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Friday, November 30, 2012

Billionaires Soros, Paulsen, Robertson, Bass, Gross have company:

Bond Investor Gundlach Buys Hard Assets, Sees 'Kaboom' Ahead

Bloomberg Markets Magazine

Joe Pugliese/Bloomberg Markets
Jeffrey Gundlach, who sees bleak financial times ahead, is the co-founder of DoubleLine Capital. He stands by a painting by Piet Mondrian, whose double-line style inspired the firm's name.
It’s mid-October, and Jeffrey Gundlach is giving a stump speech to a luncheon crowd of about 200 financial advisers and investors at Los Angeles’s City Club. The renowned money manager’s theme: the financial catastrophe on the horizon
In the ominous third phase, he predicts another crisis: Deeply indebted countries and companies, which Gundlach doesn’t name, will default sometime after 2013. Central banks may forestall these defaults by pumping even more money into the economy -- at the risk of higher inflation in coming years.
Gundlach, 53, doesn’t know when the third phase will get here, but he tells his audience they need to gradually get ready for it.
“I don’t believe you’re going to get some sort of an early warning,” Gundlach, who’s also chief investment officer at Los Angeles-based DoubleLine, tells his listeners. “You should be moving now.”

Gemstones, Art

He recommends buying hard assets: Gemstones, art and commercial real estate are high on his list. And DoubleLine has been buying the stocks of Chinese companies, U.S. natural gas producers and gold-mining firms because it considers them to be bargains.
Gundlach himself has amassed a contemporary art collection of about 100 pieces, with works by Jasper Johns and Franz Kline. The money manager drew on abstract painter Piet Mondrian’s double-line style for the name of his firm and its geometrical, crosshatched logo.

Gundlach, who correctly predicted the subprime mortgage disaster, has a proven record as a prognosticator -- and the performance numbers to go with it. At his former firm, TCW Group Inc., his Total Return Bond Fund earned an annual average of 7.9 percent in the decade ended in November 2009, according to data compiled by Bloomberg.
His flagship $35.8 billion DoubleLine Total Return Bond Fund (DBLTX) gained an annual average of 13.2 percent from its inception in April 2010 through Nov. 28, topping the performance of Gundlach’s more famous neighbor to the south, Bill Gross (who's also recommending hard assets)

Thursday, November 29, 2012

What happens if people in the US finally get the idea?
  • In China, you can buy gold and silver at the bank. 
  • In China Bullion is also available for purchase at Chinese post offices. 
  • In Hong Kong most of the major banks sell gold coins at a very small mark up - spot plus around 50HKD (divide this by 7.78 for U.S.). They also buy gold coins.
  • In India, every city and town has a gold mall, where local people buy 999 gold jewellery for many occasions and  use it as a store of wealth against hard times. This is sold by spot price plus a small fee for making up. These shops also buy it back.
  • China, Hong Kong, Singapore and Thailand, local residents  have bank accounts denominated in gold - the units used are Chinese (taels and maces).
  •  In Germany, where much of the populace prefers to store its wealth in hard assets, Gold-to-Go has introduced the first gold vending machine with 500 locations throughout the country.
  •  In the US households keep about .01 percent of their assets in gold.
  • What happens to the price of gold if a very small percentage of US households get the idea that gold might be a good store of wealth?

Wednesday, November 28, 2012

Trans Pacific Economic Partnership excludes US

Nov 27, 2012


Post-US world born in Phnom Penh
By Spengler ASIA TIMES

It is symptomatic of the national condition of the United States that the worst humiliation ever suffered by it as a nation, and by a US president personally, passed almost without comment last week. I refer to the November 20 announcement at a summit meeting in Phnom Penh that 15 Asian nations, comprising half the world's population, would form a Regional Comprehensive Economic Partnership excluding the United States.

President Barack Obama attended the summit to sell a US-based Trans-Pacific Partnership excluding China. He didn't. The American led-partnership became a party to which no-one came.

