US Energy Independence: The Next Big Thing for 2013?

By The Energy Report, on January 2nd, 2013

Energy investment is about more than just the commodities; it’s about growth. That’s why, for example, the emerging economies theme has been an important one for investors who know that every business and modern home in Brazil, Russia, China or on the African continent will need to keep the lights on somehow. But the next big thing for 2013 may be in our own backyards: the drive toward U.S. energy independence. How feasible is this goal, and how can investors profit from it? With this question in mind, The Energy Report looked back at some of the most memorable interviews of 2012 for expert advice on how to get positioned.

Oil and Gas

Here’s a little energy investment 101: when oil moves up, so does the dollar. Energy bulls bet on increasing momentum, whereas gold bugs amass hard assets for the day the dollar collapses. Well, that’s the way it used to be; global energy markets have become so schizophrenic that this once self-evident correlation is about as reliable as India’s power grid. But one indisputable fact remains, as Porter Stansberry pointed out in his Dec. 13 interview, “End the Ban on US Oil Exports“: “One of the biggest drags on the U.S. dollar over the last several decades has been the trade deficit resulting from petroleum imports.” Wacky oil and gas differentials aside, outsourcing energy production has taken its toll on the national budget and the dollar itself.

But if the U.S. doesn’t rely on international imports, could it make do with domestic supply? Potentially, argues Rick Rule in his Nov. 27 interview, “A Global Perspective on U.S. Energy Independence.” Responding to the I.E.A.’s predictions that the U.S. could reach self sufficiency by 2035, Rule responded, “We stand a very good chance. . .the U.S. is endowed with spectacular natural resources and we remain the epicenter for extractive and exploration technology. Our advantages in terms of the cost of capital, the application of technology and our legal apparatus are uniquely suited to unlocking the potential of our geology.” Even John Williams of Shadowstats.com sees some upside here: “If domestic oil production could replace foreign production, you could still have a positive domestic demand environment. I’d push for that as much as possible.”

So if we need the goods, and we have the goods, the next logical step would be to scout out the domestic producers who can come through with supply—at the highest margins possible, experts suggest. There’s no shortage of recommendations on mid-, micro- and large-cap producers who may fit that bill, and investors with a bullish outlook on domestic oil and gas would do well to keep checking in with The Energy Report to hear why Josh Young invests exclusively in mature oil fields (”There is an old adage: ‘The best place to find oil is an oil field.’”), why Darren Schuringa looks to MLPs to generate returns on investment in North American oil and gas infrastructure (”Consistency is very important for investors, especially for those who are looking for alternatives to fixed-income instruments.”) or how John Stephenson chose the energy stocks that yielded 30% growth for his portfolio year over year (”Look for producers who are good at managing the cost side of the business.”)

Fracking: Miracle or Mirage?

But the energy independence story doesn’t end here. Weaning the U.S. economy off petroleum imports doesn’t begin and end with domestic oil and gas production. For one thing, U.S. regulations haven’t exactly made for an open season on extraction (or transport). Stansberry commented: “We have archaic laws about oil because we had long believed that oil was a strategic resource and that the world was going to run out of it in the short term. Unless we change our laws to allow exports of crude oil, none of this magnificent new supply is going to aid our economy at all.”

One expert, Bill Powers, made waves in his Nov. 8 interview “U.S. Shale Gas Won’t Last 10 Years,” when he delivered a scathing critique of various public and private organizations that, he argues, drastically overstated the extent of U.S. reserves. (He nonetheless sees a bullish future for energy producers scraping the bottom of the barrel.) Powers represents a minorty voice in the shale debate, but even those who are bullish on North American reseves understand that the roads to returns include complications. How can investors plan for the detours?

The U.S. Energy Mix

One horizon we’ll continue to watch is the outlook for uranium producers. Nuclear power is still a controversial subject, but its proponents point out its ability to deliver low-emissions energy in vast quantities—cheaply. Germany may still be saying “Nein danke,” to the power source (although it’s fine with purchasing it from its neighbors) but sector analysts argue that Japan istelf is moving toward a broader restart, and China, Russia and emerging economies around the world are by no means turning their backs on the efficient energy source. Could the U.S. cover a greater share of its energy needs through nuclear power? Analysts David Talbot and Alka Singh see brighter times ahead in the space, both emphasizing the looming expiration of the U.S.-Russia Megatons to Megawatts program and the need for new producers to fill the supply gap. A number of U.S. producers have been getting their ducks in a row to commence with large-scale, low-cost uranium production.

Whether you believe in peak oil or simply the absence of cheap oil, diversifying your assets is a sound investment move—both from a public policy and private investment perspective. U.S. energy production is already a fairly diverse mix from state to state, as a quick glace at the Department of Energy’s interactive map shows. For this reason, The Energy Report will continue to deliver expert opinion on a spectrum of energy sectors, from oil and gas E&Ps to the service companies that keep them operating, to innovative players in the energy technology and alternative energy spaces and promising natural gas, uranium and coal producers ready to deliver to domestic utilities.

A number of our expert interviewees suggested that risk-hungry investors may want to place their bets further out on the energy supply horizon with alternative energy plays that could likewise reduce dependency on foreign oil. Biofuels have earned some support from energy investors, in part because they do not necessitate a nation-wide shift to electric vehicles. But it just may encourage the transition away from petrol imports. As analyst Ian Gilson commented in his June 12 interview, “Enzymes and Algae May Spur a Biofuel Boom,” “Biofuels are really many industries. . .but they share some common ground in that they could reduce our dependence on foreign fuels.”

Raymond James Analyst Pavel Molchanov echoed the multifaceted nature of alternative energy companies in his March 29 interview, “How to Play the Cleantech Energy Boom,” noting that many names in the space are very diversified, so it can be hard to find a pure-play investment. For potential investors, Molchanov emphasized that “Within every industry, there are companies that are in a better competitive position than others. So we have to look at everything case-by-case. It’s very hard to make a universal, far-reaching call regarding whether a particular subsector is now the right or wrong place to invest. For example, the solar industry is facing a lot of headwinds and yet there are still companies in that space that are quite profitable and successful.”

As we move into 2013, we’ll face the global economic forces that ultimately result in upside and downside momentum, continuing the conversation with the experts that share their wisdom with The Energy Report and its readers—you. Exciting, isn’t it? Many happy returns in 2013.



