bailout for Greece, which was teetering on the verge of default.
The centerpiece of the July 21 agreement was the proposed expansion of the European Financial Stability Fund. The fund was set up last year to facilitate low-cost loans for struggling EU members including Portugal and Ireland.

Under the proposed changes, the fund would be able to buy government bonds directly from banks and investors. Importantly, it would be able to do this for nations that do not already have bailout loans, such as Spain and Italy.

The goal is to contain the crisis by limiting volatility in the sovereign debt markets, where nervous investors have driven borrowing costs for several struggling EU nations to record highs.

That would take some pressure off the European Central Bank, which has been buying government bonds as part of an emergency program. But many analysts say there is not enough money in the 440 billion euro stability fund to be effective if Italy and Spain need to be rescued.

In addition to expanding the stability fund, eurozone governments must unanimously approve Greece's 109 billion euro package of low-cost loans.

The agreement has already shown signs of cracking.

Finland and Greece reached a controversial agreement in August for Athens to provide cash collateral against loans from Helsinki.
The move resonated with other eurozone nations that have relatively health economies, including Austria and Belgium, which also called for collateral. Eurozone officials have chafed at the bilateral agreements, since they mean Greece would have to put up cash in order to get cash.

They’ve tried austerity measures. The Greek people have been fighting austerity. Austerity will almost certainly not resolve the pressing problems. Meanwhile,, nearly the same situation is playing out in Italy – which is the third largest economy in Europe.

Meanwhile, the big European banks hold billions of euros in sovereign debt on their books, and may be forced to take writedowns if governments cannot repay their debts.

Société Générale (SCGLF), one of the oldest banks in France, has been at the forefront of investors' worried minds. The company's stock price has plunged to its lowest level since early 2009, when the financial crisis was in full swing.

Deutsche Bank (DB), would not be immune if the sovereign debt crisis spirals out of control.

EU officials conducted Stress Tests on European banks a couple of months ago – the conclusion was that the banks had sufficient capital. But the Bank Stress Tests in Europe are as bogus as the US Bank Stress Tests. The fear is that there could be good old fashioned runs on the banks. If that happens then the governments would step in and take over – but it isn’t clear if the political leaders have the guts and the cash to bail out a major bank - much less several major banks..

Meanwhile, if the European banks face a run or face a possible nationalization – that would trigger Credit Default Swaps – derivative bets that many US banks made against the possibility of the collapse of the European Banks.



You probably missed it but yesterday the Federal Reserve released its Consumer Credit Report. I ran across some analysis on counterpunch. Yes, it’s a real snoozer, but it does reveal the truth behind all the “recovery” hype. So, let’s cut to the chase: When unemployment is high and wages are stagnant, the only way the economy can grow is through credit expansion – that’s the theory. That’s why economists pay so much attention to the credit report, because it lets them see if we’re making progress or not. Right now, we’re not making any headway at all.
“Credit increased $12 billion after a revised $11.3 billion rise in June. Economists projected a $6 billion gain. The rise in non-revolving loans was the most since November 2001.”
Hooray! The US consumer is alive and borrowing again. Let the celebration begin!
Not so fast. The uptick in credit spending is entirely attributable to subprime auto loans and government-backed student loans. Every other area of credit expansion is on-the-ropes. Commercial banks, finance companies, credit unions, savings institutions, nonfinancial businesses, and pools of securitized assets are all flatlining. No progress at all. In other words, the only way to induce tightfisted consumers to spend money they don’t have is by either seducing them with “No-down, easy-pay, 60-month-no-interest” financing or they are struck by the reality that they don’t have the skill set to be employed and they are scrambling by going back to school. Case in point; check out this article on subprime auto loans in Reuters:
“Lenders are making more subprime auto loans again, reversing the cautious approach they adopted after the credit crisis, an industry research firm said on Tuesday. The portion of car loans made to subprime borrowers rose to 40.8 percent in the second quarter from 37.2 percent a year earlier.
The data shows how keen lenders are to boost their loan books amid a sluggish economy….
Average credit scores for borrowers declined and the average term for their loans extended by one month to 63 months on new cars and 59 months on used cars.
Executives at Ally Financial said in May that subprime car lending had become “very attractive” because profit margins on the loans more than cover the cost of expected losses from borrowers who fail to repay what they owe. Making the loans is part of Ally’s strategy to grow by lending on more used cars…. More than a little ironic that Ally is the old GMAC, which used to make car loans, then got into the subprime mortgage business, which imploded, and resulted in the collapse of GMAC, which was reinvented as Ally
Bigger profits off lower credit scores. Now where have we heard that load of malarkey before?
Can you believe it? I mean, we haven’t even paid for the last subprime meltdown, and we’re on to the next? Do you think a little regulation might be a good idea here, so the banksters running these loan-laundering operations don’t blow up the system again and come around begging for more bailouts?


