Volume 3, October 12, 2009

By TJA

GOLD AT ALL-TIME RECORD LEVELS!!!!!!!!!

$1,056 GOLD!

If you recall, in my last newsletter, I mentioned the fact that erosion of the US Dollar's value had once again catapulted  gold toward the psychologically important $1,000 level. The reasons were then simple, and remain simple; the US Dollar has fallen approximately 15% over the previous five months. The US Dollar's value, as measured by its standing on the Dollar Index, has been in freefall since the election of Barrack Obama. The demise of the US Dollar would've occurred even if Obama hadn't been elected to the Presidency of the United States, though his massive projected fiscal deficits are likely hastening the inevitable decline of the Dollar.

Most important to you and I is what this collapse in the US Dollar means in terms of gold valuation. The chart below depicts the inverse relationship between gold and the US Dollar, and illustrates how the dollar (in black) and gold (in red) have taken opposite paths over the last few months. Whenever the value of the dollar has fallen this year, the price of gold has risen.

In fact, since 1996, a 1% move in the dollar has resulted in a -1.2% move in the gold price. Given this very strong inverse relationship between gold and the US Dollar, and given the very steady decline in the Dollar, it’s obvious to all that gold’s rally is as much to do with the dollar as it is with its own fundamentals.

Conversely, if the dollar were to get any "dead-cat bounce" along the way, we'll see some erosion in gold's recent gains. The current support level for gold seems to be $1,020, which is the downside level to watch for the time being.  As things stand now, the US Dollar has been threatening to slip below the .76 level. I expect Central Bank intervention at virtually every increment lower for the Dollar but it's fairly obvious to all that such interventions are merely attempts to keep the Dollar from slipping into a downward freefall. The Dollar will continue downward toward unprecedented levels, but, as in the past, it will fall at an artificially controlled rate.
 

Nadler still mocks any assertions of an imminent Dollar collapse!

SEE Nadler Article: Dollar: The Reports of My Demise

But folks, he has to. When you're a used car salesman, as Nadler is, selling cars with odometers that have been rolled back, you have to insist that the cars you're selling really do have "low mileage." If you dare concede that what you're selling people is premised upon lies, you probably won't sell much. But, doesn't Nadler work for Kitco? And, doesn't Kitco sell gold? Yes.....and I love what Kitco generously offers us in content on their website, but....

A casual look at Kitco's business methodology suggests that they don't inventory much gold. They buy gold (from folks like you and I) and then sell it to folks like you and I. Their business model seems very much like a "hand-to-mouth" arrangement, with relatively little metal in inventory. They obviously want to you to sell your gold to them for less than they'll sell it to the next guy. Nadler is merely "The Hammer." He talks gold down at every possible opportunity. Remember, this is the same knucklehead who, just eight months ago, was telling you that gold was headed for $750. Yes, $750!!!!! His tactics continue to evolve, but his message remains the same. Case in point..... 

NADLER DISINFORMATION MISSIVE: 10-07-2009

"A clear disconnect in outlook. Same as existed in the turbulent winter of 1980. With one MAJOR difference: no hedge funds in sight then, but plenty of ACTUAL inflation already in the system them. This, before Paul Volcker rolled up his sleeves and gave the world US real interest rates of nearly 6%. Did it cause pain? Of course it did. No adjustment made from the bottom of the top of a particular curve is ever absent of some suffering. Did it work? For quite some time. And then, it was back to the old ways. And now, the roller-coaster is at yet another dollar-trough. Yet the incessant chants are for sawing the bottom of the rail off and letting it go...where? "

NADLER FACT-CHECK: THE TRUTH SHALL SET YOU FREE!

Nadler wants to draw favorable comparisons to past geopolitical environments with what we are experiencing  today. Using past data, much like a drunk using a lamp post for support rather than for illumination, Nadler serves himself for very easy deconstruction here. That "turbulent winter of 1980" was far different than anything we're experiencing today. Why?

THEN: The Soviet invasion of Afghanistan, within the Cold War setting of that era, caused financial jitters around the world.

NOW: We're the suckers in Afghanistan. We're the nation bleeding blood and treasure in Afghanistan with no end in sight - not the Russians.

 

THEN: Jimmy Carter was running unheard-of budget deficits, hitting an annual budget deficit of $75 BILLION in 1980.

NOW: Barrack Obama, for fiscal year 2009, is running a projected $1.4 TRILLION DOLLAR annual budget deficit!!!!

