Richard Russell: the only true standard of value

The Only True Standard of Value

from  Richard Russell's Dow Theory Letters

April 20, 2011 -- The dollar is doing just what the Fed wants it to do -- it's sinking, sinking and sinking more. Sadly, the great American public doesn't understand what's happening, and if they were told they couldn't care less. Of course, what the public does notice is the painful result of the dollar's bear market. The result is seen every time Joe six-pack and his wife hit the neighborhood super-market. The rising prices are a shocker.

And if the price of your favorite cold cereal has not been raised, there is less of the cereal in the box. Then when Joe has to fill up the buggy to get home, he groans as he sees the gasoline tab. "Sixty bucks to fill up this lemon. I'm going to get a motorized bike," growls Joey. "This country is going to hell in a hand-basket."

The US has been getting away with spending more than it takes in, ever since World War II. It's a process that isn't sustainable, and if a process is unsustainable it will end. The US's habit of spending more than it's paying for has finally hit a brick wall. The wall is the demise of the famous "Yankee dollar." In order for the US to live over its head, it must borrow.

Half of the US's borrowing comes from foreign sources. And that's a problem. The fiat US dollar has no fixed value. It's worth must be measured against other currencies. "The dollar is worth so much in relation to the Brit pound -- or the dollar is worth so much in terms of the euro." Our foreign creditors, many of whom are loaded with dollars, keep a sharp eye on the comparative value of the dollar, and they're now frightened and mulling over the credit-worthiness of the US. The recent warning from the S&P rating agency heightened our creditors worries about both the US and the dollar.

The disgraceful battle between Obama and the Democrats vs. Paul Ryan and the Republicans is further raising the fears of our creditors. With commodity inflation now out in the open, Fed head Bernanke has a problem. His absurd defense is to refer to "core inflation" (without the cost of food and energy). Bernanke announces to the world that there's "no inflation," and besides if there is inflation the Fed can end it any time they want.

What Bernanke and the Fed can not control is the tell-tale price of gold.

As I write the battle is on to keep June gold from closing above 1500. Yesterday June gold hit an intra-day high of 1500, but can it close there? "Ah," Bernanke must be thinking, "If I could only control the price of that damn gold."

Yesterday, as I looked at my computer, and I could see the fierce struggle that was going on as gold whipped up six dollars, then five minutes later it is up a dollar-fifty. There must be a powerful contingent (perhaps backed by the Fed) that is desperate to keep the price of gold DOWN and below 1500. But alas for the Fed, gold is traded internationally across the face of the

planet and 24 hours a day. Gold is out of the hands of the Fed and Goldman Sachs, and it trades everywhere and where it wants.

This year I've been telling my subscribers to think in terms of two concepts:

(1) Think in terms of avoiding losses (rather than thinking in terms of building fat profits).

(2) Think in terms of PURCHASING POWER. Are you gaining or losing purchasing power?

For ten years I've advised my subscribers to climb aboard the great bull market in gold. Early subscribers who have followed my advice now have huge paper profits, many have become millionaires, others have been able to retire on their gold positions. Even new-comers have benefited from their belated investments in gold.

Over the last 12 months, the dollar price of gold is up 31.32 percent. Gold is the only true standard of value. The value of everything else must be measured in terms of gold. "How many ounces of gold does it take today to buy a new Ford?" "How many ounces of gold did it require to buy a new ford in 1932?" It costs a lot more (in dollars) to buy a new Ford today. But how many ounces of gold does it cost to buy a new Ford today compared with the ounces required in 1932 to buy a new Ford? What has changed, gold or the dollar? Gold hasn't changed, what has changed is the dollar, which has lost purchasing power.

The US public is rapidly being educated about money and gold. Ads are appearing almost daily in the newspapers, telling readers how and why to buy gold. The ads are being confirmed by the rising price of gold. The public is finally "getting it". I've been in this business since 1958, and I've seen a lot of advisory services come and go -- a lot! What I notice is that there are a number of fairly new advisories that are climbing (entering) on the back of the gold bull market. These advisories are sending out mass mailings to the public -- educating them on the fact of the dying dollar and the Fed's plan to solve the debt problem by diminishing the purchasing power of the dollar. As Lincoln put it, "You can't fool all of the people all of the time." Clueless as the American populace is, they are finally learning about gold, something that their great grandparents took for granted.