And then there’s the student loan biz. As this semester begins, college loans are nearing the $1 trillion mark, more than what all households owe on their credit cards. Fully two-thirds of our undergraduates have gone into debt. The College Board likes to say that the average debt is “only” $27,650. Student loan debt has grown by more than 500% over the last 12 years. This economy has now built in debt. Once upon a time, you could get an education without having to go into debt. The idea of inexpensive public higher education is part of the state constitution of Arizona.

Oh well, once the students get a good education they can get a good job, maybe they can work for one of the big banks like BofA.


Bank of America (BAC) has already announced 30,000 job cuts. Today there were reports that number may increase to 40,000 jobs being cut.

September, Wednesday 07, 2011

DOW
SPX
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Day 2 of the Financial Review. I received a few notes on yesterday’s Review. It was suggested that there was an overload of information. Don’t worry; this will get easier as we go along. You are all very smart and I am confident that you will handle the information presented. Today, we have a tremendous amount of information to cover. A little later, we’ll be talking with Scott Paul, Executive Director of the American Manufacturing Association; we’ll cover some ideas for getting manufacturing jobs back on the growth path. Then in the second half hour we’ll be talking with Dr. John Mathis, Professor of Global Finance at the Thunderbird School. Then we’ll check in with Dr. Lee McPheters from ASU.

Another note said yesterday’s program was “scary like Halloween”. To which I say, keep listening. I am not preaching doom and gloom. There is nothing that can’t be overcome but there is plenty that could “whup you upside the head” if you’re not paying attention. Even more, there are opportunities if you are alert. I will try to keep us all alert but I’m not going to sugar coat things; in other words, I’m not going to lie. If you want a saccharine sweet economic analysis, you can just watch the main stream media, you can just read and blindly accept the pablum spewed forth by the Federal Reserve. Today, the Fed published their Beige Book, and they described the economy as subdued, slow, and sluggish. What you haven’t heard from the Fed or from the politicians is that the economy is in a depression, and we haven’t really come out of the depression. The Fed says they are growing cautious because of recent stock market volatility and falling consumer confidence.

Earlier today, Chicago Fed President Charles Evans made his case for further Fed stimulus, arguing that the central bank should be focused more on spurring job growth than controlling inflation. Evans said, "We again find ourselves with a weakened economic outlook and again trying to decide what further accommodation to provide. I'm sure everyone will agree that we seriously don't want to be in this position again at this time next year. I believe that means we need to take strong action now."

So, in addition to the hundreds of billions the Fed will pump into the long term bond market – trying to lower long term interest rates to stimulate domestic investment, while at the same time they are selling short-term Treasuries, which would push short-term yields higher – the idea being that move would attract foreign investment in the dollar. The Federal Reserve plan is called Operation Twist. The idea has been tried before and it has failed before, so the Fed is going to try again.

Let me break this down for you. The banks aren’t lending money, so the Fed thinks that if they can’t get interest rates on 10-year notes to drop lower, the rates will become attractive and people and businesses will start borrowing. So, let’s go back 3 or 4 years – we had a financial crisis the nearly resulted in the meltdown of global financial markets and it was precipitated by bad debt, so now the Fed wants to stimulate the economy by encouraging more debt with lower interest rates. Kind of like trying to cure alcoholism by giving beer to a drunk, but hey – it’s not handing out shots of whiskey.

Now, what this also tells us is that the deflationary part of this depression is far nastier than we have been lead to believe, and the downturn is going to last much longer than anybody is willing to admit. It also means that we haven’t seen the end of the Fed’s monetary manipulations – and that means that the inflationary pressures on commodities, and specifically precious metals, will continue – not necessarily today, but the long term trend is in place.

I got another note telling me that explanations by way of analogy or examples are the best way to educate people on the intricacies of a particular topic. And that’s good advice. Yesterday we talked about the debt problem in Europe. And it reminds me of the story of the woman who had to go out of town and she asked her husband to take care of the cat. After the first day out of town the woman calls home and the husband says “the cat died.” She says you can’t just drop that kind of information on me, you’ve got to soften the news, not be so abrupt, you know, say something like the cat got out and it got in some trouble and it ended up on the roof, and then you can tell me the cat fell, and it didn’t survive the fall. You’ve heard this story before.

Well, Greece, Italy, Portugal and Spain are on the roof. Greek 2-year notes yield around 50%. That means that there is about a 50-50 chance the Greeks will fall off the roof. Actually, it means there is about a 90% chance Greece will fall off the roof and there is a 50-50 chance that somebody will take the bet. Today, Germany’s Constitutional Court said it is legal for Germany to bail out the PIGS and save the Euro. Still, the court said future financial rescues must be approved by Parliament’s budget committee. So, the Euro did not fall off the roof today.

Meanwhile, Italy’s senate approved a $76 billion dollar austerity plan. Italy passed the measures to ensure the ECB continues to buy its bonds after contagion from the region’s debt crisis pushed borrowing costs for Europe’s second-biggest debtor to the highest in more than a decade. The Italian austerity plan will play a role in calming the markets, but it won’t be determinant, as the real focus is the credibility of Europe as a whole.

