Pixel8r

Why investing is not for the brave - Courage can be an admirable trait. But bravery has little place when making rational investment decisions, says Merryn Somerset Webb. Buying property isn't brave. Nor is buying bank stocks or junior miners. The word to describe those actions is 'stupid'. To read why, click here: Why investing is not for the brave

The Window is Open - James Turk The money creation window of the Federal Reserve is wide open, but it doesn't seem to be doing much good. The share price of countless financial institutions continues to crater, as the market senses that these overleveraged behemoths have assets on their balance sheet that do not reflect today's reality. The boom has passed, and we are now in the bust, just like night follows day. Wealth destruction is today's prevailing force as assets of all sorts are marked down in value. What the Federal Reserve wants to make us believe is that the liquidity it is providing through its various lending schemes is sufficient to make solvent those financial institutions that have become insolvent. Unfortunately, economics doesn't work that way. Capital - and not newly printed dollars - is needed to make insolvent banks solvent, and given decades of over-consumption and under-saving, capital is in short supply. Last year the Treasury and the Federal Reserve told us the sub-prime crisis was "contained". Then they told us that bailing out Bear Stearns would end the financial meltdown. They told us that Fannie Mae and Freddie Mac had sufficient capital and liquidity and would not need a bailout. What else are they going to tell us trying to make us believe that today's over-indebted financial structure will not collapse? The point is that financial assets are based on promises, and promises are being broken right and left. It is no surprise therefore that bank balance sheets no longer reflect reality, and that many financial institutions are trading below their book value. The market understands the nature of today's wealth destruction and is therefore taking a prudent 'hair-cut' to bank balance sheets. The result is that a firm's market cap is probably a better reflection of a financial institution's real value than its quarterly reports. In short, the assets of many financial institutions are overstated. In the 1930s wealth destruction resulted in deflation because the dollar's fixed link to gold led to a contraction in the money supply. As promises increasingly came to be doubted, wealth moved out of financial assets into tangible assets. As the most liquid tangible asset, gold benefited the most, and its purchasing power soared as a consequence, even against the dollar, which was devalued 69% against gold from $20.67 to $35 per ounce. In a deflation, the value of money increases, and in the 1930s, the value of gold increased the most of any money. There is wealth destruction now, but the value of dollars and all national currencies is decreasing because of inflation. The cost of living is rising today even by the government's own measure, which many people including me believe understates the true loss of dollar purchasing power. Of course, gasoline prices have fallen over the last couple of months, but compare today's gasoline prices to where they were a year or two ago. In fact, to get a true measure of the loss of purchasing power in all national currencies, compare the price of nearly everything to a year or two ago. With the notable exception of real estate, the price of most everything is going up. Real estate is a special case. Its price is going down because it had become way overvalued a year or two ago, and prices at that level were unsustainable. Consequently, we are today seeing wealth destruction, but to get the true picture, we need to keep in mind that we are measuring the decline in house prices and other real estate assets with a currency that keeps inflating. And the prospects are that the dollar will keep inflating because the Federal Reserve's 'window' remains wide open, as is the 'window' at every central bank around the world. In short, the wealth destruction of the 1930s resulted in deflation because national currencies had a fixed link to gold, and the quantity of dollars shrunk as insolvent financial institutions went bankrupt. This time around wealth destruction is leading to inflation because central banks are creating 'money' out of thin air to try plugging the black holes on the balance sheets of insolvent financial institutions in an attempt to keep them out of bankruptcy. It won't work. They will still go bankrupt because central bank liquidity does not help bank insolvency. All central banks can do is postpone for a while the final reckoning. As more and more promises are broken, increasing amounts of wealth will exit financial assets to avoid counterparty risk. This wealth will go into tangible assets, and gold in particular because it does not have counterparty risk. So why did the price of gold drop last week? It's a good question, particularly given the fact that the Dollar Index was unchanged from the week before. I could and will point to the usual culprits, including governments and over-leveraged hedge funds. But the price of most things dropped last week, including crude oil and other commodities too. So here's the important point. Have the reasons for owning gold and silver changed in the last week or last month? I don't think so. We are witnessing significant wealth destruction today that is undermining the solvency of financial institutions. Yet the cost of living today is rising because the dollar and other national currencies are being inflated as central banks around the world try to make insolvent institutions solvent by pumping money out their lending 'window'. But there is something even more worrying than inflation. National currencies come with counterparty risk. They are based on promises, and promises are becoming increasingly unreliable. One does not have to rely on promises and accept counterparty risk when owning tangible assets like gold and silver, which in my view have become exceptionally undervalued. Published by GoldMoney Copyright © 2008. All rights reserved. Edited by James Turk, alert@goldmoney.com

