Gold Bullion and Gold 2 Trade

Tanzania: Gold Biggest Contributor

2012-02-10T08:00:00.000Z

FOREIGN EXCHANGE earnings from Gold Mining operations have overtaken those from tourism in Tanzania, according to the latest government data.

Rising Gold Prices have led to the value of gold exports quadrupling over the past six years to $2 billion. There are now however calls for Gold Mining firms to pay more tax to the Tanzanian government.
"Tanzanians look at the Gold Price and think the country should get more out of it," Sebastian Spio-Garbrah, managing director and chief analyst at consultancy DaMina Advisors, tells the Financial Times.

In common with a number of African governments, Tanzania is looking at ways of extracting more money from its Gold Mining industry, with the 2010 Mining Act proposing to raise the tax on gold production royalties from 3% to 4%.

"Almost all African countries are changing their mining laws and making them tighter," says Spio-Garbah.
"It's nothing out of the ordinary."

The Tanzania Mining Report, published last week by Business Monitor International, predicts that Gold Mining in Tanzania could be poised for strong growth.

"Growth of Gold Mining, which has slowed down in recent years would recover and post strong growth in 2013," the report says.

"Much of this growth will be driven by African Barrick Gold, which has four projects in the country [but] poor infrastructure could be a significant obstacle on production growth and may see projects delayed."
BMI's report also says that higher taxes could see Gold Mining firms concentrate their efforts on other parts of Africa.

"Tax rises, combined with lack of adequate infrastructure and the absence of huge mineral deposits compared with many of its neighbours could push investors elsewhere on the continent," the report says.
"We have heard that before, haven't we?" responds Tundu Lussu, and environmental lawyer who has done extensive research on the Gold Mining industry.

"Investors in mining will be taxed like everybody else and if that makes the sector less attractive to them then they’d choose between staying and paying fairly or leave and stop the raping of our non-renewable resources."

Elsewhere in Africa, Congolese delegates at a Gold Mining conference being held in Cape Town this week were abducted and beaten, Bloomberg reports. At least five people were attacked by men protesting Congo's election results.

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Goldbug, 09 Feb '12

Dollar to Collapse

2012-02-10T07:47:00.003Z

In the absence of a galvanizing narrative, America is marching towards the abyss...

THE NOTION that the very same economic forces currently plaguing Greece et al are somehow not relevant to America does not hold water. As goes the rest of the world, so goes the US, writes Chris Martenson.

When we back up far enough, it is clear that money and debt are there to reflect and be in service to the production of real things by real people, not the other way around. With too much debt relative to production, it is the debt that will suffer. The same is true of money. Neither are magical substances; they are merely markers for real things. When they get out of balance with reality, they lose value, and sometimes even their entire meaning.

The US is irretrievably down the rabbit hole of deficits and debt, and that, even if there were endless natural resources of increasing quality available at this point, servicing the debt loads and liabilities of the nation will require both austerity and a pretty serious fall in living standards for most people.

Of course, the age of cheap oil is over. And as Jim Puplava says, the oil price is the new Fed funds rate, meaning that it is now the price of oil that sets the pace of economic movement, not interest rates established by the Fed.

However, of all the challenges that catch my eye right now, the one most worrisome is the shredding of our national narrative to the point that it no longer makes any sense whatsoever. I'm a big believer that our actions are guided by the stories we tell ourselves. To progress as a society, having a grand vision that aligns and inspires is essential.

But when words emphasize one set of priorities and actions support another, any narrative falls apart. At a personal level, if someone touts their punctuality but chronically shows up hours late, the narrative that says "this person is reliable" begins to fall apart.

Likewise, if a company boasts about being green but its track record belies them as a major polluter, the "green" narrative fizzles.

And at the national level, if we say we are a nation of laws, but the Justice Department selectively prosecutes only the weak and relatively powerless while leaving the well-connected and moneyed entirely alone, then the narrative that says "we are a nation of blind justice and equal laws" falls apart.

I wish this was just some idle rumination, but I see more and more examples validating the importance of alignment of narrative and behavior. Because when there is a disconnect between words and actions, anxiety and fear take root.

Unfortunately, there is quite a lot to fear and be anxious about in the most recent State of the Union address and GOP response.

The recent State of the Union speech by Obama, and its Republican response, are both remarkable for what they say as well as what they don't say. The summary is this: The status quo will be preserved at all costs.
Here are a few examples of the sorts of disconnects between rhetoric and reality that are absolutely toxic to the morale of all who are paying the slightest bit of attention.

Obama
Let's never forget: Millions of Americans who work hard and play by the rules every day deserve a government and a financial system that do the same. It's time to apply the same rules from top to bottom. No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.
We've all paid the price for lenders who sold mortgages to people who couldn't afford them, and buyers who knew they couldn't afford them. That's why we need smart regulations to prevent irresponsible behavior.

It's time to apply the same rules from top to bottom? Is Obama aware of what Erik Holder is up to over there in the Justice Department? The robo-signing scandal alone has thousands and thousands of open and shut cases of felony forgery that can and should be applied to as many individuals as were directly involved, from top to bottom in every organization that was engaged in the practice.

Here's the reality. Under Obama, criminal prosecution of financial fraud fell to multi-decade lows during what is and remains one of the most target-rich environments in living memory.

(Source)

Obama
And I will not go back to the days when Wall Street was allowed to play by its own set of rules.
So if you are a big bank or financial institution, you're no longer allowed to make risky bets with your customers' deposits. You're required to write out a "living will" that details exactly how you'll pay the bills if you fail – because the rest of us are not bailing you out ever again.

Has Obama checked with the Federal Reserve to assure they are on board with the new 'no bail out' policy? Because last I checked, they were the ones mainly involved in bailing out the big banks and providing swap lines and free credit to anyone and everyone that needed help, US or foreign.

To be fair, Obama can make no statement or claim about what the Federal Reserve can or can't or will or won't do. It is not under executive nor even legislative control. If, or I should say when, the Federal Reserve bails out the next bank or country or whomever, it's "the rest of us" who will be paying the bill – in the form of eventual inflation.

Obama
[W]orking with our military leaders, I've proposed a new defense strategy that ensures we maintain the finest military in the world, while saving nearly half a trillion Dollars in our budget.

Let's review the proposals for military spending then. The language above is nearly impossible to decode. What is really being said is that proposed defense increases have been scaled back, and that this is what is being called savings.

In 2000, Defense spending was $312 billion Dollars. In 2012, the proposed budget calls for $703 billion, a 125% increase in 12 years.

What the plan he mentions really calls for is spending increases in 5 out of the next 6 years. The lone holdout is 2013, when the plan calls for cutting spending by a whopping $6 billion less than the amount already approved for 2012.

Somehow that all translates into rhetoric that implies cuts of "nearly half a trillion Dollars."
As Lily Tomlin used to say, "As cynical as I am, I find it hard to keep up."

GOP Response
"The routes back to an America of promise, and to a solvent America that can pay its bills and protect its vulnerable, start in the same place. The only way up for those suffering tonight, and the only way out of the dead end of debt into which we have driven, is a private economy that begins to grow and create jobs, real jobs, at a much faster rate than today."

This platitude-laden set of ideas is blissfully blind to the role of energy in the story, the amount of debt in the system, and the fact that both parties have contributed equally over the years to the predicament at hand.
How exactly is it that the private economy is supposed to flourish here, with the Federal government borrowing more than a trillion Dollars a year and oil at $100 per barrel? The simple truth is that the US government needs to begin borrowing at a rate lower than the previous year's economic growth. If GDP grows at 2%, then the total debt pile must not grow by anything more than 2%. That is the only way that the official debts can shrink relative to the economy.

GOP Response
"We will advance our positive suggestions with confidence, because we know that Americans are still a people born to liberty. There is nothing wrong with the state of our Union that the American people, addressed as free-born, mature citizens, cannot set right."

Last I checked, the original vote tally in the Senate on the National Defense Authorization Act, which empowered the armed forces to engage in civilian law enforcement activities and selectively suspended the habeas corpus and due process rights (as guaranteed by the 5th and 6th amendments to the Constitution), passed by a voice vote of 93 to 7 in the Senate.

It's kind of hard to swallow the idea that the GOP stands with Americans as "a people born to liberty" when their members are in perfect lock-step with the Democrats, chipping away at the most basic and cherished freedoms. There's no difference between the parties when both seem intent on limiting individual freedom and increasing the power of the government to reach into and examine our daily lives.

The above examples are not meant to pick on any one person or party or set of ideas, but to illuminate the profound gap that exists between what we are telling ourselves at the national level and the actions we are undertaking.

Again, it is the gap between what we tell ourselves and what we do that creates a sense of unease, anxiety, and oftentimes fear. When we hear words "X" but see actions "Y" over and over again, it is hard not to come to the conclusion that the words are meaningless; empty rhetoric designed with polls and focus groups in mind, but little else.

It is the blind obedience to the status quo that worries me the most, as it raises the likelihood that nothing of any substance will be done until forced by circumstances, at which point, like Greece, we will discover that the remaining menu of options ranges from bad to worse.

In neither Obama's address nor the GOP response do we hear anything about Peak Oil, a stock market that has gone nowhere in ten years, or the fact that with two wars winding down there ought to be massive savings from defense cuts that we can capture. There's lip service to the idea of using more natural gas to begin weaning us off our imported oil dependence, but no commensurate trillion-Dollar program offered to rapidly build out the infrastructure necessary to utilize that gas in a meaningful way.

A more honest set of messages would note that mistakes were made, opportunities squandered, and priorities misplaced. It would note that the US is on an unsustainable course with respect to spending, debts, and liabilities. There would be an explicit admission that having your central bank print trillions in "thin air" money in order to enable runaway deficit spending is a dangerous and foolish thing to entertain.

Most obviously missing is a national narrative that is coherent and comports with the facts. Both parties basically imply that if we elect a few more of their type, do a little of this and then tweak a little of that, then we will get our nation back on track.

There is no call to a shared sacrifice for something greater. There is nothing to rally around except a laundry list of disconnected programs; a little something for everyone. There is no overarching theme under which everything else can be hung, such as a space race, a civil rights movement, or a massive upgrading of our national infrastructure.

A good narrative is one that inspires people and is based in reality but also asks something larger of us that we can share in. What is our vision for this country? Where do we want to be in ten years? How about twenty? How will we get there, and what will be required? What should we stop doing, what should we start doing, and what should we continue doing?

None of these things are on display, and all are badly needed if we are going to make the most of the next twenty years.

Of all the facts that got skimmed over or avoided in the State of the Union extravaganza, the fiscal nightmare in DC was probably the most glaring. Yes, both parties have decided to talk about the deficit, but neither is giving the appropriate context.

For FY 2012, the federal government is projected to run a $1.1 trillion deficit. Let's compare that number to the projected revenues:

(Source)
The $1.1 trillion deficit is 42% of total revenues and 73% of all income taxes. That is, in order to spend what the US currently spends without going further into debt (i.e., to have no deficit), income taxes must immediately increase by 73%(!).

This is the sort of territory that, were the US any other country, would have already landed its debt markets – and likely its currency, too – in very hot water.

Historically, countries that have run deficits 40% greater than revenue for more than two years have experienced profound financial and political crises. The US is now in its fourth year of inhabiting this rare territory.

How can it keep doing this when every other country that has tried has gotten into trouble? Simple. The Federal Reserve has enabled such egregious deficit spending by buying up mind-boggling amounts of government debt. This has both kept rates low and created a lot of additional buying demand for Treasuries.
Exactly how much US debt is the Fed buying? Under Operation Twist, the Fed has bought anywhere from 51% to 91% of all gross issuance of bonds dated six years or longer in maturity.

(Source)
It is quite obvious that the Fed has been a major participant in the bond markets and a major reason why Treasurys are priced so high and offer so low a yield.

It seems that it is well past time to speak directly to the enormous fiscal deficits in a credible way, not merely bemoaning them being too high. And we're also overdue for an adult national conversation that it's unwise and unsustainable for a country to lean on its central bank to print up the difference between receipts and outlays.

There is a clear relationship between high oil prices and recessions, confirming the idea that the price of oil has the same impact on the economy as higher interest rates (perhaps even more so nowadays). Both are a source of friction. With higher interest rates, less lending and less consuming happens. With a higher price of oil, more money gets spent on energy, much of it sent to foreign producers of oil, and thus less money is available for other consumption.

Both higher oil prices and higher interest rates cause people to think a bit more before pulling the trigger on either ordinary spending or a big capital project.

Note that all of the six prior recessions were preceded by a spike in oil prices. In the case of the double-dip 1980s twin recessions, oil remained elevated after the first recession was (allegedly) over. Don't be fooled by the logarithmic nature of the chart below – note that the typical decline in oil prices between the recession-inducing peak (blue lines) and the recovery-enabling trough (green lines) was a substantial 30%-50%:

(Source)
Also note in the most recent data that oil prices happen to be at roughly the same level that triggered the first recession in 2008 (the purple dotted line).

If we needed one simple chart to help us understand why trillions of Dollars of stimulus and handouts are not causing the economy to soar, this is the chart that explains the most. High oil prices and recessions are highly correlated, and it's not too much of a stretch to postulate that economic recoveries and high oil prices are inversely correlated.

Note also that the above chart is not inflation-adjusted. If it were, it would show that there have been exactly zero recoveries when oil prices are near or over $100 per barrel.

For those counting on an economic recovery here to lift all boats and assist the bailout efforts, the burden of history is upon them to explain why this time we should ignore the price of oil.

I say we cannot. Policy planners and citizens alike should be ready for disappointing market and economic activity in response to the usual bag of printing, borrowing and delaying tricks.

The State of the Union speech and GOP response neither accurately portray the true fiscal condition of the US, nor present a compelling narrative that speaks either to the realities of today or a future we might like to head towards.

The US is simply on a fiscally ruinous path, and neither party seems up to the task of laying out the story in a way that is mature, clear, and direct.

No recovery has ever been possible from oil prices this high, nor with debt levels this extreme, and it is quite improbable to think that both conditions could be overcome with anything less than a completely clear-eyed view of the true nature of the predicament faced.

Decades ago, Ludwig Von Mises captured everything discussed here elegantly:

There is no means of avoiding the final collapse of a boom brought about by credit expansion.
The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Our current dire fiscal condition, our leaders' dysfunctional unwillingness to address the flawed behavior that caused it, plus many other recent events both in the US and in Europe, point to the idea that a voluntary abandonment of further credit expansion is just not on the menu.

That leaves us with some final and total catastrophe of the involved currency system(s) as the inevitable outcome.

At this point, time to prepare is your greatest asset. But as we can see from the precarious global economic situation described above, time is running out. Use what remains wisely.
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Chris Martenson, 09 Feb '12

Chris Martenson PhD is an economic researcher and futurist specializing in resource depletion, and creator of the widely-viewed video seminar, The Crash Course. He is also author of the recent book The Crash Course: The Unsustainable Future of Our Economy, Energy & Environment (Wiley & Sons). His regular anlysis and commentary can be read at ChrisMartenson.com

Commodities Volatile while some banks mask write-downs

2011-10-04T20:56:00.001Z

The Gold Price fell to $1643 per ounce by Tuesday lunchtime in London – still 1.1% up for the week so far – while stocks and commodities suffered another battering as Greek debt fears once again rattled the markets.

Copper fell 1.9%%, while WTI crude oil lost over 2%, dropping to $76 a barrel.

Fiat Currency of Gold Coins?

The Silver Price dropped to $30.21 – 0.8% up on last Friday's close.

"Gold continues to benefit from the current pessimism regarding the global economy [and] the realisation that the Eurozone debt issue is far from being resolved," says today's note from Standard Bank's commodity analysts.

"We expect physical [gold] demand to be quite decent in the coming days," adds Edel Tully, precious metals strategist at UBS.

"After the recent washout, gold positioning is far from extended, and this is quite a bullish signal for price strength ahead."

Stock markets meantime fell Tuesday for the fifth session running, with the FTSE100 here in London dropping through 5000 – a level it first crossed on the way up in August 1997.

The finance ministers of France and Belgium today pledged to "step in" if necessary and bail out the part-nationalized Dexia banking group.

Dexia received a bailout worth around €6 billion in 2008. Its share price fell to a low of €0.81 Tuesday morning – 44% below where it closed last week – after ratings agency Moody's placed Dexia on review for downgrade, citing "concerns about the group's sizeable reliance on short-term funding and the consequent liquidity gaps".

Last week Fitch, another ratings agency, referred to Dexia's "structural weakness" and warned that the bank faces growing difficulties in getting access to funding.

Several European banks have now "marked to market" the Greek government bonds they own, making writedowns of 50% or more. But others – including French banks BNP Paribas and Societe Generale and the Franco-Belgian Dexia Group – have so far only recorded the 21% loss agreed at a Eurozone summit in July.

"It's no coincidence that the banks with some of the biggest holdings of Greek debt took the smallest writedowns," says Peter Hahn, professor of finance at Cass Business School in London and a former managing director at Citigroup.

"You've got banks, which are supposedly comparable, putting different values on their assets. That destroys the credibility of the banking system, and is one of the reasons why the shares are being hit so badly."

"The market is increasingly worried about the potential of the Greek crisis and the calamity that could be created if there was a messy default," says Jane Foley, senior currency strategist at Rabobank in London.

"We could be in for a shakeout even larger than the Lehman shock," adds Hideki Amikura, Tokyo-based foreign exchange manager at Nomura Trust Bank.

"While last week saw precious metals largely following equities on a downward slope, gold and silver's moderate gains this week are a positive sign that they are returning to favor on haven demand," reckons one bullion dealer here in London.

"Investors will be reassured that last week's rout [of gold] was driven more by a flight to cash to meet margin calls and mitigate losses on equities than by a fundamental shift in perceptions of gold's value."

Luxembourg prime minister Jean-Claude Juncker, who chairs the Eurogroup of single currency finance ministers, confirmed Tuesday morning that he has cancelled a meeting of Eurozone ministers scheduled for October 13 to discuss whether or not Greece should receive the next installment of its bailout funding, worth over €8 billion.

The cancellation follows Greece's announcement on Sunday that it expects to miss its deficit-cutting targets for 2011.

Greek finance minister Evangelos Venizelos said today that the government has enough money to last until mid-November if the next installment is delayed. He has previously said it would run out of money by the middle of October.

Dollar and Sterling Gold Prices remain broadly where they closed on Friday 23 September, while the Euro Gold Price is up 1.7% over the same period. In the so-called commodity currencies, the Gold Price has risen 2% against the Canadian Dollar in that time and 3.4% against the Australian Dollar – recovering most of the losses in that currency incurred towards the end of last month.

Looking to Buy Gold?...
Ben Traynor, 04 Oct '11
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

Trouble Coming Soon

2011-10-04T10:38:00.000Z

Ready Access to real bullion is the only defence

WE HAVE OBSERVED world financial markets – including the gold market – for more than 40 years, watching the Gold Price move from $42 per ounce through what we are seeing today, writes Julian Phillips of GoldForecaster.

More importantly we've seen why the Gold Price has moved over these decades and fully understand the monetary history and role of gold. The events of the last three years have interrupted the currency experiment that used paper notes not redeemable either in gold or in anything else except more paper notes.

Right now we're watching the most recent experiment. The Euro, which is only one decade old, suffers the consequences of sub-par financial management, and it's taking Europe to the brink of failure. It's touch-and-go as to whether the Eurozone or the Euro will survive the present crises.

The Eurozone bailout package almost doubled in size to cope with Greece, Ireland and Portugal, to over €400 billion. The markets smiled at first, but then sank back into trepidation as the Italian government had to pay the highest interest ever for funds at a recent auction. When markets keep on being disappointed it signals something far more than just a temporary correction. As markets just dip slightly it's becoming clear that they're in a sort of denial, waiting for something to trigger what we're expecting at any time.

How is this driving gold, which is sitting now around $1,600 after having fallen from a peak of over $1,900? Look at the funds that hold physical gold. They've fallen by less than 2%, which is hardly significant.

Look at the demand from Asia. It's coming in at the lower levels as it has done in past falls; this fall, however, is far more significant. Look back when speculators and banks drove gold from $300 to $390, then farther back to $326 in 2005 – short-term traders can (under the right market conditions) drive prices a long way. In the more recent, 2008 case, Investor Meltdown created conditions where covering margins triggered 'stop loss' protections and the search for liquidity allowed for the precipitous falls.

It was just like a threatened body drawing its limited blood supply to its center, boosting its concentrated central defenses but starving its peripheries, which are now in danger of dying off, endangering the entire body. But gold is at the center and only got a shock.

But was that a change in trend? Have gold and silver market conditions changed, fundamentally?

We're now at the point where solutions and reformation must take place in the monetary world, far faster than governments are capable of and require a degree of consensus that looks unlikely to be achieved. So, what next?

The last couple of weeks have seen nearly all global markets falling, in concert. Yes, they're trying to recover, but this is dependent on some good news coming forward before December. It may be that failure to resolve the Eurozone debt crisis precipitates a far more dramatic set of market events as many important nations' economies confirm deflationary conditions and recessions.

The markets are telling us that bad news is on the way. Far more than just a downturn is being indicated by market behavior. Major structural changes will be forced on the developed world. It's losing wealth to the emerging world and oil producers. The recovery prospects are more than dim. There's far too much debt for the developed world to repay, so more debt will cripple it. Inflation to cheapen money is an alternative (and one the Fed prefers to deflation) but accompanied by a liquidity crisis and banking seizure, will more than likely lead to a degree of inflation that is uncontrollable.

We are on the brink of structures failing, spiraling the financial world into such a bleak scene comparable with the 1930s and the Second World War are valid.

The markets have not yet discounted that picture. And gold and silver prices pulled back solely in the search for liquidity, not because the safe-haven qualities of gold and silver evaporated. With the US Dollar the only standing safe haven in the currency world and one not too far away from its own meltdown, gold and silver have yet to really show their historic qualities. We're very close to a major financial accident that will cause far deeper problems for the developed world.

Many investors have seen the writing on the wall and have seen it since 2008. Now, the writing's more alarming than in 2008. The 2008 scene was when there was more economic strength than there is now. Now, the warnings come on the back of a developed world economy that is failing to grow, failing to resolve debt crisis, and failing to lead its way back to economic health. Disaster doesn't give that much warning. When it comes, a tranquil scene suddenly panics, while irreparable damage is done.

Whether this forecast is correct or not, we can all see that we have to be prudent and take precautionary measures to safeguard our wealth. If we don't, then we'll lose it. We're at the point when we need to be ready for the worst and situate ourselves out of harm's way. If the storm doesn't come, we can always come out of shelter and carry on. But if it does, when we come out of shelter we'll be able to do much more. Are you ready?

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Julian D.W. Phillips, 04 Oct '11
From Bullion Vault

The Death of the Dollar is Nigh

2011-09-25T11:23:00.001Z

The Gold Report

If dollar-dumping turns from a trickle into a flood, look out. Exploding prices (aka exorbitant inflation) resulting from the devaluation of the dollar will compound the problems we saw in 2007–2009. Catastrophe will come when everybody realizes that the dollar is an "IOU nothing." That's the downside in the decade(s) ahead, according to Casey Research Chairman Doug Casey. But an optimist at heart, in this exclusive interview with The Gold Report, Doug also identifies some reasons to be hopeful.

The Gold Report: You've been talking about two ticking time bombs. One is the trillions of dollars owned outside the U.S. that investors could dump if they lose confidence. And the other is the trillions of dollars within the U.S. that were created to paper over the crisis that started in 2007. Are these really explosive circumstances that will bring catastrophic results? Or will it just result in a huge, but manageable, hangover?

Doug Casey: Both, but in sequence. One thing that's for sure is that although the epicenter of this crisis will be the U.S., it's going to have truly worldwide effects. The U.S. dollar is the de jure national currency of at least three other countries, and the de facto national currency of about 50 others. The main U.S. export for many years has been paper dollars; in exchange, the nice foreigners send us Mercedes cars, Sony electronics, cocaine, coffee—and about everything you see on Walmart shelves. It has been a one-way street for several decades, a free ride—but the party's over.

Nobody knows the numbers for sure, but foreign central banks, and individuals outside the U.S., own U.S. dollars to the tune of something like $6 or $7 trillion. Especially during the recent crisis, the Fed created trillions more dollars to bail out the big financial institutions. At some point, foreign dollar holders will start dumping them; they are starting to realize this is like a game of Old Maid, with the dollar being the Old Maid card. I don't know what will set it off, but the markets are already very nervous about it. This nervousness is demonstrated in gold having hit $1,900 an ounce, copper at all-time highs, oil at $100 a barrel—the boom in commodity prices.

