consumer spending « Citizen Economists

The NFL Lockout Doesn’t Just Affect Players, Owners And Fans

By B.P.T., on May 12th, 2011

There are a lot of different sides to the NFL lockout, which is on again after an appeal from the NFL was granted to reinstate the lockout that was lifted by a judge, and most of the attention is going towards the owners, the players and the fans. But what about the cities in which these teams are being held? There are a lot of people that have nothing to do with football, or sports, who are going to feel the effect of a lockout for as long as it goes, and the longer it goes, the bigger the hit.

The players and owners are trying to figure out how to split up a staggering $9 billion in revenue between the two sides, and fans are stuck in the middle as they want to see their favorite teams and players, NFL betting players want to lay some wagers, and fantasy football owners would love to be able to schedule their annual draft. But no one is thinking about the local economies that are going to suffer greatly from this work stoppage; the people who work at the stadiums who may not care about the score of the game, but they care if they can put food on their tables. There have been estimations that the lockout is going to take $5.1 billion out of local economies across the country, and in cities like Detroit or Cleveland, that is a massive chunk that they can’t afford to lose.

That is what has happened in today’s age: it’s no longer about the sports. Sport is now a business and it affects many off the field, as much as it does off the field. There are a lot of parties invested in something that could be crippling to the game of football.

Producing more than you consume

By Bron Suchecki, on May 4th, 2011

From The Flow of Value blog:

“All investments are made with surplus value (some of which has been borrowed to be invested), which has been netted out of the flow of value by those who produce more than they consume. This stock of value is commonly known as wealth. But governments and borrowers are consuming more than they produce, and as such are consuming from this wealth accrued by others.”

Part of the problem is that those who produce more than they consume stupidly lend to those who consume more than they produce. If the lenders only lent to those legitimately aiming to increase value by starting/expanding businesses (real wealth creation) would we be in the problem we are?

However, few can directly lend to productive members of society. That is the function performed by bankers as they are supposed to intermediate between lender and borrower, doing the checks on the borrower the lender does not have the skills or time to do.

However, the banks haven’t been productively lending as proven by Money Morning who show, as an example, an Australian bank (ANZ) is currently lending 59% into the residential mortgage market compared to 25% in 1978, when they were lending a far bigger proportion to wealth creating business. As Money Morning says:

“In 1978, total lending to the business sector made up over half of all the bank’s lending. Yet today it’s a pathetic 17%. … The result is less credit flows through to business, including entrepreneurial business. It means just as private enterprise can be crowded out by government spending, private enterprise can be crowded out by a misallocation of resources by retail banks.”

Jason Hamlin: Paradigm Shift

By The Gold Report, on March 29th, 2011

As an investor, sometimes the best action you can take is no action. Jason Hamlin of the Gold Stock Bull newsletter didn’t start snapping up stocks on news of disaster in Japan and military attacks in Libya. In this exclusive interview with The Gold Report, Jason tells why he’s holding his ground, how macro issues spanning the globe could push precious metal prices and a few of his top stock picks.

The Gold Report: Jason, the gold price fell dramatically after the Japanese earthquake and subsequent tsunami. Were you buying in the dip, and if so, what were you buying?

Jason Hamlin: I wasn’t buying or selling mining shares on the news out of Japan, but did add to my physical stockpile on the dip. Not a really exciting strategy, but I already had a decent amount of exposure to equities. There was a lot of risk and uncertainty in the market after the news out of Japan, so I decided to wait and watch how things progressed. Equities have rallied pretty well, but I am not convinced that we’re out of the woods yet.

TGR: Did you panic at all when gold went down to $1,380/oz.?

JH: No, especially with the amount of physical buying in recent months. It seems like every dip has been met by an overwhelming demand for physical gold and silver. I feel that we have entered a new paradigm in which there will be shorter and shallower corrections than witnessed during the past decade.

TGR: There is definitely a lot of international upheaval. What impact do you think the enforcement of a no-fly zone over Libya will have on the gold price in the near term?