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How to Make Money in a 'Fugly' Stock Market: Bob Moriarty

By The Gold Report, on December 8th, 2011

Bob Moriarty Despite the “fugly” future that Bob Moriarty, founder of 321gold.com, talks about in this exclusive interview with The Gold Report, he’s downright bullish on the U.S. dollar for the time being. He says it’s not only a safe haven but “the best investment to be in for the last six months.” As for equities, Moriarty makes it clear that he takes no pleasure in watching a company lose 25% of its value in a week when there is nothing wrong with the company. At the same time, he’s alert to bargains. Any time you have the opportunity to buy cash at a discount, he advises, “throw money at it.”

The Gold Report: Since the last time we chatted in July, Bob, a lot has happened. Congress raised the debt ceiling, as you predicted.

Bob Moriarty: Right.

TGR:Then the Super Committee failed to produce an agreement so we can look forward to the automatic debt reduction of $2.2 trillion.

BM: The Super Committee was totally illegal and unconstitutional in the first place and it was totally ineffective. They couldn’t reduce spending by $1.5 trillion over a 10-year period. Give me a break.

TGR: Okay. Moving on. . .Unemployment remains at about 9%.

BM: You say 9%? I don’t think so. How about 23%?

TGR: The list goes on. Occupy Wall Street protests have sprouted up all over the country. And of course, Newt Gingrich is the leading Republican candidate.

BM: That anyone could even consider Newt Gingrich for anything above the role of dog catcher is pretty terrifying.

TGR: There’s more. We’ve seen riots in Europe, with the epicenter in Greece. We’ve got a weak German bond market.

BM: Weak? It was a total failure; 39% coverage is a disaster. Germany is the bedrock of the EU, and if they can get bids for only 39% of bonds it’s over—over—for the EU.

TGR: The Italian bonds coming up should test that theory.

BM: Italian bonds are paying 8% or something like that. It can’t do it. The Greek two-year bond is paying 160%. The one-year bond is paying 270%. Greece has defaulted. Italy, Spain and France are going to default. It will be a series of cascading bank defaults. Dexia Bank failed a month ago. The banking system is under water. I’ve been saying that for years. It’s true.

TGR: So looking at this whole developing picture, from the crisis in Europe to the U.S. debt debacle, from stubborn unemployment, protests and riots to the upcoming presidential election—what do you make of all of this?

BM: The piece I wrote in early October captured it. I said things were about to get “fugly” and it’s time to head for the bunker.

TGR: In your Nov. 11 article, you stated specifically that you’d climb out on a limb and suggest that 2012 will go down in history as the year of bank failures. How do you see that scenario playing out?

BM: Okay. Here’s what’s important to understand and very few people understand this. If you start off with $1 million and loan it from one institution to another to another to another, you may have a net of $1 million. But if somebody defaults and that $1 million asset disappears, you get cascading defaults of every institution that had that $1 million asset. It’s really simple. The Greek default—and Greece has defaulted even though they won’t admit it—will cause a default in Spain and Italy, and that’s going to cause a default in France and that’s going to cause a default in the U.S.

TGR: And what happens when they default?

BM: The banks close. What can we do? We have more debt in the world than assets, so we have to write off the bad debt. Unfortunately, no government in the world is talking about that. The only people talking about it are Gerald Celente, Kyle Bass and me.

TGR: But bank foreclosure is more than writing off bad debt. That creates catastrophic. . .

BM: It’s a good thing if a business fails, because that means somebody who is efficient comes along and picks up the slack. We do not need to reward failure in the banking system. We need to reward success.

TGR: Could the banking system write off a portion of the debt?

BM: Nah, they are under water now. It’s a zombie banking system and has been since about the middle of September 2008. Just a while ago, at the end of November, the Federal Reserve disclosed $13 billion in profits to the banks from the trillions in loans they made back in 2008 that they’ve been lying about ever since. They were bailing out Barclays, Royal Bank of Scotland and lots of other banks that had nothing to do with the United States.

TGR: Is there a banking system that will survive these cascading defaults?

BM: The question should be: “Can you have a banking system that is sound and secure?” And the answer is yes. The Canadian banks are in a lot better shape than the U.S. banks. A sound, secure bank cannot have those zombie assets, such as the mortgages that we know people are not paying off. Half the mortgages in the United States are under water, with 25% in default. Those mortgages must be written off.

TGR: Couldn’t a component of the banking system—some of the regional banks in the U.S., particularly those that have written off some of those mortgages and are really more about loaning to local businesses and local communities—survive a banking system failure?

BM: The banking system in the United States is a network of giants and the regional banks really don’t exist anymore. I don’t have specific numbers but I think the big five banks probably represent 90% of the banking system. That leaves no fallback, really.

TGR: When the U.S. banks close, you’re in the Cayman, but what happens to the rest of us?

BM: Since Bretton Woods in 1944, governments have been spending money they don’t have and it’s time to pay the piper. A lot of people’s “assets”—Social Security, pensions, Medicare, Medicaid—will evaporate. They’ll disappear. We need to go back to a real world economy where people produce things of value. We need reasonable taxes. And we need a reasonably sized government that doesn’t spend beyond its means. This is true of individuals as well as governments.

TGR: How do people waiting in line for pensions, Social Security, Medicaid, etc. . .

BM: That money has to come from somewhere. Anything the government gives one group has to be taken from another group. The net is it costs you money to have the government provide healthcare, Medicare, Social Security. We would be far better off if the government didn’t provide these things. We didn’t have Social Security 100 years ago and people were fine. When I started working 40 years ago, people still had pensions from their employers. By and large they don’t have much of that anymore.

TGR: Unless they’re government employees.

BM: Yeah. Then you are going to get paid twice what the private sector is getting paid.

TGR: Your November article also said what you have been suggesting for months that cash is the best investment people can hold. In fact, you concluded with these words: “It’s time to stay in cash and head for the bunker.” As you mentioned before, “times are about to get fugly.”

BM: Right.

TGR: Do you include cash equivalents such as gold or precious metals under that “cash” umbrella?

BM: No, I mean cash. The best investment to be in for the last six months was cash, U.S. dollar cash. Even Gerald Celente had a six-figure account with MF Global and the money simply evaporated. Without cash, people who go to bed wealthy will wake up poor.

TGR: All the goldbugs say that will happen if you keep your money in fiat currencies too.