Some countries are already trying to get out of dollars, but it could become a panic if the selling goes from a trickle to a flood. So, yes, it's a time bomb waiting to go off, or maybe a landmine waiting to be stepped on. If a theatre catches fire and one person runs out, soon everybody rushes toward the door and they all get trampled. It's a very serious situation.

TGR: If panic erupts on the U.S. dollar, would products manufactured in the U.S. become super-cheap or super-expensive?

DC: They would become super-cheap. Everybody says that devaluing the dollar will stimulate U.S. industry because the products will become cheaper and foreigners will buy them. This is a huge canard everybody repeats and nobody thinks about. Yes, it is true for a while, but if devaluation were the key to prosperity, Zimbabwe should be the most prosperous country in the world as it has already collapsed its currency.

A strong currency is essential for a strong economy. Sure, a strong currency can hurt exporters for a while. But, a strong currency encourages manufacturers to invest in technology, and become more efficient. It rewards savings and results in the growth of capital that's critical for prosperity. A strong currency allows businessmen to buy foreign companies and technologies at bargain prices. It results in a high standard of living for the country, and yields social stability as a bonus. The idea that decreasing the value of currency to stimulate exports is a short-lived, stupid and counterproductive solution to the problem. People seem to forget that while the German currency was rising about sixfold from its level of 1971, and the Japanese yen about fourfold, those countries became the world's greatest export economies. It didn't happen despite a strong currency, but in large measure because of it.

TGR: Given that the U.S. is the world's biggest consuming nation, wouldn't fleeing the dollar create a big consumer vacuum in the international community? Doesn't the rest of the world want to keep up the high level of exports to these U.S. consumers?

DC: That's exactly why the U.S. is in such trouble; it's idiotically focused on consumption, while only production can create prosperity. The world doesn't need to stimulate consumption. This is another canard, because everybody has an infinite desire for goods and services. I know for myself, I'd like not just a car, but 10 Ferraris, a couple of Gulfstreams and 10 houses around the world. So, by myself, I have an infinite desire for goods and services. Multiply that by 7 billion other people. The only way to gratify those desires is by producing enough to trade with other people to give you what you want. When so-called "economists" think the problem is that we don't have enough consumption, that shows that the profession itself is bankrupt. It's actually quite embarrassing.

TGR: But other countries currently produce enough of what the U.S. wants. With U.S. dollars, that trade won't look good on their side eventually.

DC: The problem is the U.S. doesn't produce enough in return. The U.S. has been lucky to have a currency that has, so far, been accepted by everybody. But when everybody realizes that the dollar is an "IOU nothing" on the part of a bankrupt government and a society that doesn't really produce anything anymore, it's going to create a worldwide catastrophe. Those $7 trillion held by foreigners are going to become instant hot potatoes.

TGR: Considering what you said a moment ago, that the world doesn't need to stimulate consumption, you must find some irony in the Obama administration's plan to stimulate consumption again in the U.S. as a way to spur some economic growth.

DC: I'm afraid that after being counseled by the fools that surround him, Obama talking about economics is like the blind leading the doubly dismembered. They want to spend $450 billion trying to create new jobs—but these are government jobs, where you have people digging holes during the day and filling them up at night to create the appearance of employment. No government has any idea what the market really wants and needs. There should be zero government involvement in this. The government cannot and should not even try to create jobs. If Obama wants to stimulate the economy, he can decrease the size of the government. I would say a 90% reduction would be a good starting figure.

TGR: But that will create even more unemployment. That's one of the big concerns. States laying off employees could increase unemployment even more.

DC: It is wonderful that states are starting to lay off employees. Once they lose their state jobs, which suck wealth from taxpayers, maybe those people can find real, productive jobs providing goods and services that people actually want and will pay for voluntarily. So I'd argue that getting rid of state employees is essential to a sound recovery plan.

TGR: You warned early on in the 2008–2009 economic crisis that it would really be more of a hurricane. In the last year or so, we've been in the eye of the hurricane and there's more turmoil to come. Will the other side of the storm be worse than the first? And given the recent economic news, do you think we have moved out of that eye?

DC: Yes, I think we are moving out of the eye and going into the other side of the storm. This storm will be much more severe because we haven't solved any of the problems that caused the hurricane in the first place. The fact that governments all over the world have created trillions of currency units has only aggravated those problems. Now, I expect exploding prices to compound the problems that we saw back in 2007, 2008 and 2009. That will devastate the prudent people in society who saved money. They saved it in the form of currency, and wiping out their savings will be catastrophic.

TGR: Will this affect only North America and Europe?

DC: Mostly North America and Europe, but it's going to be very serious in Japan, too. It could be even more disastrous in China. The Chinese real estate market bubble is very inflated, driven by the lending of Chinese banks that won't be able to recover their loans. They will all go bankrupt, taking out the Chinese populace's savings with them. At the same time, those who own real estate will find it worth vastly less than what they paid for it. Those problems will create social disruptions in China, leading to riots, perhaps even revolution, and who-knows-what. The fallout is going to be terrible.

TGR: Many pundits and economists still project growth in China, albeit at a lower rate, and anticipate further expansion of the middle class.

DC: The 21st century will be the Chinese century, but the distortions and misallocations of capital that have occurred over the last 30 years—notwithstanding the truly phenomenal progress the country has made—are serious and have to be washed out. I am a huge bull on China for lots of reasons, but I am bullish for the long run. I think it is going to go through the meat grinder over the next 10 years. I don't know how it will come out; maybe China will break up into five or six different countries. Actually, that would be a good thing. Most of the world's nation-states are artificially constructed and too big to be manageable as political entities.

TGR: Your outlook on China fits right in with something you've been saying for years—about this being the "Greater Depression," which is also the topic of your upcoming presentation at the sold-out Casey Research/Sprott Inc. "When Money Dies" summit next month in Phoenix. Your opening general session talk is entitled, "The Greater Depression Is Now." We are now four years into it, based on your 2007 start date.

DC: Actually, depending on how long a historical scale you look at, you could say that, for the working class in the U.S. anyway, the depression started in the early 1970s. After inflation, after taxes, their take-home pay hasn't risen in real terms for 40 years. But the definition of a depression that I use is "a period of time during which most people's standard of living drops significantly."

Net savings shows that you're living within your means and putting aside capital for the future. In the U.S., people have been living above their means for many years—that is what debt is all about. Debt means that you are borrowing against future production, which is exactly what the U.S. has been doing.

TGR: So, how long will this Greater Depression last?

DC: It doesn't have to last long at all. It could be quite brief if the U.S. government, which is basically the root cause, retrenches vastly in size and defaults on the national debt, which is essentially an enormous mortgage, an albatross around the neck of the next several generations of Americans. The debt will be defaulted on one way or another, almost certainly through inflation. I simply advocate an honest, overt default; that would serve to punish those who, by lending to the government, have financed its depredations. Distortions and misallocations of capital that have been cranked into the economy for many years need to be liquidated. It could be unpleasant but brief. The government is likely to do just the opposite, however. It will try to prop it up further and make it worse—compounding the problem by expanding the wars. So, it could last a very long time. In that sense, I'm not optimistic at all. I think there is little cause for optimism.

On the other hand, I'm generally optimistic for the future. There are only two causes for optimism. First, smart individuals all over the world continue, as individuals, to produce more than they consume and try to save the difference. That will build capital, which is of critical importance. They should just save by holding paper currency. Second, expanding and compounding technology will increase the standard of living. Remember that there are more scientists and engineers alive today than have lived in all previous history combined. Those two factors countervail the government stupidity around us. Whether they will be overwhelmed and washed away by a tsunami of statism and collectivism, I don't know.

TGR: You say that the U.S. government is the root cause of this problem. Isn't that putting too much blame for a worldwide problem on one nation?

DC: The institution of government itself is the problem, and the problem is metastasizing like a cancer all over the world. But, sad to say, the U.S. is the most serious offender because it is currently both the most powerful and the most aggressive nation-state. It has been greatly abetted by the fact that the U.S. currency has been accepted globally. The U.S. dollar is, in effect, the reserve that backs all the other currencies in the world. That is why the U.S. government has been the most destructive from an economic point of view. Furthermore, military spending—which in the U.S. equals that of all the other militaries in the world combined—is purely destructive. It serves no useful economic purpose at all. The military is no longer "defending" anything—least of all liberty. It's actively creating enemies and provoking conflict. So, yes, I think the U.S. government is actually the most dangerous force roaming the world today.

TGR: Do you see that changing after the next election?

DC: No. I think the chances of Obama being reelected are high, simply because more than half of Americans are big net recipients of state largesse. The U.S. has turned into a larger version of Argentina politically, where the electorate is effectively bribed to vote for the biggest thief. It is likely to turn out much worse than Argentina, however. Unlike the Argentines, the U.S. government is fairly efficient. And, unlike Argentina, the U.S. is rapidly turning into a police state.

Electing a Republican might be even worse, though. With the exception of Ron Paul and Gary Johnson, the potential Republican candidates absolutely make my skin crawl. So, no, there is no help on the horizon. The U.S. government is spending about $1.5 trillion more this year than it takes in, and it is not going to cut that. In fact, foolish spending to bail things out will increase. And, worse than that, the Fed has artificially suppressed interest rates for three years. Interest accounts for roughly 2% of $15 trillion official national debt, or $300 billion per year. As interest rates inevitably rise, that interest amount will grow. At 12%—and I'm afraid they'll have to go even higher than that—it would add another $1.5 trillion just in interest payments.

I absolutely see no way out without a collapse of the U.S. currency and a total reordering of the U.S. economy.

TGR: When Money Dies, the title of your summit, implies some return to a gold standard. How do you see that playing out?

DC: Nothing is certain, but when the dollar disappears—and it's going to reach its intrinsic value soon—what are people going to use as money? Will we gin up another fiat currency like the euro? The euro is likely to fail before the dollar. My suspicion is that people will want to go back to gold. It's not because gold is anything magical, but simply the one of the 92 naturally occurring elements that—for the same reasons that make aluminum good for planes and iron good for steel girders—is most useful as money. In fact, the reason that gold has risen as high as it has is that the central banks of third-world countries—places that don't have large gold reserves, such as China, India, Korea, Russia, even Mexico—have been buying the stuff in size.

TGR: The concept of going to a gold standard seems impossible in the sense that there is only so much gold above ground—6 billion ounces? Maybe $11 trillion worth? But it's only a fraction of the U.S. GDP. Even with gold at $2,000 an ounce, that leaves an immense gap. In that scenario, how do you convert to a gold standard?

DC: In terms of today's dollars, gold should probably be a lot higher than it is. I don't know what the number will be, because a lot of those dollars will disappear in bankruptcies; they will dry up and blow away. It's like a real estate development that was worth $1 billion on somebody's books; when it fails, that's $1 billion destroyed. It's a question of the battle of inflation (with the government creating dollars to prop things up) against deflation (where businesses fail and wipe out dollars). But put it this way: the U.S. Government reports it owns about 265 million ounces. Its liabilities to foreigners alone are at least $6 trillion. If they were to be redeemed for a fixed amount, that would require roughly $22,000/oz. gold. And that doesn't count dollars in the U.S. itself.

I'm a bargain hunter and a bottom fisher, and bought most of my gold at vastly lower prices. But I think gold is going much higher because most people still barely even know that the stuff exists. As inflation picks up, they are going to want to get rid of these dollars—but what other monetary commodity can they turn to? So, gold is going higher. I'm still accumulating gold.

TGR: You said that the storm as we emerge from the eye of the hurricane will be worse than it was on the other side. If they don't own gold, how do investors protect themselves?

DC: It's very hard to be an investor in today's world because an investor is someone who allocates capital in a way to create new wealth. That is not easy in today's highly taxed and regulated economy. It's late in the day, but not too late, to buy gold, silver and other commodities. Productive assets are good to own. Of course, the easiest way to buy most productive assets is through the shares of publicly traded companies, but the stock market is quite overvalued in my opinion, so that's not the best option right now.

In addition to trying to build personal holdings of gold and, to a lesser degree, silver, I think people should learn to be speculators. This is not to be confused with gamblers, who rely on random chances. Speculators position themselves to take advantage of politically caused distortions in the marketplace. In a true free market society, you would see very few speculators because there would be few such distortions. But regulations, taxes and currency inflations are likely to keep markets very volatile. Good speculators will position themselves to take advantage of bubbles, and identify bubbles that have been blown to their maximum and are about to deflate.

Government actions are going to force people to become speculators, whether they like it or not. Most won't like it, and very few will be good at it.

TGR: What bubbles might speculators look to exploit?

DC: I'd say the world's biggest bubble is real estate in China, but real estate bubbles are just starting to deflate elsewhere, too—in Australia and Canada, for example. It's relatively hard to short real estate, of course. Shorting bank stocks is an indirect way to play it. I'd say bonds are the short sale of the century. They're going to be destroyed. Bonds pose a triple threat to capital because:

Interest rates are artificially low, and as interest rates rise—which they must—bonds will fall.
Bonds are denominated in currencies, and most currencies, let's say dollars, are going to lose a lot of value.
The credit risk of most bonds, certainly those issued by governments, is high.

On the long side, mining stocks are very cheap relative to the price of gold right now. I'd say there's an excellent chance of a bubble being ignited in gold mining stocks, especially the small ones; in fact, I'd put my finger on that as likely being the easiest way to make a killing.

TGR: Technology was one of the two areas of optimism you mentioned earlier. Do you see a bubble forming there?

DC: You have a point, but I'm not sure you can talk about technology stocks as a whole; technology is too variegated, too vast a field. Although, I've long been a huge believer in nanotech, which is likely to change the world as we know it. With gold stocks, however, you can jump into a discrete universe, that's likely to become a mania.

TGR: Thank you for the tips, Doug, and as always, for your thoughtful insights.

Doug Casey, chairman of Casey Research LLC, is the international investor personified. He's spent substantial time in over 175 different countries so far in his lifetime, residing in 12 of them. And Doug's the one who literally wrote the book on crisis investing. In fact, he's done it twice. After The International Man: The Complete Guidebook to the World's Last Frontiers in 1976, he came out with Crisis Investing: Opportunities and Profits in the Coming Great Depression in 1979. His sequel to this groundbreaking book, which anticipated the collapse of the savings-and-loan industry and rewarded readers who followed his recommendations with spectacular returns, came in 1993, with Crisis Investing for the Rest of the Nineties. In between, his Strategic Investing: How to Profit from the Coming Inflationary Depression broke records for the largest advance ever paid for a financial book. Doug has appeared on NBC News, CNN and National Public Radio. He's been a guest of David Letterman, Larry King, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin and Maury Povich. He's been featured in periodicals such as Time, Forbes, People, US, Barron's and the Washington Post—not to mention countless articles he's written for his own various websites, publications and subscribers.

At the sold-out Casey/Sprott Summit "When Money Dies," more than 20 seasoned investment pros, economists and freethinkers will provide their insights and advice on the coming currency collapse and what you can do to protect your assets. Listen to the timely investment advice and specific stock recommendations of North America's top financial experts from the comfort of your home—in 20+ hours of power-packed audio recordings on CD (or MP3). Pre-order now and save $100 off the regular price.

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ETF's Dangerous Gearing Instruments (WMFD)

2011-09-18T18:27:00.000Z

Weapons of Mass [Financial] Destruction WMFD - the 'de-commissioning' of which is affecting the whole banking system.

London, UK - 18th September 2011, 17:35 GMT

The World as Risk?

We have mounted an investigation into the role of Exchange Traded Funds (ETFs) linked to the $2 billion black hole at UBS. We have uncovered a complex entangled world wide web of $1.4 trillion including derivative exposures and counterparty risks.

ETFs: Rising Proliferation, Rising Risk

Extreme Perils of Exchange Traded Funds (ETFs), Derivatives and Unlimited Black Swans (UBS)

Exchange-traded funds are back under the spotlight because of their connection with the alleged $2bn "rogue trader" scandal at UBS's Delta One ETF operation. No one who truly understands the technical makeup of these financial instruments is surprised to see the words ETF and rogue trader in the same sentence! However, purveyors who believe that ETFs are good enough financial "assets" for "widows and orphans" act clueless and some feign total surprise.

Financial Stability Threatened

Regulators around the world have expressed concern that ETFs might be a new source of market instability for nearly a year now.

1. America's Securities and Exchange Commission (SEC) has launched a probe this week into whether ETFs are contributing to market volatility by offering investors a way to quickly lift and reduce their exposure to the financial markets. This, in turn, forces large entries and exits from the underlying securities, or derivatives, that mirror the assets or asset class that the ETFs seek to track.

2. The Bank of England warned in June 2011 that ETFs are potentially dangerous for unsophisticated investors. The rogue trading event that hit Societe Generale in 2008 also originated on a desk that was buying on the market to compile portfolios that underpinned ETFs. The UK's new Financial Policy Committee (FPC) has warned that ETFs are shrouded in "opacity and complexity". It said it was concerned that ETFs "could become a source of risk to the system as the market evolves".

3. The Financial Stability Board (FSB), an international super-regulator based at the Bank for International Settlements in Basel, Switzerland, wrote a prescient paper "Potential financial stability issues arising from recent trends in Exchange Traded Funds (ETFs)" in April 2011. Its central warning was that ETFs are neither cheap nor transparent.

What are ETFs?

ETFs are listed securities that mirror various assets or asset classes, including shares, market sectors, indices, commodities, fixed-interest securities and their sectors.

How big are ETFs?

The ETF market is growing rapidly. It was relatively minor on the financial landscape when the new century began, with investments of just $74.3 billion, all of it in equities. ETFs grew to $797 billion in 2007 when the global financial crisis erupted, and passed $1 trillion in 2010. BlackRock, the US-based asset manager that owns the biggest ETF provider, iShares, estimates that ETF assets totalled $1.4 trillion on 49 global exchanges by June 30, 2011, and forecasts that their total will pass $2 trillion in 2012.

Popularity

The last decade saw an explosion in the popularity of ETFs because of their well known benefits:

1. Relatively low costs;
2. Buying and selling flexibility including the capacity to trade them throughout the day;
3. Tax efficiency including favoured status by tax regimes;
4. Market exposure and diversification; and
5. Implied transparency.

Majority of ETFs are traded by institutional investors and hedge funds. Acceleration in growth of ETFs is linked to their presence on superannuation and other retail investment platforms in the secondary market. It is often incorrectly claimed that ETFs are simple products. Once upon a time, this was true. Now, this argument no longer holds water. Many ETFs are extremely complex and simply beyond the comprehension of individual investors and professionals alike.

Derivatives

Some ETFs do not hold physical assets of the sort they seek to track. They are "synthetic" and hold derivatives. For example, around half of the ETFs in Europe today do not match the index they are designed to track by holding all of its constituent shares. Unlike the plain vanilla "full replication" old ETFs which used to do so, nearly half of the new market is in the form of so-called "swap-based" ETFs which instead use derivative agreements, often with investment banks, to simulate the performance of the underlying assets. When an ETF security is bought, the investment bank or funds management group that is selling the ETF buys corresponding exposure, to pair the ETF's performance with the assets it is tracking. This is sometimes done by purchasing the physical asset -- shares or a share index -- but as the industry has grown it has become increasingly common for ETF vendors to take the exposure by buying derivatives, and to also use derivatives to insure against unwanted extraneous market movements.

Leveraged ETFs

Leveraged ETFs are a special type of ETF that attempt to achieve returns that are more sensitive to market movements than non-leveraged ETFs. They require the use of financial engineering techniques, including the use of equity swaps, derivatives and rebalancing to achieve the desired return. The most common way to construct leveraged ETFs is by trading futures contracts. The rebalancing of leveraged ETFs may have considerable costs when markets are volatile and can lead to substantial losses.

Counterparty Risks

The derivative-based make-up of ETFs gives rise to counterparty risks. As we saw with the UBS incident, some interesting risks arise within the counterparties supplying the basket of derivatives. What happens if such ETF trades cause such a mammoth loss in a counterparty that it does not have sufficient capital to bear the loss and pay out under the derivative contract? Answer: The ETF fails, leading to massive counterparty losses! ETFs based on derivative trades add a second layer of uncertainty to the unavoidable sudden ups and downs of the market and include the counterparty risks that may cause the organisation on the other side of the contract to go bust. This toxic aspect of ETFs is unclear to most investors in ETFs, who treat these complex financial instruments as if they were as safe as equities and bonds.

Conflict of Interest

Unbeknownst to the investor, the provider of the ETF might sometimes be a part of the same organisation as the derivatives desk carrying out the swap. When a financial institution acts in this dual capacity -- given the inadequate disclosure rules -- there is a significant potential for a conflict of interest in which the end investor comes off second best. There is currently no obligation for the basket of assets used as collateral to actually match the assets the ETF purports to be tracking. Hence a bank may choose to hold less liquid assets to back the fund which it could struggle to sell if too many investors want to exit at the same time. Think of all the gold ETFs and then ask yourself: How much physical gold actually underpins the gold ETFs? Answer: Not a lot! As much as half of the trades in gold are now driven by ETFs, while some blame them for speculatively driving up food prices.

Volatility, De-Coupling and High Risk

Extreme volatility makes ETFs behave unpredictably. ETFs do NOT always match the underlying asset or asset class in the way investors expect. Given the daily rebalancing and compounding, an investor can own a leveraged long ETF and end up losing money over a period when the market goes up but during which there are some sharp falls. Equally, an investor can own an inverse ETF -- which provides a short exposure -- during a period when the market goes down but if there are some sharp rallies, the investor ends up losing money. This actually occurred with some inverse ETFs in 2008, for example. ETF investors would not normally expect to be leveraged long and lose money if the market goes up or be leveraged short and lose money when it goes down. Yet, this is entirely possible with ETFs and is not known as an outcome to most investors.

Massive Short and Long Positions: High Frequency Trading (HFTs)

A big unrecognised risk with ETFs is related to the ease with which traders -- hedge funds and High Frequency Traders (HFTs) in particular -- are able to use such funds to short markets or go long. It is technically possible for the number of shares sold short or long in an ETF to exceed the actual number of shares available massively! It has been suggested that the "Flash Crash" of May 2010, in which US shares fell 1,000 points before bouncing back in a matter of minutes, was a consequence of this: around 70 percent of cancelled trades at the time were reported to be for ETFs by High Frequency Traders (HFTs). Given that hedge funds and financial institutions can apparently rely upon creating the units to deliver on their short, some market participants are short 1,000% or 10 times the amount of the ETF available. The danger of allowing short sales which are a multiple of the value of a fund in an area where it may not be possible to close the trades by buying back the stocks are clear. Yet, purveyors of ETFs claim that there is no such risk in shorting ETFs. Do they not understand the product they are offering, and if they can't, what chance has the retail investor got?

Camouflage and Subterfuge: Insider Trading

ETF stripping allows virtually untraceable insider trading. The way this works is that rather than take a position in a security where someone has inside information, The trader buys or sells the ETF and does the opposite on all the stocks that make-up the ETF, except the one for which they have insider knowledge.

Liquidity Out Of Thin Air

The problem of liquidity is an increasing issue with ETFs because of the way in which the funds have branched out into other asset classes such as fixed income and commodities including gold and oil. In these markets, liquidity is typically thinner than in big equity markets such as those measured by global indices like the S&P 500 or the Dow Jones. Liquidity is only ever a problem at times of market stress. Unfortunately, that is precisely the time when it matters, as Mortgage-Backed-Asset (MBA) investors discovered a few years back when the property market turned down and their managers were unable to sell enough properties to pay back redeeming unit holders. Investors were locked in. If the ETF is in an illiquid sector, can one really rely upon creating the units as one may not be able to buy (or sell) the underlying assets in a sector with limited liquidity?

Undisclosed Profitability

Although ETFs are billed as low cost they are also the most profitable asset management product for a number of providers. How can this apparent contradiction exist? The answer is that the charge for managing the ETF is only one part of the cost. There are also hidden cost benefits in the synthetic and derivative trades which the provider undertakes for the ETF.

Mis-selling

There is a rising possibility that ETFs are being mis-sold to the retail market and risks are being incurred in running, constructing, trading and holding them, that are not sufficiently understood. After the UBS incident, this mis-selling of ETFs might become indisputable.

Conclusion

1. Exchange Traded Funds (ETFs) have in a remarkably brief space of time become a trillion-dollar plus trading instrument with critics of ETFs arguing that they represent short-term speculation, that their trading expenses decrease returns to investors, and that most ETFs provide insufficient diversification.

2. The latest UBS black hole is likely to have repercussions, because it has occurred in the ETF sector, a part of the market that is rapidly becoming system-critical. The sudden loss of $2bn at UBS ought to remind investors of the pitfalls of these derivative-based instruments. It is likely that there will be moves to increase oversight of the ETF market in the wake of the UBS scandal. Are regulators going to slam the ETF barn door after the horse has long bolted?

