Great Article – shows how out of touch political leaders have become

We’re Governed by Callous Children
Americans feel increasingly disheartened, and our leaders don’t even notice.
By PEGGY NOONAN, Opinion Piece, Wall St. Journal

The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers. Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment. The tide will recede. The boats aren’t rising, they’re bobbing, and will settle. No one believes the bad time is over. No one thinks we’re entering a new age of abundance. No one thinks it will ever be the same as before 2008. Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They’ll miss the meaning of this moment, too.

The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.

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Dont mean to gloat, but we were right

I posted this chart almost 2 years ago.

Gold Secular Bull Chart

Gold Secular Bull Chart

We expect to see a pullback going into November as everything sells off, including metals, but it will be back to overall trend after that.

Pension Funds to Buy Gold as Insurance, McGuire Says

By Kim Kyoungwha

Oct. 23 (Bloomberg) — Pension funds will increase gold holdings to acquire “financial insurance,” pushing prices higher as currencies drop, according to Shayne McGuire, director of global research at the Teacher Retirement System of Texas.

“I think the largest institutions like our own are realizing that we barely own any,” McGuire said in an interview in Hong Kong. “The same thing applies to most of the pension funds which manage trillions of dollars in world wealth.”

Record government debt and interest rates close to zero percent are pushing gold higher for a ninth straight year as investors seek to protect their wealth against the prospect of rising inflation and currency debasement. Teacher Retirement, backed by $95 billion in assets, has launched its first internally managed gold fund, worth $250 million, invested in precious metals, mining stocks and exchange-traded funds. McGuire is the portfolio manager of this new fund.

The fund is “a reflection of our interest in gold,” said McGuire, the author of “Buy Gold Now” published in March 2008 that correctly predicted the metal will rally. “That’s mostly because of diversification” that benefits our overall portfolio.

Gold represents only 0.4 percent of total global financial assets valued at around $200 trillion in 2007, McGuire said, adding the future focus for the metal was investment demand.

“The interest in the gold sector continues to be strong,” said Stephen Goodman, investment banker with New York-based Casimir Capital L.P. “We are pleased to connect a growing number of institutional investors globally with opportunities.”

Losses, Writedowns

Gold for immediate delivery climbed to a record $1,070.80 an ounce on Oct. 14 and traded at $1,059.25 at 4:42 p.m. in Singapore. It has risen 47 percent in the past year. Gold for December delivery in New York traded at $1,059.70. McGuire said it’s “difficult to estimate how quickly it will rise,” and saw “significant upside” in the next two to three years.

The U.S. Dollar Index, which measures the currency against those of six major trading partners, has fallen 7.5 percent this year as President Barack Obama increased the nation’s marketable debt 22 percent to $7.01 trillion to revive growth.

Financial institutions worldwide have reported credit losses and writedowns of about $1.62 trillion since the start of 2007, when the credit crisis began. Group of 20 governments have pledged about $11.9 trillion to ease credit and revive economic growth, according to the International Monetary Fund.

‘Financial Insurance’

“I don’t think the question really is what is gold worth but what are currencies not worth,” McGuire, 43, said yesterday. “Consider the tremendous fiscal excess that major governments have made to prevent the world economy from collapsing,” he said. Owning gold today is “financial insurance,” he said.

McGuire, with 15 years of international financial experience, has worked for the seventh-largest pension fund in the U.S. since 2001. He had managed a $2 billion European equity portfolio and was ranked among the best Latin American analysts by Institutional Investor in 1995 and 1996, he said.

Teacher Retirement has nearly 1.3 million public education and higher education employees and retirees participating in the system, according to its Web site.

Scandalous: US Taxpayers again pay banker bonuses

The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made. Friedman, 71, resigned in May, days after it was disclosed by the Wall Street Journal that he had bought more than 50,000 shares of Goldman Sachs stock following the takeover of AIG. He declined to comment for this article.

New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers

By Richard Teitelbaum and Hugh Son

Oct. 27 (Bloomberg) — In the months leading up to the September 2008 collapse of giant insurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.

Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

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Chairman of BHP: Massive demand from China in commodities – an era of unprecedented growth

An era of unprecedented growth? Didnt we already just see that?

But China it appears is in fact de-coupling its economy from the US. Its no longer the case where China manufactures on the cheap, then the US buys it all.

China has shown it can in fact grow its domestic demand, as well as serve regional customers and balance its growth – reported last quarter at 8.9%.

This is an important topic, because for a great long time, say, the past 2 years, the average talking head claimed China could not diversify out of dollars for risk of ruining the value of their own holdings.

Ahh, the but the flip side of that of course is, what if the Yuan were used in trade? Kind of like what China is doing with all its major trading partners now?

No my friend, China is in fact using its reserve stockpile and buying every company and mineral right it can get its hands on.

Good for commodities, good for metals.

BHP’s Argus Sees ‘Unprecedented Growth’ for Minerals

By Rebecca Keenan

Oct. 22 (Bloomberg) — BHP Billiton Ltd., the world’s largest mining company, said demand for minerals is on the verge of “unprecedented growth” as China and India drive consumption.

“To support Asia’s increased demand for natural resources, we need to increase our resource production,” Don Argus, 71, chairman of BHP, said today in a speech at a lunch in Melbourne.

BHP yesterday reported record first-quarter production of iron ore as steel companies resume output at mills in China, Europe and the U.S. on signs of recovery in the global economy. Commodities, as measured by the Reuters/Jefferies CRB index of 19 commodities, have gained 24 percent this year.

“We stand at the threshold of an era of unprecedented growth due to demand generated by China and, in the future, India,” said Argus, who is scheduled to retire and will be succeeded by Jac Nasser as chairman in early 2010. “One of the statistics that gives me that confidence is steel consumption per capita or steel intensity.”

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US Buys its own bonds, and the world starts buying Chinese Bonds

The US is having to buy more and more of its own paper issued in amount dwarfing those of history, just to feed the massive US budget.

Sadly, in recent bond auctions the US has bought almost half of its own issuance.

QE is not a good sign. Bad for the dollar. Good for gold.

gold_vs_currency_chart

gold_vs_currency_chart

China’s first ‘overseas’ bond attracts strong demand

By Michael Kitchen, MarketWatch

LOS ANGELES (MarketWatch) — The Chinese Foreign Ministry said late Tuesday that its first-ever yuan-denominated bond sale outside mainland China was three times oversubscribed.

The sale in Hong Kong amounted to 6 billion yuan ($880 million) worth of two-, three- and five-year issues, the ministry said in a statement.

It attracted about 18 billion yuan worth of orders, including close to 150,000 applications from individual investors, it said.

Bank of Communications senior fixed-income dealer Midas Chu was quoted in a Dow Jones Newswires report as saying the “very satisfactory” results demonstrate yuan bonds’ popularity in Hong Kong.

“This would encourage [mainland] China to issue more on a regular basis in the future,” Chu was quoted as saying.

Chu said previous corporate yuan-bond issues were usually two-times subscribed or less, according to the report, though those sales aren’t necessarily comparable to this inaugural sovereign issue.

The coupons on the issues were 2.25% for the two-year, 2.7% for the three-year and 3.3% for the five-year, the ministry said. Secondary trading levels weren’t immediately available.

Original Article

Bank of England Governer: Regulation can not stop bank failures

Obviously.

BOE King: Delusion To Think Regulation Can Stop Bank Failure

By Natasha Brereton

LONDON -(Dow Jones)- Bank of England Governor Mervyn King said Tuesday that heightened regulation can’t prevent the financial speculation that results in bank failures, and called for a serious review of the structure of the banking sector whose goal would be to eliminate institutions that are too important to fail.

In a speech to business people in Scotland, King championed the idea of separating banks’ utility functions as a means of minimizing the government’s effective subsidy of risky activities and reducing the U.K.’s reliance on a small number of very big banks.