BM: That’s not necessarily true. At times, investing in fiat currencies is a good deal. If you were investing in U.S. dollars in March 2008, you would have been better off that fall than you would with any other single investment. Gold went from about $1,200/ounce (oz) to $700/oz, while silver went from $21/oz to $9/oz. The stock market crashed. The gold juniors crashed. Sometimes being in cash, U.S. dollars, is a good investment. It’s been a particularly good investment for the last three or four months.

TGR: Because your analogy goes back to 2008, when we had a severe crash, is it fair to extrapolate that you’re predicting another severe crash?

BM: We are going through a crash right now.

TGR: If that’s the case, why should anyone be in equities?

BM: You can’t ever invest 100% in anything. No one can guarantee the future. All you can do is hope you get it right 55% of the time. Cash, U.S. dollar cash, has been a good investment since this past April, and it’s still a good investment. Europe is about to blow up and the dollar is a safe haven. There is a lot of deleveraging going on. And, as in 2008, the U.S. dollar is a good place to be. And cash is better than having the money in T-bonds, with a negative interest rate.

TGR: You are expecting the banking system to collapse, and banks typically hold cash. What value is the cash if the banks fold?

BM: You can buy things with it.

TGR: So you’re saying people should physically hold their cash in their homes?

BM: I do. I have some money in the banks to pay bills, but mentally I have written off every cent in the bank. I accept the fact that I will go down to the bank one day and the ATM won’t work anymore and the bank will be closed. You can have cash sitting in the bank, too, but at the same time you have to understand the great danger with the banks. While I wouldn’t sit on a half million dollars in cash at home, if I had it in a bank I would be prepared. I think everybody should keep three to six months in liquid assets, and that certainly would involve cash and gold and silver. Cash and gold and silver will be very valuable when the banking system collapses.

TGR: If the banking system collapses, how long will it be before new banks emerge to take over the fundamental role of banking?

BM: It’s not “if” the banking system collapses; “when” would be more accurate. You simply cannot justify the banking system today. The sooner we get to whatever comes next, the better off we’ll be. My opinion is that all fiat currencies will crash, and when they do, we’ll go back to a gold standard.

TGR: How quickly can we develop a gold standard from the annihilated banking system?

BM: It depends on how big the riots are. Governments never act. They only react. If we have riots in every major city in the United States and hundreds or thousands of people a day are being killed, the government may actually take some action that would make sense. That would be to say, “We have a financial system that doesn’t work. We need to go to a financial system that does work.” Gold and silver work and they have worked for 5,000 years.

TGR: Do you see a situation where the government would start a national bank?

BM: God, I hope not. That would be adding fuel to the fire. I think that “unlimited stupidity” and “government” belong in the same sentence. But if the government started a national bank, that wouldn’t be unlimited stupidity―that would be infinite stupidity.

TGR: Earlier you made a point about having to be right only 55% of the time to move forward with a balanced portfolio. Let’s assume that an investor has some hard assets now, in safe havens, with some at home. At that point, does this investor turn to the market?

BM: Yes. I just bought 100,000 shares of a company that did a financing at $0.80 in April. It now has $0.46 per share in cash and its stock is selling at $0.23. If I can buy cash at $0.50 on the dollar, I’ll do it.

TGR: So you are looking for opportunities with a company’s value below its cash balance.

BM: Any time you can buy at a discount, that’s a good deal. If you can buy a dollar for $0.50, the upside is $0.50. We see this happening every 10 or 15 years. In the summer of 2001, a number of stocks that were selling for less than the cash they had on hand doubled or tripled or quadrupled when the market turned around. In September and October of 2008, something like 200 companies were selling for less than their cash on hand. A Russian silver company was selling for $0.20 on the dollar. You simply cannot get a more favorable environment than buying cash at a discount. Any time you have that opportunity, you should throw money at it.

TGR: So, what companies are you finding that have cash at a discount?

BM: People are going to have to look for them themselves. All the figures are available to everybody. I use Stockhouse and StockWatch and look at the ratios.

TGR: We’re hearing that capital is so hard to come by, yet we found at the San Francisco Hard Assets Investment Conference at the end of last month quite a number who were getting capital.

BM: Those deals had actually been set up for months. The last few weeks the financings literally just stopped. Everybody is in a total panic now. I watched stocks drop 25% and I have to tell you, it was pretty scary even though I was one of the guys forecasting it. When a company loses 25% of its value in a week and there is nothing wrong with the company, it’s scary. A lot of times I see things happening that scare me and I don’t want them to happen. I talk about them because I have an obligation to talk about them.

TGR: Could you talk about the kinds of companies that are actually building their value?

BM: In August 2008 the Philadelphia Gold and Silver Index, which is a measure of pure psychology, went to the lowest level it had ever been in history. Stocks were cheaper in August, September and October 2008 relative to gold than they had ever been. But gold was $700/oz. Silver was $9/oz. And they got clobbered. So it’s natural that big gold and silver shares got clobbered too.

Now, we have $1,700/oz gold and $32/oz silver, and stocks are cheaper today than in 2008. That is totally irrational. Those kinds of circumstances do not continue for very long. In 2008 platinum came down to the same price as gold. Platinum is $210/oz cheaper than gold today and that has never before occurred in my lifetime. I don’t think it’s occurred in history. That’s an example of something that would be a very good opportunity.

TGR: So if the juniors are on sale, are the majors also on sale?

BM: Yes.

TGR: How should investors begin looking at the whole plethora of mining companies to decide which ones really create the value?

BM: My priority would be junior production stories. You’ve got Timmins Gold Corp. (TMM:TSX.V; TMM:NYSE.A), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BLV), Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:Fkft), First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:Fkft; FRMSF:OTCQX), Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A) and Rio Alto Mining Ltd. (RIO:TSX.V; RIO:BVL; RIOAF:OTCQX). There are dozens, dozens of good production stories. Nobody quite knows where the price of gold and silver will go, but anybody in production now is literally minting money. You would have to be profitable. You couldn’t possibly not be profitable.

TGR: You wrote about Meadow Bay Gold Corp. (MAY:TSX.V; MAYGF:OTCQX) back in October. Is that still an interesting story to you?

BM: It’s a really funny story. It totally screwed up its drill program. It was drilling for an epithermal vein system and hit a porphyry system. The significance of that is that porphyries are really big, so instead of having potentially 1–2 million ounces (Moz), literally overnight it went to having 3–4 Moz potential.

When I made that same comment about screwing up the drill program with Meadow Bay’s chief geologist, he laughed, because if you’re going to screw up by finding a much bigger deposit than you thought you had, that’s a really good deal.

