Read the Tuesday Afternoon Wrap-up for 2/21/2012 and the Wednesday Morning Commentary for 2/22/2012

Few charts stand out more than the one below.  Since interpretations can be vast and diverse, I invite you to administer a “self-Rorshach test” and forward me your thoughts.  As for me, I see the death of America’s Middle Class, tiering of society into “castes,” and permanent, multi-generational debt enslavement.

In 1984, the speed of the proverbial “treadmill” increased dramatically, when the first of 25 million U.S. manufacturing jobs left for good, and the first of $20 trillion of government borrowings emerged from the Fed’s printing press.  Times were considered prosperous, with a healthy economy, low debt, and generational peace as the Cold War concluded.  The global economy was becoming more competitive, but the U.S. was more than equipped to defend its financial and manufacturing strongholds.

Unfortunately, it was around this time that America contracted financial cancer, eventually proving terminal to the entire global financial system.

In 1981, Ronald Reagan appointed Wall Street’s first White House plant, Merrill Lynch Chairman and CEO Donald Regan.  Regan served as Secretary of the Treasury during Reagan’s first term and Chief of Staff in the second, well known as a micromanager of day-to-day White House activities.  Regan was an adamant support of financial deregulation and architect of Reagan’s “Supply Side Economics,” the original euphemism for unchecked deficit spending.

My comments below have nothing to do with a “left” or “right” leaning, as I hate ALL politicians – except for Ron Paul, of course.  I just find it comical how “revered” Ronald Reagan was, when in fact he was simply lucky to start his term with a miniscule $1 trillion of national debt, i.e. a ‘blank check’ according to Donald Regan.  Throw in the fortuitous end of the Cold War – NOT due to Reagan’s “toughness” but Soviet bankruptcy, and voila – an historically “great president,” despite his legacy of tripling the national debt and initiating the Wall Street takeover of Washington that took less than three decades to DESTROY THE WORLD.

Ditto for Bill Clinton, another smooth-talking orator with limited political experience but much charisma.  He was lucky enough to run for election amidst the post-Reagan recession, providing the opportunity for Democrats to re-take the White House, and more lucky that Alan Greenspan had just taken over the Federal Reserve chairmanship, printing money so prodigiously that the subsequent stock market bubble erased all his sins, most of all the expanded partnership with Wall Street that led to Robert Rubin taking over the Treasury in 1995 and the repeal of Glass-Steagall in 1999.

Bush II and Obama are as conniving as they are stupid, but in essence have been charged with cleaning up the toxic mess of three decades of Washington policy failures since abandonment of the gold standard in 1971, and two decades since Wall Street took over Washington.  By all means, Bush II and Obama have made things VASTLY worse – and I cannot underestimate the term VASTLY – but America passed the point of no return a decade ago, once it was clear the jobs were gone for good, and the debt un-payable.

Back to the initial chart, consider the M2 money supply has risen by 4.5x since 1984 while estimates of the since discontinued M3 measure are up 6.5x, not including what I call “M4,” or M3 plus the TRILLIONS of covert, i.e. unpublished MONEY PRINTING.  Per the chart below, cumulative GLOBAL money printing has exploded as well – with the top six central banks’ cumulative balance sheets rising by 5x just in the past eleven years, and dramatically more since 1984.  Even the fudged U.S. CPI Index has more than doubled since 1984, yet the average net worth of Americans under 36 years of age has plummeted 68%, bordering on turning NEGATIVE.

Back in 1984, the U.S. economic outlook was dramatically stronger, and $11,521 a healthy nest egg for a 20 or 30-something.  Today, however, $11,521 is a pittance compared to surging inflation, a decimated job market, and near-negative interest rates that make saving impossible.  The stock and real estate markets have destroyed trillions of capital, and the Fed’s permanent ZIRP scheme will continue to do so ad infinitum.  Consequently, the U.S. labor force has dramatically contracted, and welfare payments exploded.

It is hard to make the case that even twice 1984’s median net worth of $11,521 provides a sufficient cushion today, much less a retirement nest egg.  Social Security is broke, Medicare broke, and debt loads mushrooming across-the-board, from individuals to corporations to municipalities to sovereigns.  The big banks that destroyed the nation are considered “too big to fail,” but everyone else is not, certainly not the 30-somethings with $3,662 to their names.  Frankly, I don’t believe for a second that average net worth’s are actually positive for this age group, given the veritable EXPLOSION in mortgage, automobile, student, and other debts, which have cumulatively KILLED the U.S. Middle Class, never to revive.

In a nutshell, the prospects for America’s youth climbing from that (optimistic) $3,662 net worth to six figures, let alone seven, are slim to none.  Consequently, the gap between those that need money the MOST (35 and below) and the LEAST (65 and over) is likely to dramatically expand, yielding the aforementioned “caste society” wherein you’re either the 5% that are rich or the 95% that are poor.