Instead, the Association of Southeast Asian Nations, plus China, India, Japan, South Korea, Australia and New Zealand, will form a club and leave out the United States. As 3 billion Asians become prosperous, interest fades in the prospective contribution of 300  

million Americans - especially when those Americans decline to take risks on new technologies. America's great economic strength, namely its capacity to innovate, exists mainly in memory four years after the 2008 economic crisis.

A minor issue in the election campaign, the Trans-Pacific Partnership initiative was the object of enormous hype on the policy circuit. enthused on October 23,
This agreement is a core part of the "Asia pivot" that has occupied the activities of think tanks and policymakers in Washington but remained hidden by the tinsel and confetti of the election. But more than any other policy, the trends the TPP represents could restructure American foreign relations, and potentially the economy itself.
As it happened, this grand, game-changing vision mattered only to the sad, strange people who concoct policy in the bowels of the Obama administration. America's relative importance is fading.

To put these matters in context: the exports of Asian countries have risen more than 20% from their peak before the 2008 economic crisis, while Europe's exports have fallen by more than 20%. American exports have risen marginally (by about 4%) from their pre-2008 peak.

Exhibit 1: Asian, European and US exports

China's exports to Asia, meanwhile, have jumped 50% since their pre-crisis peak, while exports to the United States have risen by about 15%. At US$90 billion, Chinese exports to Asia are three times the country's exports to the United States.

After months and dire (and entirely wrong) predictions that China's economy faces a hard landing, it is evident that China will have no hard landing, nor indeed any landing at all. Domestic consumption as well as exports to Asia are both running nearly 20% ahead of last year's levels, compensating for weakness in certain export markets and the construction sector. Exports to the moribund American economy are stagnant.

Exhibit 2: China's exports to Asia vs USA

Source: Bloomberg

In 2002, China imported five times as much from Asia as it did from the United States. Now it imports 10 times as much from Asia as from the US.

Exhibit 3: Chinese imports from the US and Asia

Source: Bloomberg

Following the trade patterns, Asian currencies began trading more closely with China's renminbi than with the American dollar. Arvind Subramanian and Martin Kessler wrote in an October 2012 study for the Peterson Institute:
A country's rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi (RMB/yuan) has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies.

In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development. In this region, 7 currencies out of 10 co-move more closely with the RMB than with the dollar, with the average value of the CMC relative to the RMB being 40% greater than that for the dollar. We find that co-movements with a reference currency, especially for the RMB, are associated with trade integration.

We draw some lessons for the prospects for the RMB bloc to move beyond Asia based on a comparison of the RMB's situation today and that of the Japanese yen in the early 1990s. If trade were the sole driver, a more global RMB bloc could emerge by the mid-2030s but complementary reforms of the financial and external sector could considerably expedite the process.
All of this is well known and exhaustively discussed. The question is what, if anything, the United States will do about it.

Where does the United States have a competitive advantage? Apart from commercial aircraft, power-generating equipment, and agriculture, it has few areas of real industrial pre-eminence. Cheap natural gas helps low-value-added industries such as fertilizer, but the US is lagging in the industrial space.

Four years ago, when Francesco Sisci and I proposed a Sino-American monetary agreement as an anchor for trade integration, the US still dominated the nuclear power plant industry. With the sale of the Westinghouse nuclear power business to Toshiba, and Toshiba's joint ventures with China to build power plants locally, that advantage has evaporated.

The problem is that Americans have stopped investing in the sort of high-tech, high-value-added industries that produce the manufactures that Asia requires. Manufacturers' capital goods orders are 38% below the 1999 peak after taking inflation into account. And venture capital allocations for high-tech manufacturing have dried up.

