Rapid Trends – Gold and Silver Bullion

Honolulu, Hawaii, July 3rd 2009AD

Blog entries may be a bit sparse for the next few weeks. We are currently in Hawaii visiting some relatives and taking a much needed holiday.

View from our deck

Just a few economic observations here and collecting data from locals:

Walking around downtown Waikiki, it is not evident that there is any economic problem at all…hotels and shops and the beach look quite busy to my eyes. Lots of asian tourists here, mostly Japanese. Nothing abnormal there.

Under the surface though, after talking to some of the locals…its a different story. A friend of mine who owns a business here says that in september business dropped off substantially…roughly 20% to 30%…he likened it to the drop off in business right after 9/11. He also says he it hasnt come back, and is concerned that it isnt going to for a while.

Interesting times we live in no doubt, and although many entries I make may sound  irritated and ticked off…keep in mind that I am actually a very optimistic person (and no, this isnt just because I am in Hawaii).

Point being, even though we see lots of turmoil all around us, and there is no doubt the US and western nations are going to go through a period of adjustment in lifestyle…there were alot of millionaires created during the great depression…the question of course is how did they do that?

Its almost easy to make money when there is plenty of it and people are spending freely on their house equity atm cards. What about when they dont though? What about when they start saving, as current data is showing Americans are starting to do?

Moving forward, myself and my colleagues are all of the mind that being on the supply side of the equation is where to be. Basic services that people will not cut from their budgets because they are needs not wants. As well as raw materials..because if you think globally you will realize there is a massive demand out there for raw materials that is only growing, not diminishing.

Products of the earth basically…metals…especially precious metals….agriculture…energy…

You can listen to a recent roundtable tele-conference with several men of outstanding perspective…AFE Director Philip Judge…AFE Director Simon Heapes…AFE Broker Duncan Cameron…and Palau Pacific Exploration Director Justin Pettett

http://www.anglofareast.com/anglo_player_content.html

I had one of our clients ask me recently…how do you position yourself for revenue in this kind of market? My answer was….getting on the supply side of the commodity. Owning the mining company…or the oil company…or the gold and silver company…or the farming concern…or being involved in its distribution, in AFE’s situation the service side of acquiring gold or silver, protecting it, redeeming it.

During great change there is also incredible opportunity….’wealth isnt just destroyed…it often just changes hands…’

If you pay attention…there are definitely ways to win in this environment.

All the best my friend, until next time,

Alex and Misty

Alex Stanczyk

Alex’s Notes: Found this article rather interesting, because it seems like Congress is starting to ask some pretty important questions about what exactly the Fed is doing in its sekret unknowable balance sheets.

A quote from Bernanke:

“My concern about the legislation is that the GAO is auditing not only the operational aspects of our programs and details of the programs, but is making judgments about our policy decisions that would effectively be a takeover of monetary policy by the Congress, a repudiation of the independence of the Federal Reserve, which would be highly destructive to the stability of the financial system, the dollar and our national economic situation,” he said.

How is authority to audit the Federal Reserve and look into what it is doing making judgements about policy decisions? This pre-supposes that they should have the ability to operate in total secrecy in the first place.

The other thing that strikes me as bitterly ironic, is that this claimed repudiation of independence is such a bad thing. The Founding Fathers of the US vested the Authority with Congress, not a private bank such as the Federal Reserve, with the power over issuance of currency. Contrary to what so many  would have you believe, these men were not fools..they were rather intelligent, and had very good reasons for doing this which are quite obvious if one takes the time to study the matter.

And finally, the quote that made me spit out the drink I was drinking when I read it:

“We think we are quite transparent,” Bernanke said.

This is hilarious. Transparent, to me, would be a third party audit of the Fed’s books, which, by the way, has never been done in the history of the Federal Reserve since its inception.

***

Lawmakers Attack Fed For Being Too Secretive
Dow Jones

By Maya Jackson Randall

WASHINGTON -(Dow Jones)- U.S. lawmakers, during a hearing Thursday on the central bank’s role in Bank of America’s acquisition of Merrill Lynch, attacked the Federal Reserve as a secret agency unworthy of new enhanced regulatory powers.

“It’s time to yank the shroud off the Fed and shine some light on these events,” said U.S. House Committee on Oversight and Government Reform Chairman Edolphus Towns, D-N.Y., who in an opening statement repeatedly described the Fed as being “shrouded in secrecy.”

“I believe that before Congress acts on the president’s financial services reform proposal, we need to have a thorough understanding of what caused the current financial crisis and how the federal government responded.”

The heated congressional hearing got under way Thursday with Federal Reserve Chairman Ben Bernanke defending the central bank’s role in negotiations with Bank of America (BAC) and with members of the House Government Reform committee expressing skepticism of the Fed’s decisions.