3. Like many financial innovations -- such as the mortgage-related debt obligations that triggered the global financial crisis in August 2007 -- ETFs started out as a good idea. For some investors, in their most transparent form, they remain so. Now, a tangled web of complexity has rapidly developed. What was once a straight-forward means of gaining access to a market has turned into a minefield for investors and one which, as UBS discovered, has the potential to become the next toxic scandal!

4. Some critics claim that ETFs can be, and have been, used to manipulate market prices, including having been used for short selling that has been asserted by some observers to have contributed to the market collapse of 2008 and other severe market corrections.

5. Investors in Exchange Traded Funds (ETFs) ought to review each of the ETFs in which they are invested to reassess the true content and degree of risk embodied in them.

Busted Banks and Financial Scandals

2011-09-18T14:14:00.000Z

Are all 'Western Banks' Bust? What is the actual and realistic levels of 'security' that they hold to cover their mortgage books? Are there risk factors that are being hidden, and does the UBS debarcle simply indicate that nothing has really changed?

Metals and Currency Exchanges

Should we simply have let the banks go to the wall for all the toxic debt that the general population is now expected to cover? Can we as voters/businesses consider defaulting to send these 'failing banks [the majority it seems] on their way to allow more efficient financial "institutions" to replace them. And where will Gold and commodities fit in with the World's needs to trade.

Consider this article from George Mangion from today's Malta Times. It raises some serious questions that are simply not being addressed. In practice Banks themselves are the problem. They have evolved into instutions of greed. In practice the basis of banking in both boring and highly marginal.

But the creation of credit and derviatives have turned the Banks into 'monsters', like 'black-holes' who are devouring the middle classes, and their impotent Governments. We need much more than Basel 111. We need radical break-ups, new trading platforms and transparancy. But do not hold your breath! JB


The fabled Higgs-Bouson Particle has more realism than the creation of bank credit

"Banks under fire"
by George M. Mangion from the Malta Times

Article published on 18 September 2011

It does not rain but it pours when financial scandals erupt. Little did we expect that with the introduction of strict banking regulation, including the implementation of new stress tests and Basel 111 rules, another bank would bite the dust? Reference is made here to the shock news that police in London had arrested a “rogue trader” in connection with allegations of unauthorised trading in UBS. At a time when the markets and shares show unprecedented losses, one could hardly believe that this trader at UBS bank caused an estimated $2 million loss. It was immediately reflected in an 8.00 per cent drop in UBS’ share value. Luckily, no client positions have been affected so far, yet the news came as a bolt out of the blue for FINMA, Switzerland’s financial regulator.

Ironically, at a time of such austerity, global banks are under stricter supervision and hence they will struggle to recoup the fat returns they had grown used to, prior to the credit crunch, by trading anything from complex bond derivatives to gold and currencies they made millions. It is obvious that after the balmy pre 2007 days when bank profits flowed so copiously in their Balance Sheets they now face an escalating debt crisis and heightened uncertainty both in Europe and more so in the US where we are seeing banks’ share value dip in market trading.

ZKB trading analyst Claude Zehnder said of the UBS scandal, “They obviously have a problem with risk management.” The Swiss taxpayer had bailed out this top Swiss bank in the 2007/8 banking crisis, following huge losses on toxic assets held by its investment bank. Recently, UBS made 3,500 workers redundant leaving 65,000 staff worldwide. It hoped to save $2.3 billion in wages and salaries and now, paradoxically, it lost them in this last scandal that rocked the UK branch. Furthermore, it was associated with a serious tax evasion dispute with US authorities and was forced to disclose over 300 client names and pay a $780 million fine. In another instant it agreed with the US authorities to reveal data on 4,450 American clients. All this echoes the risks that Swiss banks in post sub-prime crisis are facing. British economist Professor Chris Roebuck said UBS has tightened its compliance and rules, but this latest breach “is a staggering demonstration that all the clever systems that the banks now have still cannot stop a determined individual getting round them if they want to”.

Sadly, this reflects poor corporate governance and lower audit oversight in sensitive sectors such as currency trading where millions are made or lost in a trade. This “casino” style trading is a lucrative edge of each international bank but while it lays the golden egg when things go wrong it conjures visions of ugly days. Just remember when we saw other rogue traders, including the one at Société Générale, rogue trader Jerome Kerviel, who was arrested in 2008 over unauthorised trades that cost the bank €4.9 billion. Following his arrest, a court sentenced him to three years in prison in October 2010. Records show it was one of the largest investor losses in France’s history.

So what is the solution that can plug a bank’s defences against such expensive fraud? Can effective risk management process result in zero risk occurrences? Hardly, as these systems are not watertight and still cost a lot of money to operate. Banks are sometimes unable or unwilling to implement this high level of control. It’s still unclear if management of Société Générale knew about Kerviel’s scam, though he has claimed that it’s impossible his managers didn’t know what was happening, given the level of risk and the amount of cash involved in his trades was perpetrated inside the four walls of the financial institution. Critics argue that it requires inside knowledge of the bank’s security policies and means how to override those policies. Or else the risk mitigation and compliance processes in place were fundamentally flawed. Critics also question how trades of this nature could go unidentified amid the network of risk management in place at a large bank like Société Générale. The bank stated it had no indication that the trader had taken massive fraudulent directional positions in 2007 and 2008 far beyond his limited authority. It is no consolation that France’s regulator fined the bank €4 million in 2008 and issued a formal warning to the bank for “grave deficiencies” in its internal controls that “made possible the development of the fraud and its serious financial consequences”. It looks more like shutting the stable door after the horse has bolted. The Kerviel scandal was a record heist, superseding losses involved in 1995 when Nick Leeson (now a free man) burnt a €900 million hole in Barings Bank plc.

Barings was one of the oldest and most respected British investment banks. After the fraud was discovered in Singapore, it was subsequently sold to Dutch bank ING for £1. Another bank under fire is Ireland’s largest bank, Allied Irish. In 2002 it discovered a rogue US trader John Rusnak who had defrauded its US subsidiary of up to $750 million. His labours netted him a generous salary while his clever manoeuvres landed him with a scheme worth $850,000 in salary plus juicy bonuses from for five years. So have we learnt any lessons from these banking fiascos? Perhaps we did not heed Leeson’s own words when he was interviewed after the Barings fraud was discovered. He was critical of the way banking supervision is entrusted to certain authorities. Perhaps one may say the kettle calling the pot black but when more frauds are discovered it makes you wonder if the gatekeepers are asleep on their watch. The former trader said: “The core, or the key to this fraud problem is that you then have a central bank and a government that don’t really understand the financial markets.” He meekly asserts that in 1995 the government in Singapore did not detect the fraud and he continued to blame the central banks, which omitted to unravel it, saying it was too complex for them.

Banking investment scandals of such magnitude are unheard of in Malta. This is thanks to a closely supervised network operated by trained banking and investment inspectors at the financial watchdog MFSA. Still, one can recall the downfall of the BICAL private bank in the early seventies, which saw the loss of many subsidiaries owned by the family-controlled bank face bankruptcy. Recently, the demise of La Valette multi-manager property fund managed by a subsidiary of Bank of Valletta saw thousands of small investors protesting in court that overzealous banking staff had urged them to invest in risky projects when they alleged that they were ignorant of the potential risks. Luckily for them, sanity prevailed and Bank of Valletta as the custodian agreed without admitting guilt to compensate such investors up to 75 per cent of their investment (provided they renege on their rights at court). This brought a happy ending to a long drawn saga that was hitting local media and was not doing any good to the solid banking reputation enjoyed by the island. Bad news followed with another claim by Finco Treasury Management, a stockbroker firm, in the name of some 40 claimants who were allegedly encouraged by BOV to invest in Lehman Bros perpetuals. It appears that such investors were not informed of the risks involved and they lacked any financial background, and most of them were not experienced investors. The claimants say BOV failed to explain the risks of the perpetual securities; in fact they were described in purchase contracts as “straight bonds”. They were not informed that these perpetuals could be converted to ordinary shares without investors being able to halt the conversion. In their judicial protest, the claimants say they were advised by the bank to place their savings in ‘junior subordinated bonds’ and perpetuals in the Lehman. Unfortunately, this triple A bank went into bankruptcy in 2008 when housing prices crashed in the United States. The worrying news for BOV is that Finco alleges the bank is at fault for not having warned investors of the worsening credit risk of the Lehman Group when the bank itself had suffered massive losses after investing in Lehman securities. On its part, Bank of Valletta has rebutted all claims but stated its intention to meet the claimants to better explain its position.

To conclude, it appears that in times of financial turmoil, the incidence of banking troubles increases exponentially. One hopes that an honourable solution is found for the hapless investors once MFSA as the regulator takes its time to investigate the claims and issues its verdict on the underlying facts that led to their losses. Banks are under fire and they certainly welcome all the protection they can muster from their patron saint in the sky.

The New Dollar?

2011-03-29T02:10:00.003Z

$$$ THE USGOVT IS SECRETLY ATTEMPTING TO FLOAT AN IDEA TO RETIRE THE USDOLLAR, PAY OFF CREDITORS WITH TOILET PAPER, RETIRE THE ENTIRE DEBT, DEVALUE OLD ASSETS, START ANEW, AND ISSUE A NEW USDOLLAR. THIS NEW USDOLLAR CONCEPT SEEMS GROTESQUELY FLAWED SINCE IT LETS THE UNITED STATES OFF THE HOOK AS DEFAULTED DEBTOR, AND IT ASSUMES NO CONSEQUENCE FROM THE USTREASURY BOND LIQUIDATION. THE USGOVT AND USECONOMY WOULD DESTROY THE URGENTLY NEEDED CREDIT TO MAINTAIN ITS ONGOING MASSIVE DEFICITS. $$$

In early February, over 150 US State Dept emissaries were called home to WashingtonDC for secret meetings. The news came and went quickly on internet journals. Many thought meetings were convened to discuss the growing Arab world upheaval. Instead, my sources report that the USGovt wanted to canvass opinions and coordinate feedback, if not to simply float a trial balloon on an historically unprecedented idea. The USGovt is trying to end the USDollar, to retire it, and to replace it in a fresh start after forcing a stern devaluation on all US$-based assets in conversion. The Boyz are printing $100 billion per month. So why not print $5 to $6 trillion and pay off all creditors with fresh colored toilet paper? The plan would call for all foreign creditors to be paid off, and all US-based depositors converted, both parties suffering devaluations. They would all be betrayed under the conceived plan, handed a hefty 30% instant devaluation that would accompany the birth to the new Republic Dollar by name, backed 80% by gold and 20% by silver. My guess is that Gold & Silver would be revalued at $7000 and $250, or $5000 and $175, something like that.

The old US$-based USTreasury Bond debt would be paid off with Printing Pre$$ toxic effluent output. The new US Republic Dollar would be backed by precious metals finally, in a return to the Gold Standard. The entire concept does not receive solid confirmation, but rather numerous repetitions from the same secondary source, and reports on support mechanisms working feverishly to enable its enactment. The story does receive an echo from Bob Chapman. The plan is very unclear about the status of old US$-based stock and bond and property assets, but my belief is they would be devaluated in hidden manner, to minimize public objection and to enable acceptance. It is also unclear the status of old US$-based debt obligations like home loans and car loans and business loans, but my belief is they would be converted in like kind. Recall that the world rejected the Amero concept for a omnibus North American currency before, largely because the United States could not dictate terms of contracts across the world, like between Chile and Europe on copper or between China and Brazil on sugar cane or between Canada and China on industrial metals.

My thinking has many parts, best summarized with a caption heading NO WAY IN HELL but summarized in three reasons.

1) The USGovt does not own enough Gold & Silver to back a new currency, even at higher precious metal prices.

2) The USGovt is the debtor nation, and debtors never dictate the terms of liquidation and restructure. The creditors do.

3) The USGovt has huge deficits, and the USEconomy has huge deficits, each not to be funded since creditor nations would halt all new credit to the US after they are handed forced devaluations on the instant payoff and devaluation.

The USGovt and USBankers cannot possibly dictate the terms of a new USDollar since they are bankrupt, since they are guilty of multi-$trillion bond fraud, and since the USGovt and USEconomy are both deeply insolvent with ongoing massive deficits. The defaulting debtor does not dictate terms to the creditors, even if the debtor is dominated by global banker elite. The wild card in such a deal would be nuclear weapons and an eager CIA to deliver terrorist attacks surreptitiously to any creditor nation seeming uncooperative. Instead, somehow, unsure how, the global elite bankers eat some crow, mixed with toxic bread & butter, and are demoted on the global stage of power, secret pacts with China notwithstanding.

With a new US Republic Dollar, the deficits would cripple the United States immediately. The USGovt deficit would force the United States to find and hand over many tons of Gold & Silver every quarter and year, without fail or exception or forgiveness, since no more scheister paper repayment in settlement. The US lacks the base monetary metal from which to continue the outsized and worsening deficits. The USEconomic deficit would force the US into insolvency immediately. The result would be that right away, the US would forfeit massive amounts of Gold & Silver that it does not own to settle trade gaps. Perhaps massive hidden Syndicate Gold supply would come to the table, taken as counter-party from Wall Street shorts that destroyed those shell corporate entities. My position has been stated before, that a new hard currency behind the US financial system would result in rapid insolvency and ruin, since the old systemic insolvency would instantly cripple any new launched monetary initiative. Thus the US never proposes one like the new Republic Dollar. Other foreign nations that would use the new Republic Dollar would generate large surpluses, and therefore make possible grand demands for US forfeited Gold & Silver. A new gold-backed US$ currency would force an immediate Black Hole inside the US system. The new system would promote in fast return exactly the same grotesque imbalances in a grand degradation. The United States could not expect to be given renewed credit after betraying the world's major creditors with the USTreasury Bond devaluations and liquidations, not in this real world.

Lastly, the new Nordic Euro currency would have to be subjugated under the new Republic Dollar. Such a development could only happen under some very scummy power sharing agreement with Russia and China and Germany. Then again, they might make a decision under nuclear threat. Any new Chinese Yuan currency with a hard asset backing would also have to be subordinated under the new Republic Dollar also. Those agreeing to subjugation under continued Anglo banker rule must accept $trillions in losses from USTreasury Bonds, USAgency Mortgage Bonds, even US Corporate Bonds during the devaluation process. The surplus nations, those blessed by huge surpluses, huge reserve savings, robust industry, and absent debts are planning the new Nordic Euro currency, a gold-backed currency. My belief is that as the Nordic Euro comes closer to its anticipated June 2011 launch, enormously important negotiations, hidden battles, important posturing, and desperate ploys will be put forth. The new Republic Dollar seems fanciful and totally impractical, surely such a desperate ploy to be shot down, unless a nuclear threat is delivered.

My best banker source, with solid international experience over 30 years, dismissed the idea as a wet dream by Anglo criminals to gain forgiveness, or rather to dictate forgiveness. This sage generous veteran claims the next phase will unfold very differently, with the foreign group called the Eastern Alliance pulling the rug from under the criminal Americans and British bankers, who operate a syndicate and display an evil streak. They are plainly nazis with nice wrappers. Neocon meant fascist nazi, for those naive in the crowd. The coming arrival of the gold-backed New Nordic Euro is causing a rush to duplicate it. The United States and Great Britain will either maintain a control position within a huge global slavery fascist brutal regime (featuring genocide), or else the US will descend into the Third World with a dead currency which must bid for the good useful currency in order to secure supplies. My belief is that the US$ in current form will be rejected within 18 months, globally, for crude oil and global trade settlement. My belief is that the USEconomy will suffer profound price inflation in the coming two years. My belief is that a new Republic Dollar would fall on its face before launch, but after presentation. A payoff of USTreasury Bonds with soon retired toxic paper with promise of deep devaluation would have immediate consequences of grave proportion, like the US being totally isolated from global commerce. The other name for that place is the Third World, marred by huge price inflation and credit cut off.

◄$$$ UNFOLDING EVENTS REGARDING THE USDOLLAR AND USTREASURY BOND DISPOSITION WILL NOT OCCUR ACCORDING TO ANY USGOVT AND USBANKER PLAN, OR PREFERRED DIRECTION. ANGLO BANKERS ARE NO LONGER IN CONTROL. NO NEW USDOLLAR CAN BE BORN FROM THE CRIMINAL SYNDICATE CRUCIBLE THAT HAS EXPLOITED AND BETRAYED THE AMERICAN CITIZENRY AND GLOBAL INVESTORS. BEHOLD WHAT COMES, A NEW EQUITABLE BARTER SYSTEM THAT REQUIRES ACCOUNTABILITY. $$$

In continuation of the new Republic Dollar theme, and the urgently needed transition to some currency vehicle in a viable fashion, my solid reliable banker source sent this note. He wrote, "It is not going to happen the way any US bankers would choose or direct. It is is unfortunate and regrettable that the USA has begun and is about to commit financial and political suicide. Today's USA power establishment is incompetent, delusional, and outright evil. It is less the criminal foreign policy and all the wars the US prosecutes. It is the treason the US power elites commit in regards to exploiting and betraying its own citizens. They can try whatever they like. They are done, finished. The engrained problem is too big for anyone or any group or any institution to fix. It is not about the price of Gold or Silver. Price is irrelevant. It is about purchasing power of Gold & Silver that has not really changed over the last 60 to 80 years. Take a look at Libya, a similar scenario that you will see unfolding on a larger scale. By comparison, the USA has its own Gadhaffis. We shall have a commodity based money regime and a non-monetary trade system called barter. Back to basics. It is as simple as that. That is what comes in the future. An entire new system has been in the works for almost two years, much planning, much development, an equitable system that has no place for freeloader or deadbeat nations. It will be a very accountable system, a fair system. Nations that do not participate will not have a supply chain. It is that simple."

Willie

Buy Gold, Buy Gold, Buy Gold

2011-01-31T17:49:00.000Z

Very, very good advice, apparently, reckons the Mighty Mogambo...

SO CHRIS MAYER was quoted in the 5 Minute Forecast newsletter noting that "If history is any guide, inflation will likely get much worse," writes the Mogambo Guru from Tampa, Florida, in The Daily Reckoning.

Being the kind of guy who goes absolutely insane about inflation in prices, you can imagine the effect this had on me, although with a modest touch of understatement, he does not take things to the logical conclusion, namely that "We're Freaking Doomed (WFD), you morons! And now everyone is going to see what happens after an excessive creation of money has distorted the economy, little by little over the decades, into a grotesque, corrupt, cancerous, incestuous economy feeding on government spending that, in the local, state and federal aggregate, now comprises an outrageous 50% of all spending in The Whole Freaking County (TWFC), and yet the Federal Reserve keeps creating more and more so that the federal government can borrow more and more and thus spend more and more!"

I would suggest, of course, that he would finish up with, "And now I, Chris Mayer, speaking both for myself and the 5-minute Forecast, and everyone on the planet who has not lost his or her freaking mind, the only logical thing to do is to follow the sage advice of The Mighty Mogambo (TMM) to Buy Gold and silver, gold and silver, gold and silver, more and more and more until they are stashed in huge piles all over the house and you are stubbing your toes on them all the damned time, costing you as much in doctor bills as the silver goes up in price, which means (with certain simplifying assumptions yet yielding 3-decimal place precision) you have reached maximum utility!"

This is Very, Very Good (VVG) advice, and provides a good place to finally stop Buying Gold and silver, as taking the next step is the path to insanity, which starts when you find yourself getting peevish about your inability to get a permit to construct a lousy combination precious-metals vault and oil storage facility in your backyard, using land acquired all around my house by buying out the neighbors who thought they were so smart not to buy gold and silver when I told them, "Buy Gold and silver, you morons, when the evil Federal Reserve is creating So Freaking Much Money (SFMM), or one day you will regret it, and I one day I will buy your stupid houses for pennies on the dollar and kick you out, just before bulldozing your homes to rubble and having it hauled away so that every trace of you and your 'no gold or silver for me' stupidity is gone forever! Wiped out! Hahahaha! Morons!"

Well, apparently everyone has heard of my Strident Mogambo Advice (SMA) to Buy Gold, silver and oil equities, and it doesn't even rate a raised eyebrow anymore, as proved when Mr. Mayer went blithely on "Everyone seems to know the US inflationary story of the 1970s. The official inflation rate hit nearly 14% by 1980."

I am stopped from going ballistic about such horrors of inflation only because the rate of inflation is worse in other countries, where, Mr. Mayer goes on, "it was worse. In the UK, inflation topped out at 27%; in Japan, 30%." Yikes!

I used the word "Yikes!" in the sense of "ancient history" since, as far as most people are concerned, 1980 was 31 years ago, which was before most people were born, and which is all a sorry result of the aftermath of 1971, which is 9 years earlier, when the dollar's last tenuous tether to gold was severed by Nixon, allowing dollars to be created "at will" by a whore Federal Reserve, which they were, which is why debt soared and there has been constant inflation in prices and now we are all ruined.

Here is where I forsake the use of, "Yikes!" to use the words, "We're Freaking Doomed!" in the sense of "current events," because if inflation in 1980 was 14%, what is the inflation rate when a reader of Chris Mayer's commented, "He may have cited the Wells Fargo forecast of 4% increase in food prices, but between packaging size reductions and slight price increases, we're currently running between a 10-15% increase on core grocery items."

And it gets worse than that, as the reader goes on, "Add that with the upward trend in energy prices, you're slowly barking up a tree that's 15-20% higher than what we started with a year ago"!!

Perhaps the link between the creation of money and inflation does not impress you, the casual reader who has wandered across the MoGu newsletter by accident, and who wonders if there is something of any significance or interest beneath the dull veneer of my poor writing and weirdly recurring thinly-disguised threats against the Federal Reserve as revenge for creating their so much excess money that it creates inflation in prices which makes life Very, Very Tough (VVT) for the poor.

If so, let me bring you up to speed: 15-20% inflation is enough to destroy you and everything, and everybody, you love, and your best bets are to get a lot of gold and a lot of silver, which is automatically proved, in a metaphysical, mystical way, in that "best bets" are anagrams, and "silver and livers" are anagrams, and if there is one thing you can't live without, it's a liver!

Okay, I admit that I am stretching it with this "silver and livers" thing, but after all the other thousands of reasons to Buy Gold and silver that I have used over the years to convince people to get up off of their fat, stupid butts to go out and buy gold and silver, I am simply out of ideas.

I am desperate for some new reason to buy gold and silver beyond the first 3,000 reasons, although, fortunately, as far as buying them is concerned, easy is easy is easy, and no more need be said of its ease, expect for, perhaps, "Whee! This investing stuff is easy!"

Return to the Gold Standard?

2010-12-23T11:54:00.000Z

World Bank President Robert Zoellick reaffirmed his proposal to use gold as a "reference point" to reform the current international monetary system on Wednesday in Paris.

Dollar was pegged at $35 to the Ounce in 1944

"What I suggested is that gold serves as a key reference point to allow people to assess the relations between different currencies," Zoellick told the press here at the end of his meeting with French President Nicolas Sarkozy in the Elysee Palace.

"It's an approach that we can take, others also estimate that we can establish a benchmark against prices of principal commodities," the World Bank president said in response to a journalist's question.

"I didn't propose a gold standard, which is an important distinction because it would directly link currency to gold," said Zoellick, denying reports that he had called for a return to the " gold standard" to modify the present monetary system, which he called "Bretton Woods II."

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," Zoellick wrote in an article published in Monday's Financial Times.

Some media said Zoellick's proposal to revive gold's role in guiding exchange rates worked as a shock wave to current discussions and disputes over the international monetary system.

The "gold standard" is a system in which the standard economic unit of account is a fixed weight of gold.

Under the Bretton Woods system, which was set up in 1944 in the United States, the U.S. dollar was directly pegged to gold -- 35 dollars equaled per ounce -- while other currencies were pegged to the dollar. The Bretton Woods fixed exchange rate regime broke down in 1971, when the United States unilaterally terminated convertibility of the dollar to gold.

Source: Xinhua

149 Tonnes Gold Reserves - For Mining Co

2010-12-23T11:09:00.001Z

Around £4.1 bn of Company Assets!

Gold mining and processing company China Precious Metal Resources Holdings Co., Ltd. (CPM) announces that a sale and purchase agreement was signed on 21 December 2010 in respect of the acquisition of a gold mine in Henan Province, the PRC, for a consideration of 1.18 billion yuan. Upon completion of the acquisition, the Group will have total gold reserves and resources of 149 tonnes.

The mine is located at Zhifang Village of Tantou Zhen of Luanchuan County in Henan Province and has an aggregate area of approximately 8.9940 square kilometers. Completion of the acquisition is conditional upon the Group having obtained a technical report confirming that the total amount of the reserves and the resources of the mine are not less than 25 tonnes.