In terms of gold: Assessing real estate values in terms of gold. At its peak, the housing market in March 2007, the median US home price was $262,600, which was equivalent to 340.6 ounces of gold. Today's median income price is $186,100 or 109.2 ounces of gold. So in terms of real money, gold, the US median home price has lost 47% since 2007.

Applying the same measurements to the Dow, from the end of 2001 to the end of 2008 an investment in the Dow would have lost 81% of its purchasing power in terms of gold (statistic courtesy Larry Edelson of the outstanding "Uncommon Wisdom" advisory).

The great and harsh lesson of history now stares Americans in the face -- no fiat currency in history has ever survived. This fact underscores the growing panic to get out of dollars and out of all fiat currencies.

This emphasizes the irony of those who are rushing into dollars or dollar denominated bonds and blue-chip stocks on the thesis that these are "safe havens." It's a rush out of dollars to get into other forms of dollars. What's happening now is on a greater scale than has ever occurred before in the history of mankind. It's going to hit the current generation of Americans like a whirlwind. It will be historic in its intensity and destructiveness.

The great gold rush of 1849 opened up the American West. This gold rush of the early 2000's will open up the eyes of Americans to the danger of the Federal Reserve and fiat money.

Below in log scale -- one of the greatest and most significant bull markets in US history.

Below, the Dow over the exact same period.

Richard Russell

Matterhorn Asset Management: A Shocking Fall

Some readers might feel that we are prophets of doom and that there is only gloomy news coming out of Matterhorn Asset Management. For people who want only good news we suggest that you listen to politicians or read the newspapers or your average stockbroker’s forecast. This is where you find the good news. But if you do listen to these people, remember that virtually nobody warned you about the events in the last couple of years, and that today most of these people are saying that the worst is over. And this is also what stock markets are telling us, isn’t it? These “optimists” whether they are politicians, bankers or from the media all make their living based on good news and this is why they will continually tell you lies and never warn you about the risks.

Investments are all about managing risk and our responsibility is to understand risk and warn investors when risk is unacceptably high. We have done this for many years and we will continue to do it. Sadly most investors base their investment decisions on hope. When government, private and corporate debt explodes the risk to the economy becomes very high. And when bank credit is growing exponentially and bank leverage is 50 times or more, this is very high risk. When derivatives reach $ 1 quadrillion with virtually no reserves against this astronomical exposure then investors should run for cover....

....With world debt probably increasing by as much as $7.5 trillion in 2009, there will be at least 100 times more paper money created than new gold produced. It can’t be difficult to forecast which money is likely to appreciate the most in the next few years – paper money with an unlimited supply or real money, GOLD, with very limited supply.

Short term gold is being suppressed by governments with the help of their bullion bank friends. Also, we would not be surprised if central bank gold has been lent to the market via the bullion banks. There has been no independent full audit of the gold in Fort Knox for decades. But we are convinced that gold cannot be held down for much longer. In the next few weeks gold will pass the $1,000 mark. Once firmly above $1,000 gold will move swiftly to probably $1,400-$1,600 in 2009. Even without the effects of hyperinflation gold will go up several times from current levels in the next couple of years.....

....It is not possible for two major economies like the US and the UK to function with 1/3 of the total population being affected by unemployment. This will lead to major economic, financial and social disasters as we outlined in our last report “The Dark Years Are Here“.

Consumers will be hit by increased costs and falling income. There will be energy and commodity inflation pushing fuel and food prices up. Interest will go up substantially, making mortgage payments rise. Government deficits will mean higher taxes.

“Government expenditure is surging and revenue collapsing. This is a recipe for bankruptcy“ ...

...House prices will decline in real terms making consumers poorer and many will lose their homes. A Deutsche Bank analyst estimates that 25% of US mortgages are under water currently and that 48% of US mortgages will be in negative equity by 2011. With almost 50% of US consumers insolvent and with real unemployment probably reaching 30% by 2011, the US will a bankrupt nation by then. Add to this a government which is already bankrupt today and it is easy to see that the US is facing total disaster in the next few years.

Still here reading?... to fully enjoy this real-life thriller please click HERE

J. Rubino: A Tremendous Secret

In his new essay, "A Tremendous Secret," financial writer John A. Rubino, co-author with GoldMoney's James Turk of "The Coming Collapse of the Dollar," foresees an imminent worldwide currency revaluation. This revaluation, Rubino thinks, will correct the biggest financial imbalance of all, the ratio between the value of the world gold supply and the supply of fiat money.