TGR: You’d called it a no-lose drill program. Did you know it was going to come out the way it did?

BM: It had announced one hole—a porphyry hole. As soon as I knew it was porphyry I understood the future was bright indeed. That’s a really good company and it is doing a really good job.

TGR: Do you have a preference toward production of gold versus silver?

BM: Silver has attracted a lot of attention with people who simply don’t know what they are writing about. And they attract all the nutcases. You can make a lot more money shorting silver than you can going long silver because people get totally irrational. There is no shortage of silver. We are not about to run out of it. The ratio over 100 years has been 47:1—47 ounces of silver per ounce of gold. In a financial collapse, the ratio actually goes higher. I could see silver going to 100:1 before it goes 30:1. But, the primary factor in the price of anything is the cost of production. Silver costs $6–8/oz to produce, so $32/oz silver is pretty expensive.

TGR: So you would want to look at junior production companies that would still be profitable with silver at $10/oz?

BM: The silver companies would still be extraordinarily cheap even if silver went to $15/oz.

TGR: Do you have any other companies with no-lose drill programs or other nice surprises in store on your radar?

BM: Dozens of companies have done exceptionally well. I just came back from two weeks in Colombia, where virtually everything is a slam-dunk. Sunward Resources Ltd. (SWD:TSX.V) is going to be announcing really extraordinary results. It already has about 8.6 Moz. That’s an extraordinary amount of resources for a company only two years old.

TGR: If Sunward is still drilling, how big might that get?

BM: A lot bigger.

TGR: Double?

BM: Could be.

TGR: In what timeframe?

BM: Two years.

TGR: Any others you’d care to mention in Colombia?

BM: Colombia Crest Gold Corp. (CLB:TSX.V; EAT:Fkft), Red Eagle Mining Corp. (RD:TSX.V), B2Gold Corp. (BTO:TSX; BGLPF:OTCQX), Bellhaven Copper and Gold Inc. (BHV:TSX.V), Solvista Gold Corp. (SVV:TSX.V) and Continental Gold Ltd. (CNL:TSX). But, there are 36 listed companies in Columbia, and I don’t think you could go wrong investing there.

TGR: So Colombia as a region is a good play.

BM: It’s a phenomenal play.

TGR: You’re also big on Africa.

BM: I used to be, but Africa is getting really stupid. Tanzania’s come up with suggestions and changes to the mining laws. Ghana’s started getting greedy. In every business cycle when the cost of the commodities goes up countries start thinking, “You know, we hate to see these guys making all this money so we need to make sure it won’t happen.”

TGR: So Africa’s fallen out of favor.

BM: Australia, Peru and Argentina are also getting stupid.

TGR: Do you hold better hope for the U.S. on the mining front?

BM: The U.S. has some really wonderful properties in Arizona, Nevada, Idaho and Oregon. The western part of the country was wealthy due to mining and we are going to go back to that. I think the U.S. will split up into a series of five or six nation states. Florida has nothing in common with California and California has nothing in common with New York. But again, the U.S. as we know it might not exist a year from now.

Take a look at what I said a few years ago about riots in the United States. Occupy Wall Street started in September. It was a peaceful demonstration. There was no crime. There was no violence. The police started it by barricading young women behind the net and then spraying them in the face with pepper spray.

Occupy Wall Street hit a nerve in Americans and spread all over the country. When it got to Oakland, the police decided they needed to up the ante, so they started firing teargas grenades in the face of an Iraqi War veteran from 10 feet away. If I did that, I’d be in jail for attempted murder. Since a policeman did it, he got away with it. They beat another protester so severely with batons they put him in the hospital in critical condition with a damaged spleen. They have pepper-sprayed priests, 84-year-old women and pregnant women. And these are all peaceful protesters.

The key to understanding what is going on is the police continue to escalate the violence. The next thing will be something similar to Kent State, where they plant an agent provocateur who will fire a gun into the air and the police will take that as permission to start shooting protesters. When that happens, it will literally start a civil war—and it could happen any day.

TGR: That’s not like citizens of one state going against citizens of another state because they have fundamental differences.

BM: No, it would be a civil war of peaceful citizens against a violent, corrupt, out-of-control government. We have every bit of that now. The police are the ones doing the escalation, and sooner or later Americans will start defending themselves. If it had been my son or daughter who was shot in the face, I don’t know what my reaction would be. Those protestors all have parents and brothers and sisters and friends. I’m shocked at the willingness of police to escalate violence against people who are no threat to them at all. It could get really bloody really quickly.

TGR: Why do you think this is Occupy Wall Street and not Occupy Pennsylvania Avenue?

BM: The term should be AWA—Americans with an Attitude. I think that these protests are underway in 113 cities, so obviously a lot of Americans in a lot of locations are angry.

  • 23% of Americans are angry because they’re unemployed.
  • 46 million Americans are angry because they are on food stamps.
  • 50% of mortgage holders are angry because their mortgages are under water.

Everyone knows they have been raped by Wall Street and the government. The common theme is anger. We are angry at big business and we are angry at government.

Big business owns government. You have to go after big business. Barack Obama and this administration are totally controlled by external forces. They are controlled by Israel, Wall Street and the media. But we do not have an activist government that’s actually doing anything. It’s totally corrupt, bought and paid for. Everyone in Congress, with the exception of Ron Paul, has turned into a pimp.

TGR: That’s why congressional approval is as low as what―18%?

BM: 7%. The devil does better than that. Someone did a survey a week or so ago comparing Congress to Satan and Satan came up with an 8% approval rate.

Convinced that gold and silver were at their bottoms, and wanting to give others a foundation for investing in resource stocks, Bob and Barb Moriarty brought 321gold.com to the Internet 10 years ago, and later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on relevant current events. Before his Internet career, Moriarty was a Marine F-4B pilot and O-1C/G forward air controller with more than 820 missions in Vietnam. A captain at age 22, he was the youngest naval aviator in Vietnam and one of the war’s most highly decorated. He holds 14 international aviation records, and once flew an airplane through the Eiffel Tower’s pillars “just for fun.”



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A Run On Eurozone Banks?

By Claus Vistesen, on August 22nd, 2011

The Calafia Beach Pundit raises an interesting question in relation to the recent surge in the US money supply which he suggests might be a reflection of a scramble into USD assets. More specifically, the argument would seem to be that a silent run on European banks is in the works as money is moved into perceived safe USD liquid assets.