Greece and Italy are still on the roof. If or when they fall off the roof, they will grab several European banks and drag them over the gutter, and the European banks will grab American banks by the scruff of their Credit Default Swap collars and drag them over the edge as well. But not today.

Today, bank stocks were up about 4 percent on average. In a research report, analysts from Deutsche Bank noted that bank stocks have declined by 24 percent since July 21, the date to which the most recent sell-off period is often traced, while the broader market as measured by the Standard & Poor’s 500-stock index was down by 13 percent. Ironically, one of the uglier bank stocks is the Deutsche Bank, which has dropped from $59 to $35 during that time.

Bank of America was the most actively traded financial stock, and it rose nearly 7 percent. The bank shook up its top management team on Tuesday as it contended with a flagging share price and mounting legal liabilities. Bank of America is on the roof but they didn’t fall off today.

And in one of the more bizarre stories of the day, Carol Bartz was fired as CEO of Yahoo. On the surface, that is not bizarre; Yahoo has been struggling for years; Bartz had been at the helm for a couple of years. The weird part is that Bartz was fired over the phone. She got a phone call from the Chairman – telling her she was fired. This says some really bad things about corporate loyalty and decency. And it basically says that any possible candidate for the Yahoo CEO job would have to be smoking the crack pipe to accept a job offer from these jerks. Soooo, it was not surprising to hear that rapper Snoop Dogg has offered to take over the job of CEO of Yahoo. And that is the hizzle on the Yahoo Zizzle. Seriously – I can’t make this stuff up.

Comex gold was down 3 percent at $1,817. Crude traded in New York was about 3 percent higher at $88.93.

Contact info – Sinclair@moneyradio.com
Tomorrow and Friday we’ll have open phones – we can talk about President Obama’s Job Plan or anything else that is on your mind

Wealth Protection Conference 2011 Script
Presented April 22, 2011 – Tempe, AZ

Over the past few week’s I have been filling in as substitute host of Hard Money Watch on KFNN Sunday mornings at 10:00 AM PDT, until Pat returns to the microphone. I’ve had the pleasure of interviewing several of the speakers that will be featured at this year’s WPC. If you want to listen to the archived programs, go to www.buysilvernow.com and click on the radio tab.

I have also been writing. Last year, my book “Eat the Bankers: The Case Against Usury” was published. It is available at amazon.com. The book premises that removing restrictions against usury led to the economic crisis and wasted a great economy by shifting investment capital away from productive purposes; usury stunted economic development and perpetuates poverty. The result has been the greatest redistribution of wealth in history. Usury enslaves the borrower and oppresses the poor. Today’s corporate nobility is no different than the monarchs, oligarchs, and tyrants of old; the difference is that enslavement is now accomplished with economic tools and usury is the blunt axe that chops away at our incomes, our savings, the economy, and our freedom. You can’t create fiat money without usury and I believe that limiting usury is the key to honest money, even more than a gold or silver standard. This book tends to make people angry.

My day job is as an estate planner; my office is in Los Angeles. If you would like to contact me, the best way is email: sinclair@bank-o-meter.com. Twenty years ago, I wrote a book on living trusts; long since out of date and out of print. I have almost finished writing a follow-up. The working title is “In Control: Estate Planning Keys to Put You in Charge”. I think this book will provide some great information. If you want to buy a book or get on a sign up for one of the books, see me later.

I realized that many of my clients were veterans and part of their estate and retirement planning involved their veterans’ benefits. I wrote a book entitled “Veterans’ Benefits Reference Manual: A Comprehensive Guide for Veterans, VSOs, Attorneys, Health Care Providers, and Financial Advisors”, also available at amazon.com. I must admit that this book will likely put you to sleep faster than Sominex; it is, after all, a reference manual. I tried to take several thousand pages of federal regulations and legalese, and condense it down to the important stuff but it is still pretty boring. What I learned is that veterans are not receiving the benefits they earned and deserve.

So, I have started writing a new book about veterans’ benefits. The working title is “The Price of Freedom” and this one should be an interesting read. One of the truths that quickly become apparent is that America does a poor job of honoring our commitments to those that earned our freedoms.

If you have a compelling story to share about your experiences with the VA, I’d like to hear about it. Or, if you want to contact me for any other reason, please feel free. If you are a veteran or know a veteran that needs help with getting their VA benefits, I’d be glad to talk with you.

Over the next few months you will hear in the news about the need to cut spending and control the deficit. While there are certainly inefficiencies in the VA, veterans should not be asked to bear any cuts; they deserve more – not less. If price is a measure of value, we must remember that there would be no freedom without our veterans. If we can’t afford it, we don’t deserve it. What we are paying for when we pay Veterans the benefits they earned is simple – it is the price of freedom. The day this nation can’t afford to take care of her veterans is the day this nation should quit creating them.

Now, let me give a quick recap of my previous recommendations at the Wealth Protection Conferences. In 2008, I recommended a really big short position – load up the truck - using puts – on Lehman Brothers. That resulted in a 475% gain in a few months.
(Slide 2)



In 2009, I recommended a speculative short on large cap and financials. That didn’t work out – in my defense, I warned it was speculative. I learned a valuable lesson, and I’ll share that with you a little later.