Such a prospect is not quite a secret to GATA supporters. They may remember that the British economist Peter Millar contemplated in great detail such a worldwide currency valuation relative to gold in the May 2006 edition of his Valu-Trac Investment Research newsletter, to which GATA has called attention from time to time:

http://www.gata.org/node/4843

Such revaluations, as Rubino notes, are not done gradually but overnight, so that no one can trade against them and so there is no chaotic escape from the new currency system after it is imposed.

A clue in support of Rubino's speculation may be found in the communique issued last week by the G8 conference in Italy, which said: "We will refrain from competitive devaluations of our currencies. ..."

See:

http://finance.yahoo.com/news/Sarkozy-calls-for-talks-on-apf-1742717360.html?x=0&.v=3

But of course the G8 pledge against "competitive devaluations" was not a pledge against coordinated and cooperative devaluations.

***

"A Tremendous Secret"

7/14/2009

by John Rubino

Last week FOFOA posted a long article on the coming devaluation of the dollar and how it might play out. He thinks it will be sprung on us without warning -- sooner rather than later:

The point is that during times of transition, surprises are always the order of the day. We have a crazy-out-of-control government that has given in to the temptation of printing its way out of this mess. The deflationists view this as an exercise in futility, while the inflationists say that you cannot print these amounts of dollars without it affecting the markets sooner or later. A few cunning analysts are hedging their bets saying we will see another deflationary collapse first, followed by a bout of high inflation. But nearly all of the pundits who are still predicting "doom" have lengthened their horizon to several years to make way for the slow speed at which this train is tumbling down the tracks. Frankly, I'm not buying it. Call me contrarian, but I say that when the rubber band breaks this time it will snap back with a speed and fury that will make your head spin. In fact, I think that the longer this drags out (and I'm only talking weeks and months now), the more abrupt the correction will be. Both the 38 year timeline and the 96 year timeline have created an imbalance in the fractional reserve system that has gone parabolic in the last decade. I am talking about gold. No, the price of gold has not gone parabolic, but the ratio of available gold to outstanding paper currency HAS gone parabolic. The central banks of the world are well aware of this. It is why they have slowly, inconspicuously changed from net sellers into net buyers. This gradual shift is extremely significant, because as net sellers they were supporting their own fiat regime. But now as net buyers, they, as a group, are stressing it. Why would they do this unless they knew it was about to reset? This fractional gold reserve imbalance is the one imbalance the media and governments do not want you to know about. This is the one that will RESET the entire system. This imbalance, once corrected, will make central bank fiat currencies sustainable once again. This is why they are net buyers! Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."

The idea that we’ll wake up one day to discover that the international monetary system has been “reset” and that our dollar/euro/yen savings have taken a huge hit (while the local currency value of our gold and silver soar) reminds me of an exchange in The Virgin’s Lover, by Philippa Gregory (yes, I like historical romances). The year is 1560 and the young queen Elizabeth rules a country nearly bankrupted by a Spanish alliance that produced only war and debt. The English treasury has been systemically debasing its coins by clipping and shaving them, so that their face value vastly exceeds their gold content.

Elizabeth’s advisors have decided that the monetary system needs to be reset, and have been importing borrowed gold. On the appointed day they intend to call in the circulating coins and replace them -- by weight rather than face value -- with newly-minted coins. This devaluation will transfer citizens’ wealth to the government, impoverishing the former and enriching the latter. And if all goes as planned it will come as a surprise to most of the country.

But Elizabeth’s lover, Sir Robert Dudley, learns of the plan and is not happy:

Elizabeth turned and smiled at him and took his hand and held it to her cheek. “My Robert.” “Tell me, my pretty love,” Robert said quietly. “Why are you bringing in boatloads of Spanish gold from Antwerp, and how are you paying for it all?” She gave a little gasp and the color went from her face, the smile from her eyes. “Oh,” she said. “That.” “Yes,” he replied evenly. “That. Don’t you think you had better tell me what is going on?” “How did you find out? It is supposed to be a great secret.” “Never mind,” he said. “But I am sorry to learn that you still keep secrets from me, after your promises.” “I was going to tell you,” she said at once. “It is just that Scotland has driven everything from my mind.” “I am sure,” he sad coldly. “For if you had continued with your forgetfulness till the day that you called in the old coin and issued new, I would have been left with a small treasure room filled with dross, would I not? And left at a substantial loss, would I not? Was it your intention that I should suffer?” Elizabeth flushed. “I didn’t know you were storing small coin.” “I have lands; my tenants do not pay their rents in bullion, alas. I have trading debts which are paid in small coin. I have chests and chests of pennies and farthings. Do tell me what I may get for them?” “A little more than their weight,” she said in a very small voice. “Not their face value?” She shook her head in silence. “We are calling in the coins and issuing new,” she said. “It is Gresham’s plan -- you know of it yourself. We have to make the coins anew.” Robert let go of her hand and walked to the center of the room while she sat and watched him wondering what he would do. She realized that the sinking feeling in her belly was apprehension. For the first time in her life she was afraid what a man was thinking of her -- not for policy but for love. “Robert, don’t be angry with me. I didn’t mean to disadvantage you,” she said and heard the weakness in her own voice. “I know,” he said shortly. “It is partly that which amazes me. Did you not think that this would cost me money?” She gasped. “I only thought it had to be a secret, a tremendous secret, or everyone will trade among themselves and the coins will be worse and worse regarded,” she said quickly. “It is an awful thing, Robert, to know that people think that your very coins are next to worthless.”

Now, at least three things can be gleaned from all this:

1) FOFOA is right that the world’s governments stand to gain most from asurprise devaluation, since it will prevent us commoners from preemptively swapping our paper for real things, setting off an inflation that would make an even deeper devaluation necessary.

There's a rumor that I was reluctant to mention when it first started circulating, because it seemed a little too far down the tin foil hat / black helicopter road. But in this context it seems pretty reasonable. According to widely-followed newsletter writers Harry Schultz and Bob Chapman:

”Some US embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of US cash to purchase currencies from those govts, quietly. But not £’s. Inside the State Dept there is a sense of sadness & foreboding that ‘something’ is about to happen, unknown re a date—just that within 180 days, but could be 120-150 days.” Bob quotes another source that “Panasonic has told their people to be back in Japan by Sept 09.” Harry Schultz’s remarkable take on the situation: “My HSL suspicion is that the elite plan another FDR style “bank holiday” of indefinite length, perhaps very soon, to let the insiders sort-out the bank mess which is getting more out of their control every day. Insiders want/need to impose new bank rules. Widespread nationalization could result, already under way. It could also lead to a formal US$ devaluation, as FDR did by revaluing gold (& then confiscating it). But devalue against what? The euro? Doubtful. Gold? Maybe. Or vs. the IMF basket of currencies (which seems more likely)—& much in the news recently. Any kind of bank holiday will push the US$ lower, which may be a bonus benefit to their ongoing scenario of letting the $ fall. Such a fall would get the devaluation they want without having to declare it. In sum, the insiders want more bank & system control, fewer banks & a lower US$. A bank holiday would suit all their needs."

2) The details of the plan will spread within an ever-widening circle of banking and government folks who, like Sir Robert, will demand the chance to profit from the insider trade of the century. Because such a secret is impossible to contain for long, once in place the plan has to be executed as soon as possible.

3) If the rest of us play it right, we’ll be able to at least protect ourselves, and maybe even make out (in percentage terms at least) like Goldman Sachs no doubt will.

Harry Shultz: “Obviously, U can’t open safeboxes if the banks are closed, so plan accordingly. During the FDR bank holiday, thousands of banks never reopened; it was a face-saving way of shutting them down. I would guess the same would occur today; thousands have little or no net value, loaded with debt, bad mortgages.”

FOFOA: “It matters not one iota how well you do in the stock and bond markets leading up to the reset. Neither does it matter what the "gold market" does between now and then. The ONLY thing that matters is how you are positioned on that one - fateful - day! Everything will be reset and surprises will abound.”

BUY OFFSHORE GOLD AND SILVER AT GOLDMONEY

Huffington Post: Seven Predictions for US economy

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.

...to read the entire mind-boggling, must read article titled "The Black-Scholes Atomic Debt Bomb & 7 Predictions" please click HERE

Gold Stocks - Crucial Information for the Investor - Not All Rosy

By Kenneth J.Gerbino

The big news globally is that the U.S. Federal Reserve and the Bank of England both threw in the towel on monetary policy to deal with market panics in the last two months. We believe these problems are only the tip of the iceberg of a massive credit and investment bubble that is threatening to unwind. Their only answer is more money and soon more inflation.

