Decoupling Myth Destroyed
April 27, 2012
321 Gold
Michael Pento
I would have thought that the decoupling myth between global economies would have been completely discredited after the events of this past credit crisis unfolded. Back in 2007 and early 2008, investors were very slowly coming to the realization that the U.S. centered real estate crisis was going to dramatically affect our domestic economy.
However, the prevailing view at the time was that the global economy — especially emerging markets — would be almost totally immune from any such slowdown. But the truth was that emerging market economies took America’s financial crisis directly on the chin, causing the Shanghai Composite Index to drop 70% in just one year.
Now investors are being told that the worsening sovereign debt crisis in Europe will leave the U.S. economy unscathed. The reason for the perma-bulls’ optimism is based on the fact that America doesn’t have a strong manufacturing base. In fact, manufacturing now represents just 10% of our once diversified and vibrant economy. Wall Street is now hoping that since we don’t make many things to export to Europe, our GDP won’t suffer a significant decline at all.
What investors have conveniently overlooked is the fact that 40% of S&P500 earnings are derived from foreign economies. And the seventeen countries that make up the Eurozone have collapsed into recession. That wouldn’t be so bad if EU (17) wasn’t the second biggest economy on the planet. Recent data points illustrate that the worsening recession in Europe will continue to bring down global GDP.
Credit Default Swap prices on 15 western European countries shot up 26% in the last month and Spanish banks now have over 8% of loans that are non-performing — an 18 year high. European banks are keeping their governments afloat by loaning them money, which they in turn borrowed from the ECB. That cannot be a viable or sustainable situation. Many European economies will suffer massive inflation and sovereign default — just as was the case in Greece — within the next two years.
More Americans Than Projected Filed Jobless Claims Last Week
April 27, 2012
Bloomberg
By Timothy R. Homan
More Americans than forecast filed applications for unemployment benefits last week, a sign that the labor market is taking time to improve.
Jobless claims fell by 1,000 to 388,000 in the week ended April 21 from a revised 389,000 the prior period that was the highest since early January, Labor Department figures showed today in Washington. The median forecast of 48 economists surveyed by Bloomberg News called for a drop to 375,000.
Fewer firings are needed to lay the groundwork for more hiring, which in turn should support consumer spending, the biggest part of the economy. Federal Reserve policy makers yesterday said that while labor-market conditions have improved, the unemployment rate “remains elevated,” helping explain why they stuck to a plan to hold borrowing costs close to zero through 2014.
5 New Lies That The Federal Reserve Is Telling The American People
April 27, 2012
The Economic Collapse
The Federal Reserve says that everything is going to be okay. The Fed says that unemployment is going to go down, inflation is going to remain low and economic growth is going to steadily increase.
Do you believe them this time? As you will see later in this article, Federal Reserve Chairman Ben Bernanke has been dead wrong about the economy over and over again. But the mainstream media and many Americans still seem to have a lot of faith in the Federal Reserve. It doesn’t seem to matter that Bernanke and other Fed officials have been telling the American people lies for years. As I always say, most people believe what they want to believe, and many people seem to want to have blind faith in the Federal Reserve even when logic and reason would dictate otherwise. The truth is that things are not going to be getting much better than they are right now. When the next wave of the financial crisis hits, the U.S. economy is going to fall back into recession, financial markets are going to crash and unemployment is going to absolutely skyrocket. But you will never hear any of that from the Federal Reserve.
The following are 5 new lies that the Federal Reserve is telling the American people. After each lie I have posted what The Economic Collapse Blog thinks is actually going to happen….
#1 The Federal Reserve says that the labor market has improved and that unemployment is going to decline significantly over the next few years.
#2 The Federal Reserve says that that U.S. economy is going to experience solid GDP growth over the next couple of years.
In fact, the Federal Reserve is projecting that U.S. GDP will be rising at an annual rate that falls between 3.1 percent and 3.6 percent by the end of 2014.
The Economic Collapse Blog says that a great economic cataclysm is coming….
Is Gold Still Cheap?
April 26, 2012
321 Gold
By Steve Saville
We addressed the above question last year and arrived at the answer: no, gold left bargain territory long ago. We remain bullish on gold not because we think gold is still cheap, but because we expect it to get a lot more expensive.
This isn’t a “greater fool” game that we are playing, in that our belief that gold will become a lot more expensive over the years ahead isn’t based on the expectation that people will be silly enough to pay a much higher valuation in the future for an asset that is already over-valued today. It is, instead, a position based on the observation that the world’s most important central banks and governments remain committed to a course that ends in catastrophe for their economies and currencies. To put it another way, gold may well be expensive relative to the current economic backdrop, but it is cheap relative to what the economic backdrop will be 5 years from now if the current policy course is maintained. And at this stage there are no signs that the current policy course will not be maintained.