Usually, the Fed chief goes to Capitol Hill to take questions on monetary policy and the economy. But the economy was barely touched on at Thursday’s hearing.

Instead, lawmakers criticized the Fed as an agency that has too much power and yet too little transparency and questioned whether the Fed should become the uber regulator of the financial system envisioned by the Obama administration.

Bernanke, in his first congressional appearance since the administration rolled out its controversial regulatory-revamp proposal, defended the planned overhaul of U.S. financial rules. It’s clear something has to be done to prevent firms from growing so big that they pose a risk to the financial system, Bernanke said.

“Too big to fail is not a policy. It’s a major problem,” he said. “I hope the system will be changed.”

Lawmakers are reluctant to boost the Fed’s powers. Even though it could help prevent companies from becoming too-big-to-fail, critics have argued that the central bank didn’t do enough before the crisis began to protect consumers and discourage firms from taking on riskier strategies that led to the credit crunch.

Bernanke, however, said the administration’s plan for overhauling U.S. financial rules won’t greatly boost the central bank’s authorities.

“It’s not a massive increase in powers,” Bernanke told the House panel.

At the same time, Bernanke said Congress should consider various options for preventing the too-big-to-fail problem. One solution is to boost regulation. Another option is to break up large firms so that they no longer have the potential to damage the economy.

“I think it’s legitimate to discuss both options,” Bernanke said. “I would just point out that very large banks do have an economic function, a global reach, diversity of activities. But Congress may wish to look at different options. I don’t want to prejudge what you will be deliberating.”

Still, Bernanke warned lawmakers against moving forward on legislation that would give the Government Accountability Office, Congress’ investigative arm, new authority to audit the Fed. More than half of the U.S. House has signed on a measure that would make way for audits of the Fed.

“My concern about the legislation is that the GAO is auditing not only the operational aspects of our programs and details of the programs, but is making judgments about our policy decisions that would effectively be a takeover of monetary policy by the Congress, a repudiation of the independence of the Federal Reserve, which would be highly destructive to the stability of the financial system, the dollar and our national economic situation,” he said.

Furthermore, Bernanke argued that the Fed, under his leadership, has made ” enormous strides” to expand the information it releases to the public.

“We think we are quite transparent,” Bernanke said.

Lawmakers, meanwhile, remain skeptical. Rep. Dennis Kucinich, D-Ohio, argued that the Fed’s decisions in the Bank of America-Merrill merger make the case ” for a significant increase in accountability at the Fed.”

“We can’t afford to make the Fed a super-regulator, as some have proposed, without also increasing its transparency in meaningful ways,” said Kucinich.

Original Article

Classic examples of Inflation: (From Wikipedia)

Angola
Angola went through its worst inflation from 1991 to 1995

Austria
Between 1921 and 1922, inflation in Austria reached 134%

Belarus
Belarus went through steady inflation from 1994 to 2002.

Bolivia
Bolivia went through its worst inflation between 1984 and 1986.

Bosnia-Herzegovina
Bosnia-Hezegovina went through its worst inflation in 1993

Brazil
From 1986 to 1994, the base currency unit was shifted three times to adjust for inflation in the final years of the Brazilian military dictatorship era.

Chile
Beginning in 1971, during the presidency of Salvador Allende, Chilean inflation began to rise and reached peaks of 1,200% in 1973

China
As the first user of fiat currency, China has had an early history of troubles caused by hyperinflation. The Yuan Dynasty printed huge amounts of fiat paper money to fund their wars, and the resulting hyperinflation, coupled with other factors, led to its demise at the hands of a revolution. The Republic of China went through the worst inflation 1948-49. In 1947, the highest denomination was 50,000 yuan. By mid-1948, the highest denomination was 180,000,000 yuan. The 1948 currency reform replaced the yuan by the gold yuan at an exchange rate of 1 gold yuan = 3,000,000 yuan. In less than 1 year, the highest denomination was 10,000,000 gold yuan. In the final days of the civil war, the Silver Yuan was briefly introduced at the rate of 500,000,000 Gold Yuan. Meanwhile the highest denomination issued by a regional bank was 6,000,000,000 yuan (issued by XinJiang Provincial Bank in 1949). After the renminbi was instituted by the new communist government, hyperinflation ceased with a revaluation of 1:10,000 old Renminbi in 1955.

Free City of Danzig
Danzig went through its worst inflation in 1923. In 1922, the highest denomination was 1,000 Mark. By 1923, the highest denomination was 10,000,000,000 Mark.