JH: I’d like to point out that the no-fly zone was used as a justification for missile strikes; it was a much more aggressive policy than the simple no-fly zone that was originally proposed. It was also done without congressional approval, which I view as a continued violation of the Constitution, which states that only Congress can declare war. I question the political and moral authority of the West to be doing this, especially considering that the U.S. is broke and must borrow $1.6 trillion per year to cover its budget shortfall.

Economically, the ease and swiftness with which the U.S. decided to do this, and with little debate, translates into more fear and uncertainty in the markets. It will prove bullish for precious metals and oil, both in terms of the fear trade and the inflationary impact. Investors are increasingly viewing gold and silver as a better safe-haven investment than dollars or bonds, which have served this function for mainstream investors in the past. I see this trend accelerating in the coming months and years as more investors lose faith in the U.S. dollar and the U.S. government’s ability to repay its exploding debt, which has topped 100% of the gross domestic product by some estimates.

TGR: We’re not at 200% yet!

JH: Not quite as bad as Japan, but the 90% to 100% range is typically where most economists say interest payments become such a burden that it becomes hard to get the fiscal house in order.

TGR: On Friday, Goldman Sachs set a three-month target price for gold of $1,480/oz. Are you comfortable with that number?

JH: I quit paying attention to anything Goldman Sachs had to say a long time ago, particularly when it comes to forecasting the gold price. They have consistently under-forecasted and underestimated the precious metals market by a wide margin. I essentially view Goldman Sachs and the big investment banks as financial terrorists who should be jailed, not respected institutions deserving of the slightest iota of creditability. The Securities and Exchange Commission and the Justice Department might not want to go after them, but it’s pretty clear to me that they disregarded their fiduciary duty and don’t have their clients’ best interests in mind. Taking their forecasts or analysis to be factual or relevant seems foolhardy.

Also, three months is really too short term to predict the price of gold with any degree of accuracy. However, I believe gold has a good chance of hitting $1,800/oz. by year-end. That’s been my target. Gold could then easily pass its official inflationary adjusted high of $2,300/oz. next year. The true inflation-adjusted high for gold is somewhat closer to $5,000/oz. if we’re not using the suppressed government statistics. I think there’s a good chance that gold will surpass that figure before the bull market is over.

TGR: You mean the consumer price index?

JH: Right. The CPI is pretty well understood to be fudged in order to show inflation as lower than it actually is. Anyone who does the grocery shopping for a household knows that inflation is running more than a couple percent annually.

TGR: Let’s talk about silver. Silver has closed the silver:gold ratio, or the number of silver ounces it takes to buy an ounce of gold, to 40:1. Historically, it’s been much closer than that, but this is as close as we have seen in recent memory. That raises the question: is silver closing the gap a little too quickly—and overheating?

JH: I believe silver is likely to continue outperforming gold for the remainder of this bull market. I think the ratio will most likely revert back to 15:1 at some point in the next few years. Supply and demand fundamentals dictate such a revision.

For example, 95% of the gold ever mined is still in existence, whereas about 95% of the silver ever mined has been destroyed or used in such small quantities that it can’t be economically recovered. The industrial uses of silver continue to increase, including high-tech electronics, solar and wind energy systems, batteries, medical and military applications, and even water purification. Silver truly is irreplaceable in many of today’s critical applications.

In the past several months, there have been signs of shortages. Overall, the physical demand is overwhelming the supply. Even absent a short squeeze, the fundamentals dictate a much higher price for silver both in absolute terms and in relation to the gold price.

There is also another perspective on that ratio. If it’s based on production of silver versus gold, the ratio would be closer to 10:1. Comparing overall demand to overall mine production, there is a shortfall of 100 to 200 Moz. of silver every year. There’s actually less silver bullion aboveground available for investment than there is gold bullion. As the hedge fund manager Eric Sprott said, “There is 75 times more dollars worth of gold to buy than silver.”