At the 2010 Wealth Protection Conference I offered two investment tips 10 a very speculative short position on large caps, with a short time frame in late June, early July. That worked out pretty good – almost a 50% gain in 3 months.
(Slide 3)

The second tip was to load up the truck with silver. One year ago, the silver/gold ratio was 60 to 1. Silver was trading around $16. Now the ratio is closer to 35 to 1. I know that last year, some of you heard the idea to load up on silver and you thought – boring; tell me something I don’t know. Well, that simple, boring idea returned almost 300%.

Now, past performance is no guarantee of anything. I don’t always get it right but I hope I’ve been lucky enough to earn your indulgence.
(Slide 4)

This year, I’m going to talk about some major long term trends. I’m just going to offer one investment idea – I’m calling it my Investment for the Next Decade – Silver.
(Slide 5)

The Case for Silver
I will stick to my estimate that gold will hit $6,000 within the next 6 years. And there is a strong chance that we could see that number sooner. Gold will likely top $2,800 within the next 24 months, and silver, at a 40 to 1 ratio would be around $70 an ounce. Silver should reach $100 an ounce within the next 36 months. Of course, I just pulled those numbers out of thin air, because the truth is that nobody really knows where prices will top and certainly not within a specific date. Still, there are several reasons for this outlook.

Silver is used almost everywhere: electronics, appliances, batteries, medical equipment, solar mirrors, solar cells, water purification, bio-cides and food treatments, photography (yes there are still pictures), and even polyester production. More silver is used than is mined. Mining produces around 600-700 million ounces annually and usage consumes 800-900 million ounces per year. That gap was filled by the sale of government stockpiles and scrap recycling. The stockpiles are running out. Recycling is almost non-existent. That means there is basically nothing left.

It’s estimated that there has been about 40 to 50 billion ounces of silver mined in the history of the world, and about 25 billion ounces are still floating about in some or other accessible form, including jewelry, silverware, and myriad industrial applications.
(Slide 6)

There are about 1 billion ounces of silver for investment purposes; the ETFs and other funds own about half; the other half is held by individual silver bugs around the world. Maybe you have a few silver coins stashed away. That means there is basically nothing left.

In late 1979 and early 1980 the price of silver jumped from $6 to $48 in a matter of 5 months.
(Slide 7)


Inflation adjusted that works out to about $150 dollars today. You may remember the Hunt brothers tried to corner the market; back then there was an estimated 2 billion ounces of investment silver. It would be easier to corner the market today. Back in 1980, China and Russia did not get into the great silver bull market. Let’s include a couple of billion people who would like to have a silver coin in their pocket. Last year, China imported just over 100 million ounces of silver; a couple of years ago, China was a net exporter of silver.
(Slide 8)


The June Dollar Index is hovering around 75 and the chart for the past couple of months is a classic downtrend. This is the third year of the presidential election cycle; this has been an extremely solid historic indicator for stock market gains because the government tends to shovel money into the economy, trying to prop up the economy before next year’s election. Additional stimulus means more and more “worth less” paper money. The Fed can’t abandon Quantitative Easing. There is no exit plan.

Fortunately, if you look at the Consumer Price Index you will see that there is almost no (official) inflation.
(Slide 9)


The trillions of dollars pumped into the economy through Quantitative Easing #I and #2 did not raise consumer prices in the slightest. Whew! And Helicopter Ben swears that inflation is not a problem. But there is a problem with inflation. We all know that is the truth. When did silver start to really break out? When Bernanke announced QE2 in the summer of 2010.
(Slide 10)

I am not as sanguine as Bernanke. If you were to use the expansion of the money supply as a proxy for inflation, today's silver price should be a minimum of $450 with a maximum of $900 per ounce. Gold and silver are not hedges against inflation, but more specifically the metals are a hedge against debt default rather than inflation. Inflation is a symptom of a sick currency. Investors may be a tad nervous that their paper money won’t hold its value. Silver will; and it is such a small market that it doesn’t take much to start a stampede. There is much to be said for taking profits. It’s hard to go broke taking a profit. Still, if you sell your silver, you’re stuck with paper money; so I don’t see much selling pressure.
(Slide 11)


There is tremendous buying pressure: the U.S. Mint sells as many dollars worth of silver coins as gold coins. So, the same amount of paper money is flowing into silver as gold, but gold is priced 35 times higher than silver.

Silver rarely moves up in a straight line. The small global market makes easy pickings for market manipulation; this is where the bankers come in. The big banks establish short positions and then they set bids on silver; they know the sell points on technical trading programs and they set their bids below those points. The banksters bet big, sometimes shorting more than half the annual production of silver. That means they have no way to cover their short positions.

The Dodd-Frank Act includes a provision that requires the Commodities Futures Trading Commission (CFTC) to establish reasonable position limits on trading futures of silver and other commodities. The new rules have not gone into effect…, yet. When the rules do kick in, it will eliminate the mechanism for the banksters to profit from silver’s downside swings.