Monday, November 26, 2012

Some dim analysts still don't get gold is a currency Dept:

Turkey Swaps Gold for Iranian Gas

Loophole in Western Sanctions Allows Iran to Buy Gold in Turkey With Turkish Payments for Gas Imported From Iran

ISTANBUL—Turkey on Friday acknowledged that a surge in its gold exports this year is related to payments for imports of Iranian natural gas, shedding light on Ankara's role in breaching U.S.-led sanctions against Tehran.
The continuing trade deal offers the most striking example of how Iran is using creative ways to sidestep Western sanctions over its disputed nuclear program, which have largely frozen it out of the global banking system.
Iran provides 18% of Turkey's natural gas and 51% of its oil. But since U.S. and European Union sanctions ban Tehran from receiving payments in dollars or euros, Ankara pays Iran for the gas in Turkish liras. The lira is of limited value for buying goods on international markets but ideal for purchasing Turkish gold. The government hasn't specified how it pays for Iranian oil.
"In essence, gold exports [to Iran] end up like payments for our natural gas purchases," Mr. Babacan said. "Turkey is depositing the payment for the gas we purchase from Iran to Iran's account in Turkey…I don't know exactly how they then transfer it," he said.

gold atm uae
The Burj Khalifa has unveiled two gold-dispensing ATMs, the first of several such machines that will begin selling gold bars in Dubai during the next few weeks. One of the ATMs is housed on the 124th floor of the building, the At The Top observation deck; the other is in the souvenir shop on the ground floor. Photo –


Indian household savings used to buy gold: RBI

High inflation and a penchant for gold appears to have impacted household savings behaviour, which is likely to have implications for overall investment and economic growth, says India's apex bank.

India's apex bank, the Reserve Bank of India, has once again turned the spotlight on the citizens craze for gold and, in its inimitable style, has dealt a back-handed compliment to the earning potential of gold. The bank has said there is a need to contain risks in gold prices and housing as they seem to be running way ahead of inflation.
Over the last two years, housing prices have climbed between 16% to 25%, while gold has risen at a faster pace between 14% to 40%. In its Annual Report for 2011-12, released Thursday evening, the bank has said, ``These two markets (housing and gold) have not only provided effective inflation hedges, but also enabled savers to earn good real returns amidst high inflation.''

China to Use Gold to Purchase Oil from Iran

Sources in global news and Iran are reporting that China will bypass the June 2012 Iran oil sanctions by purchasing oil from Iran using gold. So much for gold now being money because this transaction basically says that China and Iran believe gold is money.
Personally, I don’t think gold has it’s best use as a transactional currency and is better served as a wealth reserve, but this recent effort to bypass UN sanctions is more about dollar reserve status and U.S. political control. People need oil and countries can negotiate cheaper prices uses barter and gold. Sanctions will never stop this from occurring.
In the past few years, many of the BRIC countries (Brazil, Russia, India and China) have agreed to bilateral trade agreements that do not use the dollar. The addition of gold for oil deals further decreases dollar usage. In other words, this is another wound for the dollar in its battle to maintain its world currency reserve status.

Saturday, November 24, 2012

Where is Gold Headed?

I can tell the future: Just look what's in your hand.

It may not be true for certain individuals.  Some individuals work hard and are full of brilliant insight, and they change their cicumstances.

It may not always be true for every institution.  Very occasionally an institution will fall into the hands of a few energetic visionaries who are capable of altering its course.

Once in a blue moon it might not be entirely true of a country.  Sure after a total economic collapse, or the deposing of a horrible tyrant, or the devastation of war, there's nothing in your hand, so the future must be written.  Other than that try to think of an instance of a voluntarily adopted dramatic change of course.

But when you're talking about a Global Economy dependent on many countries and countless institutions, the possibility of a true change of direction without the condition of total economic collapse is inconceivable.

Gold is the measure of effectiveness of the Global Economy.   

Gold is going up as Global Economic Debt and Corruption are going up.

Debt naturally compounds because of debt interest - and because of the financial institutions that are dependent on debt for growth.  

Corruption naturally compounds like a virus as it seeps into the consciousness of everyone it touches.

Gold is the only currency that holds no debt and can not be printed and distributed to a favored class.

Now, most pundits will bloviate endlessly about valuation models, relative strength indicators, historic valuations, wave theory, moving averages, sentiment indicators, the psychology of crowds, etc. etc.

Sure, on a nano-second basis these might possibly make some sense to someone.