 

THEN: Inflation was running at 16% due to runaway US deficit spending. Federal Reserve Chairman, Paul Volcker, hiked the US lending rate to an astounding 20%

NOW: Inflation, officially, remains at about 3% while the rapid expansion of US money supply and soaring fiscal deficits foretell of hyperinflation to come.  

 

THEN: Islamic militants in Iran stormed the US Embassy in Tehran, taking 52 Americans hostage inside. They were held for 444 days.  "Operation Eagle Claw"  was launched by US Special Forces in an attempt to rescue American hostages - it failed miserably with 8 US servicemen dying in the fiasco.

NOW:  After suffering the loss of 3,000 American lives in a horrific 2001 terrorist attack on American soil, America launches ill-advised invasions of Iraq and Afghanistan, costing the US as much as $2 TRILLION DOLLARS in projected expenditures and the lives and limbs of thousands of US military personnel. Strategic objectives in both wars have either not been met, or were outright fabrications from the outset.

 

THEN: US unemployment was between 6% and 7%

NOW: The official US unemployment level is nearly 10%. As mentioned elsewhere in this missive, the current number is actually about 22%. And, if that weren't bad enough, 1 of every 6 dollars of Americans' income is government check or voucher

 

THEN: In 1980, the US was importing 33% of its oil needs from foreign countries

NOW:  The US is now importing 63% of its oil needs from foreign countries.
 

THEN: The US had an annual TRADE SURPLUS of about $5 Billion Dollars

NOW: The projected annual US trade DEFICIT for 2009 is $238 BILLION Dollars

 

THEN: The "Official" US National Debt was $909 BILLION Dollars, with National Debt at 33% of GDP.

NOW:  The "Official US National Debt Lie" is now approaching $13 Trillion Dollars. with the National Debt now estimated to be at 90% of national GDP

Now, after reviewing the above comparisons of Nadler's self-proclaimed "turbulent winter of 1980" to the mess we're in now, don't you long for the "good old days" of 1980? Of course you do. America was, by comparison, a solvent nation with a seemingly bright future in 1980. Nadler wants you to believe that we're facing problems akin to what we faced in 1980. Nothing could be further from the truth!!!

Clearly, the mess that America is in today is UNPRECEDENTED!!! America's future is completely dependent upon external forces it may have very little future control of. SEE: US May Face 'Armageddon' If China, Japan Don't Buy Debt

But, we should ask ourselves, why would any nation in their right-mind want to shoulder more US debt? It's a ticking time-bomb!!!

So, I ask you, is Nadler an Establishment disinformation specialist, or merely a nincompoop?

I REPORT - YOU DECIDE!!!!!

How Would Higher US Interest Rates Impact Gold?

There has been a rising chorus of opinion amongst central bankers for a rise in US interest rates. Why? To make investment in US debt instruments more appealing and to try to curtail the imminent rise in US inflation. You can't finance Trillions in new US debt without making that debt more appealing to our Chinese lenders. Remember, the Obama administration is projecting approximately $9 TRILLION in NEW DEBT over the next ten years!!!

So, Jon Nadler and others would have you fear the prospects of higher US interest rates. Why? Because conventional wisdom would suggest that rising rates would bolster the strength of the US Dollar. Should you fear that happening? Not at all. Why? Because, from an historical perspective;

• Whenever interest rates have risen BEHIND inflationary pressures (i.e., increased money supply, increased fiscal deficits, etc.), they've played a catch-up role to inflation with an inadequate effect on US Dollar valuation.

• U.S. Fiscal deficits are rising at crushing levels, with every indication that they'll rise even more in upcoming years with an aging US population.

• ANY effort to raise US interest rates at this time would drive the final nail in the coffin of any illusion of a US economic recovery. Ben Bernanke, a self-professed expert on mistakes leading to the Great Depression, is on record as having blamed the Great Depression on tightened US money supply. SEE: Bernanke's Tough Task: Pull Back Aid Without Disrupting Recovery. He knows that higher interest rates will worsen dismal unemployment numbers. Speaking of which.........