Turning briefly to the economy, he noted that there was likely to be “significant” fiscal tightening in the years ahead, and stressed the need to boost broad money growth, but gave no clear indication on whether he would favor extending the bank’s bond buying policy.

“The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the ‘too important to fail’ question,” King said. “The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion.”

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CME To Allow Gold As Collateral For All Exchange Products

And some people wonder if gold is money?

LONDON -(Dow Jones)- U.S.-based clearing house CME Group Inc. (CME) will allow physical gold to be used as collateral for margin requirements on all exchange products, a spokesman said Monday.

The new global policy is effective Oct. 19 in accordance with a member’s notice issued late Friday, said spokesman Jeremy Hughes in London.

Clearing member firms will be allowed to post up to a maximum of $200 million worth of gold as collateral to cover performance bond, or margin, requirements, Hughes said.

The policy was a byproduct of CME’s recent launch of clearing services for over-the-counter London gold spot and forward contracts, he said.

“Many of the [trading] houses hold quite a lot of physical gold and would welcome using it more efficiently,” he said.

The gold will be held at J.P. Morgan Chase & Co.’s (JPM) bank in London.

Sumitomo Mistui Chief Strategist: US Dollar will cease to be the world reserve currency

When you start to see long term supporters of the USD making statements like this, you know this isnt just a drill.

The inverse trade to the USD is gold.

Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says

By Shigeki Nozawa

Oct. 15 (Bloomberg) — The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.

“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”

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DOW passes 10,000 – Talking Heads Rejoice – Dont Get too Excited

The DOW moves back above 10,000…..

Problem is that its measured in dollars…so if you factor in the rate of money creation and assume that affects buying power you get a DOW thats worth about 5000 in buying power.

When measured against gold however, it looks more like this:

DOW / GOLD Ratio Chart - 10 Yr

DOW / GOLD Ratio Chart - 10 Yr

That tiny little uptick is what all the Wall St cheerleaders are excited about.

If history repeats and the DOW and Gold meet at a 1:1 ratio at the top of golds run up, and the DOW keeps rising (due to inflated dollars more than anything else) , then where is that meeting point going to be? Maybe these guys calling for a 20,000 DOW are right…but what also does that mean for gold? What also would that mean for the buying power of the dollar?

To me that looks like a buying opportunity in a major trend.

International confidence in the US dollar is waning at an accelerating pace

Its amazing to see how far the dollar index has fallen in just a few short months.

Dollar Reaches Breaking Point as Banks Shift Reserves

Oct. 12 (Bloomberg) — Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”

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China continues to secure natural resources – and not in USD

China is still buying up rights, making deals, and buying up companies and minerals and raw materials all over the world.

The US and Britain on the other hand continue to print money.

In a chess game for the worlds future resources…who is in check, and who is jumping up and down waving their arms trying to convince people that the game isnt on the chess board, but at the hot-dog stand nearby instead?

The more countries cease to use the USD to settle international trade, opting instead for other methods, the more downward pressure is exerting on the USD.

From the BBC:

Russia and China eye $5.5bn deals

Russia is hoping to sign deals worth $5.5bn (£3.5bn) with China as Prime Minister Vladimir Putin visits Beijing.

The deals may lead to Russia selling more oil and gas to China – the world’s second-biggest energy user.

About 30 contracts in infrastructure, energy, mining, transportation and telecoms have been lined up.

The countries hope to expand the amount of business they do in their own currencies, rather than the US dollar. However, currently only about 1% of their dealings involve roubles or yuan.

The QE2 – US and Britain

Some may say I have a  strange sense of humor, but I got a good laugh out of this.

Short equation, QE = Inflation

Preserve wealth: Buy Gold.

‘Benign currency neglect’ could spell real danger for US economy
What’s happening to the dollar? That’s the question dominating the world’s financial markets. Last week the US currency fell, on a trade-weighted basis, to a fresh 14-month low. The dollar’s decline is now gaining momentum.

By Liam Halligan

Many American economists say the greenback is falling because the global economy is recovering – so investors no longer need the dollar as a “safe haven”.