Despite these statistics, there is an increasing percentage of investor dollars flowing into silver, which is still 30% below its all-time nominal high, even though gold is about 70% above its 1980 price. The numbers just don’t add up.

I don’t think silver is closing the gap too quickly, but rather that the gold:silver ratio is likely to fall even lower over the next few years.

TGR: Okay. How far off is $40/oz. silver?

JH: Silver is approaching $40 rather quickly, but I prefer to steer clear of short-term predictions. That’s just a guessing game. However, I do think silver will likely pass $50 by year end.

TGR: That would be truly remarkable. Given the current market conditions, what sort of junior mining plays are you seeking these days?

JH: My focus is on junior miners that appear undervalued relative to their peers and under-appreciated by the market. I do a good deal of fundamental research and cross-analysis. I look for miners that are well financed, with high-grade drill results, open strike zones, and management that has a track record of moving projects from exploration into production. I like companies that have a clear plan, either for moving into production, entering into a joint venture or being acquired by a surrounding major within a few years.

TGR: Which companies fit that bill?

JH: The Yukon gold rush is on, and one of my favorite plays in that region is Golden Predator Corp. (TSX:GPD). The company has 3,000 square km under claim and three advanced projects moving toward an NI 43-101 resource estimate this year. Its Grew Creek and Clear Creek properties will have their resource estimates by year-end. Grew Creek drilled around 150 meters, just under 2 grams per ton (g/t) gold, and Crew Creek hit around 25 meters of 2–3 g/t gold. Brewery Creek will get an updated estimate with a target of 600,000 oz., which is twice its previous estimate. They just announced the expansion of the Bohemian Discovery with 33 meters of 3 g/t gold. If these initial drill results are any indication, the resource estimates are going to surprise even the most bullish investors of Golden Predator.

TGR: The company recently raised $22.7 million in a bought-deal private placement, so it has the cash to see those projects through going forward.

JH: Drillings and discoveries in the Yukon are still very early on the bell curve. Golden Predator is well financed and drilling aggressively as we speak. It has a great pipeline of future projects and a growing revenue stream from projects in Nevada, which is a bonus. Bill Sherriff is the chief executive, and Mike Burke recently joined as chief geologist (from the Yukon Geological Survey). I have confidence in the leadership at Golden Predator, and I am not alone. Sprott Asset Management decided to get a piece of the action and invested in the company last year.

I also like that Golden Predator has exposure to silver via 5 million shares of its spinout, Silver Predator Corp. (CNSX:SPD), and its ability to acquire another 11 million shares in that company.

I believe the stock is cheap at anything less than $1. It’s more of a speculative play than some of the other investments that I look at, but the stock could easily double by year end and has the potential to repeat the success that ATAC Resources Ltd. (TSX.V:ATC) has experienced in the area during the last year.

TGR: Golden Predator could hit the $5 mark?

JH: It’s at about 90 cents right now. If its drill results continue at this pace , it has the potential to reach $5 in the next few years. It could certainly mirror the performance of ATAC, which was trading at $6.80 recently. It is up about 400% during the past year on discoveries. Golden Predator has property all around where ATAC’s discoveries were made. I really think there’s blue sky potential with this company.

TGR: What are some other plays that you have positions in?

JH: I am interested in the junior silver miner Argentex Mining Corporation (TSX.V:ATX; OTCBB:AGXM), which is one of the most undervalued junior silver plays in the market. Its flagship 100%-owned property Pinguino in southern Argentina has a bonanza-grade discovery. It completed a resource estimate that is expected to be updated in the next few months with new drill results. There’s also a preliminary economic assessment coming down the line. The company is currently in the midst of a 17,000 meter drill program. It just added another drill rig last week and is expected to release drill results in the next few weeks.

TGR: What are you expecting from the preliminary economic assessment (PEA)?