• US employment rates, officially reported at 9.7%, are actually at 22% (according to the "Shadow Statistics" website). Even mainstream news outlets are beginning to look more deeply into unemployment numbers: SEE: 17% rate including laid-off workers taking part-time work or given up. Higher interest rates would be likely to unleash harsh social consequences in upcoming months. Why? In part because approximately 1.5 million Americans are projected to have their unemployment benefits expire by the end of December. Higher interest rates deter new business hiring, and the US is looking at a prolonged crisis unemployment scenario.  Also See: Unemployment Safety Net Under Stress (Nearly 10 million collecting, but extended benefits run out soon).  And: Economist Paul Krugman Says Too Early to Exit Crisis Measures AND: Food Stamp List Soars Past 35 Million: USDA

Clearly, as all of the above reasons and evidence would suggest, the U.S. will have to continue to print vast amounts of inflation-inducing currency in order to maintain what has rapidly become a vast welfare state. Any attempt to wean the American people off of government assistance at a time when there are no jobs and at a time when real estate values have collapsed, would likely create social upheaval unlike anything this country has previously experienced. This simply isn't your father's America anymore. A return to soup kitchens and bread lines won't work this time around, and even America's inept leadership understands that!

The financial implications should then be clear to investors. If US Treasury printing presses continue to churn out endless streams of debt-laden US Dollars, the inverse relationship between the Dollar and gold will continue to send gold to ever increasing dollar valuations. At issue perhaps might be whether gold will rise against other currencies. It should, as other (mostly western) governments will also have to inflate their own stagnated economies, gold should make significant inroads against any currency that is associated with a severely distressed economy.

THE FINANCIAL LANDSCAPE: HOW BAD IS IT?

In roughly one year, this past year, the US has added $1 trillion to its monetary base. The US Federal government is projecting a deficit of up to $1.4 trillion this year. Yes, Wall Street banks and stock indices have been "stimulated" by this tidal wave of additional US indebtedness. But, does anyone truly believe that this can last? Trust me , IT WON'T. It simply can't last. And, it would seem that wealthy corporate insiders agree with my assessment. SEE:  Insiders Sell Like There's No Tomorrow

If the Federal Reserve attempts to tighten money supply excesses, we know that a period of credit contraction should be deflationary. Prices go down as demand for goods and services falls. But we know the US Government loathes falling prices. It is far more preferable to pay-off  your massive indebtedness with cheapened US Dollars, and we know they are taking extraordinary actions to get prices to go back up - particularly in prices for real estate and durable goods. So far, massive new government expenditures have failed to do anything but dig a deeper hole of US indebtedness. Prices are falling in the US at the fastest pace since the 1950s. 

Many of you undoubtedly laughed when I projected (ten years ago) that America would ultimately come to resemble a, "giant flea market" when unemployed, financially-strapped yuppies had to sell their collection of toys. Well, we're just entering the early stages of that phase. Those with cash will find bargains they had never before envisioned on yuppie indulgences. So, yard sales, as well as Ebay and Craigslist ads should provide insights into just how far along this shaking-out process is. But even retailers aren't immune to desperate measures. Many are offering deeper discounts than ever before in attempts to get customers back in stores. SEE: Great Time for US Consumers: America Is On Sale

For the first time in a perhaps a generation, Americans are saving – probably too little, too late. Baby Boomers, perhaps ten or less years from retirement, have seen their investment portfolios either shrink or (at best) remain stagnant since 1999. In dollar-adjusted values, stocks have gone down in real terms. Real estate valuations, getting a slight and temporary bounce from massive Obama expenditures, are still off 30% from 2006 values... and should continue downward for several more years. Don't believe me? Good! This is a glimpse of the status of the real estate market beyond current Establishment fostered illusions:  Housing Risks Still Lurk Even As Buyers Return. And, one problem that I've been vocal about is how the next wave of housing foreclosures will stem from rising unemployment. SEE: Mounting Joblessness Fuels US Housing Crisis. The worst of the housing crisis is far from over.

ALSO SEE:

• One In Three Chance You'll Soon Owe More Than Your House Is Worth

• What rebound? Foreclosures Rise As Jobs and Income Drop

As for the US employment landscape, there are already 15 million people who are "officially" unemployed with about 200,000 more joining them every month. The job market could begin to recover in another decade – AFTER Boomers begin retiring in adequate numbers to create an adequate number of job vacancies! However, the migration of Baby Boomers to retirement is already causing other HUGE problems. SEE: Social Security Strained By Early Retirements There quite simply aren't any solutions for the problems we have accumulated!
 

But, the unemployment numbers most likely to set into motion a crime-wave of unprecedented proportions are reflected in this grim number: Unemployment Rate For Young Explodes to 52.2%

The socio-economic pillars of the United States are crumbling. Anyone in denial of that fact has to be ignoring far too many headlines and far too much data.

Until next time.....be prepared!

TJA

Access Past Volumes Here:

June 20, 2009

May 28, 2009