But the Wheel of History is turning, and nothing will stop it but bottomless chasm.

Monday, November 19, 2012

A concrete poem:

"Our Debt Interest Payment." 




"Today, even at these low interest rates, we're
spending about $230 billion a year on


That's more than we spend at the
Department of Commerce, Department of
Education, Energy, Homeland Security, Interior, Justice, State.... 



And, Maria, if we do nothing, by the year 2020, we'll
be spending over a trillion dollars a year on
interest cost alone. 


That's a trillion dollars we
can't spend in this country to educate our
kids or to rebuild our infrastructure or to do
high value-added research.... 


And, unfortunately, it is a trillion dollars that's
gonna be spent principally in those countries
that we're borrowing from.


You know, that means we’ll be building the infrastructure in


It means we'll be educating those kids
over there. And it means we'll be building
their universities, so the research is done
over there, so the next new thing is created
over there.


So the jobs of the future are there.

Not here."

Sunday, November 18, 2012

Get ready for the fiscal slope

So much talk about the fiscal "cliff."  Very dramatic, like the "ticking clock," in a trite action movie.  Of course, as the second hand ticks towards zero the Hero (Our Government) will close its eyes and pull the green wire, just in time to avert the nuclear meltdown.


Only in real life all that means is no debt will actually be paid down.   No meaningful spending cuts will be made.  And not significant tax reform will be offered.


There is no fiscal cliff.  There is just a fiscal slope, heading slowly downward, toward the depths of gradual global depression.

Along the way, governments will print money like crazy and throw it to the Banks who will gobble it up and use it to buy risk assets.

And as they do, real goods: food, energy, rents, schooling, health care, heat, water (Everything excluded from Government inflation statistics) will get ever more expensive.

And if it's managed properly, the Fiscal Slope will be gradual enough so that nobody really notices - except those who slip below the poverty line and slowly freeze and starve.  But they will be few enough - at first - that nobody else will care.

And then - much much farther down the slope - there will be enough of them. 

And then we will see something much more resembling a cliff.

Until then, protect yourself against the inevitable.  No matter how slowly it creeps.

Wednesday, November 14, 2012

Thank God it Could Never Happen Here Dept:

Europe Hit by Wave of Austerity Protests

World | November 14, 2012, Wednesday| 157 views
Bulgaria: Europe Hit by Wave of Austerity Protests
Students walk in a row on A6 Highway in Madrid, Spain, during the general strike called 14 November 2012 in Europe. Photo by EPA/BGNES
Workers across the European Union are expected to take to the streets on Wednesday in a series of protests and strikes against rising unemployment and austerity measures.

Strikes are expected in Spain, Greece, Portugal and Italy, with other protests planned in Belgium, Germany, France and some eastern EU states.

Greece Protests Turn Violent

Reuters  |  Posted: Updated: 11/08/2012 5:09 am EST

Greece Protests Violence
A protester holds a Greek flag during a demo in front of the parliament in Athens on Wednesday Nov. 7, 2012. (AP Photo/Lefteris Pitarakis)

Watch LIVE footage from the protests here.

By Renee Maltezou and Lefteris Papadimas

ATHENS, Nov 7 (Reuters) - Greek police fired teargas and water cannons to disperse thousands of protesters who flooded into the main square before parliament on Wednesday in a massive show of anger against lawmakers due to narrowly pass an austerity package.

The violence erupted as a handful of protesters tried to break through a barricade to enter parliament, where Prime Minister Antonis Samaras is expected to barely eke out a win for the belt-tightening law despite opposition from a coalition partner.

In all, nearly 100,000 protesters - some chanting "Fight! They're drinking our blood" - packed the square and side streets in one of the largest rallies seen in months, police said.
US preparing for unrest, martial law: Ron Paul
Sun Aug 21, 2011 4:29PM

U.S. Republican presidential candidate Ron Paul says that the federal government is preparing for civil unrest and martial law in the United States.


Ron Paul has recently said that H.R. 645 (The National Emergency Centers Establishment Act) could lead to Americans being incarcerated in detention camps during a time of martial law, Infowars reported on August 20.