Unfortunately, the historical response of government to such disparities is socialism, or in the case of lobbyist-dominated America an evil socialist hybrid laced with fascism, militarism, and, lurking in the not-too-distant future, totalitarianism.  I should weep for America’s youth, but in reality their fate is not so unique, shared by perhaps 95% of all the people that have ever lived.

America’s “15 minutes of fame” started when the rest of the world destroyed itself in two world wars, ending NOW due to 40 years of government profligacy and a cancerous relationship with Wall Street and other corporate campaign contributors.

 Similar Posts:

• Canadian Bullion Storage
• This is the age of tangible investments, not paper investments.
• Gold & Silver Dip Should Be Short Lived

READ THE FULL NEWSLETTER

So near, yet so far away.  Silver crossed the $34 barrier but still needs to close above $37.50, and then it is set to really take off.  Gold has crossed one of its next two key hurdles.  $1,750 is now support (instead of resistance) and the big $1,800 lies ahead.  From there, gold turns its attention on its all-time high of $1,900.  You can clearly see, in the following chart, the key points at $1,750 and $1,800.  It’s hard to realize in this slow-motion bull market, but just one year ago, gold was hovering around $1,400 and now we are setting our sights on $1,800 and UP.  Europe is a mess and the Middle East is a powder keg.  All Hell could break lose at any time now.  This is no time to be short gold and silver, or out of the market!

Even though I celebrated my 70^th birthday on Saturday, I’m still just 69 – at least for the next two and a half weeks!  I never would have believed it, but I can honestly say my 60s were the best decade yet.  I hope I can say the same thing again when I look back in 10 years, God willing, on my 70s decade.  Being actively involved on a daily basis, in the precious metals bull market, keeps my mind working full time.  I believe that your mind is like a muscle; you use it and it stays “fit.”  Retirement is over-rated.  I make sure that there is never a dull moment in my life.

Here are a couple of pictures from the family birthday party last Saturday – of me, my lovely wife Susan and my son Andy Schectman, Miles Franklin’s President.  My views on the economy may seem rather negative (though I would say very realistic), but actually, I am a very positive and happy person.  I enjoy life to the fullest, have a wonderful life and a great family.  I am blessed.

Here in Wayzata it snowed Monday night– over 3” fell and it is a white winter wonderland outside – quite different from our new life in Miami, but it’s really nice to be back home for a visit.

Today I took Susan to see our friend Paul Yellen, who is also a highly regarded Orthopedist.  Paul is also a “Snow Bird.”  He spends Monday through Thursday in St. Paul and Friday through Sunday in Naples, Florida.  When he retires, in the next few years, he will move full-time to Naples.

Somehow, and she really doesn’t know how, Susan tore cartilage in her left knee.  Paul took X-Rays and an MRI and decided that she needs surgery.  He is squeezing her in for outpatient arthroscopic surgery early Thursday morning.  We will fly back to Miami on Monday afternoon.  We have so much to be thankful for; this is just a minor inconvenience.   So there you have it – we came back to Minneapolis for a week and gold topped $1,750, silver topped $34, I celebrated my 70^th and Susan had surgery.  Quite a combination!Similar Posts:

• Thursday was a big winner for us gold and silver bugs
• Gold is starting to recover
• August 2011 Highest Monthly Finish for Gold

Read the Monday Afternoon Wrap-Up for 2/20/2012 and the Tuesday Morning Commentary for 2/21/2012

On a quiet day here in the States – with nearly all markets closed for President’s Day – I want to take advantage of the “relative peace” to hammer home one of the MOST IMPORTANT INVESTMENT THEMES OF OUR LIFETIME.

I spend 99% of my time writing about the need to think defensively, i.e. not of increasing one’s wealth but protecting it – although owning PHYSICAL gold and silver will certainly achieve both targets.  However, I still have two decades of financial markets in my blood, and thus it is hard to suppress my excitement about the inevitable silver breakout to all-time highs, in what will historically be viewed as the ULTIMATE TRIPLE-TOP BREAKOUT.

Gold may be the “linchpin” of the global financial system, but silver is the hare-trigger due to its equally established monetary history, tiny market size, and lack of above-ground inventory.  That is why PAPER silver has been so maniacally suppressed since the gold standard was abandoned in 1971, the systemic “Achilles Heel” that will no doubt “break the Cartel’s back.”  Not only is silver among the scarcest elements on Earth – prompting the U.S. Geological Service (USGS) to recently predict it would be the first extinct element – but investment and industrial demand are both growing exponentially.

Below is a table depicting historical silver prices dating back 700 years, the first 600 of which constituted the era of global silver monetization.  At some point during this period, nearly every nation utilized silver as LEGAL TENDER – including the U.S. – establishing it as money across myriad nations, continents, and cultures.