Evidence that gold is no longer in the bargain basement is provided by the following long-term monthly chart of the gold/commodity ratio. Relative to commodities in general, gold hit a 50-year high late last year. In fact, last December’s peak in the gold/commodity ratio could have been an all-time high. This tells us that the gold market has fully discounted the bad policies of the past several years. As an aside, it also tells us that the fabled gold market manipulators are doing a lousy job and should be fired (gold’s excellent performance over any reasonable investment timeframe is no doubt why promoters of gold-suppression theories tend to focus on timeframes that could only be of interest to daytraders).
Is the Student Loan Bubble About to Burst?
April 26, 2012
Activist Post
By Eric Blair
In February of this year, the S&P warned that student loans may be the next bubble to burst in US economy. Moody’s also issued a similar warning in 2011.
With the interest on student loans set to double on July 1st, will it pop the student loan bubble, or is it the necessary medicine to slow down the growth of the bubble?
It seems we won’t have that debate because politicians in Washington, including both Obama and Romney, agree that raising the interest on student loans will be an “enormous burden that threatens the economic recovery.” In other words, keep the bubble going to win middle-class votes and avoid any pain.
In either case, students are already suffering from having to paying back massive principal balances because the cost of attending college has increased 439 percent from 1982 to 2007, and even more since then. Meanwhile, during that same period, median family income only rose 147 percent.
If those numbers weren’t ugly enough, CNBC reports that the total student loan debt in the U.S. is $870 billion, surpassing credit card debt, with two-thirds of it being owed by citizens under 30 years old. What’s more, this interest-rate increase comes just when it was reported that over half (53%) of recent college graduates are unemployed or underemployed.
All of these numbers seem to ensure that all recent grads face a lifetime of debt servitude, especially since student loans cannot be canceled in bankruptcy.
Through no fault of their own, students have been lulled into believing that they must attend college to be successful. This myth is the engine of the college bubble, while cheap, easy, low-interest money from the government has been the fuel that has caused the cost to soar far beyond the rate of inflation.
The UN Plan for the World: Global Carbon Taxes, Global Safety Nets And A One World Green Economy
April 26, 2012
Activist Post
By Michael Snyder
Did you know that the UN has a plan for running the world and it is right out in the open? It is called “sustainable development”, but it is far more comprehensive than it sounds.
The truth is that the UN plan for running the world would dramatically alter nearly all forms of human activity. A 204-page report on “sustainable development” entitled “Working Towards a Balanced and Inclusive Green Economy, A United Nations System-Wide Perspective” has been published in advance of the upcoming Rio + 20 United Nations Conference on Sustainable Development in Rio de Janeiro.
You can read the full report right here. It envisions a vast system of global carbon taxes, massive global safety nets and the implementation of a one world green economy. Many of those that are pushing “sustainable development” on a global level believe that they are doing it for the good of the planet. In fact, the 204-page report mentioned above even says that the transition “to a green economy requires a fundamental shift in the way we think and act” but that it will be worth it in the end.
What people need to understand is that throughout modern history tyranny has almost always been initially introduced by people that believed that they had “good intentions”. No matter how much friendly language the UN uses in their reports, the truth is that what they are promoting is an insidious agenda of absolute tyranny on a global scale.
The upcoming Rio + 20 United Nations Conference on Sustainable Development in Rio de Janeiro comes 20 years after the original 1992 UN Earth Summit that adopted “Agenda 21″. This new summit will be about renewing that commitment to “sustainable development” and moving that agenda forward.
Betting Against Fads in the Fund Industry
April 25, 2012
Bloomberg
By Lewis Braham
Imitation, the saying goes, is the sincerest form of flattery. In the financial services industry, it’s often flattery that investors could do well without: A crush of similar products in a niche market is often a sign to run in the opposite direction.
A recent example is volatility funds. In January 2009, Barclays Global Investors launched the iPath S&P 500 VIX Short-Term Futures exchange-traded note (ETN) so investors could profit from moves of the volatility index. Stocks were near the trough of one of the worst bear markets in history, and volatility was off the charts. For frightened investors eager to hedge portfolios, a fund tracking the aptly nicknamed “fear index” seemed to fit the bill.
As it turns out, the VIX had peaked three months earlier at 89.5 and has declined ever since. The ETN plummeted, delivering an annualized return since inception of -63.7 percent through the end of March. Since it first was offered, some 28 other VIX-related ETFs have followed. Not surprisingly, most have performed poorly.
Following the Trend
The problem: When a niche fund attracts a following, others try to replicate its success. As money piles in, valuations become inflated, and the cycle continues until eventually the bubble bursts. “New fund products often follow the trend instead of anticipating it,” says Jeff Tjornehoj, a research director at fund tracker Lipper.