Georgia
Georgia went through its worst inflation in 1994. In 1993

Germany
Main article: Inflation in the Weimar Republic
Germany went through its worst inflation in 1923. In 1922, the highest denomination was 50,000 Mark. By 1923, the highest denomination was 100,000,000,000,000 Mark. In December 1923 the exchange rate was 4,200,000,000,000 Marks to 1 US dollar.[14] In 1923, the rate of inflation hit 3.25 × 106 percent per month (prices double every two days). Beginning on November 20, 1923, 1,000,000,000,000 old Marks were exchanged for 1 Rentenmark[14] so that 4.2 Rentenmarks were worth 1 US dollar, exactly the same rate the Mark had in 1914.

Greece
Greece went through its worst inflation in 1944-1946

Hungary
Hungary went through the worst inflation ever between the end of 1945 and July 1946

Israel
Inflation accelerated in the 1970s, rising steadily from 13% in 1971 to 111% in 1979. From 133% in 1980, it leaped to 191% in 1983 and then to 445% in 1984, threatening to become a four-digit figure within a year or two.

Japan
After WW II, Japan went through the highest denomination at that time, which was a 75,000,000,000 Yen bank cheque. The Japan wholesale price index (relative to 1 as the average of 1930) shot up to 16.3 in 1943, 127.9 in 1948 and 342.5 in 1951. In the early 1950s, after achieving independence from USA, Japan controlled its own money. Through its rapidly growing export trade, Japan stabilized the Yen quickly.

Madagascar
The Malagasy franc had a turbulent time in 2004, losing nearly half its value and sparking rampant inflation

Mozambique
Mozambique was one of the world’s poorest countries when it became
independent in 1975

Nicaragua
Nicaragua went through the worst inflation from 1987 to 1990.

Peru
Peru went through its worst inflation from 1988 to 1990.

Philippines
The Japanese government occupying the Philippines during the World War II issued fiat currencies for general circulation. The Japanese-sponsored Second Philippine Republic government led by Jose P. Laurel at the same time outlawed possession of other currencies, most especially “guerilla money.” The fiat money was dubbed “Mickey Mouse Money” because it is similar to play money and is next to worthless.

Poland
Poland went through inflation (second time) between 1989 and 1991.

Russian Federation
Between 1921 and 1922 inflation in Soviet Russia reached 213%.

In 1992, the first year of post-Soviet economic reform, inflation was 2,520%. In 1993 the annual rate was 840%, and in 1994, 224%. The ruble devalued from about 40 r/$ in 1991 to about 30,000 r/$ in 1999.

Turkey
Throughout the 1990s Turkey dealt with severe inflation rates that finally crippled the economy into a recession in 2001.

Ukraine
Ukraine went through its worst inflation between 1993 and 1995

United States
During the Revolutionary War, the Continental Congress authorized the printing of paper currency called continental currency. The easily counterfeited notes depreciated rapidly, giving rise to the expression “not worth a continental.”

Between January 1861 and April 1865, the Lerner Commodity Price Index of leading cities in the eastern Confederacy states increased from 100 to over 9000.[20] As the U.S. Civil War dragged on the Confederate States of America dollar had less and less value, until it was almost worthless by the last few months of the war.

Yugoslavia
Yugoslavia went through a period of hyperinflation and subsequent currency reforms from 1989 to 1994

Zaire (now the Democratic Republic of the Congo)
Zaire went through a period of inflation between 1989 and 1996.

Zimbabwe
A selection of Zimbabwe Reserve Bank bearer cheques printed between July 2007 and July 2008 (now expired) that illustrate the hyperinflation rate in Zimbabwe. Hyperinflation in Zimbabwe has persisted since the early 2000s, shortly after that country’s confiscation of white-owned farmlandand its repudiation of debts to the International Monetary Fund. Figures from November 2008 estimated Zimbabwe’s annual inflation rate at 89.7 sextillion (1021) percent (i.e. prices double every 24.7 hours). In April 2009, Zimbabwe abandoned printing of the Zimbabwean dollar, and the South African rand and US dollar became the standard currencies for exchange. The government does not intend to reintroduce the currency until 2010.

Alex’s Notes: This short paragraph is a homerun:

It is interesting to note that only 160,000 tons of gold has ever been mined from the face of this planet and at US$950 per ounce, it is worth US$4.9 trillion. Now, consider that the total amount of paper money in circulation (currencies, savings, deposits, money-markets and CDs) is worth US$60 trillion or approximately twelve times the value of the gold in existence. Now, there is no doubt in my mind that as world governments debase their currencies, many people will begin to question the viability of paper money as a store of value and they will turn to gold, silver and platinum. Even if a small fraction of paper money rushes towards the small gold and silver markets, what do you think will happen to their prices? No question, precious metals’ prices will explode!

By Puru Saxena

06/24/09 Hong Kong, China After decades of excess credit and over-consumption, the developed world is finally being forced to deal with private-sector deleveraging. However, the governments seem to have other plans and they’ve decided to fight these deflationary forces tooth and nail. Their solution – even more credit and consumption!