Before the U.S. “gold rush” of the mid-1800s, silver had spent a century trading in the $50-$100/oz range, after adjusting for pre-1998 inflation.  This chart concludes in 1998 (ironically, with Warren Buffet’s fabled 140-ounce purchase, since “prematurely sold” by his words), but one can clearly see the $10-$50/oz trading range from roughly 1900 until the gold standard was abandoned in 1971, a MASSIVE RESISTANE LEVEL on the verge of being breached.

Also notice the gold/silver ratio, highlighted  in gold.  As you can see, it hovered around 15:1 for close to 500 years, a monetary construct based on the amount of silver and gold actually produced.  In other words, for centuries the ratio of silver ounces produced to gold ounces produced was close to 15:1, although TODAY it has fallen to 9:1 due to silver’s increasing relative scarcity.  In the early 1900s, silver prices plummeted from the $50-$100/oz range they had traded at for the prior century when major silver discoveries occurred in Nevada and Idaho, enabling inventories to soar until the mid-20^th century.

Unfortunately, that’s when “peak silver” occurred, yielding not only depletion of essentially ALL the world’s silver inventories in a 60-year period (to less than one billion ounces of above ground inventory today), but industrial demand exploded due to the white metal’s unique properties, making it the second most widely used commodity (after crude oil) on earth!

When the Bretton Woods era officially ended in August 1971, the gold/silver ratio counter-intuitively rose from the 20-30 range of the late 1960s to 100 in 1991.  Given the aforementioned trend in global silver inventories, and soaring monetary demand following the breakdown of the London Gold Pool in 1968 and rising inflation fears, it is difficult to surmise any other reason for a rising gold/silver ratio than Cartel manipulation, demonstrating just how long it’s been ongoing, and how pervasively.

Since the cyclical PM bear market ended in 1999, the gold/silver ratio has averaged closer to 50:1 (where it stands today), but that KEY ROUND NUMBER is starting to look A LOT like a long-term resistance level in the process of a BATTLE ROYALE with the Cartel.  I believe this ratio will have difficulty rising significantly above 50:1 in the coming months, and at any time could plummet to the May 2011 low of 32, eventually targeting the 1980 low of 18 in the coming years, and potentially 5:1 when the Precious Metal mania peaks, and silver supply DISAPPEARS.

When writing of the impending “ULTIMATE TRIPLE TOP BREAKOUT,” I have always referred to the upcoming “third prong” of the MASSIVE, 32-YEAR “rounded bottom” formation forged by three decades of manipulation.  I have NEVER seen such a powerfully bullish, long-term formation in my entire career – nothing even close – and given the “Perfect Storm” of supply and demand fundamentals, I can see why silver is the first to EVER have this appearance.

That said, if you go back to the major silver discoveries of Nevada and Idaho in the early 1900s, one can see the KEY ROUND NUMBER of $50/oz actually has resistance going back MORE THAN A CENTURY, creating not a 32-year triple top breakout but a 112-YEAR, QUADRUPLE TOP BREAKOUT!  I’m no chartist, but something tells me the “upside target” of such a convincing breakout would easily top the inflation adjusted all-time high of roughly $800/ounce, circa 1500 AD.

Then again, this should be no surprise to long-term readers.

My gold price forecast is based on the OVERT money that has been printed since we abandoned the gold standard in 1971, at roughly $15,000-$20,000/ounce.  An estimate, by the way, corroborated by the research of numerous others in the field, such as Jim Sinclair and Mike Maloney.  Given that my gold:silver ratio target is between 5:1 and 15:1, my absolute silver target price is $1,000-$4,000/ounce (in TODAY’S DOLLARS, assuming no further MONEY PRINTING – LOL).

When silver was $800/ounce (in 1998 dollars) circa 1500 A.D. (the days of Hernan Cortez), Precious Metals were undisputedly the ONLY forms of universally recognized MONEY.  Given the economic Armageddon I anticipate will engulf the entire civilized world this decade, plus an additional 6+ BILLION of global population fighting for an increasingly scarce silver resource, I believe my initial (pre-hyperinflation) price target makes a great deal of sense!

 Similar Posts:

• $1750 Is Now Support For Gold
• Thursday was a big winner for us gold and silver bugs
• THE FINAL MARGIN CALL – NOT! OR SHOULD I SAY, NOT YET?

READ THE FULL NEWSLETTER

Be sure and read Jim Willie’s outstanding comments in today’s daily.  No one puts out more significant information.  I have picked a very small sample of what he has to say for you to read.  If you value his material, consider subscribing to his newsletter.  It is one of the top letters out there!

I feature two articles that discuss the possibility and consequences of war with Iran – by Bill Holter and Newsmax.  Seeking Alpha, Jim Willie, Ted Butler and Jason Hommel all discuss the silver (bull) market.