The pattern occurs over and over. In 2000, 94 tech stock mutual funds and ETFs were launched, according to Morningstar — more than in any other year — right at the peak of the dot-com bubble. From the end of 2000 through the October 2002 lows of the bear market, the average tech fund lost a cumulative 64 percent while the S&P 500 lost 31 percent.
In 2007 there were 16 real estate mutual fund and ETF launches — more than in any year since 1997. Investors, viewing real estate as a defensive asset class, piled in. A year later, the average real estate fund fell 42 percent, while the S&P 500 fell 37 percent. And the same basic dynamic unfolded with managed futures funds when new offerings multiplied after 2008.
Weighing the Evidence of Oil and Gold Stocks
April 25, 2012
321 Gold
By Frank Holmes
The MSCI Emerging Markets and the S&P 500 indices have increased double digits since the beginning of the year. Investors should be thrilled, but instead of cheers, the only sounds the markets are hearing are crickets. Many have been asking, where are the investors?
Since January 1, another $12 billion left U.S. stock mutual funds while about $100 billion went into bond funds. This continues a mutual fund outflow trend that has been ongoing for several months now.
After leading markets since the rebound began in 2009, natural resources and gold took a break while severely punished stocks saw a big bounce in the first quarter of 2012. Taking a look at the returns below, the S&P Global Natural Resources Index rose only 4 percent and the NYSE Arca Gold Miners Index (GDM) lost 9 percent.
As investment managers, we continuously weigh the evidence, dissecting macro factors in the market and comparing historical data. We believe this is the best way to find the next opportunity for our shareholders. Using history as our guide, we compared the performance of oil and gold companies against the results of the underlying commodities over the past three years.
West Texas Intermediate (WTI) crude oil has seen a tremendous rise over the past three years. In April 2009, the price of oil was $46 per barrel; today, it’s $104. The SIG Oil Exploration & Productions Index closely followed the rise of Texas tea from April 2009 until August 2011. That’s when the disparity between oil and oil stocks began to gradually increase.
Click here for the full report.
Gold Stocks: Bearish Mirage
April 24, 2012
321 Gold
By Morris Hubbartt
UUP (US Dollar Proxy) Meltdown Chart
Money printing is the only tool available to keep the US titanic economy boat afloat. If printing stops, the iceberg is revealed and the ship sinks. This tool may keep the “economy” afloat, if you call frequent transactions with a deteriorating dollar an “economy”.
Does the velocity of monopoly money really mean anything? The US dollar is being diluted to keep the US economy from sinking, and we are only in the early stages of “The Great Dilution”.
Just when the consensus on Wall Street is for no more QE, the Federal Reserve members speak. William Dudley, president of the New York Federal Reserve Bank, has assured investors that the Fed would be on call for more QE if the economy starts to decline.
Dudley said that “the incoming data on the U.S. economy generally has been a bit more upbeat over the past few months”, but added that it is, “still too soon to conclude that we are out of the woods”.
His assessment is in sync with that of Fed member Janet Yellen. She says that keeping interest rates near zero through 2014 is necessary.
I have included two key charts of the dollar this week. The first is the “meltdown chart”, which highlights a powerful head and shoulders top pattern on the UUP daily chart.
Cash Flow is King
April 23, 2012
321 Gold
By Bob Moriarty
Cash flow is king. If you don’t believe that you may want to look at a two-year chart of Rio Alto. (RIO-T) I wrote about them just over two years ago. The stock was $.44 and they were going to soon be going into production. Recently they announced quarterly production of 55,327 ounces of gold. The market likes production and cash flow. The shares are $4.37 today after hitting a recent record high of $4.76. They aren’t as cheap as they were when I wrote about them but with over 200,000 ounces of gold a year, they are still probably pretty cheap.
I went to see a project in Mexico a week ago. It’s a production story similar to that of Rio Alto. Excalibur Resources (XBR-C) is putting up $2 million to fund a 250 TPD gold mill in the Pinos District of Zacetecas. The district was discovered by the Spanish in 1546 and mined up until the revolution in 1810. At its peak, the district was considered one of the three richest gold areas in Mexico. What I saw and the rocks I picked up confirmed that.
A 76-year-old Phd Geologist named Don McLeroy heads Excalibur’s partner up. He has spent 30 years putting the district into one company and now he wants to get it into production. His company, Minera Apolo is the operator and 51% owner, Excalibur is funding the 1st $2 million for a mill and after that, the partners share according to their ownership.
The mill is 90% complete. Don and Excalibur President Tim Gallagher watched with me as they put power to the crushers and ball mill. It may well take another 2-3 months to work out all the bugs in the system but Excalibur/Minera Apolo will be producing gold soon.
Historic records show bonanza grade material, it’s all oxide and free milling gold perfectly suitable for a small mill. At this point, grade is unknown but we hand crushed a sample and it would have been multi-ounce material. If they can do 250 tons per day at 4 grams a ton, that works out to about 10,000 ounces.