Rather than accept a painful adjustment period, policymakers are desperately trying to revive the party. And in the process, they are making the situation much worse. All over the world, governments are spending trillions of dollars in order to clean up the mess. Unfortunately, the stark reality is that these governments have no money. So, in most instances, these glorious state-sponsored spending programs are being financed by borrowing and money printing.

Most people seem to forget that these fiscal spending programs aren’t creating any real wealth and are simply transferring wealth from the savers to the debtors. Essentially, governments are taking money from the solvent and re-distributing these funds amongst the insolvent.

Read the rest of this entry »

By Bloomberg News

June 26 (Bloomberg) — China’s central bank renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar.

“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the People’s Bank of China said in its 2008 review released today. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.

Read the rest of this entry »

Bernanke to Testify Before House Panel

Rep. Darrell Issa (R-Calif.) says the Fed “hid concerns and pertinent details regarding the merger.” (By Katherine Frey — The Washington Post)

By Zachary A. Goldfarb
Washington Post Staff Writer

The Federal Reserve tried to keep other federal regulators out of the loop while pushing Bank of America to follow through on its deal to buy the crippled investment bank Merrill Lynch late last fall, according to Republicans on the House Oversight and Government Reform Committee.

The Republicans say documents obtained by the committee show that the Fed sought to limit the information given to the Securities and Exchange Commission, which was responsible for overseeing financial disclosures from the two companies, and the Office of the Comptroller of the Currency, one of Bank of America’s regulators. In a memo circulated yesterday, the Republicans also say the Fed tried to avoid the public disclosure of accelerating losses at Merrill Lynch.

Read the rest of this entry »

Great Article…

This is brilliant:

The best response I’ve heard to the efficient markets theory that has dominated thinking about investment for 30 years or more is a joke. Two men walking down a street spot a £20 note on the pavement. One, an economics professor, says to the other: “don’t bother to pick it up – if it were really a £20 note it wouldn’t be there.

Investors are finally seeing the nonsense in the efficient market theory

By Tom Stevenson

He means that because market prices always capture everything anyone knows about a share or index there can never be any hidden value for a shrewd investor to “pick up”. It is nonsense, of course – like telling Warren Buffett that all the investment opportunities he’s been exploiting over the years can’t logically exist. But when has being nonsense ever stopped people believing something?

In this context, it was interesting to see a report this week that the Chartered Financial Analyst Institute, which has been teaching efficient markets theory for decades, has admitted that most of its members have lost the faith. Two thirds say they no longer believe market prices reflect all available information and three quarters disagree that investors as a whole behave “rationally”.

What’s amazing is that it has taken so long for the penny to drop. It has seemingly required investors to lose their collective senses twice in a decade (dotcom bubble, housing boom) for people to realise that the crowd is mad as often as it is wise.

Markets have always been prone to bouts of “irrational exuberance”. The price of tulips in 17th century Amsterdam, that of South Sea Company stock in 18th century London and of Florida real estate in the 1920s are just highlights of the procession of booms and busts down the ages that has taught every subsequent generation that markets often get it wrong.

They do so for two reasons. They get it wrong because they reflect human behaviour in all its fearful, greedy irrationality. And they get it wrong because they reflect a world that is inherently unpredictable.

This is why, for all my rude comments last week about technical analysts’ “dirty raincoats and large overdrafts”, sensible investors take account of both the fundamentals (sales, profits, balance sheets and so on) and the charts of price movements. Those charts are no more nor less than snapshots of the millions of fearful, greedy decisions made by investors every minute of the day and, as such, they tell a fascinating tale to anyone who learns their language.

There are many reasons why those decisions are invariably irrational. These heuristics, or psychological biases, are beginning to be unpicked by the new science of behavioural finance.

One is “anchoring”, the tendency of people to measure the value of an asset against some wholly irrelevant number. A study of this asked groups of people to estimate the number of doctors in London but only after they had first provided the last four digits of their phone number. People with the highest phone numbers consistently gave higher estimates of the number of doctors. Completely irrational, of course, but no different from fixating on RBS’s share price two years ago when assessing whether it is good value now.

There are many more of these biases, often relating to over-confidence: most people think they are better than average investors just as they over-estimate their driving ability but we can’t all be better than average. We are overconfident about forecasts and in the power of systems – securitisation of dodgy mortgages spreads and so reduces risk, doesn’t it?

So, increasingly few people still believe that markets are wholly efficient and that is a good thing. It means fewer people will believe, as governments and regulators did, that the prices of loss-making internet stocks in 1999 and Miami condominiums in 2006 were in any way not a disaster waiting to happen.