That’s nonsense. The reality is that “safe haven” status has shifted away from the dollar and towards tangible assets that the US government can’t debauch by printing more of them.

That’s why gold just hit a fresh all-time high of well over $1,000 per ounce. That’s why commodity-backed currencies like the Australian dollar are now soaring – causing howls of protest from Aussie exporters. Meanwhile, global investors are quitting the US currency because they’re worried it’s a sinking ship.

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Gold Passes $1058 on Asian Market

At approx 2am GMT-5 gold passed $1058 per troy ounce, another all time high in nominal terms.

Silver was a touch shy of $17.90 per troy ounce this morning.

Fundamentals have still not changed. We could see pullbacks as a normal part of an upward trend, but unless underlying fundamentals change, my long term outlook is of course the same.

Those fundamentals are:

1. Downward pressure on the USD from Quantitative Easing
2. Downward pressure on the USD from the carry trade (The USD is the new favorite target)
3. Downward pressure on the USD for additional bailouts as firms are salvaged from losses in ALT-A and ARM resets
4. Downward pressure on the USD as foreign countries diversify out of dollars into other currencies
5. Upward buying pressure on gold from Central Banks
6. Upward buying pressure on gold from the Chinese Government
7. Upward buying pressure on gold from Chinese Citizens
8. Upward buying pressure on gold from retail investors globally
9. A continually declining production capacity in gold mines – no new mines being brought online due to low prices of gold making exploration investment less common
10. Gold ETF’s and Institutions buying tremendous amounts of gold, with no sign of letting up
11. Largest gold mining companies in the world are closing out their hedge books (buying pressure)
12. Continued concern over inflation causing positive sentiment towards gold
13. Competitive Devaluation will ensure the cycle from fiat to tangible assets continues
14. Common sentiment – Contrarian Investing basics – The common man still has no idea gold and silver are a good investment – when you see Bill Murphy from GATA as a regular guest on CNBC, you know the fundamentals are shifting.

If you wait too long to buy gold, or try and time a pullback, the train may have already left the station.

Dont be left behind here – this isnt just about investing, its about protecting what you have left.

Gold passes $1040 – Silver Passes $17

In intra-day trading yesterday gold smashed through the last all time high in nominal USD terms.

A colleague of mine asked me yesterday “So what do you think of the price action?”

My response “Not much”…which elicited a chuckle.

The truth is, these numbers in reality are purely psychological, and from a fundamental point of view, just another number in a series of numbers in a secular bull market.

The interesting thing to remember about this is that the unit of measurement that gold is being measured in (the USD) is continually devaluing. It has in fact lost over 96% of its purchasing power since the creation of the Federal Reserve System (coincidence?)

Dollar Collapse - Loss of Purchase power since 1913

Dollar Collapse - Loss of Purchase power since 1913

One of the biggest myths about gold is that it is breaking records for value and is very expensive….I am sure the FED would be happy as a clam to have you believe that.

The reality is, that when adjusted for inflation using the governments own data, gold in todays dollars would have to reach $2358 to match the last high in 1980 in terms of real buying power.

CPI Adjusted Gold Price

CPI Adjusted Gold Price

There will come a time to sell gold, and when it comes I will be selling. The time I think, is not now.

On the contrary, I am firmly convinced that the current market rally is no more than a suckers rally identical to what happened in the great depression, after which the market promptly fell 90%.

Fundamentals continue to line up which indicate a lower Dollar, which is the most powerful correlation in reverse to gold. In other words, dollar goes down, gold goes up.

Gold Versus Dollar

Gold Versus Dollar

The most powerful fundamental aside from the fact that the US goverment has gone into Quantitative Easing overdrive, is that according to many experts, the USD is now the target for the currency carry trade.

The carry-trade deals in trillions of dollars, and is a massive force when applied to any currency. This force is not positive by the way. It reminds me of this:

The Carry Trade Target: USD

The Carry Trade Target: USD

Got gold yet?