Still waiting for gold to clear $1,750 and for silver to top $35.  It shouldn’t be much longer.Similar Posts:

• All-Pro GATA Goldbugs Team
• I Bought Platinum Yesterday. Do You Want to Know Why?
• The big banks and the CME are allowed to do as they please

Ranting Andy and Kerry Lutz of the Financial Survival Network discuss the recent developments in Iran:

FSN Ranting Andy Interview 2-20-2012Similar Posts:

• Weekly Interview with Kerry Lutz 1-30-12
• Andy Hoffman Talks to Alt Investors Hangout
• Inevitable Iranian War

Read the Friday Afternoon Wrap-up 2/17/2012, Weekend Thoughts, and Monday Morning Commentary 2/20/2012

The “duality of man” is oft discussed in scientific circles, by both biologists and philosophers.  Like the ambiguous “nature versus nurture” argument, the answer to WHY man is both spiritually beautiful and unspeakably evil will never be answered.  Throughout 6,000 years of history, examples of both are prevalent, and by my observation, pretty evenly distributed.  Moreover, both sides are equally influential, such as the peaceful accomplishments of Mahatma Ghandi and Martin Luther King Jr., or vicious genocides of sociopaths like Adolf Hitler and Joseph Stalin.

Mankind has evolved in a two steps forward, one step back pattern for millennia, and some might say WAR is the world’s natural check on growth.  Growth will continue in this manner until the Earth no longer allows it, but major “steps back” have crippled the world for decades, yielding poverty, disease, and strife.  Such events have occurred regularly throughout history, and despite 45 million people having been killed in “minor” wars since the “Great War” ended in 1945, such a generation-changing event has not happened since.

Call me Cassandra, or simply a pessimist, but my gift has not been the ability to see what others can’t see, but what they won’t.  Be it the Iraqi war propaganda, the tech and housing bubbles, or the gold bull market, nearly everything I have espoused – and invested in – throughout my career has been outside the mainstream.  However, nothing I have forecast could be considered greater anathema than my belief the U.S. government is planning an invasion of Iran.

For decades, Iran has been vilified for its “culturally unacceptable” Islamic theocracy.  In America, it is only “acceptable” to be capitalist, “democratic,” and Christian, propagandized as the only “moral” forms of society despite the fact that 80% of the world is neither capitalist nor democratic, and just 30% Christian.  The only conflict we have ever had with Iran was the 1979 hostage crisis, when eight Americans died in a failed rescue attempt, albeit none of the hostages.

And for those that didn’t know, Ross Perot personally snuck into Tehran in 1979 – at risk of life and limb – and subsequently high security Iranian prisons, just to comfort his captured EDS employees.  One of the most courageous acts I have ever heard of, chronicled in the wonderful Ken Follett book, On the Wings of Eagles.

Ironically, the hostage crisis was catalyzed not by Iran, but the U.S., which organized the coup that put the Shah into power 25 years earlier, and opposed his overthrow by the Ayatollah Khomeini.  As in Iraq, no doubt our desire to control Iran’s OIL was our top priority, just as will be the case when the anti-American majority of Saudi Arabia eventually overthrows the pro-American “Royal Family.”

And don’t forget the Iran-Contra Affair, when the U.S. government, just six years later, secretly sold arms to an embargoed Iran to fund another illegal coup, that of the Nicaraguan “Contras” halfway across the world.  Example after example of American hypocrisy and imperialism, but such events are mere blips compared to what appears to be approaching today.

For months, I have been writing of the loudly beating Iranian “war drums,”, with the U.S. and Israel clearly spearheading a Western event to provoke the potentially nuclear-capable Iran into a conflict of potentially Armageddon-like proportions.  In fact, the nuclear threat is but one of many grave risks, starting with the fact that Iran has a population of 74 million, the majority of which are violently anti-West, led by a megalomaniac who is as smart as he is evil.  Saddam Hussein was essentially a corrupt warlord managing a fief, but Mahmoud Ahmadinejad is a malignant demagogue, as dangerous as any foe America has come across.

Not only does Iran possess the potential to inflame passions in the world’s most volatile area – Israel – but it has allied with America’s largest, most powerful foes, the nuclear-armed superpowers Russia, China, and India.  As much as America desires Iran’s oil – which it has no chance of securing even it if “won” such a war – China desires it more, and Putin & Co. will NEVER allow its weakened nemesis engage Iran without a fight.  In other words, not only would such a confrontation likely morph into World War III, but it would be eminently unwinnable.  I knew this to be the case when Bush announced our invasion of Iraq in 2003 (ask my wife), and I know it to be the case today.

Given the past decade’s GLOBAL TAKEOVER by the so-called “elite” Western bankers, I must consider the possibility that an evil force is seeking world domination, be it the Bilderbergs, Trilateral Commission, Carlyle Group, Rothschilds, or George Soros.  I don’t understand EXACTLY what’s going on behind the scenes, but the more I read about Barrack Obama’s questionable background, the more it appears that he, too, may be part of the plan.  Frankly, I have no conclusions regarding the topic, other than an increasingly staunch belief that something wicked this way comes.