As this chart of the M2 measure of money supply shows, it has gone on to experience a gigantic surge in the past seven weeks. M2 has risen almost $420 billion since the week of June 13th, on average almost 60 billion per week. To put this in perspective, annual M2 growth has averaged about 6% per year since 1995, and growth at this rate would translate into about $10 billion per week. In other words, M2 normally would have grown by $10 billion a week, but instead has grown six times faster. M2 has never grown this fast in a seven week period for at least the past 50 years. No matter how you look at it, this is a major event.

Where is the growth in M2 coming from? Virtually all of the increase can be traced to savings deposits (up $267 billion) and checking accounts (up $148 billion). Now we know why several large banks have announced they will now begin to charge customers who have over $50 million on deposit—they don’t know what to do with all the money coming in.

Clearly, the theoretical argument is sound here. In a world populated by different paper currencies a surge in liquid deposit assets of the reserve currency in times of crisis reflects preference for liquidity and safety. However, the idea that money is now systematically fleeing Europe is new and disturbing. The news last week that the ECB had to supply 500 million USD to an un-named Eurozone bank has added further to the speculation.

However, there are two problems here. Firstly, as Simon Ward points out, the data does not quite support the idea of capital flight from the Eurozone. Especially, one would have expected the EUR/USD to have reacted strongly on a flight of the Eurozone to USD assets.

Scott Grannis, for example, argues that US money demand has been boosted by massive capital flight from the Eurozone as investors anticipate a break-up of the single currency. The US money supply gain, however, has not, to date, been fully offset by Eurozone weakness – G7 monetary growth, therefore, has risen. Eurozone figures for July, released next week, could conceivably change the story but would need to show a large decline to offset US strength.

The Grannis theory of a huge capital inflow to the US from Europe, in any case, is inconsistent with the stability of the euro / dollar exchange rate in recent weeks.

Of course, someone else could be doing the bid on the EUR/USD (Voldemort?) but more specifically we should also observe a blow out in the Eurozone interbank spreads and while we may still see this in the coming weeks we have not seen anything resembling 2008 levels of panic.

Secondly, Simon Ward points out that even if you adjust for a plausible measure of liquidity preference money growth in the US is still strong which suggests that we cannot linearly equate a spike in the US money supply with capital flight from the Eurozone.

Another point worth considering here is that while the USD certainly must still be considered a safe haven other currencies have taken up this role especially in the wake of the debt ceiling debacle which saw the US lose its triple A rating from S&P. The CBP points out in the comments section;

(…) it’s true that the euro isn’t falling against the dollar, but both are falling against gold, the swiss franc, and the japanese yen. With currencies, everything is relative.

Especially the ascend of the CHF has seen the Swiss National Bank retort to more or less desperate measures to rid its currency of its safe haven status as it deems the Swissie to be severely overvalued.

At the end of the day, the answer must be found in deposit growth in the Eurozone. We have observed for a while how the periphery has been bleeding deposits which logically have been moving to the core (or so I assume). But generally, the total stock of money in the Eurozone has been volatile around a flat trend since 2008 which makes it difficult to interpret spikes and dips in the data. I will be looking closely at Eurozone deposit data next and will report back if I find something interesting.



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Clive Maund: Mitigate Investment Risk Until End of Dollar Rally

By The Gold Report, on May 20th, 2011

The Gold Report: Clive, in a recent note on your website you said, “The general investing public are sheep, they like to move together in large groups, have a kind of vacant stare, are routinely fleeced and eventually slaughtered. That’s why when they are very confident, it’s time to get scared, and vice versa.” Further to the point, you suggested that the investing public is confident in gold and bearish on the dollar, and that those two factors could result in a rebound in the greenback and a fall for gold. Please expound upon your theory.

Clive Maund: The main basis of my theory is sentiment, during the first week of May, before the dollar started rallying, only about 16% of the public was bullish on the dollar—almost a record low. Sentiment hasn’t been this bad since 2003. An article pointing this out was posted on my site on April 28. It also pointed out the danger posed by this to commodity stocks, especially to silver. Adam Hamilton, of Zeal Research, picked up on this too, and also is calling for a big dollar-countertrend rally. The papers have been full of stories about how the dollar is set to collapse, and when that happens we are usually on the verge of a rally. The dollar index rose sharply from the 5th of May and has broken out of its downtrend in force from the start of the year and could get as high as 79 on this move. While this is certainly not good news for commodities, we should be presented with a major buying opportunity once the dollar rally has run its course.

TGR: You believe that the Federal Reserve ultimately will unleash quantitative easing (QE3) to help prop up the dollar. Will that be the buying opportunity you’re talking about, or will it come sooner than that?

CM: Right now, it’s in the Fed’s interests to encourage investors to believe there will be no QE3 in order to panic them out of commodities and stocks and into the dollar and Treasuries. This will buy it time and help reduce inflationary pressures. After the Fed has achieved this result, it will need to backpedal quickly, do QE3 anyway to prevent the economy stopping dead in its tracks and continue ringfencing the derivatives problem.

TGR: How far off is this buying opportunity?

CM: I believe that the corrective phase in commodities is likely to take the form of a 3-wave zigzag. Gold and silver, and copper too, look to be shaping up for a tradable short-term relief rally soon, which will be driven by bargain hunting combined with oversold technicals. This should be followed by a more sedate decline than that of early May to a lower low than that which occurred about a week ago, which may see silver drop as low as $28, with seasonal factors suggesting that this low may occur about late July, give or take a few weeks. I believe such a low will present a major buying opportunity.

TGR: In a previous interview with The Gold Report, you said, “As long as inflation has the upper hand, which the recent action of the commercial banks and institutions in scaling back their short positions demonstrates to be the case, investors can look forward to advancing commodity and stock markets. The big danger for investors is deflation.” Are we any closer to deflation now?

CM: I don’t believe we are. The fundamental reason for this is that the consequences of deflation in a debt-saturated world would be so catastrophic—especially for business leaders and politicians—that the Fed will move heaven and earth to prevent it and will even choose hyperinflation above deflation because it buys the Fed more time. The plunge in silver during the first two weeks of May was largely due to the successive raising of margin requirements, which was a deliberate and successful tactical move by the powers that be to pop the silver bubble that was shining a revealing spotlight on its inflationary policies, though the drop in silver also is thought to have been partly due to the market anticipating a dollar rally.

