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April 23, 2011
Issue 144  -  What Happens If the U.S. Is Downgraded?
 
 
This week brought the first public pronouncement of the true state of things in the United States:
 

S&P puts U.S. credit rating on negative watch

News that Standard & Poor's has the U.S. Treasury's AAA credit rating on notice is sinking the market today, but expect more of this. S&P formally warned that unless Congress can get the $1.5 trillion budget deficit in line, there is now a 1/3 chance that the United States could lose its pristine AAA rating by 2013. This kind of news comes in cycles. While today's update triggered losses in the stock market, the dollar index DXY ( quote ) is actually gaining ground this morning. Traders think that while the United States is in a vulnerable position, other global economies -- the European Union, Japan -- look even more fragile at the moment. Despite claims that this is pushing vast amounts of money into gold, both GLD ( quote ) and GDX ( quote )are down this morning. And from here, if the markets can hold their mid-March lows, that would be very important in establishing a higher low for the SPY ( quote ) in particular. On that front, so far, so good. If SPY dips back below $126.18, we will be in a condition of lower lows and lower highs -- not a great situation by any stretch of the imagination.
 
 
Wow, how blind do you have to be to notice that we are FAR from AAA credit worthy?  The idea that we still have a AAA rating is completely bogus and this "warning" is pretty wimpy.  Our finances are in such bad shape that I wouldn't lend Uncle Sam ten bucks.  I understand that the S&P doesn't want to rock the boat, but this is way past closing the barn door after the horses already escaped.  Here is a brilliant explanation of how silly putting a bankrupt entity on "watch" is:
 
 
Peter Schiff is right on the money here.  If there is any chance we can default, then how are we still AAA?  Doesn't make sense.  If we couldn't issue the reserve currency, this wouldn't be happening.    Does this story strike you as one that would be coming from a country that is AAA?

Government Cash Handouts Now Top Tax Revenues

By Elizabeth MacDonald

Published April 20, 2011

| FOXBusiness

U.S. households are now getting more in cash handouts from the government than they are paying in taxes for the first time since the Great Depression.

Households received $2.3 trillion in some kind of government support in 2010. That includes expanded unemployment benefits, as well as payments for Social Security, Error! Hyperlink reference not valid., Medicaid, and stimulus spending, among other things.

But that’s more than the $2.2 trillion households paid in taxes, an amount that has slumped largely due to the recession, according to an analysis by the Fiscal Times.

Also, an estimated 59% of the 308.7 million Americans in this country get at least one federal benefit, according to the Census Bureau, based on 2009 data. An estimated 46.5 million get Social Security; 42.6 million get Medicare; 42.4 million get Medicaid; 36.1 million get food stamps; 12.4 million get housing subsidies; and 3.2 million get Veterans' benefits.

And the handouts from the government have been growing. Government cash handouts account for a whopping 79% of household growth since 2007, even as household tax payments--for things like the income and payroll tax, among other taxes--have fallen by $312 billion.

That is a tough feeding trough to take away from voters.

-END-

This is a complete impossibility on a long term basis.  Of course, in the short run, it makes it easier to get re-elected.  It seems that the facade of the United States is crumbling.  The man behind the curtain is now being revealed.  Eventually, the whole thing will come down and we will have to start over.  How long will that take?  Not sure, but I'd be extremely surprised if it takes more than 3-5 years and I wouldn't be surprised at all if it happened before the end of next year.  Another video describing the complete fraud that is the Federal Reserve:  (this is a very good description of a complicated topic and well worth the 12 minutes to watch)
 
 
Think about this for a minute.  The Federal Reserve is selling insurance (really cheap) on the risk that interest rates will rise.  This is essentially putting a cap on interest rates.  If the owners started selling treasuries, interest rates would rise because remember, the higher interest rates, the lower price one can get for a bond.  (you wouldn't pay the same for a bond paying 4% when new bonds are offering 5%, right?)  So, this cheap insurance is encouraging people to keep their bonds and just buy the insurance.  THAT is why interest rates are not rising.  Also, as the video points out, this is basically selling insurance on your OWN debt.  That is not possible!  I can't lend you money and then sell you insurance to make certain that I pay you back.  Well, I could, but you would not buy the insurance as it is illogical.  Insurance MUST be from a 3rd uninvolved party.  That's how it works.
 
Eventually, this game will end as interest rate pressures will finally exceed this contrived "fix."  Once interest rates rise by a significant amount, and this will probably happen VERY quickly, this "cheap" insurance will have to pay off.  Where will the Fed get the money to pay these insurance holders off?  The printing press.  This is HIGHLY inflationary.
 
Which takes us back to the only thing that has PROVEN it's staying power over centuries, precious metals.  In case you haven't noticed, they are screaming higher.  This is not a coincidence.  More and more people are moving into the area as protection. 
 
There are three phases to a bull market.  The first phase has the "smart" money accumulating an unloved asset at super low prices.  As the asset moves up in price it garners the attention of larger professional investors such as mutual and pension funds.  This phase has JUST started.  We have officially entered the 4th inning of this game.  Last week's story about the $1 billion dollar purchase of physical gold confirms it.  This will take gold and silver much higher than they are now.  Once that has occurred, the public will get interested.  This is when the rises in gold and silver stocks will take your breath away.  Here is how Richard Russell, the longest ongoing investment writer in the business, describes what he sees coming:  (kingworldnews.com)
 
The Great Gold Tsunami Lies Ahead
 
With gold and silver continuing on their historic run, the Godfather of newsletter writers Richard Russell had this to say in his latest commentary, “Gold -- The desperate battle to keep gold below 1500 continues. I watched the erratic action of gold near yesterday's close. I'm fascinated to see whether June gold can close above 1500 or whether the anti-gold contingent can manage to knock gold down (again) below 1500.