My RANTS will continue to focus on the urgency of taking action to PROTECT YOURSELF from the coming economic disaster, in many ways the root of the broader risks discussed above.  Conspiracies and global wars don’t start by accident, and if Iranian military conflict breaks out, you can bet some pretty evil, big-picture-motivated sociopaths will be behind it.   Conflict has always brought opportunities for mass exploitation, and in this case ALL key emotional nerve centers would be touched, such as nationalism, terrorism, theocracy, and, of course, OIL.

“Black Swans” shock the world with little or no warning, such as 9/11 or the MF Global collapse.  Unfortunately, the negative consequences of military conflict in Iran will dwarf anything seen on this planet in decades, and I assure you it will not be a Black Swan.

PROTECT YOURSELF, and do it NOW!Similar Posts:

• Tuesday Afternoon Wrap-up: Reduced Gold Cartel Attack Effectiveness
• The End of Gold & Silver Supply
• Passwords

I’m still on vacation back in Minneapolis, but I managed to find time to gather the following interesting material for you:

READ THE FULL NEWSLETTER

Here is a picture of Andy Schectman and his wife Zhanna at the family birthday party on Saturday night.

Similar Posts:

None Found

Ranting Andy’s Thursday Afternoon Wrap-Up 2/16/2012

Ranting Andy’s Friday Morning Commentary 2/17/2012

Gold Confiscation

In 1933, in his first official act as President, Franklin Roosevelt declared a “bank holiday” and decreed confiscation of gold from all U.S. citizens.  Under the authority of the Emergency Banking Relief Act, FDR issued Executive Order 6102, mandating all privately-owned gold be sold to the government at the fixed price of $20.67/ounce.  However, the order specifically exempted coins having a recognized ‘special value’ to numismatic collectors.  Given today’s economic chaos, and increasingly imminent demise of the dollar as “world’s reserve currency,” the following questions are being asked by greater numbers each day:

1. Could privately owned gold held by Americans within the U.S. be confiscated again?

2. What if Congress enacts currency exchange laws, which prevent Americans from moving U.S. Dollars (or gold) offshore?

3. Could the President make it illegal for Americans to own gold?

In 1982, Congressman Ron Paul was a member of the House Gold Commission, a group he organized to discuss the potential benefits of returning to the Gold Standard.  In his “Case for Gold,” Paul wrote:

If it gets bad enough, they’ll declare a national economic emergency.  They’ll take over the banks, all business and industry.  They may even try to confiscate our gold.  I served on the Gold Commission for eight or nine months while in Congress, along with fifteen other members.  I brought up the subject of confiscation.  The power to confiscate gold is still on the books as the law of the land.  I urged the full Commission to recommend Congress repeal the power to confiscate gold in an economic emergency.  We pushed it to a vote and I was the only one that voted to recommend to Congress that we never again contemplate taking the gold of the American people.  The fifteen other members voted it down.  The power is still there on the books, and they can do it any time they wish. 

In other words, the answers to these questions are yes, yes, and yes, despite the logical conclusion that such an act makes no practical sense.

U.S. Gold Numismatic Coins

When most people hear the term “gold bullion,” they think of the large bars supposedly held at Fort Knox.  However, the most common bullion products are one ounce coins, such as the American Eagle, Canadian Maple Leaf, South African Kruggerand, Austrian Philharmonic, and Australian Kangaroo.  These are all “coins of the realm,” but have never been circulated as legal tender.  Additionally, the U.S. government defines “gold bullion” as foreign coins that were once legal tender in their respective countries – such as the British Sovereign, Swiss Franc, and French Franc – but are no longer today.

Currently, 49 countries allow their citizens to hold numismatic gold and silver coins without fear of confiscation, so long as they are in good enough condition to be considered collector’s items. The thought process behind such “numismatic exemption” is that It preserves the country’s history, but such exemptions DO NOT include numismatic coins from other countries. And America is no different.

That is why I am bullish on “lightly circulated” numismatic gold coins.  These are the old $20 Liberties, $20 St. Gaudens, and $5 and $10 Liberties that were U.S. legal tender from 1850 to 1933. If they are in good enough condition to be considered collector’s items, they are considered “numismatic gold” – non-reportable and exempt from confiscation.  In the event of a new confiscation decree, there are no guarantees that such exemptions won’t be removed, but as of now, this is the letter of the law.

Numismatic gold coins in the lightly circulated grades – Very Fine (“VF”), Extra Fine (“XF”), and Almost Uncirculated (“AU”) – have slight wear, essentially undetectable to the untrained eye. They are in excellent condition, but because they have slight wear, the premium is more moderate than the high Mint State-graded coins.  In my view, there is no reason to pay high premiums for “superior quality” numismatic gold coins, as both the high Mint State- graded coins and lightly circulated numismatic coins are both considered collector’s items, exempt from confiscation.