JPMorgan Chase is trying to circumvent this problem. They recently were approved as a licensed vault or weigh master/assayer for the NYMEX/COMEX futures exchange. They are now responsible for storing and taking delivery of gold/silver/platinum/palladium from the futures markets. Remarkably, JPM’s was approved using a “self-certification” process. Six banks now control the London based precious metals storage market. The foxes are now guarding the hen house.

In CFTC hearings last year it was revealed that these banks are storing metals in “unallocated accounts”. That means they don’t have to set aside specific bars and the holder is considered an unsecured creditor. What that means to me is that there is not enough silver to cover the trades being made.

There is one more kicker to the story. The major hedge funds hold approximately one-half of one percent (0.05%) of their portfolios in precious metals. It is hard to overlook the excellent returns of silver in the past couple of years. If these funds increase their holdings to just 1.0%, it would be a huge increase in demand. Let me give you an example: about a week ago, gold and silver hit new or recent highs; one possible reason for the little surge. The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion. There is not nearly enough physical gold to satisfy all paper gold in existence by a factor of about 100x.

What happens if some other clever hedge funds start to demand physical delivery of gold or silver? Well, let’s revisit JPMorgan Chase, which is a self-certified vault master for the COMEX … AND has naked shorts on silver, representing potential liability of more than $100 billion. What this means is that somebody is gonna get screwed – and I can only hope it is JPMorgan, but I don’t expect JPMorgan to pay off a $100 billion dollar loss. When we start to see the short squeeze applied, we will discover there is not enough real money to cover the paper, and the stampede is on.

And so I think it won’t take long for silver to top the old highs from 1980. I anticipate a minor fight to break through resistance, because this is a long standing level of resistance, but I am expecting to break through to new highs. I then expect a pullback as recycling of scrap intensifies. Everybody will be melting grandma’s silver service, but I don’t expect that to last long. You do not want to short silver. The best idea is to buy on the dips; however you could miss some huge gains if you are waiting for dips. And just in case you’re wondering, I don’t expect the gold/silver ratio to drop below 30 to 1. If we see a parabolic increase, where silver hits triple digits this year, then you might consider selling and looking for a good re-entry point.
(Slide 12)

Parabolic increases rarely have happy endings. The only instance where you would not sell a parabolic increase is when silver jumps higher because of a significant breakdown or collapse of the dollar – but then you’re looking at $150 to $200 silver – and in that scenario, you hold your silver.

Talk about a small market, let’s look at gold: Annual gold production is only around 50 million ounces a year. That means the annual global gold production could fit in my bedroom. I’ve had dreams about that.
A total of 5.3 billion ounces of gold are believed to have been mined in history (according to the World Gold Council, 2009). Assuming some gold has been lost; let’s call it 5 billion ounces. If you gathered all 5 billion ounces, it would fit in a cube about 20 meters on each side, or 80 feet per side.

There are about 6.9 billion people in the world. Not everybody can have an ounce of gold. Remember, investment silver is only about a 1 billion ounce market. Many of those people who can’t afford gold can afford a one ounce silver coin but there just aren’t enough coins to go around.

This also means that it is very difficult to imagine a gold standard, or even a gold and silver standard without a massive revaluation. It’s kind of a shame, because the metals truly represent honest money. The Federal Reserve can’t create gold like they create Federal Reserve notes. They can try to manipulate the markets but there is a finite quantity of gold and silver. The Fed and the bankers can’t change that. They can write derivatives, they can place bets but they can’t alter the basic fact that there is a cube of gold about the size of this room; no more, no less; you know it, I know it, and the entire world knows it.

Is there a bubble in gold and/or silver? No. Gold and silver have been mined from the earth on a consistent basis. The supply has increased approximately 2% on average, roughly matching the increase in population and productivity. Again, this is the very essence of why metals are honest currency. If a currency is to be an effective medium of exchange, it must represent a consistent measure of value – in other words, the money supply matches the increase in population and productivity.
 
This is the very reason productivity in America has been dropping like a rock. Money is no longer spent on productive purposes but rather, money seeks the greatest return, and manufacturing and entrepreneurial enterprise can’t compete with the hefty returns of speculators, gamblers and prodigals. Of course, speculation and gambling leads to bubbles and bubbles always pop – eventually.

There is no bubble in gold and silver. The price may change but they can NOT go down in value. Gold and silver always maintain their value.
Fiat currencies, on the other hand, can drop in value. You can’t change the size of that big cube of gold but you can print as many dollars as you want; and if you can create money out of thin air, you can see the value of money dissipate in thin air.

The metals have outperformed about 99% of all other possible investments over the past 10 years, so I’ll stick with the trend. I think silver is the investment for the decade. I know it’s boring but it seems to be working.