Juniors seem to be having a good day as well. Think you could be right on calling the turn around.

Like looking at these two charts, Gold/Silver ratio appears to be mirroring the USDX. Converting gold to silver looks like a good idea at the moment. Moving my ratio to 60:40 for the top in the USD bear rally. Live Gold/Silver Ratio

I think all this kind of talk signals the bottom in the silver price must be in soon. Jim Puplava has recently bought a ton of silver and Eric King has bought three! That would be not very financially sensible if you are all correct. Dichotomy in W. European Gold and Silver Prices A lot of 100 one oz. silver Maple Leafs were sold for €1,267 or $18.25/oz Tuesday evening. This is a markup of 40% to the current spot price of $13.10. It appears that there is a seller's strike as there are hardly any sizable silver lots on offer.

What do you use to define the dollar in absolute terms? The USDX is 57.6% the euro. The USDX Components

I think this dollar strength is a temporary thing. They are just paving the way for the next wave of write-downs. I don't buy into the bubble popping of commodities, I believe this is just a healthy correction in a bull market. Think the commodities super cycle will be resuming soon. Ask yourself how can the dollar be gaining strength when they are bailing out everything, while running the printing presses at full speed.

By looking at the two charts below, we should see silver lead gold higher over the next couple of weeks.

Unless you buy it through a VAT registered company and provide a VAT receipt with the sale.

Wag the Dog How To Conceal Massive Economic Collapse By Ellen Brown “I’m in show business, why come to me?” “War is show business, that’s why we’re here.” – “Wag the Dog” (1997 film) 16/08/08 "ICH" --- Last week, Fannie Mae and Freddie Mac had just announced record losses, and so had most reporting corporations. Unemployment was mounting, the foreclosure crisis was deepening, state budgets were in shambles, and massive bailouts were everywhere. Investors had every reason to expect the dollar and the stock market to plummet, and gold and oil to shoot up. Strangely, the Dow Jones Industrial Average gained 300 points, the dollar strengthened, and gold and oil were crushed. What happened? It hardly took psychic powers to see that the Plunge Protection Team had come to the rescue. Formally known as the President’s Working Group on Financial Markets, the PPT was once concealed and its very existence denied as if it were a matter of strict national security. But the PPT has now come out of the closet. What was once a legally questionable “manipulator” of markets has become a sanctioned stabilizer and protector of markets. The new tone was set in January 2008, when global markets took their worst tumble since September 11, 2001. Senator Hillary Clinton said in a statement reported by the State News Service: “I think it’s imperative that the following step be taken. The President should have already and should do so very quickly, convene the President’s Working Group on Financial Markets. That’s something that he can ask the Secretary of the Treasury to do. . . . This has to be coordinated across markets with the regulators here and obviously with regulators and central banks around the world.” 1 The mystery over what was going on with the dollar the first week in August was solved by James Turk, founder of GoldMoney, who wrote on August 7: “[T]he banking problems in the United States continue to mount, while the federal government’s deficit continues to soar out of control. . . . So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. Central banks have propped up the dollar, and here’s the proof. “When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly. “On July 16, 2008 . . . , the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. . . . So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others.”

Ditto have done the same and agree completely. Silver is way too cheap at the moment, 62:1.