Record Low Premiums

Generally, I don’t endorse numismatic coin purchases because the risks of confiscation exemptions being repealed is too high to justify the premiums over melt value, especially high Mint State-graded coins due to their extra-ordinary premiums.  However, TODAY’S PREMIUMS ON LIGHTLY CIRCULATED NUMISMATIC COINS ARE THE LOWEST I HAVE SEEN IN MY 22 YEARS IN THE BULLON BUSINESS.

I have NEVER seen lightly circulated $5, $10, and $20 gold coins at prices equal to, or in some cases lower than their bullion counterparts, as is the case now.  Circulated $20 gold pieces are being offered at basically the same price as one ounce gold bullion coins, and unbelievably, the more scarce pre-circulated $10 Liberty is selling for 2%-3% less than a brand new ½ ounce gold eagle.  I believe this rare situation reflects the current market lethargy, providing a unique opportunity to exploit an anomaly I do not expect to continue for a material amount of time.  Basically, there is no opportunity cost involved with buying the older coins, just benefits!

Please call your Miles Franklin representative today at 800-822-8080 and grab some of these in-stock historic coins at the best price I have EVER seen in relation to gold melt value, while supplies last.Similar Posts:

• A Few Thoughts on Gold Confiscation
• Q & A Precious Metals Investing – Andy Schectman
• Gold will sell for at least twice the current price in the next few years.

READ THE FULL ARTICLE

Be sure and read every word of John Embry’s speech that leads off today’s daily. He is the number one man at Sprott Asset Management and his advice is as honest and correct as you will find, and completely in line with what we here at Miles Franklin have been saying for some time now. This is a CAN’T MISS ARTICLE.

I will be returning to Minneapolis on Friday and won’t be sending out my newsletter on Monday, therefore, I have made today’s daily longer than usual. I am covering two-days-worth in one. Take your time and read it over the weekend. Susan really misses the family and we are returning for a birthday party – for my son-in-law, two granddaughters and me. All of our birthdays fall within a couple of weeks of each other and we are celebrating them on Saturday in a private room at a local restaurant. Susan is picking up the tab for everyone. She is generous of heart and purse. For me it will be a BIG 70. Susan assures me that I don’t look it. I don’t feel it. It must be a mistake!   The weather in Minneapolis will be near 40 degrees, which under normal conditions would be fantastic for this time of the year, but I am leaving Aventura where the temperature has been between 75 to 85 virtually every day since we got here on November 1st. Burrrrrr.

Yesterday I listened to a long sales-oriented presentation by Agora’s Addison Wiggin. Overlooking the fact that he was trying to sell something, it was an excellent audio presentation. The report offered little new information and everything it contained has appeared on these pages countless times before, but it was all there, in one presentation and that was impressive. To sum it up in a sentence or two, the US is screwed because our spending is out of control and our creditors will soon cut off our funding and the Fed will be called to action as the buyer of last resort of our bonds. Services will be drastically cut, including police and fire departments and the standard of living will plunge in the midst of a horrendous inflationary-depression. All of this is pretty much non-negotiable and mathematically assured. It is just a matter of when it happens, not if it happens. Sinclair says the game is up by 2015. Not a cheery outlook, but who needs an “optimist,” if the “optimist” is dead wrong. Give me a miserable “realist” any day of the week. After Tuesday’s dinner party, that’s probably the way several of the guests think of me. Read on:

Susan and I were invited to a dinner party on Tuesday night and met half a dozen new couples. At the dinner table the conversation moved toward politics and the economy. I put my two cents worth into the conversation and after things got heated Susan looked at me and whispered, “They probably all hate you!” No way – just some of them, but they were idiots! I am getting too old to suffer fools! When one of them told me that the stock market had outperformed gold over the past decade, I lost it. I said that was not true. He replied his source was an expert. I told him his source was a fool! I told him the data he relies on from the BLS is not accurate and overstates the economy and understates inflation and unemployment. I suggested that he check out John Williams Shadowstats to get the honest numbers. He said he wasn’t interested and would continue to use the government’s numbers. It is amazing how fools like him end up multi-millionaires. But let’s see if he can keep it. This guy was even more brainwashed than Backwoods Jack and that’s scary. The real task, moving forward, is who amongst us will be able to keep their wealth intact. I say it won’t be those who have most of their money in stocks, bonds and currency-based portfolios touted by Cramer and the CNBC gang. But that’s just me spouting off again. I could be wrong. But at least I put MY money where MY mouth is! On second thought, I won’t be wrong, maybe a bit early – but definitely not wrong. Honestly, I am not arrogant, just certain about the few things I know well and when it comes to precious metals and the economy I have paid my dues, having logged nearly 30-years studying the markets.

2012 Price Predictions for Gold and Silver (RealMoneyTracker) 

I may as well add my predictions to this impressive list of “experts.”