The consideration of 1.18 billion yuan was determined taking into account the valuation of the target company of approximately 1.401 billion yuan as at 30 November 2010. The consideration will be settled as to HK$500 million by cash utilising the Group's internal resources, and as to HK$680 million by the issue of 328,185,328 consideration shares at an issue price of HK$2.072.

Dr. Dai Xiaobing, Chief Executive Officer and Executive Director of CPM said: "The acquisition is in line with our business development strategy in the gold mining industry. Considering the favourable prospects of the gold mining industry, the board believes that the consideration, which represents a discount of approximately 27.39% to the target company's valuation, is in the interests of the Group and our shareholders."

The issue price of HK$2.072 represents a premium of approximately 17.73% over the closing price of HK$1.76 on the date of the agreement, and a premium of 17.59% over the average closing price of HK$1.762 for the last five consecutive trading days.

Dr. Dai added: "The acquisition enables us to exceed our yearly growth target of reaching 100 tonnes of gold reserves and resources. The strategic locations of our mines in China's three fold belts also help enhance our overall efficiency."

Source: China.org.cn

Why would Anybody want Cash?

2010-12-03T18:05:00.001Z

Thanks to

By Bill Bonner
Mumbai, India

O, what a tangled web we weave
When first we practice to deceive!

– Sir Walter Scott, ‘Marmion’

“The trouble with today’s financial system,” we told a Bloomberg reporter, “is that it is based on fraud.”

“At the bottom of it is paper money – itself a kind of deception. It pretends to be real money. And it is real money – in the sense that you can use it to buy things. But it is prone to lie. All the feds have to do is to turn on the printing press and it will tell you that you are a lot richer than you really are.

“This sort of flimflam has been going on ever since the end of WWII. The feds systematically increased the amount of paper money... leading people to think they had more purchasing power than they really had. Today, a dollar is worth only about 3% as much as it was 100 years ago.

“But that’s just the beginning of the scam. They also systematically under-priced credit – in the belief that the key to prosperity is consumer credit and spending, rather than saving and production.

“The system has its architects and its operators – all quacks and mountebanks. They pretend that they can manage the currency and manage the economy. Yet they misunderstand the most basic elements of how a real economy works. Wealth does not come from consuming... it comes from producing.

“The managers claim to be able to manipulate the economy so well that they can actually improve its performance... that is, they say they can make the economy perform better than it would on its own... better than it has naturally for the past two thousand years. By eliminating the cyclical downturns, the feds told us that they would we all be richer... and free from the volatility that plagued us theretofore.

“So they fiddle and fake it... improvising... and making it up as they go along. The raise interest rates... and then they reduce them. They introducing more paper money when it suits them and change banking rules as their theories suggest.

“When anything ‘bad’ happens, defined as something they don’t like, they rush to fix it. But what can they fix it with? A little duct tape of monetary policy. A little fiscal baler twine too.

“Their fixes are not completely random or haphazard. They have a bias – towards more credit, more spending, more cash, and more speculation. If they tighten rates one month, they loosen them for two months. If they run a surplus in the federal accounts one year, they run deficits for the next five.

“Gradually, more and more debt, mistakes, bad judgments and cockamamie speculations build up. And then, the authorities are under pressure... running from one crisis to another... providing credit to one zombie... and bailout to another... and raw meat to a third.

“And then suddenly, the discipline and self-restraints that held them back gives way like a frayed old rope. Then the central banks and Treasury authorities are running free... abandoning themselves to the trickery and fraud inherent in their profession. The European Central Bank says it will provide “unlimited liquidity” to those who need it, in order to fend off a debt crisis in the Old World. In the New World, the Bank of Ben Bernanke is already bailing out big banks in North America as well as those of Europe. And everywhere, the feds are ready to support one another... and bankroll the IMF... with more paper money and more credit...

“...all of them desperate to hold the system together.”

And now they link arms – the Fed, the ECB, the EU and the US... and don’t forget Japan and the BOJ. And off they march – right off a cliff.

Fake Profits and False Markets

2010-08-10T10:25:00.002Z

Article courtesy of Nadeem Walayat

The Bank of England kept UK interests on hold at 0.5% last week as it continues its policy of IGNORING HIGH UK inflation that continues to stand above the Bank of England's 3% upper limit for the purpose of the BoE continuing to funnel tax payer cash onto the balance sheet of bailed out bankrupt banks as illustrated by the most recent banking sector profit announcements, most of which are fictitious as in actual fact the banks are not generating any profits because they continue to only partially write down bad debts.

The only reason why bankrupt banks are announcing profits is so as to allow them to pay their chief officers huge bonuses as a reward for succeeding in conning the tax payers by means of threats of financial armageddon as inept regulators with themselves having one hand in the cookie jar watch on as they intend to return to commercial banking themselves so as to have their turn at getting a piece of the tax payer funded bailout pie.

The ways and means by which these fictitious profits are being achieved are many, such as The Bank of England loaning the banks at 0.5% which they then run along and invest at zero risk in longer dated UK government stock at 3.5% and thus make a 3% risk free profit with the tax payers money, meanwhile the ordinary tax payers who have been saving hard all their working lives are seeing the value of their savings being stolen by means of the stealth inflation tax as banks drunk on central bank cash pay a pittance of less than 2% in interest whilst even the official doctored CPI inflation rages at 3.2%, well above the BOE target of 2%. And not to forget the government adding insult to injury by TAXING the pittance of interest received at 20% for basic rate and 40% for higher rate tax payers.

Similarly borrowers are not receiving anywhere near 0.5% for loans and mortgages as most mortgage borrowers will be lucky to see any rate below 4% with many on rates of as high as 6% which is resulting in huge profit margins for the banks that continue to penalise their customers for their own mistakes.

Where savers and borrowers are concerned Britain would be far better off with a nationalised banking sector that exists purely to service the loans and savings market rather than the bankster elite maximising the amount of money that can be stolen from tax payers, savers and borrowers by means of an officially sanctioned artificial banking system.

Comment by Roger Bootle: Budget 2010

2010-03-24T21:15:00.002Z

"Government needs first and foremost to look to its own failings. Incompetent and bloated government is one of the most serious factors holding the British economy back".

US Debt Much Worse than Thought

2010-03-24T18:15:00.000Z

Re-counting the US budget deficit forecasts, courtesy of the CBO...

RECENTLY the Congressional Budget Office (CBO) published its scoring of President Obama's budget for the next 10 years, writes Bud Conrad, editor of The Casey Report.

It shows a budget deficit of $9.8 trillion. That is just shy of $4 trillion worse than the CBO's baseline budget, a budget that includes only the laws as currently enacted, with no estimates of any new programs lawmakers may add that worsen future projections.

That our budget is out of control is no surprise, but the charts I present here should provide some perspective of just how dangerous this set of budget estimates could turn out to be. The first chart below shows the amount of red ink in each year for the two CBO estimates.

To get a visual interpretation of just how big these budget deficits have become, I plotted the long-term history, then tacked on the CBO evaluation of the president's proposal. Knowing the propensity of governments to spend more than they promise makes one question if the large improvement shown in the dotted line will actually occur.

Even if nothing changes, however, the results look like they could be very damaging for other aspects of our economy.

One aspect of the CBO projections that is difficult to defend is the expectation that inflation will stay incredibly low. In the next chart, I present the same sort of long-term history, coupled with the projection, for the Consumer Price Index (CPI).

In the next chart, I put together two of the most important measures: the three-month T-bill interest rate and the deficit expressed as a percentage of the gross domestic product (GDP). Both history and projection are shown.

The most important observation is just how disastrous the current deficit is in the historical context, even after rationalizing it by dividing it by the GDP. I overlaid the two series to show that higher deficits in the past tended to occur along with higher interest rates.

As you can see, we now have a significant anomaly, with the budget deficit at its worst in half a century, while interest rates remain near their lows for the period. A closer look at history shows many divergences, to the point that in the short term these two series tend to bounce in opposite directions. That is probably because when the economy shows weakness, the government expands its spending and collects lower taxes, so the deficit becomes worse. Thus, in the short-term cycle of a few years, these two measures often move in opposite directions.

But the situation we face now is much bigger than anything we've seen since the 1950s. The government bailouts and stimulus are at record levels, and the special actions of the Federal Reserve have driven interest rates close to 0%. It is my expectation that both inflation and interest rates will rise dramatically because of these large deficits.

I also think the projected interest rates are much lower than what I expect the deficit would require. As foreigners and others recognize how seriously indebted the US government is becoming, they will expect higher interest rates to compensate for the debasement of the currency.

The budget analysis goes further in calculating the expected growth of the economy, which ranges from 2 to 4% over the years. Those are not large numbers for real GDP, but there is no expectation of another recession during the decade. If the economy didn't grow, tax revenue would be less, and the budget deficit would be worse.

While interest rates are expected to rise as shown in the chart above, the projections expect that they roll over and stop rising at around 5%. That is contrary to my expectations that they will be much higher, and even perhaps closer to 10%, by the end of the decade. If they are, the cost of funding the outstanding government borrowing escalates rapidly because the increased interest has to be added to the debt so that the debt grows even more.

The problem from the onset of this crisis has been the debt, and that continues to be the case. Leaving aside the above two adjustments that could make the budget deficit worse, it's helpful to look at the outcome with the given assumptions and see where it leads. Perhaps the most problematic result is that the debt of the federal government held by the public grows from $7.5 trillion in 2009 to $20 trillion by 2020. Such big numbers are hard to understand, though you can get some sense of things by considering that the government is intending on almost tripling the debt in just 11 years.

The ratio of this outstanding debt to the GDP gives a flavor of how dangerous the situation has become. As Ken Rogoff and Carmen Reinhart have indicated in their new book, when we approach 90% government debt of GDP, we have serious potential for a currency crisis. As you can see, we are well on our way to those levels, even without assuming the two adjustments above.

How will the deficit be funded?

The question arises who will service the rising levels of debt. Clearly the taxpayers are on the hook for all these projections, with more to come. So the question becomes whether the tax base can grow fast enough to provide support for servicing the debt.

The CBO gave us two series for the tax base. One is Domestic Economic Profits, and the other is Wages and Salaries. The basic assumption is that these are the main revenue streams that can be taxed by the government to fund its expenses. I added these two series together and divided by the GDP to determine if the tax base is growing more rapidly than the economy. Unfortunately, but as expected, the orange line in the above graph shows that the tax base only grows about as fast as the economy itself. That's not surprising, but the contrast to the rapid growth in debt will be a serious source of problems, as the only way the debt can be sustained will be through increasing the tax rates, and probably quite dramatically.

The latest set of budget predictions will probably be wrong, and not just because the assumptions are too optimistic, but because there is a relatively high probability that something will go off track to cause a major shift before the 10 years are completed.

Unfortunately we are not preparing ourselves for such problems, and so I would interpret the CBO projections as being far too rosy.

Ready to Buy Gold today...?

Doug Casey, 24 Mar '10

Doug Casey is a world-renowned investor and author, whose bookCrisis Investing was #1 on the New York Times bestseller list for 29 consecutive weeks, a record at the time.
He has been a featured guest on hundreds of radio and TV shows, including David Letterman, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin, NBC News, and CNN; and has been the topic of numerous features in periodicals such as Time, Forbes, People and the Washington Post.
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UK Sub Prime Government and Its Sub Prime Thinking

2010-03-24T17:57:00.003Z

The INFLATION Mega-Trend - The world's subprime governments are sending their economies headlong towards bankruptcy by basically continuing to exchange private debt for public debt as a consequence of the dual forces of paying attention to worthless thesis generated by ivory tower academic economists that populate the institutions that rely on revenues from governments to sustain their existence because they would not survive in the market place precisely because they fail to understand economic and financial reality, and as a consequence of politicians being in the back pockets of the bankster elite that wait for the cash handouts when they leave office.

The politicians and governments DO NOT work in the best interests of the people, instead the are systematically screwing the voters / tax payers out of ALL of their life savings and future earning capacity. In Britain we will shortly face a general election where it is either a vote for party tweedle dum or tweedle dee, neither of whom has done or will do anything to bring any of the bankster's to account for their £1 trillion crime against tax payers, instead the Treasury and Bank of England continue to funnel tax payer cash onto the balance sheets of the bankster banks so as they can continue to pay out bonuses on the basis of fictitious profits.

Both Labour and Conservative politicians are in the back pockets of the bankster elite, NEITHER are capitalist OR socialist. Free Market Capitalism would have demanded that the bankrupt banks go bankrupt. Socialism would have demanded that the interests of the workers be put FIRST ahead of the bankrupt institutions instead of giving them hundreds of billions in cash, that money could have ignited an economic boom if every tax payer had been handed £20,000 in cash ! - NEITHER took place, Instead the politicians in the back pockets of bankster's CHOSE to provide unlimited tax payer funds to the bankrupt banks in exchange for future reciprocal cash hand outs that we will witness as the politicians leave office and politicians market themselves at as much as £5,000 a day to the bankster elites.

The consequences of this remains for the balance sheets of the private sector to improve whilst the balance sheets of the public sector to explode. The governments through money printing are set to continue this which is feeding inflationary mega-trend and the stock market BOOM. Eventually the governments risk defaulting into hyper-inflation (many years from now) which is why it is important for people to protect their wealth from the Inflationary Mega-trend. My New FREE 100 page ebook contains 50 pages of how to protect and grow your wealth from strategies including investing in the stocks stealth multi-year bull market and avoiding government bonds and cash as a consequence of negative real interest rates. (Download Now - FREE).

Meanwhile deflationists continue to miss the obvious in that REAL debt is not what is stated in statistics pumped out by the governments such as UK debt being at 60% of GDP. Real debt and liabilities has the UK at 400% of GDP, we are already well along the path towards high inflation, which IS now manifesting itself in the official inflation indices which over the past few months has seen UK CPI break above 3%. The governments will continue to print money to monetize the huge budget deficits because that is publically far easier to do then to allow for the consequences of deflation. I.e. the masses are far more conditioned and susceptible to have their wealth gradually stolen by means of inflation then countenance the pain associated with deflation and nominal economic contraction. This means inflation proof asset classes will continue to rise in price which includes the major stock indices, and 'most' of the individual stocks they comprise.

The strategy is this - To inflate the debt away, to inflate wage purchasing power away, to give the illusion of economic prosperity when people are in actual fact working twice as hard to buy the SAME goods and services. The ONLY defence people have to protect themselves is to diversify out of fiat currencies as illustrated by some 50 pages of the Inflation Mega-Trend Ebook.

For more mega-trend forecasts across the financial market and implications of the unfolding Inflation Mega-Trend download the NEW FREE Inflation Mega-trend Ebook, which includes analysis and precise forecasts for:

Interest Rates
Economy
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Gold & Silver
Emerging Markets
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Stock Market Sectors and Stocks, including ETF's
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Economy - The economies are continuing to improve in terms of GDP growth as a consequence of unlimited money printing and stimulus, this will continue throughout 2010 and into 2011, which continues to paint a favourable stocks picture for the current year at least, therefore continues to support the stocks bull market target of 12,500 for this year as a consequence for the need for risk as a consequence of negative real interest rates.

Corporate Earnings - Corporate earnings have FOLLOWED the stock market higher, despite continuous doom orientated commentary of the past 12 months that has repeatedly stated that corporate earnings forecasts implied stocks could NOT rally. The fact is that corporate earnings are surprising to the upside (no surprise to me). There exists a strong case of delusional thought in the processes of many analysts that hold a particular view then go out to seek out reasons to support that view, which is why they miss WHOLE bull markets. Corporate earnings are NOW rising and far from looking for earnings to collapse into a double dip recession, this IS ONLY the beginning.

We heard the mantra based on WRONG corporate earnings expectations that the market cannot support a P/E of over 25, when in fact real forward P/E is much lower because corporate earnings are MUCH higher, not only that but corporate earnings 'should' continue to surprise to the upside for the whole of 2010 therefore reinforcing the fundamentals for a strong bull market.

In terms of stock market trend this implies positive price action into lead up to Q2 earnings season, which therefore implies that the stock market should be heading higher going into May and into the earnings reporting season which suggests a positive trend into at least Mid May and therefore suggestive of a price trading at new bull market highs. So Corporate earnings suggest the stock market will be trading at new bull market highs during May.

Market Psychology - The mainstream financial media and blogosphere continues to pump FEAR into the minds of investors, FEAR of recession, FEAR of sovereign debt default, FEAR of currency collapse, FEAR of credit crisis II, FEAR of the U.S. Following Japan, FEAR, FEAR, FEAR. Any small bit of bad news is MAGNIFIED on an near daily basis. No wonder small investors are running scared, dumping their cash into bonds and cash. However FEAR is a great driver for a stocks stealth bull market, where the FEARLESS have already wracked up profits of 60%+ whilst the FEARFUL majority look on in well FEAR. As I mentioned in the Inflation Meg-trend Ebook, I do not expect this situation to change for MANY YEARS ! So those that are waiting for good news to abandon fear and invest, won't get what they are waiting for many years when the Dow has long since passed its previous all time high, not until we get to the final stages of the bull market when once more investors are wrapped in the cloak of certainty of profits amidst a new paradigm of every rising stock prices.

So market psychology wise, this bull market is still in its infancy which means all corrections are buying opportunities where the greater the deviation from the high the greater the buying opportunity presented. So far this conclusion has borne immense returns for those that deviate from the normal expected behaviour that concludes towards most investors only joining the bull market when it is time to SELL!

Stock Market Trend Against 2010 Forecast and Expectations

The stocks stealth bull market that bottomed in March 2009 confounded widely held expectations by both the bulls and bears of immediate term price action lower to dissipate its overbought state that failed to materialise, instead the stock market last Wednesday broke to a new bull market high by closing at Dow 10,733 with a further advance on Thursday, followed finally by a small down day on Friday to break a 8 day winning streak with the Dow closing at a new weekly high of 10,742.

The Dow high had lagged other stock indices that had made new highs over previous week including the UK FTSE, S&P500 and Nasdaq (though not other European indices despite the weak Euro).

Stocks Stealth Bull Market Trend Forecast For 2010 - The Inflation Mega-Trend Ebook Page 82 (DIRECT Download)

Dow 10,067 - Stocks Multi-year Bull Market that bottomed in March 2009 will trend Sideways during first half of 2010 attempting to break higher. The second half will see a strong rally to above 12,000 targeting 12,500 during late 2010.

My trend expectation has been for the Dow to trend around its 50% axis (10,333) to conclude in a sideways trend between a support and resistance for between 9,500 and 10,730 for the first half of 2010, the trend off of the early Feb low has shown relative strength against this expectation, especially given the break higher. The stock market forecast for 2010 stated that the market would trend within a volatile trading range for the first half of the year and could generate as many as 3 failed attempts to breakout higher, presently despite its strong action off of the Feb lows, this scenario suggests that the stock market should revert back into its trading range in preparation for the breakout higher later in the year.

Stocks Bull Market Anniversary - To make money you go long (invest) in a bull market and go short (SELL) in a bear market. This bull market is now ONE YEAR OLD! Think about that for a moment, ONE YEAR OLD ! The only thing that has changed during the past 12 months is the reinforcement of trend and capital appreciation.

Many investors who have been fooled into MISSING one of the greatest bull markets in history have been driving the market higher these past few weeks to new highs, which suggests the anniversary is carrying increasing momentum behind it which means despite corrections that will undoubtedly happen, however the weight of new buying pressure is so great that we are likely to see the stock markets go much higher and much sooner than anyone expects (even me!).

TIME ANALYSIS - The Jan to Feb 2010 correction was of a similar duration than the June - July 2009 correction, which implies that both corrections were of a similar order in terms of corrective trends that imply we can therefore expect a powerful multi-month rally to transpire over the coming months taking the Dow far beyond the preceding high of 10,730.

ELLIOTT WAVE THEORY - Since the Market Peaked in January, my interpretation of the EWT component of analysis had resolved towards an wide corrective ABC pattern into the target zone of 9,500 to 9,800. We got the Wave A which terminated at 9,835, which left some doubt at the time whether that was the low or not given that it was just out of the target zone, additionally the downtrend was much shorter in time than necessary to unwind the previous swing higher to 10,729. Nevertheless at the low in early February the EWT pattern did continue to conclude towards B wave rally higher in advance of a further C swing lower.

As indicated in the first chart above, this rally continued higher past the previous swing high of 10,438 WITHOUT correcting. The market has trended higher day in day out for 8 straight days into Friday's small decline. The ABC scenario remained in tact right upto the target of 10,625 after which the scenario was further negated on the break above the bull market peak of 10,730.

Current interpretation of EWT is illustrated in the graphs below which conclude towards a relatively minor correction during early to mid April (Wave 4), followed by a powerful wave higher into early to mid May 2010 that targets Dow 12,000, as part of a more powerful trend from the early Feb low. Whilst this will clearly be a Wave 5 peak off of the Feb low, however this does not automatically mean that it will be the larger 5th wave juncture for the whole bull market off of the March 2009 lows - No that would be a far too simple interpretation of EWT, always remember EWT is ONE component that needs to be confirmed by the sum of ALL analysis and if need be needs to bend to the sum of that analysis rather than price be forced to fit EWT. So first things first, we need to get the next two months or so of price action out of the way before I contemplate what happens after mid May.

Bear Market and the 1930's Stock Price Chart Pattern - What happened to the bear market that had supposedly resumed following the January high ? A timely reminder from an earlier article (02 Nov 2009 - Stocks Bull Market Forecast Update Into Year End ) as various changing charts from the the 1930's keeps being brought out on every correction to signal the rally's end, I can imagine 4 years and several thousand points higher from now they will still be presented as FACT as to what is going to happen which NEVER DOES!

Stock Market Crash Again?

Forget swine flu, the pandemic doing the rounds is that of another Crash with the 1930's chart dusted down and presented as near fact of what is to transpire on every correction. However the markets response has so far always been to push to a new high for the move.

What happens to the crash calls ? They again get rolled out again on the NEXT correction! However the damage has been done as short stops are hit and losses accrued, that no broker will refund for the next crash call.

There is one major fundamental flaw in the Repeat of the 1930's thesis and that this is 2010 and NOT the 1930's I could also pick a chart form the past that would closely fit onto recent price action to imply the a stock market will soar higher, but that would be more wishful thinking than an actual attempt at trying to generate an accurate projection of future trend which is exactly what has been taking place for the past 12 months! 1930 does not fit, use 1931, then 1932, then 1933, then 1934 and so on, keep changing the charts each time they are proven to be wrong - That is not analysis.

TREND ANALYSIS - The Dow ABC into early Feb was swift and short, bottoming at 9835, just shy of the target of 9,500 to 9,800. The subsequent uptrend has seen little corrective action against it, which is not surprising given that virtually everyone saw it as not sustainable. The trend of the past 3 weeks has been particularly strong which culminated in an 8 day winning streak with the first down day last Friday that marked a brief pause before resuming to a new bull market peak last Wednesday as mentioned above. As of writing there is NO reversal pattern i.e. lower high and last low break to trigger any form of a sell signal which suggests a continuation higher.

SUPPORT / RESISTANCE - Previous resistance of 10730 now becomes support. With the Dow at 10,888 immediate resistance lies at 11,000, that is likely to contain the momentum behind this rally, which suggests that the Dow may mark a corrective trend to target the 10,730 support level therefore implying a bearish outlook for the Dow during early to mid April. Below 10,730 there exists a wide range of support levels all the way down to 10,500 which implies that any price action lower into this range will be choppy and very volatile. On the upside resistance over 11,000 exists at between 11,900 and 12,000, therefore implying a significant correction could take place from that level.

MOVING AVERAGES - The 200 day moving average contained the Jan- Feb 2010 correction and continues to act as a distant support for the bull market. The shorter 50day moving continues to act as short-term support and as a significant correction measuring move for future corrections, current support stands at 10,400, rising to 10,500 by mid April and therefore providing further support to the zone of between 10,730 to 10,500 which could see intra-day spike lower towards the MA at approx 10,500.

PRICE TARGETS - Upside price targets resolve towards 11,000 and 11,900 to 12,000, then 12,500. Downside price targets resolve towards 10,730 to 10,600 with a possible intra-day spike as low as 10,500.

MACD - The MACD confirmed that the last correction was in line with that which transpired during June / July 2009. Whilst the current rally has been strong, however because of the amount of time taken to rise, it has not pushed the MACD into a particularly overbought state. Neither does any negative divergence exist. However on the expectation of a narrowing in momentum for this years stocks bull run, I do expect a more compact MACD pattern which implies stocks could correct BEFORE they reach an overbought extreme, which implies a correction towards the lower end of the MACD range (indicated) could be imminent.

VOLUME - Volume has remained WEAK throughout the rally, which has been one of the main reasons why so much commentary has been bearish during the past 12months. However it is perfectly inline with that of a stealth bull market and also implies that this rally is STILL NOT being bought into. So all of the talk of hyper bullishness investor sentiment since, well summer 2009 basically remains rubbish as there is no sign of such sentiment in the volume, which remains heavier on the declines than the rallies and thus suggestive of SELLING rather than buying into the rally.