TGR: Let’s talk more about silver. A note on your site said, “After last week’s devastating plunge, the silver battlefield is littered with the corpses of silver longs with those who are still breathing being exhorted to “put their shoulder to the wheel” again by the undismayed silver cheerleaders hailing a ‘fantastic buying opportunity’ for the ride of a lifetime.” Is it still a fantastic buying opportunity?

CM: Although a significant and tradable relief rally is to be expected after silver’s brutal plunge in early May, silver is not thought to have completed its corrective phase yet. This is because a substantial dollar rally is believed to have already started; so if you wait a little while, you should be presented with a better buying opportunity. More aggressive traders may want to play the relief rally expected soon, but average investors may want to wait for the expected lower low later.

Silver could drop back to the high $20s before this dollar rally is done and that should present a great buying opportunity, higher margin requirements or not. This is because inflation is expected to continue to build in the direction of hyperinflation, as QE is the only way out due to the massive debt and derivatives overhang. The game plan is to inflate away the debt and backstop the big Wall Street banks to whatever extent necessary because they are, as we have been told repeatedly, “too big to fail.” This means gold and silver are eventually set to go much, much higher.

TGR: How should investors mitigate risk in their portfolios when the possible outcomes of our economic situation are quite dramatically different?

CM: The two methods that we use are traded options and inverse ETFs. For example, we used ProShares Ultrashort Silver ETF (NYSE:ZSL) during the early May plunge to insulate ourselves from the drop in silver and actually gained by also buying calls in this ETF, which we later sold. A word of caution about leveraged ETFs—they should only be employed where the potential is thought to exist for a big move contrary to your open positions. The reason for this is because they have an options component, they are prone to price erosion in a flat market. So, most of the time, it is better to use non-leveraged ETFs, which are held for only a short time until the danger has passed. Options are a simple, fair and cheap way to buy protection and thus favored—a great thing about them is that even when trading is thin, market makers have to both make a market and honor the intrinsic value of the option; this is what is meant by fair. Used in this capacity, they are not speculative at all. On the contrary, they should be viewed as insurance.

TGR: A lot of your investment decisions seem to rely on charts and technical analysis. A) Where do you get your charts? B) Which ones are you most partial to?

CM: I get my charts from stockcharts.com where I have a subscription. It provides a good free service, but the subscription service is even better with many options. Bigcharts.com’s charts are good for quick reference, and they show volume to advantage. A key point to remember with all these services is that, while they provide a vast amount of data, it’s how you use it and what you do with it that counts.

TGR: What sort of patterns are you looking at in these charts? Are there some basic things our readers can look for that will help them find companies that are about to break out?

CM: There certainly are. The main thing you want to see is the price rising away from a clear basing pattern and the longer and more definite the base pattern, within reason, the better, and you also want to see a favorable moving average alignment. You should seldom invest against the direction of the long-term 200-day moving average—when you have this on your side your odds of failure are greatly reduced. There are various patterns that we employ to advantage, such as Ascending Triangles, Double and Triple Bottoms, Fan Corrections, Falling Wedges etc. and we pay close attention to trading volume and volume indicators, principally the Accumulation-Distribution and On-balance Volume lines. Never forget that volume is the lifeblood of the market so studying volume patterns can help you gauge whether money is flowing into or out of a stock, especially as volume action precedes price movement. Knowing this enables us to position ourselves AHEAD of breakout moves.

TGR: In a recent research note, you said, “I have been in this business more years than I care to mention. . .in all that time, I have very seldom come across a chart that looks more bullish than that of Alix Resources Corp. (TSX.V:AIX).” What are your charts telling you about Alix?

CM: Alix is at about the same price as when it was recommended on the site back in March, and its technical condition remains about the same—it looks very bullish. Even as it dropped with the sector in early May, its accumulation/distribution line rose so sharply that this indicator is at about the same level it was when Alix was priced at CAD$2.60 back in spring of 2009. Looks attractive here, though it may be held back for a while longer if the sector drops on the building dollar rally, as expected.

TGR: You operate out of Chile. Please tell us about that country and the investment climate for mined commodities there.

CM: Chile is generally a pleasant place to live. Politically, it is stable and liberal. Housing and land is cheap compared to countries like Canada and the U.S. The income tax rate is low, though taxes are collected in other ways like a high vehicle road tax and high taxes on gasoline and other purchase taxes. The food is abundant and cheap, especially in the south of the country, and wine also is cheap and excellent. There are limitless beaches and mountains because, of course, the country is sandwiched between the mountains and the sea. There are good air and bus services up and down the country but hardly any railroads. Internet coverage is good now, too.

TGR: What about the Chilean economy, especially as it pertains to mining?

CM: Chile is actually a far more fiscally prudent country than the U.S. It does not have careening deficits, and the workforce is obliged to contribute to a private pension scheme that has in fact grown in value far more than government schemes in countries like the U.S. That means the Chilean government is not on the hook for massive pension obligations, as many other governments around the world are. Those governments will probably renege on these obligations, at least in part, by a combination of inflation and fiddling the inflation statistics.

Chile is very mining friendly and has a sophisticated infrastructure to support mining companies conducting operations. In addition, environmental factors are not such a concern here as most of the mining operations and prospects are located in northern Chile. The north is a rather sparsely populated desert but with towns dotted around to provide amenities, logistical support and a skilled workforce. It is still not widely appreciated that there is a line of hills or low mountains between the Andes and the coast that harbor massive as-yet-undiscovered copper-gold deposits that will be relatively easy to mine and much less complicated and expensive than Barrick Gold Corp.’s (TSX:ABX; NYSE:ABX) massive Pascua-Lama operation. That project is perched on Chile’s border with Argentina, high in the Andes. To get an idea of the potential of these deposits located in this line of hills, you need only look at Codelco’s (Corporacion Nacional del Cobre de Chile) massive Chuquicamata open-pit copper mine near Calama, which is the biggest open-pit copper mine in the world, or Freeport-McMoRan Copper & Gold Inc.’s (NYSE:FCX) giant Candelaria open-pit and underground mine near Copiapo.

TGR: You have an on-the-ground view of what’s happening in Chile. Are there some small-cap names with favorable projects in Chile?

CM: One that is coming along very nicely and continues to look most promising is Samex Mining Corp. (TSX.V:SXG; OTCBB:SMXMF). I have personally inspected its properties north and south of Copiapo with the company’s chief geologist. I started the current bull market in this stock by recommending it to subscribers at $0.12 almost two years ago and, after a steady advance, it spiked for about a month on positive drilling results. Samex has tied up two nice parcels of excellent properties on that line of hills I mentioned earlier, which are actually very close to Freeport’s Candelaria operation. These properties have huge potential, so there’s a lot more upside for this stock with the company now undertaking a drilling program to define the potential of the properties.