It might mean that fewer people are tempted by passive investments which promise an answer to the awkward fact that most active fund managers do not beat the market but can only do so by guaranteeing that you will hold all the market’s very worst stocks as well as its good ones.

However, there is one problem with dismissing out of hand the efficient markets theory. It is that markets are not so inefficient that anyone can safely bet against them. Assuming that you know more than the market is a dangerous game to play when most of the time most of the information is accurately factored in.

The answer is not to give up trying to beat the market but it argues for finding someone who, because of their skill, knowledge or intuition, is good at spotting the £20 notes on the pavement – and sticking with them.

Tom Stevenson is an investment commentator for Fidelity Investment. The views expressed are his own.

Original Article

Alex’s Notes: Brilliant article by Jim Willie CB of the Golden Jackass.

I am going to highlight really key points in blue.

This is like a giant game of chess…and China holds all the pieces basically toying with the US prior to checkmate.

I can see the steps China is taking having a huge impact on commodity trade….it ties the hands of the US in that if the US wants to hit the commodities to support the USD it will end up triggering a sale of US Treasuries used as collateral for the fund positions.

China Commodities Undercut USDollar

China is directing their mountain of reserves away from acquired mining firms and toward managed hedge funds. This is a new direction for Beijing, clearly in response to the refusal by Rio Tinto to permit a $19 billion stake from the Chinese aluminum giant Chinalco. They were frustrated and angered by the other refusal with the failed Unocal dea in 2005. Clearly, whether stated openly or not, the Chinese are thwarted by USGovt and UKGovt hidden leaders from investing in strategic firms. From their point of view, tarnished by ill feelings, their money is good for credit supply but not good for commodity supply lines. So China will continue its pursuit of significant interests in commodity firms, both metals and energy related, and will amplify the pressures by taking scattered interests in hedge funds,

Felix Chee is a key adviser to China’s $200 billion sovereign wealth fund. At the prestigious GAIM International hedge fund conference in Monaco this week, Chee stated “We will have a preference for managed accounts. The platform would like a core of single manager funds and fund of funds. We are looking for the best managers and a handful of fund of funds, and when I say handful I mean five or less.” Chee will initially run the China Investment Corp hedge fund and its proprietary trading desk. Chee previously managed the endowment at the University of Toronto, whose $1 billion portfolio centered on hedge fund assets.

STRATEGIC ANGLES

The Chinese are set to buy a minority interest in the entire US hedge fund industry potentially. They will surely push for more commodity investments, in a clever stroke, maybe a brilliant stroke. Now, interestingly, if the USGovt through its Wall Street offices, attacks hedge funds, then the Chinese will resist both on a financial front and political front. This puts an end possibly to the attacks of hedge funds like what we saw last autumn. Those attacks resulted in powerful continuation of the decline in prices for key commodities last autumn. The USGovt released a huge amount of crude oil from the Strategic Petroleum Reserve, which started the cascade process. Next came the Wall Street maneuvers to pull credit from hedge funds. They in all likelihood targeted the funds that were heavily long in those key commodities. Imagine competing against your own banker in an investment strategy, sure to lose most of the time.

This entire strategy announced by China should severely weaken a hidden USDollar support, long used with successful short-term results. The Wall Street syndicate has long hit gold and crude oil, smashing temporarily their prices, when its purpose was to prop the USDollar. The Chinese skillfully are working to take that device away. While such directed efforts undercut their own US$-based assets valued at over $2 trillion, they better enable a wider employed strategy of diversification of investments into hard assets. By the way, Russian President Medvedev has recently learned that mere words spoken from a podium can move the price of crude oil and the exchange rate of the USDollar. The adversaries of the USGovt are fast learners of old US devious tricks.

SECOND WIND FOR HEDGE FUNDS

The attacks by Wall Street, clearly urged by the USDept Treasury and several USGovt agencies, has had many frontal assaults. Hedge funds have been blamed for much of the speculation and deep damage done to the US financial system. The real villains are on Wall Street, with their mortgage bond fraud (totally unprosecuted), their gold suppression & depletion game to support & weaken the USDollar (totally unprosecuted), their destruction of proper usury prices (totally unprosecuted) which means the cost of money, and routine insider trading as they execute USGovt policy (totally unprosecuted). The establishment of a decade long silly low cost of money is probably the biggest single cause for prevalent asset bubbles, with Economic Mother Nature responsible for their collapse employing gravity as the chief weapon. Wall Street and their satellite USGovt ministries frequently blame hedge funds, and their unregulated free wheeling style, whenever vast systemic damage occurs. It is like the fox attacking with words the meat packers, after raids to the ranches and pens. Many initiatives by the USGovt to force open the balance sheets and portfolio positions of hedge funds failed. They were illicit fishing expeditions that served as yet another example of Fascist Business Model tactics by Wall Street. They wanted to know their competitors, inside and out, even if illegally, by using the tight relationship between the state and big business. Many see this linkage of power structures as a national advantage, when it is probably the greatest structural deficiency ensuring eventual system breakdown. No agency stopped the major turns on the precarious path to perdition.