What a nice word to use to describe the present. Pronunciation: \ˈkän-ˌflü-ən(t)s, kən-ˈ\ Function: noun Date: 15th century 1: a coming or flowing together, meeting, or gathering at one point <a happy confluence of weather and scenery> 2 a: the flowing together of two or more streams b: the place of meeting of two streams c: the combined stream formed by conjunction

That is the case in the UK, at least for mortgages that they haven't sold on in MBS. These I believe may have to come back on to their books as they fail. Anyway as most of the sub prime problem is in the US anyway, that debt has to be written off quicker not stay on the books for years, trying to recover.

Perth Mint Watch - Jason Hommel Jason has a lot to say about the perth mint program.

That would be in the UK. I have a friend who was caught in the last crash, he never paid any money off his mortgage. The property was repossessed, 7 years later they offered pay half to clear the debt, 3 years later they wrote off the debt. In the US underwater mortgage holders can simply hand back the keys. Yes their credit rating is damaged, but they do not owe the money.

What about when a bank repossess a property and then gets less than the value at auction. Is this not the equivalent of letting the borrower off the mortgage debt?

Here's a couple of live gold charts USA Gold Live LiveCharts.co.uk - Gold

The Black-Scholes Atomic Debt Bomb & 7 Predictions - MAX KEISER 22/06/08 Predictions: 1) The price of gold and the Dow Jones will reach parity between 4,000 and 5,000 (i.e., gold will trade between $4 - 5,000 as does the Dow Jones Industrial Average). 2) America's sovereignty, as defined as percentage ownership of American financial assets, principally U.S. government bonds (soon to no longer be rated AAA), will be mostly in the hands of foreigners. 3) China will buy Fannie Mae and Freddie Mac and in so doing become America's biggest land lord. 4) Very few of the current Bush administration, family, and close associates will be living inside U.S. borders within 6 months after leaving office. 5) The Presidential election in November will be delayed due to a global financial crisis. 6) The U.S. military in Iraq and Afghanistan will start to run out of money and be left to get out on their own resulting in American mercenaries hiring groups like the Taliban to escort them out of the region, with Bin Laden getting a commission on each deal. 7) Russia will emerge as the new power broker in a post-America world restoring financial order between America, the largest debtor in the world and China, the largest creditor in the world.

I think other central banks have been buying dollars, which I believe was worked out at the recent G7 meeting. The reason would be to support the world reserve currency, which they all hold plenty of, and also to start a bear market in commodities and oil, to benefit all (except us). To quote James Turk from his recent article; "In the final analysis, it is fundamental factors that determine the course of markets and the process of price discovery that results from them. Central bank intervention - like fiat currency itself - is ephemeral. In contrast, gold lasts throughout the ages. So what would you rather own? A sick dollar that it requires central bank intervention to prop it up? Or gold?"

On 08/08/08 at 8:08:08am the chinese lucky number meaning wealth & prosper. Numbers in Chinese culture Eight The word for "eight" (八，捌) in Mandarin (Pinyin: bā) sounds similar to the word which means "prosper" or "wealth" (发 - short for "发财", Pinyin: fā). In regional dialects the words for "eight" and "fortune" are also similar, eg Cantonese "baat" and "faat". There is also a resemblance between two digits, "88", and the shuang xi ('double joy'), a popular decorative design composed of two stylized characters 喜 (xi, 'joy', 'happiness'). Telephone number 8888-8888 was sold for USD$270,723 in Chengdu, China. The Summer Olympics in Beijing are scheduled to open on 8/8/08 at 8:08:08pm[2] A man in Hangzhou offered to sell his license plate reading A88888 for RMB 1.12 million.[2] Dragon Fish Industry in Singapore, a breeder of rare Asian Arowanas (which are "lucky fish" themselves, and, being a rare species, are required to be microchipped), makes sure to use numbers with plenty of eights in their microchip tag numbers, and appears to reserve particular numbers especially rich in eights and sixes (e.g. 702088880006688) for particularly valuable specimens.[3][4]

Do you think the Gold seasonal August low is now in?

Yes it is a massive error. I have just checked the original article, which can be seen here, and it should have been billion. The error came because I copied the text from kiwi's post on goldismoney. Apologies.. Should learn to proof read! GF - please could you also point this out on goldismoney as I don't have an account.