TGR: Thank you for talking with us today, Clive. This has been very informative.

Clive Maund has been president of http://www.clivemaund.com, a successful resource sector website, since its inception in 2003 early in the sector bull market. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London and holds a diploma in technical analysis from the UK Society of Technical Analysts. Clive now lives in southern Chile.



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U.S Dollar and Reserve Currencies

By Rok Spruk, on November 16th, 2009

The Economist published an excellent analysis on the future of reserve currencies in the world (link).



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Define The Dollar Or Else

By Trace Mayer, on May 27th, 2009

Disclaimer:  This article neither constitutes nor should it be relied upon as legal, investment or tax advice.

Almost everyone uses the dollar to calculate, plan and settle transactions in the United States and beyond.  Likewise feet or meters are commonly used to calculate, plan and construct many building and engineering projects.

If units of length were mired in definitional chaos then the buildings and other contraptions humanity builds would be unsound, unstable and prone to chronic failure.  But when it comes to units of monetary calculation the current worldwide state of definitional chaos, a floating illusion currency system, is taken for granted.  Therefore, is it any surprise then that the current worldwide monetary system is unsound and unstable resulting in a chronically failing system?

IRS V. KAHRE

Robert Kahre, a dutiful Atlas, is once again being leeched by immoral tax eaters in United States District Court.  Earlier in 2007 he was harassed because of his use of a particular type of legal tender.  In his construction business Kahre used gold and silver instead of the predominant brand of paper tickets.

Two years earlier nine people were tried with Kahre for over 160 counts and there was not a single conviction.  As if in complete disregard for the principle of res judicata he is once again being assailed by parasites.  At issue is how Kahre is to define the dollar because a $50 gold coin and a $50 Federal Reserve Note do not have equal purchasing power.

WHAT IS A DOLLAR?

Dr. Edwin Vieira, J.D. holds four degrees from Harvard and practices law before the United States Supreme Court.  I highly recommend reading Dr. Vieira’s entire essay, What Is A Dollar?, which is quoted only in small part here:

2. Do the present monetary statutes intelligibly define the “dollar’”?

Unfortunately, the present monetary statutes do not define the “dollar” in an intelligible fashion.

a. Federal Reserve Notes. Most people associate the noun “dollar” with the Federal Reserve Note (”FRN”) “dollar bill,” engraved with the portrait of President George Washington. This association is mistaken.

No statute defines – or ever has defined – the “one dollar” FRN as the ”dollar,” or even as a species of “dollar.” Moreover, the United States Code provides that FRNs “shall be redeemed in lawful money on demand at the Treasury Department of the United States * * * or at any Federal Reserve bank.”4 Thus, FRNs are not themselves “lawful money” – otherwise, they would not be “redeemable in lawful money.” And if FRNs are not even “lawful money,” it is inconceivable that they are somehow “dollars,” the very units in which all “United States money is expressed.”5

b. United States coins. The situation with coinage is more complex, but equally (if not more) confusing. The United States Code provides for three different types of coinage denominated in “dollars”: namely, base-metallic coinage, gold coinage, and silver coinage.

c. Currency of “equal purchasing power”. The UnitedStates Code provides no answer to this perplexing question. Indeed, it mandates that the question should not even be capable of being asked. For the Code commands that “the Secretary [of the Treasury] shall redeem gold certificates owned by the Federal reserve banks at times and in amounts the Secretary decides are necessary to maintain the equal purchasing power of each kind of United States currency.14

The term dollar is used in Article 1 Section 9 Clause 1 and the Seventh Amendment.  Neither the slave-trade faction nor the right to trial by jury would have accepted these provisions without a clear definition of what the dollar is.

Therefore, their support of these provisions inferentially establishes what a literal reading of them straightforwardly suggests: to wit, that the noun “dollar” refers, not to a mere name applicable to whatever Congress whimsically might decide thereafter to call a “dollar,” but instead to a particular coin so familiar in American experience as to be beyond political transmogrification. … Obviously, Jefferson’s free-market, scientific approach is a world apart from the arbitrary way in which Congress has set up the mutually incompatible and internally irrational sets of silver, gold, and base- metallic coins that exist today.

2) The Coinage Act of 1792. Little more than a year after Hamilton’s Report, Congress enacted its principles into law.

Section 9 of the Coinage Act of 1792 contained the monetary definitions for the United States monetary system and defined

DOLLARS or UNITS – each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.

Section 19 provides the death penalty for government officials who debase the coinage.

THE RON PAUL EFFECT

During the 2008 Republican Presidential Primaries it was often cited that Congressman Ron Paul has not accomplished anything regarding legislation during his decades in Washington.  Well, Dr. Paul is a like Spanish Moss that clings to a roadside sign, refusing to go away and as a result has harrowed the ground and laid powerful seeds for helping the American people with how to buy silver and gold.

To my knowledge the only legislation he has introduced that has been approved and enacted is Public Law 99-185 and Public Law 99-61 which provide under 31 United States Code 5,112:

(e) - Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities sufficient to meet public demand, coins which— (1) are 40.6 millimeters in diameter and weigh 31.103 grams; (2) contain .999 fine silver; (3) have a design— (A) symbolic of Liberty on the obverse side; and (B) of an eagle on the reverse side;

(h) – The coins issued under this title shall be legal tender as provided in section 5103 of this title.
(i) (1) Notwithstanding section 5111 (a)(1) of this title, the Secretary shall mint and issue the gold coins described in paragraphs (7), (8), (9), and (10) of subsection (a) of this section, in quantities sufficient to meet public demand, and such gold coins shall— (A) have a design determined by the Secretary, except that the fifty dollar gold coin shall have— (i) on the obverse side, a design symbolic of Liberty; and (ii) on the reverse side, a design representing a family of eagles, with the male carrying an olive branch and flying above a nest containing a female eagle and hatchlings; (B) have inscriptions of the denomination, the weight of the fine gold content, the year of minting or issuance, and the words “Liberty”, “In God We Trust”, “United States of America”, and “E Pluribus Unum”; and (C) have reeded edges.


Dr. Paul has given America an easy path for clearing up the monetary chaos and it would require the adoption of gold and silver as currency in ordinary daily transactions.  This would be extremely easy with digital commodity currency services like GoldMoney.  Dr. Vieira has even authored a bill for States to use in adopting the use of digital gold and silver currencies as legal tender.  But instead it appears that America will choose the hard path.