Hedge funds are private pools of capital whose managers engage in active trading of their assets. Their managers participate in profits from money invested, and earn base fees. Hedge Fund Research estimates there were about 6644 hedge funds operating at the end of March. At the industry peak in December 2007, the army of hedge funds totaled 7634. They managed $1.9 trillion at that point. In year 2008, they track for every hedge fund started, two closed down. The Chinese initiative is certain to breathe new life on a monthly basis into the hedge fund industry. Better yet, they can post USTreasurys as collateral for vast hedge fund positions in commodities. If they undergo Wall Street assaults, the USTBonds must be liquidated in the process if a particular hedge fund position is ruined, like with crude oil or gold. More surreptitiously, the vast mechanisms used by the official US financial system support for USTreasurys can now be indirectly deployed by China to transfer thrust and power to the commodity arena, via the hedge funds. The process will take time. Let’s watch to see if Beijing and Shanghai become new centers for hedge funds with close business ties with New York and London. What a paradoxical twist! So Chinese sovereign wealth funds breathe new life into the flagging acidic residue stuck to the walls of the two biggest financial cities, whose businesses were almost killed off by their own fraud and failed risk management!!!

The hedge fund industry has a longstanding preference for the US$ bear trade, those assets which rise in value upon slides in the USDollar currency. Commodities like gold and crude oil are the leading assets with a negative US$ correlation, but others like copper and natural gas also align in opposite fashion and have been very popular. China has the capability and potential to add continuation to the commodity price recovery seen in the last three months.

DIVERSE CHINESE ACTIONS TOWARD ACQUISITIONS

The failures by China to acquire important stakes in Western commodity firms are highly publicized. Four years ago the China National Offshore Oil Corp (CNOOC) bid for Unocal was finally rejected. The collapse of the Chinalco proposed $19 billion investment in Rio Tinto has caused more ill will in China. Rio Tinto is one of two giant the Anglo-Australian miners, the other BHP Billiton. China not only boasts the Great Wall, but also commands the Great Wall of Money that will eventually cascade onto world markets. That cascade could be more important as a factor in generating US price inflation than the buildup and spillover of the USFed balance sheet. Great distrust lingers with Western leaders, that the Chinese motives are not purely commercial in nature, but rather are strategic in rendering damage to the USDollar, and worse, in creating different supply lines that could cut off actual supply to entire economies. On the other hand, the Western firms are desperate for cash, something the Chinese have in mountains, not of metal ore, but paper with ink. China Investment Corp, one of their major sovereign wealth funds, recently attempted to grease the gears, to engage in back door payola, by investing over $1 billion to fortify its 10% stake in Morgan Stanley. Also, the Sichuan machinery maker has taken the Hummer pig off General Motors hands for $250m. It is ranked #200 in reliability, maybe lower, but it looks cool and can drive through rivers. Maybe it can drive through the river of federal red ink or the river of central bank liquidity.

These are small sums of money actually, when one considers that China must diversify over $2000 billion of foreign exchange reserves. Their many relatively small deals serve as big drops in a giant bucket. The bigger action clearly has been Beijing initiatives to secure deals in Africa, Latin America, and Central Asia, where no objections are raised about Chinese money. They skillfully have set up grand contracts for building infrastructure (like railroads, port facilities) and community systems (like schools, hospitals).The Chinalco/Rio Tinto failure will motivate a new course in China policy to spread portfolio risks via diversification. They have decided, with the hedge fund approach, to use a double pronged phalanx approach. They will invest tens of billion$ to acquire hundreds of exposures across a broad range of companies in the West, under managed portfolios. They will undercut the politically motivated financial attacks against those hedge funds themselves. If the USGovt defies Beijing, then the great creditor can yank a cord and deny USTreasury Bond purchase until the vassal turns more obedient.