Gold will reach at least $2,000 and possibly $2,100. Silver will hit at least $50. Predicting a “number” is easy, but getting the “timing” right is not. That said, if I miss the mark, it will only be by a couple of months at most. The numbers will be there. These numbers are just for starters and over the next 36-months, gold and silver will rise MUCH higher. If you buy now, you will be able to smile all the way to the bank (assuming it is still open for business when you get there).

And here’s some very important information from Ed Steer:

Tune Out…Buy Gold…Be Happy: Bill Bonner (caseyresearch.com) 

Feb 16 2012

Washington state reader S.A. sent me these two charts showing the decline in Chinese and Russian U.S. Treasury holdings…and there are no surprises.

Then a bit more than twelve hours later, the zerohedge.com story that he lifted these graphs from arrived in my in-box courtesy of West Virginia reader Elliot Simon. The headline reads “Russia Dumps Treasurys For 14 Consecutive Months; China Slashes Holdings To Lowest In Over A Year“…and if you want to run through it, the link is here.

__________________________________________________________

China Reduces U.S. Debt Holdings Again (forbes.com)  2/16/2012

China reduced its investments in U.S. Treasury bonds in December, marking the third straight month of declines, according to Treasury International Capital data, released on Wednesday.

Data had China cutting its holdings by $31.9 billion to $1.1 trillion, the Treasury Department said. China accounts for around 9% of U.S. foreign debt holdings and is the largest foreign holder of U.S. government securities, followed by Japan with around $1.04 trillion and then the U.K. with around $414 billion as of December 2011.

Overall, foreign countries reduced their holdings of long-term U.S. bonds in December, with net sales of $21.0 billion.  Net sales by private foreign investors were $11.5 billion, and net sales by foreign official institutions were $9.5 billion.

Taking into account transactions in both foreign and U.S. securities, the net foreign purchases of long-term securities were $17.9 billion.  After including adjustments, such as estimates of unrecorded principal payments to foreigners on U.S. asset-backed securities, the overall net foreign acquisition of long-term securities is estimated to have been $1.6 billion in December.

Foreign holdings of all dollar-denominated short-term U.S. securities and other government bonds decreased by $18.3 billion.

READ THE FULL ARTICLE

__________________________________________________________

Which performs better – gold or the stock market? I think the time frame that you choose dictates the answer. Now, in 2012 with the Fed fully engaged in QE to Infinity, the answer is an unqualified “GOLD.” The bull market in gold is not slowing down, it is gaining steam.

Stocks Versus Gold (Kitco.com)  By Richard Zimmerman

Posted on JSMineset:

Woodrow Wilson to Obama looks almost identical to Augustus to Aurelian and took less than half as long. I wonder if they see the irony?

Similar Posts:

• The markets are swinging back and forth
• $1750 Is Now Support For Gold
• Gold Mining Shares

READ THE FULL NEWSLETTER

During Miles Franklin’s first educational Webinar last week (replay link HERE), our Q&A queue was so long, we had to answer most of the questions in follow-up reports (read HERE and HERE).  By far, the most oft-asked question related to the potential for gold confiscation by the U.S. government, a topic I have discussed ad nauseum for several years.

I do not want to turn this RANT into a discussion of confiscation per se, but suffice to say such an event appears unlikely.  Not only does it makes little sense for the U.S. government to do so, it would be near impossible to enforce.  When FDR decreed gold confiscation in 1933, the U.S. was still on a gold standard, so more gold was required to enable the government to print money to, in their erroneous minds, escape the Depression.  Today, there is no gold standard, thus confiscating gold would have no practical purpose.

Moreover, very little gold is actually owned by U.S. citizens – certainly not enough to make a dent in America’s gargantuan debt load, and the simple act of decreeing confiscation would be seen worldwide as a denouncement of the dollar, and validation of gold, as MONEY.  Moreover, barely any gold was actually confiscated in 1933, with not a single prosecution for violating the confiscation law, Executive Order 6102.  In today’s world of high-tech home security, armaments, and global depositories, it is difficult to envision a scenario of home invasion, international investigation, and enforcement of such a draconian action, particularly if catalyzed by plunging fiat currency values.  Not to mention, how would the government know who actually owns gold, as nearly all transactions are non-reportable?

That said, I thought I would proffer an alternative scenario, the brain-child of the aforementioned Andy Schectman.  In the event of a currency emergency – and subsequently, insatiable global demand for PHYSICAL gold, he believes the SPDR Gold Trust, i.e. the GLD ETF, could be legally commandeered by the government, per the terms of its ambiguous prospectus.  I am 100% in agreement, as long-time readers know I have written on the dangers of GLD for years, as in the August 2011 RANT below.  In fact, I devote a significant portion of my current presentations to warning of the grave risks of owning GLD and SLV.