“Yeah, that's their goal, they're setting up the stage for violence in this country, no doubt about it,” responded Paul.


The National Emergency Centers Act or HR 645, first introduced in January 2009, mandates the establishment of “national emergency centers” to be located on military installations for the purpose of providing “temporary housing, medical, and humanitarian assistance to individuals and families dislocated due to an emergency or major disaster,” according to the bill.


The legislation also states that the camps will be used to “provide centralized locations to improve the coordination of preparedness, response, and recovery efforts of government, private, and not-for-profit entities and faith-based organizations.”


The bill also states that the camps can be used to “meet other appropriate needs, as determined by the Secretary of Homeland Security,” an open ended mandate which many fear could mean the forced detention of American citizens in the event of widespread rioting after a national emergency or total economic collapse.


The legislation was referred to committee and did not proceed any further, but it was not rejected in a vote and can be re-introduced at any time in a new session of Congress.

Europe Protests Austerity With Strikes in Spain, Italy

Andres Kudacki/AP Photo
Protesters shout as riot police stand guard during a general strike in Madrid, Spain, on Nov. 14, 2012.
Spanish workers staged a second general strike this year as unions across Europe prepared the biggest coordinated protests yet against budget cuts that policy makers say are needed to end the region’s debt crisis.
In Spain, unions said most auto and metal workers joined the strike, even as power demand was just 13 percent below usual. One of Portugal’s two biggest labor groups also called a strike, partial walkouts are planned in Greece and Italy, and French unions are urging workers to join protest marches.
Opposition to Prime Minister Mariano Rajoy’s cuts in health, education and welfare benefits is growing while those measures are failing to rein in the budget deficit or bring down borrowing costs. Demands for less austerity are gaining traction as the International Monetary Fund recommends nations including Spain slow the pace of budget cuts.
“This is a strike against the suicidal economic policies of the government,” Ignacio Fernandez Toxo, head of Spain’s CCOO union, told supporters late yesterday.
Rajoy, who won a landslide election victory a year ago, is wrestling with the second-largest budget deficit in the euro region while trying to revive the economy from a five-year slump that pushed the jobless rate to 26 percent. He is trying to avoid following Portugal, Greece and Ireland into seeking a sovereign bailout as Spaniards resist the measures being implemented as a condition for the 100 billion-euro European bank rescue he agreed to in June.

Bank Outrage

Unions, which staged two general strikes in the decade through 2010, have called as many walkouts since Rajoy took office as they tap into taxpayer anger at shouldering cuts and the cost of rescuing banks at the same time. As outrage also grows over Spaniards losing their homes for failing to keep up with mortgage payments, Rajoy pledged last week to rush through measures to prevent families being evicted.

Tuesday, November 13, 2012

Fall/Winter Auction Update Continued

As the fall to winter coin auction schedule heats up, the biennial NGSA auction will close out November with its usual lineup of rarities and condition rarities from ancient Greek to medieval European to modern Asian.  The Parisii Stater pictured above is perhaps the finest known of this sought after issue.  Bids start at 75,000 CHF (swiss francs) which amounts to close to $100,000 dollars all in.

As is so often the case now with top auctions there is also a selections of beautiful medals like that of Louis XIV celebrating his martial victories by J. Rottiers, pictured below.  This medal starts to 80,000 CHF.

Obviously, an auction like this appeals to - and caters to - collector/investors at the highest end.  Few pieces will be acquired for dealer stock, and fewer still by speculators wishing to flip for a quick profit.  This is an auction for those who wish to acquire pieces of the highest rarity that can be considered hard assets that will certainly appreciate over time - as long as there is no need to liquidate. 

As always, it will be interesting to see how high the high end investors are willing to push the top pieces.   Just as it will be interesting to see which areas will be most benefited by the mass psychology and which areas will present real opportunities.