In the U.S., the Fed lowered important benchmark interest rates well beyond what was expected and instigated very lenient bank repayment policies for borrowed capital from the Fed. This was not to help the man in the street or to “avoid a recession”. Since unemployment is so low the Fed rate move was obviously made to bail out Wall Street and the major banking institutions. This resulted in the dollar hitting new lows and gold moving higher. These trends are likely to continue.

History tells us the truth about the Fed. In the twenty years before the Fed was created, there were 1,724 bank suspensions, in the twenty years afterwards there were 15,502. By subsidizing and protecting the banks they encourage speculation, overleveraging and excessive credit creation which leads to major banking problems that are then solved at the expense of the general population.

In England the central bank announced that all depositors of Northern Rock, Britain’s 5th largest mortgage bank would have their deposits guaranteed by the government. This was in response to a bank run which had ensued with world press coverage showing thousands of people lining up to withdraw their savings at various branches.In the future this will become a disastrous precedent encouraging more speculation by institutions and investors. Northern Rock had a $6 billion equity base and had leveraged its balance sheet to $226 billion. I suspect they are not alone and this may not be the last of the bail outs.

These actions are only the beginning of a new round of paper money injections that will surely bring on above average inflation. An excellent study by economist John Williams shows the real inflation rate in the U.S. since 1991 was annually 4% higher than government figures. Financial writer Howie Katz reports adjusting the CPI from 1983 to reflect housing costs as opposed to rents shows U.S. consumer prices have tripled not doubled as reported by the Bureau of Labor statistics. Gold averaged around $400 in 1983, it is reasonable to triple this price for a future target just based on a simple real CPI formula.

The Dollar

With the dollar at new 40 year lows, it will force Europe and other countries to devalue their currencies. If you are an international business working on 2-3% margins or less and you can now buy your U.S. goods 8% cheaper because of a weak dollar, it is an incentive to do so. This means other countries that depend on exports will not get that business and their governments will respond with competitive devaluations. Devaluations in the current floating currency environment (where exchange rates change daily in response to supply and demand as well as government intervention) can be accomplished by 1) manipulating interest rates lower (which then leads to more money creation by the banking institutions) or 2) just printing money. The central banks and the banking establishment in these countries along with the politicians also have a beautiful excuse to print their way out of the fiscal mess they are in because they cannot meet the obligations to their citizens. This is and always will be bullish for precious metals. This is one reason why precious metal ownership by way of reserves in the ground of mining companies is prudent. Precious metals could be one of the only monetary assets still standing when this excessive global credit and monetary cycle is over.

China and Japan – The Big Currency Misconception

Because of competitive devaluations, already mentioned above, the death of the dollar may not be as fast as some people think. Also one of the big misconceptions that I keep reading about is that China and Japan will soon dump their holdings of dollar denominated Treasuries because they are losing value with the dollar going down. Not true.

Follow this very carefully.

1. A million dollars of clothing is exported from China to the U.S.
   
   
2. A million dollars is sent to China.
   
   
3. The Chinese factory owners send the million dollars to the central bank and ask for the equivalent in renminbi so they can pay their workers and suppliers.
   
   
4. No problem so far.
   
   
5. But what does the Chinese central bank do?
   
   
6. They actually create (print) $1 million worth of renminbi and send this off to the factories and keep the original $1 million and buy U.S.Treasuries with it.
   
   
7. The central bank does not have to exchange the dollars for renminbi’s, they can create an additional $1 million worth of renminbi’s.
   
   
8. Since China now has $1 million in local currency they earned for the clothing does the central bank even care if the value of extra $1 million in Treasuries they own goes down by 20% or more.
   
   
9. The answer is no.

China sent $1 million of clothing to the U.S. and now they have $1 million of local currency and $1 million of U.S Treasuries. Easy money.

China now has more money in circulation (M1) than the United States. $1.9 trillion vs. $1.4 trillion. The reason is that they have been double dipping.