Ranting Andy: “Outing” GLD and SLV, and “Inning” Alternative Forms of Gold and Silver Investment, Including Mining Companies

I have long believed these criminal securities were created by the government specifically to divert bullion investment into a PAPER security with “rules” so vague, it would be impossible to prosecute its custodians in the event of a default of the underlying PHYSICAL gold and silver.  These funds are never audited, and the fund custodians (HSBC for GLD and JP Morgan for SLV, two of the world’s shadiest banks) have discretion to lease out said metal, making it impossible to know the funds’ true, unencumbered holdings.  That said, GLD and SLV clearly hold material inventories of PHYSICAL gold and silver, although impossible to know how much.

In the case of silver, ZERO government inventory exists, as nearly all the world’s silver has been consumed by industry.  It is widely estimated that no more than one billion ounces of investable silver is available worldwide, and if that is the case, the 310 million ounces purported to be held by SLV represents roughly one-third of the global supply, by far the largest stash anywhere.  That said, even 310 million ounces is worth just $10 billion at today’s prices, the same amount the government prints each hour, and thus, hardly a candidate for confiscation, particularly as silver is required for numerous, critical industrial applications.

As for gold, approximately 30,000 of the estimated 180,000 tonnes of gold mined throughout history is purported to be held by Central Banks, the largest of which is the U.S.’s so-called 8,134 tonnes.  I maintain my belief that most American gold has been leased, swapped, or surreptitiously sold over the past 15 years to support the dollar’s value, and frankly, distrust many of the figures in this table, particularly the IMF’s 3,101 tonnes, in my view nothing more than double-counted “pledges” from member-nations such as the United States.  However, suffice to say that even if the U.S. did own every ounce of that 8,134 tonnes, it would only be worth $450 billion at today’s prices, just one-third of the $1.3 trillion 2011 fiscal deficit.

For the purpose of this RANT, I was more interested in posting this table so you can see the supposed holdings of the GLD ETF, at 1,278 tonnes worth a measly $70 billion.  In the context of the $1.3 trillion 2011 deficit – with another $1.3 trillion deficit projected for 2012, I’m not sure why we’re even discussing confiscation.  After all, if 1,278 tonnes doesn’t make a dent in the U.S.’ chronic, exponentially-growing debt problem, how would the measly private holdings of American citizens make a difference?

But let’s just say gold is revalued to $15,000/oz. in today’s (non-hyperinflated) dollars, a highly unlikely scenario as by that point the global financial system would have surely collapsed, unleashing government printing that would put Weimar Germany to shame.

But again, hypothetically, if gold were $15,000/oz, GLD’s 1,278 tonnes would be worth $615 billion, assuming GLD was not shut down by runs on its inventory, which it surely would long before gold reached $15,000.  Would the government consider GLD an attractive confiscation candidate?  True, by that point MONEY PRINTING would likely have caused the national debt to soar to $50 trillion, or $100 trillion, or more, making the $615 billion appear a pittance.  Do you see where I’m going with this?

That said, the point I am making is that – outside the myriad reasons it would makes NO SENSE for the government to decree confiscation –the ONLY viable confiscation target of material size is the GLD ETF, which would be as easy – and LEGAL – as essentially any operation the government has undertaken.  All one needs to do is glance at the “Risk Factors” section on pages 6-12 of the prospectus to understand the broad powers of the custodians to decide when to terminate the fund or prevent holders from redeeming shares for PHYSICAL gold.

SPDR Gold Trust (GLD) Prospectus

I could list all these risk factors here, but they are available in the prospectus.  Rather, I want to focus on the two below, clearly bestowing the right for the custodian to arbitrarily redeem shares for cash or prevent you from redeeming shares for PHYSICAL gold, using the term “emergency” as a catch-all to cover nearly all situations.  I can assure you government decree would fall under the category of “emergency,” and make it “unlawful” to exchange shares for PHYSICAL gold.

The Trust may be required to terminate and liquidate at a time that is disadvantageous to Shareholders.

Redemption orders are subject to postponement, suspension or rejection by the Trustee under certain circumstances.

…(2) for any period during which an emergency exists as a result of which the delivery, disposal or evaluation of gold is not reasonably practicable, or (3) for such other period as the Sponsor determines to be necessary for the protection of Shareholders. In addition, the Trustee will reject a redemption order if the order is not in proper form as described in the Participant Agreement or if the fulfillment of the order, in the opinion of its counsel, might be unlawful.

Writing about the dangers of GLD and SLV (which, by the way, has the same risk factors as GLD) is nothing new for me.  However, Andy’s theory that they may have been specifically created as “vehicles of eventual confiscation” is, and I agree this is a possibility, albeit a slim one as it makes NO SENSE for the government to attempt such a maneuver.  Either way, the only way confiscation would even be discussed would be if gold and silver were soaring and the dollar plummeting – hence, hyper-inflating - at which point every man, woman, and child would prefer the risk of their gold being confiscated over that of holding worthless dollars.

PROTECT YOURSELF, and do it NOW!Similar Posts:

• Investor Fear and GLD Fraud