SEASONAL TREND - There is a strong seasonal tendency for stocks to rally into Summer then correct in October followed by a sharp rally into December. The seasonal trend is increasingly matching actual chart trend and the unfolding forecast for the next 2 months for a rally into Mid May 2010.

PRESIDENT CYCLE YEAR 2- The impact of the 2nd year of the presidential cycle on the stock market is for a weak trend into September, and a rally in the fourth quarter into the end of the year for a small average gain for the year. This is increasingly becoming contrary to the unfolding trend which implies greater price volatility.

SWING SELL SIGNAL - The nearest swing sell signal is at 10,500. With the Dow at 10,888 the market retains plenty of room to breath, in fact I would not be surprised if the market retraced towards the sell signal before continuing higher.

Stock Market Conclusion

The sum of existing analysis upto the end of January had concluded in the Dow targeting a trend during 2010 to above 12,000, targeting 12,500 by late 2010, to be preceded by a volatile sideways trend during the first half of the year.

As we approach the end of Q1 the trend is showing relative strength against this forecast, the key manifestation of this is that the stock market did NOT retest the February low as I was expecting to take place i.e. to generate a double bottom pattern. This coupled with current analysis (above) suggests we are going to get what cycle analysts would know as 'left translation' in the projected trend, which implies we get the rally to 12,000 far earlier i.e. during Q2, rather than Q3 to Q4. Which on face value also suggests a weaker trend later in the year, but more on that in May.

Dow (DJIA) March to May Stock Market Trend Forecast Conclusion - Therefore my specific conclusion is for a continuation of the uptrend into early to mid May, achieving the 12,000 target during this time period, also allowing for a correction during April as illustrated by the below graph.

Risks to the Forecast

That the market reverts back to the January forecast expectations and delays the trend to above 12,000 until later in the year, at this point I would put a probability of this happening at about 20%.

The next in depth analysis is scheduled to follow during early May 2010 as the current analysis expires. The key question I will answer at that time is whether the stock market under goes a major correction, far greater than that of Jan to Feb or continues trending higher beyond the 12,500 target for 2010. My focus is now primarily on mapping out a trend for UK house prices over the next few years that will conclude in an FREE ebook, to receive this in your email in box, ensure you are subscribed to my always free newsletter.

Hedge Your Portfolio

Stock market and commodity investing is high risk which does require mechanisms to be in place to hedge against being wrong. Just as those that have remained bearish on the stock market this past year have probably long since given up any bear market profits by repeatedly betting against the bull market, the worst thing an investor can do is to give up all of their bull market profits during a bear market. In this regard investors need mechanisms that are able to liquidate / distribute portfolios to cash in the early stages of new bear markets and this mechanism is stop loss orders. The most basic rule is that for a 20% retracement from the last bull run high on an individual stock. The better rule is to identify a preceding significant support level that cannot be breached for ones opinion on the stock to be correct.

A more advanced form of hedging that requires greater experience is to utilise stock index futures and options to partially hedge your portfolio against any decline. The operative word here is that one is hedging, i.e. the returns are to partially offset the loss on the portfolio that is paid for by the portfolio. I.e. dividend income in part finances put options etc.

Labours Last Giveaway Election Budget Tomorrow

Tomorrow (24th March) is the Labours last budget. The labour government over the past 12 months has bent over backwards in an attempt to ignite an debt fuelled election boom, I just cannot conceive that they will now at this late stage see sense and implement a commonsense budget, so I expect a final throw of the dice, to spend more money that the country does not have and leave the tories with an even bigger debt headache than the 12% annual budget deficit and £1 trillion of public debt that they already face. So expect spending surprises / election bribes tomorrow aimed at Labours traditional voter pool that will likely result in much volatility for sterling.

The axe is hanging over the public sector of which some £65 billion or 10% will be cut which includes the NHS black hole spending department that as we saw with the lengthy report on the REAL performance of one of Britians top ranked hospitals, The Mid Staffordshire NHS Foundation Trust that NHS statistics are fiction against the facts of actual patient experience.

Telegraph - 19th March 2010

Up to 1,200 patients are thought to have died unnecessarily at the trust between 2005 and 2008.

A damning report on the deaths found chronic staff shortages, receptionists in casualty departments assessing the urgency of cases and nurses switching off equipment that did not know how to use.

Both trusts are “Foundation Trusts” a status supposedly awarded to only the best in the NHS.

I don't mean to be a damp squib to those americans reading this and in an euphoric mood following Obama's healthcare bill being passed by Congress, but the last thing you need is your own version of NHS hell, that routinely kills patients masked by fictitious official data that disintegrates in the face scrutiny under public inquiries and that politicians are too scared to seriously reform due to the army of workers / voters that ride the NHS gravy train. The sooner the NHS is privatised the better the prospects for the health of ordinary Britains.

Your Dow stock index trading and bull market investing analyst.

Source: LINK`http`www.marketoracle.co.uk/Article18125.html`margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; background-image: initial; background-repeat: initial; background-attachment: initial; -webkit-background-clip: initial; -webkit-background-origin: initial; background-color: transparent; text-decoration: underline; cursor: pointer; color: rgb(144, 0, 0); background-position: initial initial; `LINK

By Nadeem Walayat

LINK`http`www.marketoracle.co.uk/`margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; background-image: initial; background-repeat: initial; background-attachment: initial; -webkit-background-clip: initial; -webkit-background-origin: initial; background-color: transparent; text-decoration: underline; cursor: pointer; color: rgb(0, 0, 204); background-position: initial initial; `LINK

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation,economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. LINK`http`www.marketoracle.co.uk/`margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; background-image: initial; background-repeat: initial; background-attachment: initial; -webkit-background-clip: initial; -webkit-background-origin: initial; background-color: transparent; text-decoration: underline; cursor: pointer; color: rgb(0, 0, 204); background-position: initial initial; `LINK

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis.Individuals should consult with their personal financial advisors before engaging in any trading activities.

Petro-dollars Under Threat

2009-04-04T11:12:00.001Z

The coming financial storm no one is talking about

BY MANRAAJ SINGH

Dear Reader,

There’s a major trend that could have a devastating impact on the US dollar.

What’s shocking is that I haven’t come across a single other financial analyst who has fully grasped the implications of it.

This is crazy, given that it will affect anyone who owns dollar-denominated investments, whether it’s gold, international shares or commodities. In fact, even if you aren’t directly invested in them, there is very good chance your pension fund is.

That’s how big this is.

The thing is, though, you can turn this trend to your advantage, as we’ll see in a moment.

I’m talking about the planned creation of a single common currency in the Gulf States. A new monetary union just like the eurozone, but for oil rich countries.

That might not sound like a big deal. After all, who really cares what a bunch of Arab countries are doing with their currencies?

But this is going to have a colossal impact on the world economy. Let me explain…

Last Friday, I explained why the dollar’s long-term value is under threat as the US economy falters. But now let me show you the threat to the dollar that the rest of the world still hasn’t picked-up on…

The great petrodollar merry-go-round is about to break down

You see, right now the dollar receives a huge amount of support from being the standard currency for international trade. The international oil trade is a big part of that. Oil is priced in dollars on the international market. It is bought and sold in dollars.
What that basically means is that countries that want to buy oil need to have dollars. Countries that sell it are left holding dollars. That fuels global demand for the American currency. It props up its value…

Right now, the only major producer that sells in a different currency is Iran. They take their payments in euros and Japanese yen. But it is the Gulf Arab states like Saudi, Kuwait and the UAE that are at the heart of the global oil trade.

But now think of a situation where global oil production is increasingly concentrated in the hands of the Gulf Arab countries. And, as I explained in a recent special report, that is what is going to happen as non-OPEC production collapses.

Now consider what the impact on the dollar is going to be when those countries say they don’t want to be paid in dollars anymore. Once they’ve got a common currency you can bet they are going to price their oil in it. They will want to be paid in Dirhams or Dinars or whatever else it is that they eventually name it.

That is going to short circuit global demand for the dollar. Because oil importing countries won’t need to buy dollars to pay for their oil anymore. The Gulf countries won’t be left holding huge reserves of dollars which they then have to recycle into the US…

Right now the oil-exporting countries are the second-biggest holders of US government debt after China. That’s because they get paid for their oil in US dollars. A lot of that money then gets reinvested in US dollar-denominated assets. But if they aren’t being paid in dollars anymore, they won’t have to recycle them by investing in US government bonds. International demand for the dollar is going to plunge. And the value of the dollar is going to plunge with it.

Two years to D-Day?

The Gulf Co-operation Council (GCC) states have been talking about this for a long time. And they signed the first concrete agreements to implement it last September. Since then they have been moving ahead with their plans. By the end of this year, they should have a monetary council in place. This will be a precursor to the Gulf central bank. And it will decide on the name and value of the currency.

They had planned to have their new currency in place by 2010. I doubt they will manage it that quickly though. The way I see it, the impact of the financial crisis will force them to push it back by about a year.

But there is absolutely no doubt about it – the Gulf common currency is now on its way. And when it happens it is going to kick the legs out from under the dollar.

As I said though, there are ways that you could profit from this. An obvious trade is to go short on the dollar. There are listed funds that allow you to do that. And again, not all dollar-denominated assets will lose out. Whilst the value of US shares, for example, is going to be eroded, the value of certain dollar-denominated commodities like oil and gold rises as the dollar weakens.

Kind regards,

Manraaj Singh
For The Right Side

Editor’s recommendation: Manraaj Singh is Chief Investment Strategist at Profit Hunter. As he explains, when the dollar falls, oil goes up. Click here to receive his latest smart way to play the “oil rebound”.

When will gold break through $1,000 an ounce?

2009-01-28T14:49:00.006Z

When will gold break through $1,000 an ounce?

The difference between gold and other precious metal

Thanks to Dominic Frisby, in London

Today, I wanted to look at precious metals in general. Not just gold, but silver, platinum, palladium and even some of the lesser known platinum group metals, such as rhodium and indium.

We are living through one of the greatest financial crises in history – possibly the greatest. The contraction in credit has forced selling in everything.

Many were under the illusion that precious metals would be safe in such a scenario. But they haven’t been. Let’s look at why...

Gold is maintaining its purchasing power, unlike money

The key thing to remember is that this is a financial crisis – a crisis of money. Of all the precious metals, gold is the only purely monetary metal. Yes, it has some industrial use, but a negligible amount. Gold’s use in jewellery has derived from its monetary function, which is to store wealth.

Money has two functions: one is to be a medium of exchange, the other to store wealth. Gold has long since been useless as the former (although technically sovereigns are still legal tender) but as the latter it has acted soundly. Yes, it fell against the yen last year, but so did everything. Yes, it was volatile against the dollar, but in the grand scheme of things, gold is maintaining its purchasing power, while money, be it the yen, the dollar or the euro is falling.

Some currencies have been weaker than the dollar. One ounce of gold now costs 110,000 Icelandic Krona for example, up from around 40,000 in 2007. To be honest, I’m surprised it isn’t higher. (Thanks to Nick Laird at www.sharelynx.com for the charts.)

Britain has similar, though currently less extreme, problems to Iceland. This has been reflected in the price of the pound against gold.

So gold, although volatile, has performed well.

Silver is more vulnerable than gold

Silver, too, is a monetary metal. As many of you will know, the words ‘silver’ and ‘money’ are interchangeable in some ninety or more languages: ‘argent’ in French, for example; ‘plata’ in Spanish. ‘Pound sterling’ once meant a pound of sterling silver. But, historically, silver’s role as money was less as a store of wealth and more as a day-to-day medium of exchange. That role has now expired.

Many silver bugs will point to silver’s numerous and ever-increasing industrial uses. But the demand for these uses has decreased as the crisis has unfolded. The outlook for business is grim, and the market has reflected this in the price of silver. In other words, silver’s industrial use, the very thing that made it desirable, suddenly made it undesirable.

In short, silver outperforms gold during an inflationary boom, but underperforms during a deflationary bust. This is reflected in the gold-silver ratio, which spiked dramatically in the Autumn.

Many were calling for that ratio to fall below 20. It will one day. The historical ratio is 15 – there is 15 times as much silver in the earth’s crust as gold. But we are a long way from that. We may see 100 first.

But those who bought silver with pounds will not be as disappointed as dollar buyers. It’s not too far off recent highs:

The story isn't great for platinum or palladium either

I’m afraid it is the same story for platinum and palladium as with silver. Only a year or so ago, many - myself included – looked at South Africa’s political problems and its energy crisis and asked where in the world platinum was going to come from. Indeed we are still asking ourselves that.

But the market doesn’t care. Though precious, platinum is still an industrial metal. The car industry is, for now, doomed and the market has no time for platinum, despite its rarity.

It was the same story for palladium, which fell from $600 to about $175 per ounce, and for rhodium it was even worse. The rhodium chart was amazing. It seemed to do nothing else but go up. For years this was the case – then crash.

Yes, silver and platinum group metals have a use in jewellery, but jewellery sales are down, despite its use as a store of wealth. Even gold jewellery sales are down. All the demand for gold is safe-haven investment demand.

By November of course, the industrial precious metals had become way too cheap. The market recognized this and platinum and silver have since rallied. And I suspect they will continue to rally along with all commodities for the next month or three.

But the greater demand is for money, so over the longer term – the next three years or so - we can expect the demand for the monetary metal gold to be greater than the demand for the industrial.

When will gold break through $1,000 an ounce?

However, those short-term traders who play gold in dollars should perhaps exercise some caution here. It has had a good run since November and could easily bounce back off the trendline below. In fact, the ideal technical scenario is to gently pull back and then cruise through at the next attempt.

Those who read a lot of my stuff will know my theory – and it is no more than that – that gold makes 6 to 9 month up-moves, followed by periods of consolidation lasting about 18 months. I suspect we are in one such period. I do not see a break out to new highs above $1,000 in the very near future, but we'll be there by this time next year.

So I am holding onto every ounce of gold and every quality share that I own. Gold’s uber move could strike at any time and I don’t want to miss it when it comes. Like the stock market crash of last autumn, it has been years in the making, it will be swift in the unfolding and you have to be positioned.

If you’re not in it, you will not win it.

Turning to the wider markets...

The FTSE 100 fell another 0.4% yesterday, closing at 4,194. Mining stocks and utilities were among the bigger fallers: Xstrata lost 4.9%, Anglo American 1.3% and Antofagasta 0.8%. Severn Trent Water was down 3.5%, and Scottish & Southern Energy lost 0.7%.

In Europe, the Paris CAC 40 lost just one point to end at 2,954; the German Xetra Dax, meanwhile, was down three points at 4,323.

In the US, financial stocks led the Dow Jones Industrial Average up 0.7% to 8,174. Bank of America climbed 8.3%, while Citigroup added 6.6%. The broader S&P 500 index closed up 1.1% at 845, and the Nasdaq Composite finished 1% higher at 1,504.

Overnight in Japan, the Nikkei 225 rose 0.6% to 8,106, sustained by hopes of a US 'bad bank' rescue plan. The broader Topix index, however, fell 0.1% to 804.

Brent spot was trading at $43.63 early today, and in New York, crude oil was at $42.39. Spot gold was trading at $898 an ounce, silver was at $12.13, and platinum was at $948.

In the forex markets this morning, sterling was trading against the US dollar at 1.4283 and against the euro at 1.0743. The dollar was trading at 0.7526 against the euro and 89.08 against the Japanese yen.

And there was mixed news for Britain's economy today. In a rare ray of sunshine, satellite TV operator BskyB announced it will create 1,000 jobs in its customer service and equipment installation teams, as it expects strong demand for its high definition services. Sales were up 5.8% in the six months to December 2008. But there was bad news for the commercial property market, as a report issued by Moody's concluded prices in the UK could fall by as much as 25% this year.

The Gold Bull Run

2009-01-07T11:57:00.003Z

What was the best-performing asset of 2008?
Thanks to Dominic Frisby of Money Week

The Japanese yen. The many funds that had borrowed money in yen to buy assets in other currencies, now sold those assets and bought back yen to pay down debt. This was the unwinding of the Great Yen Carry Trade.

Hard to believe though it is with all the huge volatility, the next best performer was gold, up about 6% on the year against the dollar, and a lot more against everything else from stocks to real estate.

Gold was down some 15% against the yen. But those who bought their gold with British pounds will be delighted. After a hedge-fund beating 30% gain in 2007, we saw a stupendous 44% rise in 2008. Gold broke out above £600 to all-time highs.

However, it was an extremely volatile year and many of those attempting to trade gold with margin, in other words on borrowed money, will have been wiped out. It’s why I am forever saying that you should buy the physical metal itself...

The outlook for sterling is grim - gold is your insurance

Even silver, which had a pretty woeful year by all accounts and was down some 24% against the US dollar, made 13% against the pound. (That most frustrating of metals continues to frustrate). As we all know the outlook for sterling is grim. I do not rule out a full-scale currency collapse. But, for now, it appears to be making some kind of a bottom against the US dollar.

If you look at how gold has traded vs sterling since Gordon Brown sold our gold, you will notice a distinct staircase pattern. It shoots up, then consolidates at the higher level, then shoots up.

Based on this repeating pattern, since we have just had a sharp shot up – and this could continue for a short while longer - a period of consolidation is now likely, before the inevitable march to £1,000 an ounce and beyond. But I would not sell a flake of your physical gold yet. It is your insurance - if sterling implodes, you’ll need it.

When measured in gold, this is already the worst house price crash in history

I don’t know if this sell-off in sterling has been orchestrated, but it suits the government. The economic downfall doesn’t look nearly so bad measured in weakened sterling as it does in, say, dollars. House prices are down some 15-20% from the highs, depending whose figures you use, measured in sterling. But measured in gold, this is already the worst crash in history, as the chart below shows.

What’s more this crash still has a lot further to go.

In this chart, having risen by the most, London prices look set to fall by the most:

(My thanks to mathematician Tom Fischer of Heriot-Watt University for these superb charts, which he kindly offers free of charge. You can see more of his work here.)

There are many people out there, myself included, who sold property and bought gold. They were considered cranks and crackpots by their nearest and dearest. Those nearest and dearest are now revising their opinions. The long-term trade of property to gold and back to property when certain targets are reached (100 ounces of gold for the average UK home, maybe?) is still very much alive and well.

Gold is on track to be a top performer this year

In late November I wrote that I felt gold stocks were set to be the best performing asset class over the next two years (to read this article, click here: 2009: gold stocks will be among the top performers). We are already on track with the HUI (the index of major gold producers) up about 50% since then. Now that tax-selling is done in North America – it ended at Christmas – some significant buying has come into gold stocks of all kinds, from explorers to majors, and we are seeing some impressive action everywhere. Hold your positions.

Over Christmas, I had a long conversation with my step-father about gold. He’s South African, so perhaps has a greater familiarity with gold than many of us Brits. In the 1970s, you weren’t allowed to take your money out of South Africa. (Who knows what currency controls are headed our way as governments – Brown’s in particular –move to tighten international banking regulation).

The rand was falling fast and nationals saw their purchasing power collapse. Many of those who fled, he told me, got their wealth out of the country by carrying out Krugerrands. His parents were Jewish and fled Poland in the 1930s. They too transported their wealth through a similar means. And yet he doesn’t like gold, because, he says, it doesn’t pay any interest. I reminded him how much interest you get on dollars and on yen. From tomorrow, as the Bank of England cuts interest rates further, it looks like you’ll get a similar amount on pounds. Paper currency paying as much interest as gold, who’d’ve thought it?

The gold bull market of the 1970s ended when Volcker raised interest rates to 20%. 20% interest rates are a long, long way off this time around – and so is the end of gold’s great bull market.

The police, and the state, are out of control

2008-12-03T14:22:00.001Z

By Philip Stephens of the FT
Published: December 1 2008 19:21

The police are out of control. So is the government. We can only conjecture as to what possessed the senior officers who raided the homes and parliamentary office of Damian Green, the Conservative immigration spokesman. Yet their disdain for political process spoke eloquently to the authoritarian culture of our times.

In this respect, regardless of whether ministers played a direct role in Mr Green’s arrest, the blame rests squarely with the government. The police must be held to account for their heavy-handed intimidation, but ministers nurtured the climate in which such madness flourishes.

The absurdities of the incident are self-evident. A score of officers from the Metropolitan police’s “special operations directorate” barged into Mr Green’s London and constituency homes, hauled him off to the cells and stripped his office of computers and files. The alleged offence? To have put into the public domain leaked information that embarrassed Jacqui Smith, the home secretary.

There is not a hint here of any breach of national security. Mr Green exposed the incompetence that has long described the conduct of affairs at the home office. The official alleged to have leaked the information has already been arrested.

It is all but impossible to imagine a jury convicting Mr Green. Disseminating leaked information has been embedded in the custom of politics since time immemorial. Rightly so, given the stiflingly secretive British state. When he was in opposition, Gordon Brown used to boast of his skilful exploitation of such material. Can we expect the “special operations directorate” to be hammering next on the door of Number 10 to seize Mr Brown’s BlackBerry?

Mr Green was arrested under a part of the common law that proscribes “misconduct in a public office”. The police say (off the record, of course) that the MP was not a passive recipient of documents, but conspired with the official. They hint they have evidence enough to charge Mr Green.

We shall see. The purpose of this 18th-century law is to deal with corrupt public officials including, dare one say it, police officers. To deploy it in this fashion against elected members of parliament is to show, at very best, blithe ignorance of the democratic process. MPs are not above the law, but the police have no place in politics.

We have been here before. During the final year of Tony Blair’s premiership, a team of officers conducted a long, expensive and fruitless inquiry into allegations that the then prime minister had sold peerages in return for party donations. Once again the staged drama – dawn raids and off-the-record smearing of those under investigation – was in inverse proportion to the possibility of any prosecution.

Needless to say, no one was ever brought before a court. But it seems the police are still ready to trample over the line that separates legitimate investigation from the, albeit sometimes grubby, practice of politics.

You could say, though, that Mr Blair should not have been surprised. If the police think they can discard due process, they have been taking their cue from the government.

For more than a decade, first Mr Blair, and latterly Mr Brown, have rolled forward the boundaries of the state at the expense of civil liberties. The consistent opposition of the Liberal Democrats and, latterly, even of the Conservatives to this insouciant disregard for ancient freedoms has been brushed aside as the hand-wringing of feeble liberals.

Some measures have been explicable and justifiable in the face of the threat from violent Islamist extremists. The first duty of any government is to guard the security of its citizens. I have more sympathy than many with the view that the intelligence agencies and the police must be given sufficient means to thwart the terrorists.

But the powers of the state have advanced well beyond that. The present government sees no distinction between the rule of law and whatever piece of legislation it can force through parliament.

In the criminal justice system, the fragile balance between the rights of police, prosecutors and accused has been overturned. The presumption of innocence is scorned. Successive home secretaries, including Ms Smith, have mouthed the mantra that the police are always right.

Ministers have likewise greatly extended the state’s surveillance of law-abiding citizens. The pretence that it is all about al-Qaeda has been exploded by widespread use of anti-terrorism laws by local authorities and other public bodies. Parents suspected of “gaming” school admission systems have become the victims of elaborate surveillance operations by local councils. Almost anyone and everyone in public authority can now call up private telephone and e-mail records. We must suppose they will have equal access to the government’s Orwellian National Identity Register.

Little wonder the police seem to think they can abuse their power. The senior ranks of the Metropolitan police are overdue a serious clear-out. No one should be in any doubt, though, that the real culprit is the government.

More columns at www.ft.com/philipstephens
philip.stephens@ft.com

Western Banking Sells Out?

2008-11-24T14:00:00.001Z

Barclays faces vote on £7bn stake sale

By Jane Croft and Kate Burgess of the FT

Published: November 23 2008 23:59 | Last updated: November 23 2008 23:59

Investors will today confront Barclays executives at a potentially stormy meeting called to approve a controversial £7bn capital raising that will result in Middle Eastern investors controlling about a third of the bank.

Barclays is holding an extraordinary meeting in London at which it hopes to gain approval to raise capital from the Qatar Investment Authority and Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi’s royal family.

However, the encounter promises to be one of the most contentious votes of the year because existing investors are furious that the bank did not observe pre-emption rights to allow them to participate in the capital raising and offered preferential terms to the two Gulf investors.

In addition, Barclays has faced mounting criticism that it is paying more for its capital infusion than if it had accepted help from the UK government to raise the money. The government, which is helping recapitalise banks including RBS and Lloyds TSB, has insisted that its involvement comes with strings attached such as limits on executive pay and bonuses.

Full article at the FT

Shopping Beats Working?