At anyone can see the entire lineup of fall/winter auctions.  Of course, there are many auctions running coins and medals that are far more accessible to the common collector.  Because of the internet everyone now has access to almost everything being offered for sale at any time.  One might think that would democratize the  process of acquiring these hard assets.  But in practice the magnitude of accessible offerings creates interesting distortions that tend to benefit the same small group of knowledgeable participants.

Thursday, November 8, 2012

Fall Auction update

Above is pictured the famous Una and the Lion Victoria coronation commemorative proof/medal.  It was just auctioned of by Kuenker/Hess Divo in an auction replete with rare and interesting gold coins and medals.  This medal (or proof coin) was estimated at 25000 CHF (swiss francs) and hammered down at 90,000 CHF which is about 115,000 dollars all in.  This was a particularly clean and well provenanced version of a medal that generally hammers for about half that amount in Near Uncirculated condition.  Clearly, high end investors wishing to acquire a near-perfect specimen were willing to pay up to get it.

There has been debate whether to consider this a "proof coin" or a "medallion" - though the distinction, which once held the value down to the $25,000 to $30,000 dollar range, is becoming purely academic.  The mintage for this piece is thought to be in 300-400 range: extremely low for a coin, high for a "proof issue" and low-average for a medal of this type.

It is difficult to see how the artificial distinctions that have been so much in vogue for determining price since the world went off a gold linkage in 1971 (medals vs proofs vs coinage), will continue to hold sway as gold returns to the center of the currency debate.

After all, for 4000 years of numismatics value was simply a function of weight of precious metal, rarity and historical interest.  Distinctions of classification were useful for historians, but meaningless in the market place. 

In this Kuender/Hess Divo Auction Many other early modern and modern medals and coins of size, rarity and historical interest went for similarly fantastic prices. 

Many other auctions, offering selections of relatively common coins and medals have not fared as well.  Pieces of middling quality and those that are relatively plentiful even in higher grade still have a market, but that market is shrinking as the disposable income of the middle class shrinks.

I don't look for these trends to end any time soon.

Monday, November 5, 2012

Romney, Obama election threatens markets

If Romney wins, he has promised to replace Bernanke and tighten.  Tightening and taking our medicine would have been a good idea in 2008.  If we'd done it then we'd just be starting to come out of it now.  Tightening after throwing 28 trillion dollars at the banks would now be disastrous.  If he has any intention of following through, rates will rise and the market will tank.  Depression.  Not great for gold either.  But the financial chaos that will ensue will be good for gold.

If Obama wins: Bernanke stays, accomodation reigns, rates stay low: good for gold.  But capital gains go up so the banks will sell before New Years and the markets will tank.

Easy peasy lemon squeazy.

Saturday, November 3, 2012

The Gold Standard. You decide.

Is the Gold Standard stabilizing as the Austrian Economists claim or destabilizing as the Banking Cartel/Fed Cabal claim?

Look at these charts and decide.  We went off a global gold to currency linkage in 1971.

Thursday, November 1, 2012

RIchard Russel speaks: Couldn't have said it better myself

Ten and even five years ago friends used to kid me about my obsession with gold. But with gold rising for over a decade, friends don't kid me anymore. Now I ask my friends whether they ever bought any gold. The answer is almost always, "No," and they add, "Is it too late? How high do you think gold is going?"

My answer is, "No, It's not too late. The real move lies somewhere ahead. Besides, you asked me the wrong question."

Friend, "OK, Russell, what's the right question?"

Me, "The right question is -- how low do you think the dollar will go?"

Friend, "OK, I'll ask you -- how low will the dollar go?"

Me. "I think that in time the dollar will be destroyed. You will live to see the dollar as an unwanted fiat currency, which, by the way, will all end up as a museum piece and a testaments to the idiocy of subverting the Constitution of the United States. By the way, the Constitution specifically warns against fiat paper money. Nor does the Constitution mention anything about a Federal Reserve. The US government should be issuing its own money, nor should it allow a private banking cartel to issue the money of the United States, much of that molney a figment of the Fed's computers.

I'm sure that all the above is known by a large and well educated group of my subscribers, but every once in a while I like to get the facts off my chest.