Which brings us to the next part of this presentation, where I’m going to discuss major trends. These are trends that I expect will unfold over the next few years. I won’t try to look beyond five years but be aware that these trends are not necessarily for the next six months to a year:

Trend – Inflation.
The government says inflation is less than 2%. Most others say it is really closer to 8%.
(Slide 13)

Forecasts call for real inflation around 14% by the end of the year, which is the inflation rate we experienced about 2 ½ years ago, triggered by QE1 and about $850 billion injected stimulus; which of course, was followed by QE2 and another $862 billion in stimulus. And of course, we will have QE3, officially or unofficially.

The Fed is going to print more money and inject it into the system. I say $850 billion, or $862 billion like they are real numbers, but the truth is that those are just official numbers. What we have long suspected and what we are now confirming is that the Federal Reserve has been working with two sets of books.
(Slide 14)

The unofficial set of books includes a couple of trillion in loans to Citigroup, a couple trillion more to Morgan Stanley, 800 billion to Goldman. Add in hundreds of billions in loans to hedge funds in the Cayman Islands, about $35 billion to the Arab Banking Corporation of Bahrain, which is 35% owned by the Central Bank of Libya, which is to say – Moammar Khaddafi. Khaddafi also received 70 loans directly from the Fed.
What are the terms for these Federal Reserve loans? Well, they are called TARP and TALF and these are non-recourse loans. In other words, it is the cash for trash plan. Bring the trash, get cash; if you make a profit you get to keep it; if you lose money, the Fed will cover your losses.

Just how big is the Federal Reserve’s Shadow Budget? I don’t know. Congress doesn’t know, but I think it is safe to say that an 8% inflation rate is unrealistically low.

Trend – Anti-Federal Reserve Fever
(Slide 15)


On one hand we have a policy debate about wiping out Medicare – and I work with a lot of seniors and I can guarantee you that if you eliminate Medicare, people will die; on the other hand, you have the Federal Reserve with a shadow budget that subsidizes tax evasion for Cayman Island hedge funds, or that subsidizes Middle East dictators. The Fed has its own shadow budget pumping out trillions of dollars to their banking cronies, meanwhile we have 200,000 patriots who served their nation with honor, wore the uniform, put themselves in harms’ way so we can have our freedom – and tonight there are 200,000 veterans who will go to sleep under cardboard boxes, under highway overpasses without a home.

(SLIDE 16) WTF?

Wouldn’t you like to see what the Fed really does? After 97 years, isn’t it about time to audit the Fed?
(SLIDE 17)


Where did the bailout money go? The Fed refuses to answer. How much bailout money was given away? The Fed refuses to answer. If you were trying to design a corrupt financial system, the Federal Reserve would be your blueprint. It is a quasi-governmental agency that is not accountable to the citizens, the politicians, or the courts – and they control ALL the money. Who does the Fed serve? Well, they can’t serve two masters, so the implication is that they serve the banking elite.

Common sense tells you that the Fed and other central bankers will flood the system with money in order to loot it one more time.

While it is true that people are half educated and misinformed, the light bulbs are starting to come on and people are realizing that the Creature from Jekyll Island has not added one ounce of value in nearly 100 years, and it is time to destroy the beast. As we approach the 100 year anniversary of the Fed, there is a chance that people will learn the truth and long for a return to the Constitutional idea of controlling our own currency.

Trend – New Journalism
(SLIDE 18)

New methods of news and information distribution will render the 20th century model of journalism obsolete. The new journalism reaches across borders and language barriers. Almost anybody can distribute that information. We don’t need media moguls. We don’t need expensive studios and makeup artists. What we need is truth.

I don’t know if Julian Assange is the new messenger of truth but the idea is new. I don‘t know whether you think Assange is a sinner or a saint. There has been a great deal of criticism but I have not yet heard that any of the information posted on Wikileaks is inaccurate.

Let’s take a moment to look at the Hegelian Dialectic and the implications of New Journalism.
(Hegelian Dialectic for Dummies)

Hegel postulated that the course of history itself – was driven by an argument (thesis), a counterargument (anti-thesis)) and finally a synthesis of the two into a more advanced argument – at which point the process restarted.
(SLIDE 19)


To move the public from point A to point B, one need only find a spokesperson for a certain argument and position him as an authority.

That person represents Goalpost A. Another spokesperson is positioned on the other side of the argument, to represent Goalpost B. The idea is not to move from point A to point B but to end up at point C
The point here is that if you change the medium, who controls the medium, and the authority posited by the monetary elite, you are able to completely alter the starting point for the tug of war and for the ultimate synthesis. You get to play by different rules.

Let me break that down with a real life example of Hegelian Dialectics in action. A few years back in California real estate prices were skyrocketing. In a neighborhood, fairly close to the beach there were quite a few houses for sale; they ranged in price from $1.1 million to a low offer of about $825 thousand, about a dozen homes priced just under $1 mil. Clearly, the offer at $825 was undercutting the offer at $1.1 mil. A couple of homeowners figured out that they needed to create a new thesis for the real estate market in that neighborhood. A couple of homes - not necessarily me – a couple of homes were listed at just over $1.4 million. There were about 3 weekends of open houses. Those homes did not sell and the listing was dropped – however, there was a flurry of sales on the lower priced homes, and very quickly there were no more homes priced under $1 million in the neighborhood. A couple of months passed those high priced homes were listed again, this time at $1,250 and they sold pretty quickly.