JH: Based on the drill results we’ve seen already, I expect some pretty robust economics to encourage the company to move forward on this project. It has 50 veins identified to date, and the mineralization is open along strike and depth that they have tested. I would be surprised if the company didn’t continue to hit high-grade intersections and come up with a very strong PEA.

TGR: You provide your subscribers to Gold Stock Bull with a list of the top 10 most undervalued companies in a variety of sectors. Are there any junior mining stocks on your list right now?

JH: There is one that I am happy to talk about: South American Silver Corp. (TSX:SAC; OTCBB:SOHAF), which has the Malku Khota silver-indium project in Bolivia—it’s one of the largest undeveloped silver and indium resources in the world.

South American Silver has an experienced management team and is well funded. Similar to Argentex, it’s scheduled to release a PEA and resource update this month, with a pre-feasibility study later this year. As those studies and estimates come out, there’s a potential for the share price to move significantly higher.

TGR: I have talked to a number of people on Bay Street about South American. They seem to think this is one of the most highly undervalued companies there.

JH: Yes—particularly with the scale of this project. It could be a huge win if all the pieces fall into place. Given the incredible leverage that it has to the silver price, and the lower enterprise value per ounce, it’s very undervalued at the current price.

TGR: There is one note of caution, however, because it is in Bolivia. Compared to other companies operating in Bolivia, though, South American Silver seems to have come closer to solving the puzzle.

JH: That’s due to their management team and how well they’re working with the local government and the local people. They have a track record of successful project development in South American and Bolivia is an emerging resource-based economy demonstrating strong growth. I don’t think it’s a sure bet; there are certainly some geopolitical risks. However, South American certainly has shown an ability to mitigate that risk better than other companies.

TGR: There’s a lot going on politically and financially around the globe right now. There is unrest in the Middle East, and Japan is grappling with the aftermath of natural disasters, as well as staggering national debt. What advice do you give investors in light of those macro conditions?

JH: I believe that investors should have a good hedge against inflation, and that their portfolios should be diversified across various commodities. Investors should also have some of their assets out of dollars and out of the banking system entirely. I am growing increasingly concerned that another currency or financial crisis is coming down the line. It’s critical to balance where assets are placed and to have physical gold and silver in your possession. The financial landscape is deteriorating in the U.S., as well as many other countries.

TGR: Jason, thanks for the insights.

Jason Hamlin is the founder of Gold Stock Bull (www.goldstockbull.com) and publishes one of the most highly-rated investment newsletters available, focused on strategies for profiting on the bull markets in gold, silver, energy, rare earth metals and agriculture. Mr. Hamlin has a background analyzing charts and trends for the world’s largest market research company, is versed in fundamental and technical analysis and has consulted to Fortune 500 companies around the globe. Jason is a cycles investor, student of Austrian economics and speaks regularly at investment conferences throughout North America. The Gold Stock Bull newsletter is focused on finding junior mining companies that are undervalued relative to their peers. Click here to sign up or get more information.

Holiday Retail Season Running At Strong Pace

By Eldon Mast, on December 13th, 2010

Retail revenues probably rose in November for a fifth consecutive month as American shoppers began their holiday purchases. Reports later this week will show consumers are returning to the stores in greater numbers and spending more than in recent holiday shopping seasons.

The consensus among economists surveyed is for a 0.7 percent gain in November. That would follow a 1.2 percent October increase.

“The holiday season is running at a pretty strong pace,” said Guy LeBas, of Janney Montgomery Scott LLC in Philadelphia. “There’s a broad-based uptick in sales helped by aggressive discounts.”

The National Retail Federation has forecast November- December holiday sales will rise by 2.3 percent from a year ago, the most since 2006. A Bloomberg survey taken Dec. 2 to Dec. 8 showed economists raised projections for consumer purchases, the biggest part of the economy, to 2.6 percent for next year, up from their 2.3 percent estimate the prior month.

Retailers will also benefit from consumer confidence, which rose in December to the highest level in six months — that according to the Reuters/University of Michigan report released last week.