2008-11-24T13:46:00.001Z

In case you hadn’t noticed, Chancellor Alistair Darling’s giving a bit of a speech this afternoon.

He’ll be laying out the Government’s plans for saving the economy from an even worse recession than it’s already facing.

It’s quite a clever way to sell it. Regardless of how bad things get in the future, you can always say: “Well, it would have been even worse had it not been for the quick-thinking actions of the dynamic Brown Government.” That’ll be the spin anyway.

But can the pre-Budget Report really make much difference to our economic plight? Of course it can. It can make things a lot worse…

This government encourages shopping and discourages working

The main thrust of the pre-Budget Report seems likely to be a 2.5 percentage point cut in VAT, which will fall to 15%. There’s plenty of other stuff being mulled over by the papers, and no doubt a few nasty surprises as well. But we’ll find out what he’s really got in store for us in a few hours, so no point running through all the eventualities here.

Let’s just focus on this VAT cut. I’m not going to complain about tax cuts. Lord knows, we’ve seen too few of them in the past decade. But it’s interesting to have a look at the thought process behind what’s being done here.

VAT is a tax on consumption. As taxes go, it’s not the worst one. It treats everyone equally and fairly - you pay according to the quantity of resources you consume. You could even describe it as a green tax.

Income tax, on the other hand, is a tax on production. The harder you work, the more you earn. The more you earn, the more the state takes out of your pay packet. And oddly enough, this effect is felt most strongly among the least-well off in British society. Because of the way the ridiculous tax credits system works, certain workers face a marginal tax rate of 70% once they earn above a certain amount. In other words, there’s a point at which they only end up getting an extra 30p for every £1-worth of work they do. For an apparently dour Presbyterian, Mr Brown sure doesn’t believe in encouraging the work ethic.

So effectively, the Government heavily favours consumers over producers. And the pre-Budget Report makes this very clear. Because it’s tomorrow’s producers who will pay for today’s consumer boost. According to The Daily Telegraph this morning, Labour plans to introduce a 45% tax rate on those earning above £150,000 after the next election.

Yet Britain’s big problem is that we’ve been doing too much consuming and not enough producing. How does encouraging more consumption, and discouraging production, help us get any further forward? The answer is simple enough. It doesn’t.

A recession is nature’s way of telling you that your economy is heading down the wrong path. A depression is nature’s way of saying the same thing – only a lot louder.

Britain needs a new set of economic props

As a nation, we’ve become too dependent on three things, all of which have been fuelled by the credit bubble. First there’s the financial sector. The finance sector is meant to allocate capital efficiently. It gets money from the people who have it, to the people who need it, with a minimum of fuss. That’s the nature of the value that it adds to the economy. But it’s not performed that role anywhere near as efficiently as we’d like to pretend. Were all those new-build buy-to-let properties an efficient use of capital? No, I don’t think so either.

The financial system’s ability to allocate capital efficiently has been badly undermined by central banks making it much harder to gauge risk clearly – more on that in the future. In any case, the end of the credit bubble also spells the end for the consumption bubble.

People used easy money and grossly inflated house prices to boost their consumption of everything from household furniture to shoes to computer games. That in turn meant more jobs in the services sector. But now that economic prop is being kicked away too.

The third prop has been rampant government spending. Fuelled by cheap borrowing and extremely healthy tax revenues, the government has splashed our money all over the public sector. But it’s not been spent on useful jobs, but on increasing the range of administrative and management roles in health, policing and education.

What will replace finance as our 'specialism'?

What can we do about all this? We need to consider what will replace the financial sector as our ‘specialism’. If we want to maintain a developed world standard of living, we need to contribute something to the global economy that can sustainably generate high-paying jobs. That means we need to have well-educated, skilled employees. But given the Government’s propensity to view any institution that promotes academic excellence with suspicion and hostility, the chances of turning around our education system any time soon is a major challenge.

And right now, this is a debate for another day, argues the “something must be done!” brigade. So will the VAT cut be effective? Well, it’ll make goods in the shops cheaper. But then, so will deflation. Shops are already slashing prices ahead of what they fear will be a miserable Christmas. And consumers are – rightly - already in ‘cut-back’ mode. It’ll take a lot more than a couple of percentage points off prices to make them blow their budgets this year.

So Mr Darling will have to have a lot more in his box of tricks if he wants to make a dent in this recession. We’ll find out soon enough – and give you the reaction on the MoneyWeek website later this afternoon.

Big Thank you to John Stepek

Lower Interst Rates and Recession - Time for Gold

2008-11-14T14:52:00.001Z

In its quarterly Inflation Report, the Bank forecast that national income could shrink by one to two percentage points over the next few quarters and growth would probably be flat by the end of next year. Consumer price inflation, which at its last reading registered an annualised rate of 5.2 per cent, will fall to its target rate of 2 per cent by the middle of 2009.

In remarks at a press briefing Mervyn King, Bank of England governor, said interest rates could fall much lower than their current 3 per cent and declined to rule out cutting rates to zero.

“We are certainly prepared to cut Bank rates again if that proves necessary,” Mr King said.

The Enemy of the State - You and Me!

2008-11-14T14:40:00.001Z

Great article in Money Week

Governments love capitalism. As long as asset prices are rising, that is.

When prices are rising, governments will do anything to keep them up there. You want free money? We’ll keep interest rates low. You want light-touch regulation? We’ll give you off-balance sheet finance.

The deal between banks and governments in the past decade or so has been simple. “You lot keep the voters happy and feeling rich,” says the government. “And we’ll give you a nice cosy, risk-free world to play in.” Of course, capitalism without risk, is not capitalism at all. What we’ve had is sugar-daddy socialism, with the financial industry frolicking freely, safe in the knowledge that there’s always a bail-out around the corner.

But you can’t buck the market forever. And even though there have been plenty of bail-outs, prices just keep on falling. Yet governments don’t seem to learn…

Chaos in emerging markets

Yesterday I pointed out how Hank Paulson’s U-turn on the Tarp highlighted the dangers of government interference in the markets (to read about this click here: The pound has nowhere to go but down) . But you can get a much clearer idea of how the state can make a bad situation worse by looking at the havoc in emerging markets.

Like Western investors, investors in emerging markets came to believe that asset prices could only ever go up. And so when they fall, they start looking around for someone to blame.

That’s why Kuwait’s stock market (which has fallen by more than 40% since late June) was shut down yesterday. According to The Telegraph, an investor had filed a claim “over the heavy losses he had suffered on the exchange.” So the court stopped it from trading until Monday, finding that “the bourse management failed to take any measures to boost a flagging market.”

I imagine that the management didn’t realise that this was part of their remit, any more than the owner of a fruit and veg stall’s pitch would expect to have to keep the price of apples high.

The dangers of too much government intervention

But the plight of Russia probably demonstrates best the dangers of too much government intervention. The Russian Micex market has been the worst performing in the second half of this year so far, reports The Telegraph. Stocks have fallen by 75% since May.

A key problem for Russia is that it is massively dependent on oil. Its 2009 budget only balances if oil is trading at an average $95 a barrel. I can’t see that happening. So its markets, and the rouble, have come under pressure with falling oil prices. And of course, as an emerging market, it has taken a hit as investors pull their money out and repatriate it to the “safe haven” of the US.

But the state’s attempts to prevent the crisis with brute force, have only made things worse. The central bank has already had to spend $120bn of its reserves on defending the rouble, which analysts reckon is now 30% over-valued. This is just a waste of money. When a country, particularly a politically risky country like Russia, starts defending its currency, it’s a sure sign to the market that said currency is over-valued. No central bank in the world has enough reserves to defend against a forex market set on helping a currency to find its “real” worth.

Let's hope our governments learn to accept falling prices

The state is also making the stock market plunge worse than it has to be. They keep shutting the market because it keeps falling so hard. But a big part of the reason that it keeps falling so hard is because every time they open it, investors think “Quick! Let’s sell before they shut it again!”

If you limit the trading that can be done, you increase the liquidity risk. Anyone who is scared they might need cash at short notice, isn’t going to be happy to hold stocks that can only be easily traded as and when the government says it’s OK to do so.

All these measures rattle investor confidence further, and make it even harder to price genuine risk. At some point, most assets of any real value at all will reach a price at which fundamentals suggest they are worth buying. But if you have to worry about the government’s random reactions to such falls as well, it becomes impossible to make any kind of judgement based on these fundamentals.

So we’d better get used to falling prices – and let’s hope our governments learn to accept them as well.

Should we Bail out the Banks or Have a Recession?

2008-11-06T20:42:00.001Z

As the Banks sit there wringing their hands in anguish at the problems they are in, let's step back to see what they are actually causing in the rest of the economy.

First we have to understand about the "paradox of thrift", the concept introduced by that great British economist John Maynard Keynes, who has been very much misrepresented over the years. This concept states that if we all start saving too much, then we are not spending. This will then causes a slow down in the economy as goods and services are not being purchased in the same volumes.

Now lets consider what the banks are doing right now in their misguided attempts to correct the real problems that they have caused and with their desperate need for refinancing from Governments and Sovereign Wealth Funds. Yes, they are taking money out of the production cycle for debt re-financing. And as they are reducing the amount of lending, they are deflating global economies.

Are they mad? They are only concerned with their own survival, but it seems at the expense of the rest of the economy. Because they have got everybody's bank accounts online they are now indispensable/compulsory [just try to do without one, your tax office will go ape]. Worst luck. We need an alternative to bank accounts. An alternative that will not try and gear up your money to fund their profits and then pocket your cash when they screw up. How else can we interpret their actions.

At best a bank is only a marginal business. How can it possibly make money from holding our money? They do it by using our money for their own gain. But when their assumptions and their miscalculations mean that they have lost our money, its only natural that we the customers are going to feel a bit angry. No wonder there are "runs on the bank". No bank can survive a loss of confidence in the system. That's why we have problems now - we have lost confidence in "the system".

The only solution is to re-build that confidence, hence massive inter-governmental support, or to come up with alternatives. Well Governments are doing their bit but....

So lets as responsible business folk with creative minds come up with some alternatives to the traditional banks.

First is the internet concept of ZORPA

Next is anybody's best guess. Please lets come up with some solutions.

Over to you.

John Burke, Ecadamist, and International Worrier!

BOE Cuts Rates by 1.50%

2008-11-06T12:57:00.002Z

After one of the most hotly debated rate decisions in recent times, the Bank of England delivered its largest interest rate cut in 15 years today, slashing the UK base rate by a full 1.50% to 3.00%, in an effort to shield the ailing British economy from the fallout of the global credit crisis. The move follows on from last month’s coordinated 0.50% cut with other major Central Banks, as the credit crisis increased its stranglehold on the global economy.

Faced with mounting evidence that the UK economy is headed for recession, the Monetary Policy Committee has come under increased pressure to take more decisive action. Earlier this week Britain’s service sector, the backbone of the UK economy, was seen contracting at its sharpest rate on record while factory output posted its longest decline since the 1980’s recession, heralding further job losses. However, the most influential of recent developments was the sharp contraction in third quarter GDP, confirming the UK economy is on the brink of a recession, sharply reducing consumer and business confidence for the coming year.

Recent comments by Governor Mervyn King stating that “it now seems likely that the UK economy is entering a recession” signals further monetary easing is in the pipeline.

Major Interest Rates

Major Interest Rates
US Fed Fund Rate 1.00% 29th Oct 2008
EU Min. Bid Rate 3.75% 8th Oct 2008
UK Base Rate 3.00% 6th Nov 2008

Source: HIFX Financial Services Ltd

More Financial Worries

2008-08-20T18:40:00.001Z

Lehman shares slide on fears over results

By Ben White in New York

Published: August 19 2008 18:42 | Last updated: August 20 2008 07:14

Shares in Lehman Brothers continued their steep decline on Tuesday, falling more than 13 per cent amid fresh predictions of significant third-quarter writedowns.

The decline also came after reports that the troubled investment bank may sell all or part of its asset management arm, Neuberger Berman, a move it has long resisted.

Lehman shares dropped 13.04 per cent, or $1.96, to close at $13.07 in New York, reducing the market value of the investment bank to around $9.1bn. That is less than the estimated $10bn standalone value of Neuberger, which Lehman bought for $2.6bn in 2003.

Lehman shares are off nearly 80 per cent this year following large writedowns on the bank’s troubled mortgage portfolios. Lehman was among the leading underwriters of mortgage-backed securities and was left with large holdings after the subprime crisis curtailed investor appetite for the fixed-income products.

Tuesday’s share price drop came after analysts at JPMorgan Chase said in a report that Lehman would post another $4bn in credit-related writedowns in its fiscal third quarter, which closes at the end of August.

Lehman has already posted over $8bn in writedowns and has been scrambling to raise capital to shore up its balance sheet. Lehman declined to comment on the JPMorgan report. Lehman has been selling some mortgage assets but still has about $61bn in exposure, JPMorgan said.

Lehman raised $6bn in the spring from a group of mostly US-based institutional investors following an embarrassing $2.8bn second-quarter loss, the first in its 14-year history as a public company.

Lehman had hoped to make a deal with a strategic Asian partner as part of the capital raising but talks failed to progress. Investors in the last capital-raising are sitting on significant losses so it is not likely that Lehman could sell more shares to raise fresh capital.

People close to the matter said Monday that Lehman was involved in exploratory talks with several private equity and strategic bidders for all or part of Neuberger Berman.

However, the JPMorgan analysts said they did not believe the business would be sold because it is a reliable cash generator.

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2008-08-01T02:28:00.000Z

Free Google Adwords Strategy Report

Get Out of PAPER MONEY

2008-07-30T10:11:00.000Z

Barclays dismisses San Marino lawsuit

Barclays Capital will fight vigorously a lawsuit filed against it in London’s High Court by a banking client Cassa di Risparmio di San Marino, which alleges misrepresentation by the UK investment bank in the sale of complex debt products.

The San Marino-based bank is seeking damages of at least €170m (£134m) in losses and lost income related to five complex credit-linked notes bought by CRSM for €450m in 2004 and 2005.

It is also seeking unspecified damages related to the restructuring of three other complex notes in June 2005.

“The legal action has no merit and we will contest it vigorously,” Barclays said on Tuesday.

The suit is part of an increasing number of actions faced by banks over their complex credit products since the market turmoil that began last year led to widespread losses in the financial industry.

Lawyers said that many disgruntled clients are pursuing the banks that had arranged complex debt products, but that claims are mostly settled well before they near a court filing, which is seen very much as a last resort, particularly in Europe.

Barclays has faced a number of similar lawsuits over collateralised debt obligations it has structured and sold.

In 2005 it settled a $151m claim brought by HSH Nordbank of Germany.

HSH is also currently suing UBS, the Swiss bank, over alleged mismanagement of a $500m portfolio of collateralised debt obligations to London. The case, which is set to be heard in New York, was among the first to be filed over subprime mortgage losses in the wake of the credit crunch.

Barclays, meanwhile, is also named in a lawsuit filed this month by Oddo Asset Management of France in New York, which relates to two investment funds known as “SIV-lites”.

That suit also seeks damages from Solent, a London-based hedge fund that managed one of the investment funds, and from McGraw-Hill, the owner of Standard & Poor’s, the rating agency.

Bankers said Italy was beginning to discover the depths of its problems with structured products. Marco Elser, senior manager in Rome at Advicorp, an independent investment banking group, said: “Half of Italian banks don’t know what they have in their accounts, because the derivatives around which the structured products were sold are so complex that it would take an Einstein to figure it out.”

Additional reporting by Guy Dinmore in Rome
By Paul J Davies

Published: July 29 2008 19:05 | Last updated: July 29 2008 19:06
Copyright The Financial Times Limited 2008

The action above could be the first in an avalanche of law suits filed by investors who could feel a little hoodwinked by the avaricious banks and their rush to sell "products" to their clients in the headlong desire to make ever increasing profits from a "business" that should only be marginal at best.

When you run a business that has its hands in your pockets, the tendency is for it to help itself.

John Burke

Technorati Link

2008-06-10T17:30:00.001Z

Technorati Profile

Its all about cross networking and interconnections!

Or is it just to get Technorati up the google rankings by inward links? So to balance things here are a list of my blog and web interests with lots of great partners and projects: No particular order.

G8way
Jamie Lawrence Football Academy
JLFA Blog
Refill Food
Cherrie Box Media
Emerging Markets Investor Services Ltd
Watersons Marketing Group
Inspirational Seminars Ltd
Inspirational Seminars Blog
Sylvia Modu
Faye Klein Lingerie
DMR Ltd
Bevin Fagan (who sadly died in April 2008)
Gold Investments
Property Investment and Credit Crunch
Business Start Ups
Yorkshire Network
Gold Bullion Trading
Click4Marketing
Affordable Seminars
Barbur Realty
Canal Craft
Management Resource
Unique Sounds

Plus a whole load of ongoing projects in Africa to build Solar Tower Power Stations, renewable energy systems and exploding the myth of global warming and the great carbon tax con.

I am also very keen on lean government along the lines that Hong Kong adopted and not the over-bloated British Model!

Paper Money Madness and Political Bragging

2008-04-29T08:39:00.004Z

From the Desk of Adrian Ash from Bullion Vault

Dear BullionVault user,

BLAME FOR THE credit crunch has landed squarely on the big Western banks, with government and the monetary authorities leading the finger-pointing.

This seems a bit rich. Government and central banks were the chief architects of the current difficulties. And as usual, their reaction to this crisis is just as wrong-headed as their reaction to the last crisis.

It's also certain to make the next crisis worse still.

Unfortunately for the US and Britain, the authorities remain too convinced of their own powers to see the truth of this. There they sit, Canute-like before a sea of economic reality. They truly believe they can command the tide.

After all, this was how they responded from 2001-2005, force-feeding money to the big banks and mortgage lenders at very low rates of interest.

Thus did Alan Greenspan and Ben Bernanke switch the Tech Stock Bubble for today's Subprime Crisis. Thus did Gordon Brown here in London encourage all those "unbroken years of growth" that he still loves to brag about. To perpetuate the feel-good factor, Brown continued pumping the UK economy with cheap money while preaching sanctimoniously about prudence.

And my, how he bragged! During the good times, Britain's unbroken growth all came down to Gordon's brilliance.

Funny, isn't it, how the downturn is now somebody else's fault?

But in economics, as in life, the hangover reflects the party. Creating artificial demand is sure to create exactly the situation we're in today.

So let's spell it out and see if Gordon and Ben can get it, before they and their wretched textbooks destroy the wealth of cautious savers and their children once more.

Whenever and wherever you find a surfeit of money, bankers will face a choice:

#1. Take the money and lend it; or
#2. Refuse the money and lose out.

The problem for banks – as for all financial companies during a bubble in money – is keeping up with the game. If they don't take the cheap money on offer, they will under-perform their competitors, and that will end in a take-over.

Another bank – making bigger profits by taking the cheap money – will buy out the laggard. That's how cautious banks caught playing it safe, rather than joining the fun, are dragged to the party regardless. Their kicking and screaming is drowned out by the clamor for "total shareholder returns".

So the reason the banks you now see around you all look like incautious buffoons is that, between 2001 and 2005, the US and European authorities created conditions in which only the incautious could prosper. Government killed off the cautious by pouring cheap money down the throats of the most aggressive banks.

Socialists and central planners just don't understand that you cannot command an economy onto such an unnatural path without later paying the price. Cheap money destroys caution and nurtures speculation. When the world is awash with it, banks must take ever bigger and bigger risks, or they will wither and die – it's as
simple as that.

The irony of the Bear Stearns' rescue seems lost on the media. Yet it was Bear Stearns that first signaled the start of today's crisis last June, when its "enhanced leverage" funds went bust. And if Britain's new banking bail-out works this time (and let's hope it doesn't) then no British bank will fail either.

The message will then echo round the City of London – as on Wall Street – that you simply must take all the cheap money on offer and punt it straight out to consumers and business.

By 2012 if not before, we could find the Bank of England effectively bankrupt, sitting on a pile of "quality" mortgages as collateral as house prices tumble from even higher peaks than last summer's top.

And the big investment banks? They will be pitching for a fresh rescue from their next over-priced speculation.

Wind-swept farmland? Ocean-floor mining? High-orbit solar panels...? Who knows what fresh nonsense the banks will be forced to finance in the government's scramble for un-ending growth. Who can guess at how much the banks – and then us - will lose as a
result. Such a slow-motion disaster, however, is baked in the crust when those in power subvert the economy to their own over-inflated egos.

Witness Argentina, Turkey and Zimbabwe already this decade. Now thanks to Gordon Brown's self-belief in his personal, hands-on management of the economy, the UK is thoroughly addicted to monetary stimulants.

The United States, of course, is strung out on Ben Bernanke's junk, first peddled by Alan Greenspan when Bill Clinton's White House proclaimed "It's the economy, stupid!" As in the UK, breaking this habit will hurt; the banks themselves warn of outright depression if taxpayers don't front up today.

But cold turkey, according to Keith Richards at least, is just five days of climbing the walls. (And the Stones' guitarist should know!) Whereas, if we stick with our habit, then it could soon be our turn to queue in the streets bearing armfuls of cash, fighting over the last loaf of bread in the shop.

The great private antidote to the Browns and Bernankes of this world remains gold. Those people owning it over the last couple of years now stand unaffected by the losses sweeping through financial markets.

Yes, it's come a little off the boil since mid-March, but the fundamentals remain stacked in gold's favor.

** Flat-to-falling production worldwide;
** Money creation still running amok;
** Growing investment demand from a very low base (particularly in the Far East);
** Rising inflation in your cost of living;
** Control-freaks running government; yes-men in charge of monetary policy.

It's always painful, of course, to buy something at twice the price it was just two and a half years ago. But markets – like gold mines – don't easily give up their riches.

What's hardest to do can often prove the best course.

This current lull in the gold price might just be your best chance.

Regards,
Adrian Ash
Research, BullionVault

Anglo Gold Bullish

2008-04-04T13:22:00.001Z

AngloGold Ashanti (NYSE: AU) revises up first quarter outlook.

Following the stabilisation of Eskom power supply to South African operations during the quarter, AngloGold Ashanti is forecasting first quarter production of approximately 1.19 million ounces.

The revised production outlook is around 8% above guidance provided at the fourth quarter results presentation. The company has also fully delivered into maturing hedge contracts during the quarter.

Commenting on the revised outlook, CEO Mark Cutifani said, "Our first quarter performance will speak to the superb job that our South African operating team, in partnership with the unions and Eskom, has done in managing through a difficult situation. We are successfully implementing a 4% energy saving target, which will enable us to get back towards our 100% production objective, even though we are working with a reduced power supply."

The company will revise guidance for 2008 with the first quarter results, which will be released on 6 May 2008.

Latest Gold Prices and the Drivers to Its Price

2008-04-04T13:18:00.002Z

By Atul Prakash
LONDON, April 4 (Reuters)

- Gold drifted higher on light investor buying on Friday after trading in a narrow band ahead of U.S. jobs data that could set market direction.

The figures, due at 1230 GMT, is likely to show that the economy shed jobs in March for a third straight month.

The report will be scrutinised for clues about U.S. interest rate moves. Lower rates tend to lift gold's appeal as an alternative investment.

Gold rose as high as $907.55 an ounce and was quoted at $907.30/908.20 at 1029 GMT, against $903.40/904.20 late in New York on Thursday, when it gained more than $5.

"U.S. non-farm payrolls data are important for the market, especially after yesterday's jobless numbers," said Simon Weeks, managing director of precious metals at Bank of Nova Scotia.
"Gold still has room for more correction, but may stabilise if the dollar remains weak," he said.
The market got support from the dollar, which ticked lower versus other major currencies in technically-led trade ahead of the jobs report.

Signals for non-farm payrolls have been mixed, with a surprise gain in private sector jobs in March offset by news that first-time applications for U.S. jobless benefits rose last week to a 2-1/2 year high.

But overall, investor sentiment has improved in recent sessions, and markets are now only expecting a 25 basis point rate cut from the Federal Reserve this month.

"The U.S. labour market data leads often to the widest swings in financial markets, which would also have a strong impact on gold and other precious metals," Dresdner Kleinwort said in a daily market report.

"Gold is expected to profit from a higher-than-predicted fall of payrolls."

A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

OIL PRICES HELP
The bullion market also got support from oil, which rose above $104 a barrel, bouncing back from losses in the previous session as the market focused back on the weakening U.S. dollar and the U.S. economic outlook.

Gold hit a two-month low of $872.90 an ounce on Tuesday on fund selling before staging a modest rebound. It was still 12 percent lower than last month's lifetime high of $1,030.80 and dealers said jewellers showed buying interest at the lows.