CHINESE STRATEGY BECOMES CLEAR

China will not openly sell the USDollar, which means openly dump their USTreasurys and USAgency Mortgage Bonds. Doing so would constitute an open declaration of financial war, thereby destroying the value of its reserves and inviting open war with the US. Instead, China will continue to encircle the USDollar, to encircle the vast supply chain, and pursue what should be regarded as a tight noose around the neck of the USGovt and USEconomy. Call it a pair of leashes as they walk the dog of war. Recent efforts to establish the Chinese yuan currency as a global reserve alternative have proven effective. See the landmark deal with Brazil. Settlement of international transactions will more often be completed in currencies outside the USDollar sphere. What we are witnessing is a death of the USDollar by a thousand cuts, a Chinese torture tradition. The Beijing leaders have decided, for political and practicality reasons, to employ the Gradualist Approach. Maybe they enjoy financial torture. For certain, China is already cashing out of the crippled USDollar, and is doing what it practically can, before the great monetary writedown occurs. The $1.8 trillion in USGovt deficits just this year will create sinkholes under the US$. The deficits next year will create more sinkholes, as the deficits in 2011 and beyond will create even more sinkholes. Denials of the USDollar becoming a Third World currency are empty and baseless. The real danger comes from a global financial structure built atop a reserve currency walking down a path destined for such ruined status.

If truth be known, as Seeking Alpha puts it, “Indeed, China has already begun moving into a new currency, one that is neither fiat nor flawed. And they did it in their usual manner: under the radar with great focus and determination. That new currency is natural resources. One should also consider that these are merely the transactions that are publicly displayed. The Chinese government has proved adept at buying assets below the radar via foreign holding companies and other complicated business structures. Informal accounts posit that China has in fact scooped up even more natural resources and mines via these methods today. The reasoning here is simple. Unlike paper currencies, natural resources and commodities cannot be reproduced ad infinitum by central banks. Thus they are inflation proof.” See the Seeking Alpha article (CLICK HERE) for more detail and more excellent commentary.

Original Article

Germany has devised the ultimate in credit crunch vending machines: Gold to Go.

After inserting your euros in the slot there is a familiar whirring noise as if the machine is readying itself to spit out a can of lemonade or a bar of chocolate. Instead there is a satisfying clunk as a prettily wrapped bar of the world’s favourite precious metal thuds into the dispenser.

“It’s better value than the bank,” Romy Erhardt of TG-Gold-Super-Markt told The Times, “And it’s very convenient — no waiting time — you just put in your cash and a minute later you are an investor in gold.”

The prototype gold-dispenser has been installed in Frankfurt airport and today there was a queue of passengers mulling over whether to buy one gramme, 5 grammes or ten grammes of gold.

The one-gramme bar was available for €30 (£25). Other options — rather like a high-end coffee machine it has five selections — included a Maple Leaf Five Canadian dollar coin and a Kangaroo Fifteen Australian dollar coin. Both represent about one tenth of an ounce of gold and the price on today was hovering around €80.

“The price is updated every 15 minutes,” Ms Erhardt explained. “The vending machine is linked to the computer which we use for our online gold outlet.”

The margins are lower than those offered by banks but fluctuate at about 20 per cent higher than market prices. That is the price of being able to pick up your gold before boarding an aircraft and having it packaged in a metal case labelled “My Golden Treasure”.

A less sophisticated version of this Gold to Go machine was installed in Frankfurt’s main railway station last month and has been doing well. The company hopes to put 500 of the machines throughout Germany, Switzerland and Austria.

They are riding on the crest of a wave of investor interest in gold as the market price edges up towards $1,000 for a troy ounce.

Online gold dealers — who offer a discreet armoured-car delivery for large purchases — are reporting boom times. The World Gold Council said that individual purchases started to rise dramatically in the last quarter of 2008 and have broken all records in the first quarter of this year.

Above all, small individual investors — nervous about the future of the dollar and other currencies — are buying and selling the metal. In the US, the gold equivalent of Tupperware parties have caught on and the idea has spread to Britain.

The Michigan based company My Gold Party — a housewife acts as a company agent and invites her friends to her home to have their gold rings and bracelets professionally valued — has been taken up by 28 US states.

The online company Cash4gold.com meanwhile is reporting 25,000 transactions a month. And Exboyfriendjewelry.com — whose testimonials are full of stories about the cathartic effect of selling jewelery given by former husbands and lovers — is thriving.

The Germans are particularly interested, partly because of the collective memory of the currency collapse after two world wars.

Some high street jewellers even buy dental gold to be melted down. “German investors have always preferred to hold a lot of personal wealth in gold, for historical reasons,” said Thomas Geissler, head of the Stuttgart-based TG-Gold-Super-Markt.

There is a German fascination with gold that goes even deeper than anxiety about failing currencies. One of Germany’s best loved fairy tales, a classic bedtime story, features a donkey that excretes gold coins every time that one shouts the magic word “Bricklebrit!”

To make sure that no one tries a similar trick with the Frankfurt gold vending machine, the company has positioned it near high-resolution closed circuit television cameras and given it an armour-plated casing.

Original Article

Alex’s Notes: These are very telling times. You wont see these kinds of news stories on CNBC or the mainstream money honey media.

