Euro Stress Tests Great For Gold

July 15, 2011, at 7:47 pm
by Monty Guild in the category General Editorial, Guild Investment |  Print This Post |  Email This Post

 

Dear Jim, (Sinclair)
I find myself even more bullish on gold than usual at this juncture. Although we have been bullish on gold for many years and have been very grateful for your wisdom and guidance on gold and many other areas, today I see a confluence of positive fundamental factors for gold from many regions. These are fundamental building blocks to help reach technical price objectives that you have outlined.
May I start with Europe and later write on other regions .
Although I understand that gold may have short term technical resistance at some higher levels, the fundamental background for gold and the argument for much increased demand for gold from Europe is stronger than it has been in decades.
We believe that a new wave of demand for gold is developing in Europe and will create substantial rises in price. Things look increasingly difficult for the European bond markets and European banks after the recent stress tests of European banks.
Even with very loose terms, 10 banks failed. More distressed debt will have to be sold by these and many other borderline stressed banks. Further, the paper they hold has not yet been marked down in value as it should be. This argues for further distressed debt sales. European investors seeing the problems in their banking system are opting for gold and will continue to make gold an ever larger part of their portfolios. With a de-levering and unstable banking system, any wise European will need to increase the proportion of gold in his/her personal investment portfolio. Professional investors from Europe are under even more pressure to add the stability and protection of gold to portfolios. This process of gold acquisition has been underway and we believe that it will accelerate.
In addition to holding gold and gold shares we are short European banks for those clients that sell short. We expect many more days of crisis on European sovereign debt before the euro loses some members who cannot take the pressure of remaining in the Euro and meeting the requirements for economic austerity that Germany will expect. Gold is of course the best instrument for investors to protect themselves from a decline in the value of the Euro, the Euro community and the sovereign debt crisis in that continent.

Respectfully yours,

Monty Guild

www.GuildInvestment.com

Guest Post: Bernanke Employs a Modified 'Pump and Dump' 

This discussion of "tradition" in the context of "value" is the central problem of our financial age. The question of faith in valuations is at the very heart of the ongoing crisis, infecting all facets of finance and economics. Almost three years after a major banking panic, we are still wrestling with the idea of valuations, and more innately, value itself. Economic and financial unease and uncertainty trace their roots to the shaky valuations that have been provided or interjected into every marketplace, keeping up with the grand tradition of fiat currencies and centralized policy. For example, U.S. treasuries are supposed to be, pardon the pun, the gold standard of riskless assets. Yet they are increasingly questioned (ask Bill Gross and China). The value of the paper is a derivative function of the ability to tax, as in full faith and credit of the United States. But the same is also true of Greek paper, as sovereign Greek debt derives its value from the Greek government's ability to tax. Yet U.S. debt is more "valuable", in money terms, than Greek debt solely because the Greeks have a "tradition" of default while the U.S. does not. Tradition matters. 

 

 

 

 

 

Goldman Slashes Economic Forecast, Cuts Q3 GDP To 2.5%, Sees Q2 Below Stall Speed 

Submitted by Tyler Durden on 07/15/2011 21:50 -0400

Nobody could have foreseen this now typical Friday night bomb from the 200 West macroeconomic wrecking crew. Nobody. Well... "Here is the first official Q3 GDP downgrade, courtesy of JPM's Michael Feroli. We fully expect every other clueless Wall Street lemming to follow suit in minutes." But as long as the lemmings all move in a herd over the cliff, they will still somehow all get paid the same $5 million (of which 25% is cash and the rest is indentured cliff-vesting equity servitude) at the end of the year. Either way, can we all now agree that Goldman did indeed jump the shark in December, especially now that it sees Q1 GDP at below stall speed in real terms. So here it is: "Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012." Here is why Hatzius gets paid the big Bernankebux: "The “bugbear” is that we are still unsure about the precise reasons for the slowdown in 2011 to date, which is sharply at odds with our expectation at the end of last year that growth would accelerate in 2011." And the punchline: "Our forecast remains no fresh monetary easing from the Federal Reserve, but the probability has risen. In particular, Fed officials would undoubtedly ease if the economy returned to recession—not our forecast, but clearly a possibility given the recent numbers." Our prediction is that when Bill Dudley's 2011 calendar is released in December, his first meeting with Jan Hatzius at the Pound and Pence will have taken place right.... about.... now.