“As we look at November into December, we see strength across the store,” says Chief Financial Officer Carol Tome of Home Depot.

A strong holiday showing by retailers will be additional evidence that the U.S. economic recovery is starting to fire on multiple cylinders.

Consumer Spending Trends Reveal Ominous Standard Of Living Changes

By Trace Mayer, on October 18th, 2010

Gold is the numeraire par excellence. As the most reliable unit of account for performing mental calculations of value it is important to use gold and silver to reveal ominous changes to the average American’s standard of living based on consumer spending trends. Viewing current Gallup data through these lenses shows how The Great Credit Contraction has impacted the average person’s daily life.

Clearly the American way of life is intensely threatened.

CONSUMER SPENDING TRENDS

A recent Gallup poll revealed some ominous data about the decline in American consumer spending. The following charts adjust the original poll data to GoldGrams and silver ounces. There has been a stunning decline in standard of living based on consumer spending trends.

STANDARD OF LIVING CHANGES

The low to middle income groups have realized nearly 63% decline in standard of living going from spending 3.19 GoldGrams per month in September 2008 to spending 1.17 GoldGrams in September 2010. In silver the decline is nearly 70%. The upper income groups have likewise been affected with their consumer spending declining to 2.89 GoldGrams in September 2010 from 6.48 in May 2008 representing a decline of about 55% and about 61% in silver.

CONCLUSION

These significant declines in living standards based on consumer spending trends measured in gold and silver represent a tremendous impact from the recession on the average American’s daily life. While some debate whether there is inflation or deflation it appears fairly clear the effects of the massive deflation coupled with negative effects of inflation on the economy have resulted in The Great Credit Contraction which has impacted the average American and resulted in a 55-70% decline in standard of living. Clearly the American way of life is intensely threatened.

DISCLOSURES: Long physical gold, silver and platinum with no position the problematic platinum, SLV or GLD ETFs.

Negative Effects Of Inflation On Economy From Monetary Policy

By Trace Mayer, on September 16th, 2010

The negative effects of inflation on the economy from the Federal Reserve’s monetary policy has been quantitative easing and has exploded the currency supply. But where are the negative effects of inflation showing up in the real world? Likely in the prices of your food and other consumable goods.

COMPETITIVE DEVALUATION

As the Federal Reserve has failed with quantitative easing it has led other central banks to competitively devalue their currencies. Bloomberg reports that on 15 September 2010 that for the first time since 2004 the Japanese central bank has begun intervening in the currency markets to manipulate the Yen’s value lower.

But for Japan to be successful with their goals they will need to continue intervening because other central banks will be carrying out similar monetary policy. Just look at India with its rupee down but GDP growing extremely fast. But to do so they will be fighting against economic law. Ultimately, they will fail.

These are all predictable negative effects of inflation on the economy.

NEGATIVE EFFECTS OF INFLATION ON ECONOMY

Many economists do not have a solid definition for inflation. The traditional definition and that primarily used by the Austrian school of economics is that inflation is an increase in the currency supply and deflation is a decrease in the currency supply. Many court economists, particularly from the Keynesian school, like to define inflation as a rise in prices.

But a rise in prices is merely a symptom of inflation much like wet streets are a symptom of rain. But to confuse wet streets for rain is to confuse cause and effect. But these court economists confuse lots of things; particularly their students. Are we in inflation or deflation? But the average person is beginning to feel the negative effects of inflation on the economy in their own life. Commodities are approaching record high prices and these costs are filtering through to consumable goods.

An example would be orange juice. Tropicana has recently changed their 64 ounce container to a 59 ounce container but there has been no corresponding decrease in price. When asked why the customer service representative responded, “Our consumer research shows that most shoppers, when given a choice between a price increase or slightly less contents, prefer to hold the line on prices.”

Because wages have not increase approximately 10% therefore the volume decrease of 8% lowers the standard of living for the average American. A lower standard of living is one of many negative effects of inflation that to individuals in the economy.