In the above example the $1 million they have in Treasuries is all gravy and this is what the Chinese have done the last 10 years and that is why their money supply has mushroomed. When the time comes they will most likely take the trillions they have in U.S. Treasuries and come back to the U.S. and buy buildings and factories (like the Japanese did in the late 80’s) Spending dollars for dollar denominated assets in the U.S. will have zero effect on the exchange rate. So the argument that these Treasuries are a huge overhang on the U.S. dollar because the Chinese don’t want to lose value is not true. They are so far ahead already it doesn’t matter. Of course the local citizens will now have to put up with plenty of inflation that is coming to China from all the new money floating around the country.

Gold Demand

High oil prices are flowing huge amounts of money to countries in the mid east that have been historically pro gold and the higher oil goes the more gold will be absorbed by these governments, their financial institutions and investors.

It has been estimated that all the gold in the world ever mined equals 5.3 billion ounces. This has a value of $3.7 trillion. Much of this gold is in woman’s jewelry cases and on men’s wrists or resides in peoples teeth. Global liquid financial assets are in the hundreds of trillions of dollars and global derivatives are over $450 trillion. Therefore the ratio of gold available for investment is a tiny fraction of the other investment alternatives. When further financial problems arise gold will have to rise when too much money chases too few ounces.

The U.S. Economy – Where’s the Beef?

The U.S economy has been skating on thin ice. Subtracting out the money that people have spent from refinancing their homes, the U.S. economy (GDP) has averaged only one half per cent growth annually for the last six years. This means we are living in an economy that has been fueled by consumers borrowing home equity money and this has now come to an abrupt end. This, coupled with the underlying problems in our banking system, means the only way out is a loose monetary policy. The overleveraged banking system cannot handle a recession. This unfortunate scenario coupled with more trade and budget deficits will have a positive effect on the gold price and will also contribute to future inflation.

Since 2002 crude materials in the U.S. are up exactly 100%. This is more anecdotal evidence, that the inflation rates in the U.S. will rise substantially in the coming years.

Money Creation Versus Gold

Our survey of the seven largest countries in the world and Europe show that they created $775 billion in new money in the last year. The supply of gold available for investment, outside of jewelry and industrial demand which would include bars, coins and bullion funds was approximately $13 billion. This is a ratio of 60 to 1 and does not include the money creation by the other 175 countries in the world. The point is that there really is not much annual gold supply around for investment purposes or financial insurance or a money substitute. Sooner or later the price will dramatically reflect this imbalance. India has increased it’s money supply 15.3% in the last year. This is probably why in the first eight months of 2006, gold imports increased by 86%. India could be on track to consume over 35% of 2007 global mine supply all by itself.

Because mining companies have gold in the ground, their valuations over the next decade are logically bound to increase substantially. These companies provide an outstanding opportunity to own gold in the ground via stock ownership.

Volatility and The Gold Stocks

The recent volatility of the precious metals and the mining shares unfortunately is part of the equation of this investment sector. We attempt to balance these fluctuations in our hedge fund but it is a difficult task and requires focus and discipline. You should expect volatility with your personal portfolios in the future and realize that volatility in this sector is normal. But, in my opinion, this type of volatility is a small price to pay for the long term trend that is clearly in your favor and the excellent growth and value attributes of a well diversified and hedged portfolio.

The mining sector should continue to be one of the top performing investment sectors in the coming 3-5 year period. The past actions of the Fed and other central banks mean they will surely do everything they can to avoid a credit and debt implosion that according to many experts could be in the trillions of dollars of potential defaults and bankruptcies. If this estimate is true then bailing out the institutions that are in danger will require the greatest expansion of paper money in history. The winner will be gold and other natural resources because the more money that is created the higher the prices of basic commodities and monetary substitutes (gold and silver) will go. Gold mining shares are the beneficiaries of the economic excesses of others.

It is important to be careful of exploration stocks and allocate only a small amount to this sector. The large mining stocks are now being bought by huge non gold savvy hedge funds and will create lots of volatility as we go forward. A stampede by these players either way can be profound. The developmental mining companies with solid resources in the ground and a 1-2 year horizon to production will be targets for buy outs by mid-tier and major mining companies.

Good luck - you are going to need it especially if gold goes to $1,200 and then back down to $700 and then to $2,000, which is very possible in the coming decade. So always keep a core portfolio as insurance (and long term appreciation) and a trading portfolio that rolls with the punches. Do not go on margin and do not spend much time or money on the exploration stocks as more than likely every share you buy is usually from an insider who is selling. Also if there ever is a major economic upheaval gold and silver mining companies with known and verified resources in the ground will go up dramatically but exploration companies with nothing but a geologist and promoter’s dreams will go no where because they have nothing in the ground. Remember that - they have nothing - so be careful.