A Thousand Pictures Is Worth One Word

By Jeff Clark, BIG GOLD

In spite of constant headlines about debts and deficits, most Americans don't really believe the U.S. dollar will collapse. From knowledgeable investors who study the markets to those seemingly too busy to worry about such things, most dismiss the idea of the dollar actually going to zero.

History has a message for us: No fiat currency has lasted forever. Eventually, they all fail.

BMG BullionBars recently published a poster featuring pictures of numerous currencies that have gone bust. Some got there quickly, while others took a century or more. Regardless of how long it took, though, the seductive temptations allowed under a fiat monetary system eventually caught up with these governments, and their currencies went poof!

You might suspect this happened only to third world countries. You'd be wrong. There was no discrimination as to the size or perceived stability of a nation's economy; if the leaders abused their currency, the country paid the price.

As you scroll through the currencies below, you'll see some long-ago casualties. What's shocking, though, is how many have occurred in our lifetime. You might count how many currencies have failed since you've been born.

So what's the one word for the "thousand pictures" below? Worthless.

Yugoslavia - 10 billion dinar, 1993

Zaire - 5 million zaires, 1992

Venezuela - 10,000 bolívares, 2002

Ukraine - 10,000 karbovantsiv, 1995

Turkey - 5 million lira, 1997

Russia - 10,000 rubles, 1992

Romania - 50,000 lei, 2001

Central Bank of China - 10,000 CGU, 1947

Peru - 100,000 intis, 1989

Nicaragua - 10 million córdobas, 1990

Hungary - 10 million pengo, 1945

Greece - 25,000 drachmas, 1943

Germany - 1 billion mark, 1923

Georgia - 1 million laris, 1994

France - 5 livres, 1793

Chile - 10,000 pesos, 1975

Brazil - 500 cruzeiros reais, 1993

Bosnia - 100 million dinar, 1993

Bolivia - 5 million pesos bolivianos, 1985

Belarus - 100,000 rubles, 1996

Argentina - 10,000 pesos argentinos, 1985

Angola - 500,000 kwanzas reajustados, 1995

Zimbabwe - 100 trillion dollars, 2006

So, will a similar fate befall the U.S. dollar? The common denominator that led to the downfall of each currency above was the two big Ds: Debts and Deficits.

With that in mind, consider the following:

Morgan Stanley reported in 2009 that there's "no historical precedent" for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. Our total debt now exceeds GDP by roughly 400%.

Investment legend Marc Faber reports that once a country's payments on debt exceed 30% of tax revenue, the currency is "done for." On our current path, analyst Michael Murphy projects we'll hit that figure by October.

Peter Bernholz, the leading expert on hyperinflation, states unequivocally that "hyperinflation is caused by government budget deficits." This year's U.S. budget deficit will end up being $1.5 trillion, an amount never before seen in history.

Since the Federal Reserve's creation in 1913, the dollar has lost 95% of its purchasing power. Our government leaders clearly don't know how - or don't wish - to keep the currency strong.

Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the possibility of the greenback being added to the above list grows every day. And this will lead to serious and painful consequences in our standard of living. While money is only one of many problems we'll have to deal with, you can protect your assets with the one currency that can't be debased, devalued, or destroyed by irresponsible leaders.

 Don't be the investor who dismisses this message from history. Use gold (and silver) as your savings vehicle. Any excuse you have now will be meaningless and irrelevant when we enter that fateful period. Make sure you own enough precious metals to make a difference in your portfolio.

Because when it comes to money, worthless is not a fun word.

[Owning physical gold is good protection from the sinking value of the U.S. dollar; investing in the right gold miners can yield even higher returns. BIG GOLD focuses on the larger miners that have strong profit potential, and will help you build your wealth. Give it a ninety-day risk-free trial. Details here.]

CPI Falls in June, Does this Mean QE3 Awaits?

Author: goldnews | Filed under: Central Bank News, Economic News, Forex News, Precious Metals News Federal Reserve Chairman Ben Bernanke gave mixed messages this week before the House and Senate on whether or not the Federal Reserve will engage in another round of quantitative easing. Digging into the Fed Chairman’s remarks then and in the past reveals the basic metric Bernanke is basing his judgement of executing further monetary stimulus on. Read the rest of this entry »

Boehner on Fox Gives Inside Details on Debt Talks (video)

Author: goldnews | Filed under: Political News In a 13 minute Fox News interview with Greta Van Susteren, House Speaker John Boehner offers intimate facts from discussions Washington leaders have had regarding the upcoming debt ceiling. Read the rest of this entry »