Mystery Solved On July 15th the US Dollar Index closed at 71.87, the lowest close since reaching its record low in April. This index was in the process of breaking down, and in fact it had actually fallen out of its uptrend channel on the following chart. However, rather than continue lower and fall off the edge of the cliff, the Dollar Index suddenly and mysteriously reversed course. It has now risen on 12 of the 17 trading days since reaching that low, and closed today at 74.55, a 5-month high. What caused this index to suddenly pull back from the brink and then reverse course to shoot higher over the past three weeks? The Federal Reserve did not suddenly contract the amount of dollars in circulation. Its latest H.6 report shows that both M1 and M2 expanded in recent weeks, so there was no shortage of supply. The Federal Reserve did not raise interest rates during this period. Consequently, inflation adjusted interest rates remain negative. In other words, the annual inflation rate is higher than the amount of interest one can earn on a 1-year dollar deposit, which is highly inflationary and a major disincentive to holding dollars. There has not been any news exceptionally favorable to the dollar. In fact, the banking problems in the United States continue to mount, while the federal government's deficit continues to soar out of control. On July 28th Reuters reported that "The Bush administration on Monday plans to project the U.S. budget deficit will soar to a new record...because of the slowing economy and an economic stimulus plan approved this year." So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. Central banks have propped up the dollar, and here's the proof. When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly. On July 16, 2008 (the closest date of the weekly reports to the July 15th low in the Dollar Index), the Federal Reserve reported holding $2,349 million of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 million, a 38.4% annual rate of growth. To put this phenomenally high growth rate into perspective, for the twelve months ending this past July 16th, assets in the Federal Reserve's custody account grew by 17.3%, which is less than one-half the growth rate experienced over the past three weeks. So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff. With this intervention, central banks have bought some time. But alas, they have not fixed the problem. Central bank intervention does not make the dollar "as good as gold", the description that once accurately described the dollar. In the final analysis, it is fundamental factors that determine the course of markets and the process of price discovery that results from them. Central bank intervention - like fiat currency itself - is ephemeral. In contrast, gold lasts throughout the ages. So what would you rather own? A sick dollar that it requires central bank intervention to prop it up? Or gold? Published by GoldMoney Copyright © 2008. All rights reserved. Edited by James Turk, alert@goldmoney.com http://goldmoney.com/en/commentary-print.html

GF, Do you have a web link to the Doom & Gloom Update Team? Regards, PiXeL8r

James Turk of GoldMoney.com latest commentary. More Than a Helping Hand One of the basic functions of a central bank is to act as the 'lender of last resort'. This facility is used to keep banks liquid during a period of distress. For example, if a bank is experiencing a run on deposits, it will borrow from the central bank instead of trying to liquidate some of its assets to raise the cash it needs to meet its obligations. In other words, the central bank offers a 'helping hand' by providing liquidity to the bank in need. The following chart is from the Economic Research Department of the St. Louis Federal Reserve Bank. Here is the link: http://research.stlouisfed.org/fred2/series/BORROW. This long-term chart illustrates the amount of money banks have borrowed from the Federal Reserve from 1910 to the present. This chart proves there is truth to the adage that a picture is worth a thousand words. It's one thing to say that the present financial crisis is unprecedented, but it is something all together different to provide a picture putting real meaning to the word 'unprecedented'. It is an understatement to say that the U.S. banking system is in uncharted territory. The Federal Reserve is providing more than just a 'helping hand'. This chart should alert everyone to the perils of putting your wealth on deposit in a bank. The magnitude of the borrowing by banks shown on this chart is signaling that the banking system is suffering from more than a lack of liquidity. The real question we need to be asking ourselves is whether the banking system is solvent, i.e., whether the assets of banks in the aggregate have greater value than the banking system's liabilities. I distinguish 'liquidity' from 'solvency' in an article I wrote last year for my monthly column on Kitco.com. Here's the link: http://www.kitco.com/ind/Turk/turk_nov122007.html. In this article I quote Ludwig von Mises as follows: "Finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them." The above chart indicates to me that we are on the cusp of a crack-up boom. Owning gold and silver and avoiding the dollar are now more important than ever.