For more information on the economy, stock market and gold please visit our website at: www.kengerbino.com

Ken Gerbino
26 October 2007

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Inflation domino spreads out...

Look at the 9 month wheat chart. The same familiar inflationary pattern emerges, as in all other commodities, driven upward by the constant fiat money pumped into the system.
(Pssssst: Got Gold?)

Mint suspends gold coin sales pending price increase

Gold American Eagle Sales Suspended

From Numismatic News, Cincinnati, Ohio
Thursday, September 13, 2007

Sales of some 2007 gold American Eagles were suspended by the U.S. Mint late Thursday, Sept. 13, due to the rising price of gold bullion on international markets.

Uncirculated American Eagles with the "W" mintmark went off sale with the expectation they would be repriced and returned to the market on or after Sept. 27, according to the U.S. Mint.

The $749.95 price for the one-ounce coin was barely above the highs reached by gold bullion this week.

Also suspended were bulk sales of four-coin sets of proof 2007 gold American Eagles. These sell at a discount to bulk dealers. Sales of individual gold American Eagle proof sets to collectors continue at the $1,499.95 price.

The mint will honor all orders for which confirmations have been received by bulk dealers.

* * *

Mike Kosares: Disturbing trends make the case for gold

Michael Kosares, proprietor of Centennial Precious Metals in Denver and host of its wonderful forum at USAGold.com, has updated his study titled "Disturbing Trends" which is a comprehensive case for gold ownership. As gold gets its usual bashing on the day of a Federal Reserve meeting, Kosares' study is especially compelling.
You can find it HERE

The US Dollar: On the Edge of the Abyss

By Sam Kirtley
Jul 17 2007 9:42AM
www.gold-prices.biz

We are literally about half a point from seeing the US Dollar break its single most important support level. Here, eighty is the magic number, watch the USD fall below 80 and you have witnessed the beginning of the end of the dollar and the dawn of a terrific run in gold prices that will take the yellow metal to an all time high in a surprisingly short period of time.

Over the last year, as the chart below demonstrates, we have watched the dying dollar make lower lows and lower highs. The USD occasionally makes a pathetic attempt to break its 200dma, but that has only happened a couple of times over the last year. Indeed, the USD has not been above its 200 day moving average since the 50dma crashed down through the 200dma in early April 2006.

The USD has fallen over two points in the last fortnight or so, and this rate of decline will continue if it breaks the support level at 80. When the USD was testing this support at the beginning of 2005, it went on a terrific run to 92.63 but somehow we do not think that the dollar will be able to pull another rabbit out the hat as it did then. More and more investors are coming around to the fact that the USD is dead and people do not want to hold this rapidly devaluing paper anymore. When the USD breaks 80, the whole world will see a big sell signal and this influx of people dumping dollars will send the greenback down into the abyss and its anyone’s guess how far it can fall, but it will fall…a lot.

However there is one fan of the USD, a fan that will try and keep the dollar up or at least “manage” its invertible collapse. That of course is the US Government. Armed with Ben Bernanke’s Plunge Protection Team, you can bet you bottom dollar (although shortly it might not be worth much) that they will do everything possible to make sure their currency does not have a full blown crash. They would rather that USD gradually floated down in a way that would benefit US exporters. Trying to manipulate the market is a dangerous game, as no person, company or government is bigger than the market and eventually the market will fight back and win.

In fact the more an entity tries to suppress something, whether this be the financial market or something as simple as an idea, the more drastically the suppressed force will fight back. Therefore all the Plunge Protection Team are doing by trying to prop up the dollar or the stock market is delaying the invertible and making the backlash reaction all the more dramatic. You can try to push the bad times back, but this will just make the bad times worse when they eventually come around.

It is crucial to remember that the United States on America is not the only government with an interest in which way the dollar goes. With their hands on over $1.2 trillion dollar bills, the Chinese Government must also be watching the USD like hawks having lost $100 billion of value in less than a year. The government in China is very concerned at keeping “social unrest” at a minimum so how do you think the Chinese people will react if the USD continues declining further and further down bringing their foreign currency reserves closer and closer to worthlessness. China must be looking to transfer their dollars into something that retains its value or perhaps even increases in value, after all isn’t that what investments are supposed to do?