S&P and Moody’s Put US Credit Rating on Watch for Downgrade

Author: goldnews | Filed under: Economic News, Forex News, Political News, Precious Metals News This week two major rating agencies have threatened to downgrade US debt over the impending debt ceiling debates which currently appears to have no resolution and less than three weeks left to resolve. “We thought the two sides would be closer together,” at this point S&P’s Nikola Swann said. They put the chance of a downgrade as high as 50% in the next 90 days over skepticism the debt ceiling will not pass and the US will default on some of their obligations. Read the rest of this entry »

Bill Gross on QE3, Debt Ceiling Debate and EU Banks (video)

Author: goldnews | Filed under: Central Bank News, Economic News Bill Gross, manager of the world’s biggest bond fund at PIMCO offers his up to date views on global markets. Read the rest of this entry »

Gold Closes at All Time High $1,595/oz (LC)

Author: goldnews | Filed under: Central Bank News, Political News, Precious Metals News This week gold prices took a big boost as the release of the Federal Reserve’s minutes release signaled a more dovish approach to monetary policy going forward than was originally expected and debt ceiling debates failed to achieve any progress. Gold started the month below $1,500/oz and has since risen about $100 dollars in only two weeks. So far this year gold is up 13%, outperforming essentially all comparable asset classes.
Gold’s next target is to clear the psychological level of $1600/oz bringing in another new all time high.

Saving ‘Small Business’ In The U.S.

In the commentary which preceded this “U.S. Small Businesses Face Extinction”, I pointed out the comprehensive strategy which the U.S. government had undertaken which amounts to nothing less than “small business genocide”.

On the one hand, these businesses face a very punitive and extremely discriminatory tax regime, where small businesses are essentially forced to pay all of the taxes for medium- and large-sized corporations in the U.S. – whose own taxes are next-to-nil, thanks to $100’s of billions per year in corporate tax welfare. Compounding this, the Wall Street Oligarchs have essentially cut-off all credit to this segment of the U.S. economy, except under the most usurious terms.

On the other hand, the U.S. government has been equally ruthless and effective in annihilating the customers who purchase the goods and services of these small businesses: the U.S. middle-class. Their own “genocide” is also well on its way to completion.

In this commentary, I will describe the path to salvation for these businesses – the “backbone” of the U.S. economy (and any/every other economy as well). Because small businesses are the economy, it should come as little surprise that part of this survival-strategy involves generally breathing some “life” back into the U.S. economic corpse.

Obviously the first place to start in U.S. economic reform is with the discriminatory corporate taxation. Here the solution is obvious: simply erase any/every item of law in the tax code which bestows $100’s of billions per year of tax-avoidance welfare for larger U.S. companies. As I pointed out in the last piece, once the “loopholes” for all these large, corporate deadbeats had been eliminated, the overall corporate tax rate could be slashed by roughly half. Since small businesses have almost zero access to current corporate tax welfare, they would be large net “winners” in this equalization process.

This is nothing more than a temporary “band-aid” on the real tax reform which is necessary to restore solvency to not only the U.S. economy, but any/every other Western economy as well. The only permanent method of making sure that corporations pay their “fair share” of the revenue-pie is to not tax corporations at all – but rather tax their shareholders instead.

As I’ve written in many other commentaries, the only fair-and-sustainable system of taxation for any/every economy is a “flat wealth tax”. And since the fat-cats on top have been clamoring for a “flat tax” for decades, I think it’s finally time that we gave them what they want.

The beauty of a wealth tax is that it is “one tax to replace all other taxes”. No income tax. No corporate tax. No capital gains tax. In short, none of the impediments to profit-making and profit-taking which are inherent in all income taxation systems. However, this is not a treatise on tax-reform, so I’ll move on.

Next on the agenda is restoring access to credit for small businesses under reasonable terms (i.e. not relying upon JP Morgan’s 30%-interest “small business credit cards”). This is also a simple problem to fix. If the U.S. government was willing to effectively “nationalize” the entire U.S. mortgage market by “guaranteeing” all that debt (while Wall Street Oligarchs skim-off the profits), there is no reason it can’t “nationalize” the debt-market for U.S. small businesses as well.

First, it would cost much, much less than guaranteeing $trillions in “bad” mortgage debt. Secondly, unlike nationalizing the mortgage-market (which only benefited the Wall Street Oligarchs), having the government take over and fund direct lending to small businesses is 100% guaranteed to be a net job-creator. In other words, for once there would be a U.S. government program which was not simply ‘pouring money down a hole’. Read more: Saving ‘Small Business’ In The U.S.

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