A decrease of about 8% seems to be low. For example, 7-Up decreased their bottle from 20 ounces to 16.9 ounces, or 15.5% decrease, and Scott toilet paper decreased the width of a roll from 4.5 inches to 4.125 inches or about 8.3%.

GOLD IS THE CASH KING

During deflation cash is king and gold is emperor. This is because gold is a tangible asset and can never become worthless through the hyperinflation like little colored coupons; Yen, Euros, Dollars, etc.

During The Great Credit Contraction which has only just begun eventually all little colored coupons will return to their intrinsic value which is worthless. Like newspapers, fiat currency, fractional reserve banking and central banks are barbarous relics in the Information Age and there are much more efficient forms of currency that will be invented and adopted.

As I wrote about in Gold And The Oil Majors Revisited:

At the current price of gold the $54.2B of stock repurchases from five measly companies will only yield about 1,432 metric tons of gold or about 359 less tons than the hypothetical. For comparison Venezuela is the 16th largest holder with 363.9 tons and the United Kingdom is the 17th largest holder with 310.3 tons.

Currently, the five oil majors have about $250B in current assets on their balance sheets. That would purchase about 6,232 tons of gold. At least with that much physical gold the oil majors would be assured of making payroll. Why they do not hold any of the precious metals on their balance sheets is truly baffling.

PLATINUM IS THE STILL THE DEAL

Gold and silver are within their normal trading ranges and currently of average value. I still really like platinum and it has recently broken out from being cheap to being of average value. But if you are going to buy any of the precious metals right now then I would recommend buying platinum. This next upleg in the precious metals will likely last until early Q2 of 2010 and the gold price could power through $1,500/ounce.

CONCLUSION

The extremely negative effects of inflation on the economy and the Federal Reserve’s disastrous policies are exacerbating the Greater Depression. Real economic pain is being felt by those who most impacted by the rise in consumable, particularly food, prices. Portions are being reduced, prices are being raised and standard of living is going down while the economy continues to die. These are all predictable negative effects of inflation on the economy and the Federal Reserve’s hand in everyone’s cookie jar.

DISCLOSURES: Long physical physical gold, silver, platinum and no position the problematic SLV or GLD ETFs or XOM, CVX, TOT, BP or COP.

European Cash Needs Overblown

By Eldon Mast, on July 1st, 2010

Negative moods in Europe are finally being calmed by news on Wednesday that the European Central Bank will likely lend less money than expected for the next three months. The data suggests that region’s banks’ cash needs were wildly overblown again by the crisis fear-mongers.

“The result of the ECB’s money market operations indicated that money markets have been less distorted than originally feared,” BNP Paribas said in a note. BNP Paribas is considered the leading financial group of the eurozone.

Also providing a hopeful sign, Germany’s unemployment rate declined to 7.5% in June thanks not only to the traditional springtime upturn, but also an improving economy, according to the country’s labor agency report. They released data showing that the jobless rate was down from 7.7% in May.

The German data raised hopes on Wednesday that consumer spending in Europe’s biggest economy will help the region, a zone where doomsters have suggested that severe spending cuts will darken the growth outlook.

The European reality now mirrors what most analysts now recognize in the U.S. economic prognostications. “The U.S. economy has stabilized in the near term,” said Castor Pang, director of research at Cinda International. “Maybe the U.S. markets are overreacting a little.”

Economic Stabilization Measures And Their Effect On The Consumer

By Trace Mayer, on June 18th, 2010

Trace: Welcome back to the RunToGold Podcast. This is Trace Mayer. And I have with us a special guest, Bill Laggner of Bearing Asset Management. Welcome Bill.

Bill: Trace, good to hear from you today.

Trace: Wonderful. Now can you tell us a little bit about Bearing Asset?

Bill: Trace, we run a hedge fund, macro oriented hedge fund here in Texas. We began back in the summer of 2002. A lot of views that I’m sure that you have are the views that I will probably share with you today.