U.S. gold futures for June delivery GCM8 rose $1.10 to $910.70 an ounce in electronic trade.
"In the coming days, gold should trade in a wide range between $850-$950 an ounce. Whether gold will test the upper end of this range will depend on it going through and holding gains above the $ 910-$920 level," said Wolfgang Wrzesniok-Rossbach, head of sales at German precious metals trading group Heraeus.

Platinum fell to $1,980/1,990 from $1,985/1,995 an ounce, having risen more than 2 percent in New York on worries that South Africa's state utility could not meet electricity demand from precious metals miners.

South Africa's power crisis may last many years unless there is a sustained drop in electricity demand in Africa's largest economy, state power utility Eskom [ESCJ.UL] said this week.

Supply worries, caused by mining disruption in main producer South Africa, sparked speculative buying and propelled the price to record high of $2,290 an ounce on March 4.

Spot silver rose to $17.48/17.53 from $17.36/17.41 an ounce, but palladium was flat at $436/441 an ounce. (Reporting by Atul Prakash; editing by Elizabeth Piper)

Gold and Platinum Peaks

2008-03-04T12:18:00.000Z

By Pratima Desai

LONDON, March 4 (Reuters) - Platinum hit record highs on Tuesday as speculators bought on worries over supplies, while gold consolidated recent gains before making a stab at the key $1,000 an ounce level.

Spot platinum hit a session high of $2,275 an ounce and was at $2,270/2,275 by 1115 GMT, compared with $2,230/2,237 late in New York on Monday.

Platinum, used in jewellery and auto catalysts to clean exhaust fumes, has risen by more than 40 percent this year as a power crisis which has disrupted mining in main producer South Africa sparked supply fears.

"Platinum is very strong, inventories are low, fundamentals are very supportive," said Suki Cooper, analyst at Barclays Capital. She added that the global deficit this year could be up to 600,000 ounces.
"Given the strength of investment demand this year, the platinum deficit could be greater than that."

Gold hit a bid high of $987 a troy ounce and was at $984.70/985.60, up from $981.20/982.00 late on Monday when it touched a record high of $989.30.

"$1,000 seems likely in the near term, with global inflation expectations being fuelled by the current commodity bull run," Standard Bank said in a note.

The precious metal has gained nearly 50 percent since the credit market crisis triggered buying from investors looking for a haven from financial market uncertainty.

South Africa Gold Production Drops to Lowest since 1922

2007-03-07T15:17:00.000Z

South African gold production fell last year to its lowest level since 1922. The world’s largest producer reported a fall of 7.5 per cent in gold output to 8.845m ounces in 2006. Roger Baxter, chief economist at South Africa’s Chamber of Mines said the rate of decline in South African gold mining production was likely to slow or possibly stabilise, depending on the outcome of certain key projects. Over the past ten years, South Africa’s annual gold production has halved as high grade mines have come to the end of their working lives.

Gold steadied at $645.20 a troy ounce – holding firm after Tuesday’s rise, its first gain in six sessions. Bulion has been under pressure from the volatility in equity markets as hedge funds have closed profitable positions in precious metals to pay for losses elsewhere.

Gold Price Soars on Fear of US Inflation

2007-02-27T13:02:00.000Z

Ambrose Evans-Pritchard
12:13am GMT 23/02/2007

Fresh signs that inflation is raising its ugly head again in the United States sent gold rocketing $23.50 to a nine-month high of $680.50 in late trading in New York.

US core consumer prices jumped 0.3pc in January led by medical care and drugs, the sharpest rise since June and fresh evidence that inflation is becoming lodged more deeply across the economy. Core prices are now up 2.7pc over the past 12 months.

The bombshell data came as minutes from the US Federal Reserve showed that inflation was still the "dominant concern" of the policy-making board.

Adding to the incendiary mix, the index of leading indicators published by the New York Conference Board rose for a second month in January, suggesting that the economy was gathering steam again after the autumn downturn.

The data triggered the sharpest one-day rise in gold since the bull market began in 2001 as bullion re-found its traditional role as a "hard money" hedge. It now looks poised to challenge the 24-year peak of $730 reached in May. Equities fared less well as the Dow slipped amid mounting jitters over the risk of significantly higher interest rates - a risk that is not priced into the current "Goldilocks" assumptions of the markets.

Federal Reserve vice-president Donald Kohn warned that investors had mis-priced the level of risk and were assuming a "very benign" climate that might not last.

The board minutes said "all members agreed that some inflation risks remained", indicating that even doves feared price pressures were the greater menace.

"This is a wake-up call to the markets," said Mickey Levy, chief economist at Bank of America.
Overall bank credit in the US has expanded by 10pc or $763bn over the last year and mortgage finance is up 14.3pc, despite the housing and automobile troubles.

Although the Federal Reserve no longer publishes M3 broad money figures, reconstructed data shows that it grew 10.3pc in 2006 - well over the safe speed limit. This sea of liquidity now appears to be leaking into High Street price pressures, renewing enthusiasm for gold.

Bullish about Bullion

2007-02-27T12:57:00.000Z

By EDWARD RAJENDRA
newsdesk@thestar.com.my

KLANG: Soaring gold prices have led to a new trend among buyers, who are now buying more bullion in the form of coins.

Malaysian Indian Goldsmith and Jewellers Association adviser N.P. Raman said, “Many regular buyers are now beginning to look at gold purely as a financial asset, adding to their investment portfolio.

“Many women now choose to buy gold coins or even bars as investment, instead of jewellery as jewellery adds 25% to 30 % to the cost, to cover craftsmanship,” he said.

Raman said the current investment-led buying has led jewellery shops in the Indian business enclave of Jalan Tengku Kelana here to display more gold coins.

“Before the prices started to climb, we had two different types of buyers – the ones who bought gold to convert it into jewellery for special occasions, and young executives who buy gold for capital appreciation,” he said.

Raman said parents are now saving in gold coins as an alternative to traditional insurance policies that tied them for a stipulated period.

Some people were even buying gold coins on an instalment basis, by “depositing” cash with goldsmiths every month.

“People are not waiting to see if the market is going up or down but are buying bullion as it is considered a hedge against inflation. Market watchers anticipate that the price of gold may surge to US$800 (RM2,794) an ounce soon, due to Middle-East tensions,” he added.
The price of gold yesterday closed at RM78 per gram.

Gold and the Weather

2007-02-21T18:13:00.000Z

What about the weather! Everybody skirts around it, (especially hurricanes) but few address the major economic and social implications. We need to get the debate into the open.(depending on the weather!) As usual, people generally can’t see the wood for the trees, and get fobbed off with the political and media spin. It seems to me that the present climate (I make appointment with analyst to stop this juvenile attitude) is one that we have virtually no control over (neo-con or otherwise), and yet the results would have a major effect on our way of life (god help us – whatever form he takes! I hear Amenhotep is making a comeback), and shoot the price of gold through the roof. Here is a couple of snippets:

CHINA
Global weather conditions are beginning to deteriorate apace. Massive sandstorms come in from the desert and pound China for months on end – I’ve been there, you can’t see your hand in front of you, and everybody has to wear a mask while walking in the street. They have mistakenly tried to create a barrier of trees and forest for the last ten years to act as a break, but all it has done is to worsen the situation by creating a funnel effect.

Over 400,000 farmers have been relocated from the edge of two deserts in north China's Inner Mongolia Autonomous Region over the past five years to accelerate the ecological recovery of the fragile environment.

Yun Feng, secretary of the Erdos city committee of the Communist Party of China, said the farmers depended on meager farm yields and livestock. Human activity, however, was primarily to blame for the degraded biological conditions on the edge of Mu Us and Hobq deserts.

48 percent of the 87,000 square km of the land administered by Erdos city has been engulfed by the two deserts, which now deposit 100 million tons of yellow sand in the Yellow River, the biggest in north China.

Years of heavy drought and increasing population have deteriorated the ecosystem.
The local government realized that biological rehabilitation was only possible if human activities were eliminated. NICE ONE CHINA.

USA
At this moment in time, serious weather fronts are building up off the coast of Africa which could cause some more force 5 hurricanes off the US coast of Florida, Texas and New England in the next few weeks.

Homeowners insurance doesn't cover flood damage if you live in a Special Flood Hazard Area (SFHA) or high risk area. If you do, your mortgage lender requires you to have flood insurance. PARADOX OR WHAT!

The economic impact of Katrina has been unprecedented. Federal disaster declarations covered approximately 90 thousand square miles, an area roughly the size of the United Kingdom. According to the Federal Emergency Management Agency (FEMA), more than 1.4 million applicants have registered for housing and other needs assistance, and over $5.1 billion has been provided to applicants for housing assistance and other needs. (To me that comes to about $3600 a piece! – MORE THAN ENOUGH TO PEPLACE A SHATTERED LIFE! ) Katrina damaged or destroyed 30 oil platforms in the Gulf of Mexico, and forced the closure of nine Gulf Coast refineries. In the six months following Katrina, the total shut-in oil production from the Gulf was about one quarter of the annual production, and the shut in gas production for the same period was 18 percent. According to a Marshall University study, the total economic impact on Louisiana and Mississippi alone could top $150 billion.

And so it goes on, and I haven’t even mentioned potential earthquakes (San Francisco is due), CO2, CFC’s, Tsunamis, polar-axis shift, volcanoes, melting polar icecaps etc (and any further levels of paranoia that you can think of!

If these figures even barely resemble the truth, we won’t have to worry about creeping inflation over the next 10 years, it will be crawling all over us (From out of a Dense Swamp in the Everglades).

Investing in gold mining stocks is NOT easy

2007-02-20T14:41:00.000Z

Factors to consider when considering investing in gold mining stocks

Exploration stage companies almost always make readily available the information that they have collected from their initial work in an area: surface signature, geophysics, structural data, geochemistry and the like. This initial information could be a good indicator of the degree of success a company could realize with its project.

Focus on the history of the drilling crew, their track records and qualifications, could also provide insight.

Look beyond the current information and examining the area itself, how many times it has been explored by different companies, previous geological reports on the evolution of that land, studying the way it has formed, etc., could also be good indication of an area's potential output.

The geopolitical climate surrounding the land in question is extremely important. As most of us are aware, parts of South America Russia , for example, contain profitable deposits but current political conditions in some of these areas are certainly not conducive for secure investing and folks would do well to stay away until conditions change.

Basic key factors certainly include people. Is the management technically competent? Do they have the ability to raise capital? What is their experience in the area? If the answers to all of these questions are yes, things can be promising.

It is critical to be able to “gauge the level of risk in the investment”. If that cannot be accomplished with some degree of certainty, an investor should stay away.

Blowing the lid off Western Economics

2007-02-20T14:19:00.000Z

Dr. Ron Paul is a Republican member of Congress from Texas. He is a free thinker in the midst of closed minded, powerfull self interest groups that now control America and the West and are looking to take control of the entire globe. He also offers a few initial suggestions as to how we can begin to rectify the growing economic and social problems. I believe that this idea of global control is not in any way an exageration, read on, and I can assure you that their is much more detail to come.

Statement at Hearing of the House Financial Services Committee, February 15, 2007

"Transparency in monetary policy is a goal we should all support. I've often wondered why Congress so willingly has given up its prerogative over monetary policy. Astonishingly, Congress in essence has ceded total control over the value of our money to a secretive central bank.

Congress created the Federal Reserve, yet it had no constitutional authority to do so. We forget that those powers not explicitly granted to Congress by the Constitution are inherently denied to Congress – and thus the authority to establish a central bank never was given. Of course Jefferson and Hamilton had that debate early on, a debate seemingly settled in 1913.
But transparency and oversight are something else, and they're worth considering. Congress, although not by law, essentially has given up all its oversight responsibility over the Federal Reserve. There are no true audits, and Congress knows nothing of the conversations, plans, and actions taken in concert with other central banks. We get less and less information regarding the money supply each year, especially now that M3 is no longer reported.

The role the Fed plays in the President's secretive Working Group on Financial Markets goes unnoticed by members of Congress. The Federal Reserve shows no willingness to inform Congress voluntarily about how often the Working Group meets, what actions it takes that affect the financial markets, or why it takes those actions.

But these actions, directed by the Federal Reserve, alter the purchasing power of our money. And that purchasing power is always reduced. The dollar today is worth only four cents compared to the dollar in 1913, when the Federal Reserve started. This has profound consequences for our economy and our political stability. All paper currencies are vulnerable to collapse, and history is replete with examples of great suffering caused by such collapses, especially to a nation's poor and middle class. This leads to political turmoil.
Even before a currency collapse occurs, the damage done by a fiat system is significant. Our monetary system insidiously transfers wealth from the poor and middle class to the privileged rich. Wages never keep up with the profits of Wall Street and the banks, thus sowing the seeds of class discontent. When economic trouble hits, free markets and free trade often are blamed, while the harmful effects of a fiat monetary system are ignored. We deceive ourselves that all is well with the economy, and ignore the fundamental flaws that are a source of growing discontent among those who have not shared in the abundance of recent years.

Few understand that our consumption and apparent wealth is dependent on a current account deficit of $800 billion per year. This deficit shows that much of our prosperity is based on borrowing rather than a true increase in production. Statistics show year after year that our productive manufacturing jobs continue to go overseas. This phenomenon is not seen as a consequence of the international fiat monetary system, where the United States government benefits as the issuer of the world's reserve currency.

Government officials consistently claim that inflation is in check at barely 2%, but middle class Americans know that their purchasing power – especially when it comes to housing, energy, medical care, and school tuition – is shrinking much faster than 2% each year.
Even if prices were held in check, in spite of our monetary inflation, concentrating on CPI distracts from the real issue. We must address the important consequences of Fed manipulation of interest rates. When interests rates are artificially low, below market rates, insidious mal-investment and excessive indebtedness inevitably bring about the economic downturn that everyone dreads.

We look at GDP numbers to reassure ourselves that all is well, yet a growing number of Americans still do not enjoy the higher standard of living that monetary inflation brings to the privileged few. Those few have access to the newly created money first, before its value is diluted.

For example: Before the breakdown of the Bretton Woods system, CEO income was about 30 times the average worker's pay. Today, it's closer to 500 times. It's hard to explain this simply by market forces and increases in productivity. One Wall Street firm last year gave out bonuses totaling $16.5 billion. There's little evidence that this represents free market capitalism.
In 2006 dollars, the minimum wage was $9.50 before the 1971 breakdown of Bretton Woods.

Today that dollar is worth $5.15. Congress congratulates itself for raising the minimum wage by mandate, but in reality it has lowered the minimum wage by allowing the Fed to devalue the dollar. We must consider how the growing inequalities created by our monetary system will lead to social discord.

GDP purportedly is now growing at 3.5%, and everyone seems pleased. What we fail to understand is how much government entitlement spending contributes to the increase in the GDP. Rebuilding infrastructure destroyed by hurricanes, which simply gets us back to even, is considered part of GDP growth. Wall Street profits and salaries, pumped up by the Fed's increase in money, also contribute to GDP statistical growth. Just buying military weapons that contribute nothing to the well being of our citizens, sending money down a rat hole, contributes to GDP growth! Simple price increases caused by Fed monetary inflation contribute to nominal GDP growth. None of these factors represent any kind of real increases in economic output. So we should not carelessly cite misleading GDP figures which don't truly reflect what is happening in the economy. Bogus GDP figures explain in part why so many people are feeling squeezed despite our supposedly booming economy.

But since our fiat dollar system is not going away anytime soon, it would benefit Congress and the American people to bring more transparency to how and why Fed monetary policy functions.

For starters, the Federal Reserve should:

Begin publishing the M3 statistics again. Let us see the numbers that most accurately reveal how much new money the Fed is pumping into the world economy.

Tell us exactly what the President's Working Group on Financial Markets does and why.

Explain how interest rates are set. Conservatives profess to support free markets, without wage and price controls. Yet the most important price of all, the price of money as determined by interest rates, is set arbitrarily in secret by the Fed rather than by markets! Why is this policy written in stone? Why is there no congressional input at least?

Change legal tender laws to allow constitutional legal tender (commodity money) to compete domestically with the dollar.

How can a policy of steadily debasing our currency be defended morally, knowing what harm it causes to those who still believe in saving money and assuming responsibility for themselves in their retirement years? Is it any wonder we are a nation of debtors rather than savers?
We need more transparency in how the Federal Reserve carries out monetary policy, and we need it soon."

Big Problems in Sub Prime Mortgage Markets

2007-01-14T20:35:00.000Z

This article from Weiss Research Florida shows the unsettling facts with unfettered lending on property

Money and Markets
Friday, January 12, 2007

Dear Subscriber,

ContiFinancial ... EquiCredit ... The Money Store ... Southern Pacific Funding. Maybe you’ve never heard of them, but they were the subprime mortgage lending stars of the mid-to-late 1990s.

They specialized in making loans to borrowers with bad credit, little or no down payments, and a host of other problems. Once they made loans, they’d sell them off to Wall Street firms and other investors, who would help package them together into bonds — a process known as “securitization.” The subprime lenders would use the proceeds to make additional mortgages, and the process would start all over again.

The gravy train seemed unstoppable. The subprime lenders made billions of dollars worth of loans. The Wall Street securitizers got crazy rich. Then, just like that, it all came crashing down.
The major reason: Gunslinging hedge fund Long-Term Capital Management imploded in 1998. As its market bets went south, the firm lost billions of dollars. That, in turn, brought the market for high-risk debt to a standstill.

Investors soured on risky home loans. As a result, the subprime lenders found themselves in a vicious cash crunch — unable to get the funding they needed to keep the mortgage “production lines” running.

Lenders started dropping like flies, either going bankrupt or selling themselves off to larger institutions. Thousands of employees lost their jobs in the process. Delinquencies, loan losses, and foreclosures surged.

It was ugly. It was painful. And it just may be happening again ...

Safe Money Report article titled “How to Wade Through the Mortgage and Real Estate Cesspool.”

Then, this past July, I

told you about a bunch of mortgage practices that were setting the stage for a major blow up. I explained that “stated” income mortgages, onerous fee structures, inflated appraisals, and other exotic mortgages were all conspiring to stick borrowers with sharply rising payments.

Now, it’s all hitting the fan. The 15th and 16th largest U.S. subprime lenders are collapsing. Mortgage Lenders Network is shutting down its wholesale lending operations and furloughing 80% of its workers. Ownit Mortgage Solutions just filed for bankruptcy.

And the companies still doing business? Many of their stocks are freefalling:

Fieldstone Investment (FICC) dropped 23% in a single day in November, and it’s lost about three-fourths of its value in a year.
Fremont General (FMT) has fallen almost 39% since last January.

Stocks like HomeBanc (HMB) and NovaStar Financial (NFI) are trading at their lowest levels in years.
Things aren’t as bad as they were in 1998 ... yet. But if the steady selling in mortgage bonds turns into panic selling, it could get there — fast!

What This Means for the Housing Market ... and You

The recent action in the subprime industry just underscores what I’ve been saying for a long time: The housing bust will stretch its tentacles into many related markets.
A lot of people — both homeowners and investors — are going to get hurt. And it has not yet run its course.

Indeed, the nasty fallout in the subprime lending industry could even exacerbate the housing downturn. After all, one force that prolonged the housing bubble was the rash of ridiculously easy lending. Now that subprime lenders are starting to go belly up, the ones left standing are tightening their guidelines.

That’s going to make it harder for home buyers and marginal borrowers to qualify for loans. This could weigh on the real estate market as we close in on the key spring home shopping season.
You can see why I think it’s too darn early to pile back into housing and lending shares. Wall Street has been talking itself hoarse that the “bottom is in” for these stocks. But if the subprime meltdown spreads, bottom fishers could get filleted.

Meanwhile, if you’re in the housing market, don’t ignore these developments:

If you’re trying to sell, you don’t want to screw around. You have to get your price down to a level that will attract buyers, even if it bruises your ego a bit.

If you’re in the market to buy a home, the ball’s in your court. Don’t be ashamed to make low-ball bids, ask sellers to pay your closing costs, or make even the smallest home repairs.

And take note — easy mortgage money will be drying up. Later in the year, buyers will probably need more cash reserves, a larger down payment, and fully documented income, especially if they have low credit scores.

Until next time ...
Mike

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://link.weissinc.com/h/V9Y3/9GLC/MJ/RC3JM

Is This a Blunder from the Bank of England?

2007-01-11T14:02:00.000Z

More of the same from the Bank of England, who seem intent on reverting to type and wishing for a “Strong Pound”

This will crush exporters and suck in imports. All in the mistaken belief it will reduce inflation for “our” benefit.

So all you businesses out there who borrowed to expand and grow-well too bad, the bankers arn't happy about all you whingers asking for their charges back so they will stuff you on rates!!

Or is it a currency led conspiracy to drive down the price of Gold, so that the banks can attack in concert when they are ready to ramp the prices [of Gold]?

Comments Please!

Bank of England Raises Rates to 5.25% today

2007-01-11T13:51:00.000Z

The Financilal Times breaks this worrying news today

By Jamie Chisholm, Economics Reporter.
Published: January 11 2007 12:02 Last updated: January 11 2007 12:02

Interest rates hit their highest level in more than 5½ years on Thursday after the Bank of England surprised the City by raising the cost of borrowing to 5.25 per cent.

The quarter of a percentage point increase wrong-footed analysts, most of whom had expected the Bank’s monetary policy committee to stay its hand this month, before possibly introducing an increase in February.

Sterling and yields on government bonds jumped as the Bank said it had made the move because “the margin of spare capacity in the economy appears limited, adding to domestic price pressures.”
Domestic demand was growing steadily, while “credit and broad money growth remain rapid.”

“It is likely that inflation will rise further above the target [2 per cent] in the near term, but then fall back as energy and import inflation abate. Relative to the November Inflation Report, the risks to inflation now appear more to the upside,” said the Bank in a statement accompanying its decision.

The immediate business response to the Bank’s move – which came as the European Central Bank kept eurozone benchmark interest rates on hold at 3.5 per cent – was mixed.

Graeme Leach, chief economist at the Institute of Directors said: “This was a tough but wise decision. The MPC needed to stamp down on inflation given the upside risk at present.”
However, Ian McCafferty, chief economic adviser to the CBI, the employer’s body, said: “It is disappointing that, with only tentative indications about the outcome of the wage round, the Bank has already decided to increase interest rates. If part of the intention was to dampen wage increases, it is doubtful a rate rise will have the desired effect.”

A recent Reuters poll had shown that only one out of 50 economists thought the meeting would end with news of a quarter of a percentage point hike.

UK government bond prices tumbled and yields rose dramatically as traders confessed they were stunned by the Bank’s move.

“Hardly anyone was expecting this, so we saw some big moves at the short-end of the curve,” one London-based trader said.

Financial Instability

2007-01-11T13:45:00.000Z

The gap between the 'haves' and 'have-yachts' keeps growing with the stock market. Watch out for that iceberg!

MORE THAN 1,000 YACHTS went on display last week at the New York National Boat Show. They included the $1.1 million Cruisers Yacht 520 Express.

But that's peanuts compared with the Sunseeker Trideck, now on sale in Mayfair, London. Complete with a dining table made of American black walnut that seats twelve, it weighs more than 150 tonnes and costs $16 million.

Never mind the price tag. Boat yards expect strong orders for such opulence in 2007, according to Reuters. And why not? Strategists at the top 14 firms on Wall Street all agree the US stock market will rise this year. Up on the sky deck, money shufflers from across the world are sipping cocktails in the hot tub.

The Dow just made a new all-time high (in Dollar terms, at least). Australian stocks keep hitting fresh record highs. British house prices have trebled in 10 years. The global market in fine art rose 23% last year.

So it's easy to see where all the money went – even if you can't see where it came from. The flood of liquidity unleashed by central bankers went into asset prices, rather than into the cost of living. Okay, the expense of finding an electrician or plumber might have risen as fast as your house price. But the cost of living billed each week by Wal-Mart, Tesco and Gap has sunk where it hasn't stayed static.

Here at BullionVault, however, we can't help wondering where all the money came from...and where might it go?

Consumer debt has been soaring – and asset inflation still surging – even as borrowing costs have risen. Last year saw record new debts for the household sector in the United Kingdom. So says the Bank of England. Yet the Old Lady herself raised base rates to take the heat out the bubble.

So did the Fed in Washington...the ECB in Frankfurt...and even the Bank of Japan in Tokyo. The orgy of debt and investment continues regardless. How come?

"New-fangled forms of money were invented that were beyond the reach of central bank control," explain the analysts at Independent Strategy in London. Their report is dated April '06...but as with any unfinished jigsaw, we're glad the missing piece has turned up at last.

"In a nutshell," it says, "dump your best-loved definitions of liquidity as being some form of measurable money supply. Money left that runway years ago and ascended into a zenith of its own creation."