This is the very reason that the Daily Show with Jon Stewart is so much fun to watch, because it exposes the crazy tug of war. The importance of the Wikileaks model of journalism is that it removes the typical Hegelian Dialectic. This has the potential to have a huge impact.

Just a reminder that Assange says he has a massive dump ready for the big banks, a dump of information that he says could bring down a major bank, possibly Bank of America.
(Slide 20)

The reason I consider this a major trend is that when people start to question the arbiters of everything to fulfill their promises, the people will do more than just question authority, they will begin to defy authority.

TREND – Cyberwars
(Slide 21)


Another thing we saw when Assange was threatened with extradition to Sweden over alleged sex crimes, Assange’s sympathizers launched Operation Payback, and in December, they shut down the main websites of Visa, Mastercard, Amazon.com, PayPal, and the Swedish government. A 16 year old Dutch Boy was arrested. Seriously, I’m not making this up.

When the revolution in Egypt erupted, one of the revolutionary heroes was a young guy who worked for Facebook. One of the first things Mubarak did was to shut down the internet in Egypt. Before the revolution was televised, it was blogged, YouTubed, and Twittered.

The internet and data are ripe battlegrounds for cyber-warfare. The battle over an open internet has already started. The possibilities for disruption of services are real and they are of significant consequence. Equally disruptive will be the harsh measures by global governments to control access to the internet, identify users, and shut them down.

Trend – Housing Market continues to drag.
(Slide 22)


The most recent Census data shows that in California, Arizona, Nevada and Florida there are more than 3 million vacant homes. There are always some vacant homes, but the best info I have seen indicates that there are about 5 and one half million more vacant homes than in normal times. That means the shadow inventory of homes is about triple what we have generally been hearing in the media.

The number of homes going through the foreclosure process increased by 22% in the first quarter. Banks have totally screwed up the titles on about 40 million homes. To get a truly clean, secure, and honestly insured title is about as likely as turning applesauce into apples.

While all real estate is local, I think the broad market will continue to decline for at least two more years. Except slightly lower housing prices over the next two years. This, in turn, will serve as a brake on employment growth.


TREND - Alternative Energy
(Slide 23)

I don’t know if you’ve seen it, but the government has been sending out coupons that you can use at the gas station, and each coupon is good for one gallon of gas.
(Slide 24)

As part of the official budget, there were billions of dollars in stimulus money for various projects such as cash for clunkers, cash for dishwashers, cash for road projects and bridges and pothole repair - and you might not have seen it, but there was a boatload of cash for alternative energy.
(Slide 25)


High oil prices are a crush on the economy. I can burn dollar bills to light a cigar but for those of you that know me, you know I’m too much of a cheapskate to do something like that. Instead, I flip off the lights when I leave a room, I curse APS at least once per month when I get my utility bill, and like most Americans, I’m looking for a cheaper alternative. Alternatives are not just solar and wind but also things like natural gas and domestic oil.
Now, three years ago I told you I expected higher energy prices. The players in energy are not going to allow their market to just collapse, and they certainly won’t loosen their grip without extracting some big profits.

TREND – Food.
(Slide 26)

Food could start to be a problem.
One of the biggest bubbles of the past year has been the price of farmland.
(Slide 27)


Now good farmland always has value but the price increases have been pretty spectacular. If you want to buy a few acres in Iowa, just basic farmland, be prepared to spend $10,000 an acre or more. Farmland prices are at all time highs, even after adjusting for inflation. The past couple of years, car dealerships have been closing down. Tractor dealerships have been booming.

Here’s the problem: if food prices drop, farmers will get busted. There have been some strange things affecting food prices: hurricanes, and floods, and all sorts of strange and extreme weather. The droughts in Russia last year took that country’s wheat exports off world markets. Floods in Australia and Brazil and a new drought in China have factored in. And the 100 million tons of American corn being funneled yearly into the ethanol debacle has played its part. There was a bacteria that ravaged Florida Citrus crops. I can’t explain why these bad things happen, but they do. Then there is the cost of fuel to run the tractors and transport the food to market. Modern farming uses lots of petrol products.
(slide 28 )

World food prices are on a rocket track upward, according to the UN's Food and Agriculture Organization (FAO), whose index measures the cost of a basket of basic food supplies –sugar, cereals, dairy, oils and fats,and meat –across the globe. That index rose by 3.4% in January and 2.2% in February –the seventh and eighth monthly increases in a row –to its highest level since recordkeeping began in 1990. Now, I’m pretty sure Jim Liles is going to give us some better numbers in the next hour here, but…

There is not a huge concern about food shortages in America but it is a global issue. The fact is, grain production worldwide has failed to meet growing consumption demand in seven of the last 11 years — in spite of steady increases in crop yields over the period. Remember the 2008 food riots? Well, in the past few months, there have been food riots in Tunisia, Algeria. Why are food prices escalating all out of proportion to supply and demand? Supply and demand are important but another big factor is central banks have been inflating money supplies the world over, at an alarming rate. It’s not just the Fed. In Egypt, for example, the money supply increased 50% between 2007 and 2010.