The biggest difficulty in analyzing this phase of the macro environment is how much of a true contraction in economic activity will we see, and then how much of a contraction in asset prices will be witnessed before we witness the central planners truly panic and implement the next round of money printing experiments.

Trace: Yeah, we actually met you up at the Mises Institute Conference in New York City, and we kind of hit it off and I think we have good things to talk about.

Now before we started recording, what we were talking about the rail numbers being down, Best Buy earning report that came out, and conversation that you had with a bankruptcy lawyer in Las Vegas. Can you expand a little bit on this and the outlook for the US consumer?

Bill: I think that when you try to find good, anecdotal muses that you can stitch together some type of a theme that could be acted upon, and I think that we are at the stage now, we look at just general leading economic indicators that are rolling over. We are over a year past the stimulus measures and spending that the government implemented.

You can see now in some of the other data points that you just referenced, the rail data, something about Best Buy with regards to the retailing space, high-end retailing, and a conversation I had with a Las Vegas bankruptcy foreclosure lawyer; the consumer is in deep trouble. I don’t think that the employment numbers are truly representative of how difficult the consumer situation is. You have the mortgage market, according to him in Las Vegas, where 60% of people are now upside down in their mortgages.

Trace: Oh my goodness…

Bill: Yeah, and if you compare that to… I know that you and I talked about Florida. I got family in Florida and know that you do too. Parts of Florida may be 25 to 28% of the mortgage wars in Florida that may be upside down.

So, some of the states that have real consumer problems, of course the BP oil spill is not going to help the Florida coast or the Louisiana coast, but I just think that the consumer in general is throwing up the white flag at this juncture.

Trace: Yeah, and you know I have to agree with that, look at what’s going on with BP, it’s shutting down a lot of the fishing, that can’t be good for what little business was remaining down there.

And now who exactly could they help the US? You know we were talking earlier, I’m over here in France watching the World Cup and on Friday I go to Rome… well Italy owes France 511 billion in its banks, and then Portugal owing Spain 58 billion, Spain owes France 2 20 billion, and so even with this trillion dollar bailout package, I don’t necessarily see the European economy coming to the US’s rescue.

Bill: Well, as good as they are the backdrop in the Eurozone is very similar to the backdrop in the States. We have New York, Illinois, California, and Arizona running huge deficits and taking extraordinary measures to try and keep this façade alive.

The state of New York borrowing money from a pension fund…

Trace: Wasn’t that just ridiculous?

When the Germans riot they buy gold.

Bill: …but we are in the shell game-phase of this unwind, and Spain has to, actually at 4:30 Eastern time, will be auctioning off quite a bit of debt. If you look at the way that the Spanish bond market is reacting versus say the German bond market, the market smells problems in Spain, and if they can get this auction off tomorrow morning, I think that that’s another feather in the cap of the bearers with regards to economic activity in Europe.

I think that the Germans, I know the constitutional courts turned down the request to listen, hear the bailout case and maybe put it on hold, but I know that the German people know that they are going to get hung with most, or all, of these liabilities . And so I think that the backlash in Germany will only continue to build as we move into the fall here.

Trace: Yeah.

I would like to close with one tip, and I hate to say that it’s the same as the Germans have. You know the saying is that when the Germans, when they riot, they buy gold.

Bill: Yeah.

Trace: So going into this next leg of The Great Credit Contraction, and it’s down where we’re seeing real economic activity grinding to a halt, moving money slowing to a Bush pace, the consumer drying up both in Europe and in the US, the budget deficits with the States, both in the individual states in the US and with the nations in Europe and as we were talking about the protocol and number one killer for small businesses is cash flow.

So when you have these state budget deficits, we are borrowing from a pension fund, making your pension fund payment or maybe your payment to some type of business that relies on government revenues, when these show gains start to collapse in this next stage of the credit contractions that are happening, what would be your tip to the people listening to this show, what should they do to protect themselves and their capital?