Today's money bubble is dubbed 'New Monetarism' by the eggheads at Independent Strategy. They pick up where John Exter's 'Golden Pyramid' of the 1970s left off. And instead of gold at the base – with paper money, bonds, Eurodollars and Third World debt teetering above – the "inverted pyramid of global liquidity" now puts coins and notes at the bottom. No need for gold in this brave new world!

Next comes broad money – the checking accounts, bank deposits and short-term notes that most people still think of as cash. Above that, and one-fifth larger by value, comes securitised debt – corporate bonds, mortgage-backed assets and credit card debt sold to insurers desperate for income.

And there...up at the top...which would be the apex if the pyramid weren't upside down...sit derivatives. Three times greater than everything else put together, they're worth a massive $340 trillion in total. No, that's not money you can spend at the shops. But it works just the same for the money shufflers looking to push all assets higher.

"Using either power money (notes and coins) or broad money (your cheque book), you can do your weekly supermarket run and even buy your car," says Independent Strategy. "With securitised debt (which is what your home loan will become), you can buy a house or you can borrow to invest. With derivatives, you can invest only in financial assets and commodities."

But my, how you can invest! Derivatives outweigh the world's annual economy eight times over. They account for more than a third of all trades at the London Stock Exchange each day. Why settle for 1,000 shares when a contract for difference (CFD) lets you control 10,000 shares for the same price? And why not borrow against the mortgage-backed bonds you just bought to finance the trade?

"The higher the asset markets move, the more liquidity asset prices can create," writes Dr. Marc Faber in his latest Gloom, Boom & Doom Report. "Not every owner [of an asset] will use his borrowing power and leverage...But if an asset bull market has been in existence for a while, more and more investors will become convinced that the up-trend in asset prices will never end and, therefore, they will increasingly use leverage to maximise their gains."

Gearing begets gearing, in other words – and not only because leverage starts to feel safe. A short paper from Pimco, the world's biggest bond fund manager, notes that if some investors use leverage, then all other investors have to join in or lose out. Prices are pushed higher, pushing potential returns lower. Anyone dumb enough to avoid using leverage finds himself chasing riskier assets to increase his yield. But he'll only find that the leveraged investors already got there before him!

"Unlevered investors eventually begin to realize that leverage constraints are forcing them to hold the wrong securities," writes Vineer Bhansali. "So they begin to relax their leverage constraints either explicitly or implicitly (e.g. with 'packaged' solutions that allow leverage to be had via a structured note)..."

Unlevered investors, of course, include you, me and everyone else trying to save for retirement. So whether you know it or not, chances are that a chunk of your money has moved out of plain-vanilla mutual funds into higher risk or levered assets...chasing yield like everyone else as bond prices rise and gearing becomes essential.

Meanwhile, every time a home buyer takes out a new loan...and the debt's sold on to the bond market...and that bond's then sold as part of a structured note playing on interest-rate spreads geared 20 times over...the money shufflers on Wall Street and in London take a bit for themselves.

Hence the New York National Boat Show and the $40 billion in bonuses paid this month to US and UK money managers. The haves and have-yachts only get richer as the liquidity pyramid grows larger.

What will happen when it wobbles and falls over? Watch this space...

Adrian Ash, 10 Jan '07

Your Fund Managers Performance

2007-01-10T16:23:00.000Z

Most top executives and fund managers underperform their various benchmarks. How much do top executives investment managers earn for underperformance?

One recently ousted CEO reportedly received a $210 million "severance" package, though the company's share price performed poorly during his six-year tenure.

Big paydays on Wall Street appear to give new meaning to the phrase "beyond the realms of fantasy" -- Goldman Sachs alone had a reported year-end bonus pool of $16.5 billion, yes billion (or more than $600,000 per employee).

And so it goes on….

Now, the various forms of recent attention paid to big paydays aside, the fact is that these huge amounts going to CEOs/Wall Street are part of a trend that's been unfolding for a long time. In 1970, for example, CEO pay was about 30-times that of an average worker; this multiple has increased steadily to about 100-times today, and is closer to 500-times if benefits and stock options are added.

In the light of all this insanity, what chance do you think you’ve got of making any money on the stock market or anything linked to it, like your pensions!

Gold vs Currency

2007-01-10T07:56:00.000Z

From the essay by Gene Arensberg at ResourceInvestor.com, as he thought that it summed it up the LONG TERM bullish case for gold particularly well.

He observes "A secular bullish perfect storm trend for precious metals continues. Rapidly escalating global investor demand, easier participation by investors via ETFs, conversion of Middle East petroleum dollars to gold, rising new demand from Asia, possible central bank buying partially offsetting central bank selling, conversion from dollars to gold by large US dollar denominated foreign exchange reserves, declining gold production, increased political and NGO interference to bring new sources on line, rapidly escalating costs to produce, delays and shortages of equipment and manpower, previous two-decade bear-market-induced shortage of intellectual capital for miners, safe-haven buying to hedge strong, reckless, competitive dilution of under- backed fiat paper currencies, probably continued de- hedging and continued troubling global political and religious tensions are just some of the factors contributing to the long-term bullish winds now blowing."

Him saying this means that "In real terms, gold remains undervalued versus nearly all other commodities and strongly undervalued as measured by the world's fiat paper promises [currency]."

In short, one more reason to buy gold. Now. Today.

Keep your eyes on the charts and look for the longer term trends

And, even more so for silver.

Dollar Bull Fights Back

2007-01-08T13:22:00.000Z

From Dan Denning user of Bullion Vault

Last night I saw an image of a wounded bull, bleeding between the shoulder blades, and taunted by a matador with a sword...Then, instead of doing what he was expected to do (stare his executioner in the eye and die), the bull charged into the crowd, scattering the blood-thirsty spectators.Of course, the bull died anyway. But not without a fight.That’s what the US Dollar charts tell me about 2007. The buck is going to rally. The alternative is its immediate destruction as the world’s reserve currency. But the Dollar is too important to global liquidity right now to simply disappear overnight.

The US Dollar may experience a reprieve, in fact, if only because so many people own it and do not want to see their Dollars devalued. Developing countries, while gaining exposure to the strong euro, still prefer the Dollar. And then there’s China.With one trillion Dollars in foreign currency reserves (most of them US greenbacks) the Chinese have about a trillion reasons to fear inflation in the Dollar. This erodes their purchasing power. But maybe 2007 is setting up quite nicely for the Chinese, after all.If the Dollar rallies, this will lead to falling or at least more stable commodity prices.

The Chinese can then carefully go on a global resource shopping spree (as they have for the last three years) trading stronger paper Dollars for temporarily weak real assets – oil, gas, minerals, factories, capital...At least that’s how we’d play it if were running China’s economy. We’re not. But it makes sense to us. Make sense to you?It will take not only a lot of creeping inflation before the Dollar falls. It will also need the bursting of the derivatives bubble. Every New Era needs a new set of laws or commandments that can be proclaimed before the world. Moore’s law...love one another as I have loved you...and in the ear of "New Monetarism"...anything can become an asset as longer as there is an investor willing to buy it.

The New Monetarism is a theory of Independent Strategy in London. Their research shows what they believe to be the cause of the continued demand for Dollars in global asset markets...and why the economic imbalances that grab ink (American fiscal and federal deficits, trade deficits, current account deficits) don’t seem to fundamentally alter the demand for Dollars.That’s because the volume of Dollar-denominated transactions in the asset markets – a volume which only the Dollar, with help from the Euro and the Yen, can accommodate – dwarfs the Dollar volume of economic imbalances in the real global economy.

This clarifies just what is going on with Dollar demand and shows both that it can last a lot longer and that when it ultimately fails, the failure will be greater. It’s all here in this chart...Globally, derivatives now account for 75% of liquidity...some 802% of global GDP. Next comes scrutinized debt at 13% of liquidity and 142% of world GDP. Then broad money supply, at 11% and 122%, and finally central bank money at 10% of global GDP and just 1% of liquidity.That doesn’t mean the central banks have totally lost control. They could raise the cost of capital above the natural rate of interest...and kill off the speculation that’s led to an explosion in speculation.

But as pseudo-public officials with questionable independence from elected officials, how willing will central bankers be to raise interest rates on millions of deeply indebted borrowers (home-owners)? Not very, we predict.What’s behind this demand for ‘asset money’? We think it’s the Baby Boomers who need inflating asset prices to increase their net worth before retirement. Thus, the creation of new asset classes is a function of automatic liquidity into the stock market from Asian savers (and institutional money from pension funds, insurance companies etc.) looking for a home in new assets that can make everyone rich.Or in simple supply/demand terms, demographics has created a demand for financial assets.

Asian savings and cheap credit have created the supply of liquidity. Wall Street, the hedge funds, and private equity have rented a room in which the whole affair can be consummated, for a $23 billion clip of the ticket.Because the demand for ‘asset money’ is so high, says Australia's Financial Review, “almost everything today can become an asset class, whether a freeway, an aircraft lease, or royalties from David Bowie’s back catalogue. All that’s needed is for someone to work out the rocket science of how to construct a security and convince investors to buy it.

Recent history shows investors will buy almost anything.”How long can this party go on? Well, a lot longer. Governments are showing an increasing interest in adopting Australia’s superannuation model which directs private savings directly into the stock market. It’s mandatory, it supports liquidity in the stock market, in inflates pension values, and it keeps everyone in the money shuffling industry happy.Something like this could soon happen in the US now the new Congress has met in Washington.

The United Kingdom already has an official report advising mandatory investment in the stock market by employees, made straight from their pay packets – just like PAYE, and with the same accounting burden thrown onto employers.The idea of making everyone a millionaire through inflating asset values in the stock market is, of course, absurd. But that doesn’t mean it won’t be tried. And that’s why the demand for Dollar-denominated assets could support the US Dollar for a lot longer.

What’s more, it may not be long before Europe’s central banks (led by a Frenchman) begin to sell Euros to weaken that currency and strengthen the continent’s exports.A Dollar bull goring spectators at the bullring? Don't count against it.
Dan Denning, 05 Jan '07

Five Reasons the Pullback might Continue

2007-01-08T13:17:00.000Z

From the Desk of Adreain Ash

Gold rose above $610 in Asia today after hitting a one-month low of $601 per ounce in New York late Friday. It's since slipped back again as the European session began.Why has gold dropped so hard, losing a massive 5% inside one week? “It looks like we’re going to have that soft landing we’ve all been hoping for,” said an adviser to US President Bush on Friday.

The latest employment data, he said – showing 167,000 extra non-farm jobs in Dec. versus 100,000 forecast – proves the Fed had “gotten it right”.For now, currency traders and hedge funds agree. The Dollar rose strongly on the jobs data, pushing the Euro back to $1.2989. Sterling has dropped 2.6% against the Dollar since this time last month."If you want to blame something, you can say a sliding oil price and currencies such as Sterling have put a negative sentiment on gold," one Singapore gold dealer told Reuters this morning. "However, support can be seen at around $600.""I am not worried about the sell-off. It's only the hedge funds playing the market.

Even if we have a quick dip to $599.10, I think it's all fine."The drop in Sterling and the Euro has capped losses in gold for British and Eurozone at 3.1% each. And as CommoditySeasonals.com points out, January normally proves a bad time of year for gold prices. Physical demand tends to decline as jewelers find themselves with Christmas and New Year inventory left over."There's a little bit of [physical] buying because of the lower price," says a dealing office at the Bank of China in Hong Kong today. "On the whole, there is some interest in Asia."

He sees support at $602, with resistance around $609 per ounce.More evidence that contrary-minded investors should expect the pullback to continue also comes from the stock market. London's FTSE100 hit new five-and-half year highs last week, but dropped sharply as mining and energy stocks fell alongside metals and oil. "Almost 25 per cent of FTSE 100 companies are metal/mining or energy related," notes Clive McDonnell, chief European equity strategist at Standard & Poor’s. "Conversely, the [German] Dax is the best hedge against falling commodity prices as it has no direct exposure to metals/mining or energy."Stocks in mining companies look vulnerable thanks to their own strategy, too. "Mining companies, pumped up by the resources boom, are choosing to step out without their usual protection," reports Mandi Zonneveldt for the Herald Sun in Sydney, Australia.

The switch to de-hedging has been fastest amongst gold producers, if only because they had the largest hedge books to unwind. Last spring saw unwinding by the world's largest gold miner, Barrick, just as the price shot to a 26-year high. Now that gold producers are more exposed to rising prices, they're also more vulnerable to any setbacks."The hedge impact of the global book - the measure used by The Hedge Book - has fallen from 52.6 million ounces to 41 million ounces in the past nine months," says Zonneveldt, meaning that forward sales have dropped sharply. "At the same time, the gold price has doubled."Australian producer Newcrest said in November it would defer 1.6 million ounces of gold into set-price contracts. That raised its exposure to the gold price.

But such confidence in gold's bull market – after 20 years of declining prices and increased hedging by gold producers – comes just as Wall Street says the commodity bull market has peaked.“The super-cycle theory of commodity markets is all about constraints on the supply side," says Stephen Roach, chief global economist at Morgan Stanley. "[But] likely demand shortfalls in China and the US could be equally telling."Charles Dumas of Lombard Street Research in London says the commodity bubble appears to have burst. Clive Donnell at S&P Europe says a bear market has begun.

Then there's the falling oil price. A key reason for investors to buy gold – often seen as the ultimate inflation protection – since 2003, "falling crude will [now] take its toll on gold," said Ranjit Rathod, director of India's MNC Bullion to Bloomberg this morning. "The whole mood is bearish with base metals being thrashed badly."Has the gold market really turned? "The Dollar is in a consolidation mode as opposed to a trend change in my view, and I see it resuming its decline," reckons one US commodities analyst. "Funds are not bailing these markets out and have gotten short.

I see a gold rally down the line, but it may take a week or so. We are advising clients to maintain a 75% long commitment in gold."While non-US investors may choose to follow the gold price in their own local currency right now – and buy at near 12-month lows – the US Dollar is sure to make headlines in the commodity markets as January unfolds. And whatever happens to gold, the sudden recovery of the US Dollar could become a big theme in 2007.

Stockmarket, Debt Mountain and Real Estate Worries?

2007-01-05T23:08:00.001Z

I hope that you have enjoyed the new year celebrations and are now looking forward to what lies ahead in 2007.

Unfortunately, I am not very optimistic at all about the signs, I do see similarity with 1987 when I was in the investment business, as an experienced mid 30's player. We could do no wrong, stocks, shares and real estate values were all rising.

All the writers at the time were predicting continued growth, increased stock market performance and benefits for all. There were a few "doubters" but these were ignored as we all basked in success and increased wealth.

But we were all proved wrong, the young never want to learn from the older and wiser folk who know that for every boom there follows a bust. We just couldn't help ourselves with our graphs showing a "never ending" upward trend.

Now I see lots of similarity, I expect the people who lived through the 1929 crash, or who have studied it in detail will say the same. There is too much confidence and too much evidence of severe financial problems.

Look at how much debt there is in the USA and the UK, its unsustainable, but all supported on property values by a banking system desperate to lend more and more money so that they can keep their shareholders happy with endless growth!

In the late 1980's this is precisely what toppled Japan and their Banking system. Property has its own cycle, I am am firmly of the belief that this has already topped out in 2005!

Then we have the "wall of money" theory, which states that all the investments have to be invested in "something". But with blind panic that follows a crash investors just want out, at any price, even a loss. After all they have made some profits in the past. But they either bail, or hang on. Both loose.

But this time around we have Derivatives. This will magnify loses and create further debt and subsequent bankruptcy. When this happens we may well get a 1929 scenario.

So why am I telling you this when I should be building excitement? Well there are defences to a stock market and property crash. Its Gold Bullion, not gold dollar derivatives but real Bullion.

Check out my own federal reserve system at
Bullion Vault

This allows the switching between currency and solid gold based in London, New York and Zurich. Get an account now.

In addition, I am in negotiation with a far eastern country who will be able to trade in solid gold and allow deposits of solid gold which will attract a rate of interest, plus any future rise in the value of Gold. And there will be rise in value when the stock crash comes. This will become available within the next month or so.

So for now heed my worries. It may not happen now, or in the next week, but it is coming. All markets are too high, too many currencies are too high, and advisers are still wanting you to invest.
So have a think, see the signs for yourself and act.

Gold Price Movements 5th Jan (Part 2)

2007-01-05T22:56:00.001Z

As promised Adrian Ash is still talking about the odd price movements in Gold see Bullion Vault
Brought to you by John C Burke, Watersons Marketing Group

Ok so back to Adrian;

Gold sank in US trading after the much-anticipated US jobs report came in well ahead of Wall Street's expectations.

Gold dropped to $609 per ounce at the PM Fix in London. It was marked at $625 only four hours earlier. Technical analysts had cited $620 as key support.

"You're getting liquidation on the back of the strengthening Dollar," said Michael Guido, director of hedge-fund marketing at Societe Generale in New York to Bloomberg. "Obviously this number is a big surprise."

The Labor Dept. said at 13:30 GMT on Friday that the US economy added 167,000 jobs in Dec. Economists had been expecting nearer 100,000. The data also showed average US wages rising by 0.5% against 0.3% as expected.

A cut in US interest rates any time soon now looks unlikely – and that has sent the US Dollar higher across the board. But gold's sharp losses also extend to Sterling, Euro and Yen investors.

Gold has now lost nearly £10 per ounce for British investors.

French and German buyers are offered a €13 discount from this time last week.
"Right now investors are cautious about stepping into gold given this week's Dollar strength," says David Holmes, director of precious metals sales at Dresdner Kleinwort in London. Yet retail investors are sticking with it, according to data from the gold ETFs.

Exchange Traded Gold says it's holding 18.142 million ounces of gold today, barely changed from last week after a 3.3% rise in volume during Dec.
So if it's not retail investors selling out, who's dumping gold?

Gold has fallen $22 this week, a 3.5% drop. The US Dollar, meantime, has risen only 1.4% on a trade-weighted basis. And news earlier this week that a major European central bank bought gold – instead of selling it – at the end of Dec. has signally failed to support the market.

"For the clueless out there who still don’t understand," said an email to BullionVault on Thursday, "the gold market is managed by a Gold Cartel...Free markets do not trade this way."

Oh yeah? No one ever pretended the gold market was free or transparent. Central banks, after all, hold more gold than anyone else. Why act surprised if they try to rig prices?

Nor is gold a free ride to easy gains, either. Its volatility since the start of 2006 has wildly outstripped the volatility of US equities, for instance. And all this while, the global market turns over 1,500 tonnes every day or more.

If the world's central banks have indeed lent and loaned 3,000 tonnes into the market, as some conspiracists claim, they're up against a huge international market that's fragmented, volatile and opaque.

And whatever they might be up to in the spot market for gold, central bankers are doing all they can to send its price soaring in future.

Well, as I announced last night Gold is the place to be, just look at what Adrian Ash writes about the Stockmarket and Derivatives at Bullion Vault

Gold Bullion-for Your Own Safety?

2007-01-05T22:46:00.001Z

As I alerted most of you only yesterday something is happening to the price of Gold. This article from Adrian Ash at Bullion Vault is the first of 2 articles.
The second will follow shortly as it explains the unexpected fall in the price of Gold today (5th Jan) and points the finger at manipulation prior to a future jump in the price.
John C Burke 10:00 pm London (5/1/07) see Bullion Vault charts and commentary

Has a major central bank done just as Bullion Vault wondered they might before Christmas...and started buying gold instead of selling it?

"Euro-banks have bought gold before," reports The Telegraph in London, "but past purchases involved coins under a scheme run by the Greek national bank...The latest purchase refers to bullion reserves, suggesting one of the euro-zone banks may have broken ranks."

This mystery buyer amongst Europe's big central banks turned up in the gold market at the end of December, it seems. Their purchase amounted to around two tonnes of gold.

But not so fast, replies a spokesman for the ECB. He claims that the purchase was purely for "technical reasons".

"We would be cautious about this," adds Nikos Kavalis, an analyst at the GFMS Ltd consultancy in London. "These [central] banks have a duty to uphold monetary stability. They're not hedge funds."

Central banks buying gold

What would it matter if a central bank was indeed buying gold?
After all, central banks in Asia, flush with US Dollars in exchange for all the cheap goods they ship across the Pacific each day, have been buying gold. So too have several oil-producing nations. Russia's official data says it grew its gold holding by 2.2% in 2006. Unofficially, many analysts believe secret gold purchases by Asian and oil-rich central banks to be much larger.

But a member of the European Central Bank actively buying gold?
That would really mean something big. The Washington Agreement of 1999 capped gold sales at 500 tonnes per year. It aimed to stop central banks dumping the 'barbarous relic' en masse in exchange for each other's paper promises, if only to give Britain a clear run at selling 400 tonnes of gold from the UK's reserves.

Should a major European bank now swap Dollars or Euros for gold, it would start a flight out of paper currency and into gold by other investors too – exactly what central bankers don't want.It would undermine the validity of the paper money they issue for a living!

"This has the gold market abuzz," notes Dennis Gartman, editor of the eponymous Gartman Letter. "[Gold is] becoming a flight-to-safety instrument once again," adds Kevin Kerr, co-editor of Outstanding Investments, "as more and more uncertainty builds with Iran and just what global economic impact it will have."

Central banks' current gold reserves

Let's remember, however, that two tonnes is not very much gold at all – not in the bigger scheme of things. Worldwide, central banks are estimated to hold some 30,000 tonnes. The gold-backed equities such as GLD in New York and Lxyor GBS in London now have around 750 tonnes between them.

What's more, demand from jewelers makes up the vast part of the annual gold market, some 592 tonnes in the summer of 2006 according to GFMS data. Jewelry demand accounted for 72% of total gold demand between July and September.

Next comes industrial & dental demand. It totaled 114 tonnes in the third quarter of last year. Investment demand over that period – or rather, investment demand identified by GFMS – came in at 110 tonnes.

So a two-tonne purchase really is peanuts compared to the total market. After just 18 months of operation, Bullion Vault 's clients already hold more than that between them. And given gold's price in December, this mystery buyer amongst the European central banks spent a mere $50 million.

To put that in perspective, it would cover barely 6 hours of The United States' ongoing trade deficit!

But something certainly is afoot in the gold market, we believe. Just this week, a leading gold analyst in Mumbai, India, forecast gold in 2007 will rise above $850 per ounce, its previous all-time high for US Dollar investors.

Central bank gold sales and producer hedging

Speaking at an investment conference on Wednesday, Si Kannan, head of research at Sharekhan Commodities, said that the lack of growth in gold mining supply – plus the launch of new exchange-traded gold funds (ETFs) for Indian investors early this year – could send the price soaring.

India is already the world's largest market for gold jewelry.
Its consumers bought one ounce in every five sold for personal adornment worldwide last year. And India's retail investment demand leapt 31% higher in tonnage terms in the third quarter of 2006. In cash terms, Indian investors spent an extra 49% on gold. But as yet, Indian investors face the same problems in accessing gold investment direct as did US and European investors before 2005.

"The launch of the [Indian] gold exchange-traded funds in the first quarter will skew the price curve upward," Kannan says.
(Bullion Vault would of course offer Indian investors a better price, with greater security and for lower dealing costs.)

Central bank buying could also become a big factor in driving investment demand for gold higher, as Bullion Vault reported before Christmas. “Our studies indicate ," said Credit Suisse in a note of 13 Nov. 2006, "that gold supply in the long term is inexorably falling behind demand as the diminishing number of new reserves fails to compensate for dying mines. This has been happening for some time but, until recently, the effect has been masked by Central Bank sales and producer hedging.

Central banks to become net buyers of gold?

"However, Central Bank sales will likely whither, and Banks could become net buyers of gold. This transition, together with expected increased investment demand, jewelry consumption and diminishing mine supply, will be when the supply-demand imbalance heats up the gold price. We believe this has already begun."

Structural shifts in the make-up of the global gold market had A huge impact on gold prices in 2006. Dehedging by the big gold mining companies coincided with the spike to $730/oz in mid-May. It came just as Barrick Gold Corp. was buying back 3.0 million ounces it had sold forward. AngloGold Ashanti Limited squared up 1.0 million ounces of its hedge book last spring, and Newcrest Mining was also trying to buy back a "sizeable amount"
According to analysis in the Mitsui Report.

So while gold is getting hosed right now, the current set-back in gold prices may well come to look like a last chance to buy before the next leg of this bull market begins.

Gold's now trading below $630/oz according to the free gold charts here at Bullion Vault .
For Sterling and Euro investors, it's almost back where it started last year.

If you've ever loved a bargain in the New Year sales, you might just come to love gold at today's prices.

Adrian Ash, 04 Jan '07

Adrian Ash is head of research at Bullion Vault , the fastest growing gold bullion service online.
Formerly head of editorial at Fleet Street Publications Ltd – the UK's leading publishers of investment advice for private investors –he is also City correspondent for The Daily Reckoning in London, –and a regular contributor to MoneyWeek magazine.