TREND – The really, really, really big bubble – DEBT
(Slide 29)


The World Economic Forum reports that the total amount of credit in the world increased from $57 trillion in 2000 to $109 trillion in 2009. That does not include the derivatives market – which is now estimated at more than a quadrillion dollars. Throw in U.S. government debt and don’t forget the muni bond market, which could go supernova at any time. State and local government debt is now sitting at an all time high of 23% of U.S. GDP. Swings from deficits to surpluses have tended to come along with either falling nominal
interest rates, rising real growth, or both. Today, interest rates are exceptionally low and the growth outlook for advanced economies is modest at best.

Government debt to GDP ratio for Great Britain is expect to grow to 94% by the end of this year. Greece is looking at 130% debt to GDP; Portugal will finish 2012 around 97% debt; Japan will finish 2011 with a debt ratio of more than 204% - and that might grow because of the earthquake, tsunami, nuclear contamination. Debt is growing in the U.S. at 8% to 10%, which means the debt will double in less than 8 years. We are not going to grow our way out of this mess.

In January, The New York Times reported that "policy makers are working behind the scenes to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers."

All across the country there are little towns and cities on the verge of, or already in bankruptcy: Central Falls, Rhode Island, Harrisburg Pennsylvania, Hamtramck Michigan, and Prichard Alabama. Prichard Alabama stopped paying pension checks to 150 retired city workers. The former police and fire dispatcher has filed for bankruptcy. The retired Fire Marshall died last year; when they found him, he had no electricity and no running water in his home. Prichard is trying to declare bankruptcy but so far, a federal judge has banned them from doing so.

Illinois keeps borrowing money to invest in its pension funds, gambling that the funds’ investments will earn enough to pay back the debt with interest. New Jersey simply decided not to pay the $3.1 billion that was due its pension plan this year.

This represents the biggest area for big problems – remember, parabolic increase almost never have happy endings.

Excessive debt almost never has a happy ending.
There are four possible outcomes:
1. The nation works through its problems, tightens the collective belt and pays the debt – that’s not going to happen
2. War
3. Slow default
4. Fast default

How does a nation walk away from its debt? The most common path is to debase or devalue the currency in an attempt to service or repay the debt with cheaper money. It’s a fairly common tactic; it has happened in Russia, Brazil, Argentina, the UK, and even here in the US under FDR and also under Nixon. Since the dollar is no longer tied to gold, the devaluation process now happens whenever the Federal Reserve cranks up the printing press. There is a lot of new debt required to keep the economy floating. The results are the same as devaluation. The cost of living jumps; bankruptcies happen. The dollar buys less. Economic growth sputters.

When devaluation occurs quickly, the result is known as a crack-up boom. Inflation skyrockets and a lifetime’s savings evaporates. When devaluation is dragged out over time, it is still painful. The destruction of our income, our savings, our investments, and our retirements is a personal financial crisis with profound impact. It is also the greatest theft in history.

TREND – Things will get better.
(Slide 30)


After all that we’ve covered here, you might think it strange, but my last trend is to say that things will get better …. Before they get worse.

Whether you call them the moneyed elite, the plutocrats, the corporate fascists, the illuminati – whatever you call them, and no matter how clever or bumbling you think they might be, no matter how coordinated and conspiratorial or how inchoately serendipitous; the simple fact is that they were not going to dive directly into a deflationary depression. There has been a coordinated effort to prop things up, to extend and pretend. They know that the most money is pillaged in the final stages before the collapse. This is the lesson I learned a couple of years ago when I thought I could short the large caps and the big banks. We’re going to have to wait for the plutocrats to extract their pound of flesh.

I really hope we don’t see an economic collapse this year. 2010 was pretty nasty but it went about as good as we could have realistically hoped. I’m not looking forward to an economic collapse, and I can’t tell you when it will happen; maybe this year, maybe next year, maybe five years.
(Slide 31)


There will probably be exogenous events, black swans, tipping points. I can’t predict if 19 punks with box cutters will fly planes into skyscrapers any more than I could have predicted the assassination of an Austrian Archduke in Sarajevo in 1914 would have led to a War to End All Wars. I don’t know when we will have an exogenous event but I am pretty certain we will have one – or more.

I believe we are on the path to slow default, however it could get quick fast. I think we’ve all seen the action movies where the star goes running through the scene and the guns are blasting off a thousand rounds per second, and bombs are exploding, and the bad guys are falling like flies, but the star of the movie barely gets a scratch. This aint the movies. We can’t dodge bullets forever.

Right now things are pretty good, so I’ll leave you with one final thought – Prepare. It’s going to get worse. Hold on tight, say your prayers and be prepared.