The author says that the worlds governments observe Americas biggest problem is that it makes too little and spends to much. While technically correct, this kind of thinking of course is simply observing symptoms, not identifying the problem.

The symptoms of overspending and not producing are only possible in a fiat based economy. The problem isnt the habit..the problem is the fact that the monetary system allows the habit to exist, at least on the scale that is America.

I read another article today where the G20 are discussion what needs to be done to fix the worlds economic ills…the only actionable item I saw from their lofty list was to address a legal framework that enforces sound economic policy globally.

Ahh…but that again is the crux of the problem. Economic enforcement requires a legal system that is enforceable..and again from this article it comes back to whom exactly is going to do the enforcing?

Again, this is a monetary problem, not one of requiring a giant world cop willing to enforce the legal tender of the money. Legal tender simply means you will use this money whether you like it or not.

Perhaps the answer already lies before us? I find it amazing that these so called leaders of the world do not simply look at history. Gold and silver have served well as a means of settling global trade for thousands of years of human history. Why?

Because gold and silver do not NEED a government to back it up, nor armies nor navies, nor any world legal system of enforcement, gold and silver simply IS.

Maybe thats the reason it has been the money used by the collective wisdom of mankind for 6000 year prior to the current house of cards that is fiat?

***

Washington is unable to call all the shots

By Michael Hudson

Challenging the American empire will be the focus of meetings in Yekaterinburg, Russia, today and tomorrow for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other leaders of the six-nation Shanghai Co-operation Organisation. The alliance comprises Russia, China, Kazakhstan, Tajiki-stan, Kyrgyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia.

The attendees (who will be joined on Tuesday by Brazil for trade discussions) have assured American diplomats that dismantling the US financial and military hegemony is not their aim. They simply want to discuss mutual aid – but in a way that has no role for the US or for the dollar as a vehicle for trade among these countries.

The meeting is an opportunity for China, Russia and India to “build an increasingly multipolar world order”, as Mr Medvedev put it in a St Petersburg speech this month. What he meant was this: we have reached our limit in subsidising the US military encirclement of Eurasia while also allowing the US to appropriate our exports, companies and real estate in exchange for paper money of questionable worth.

An “artificially maintained unipolar system”, Mr Medvedev said, was based on “one big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks”.

Keen observers of America, if not effective managers of their own economies, these countries argue that the root of the global financial crisis is that the US makes too little and spends too much. Especially upsetting is US military expenditure – such as military aid to Georgia or the presence in the oil-rich Middle East and central Asia – using money that foreign central banks recycle.

Overconsumption by US citizens, US buy-outs of foreign companies and dollars the Pentagon spends abroad all end up in foreign central banks. These governments face a hard choice: either recycle the dollars back to America by buying US Treasury bonds or let the “free market” force up their currencies relative to the dollar – thereby pricing their exports out of world markets, creating domestic unemployment and business failures. US-style free markets hook them into a system that forces them to accept unlimited dollars. Now they want out.

This means creating an alternative. Rather than making merely “cosmetic changes as some countries and perhaps the international financial organisations themselves might want”, Mr Medvedev concluded his St Petersburg speech: “What we need are financial institutions of a completely new type, where particular political issues and motives, and particular countries, will not dominate.”

For starters, the six countries intend to trade in their own currencies so as to get the benefit of mutual credit, rather than give it to the US. In recent months China has struck bilateral deals with Brazil and Malaysia to trade in renminbi rather than the dollar, sterling or euros.

Many foreigners see the US as a lawless nation. How else to characterise a country that holds out a set of laws for others – on war, debt repayment and the treatment of prisoners – but ignores them itself?

The US is the world’s largest debtor, yet has avoided the pain of “structural adjustments” imposed on other debtor nations. US interest rate and tax reductions in the face of exploding trade and budget deficits are seen as the height of hypocrisy in view of the austerity programmes that the “Washington consensus” has forced on other countries via the International Monetary Fund and other vehicles. The US tells debtor economies to sell off their public utilities and natural resources, raise their interest rates and increase taxes while gutting their social safety nets to squeeze out money to pay creditors.

It is no mystery to other countries how the US remains above the law. Foreigners see a financial system backed by American aircraft carriers and military bases encircling the globe. The IMF, World Bank, World Trade Organisation and other Washington surrogates are seen as vestiges of a lost American empire no longer able to rule by economic strength, left only with military domination.

The countries that are gathering today are convinced that this hegemony cannot continue without adequate revenues and are attempting to hasten the bankruptcy of the US financial-military world order. If China, Russia and their allies have their way, the US will no longer live off the savings of others, nor have the money for unlimited military spending.

US officials wanted to attend Yekaterinburg as observers. They were told no. It is a word that Americans will hear much more in the future.

The writer is professor of economics at the University of Missouri

Original Article