JOHN LAW PROVOKES THE FRENCH REVOLUTION

Harvard Professor Niall Ferguson wrote on page 149 of The Ascent Of Money:

Not surprisingly, some people began to anticipate a depreciation of the banknotes, and began to revert to payment in gold and silver.  Ever the absolutist, Law’s initial response was to resort to compulsion.  Banknotes were made legal tender.  The export of gold and silver was banned as was the production and sale of gold and silver objects.  By the arrêt of 27 February 1720, it became illegal for a private citizen to possess more than 500 livres of metal coin.  The authorities were empowered to enforce this measure by searching people’s houses.  Voltaire called this ‘the most unjust edict ever rendered’ and ‘the final limit of a tyrannical absurdity’.

As Congressman Ron Paul said on 19 May 2009 before the Congress:

The sad part of all this is that we have forgotten what made America great, good, and prosperous. We need to quickly refresh our memories and once again reinvigorate our love, understanding, and confidence in liberty. The status quo cannot be maintained, considering the current conditions. Violence and lost liberty will result without some revolutionary thinking.

We must escape from the madness of crowds now gathering. The good news is the reversal is achievable through peaceful and intellectual means and, fortunately, the number of those who care are growing exponentially.

Of course, it could all be a bad dream, a nightmare, and that I’m seriously mistaken, overreacting, and that my worries are unfounded. I hope so. But just in case, we ought to prepare ourselves for revolutionary changes in the not-too-distant future.

The pattern is common.  Like the scoundrel John Law the ultra-scoundrel King George issued Writs of Assistance which provoked the American Revolution.  When those exercising monetary rights are punished under penalty of death by criminal gangs costumed in government regalia then the reaction by the populace is usually the legitimate use of deadly force in self-defense.  Perhaps there is a need after all for survivalism in the suburbs as the probability of disturbing events increases.

CONCLUSION

American monetary jurisprudence is in utter disarray being mutually incompatible and internally irrational.  Criminal gangs costumed in government regalia are strutting around with their IRS hats harassing, intimidating and threatening with deadly force completely peaceful producers who are acting completely within the bounds of the internally irrational law.

The Great Credit Contraction has begun and will likely lurch from the financial to the economic to the social to the political to the geo-political and most likely culminate in geo-strategic chaos.  Dr. Vieira has authored a suitable bill States could adopt to help America find her way home with less pain.  These undesirable future realities need not unfold.  If the costumed criminal gangs that swore to uphold the United States Constitution had a shred of integrity and honored their oath then much of the misery could easily be avoided.

But while the baton, taser, assault rifle or stealth bomber may be used in lieu of conversation words will always retain their power.  Ideas can only be overcome by other ideas.  Words proffer the instruments to meaning.  Equity, freedom, justice, peace and prosperity.  These are not mere words; they are vantage points.

As fiat currency acts like the common stock of the issuing nation and because during this decade the FRN$ has been evaporating at an ever increasing pace against the ancient metal of kings it is no surprise that the probability for ‘revolutionary changes’ is increasing.  As the situation intensifies the purchasing power of gold will continue increasing while the purchasing power of the FRN$ will continue evaporating.

Disclosure:  Long physical gold and silver with neither a position in the problematic GLD and SLV ETFs nor any association whatsoever, except perhaps that of victim via assault and robbery, with any of these aggressive sociopathic criminal gangs costumed in government regalia.

P.S.  Because individuals are endowed with certain unalienable rights and because the people use those rights to create governments therefore it follows that people should not be afraid of their governments but that governments with their silly little costumes should be afraid of the people.



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The Rise of the Beast: Inflation

By Moyo Mamora, on December 16th, 2008

Last week, the Fed took a very dramatic step in providing some relief to the ailing economy, by creating money to buy bad assets of the crumbling financial institutions. Last week the Fed bought $5 billion of Freddie Mac, Fannie Mae, and Federal Home Loan Bank corporate debt.

Okay we know the Fed had been printing money, but prior to this, the Fed swapped out bad assets with treasury bonds, which is not an impressive move either. A better way to think about the new scheme is that the Fed magically increased account balances by a couple of billion dollars. You may pause to think why; could the situation be that bad that it calls for a panic? Well the idea was that by doing this, they can create credit that will be loaned out for people to re-finance. How’s that different from all the other credit injection schemes? The difference is this, the old scheme acted as a pawn shop to the financial institutions (well, almost like considering the assets the financial institution owned were worthless), and with this new scheme the Fed is “giving it out”. Now which cash infusion are you likely to spend thoughtlessly, the “free money” or the pawn shop cash? Exactly what I thought, the free money!

So what’s the point here? $50 billion may be a small number giving the size of the Fed, but like everything else that comes from the Fed, it’s a teaser, what happens when that figure is multiplied by 10? Being free money, it is loaned out freely, and economics teaches us that when money becomes cheaply available, everyone wants more for stuff, and then inflation kicks in. The blinding battle now is the battle against deflation, oil prices have crumbled to about a third of its highs last year, CPI numbers show YoY decline, highest level of joblessness seen in years, the Fed is using all its guns to fight “deflation”, but like every monetary policy that comes from the Fed, there is always the issue of latency.

This week we should see the outcome of the last FOMC meeting for the year, and the market expects a 50 basis point cut. Short term treasury yields are sitting at close to zero. Hence, another tool that may be used by the Fed to fight this battle on deflation is by debasing the dollar. By increasing the availability of US dollars, making it very cheap, the US can cause buyers within its market (we saw a little bit of this last year with Europeans flying into the US to shop). So why is this a suspect now, firstly it has been done before, secondly given the recent actions of the government it wont be above them to do so, thirdly the US dollar has been falling steadily for about two weeks now. Bernanke has clearly stated that he will do everything to fight deflation.

Many analyst proclaim that the condition will get much worse, and some make the case that there is the likelihood of some 1930s kind of incident, I don’t have a crystal ball, but I like to be optimistic, so I say that things are going to take a reverse course, and begin to get better in about 6 months, for a more technical view see here, and in this recovery process we just may witness the Fed fighting a new beast next year, well maybe in 2 years.

Lest I forget, the total amount of Federal Reserve bank monetary base has increased twofold in three months, see http://research.stlouisfed.org/publications/usfd/page3.pdf, that’s what you call a printing press!



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