Bill: The biggest difficulty in analyzing this phase of macro environment is how much of a true contraction in economic activity will we see, and then how much of a contraction in asset prices will be witnessed before we witness the central planners truly panic and implement the next round of money printing experiments. And that’s what exactly they are. They are experiments.

We don’t know exactly which sectors are going to be getting handouts, Trace. We don’t know what sectors can be ignored, we can see the battle of the states between the political class and the real economy. There is a huge battle going on right now as we go into the elections this fall, you can see some of the primaries. So I do think that they will not sit idle, they will at some point panic but we may not see a panic until asset prices go down another 20% or more and the question then becomes Will they come to the rescue with $1 trillion or $5 trillion and that’s one reason why I think that gold, even in a deflation should perform well because most people realize now that any significant decline will just be met with even more money printing. And more handouts. And more intervention. And more misallocated science projects.

So gold on weakness makes sense. I don’t think that you’ll see the gold price decline, percentage-wise, as much as it did in the fourth quarter of 2008, because I think that these central banks will intervene and print relentlessly and that will ultimately, at some point, slow the decline, nonetheless, of prices.

Trace: Yeah. You couldn’t get a better run to gold, right? And during this depressionary environment, cash is King and gold is Emperor because of these fiat currencies of operations is nothing, you can still make payroll with gold coins.

Bill: Absolutely.

Trace: You will still be able to buy things, so I think that I have to agree with you on that. And avoiding things like Starbucks (SBUX) and their five dollar coffee when there are substitutable goods like McDonald’s (MCD) available, stuff like that. Oh, anything else to add?

Bill: Well I think that that makes a lot of sense. Being very prepared and know that the central planners at this juncture are taking extraordinary steps to try and fight the deflationary waves that we have right now and know that they will continue to try to pull rabbits out of their hat as things become more and more difficult.

Trace: Exactly. Well thank you very much Bill.

Bill: Thanks Trace.

Trace: You’ve been listening to the RunToGold.com Podcast.

DISCLOSURE: Long physical gold, silver and platinum with no interest in Starbucks (SBUX), McDonald’s (MCD), the problematic SLV or GLD ETFs or the platinum ETFs.

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Japan’s Growth Up 4 Straight Quarters – GDP Now at 4.9%

By Eldon Mast, on May 24th, 2010

In Q1 2010, the Japanese economy grew at a quarterly rate of 1.2% the government said on Thursday. The four straight quarters of growth now bolster assertions that Japan’s recovery is holding firm.

Their annualized growth rate of 4.9% was released by the Japanese Cabinet Office and accelerated from 3% for the Japanese economy’s fourth quarter of 2009.

Much like the U.S. economy, Japan’s private consumption makes up about 60 percent of the economy, but exports also play a key role in the healthy growth rates. Recovery in Japan has been assisted by a rebound in mainstay exports of cars and electronics, which both posted the fourth year-on-year rise in March. The report confirms that the continued strength is lifting domestic production and wages in the country.

Economic Events on May 3, 2010

By B.P.T., on May 3rd, 2010

The figures for motor vehicle sales in April will be released today. The consensus estimate is that 8.8 million autos were sold in April, which would be the same number of autos sold in March.

At 8:30 AM EDT, the monthly Personal Income and Outlays report for March will be released. The consensus for Personal Income is an increase of 0.4% over the previous month, after there was no change in February. The consensus for Consumer Spending is an increase of 0.6%, and the consensus Core PCE price index change is no change, and it was flat in January and February.

At 10:00 AM EDT, the Construction Spending report will be released, and the consensus is a decline of 0.3% compared to the previous month as weakness continues in all segments of the construction industry.

Also at 10:00 AM EDT, the ISM Manufacturing Index for April will be released. The consensus is that the index value will be 61.0, which would be an increase of 1.4 points over March, because of strong new orders reported for March.