China will look to get out of dollars and into anything that isn’t falling as fast as the USD. The private equity group Blackstone, made the biggest US IPO of the year recently and Beijing swiftly swooped in and bought a 9.9% stake in the company, using $3 billion of its foreign exchange reserves. It is likely that we will see more examples like this of China buying companies, commodities and whatever they can to get out of the dollar. Gold and silver bullion or the mining companies in the precious metals industry are obvious candidates for a piece of China’s USD pie as they move up and as the greenback moves down so they are the most logical hedge against a declining dollar.

If China and other countries holding large USD reserves shift even a small proportion of their dollars into the precious metals, it will have massive effect on gold prices and silver prices. Governments aside, individuals around the world will be looking to trade any dollars they have for a piece of gold or some gold stocks rapidly increasing in value.

So do we think the USD will break 80 in the next few days?

No. The PPT will probably buy it back up a couple of points but then it will drift down again to test the eighty level and will probably break it in the coming months. However now is the time to buy gold and silver and gold stocks and silver stocks.

For ideas on which gold stocks to invest in, subscribe to the Gold Prices newsletter at www.gold-prices.biz completely free of charge.

Sam Kirtley
www.gold-prices.biz
bob@gold-prices.biz

M3 is back!

After last year's FEDs suspect decision to hide M3 from prying public eyes (to conceal the embarrassing proof of continuous money supply increase), a group of stubborn investors who wouldn't take no for an answer, put up a financial web site and managed -inter alia- to resuscitate this most-hated-by-central-banks index.

The M3 is back folks!...along with dozens of other indexes and graphs.



Go check'em all out HERE.

The venerable Richard Russell on Gold

More investment wisdom from Richard Russell's newsletter...

"... I noted on yesterday's site that gold is now advancing against all fiat currencies. And against some, like the Japanese yen, gold has become an almost irresistible buy. The chart below follows gold in terms of yen over the last two years. First, we see the big rise to the May 2006 high. Next, a correction as gold formed a huge symmetrical triangle. And most recently, gold has broken out of the triangle to match its May high.


Looking at this chart, you wonder how the Japanese can not be buyers of gold. As a matter of fact, I believe they are buying gold, but still in conservative quantities. In due time, I think all currencies including the dollar are going to resemble this chart. Ten or twenty years from now, who knows what will be left of the dollar or the euro or the yen? But one thing I can guarantee -- come what may, an ounce of gold will still be an ounce of gold. In time, most of the world will understand this. And the latest great adventure in man-made fiat money will be over.

I lived through and was active during the great gold bull market of the 1970s. That bull market was based on fear of the loss of purchasing power of the dollar, in other words, fear of inflation and dollar weakness.. The current bull market in gold is still in its early stages. But I think in its later stages, this bull market in gold will be based on fears about the very survival of fiat money.

If the US government told you that they had suspended the laws of gravity would you believe them? Of course you wouldn't. Then how about this -- if the US government told you that they could print wealth would you believe them? Of course you would -- and we're all working for Federal Reserve Notes aren't we? Sure we are, and we can buy a car or a dinner or even a subscription to Dow Theory Letters with those Notes. My advice, just put those dollars away for your kids.

I want to add one concept here that I don't think most people understand. It's the idea of devaluation, or lowering the value of an item. But when we say the dollar is being devalued, we have to ask, "Devalued or lowered in value against what?" And the answer is always, lowered in value against time honored intrinsic money -- gold. Of course, "the dollar being devalued" is a concept that the Fed doesn't want to hear about and doesn't want you to hear about. A "dollar devaluation," that sounds terrible.

But that is exactly what is happening when the price of gold rises in terms of dollars. Here's an example. In the year 2001 George Bush was elected President. Gold at that time was selling for 285 US dollars an ounce. Here in 2006 gold is selling; for roughly 660 US dollars an ounce. In other words, the US dollar has been devalued against gold, by almost 60%. Why don't you ask Dr. Benjamin Bernanke, our Fed Chairman, about the ongoing dollar devaluation. Chances are, if he is willing to respond at all, he'll tell you that the Fed is watching carefully and has inflation under control Sure they have. "But Ben, you're changing the subject, what about dollar devaluation?"

So just in case the dollar continues to be devalued, my advice is to own some gold. You see, just as the dollar is being devalued, gold is being revalued."

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