The action is now so blatant that it literally screams of manipulation. At its high yesterday, June gold sold at 1506.50. At yesterday's close, June gold was trading at 1498.10. It's almost embarrassing to watch the action. What we're seeing is the anti-gold crowd and the manipulators vs. the great primary trend of gold.”

April 22, 2011

 
Russell continues:

“I've tried to emphasize this, but the key here is PURCHASING POWER. When the dollar price of a loaf of bread rises from $1.90 to $2.10 that means something to the average American. But when the Dollar Index drops from 75 to 73.97 the average American doesn't understand it and isn't the least bit interested. 

Why the battle to keep gold below 1500? Markets tend to stop at big even numbers. Many of us old timers remember the battle of "Dow one thousand." We remember how the Dow fought month after month to close decisively above 1,000. Then, once above 1,000 the Dow was on its way to 2,000, 3,000, 4,000 and finally 5,000. From there the Dow battled to move above 5,000 -- on its way to 10,000.

The battle about gold closing above 1500 is that once above 1500, technically gold will be on its way to 2,000. And from there 5,000 will be the target. So 1500 is a psychological barrier that, from the bull's standpoint, must be bettered. But from the anti-gold crowd's standpoint, gold must be held (on a closing basis) below 1500. 

The answer: As I see it, the primary trend of gold remains bullish. In due time, gold will gather the strength to close above 1500. The gold-bears will be defeated. It's only a matter of time. 

The Coming Gold Tsunami -- We're moving nearer and nearer to the edge of the hurricane. I can feel it in my bones. Every newspaper now carries an ad for gold. 

Is there a gold bubble? Are you kidding me? Here's an ad that somebody paid for suggesting that people should turn in their gold (!!) for Federal Reserve Notes. They're not telling you to buy gold during one of the greatest bull markets in history -- hardly, they're asking you to throw parties in which the object is to get ignorant people to SELL their gold. 

I can feel them caressing my face -- the early breezes. They are blowing gently and hinting of the forthcoming gold hurricane that will sweep across the US and the planet with all the force and power that was seen when gold was first discovered at Sutter's Creek during the California gold rush of 1849. The gold rush of the 2000s is in the wings. The old phrase is ringing in my ears again (I haven't heard it since the late '70s), "There's no fever like gold fever."

If the temperature of full gold fever is a hot 106, we're only at 99 now, but I can feel it, I can tell you that the temperature is rising.

The panic to buy gold will override everything else. It will be one of the greatest financial phenomena that most of today's investors will ever see. It will blot out everything else like a cloud blotting out the sun.

After the calm, comes the storm. We've been watching ten years of gold climbing amid an atmosphere of calm. The great gold tsunami lies ahead. It will be historic.” 

Many years ago when I used to write, Richard Russell would publish my work quite a bit.  One time when he published a piece I had written he referred to me as Eric “The King.”  That may have been flattering at the time but in reality there is only one “King” of financial writers and it is Richard Russell. 

In the twilight of his career this old timer once again pulled a rabbit out of his hat by nailing this secular bull market in gold in the early stages.  He’s kept his subscribers long while many others have been bucked off of this golden bull.  I guess maybe Russell learned a thing or two over more than half a century of writing about the markets.  Russell is correct, when this gold bull finally crescendos it will be one for the history books.  

To subscribe to Richard Russell’s Dow Theory Letters CLICK HERE.

Eric King

This is what lies ahead:  much higher gold and silver prices.  All the while, the American media talks of bubbles and plentiful gold and all types of other nonsense.  Here is a video showing a much different picture....in China, a country that is actually encouraging their citizens to buy gold:
 
 
The elites, who are now accumulating gold, want you to be distracted and confused.  Who do you think is behind all these "gold buying" parties?  "Sell your old useless gold now!"  People selling now are in for one horrific surprise when gold finally starts REALLY rising. 
 
Silver is even more depressed in price.  This is even with silver approaching all time highs. There are, however, many ways to see the deception and subterfuge.  The first thing you can look at is the difference in price between SLV and PSLV.  SLV is the "silver" ETF which is supposedly backed by silver.  PSLV is an ETF that is definitely backed by silver.  PSLV was recently launched by Eric Sprott, a completely honest individual, who I've never heard a negative thing about in 10 years of reading about metals.  All of their silver is audited.  SLV is run by the crooks in cahoots with the Federal Reserve.  Let's take a look at how these too "silver" vehicles have performed in side by side comparison:
 
 
Now remember, CNBC, et al, will INSIST, that SLV is the exact same as buying silver.  So why is it falling further and further behind?  Simplest question EVER!!!!  They don't have the silver!  If they did, there is NO way the prices would differ that much.  This all plays into the mass manipulation that is occurring.  Here is another video describing how this works in silver:
 
 
So there you have it.  All of the gains while New York (Federal Reserve) is out of the picture and all of the pain, while they are at work.  Coincidence?  No way.  One last piece of evidence that our silver market is a complete farce:
 

The True Price of Silver

I would like to reassure Gold-Eagle readers that the daily price shenanigans on the Comex do not reflect the true price of silver bullion. How do I know this? I know the price of silver prevailing in the largest silver jewelry market in the world - India. And you can, too. All you have to do is visit the website of the Bombay Bullion Association at www.bombaybullion.com to confirm the silver price. Silver prices are quoted in Rs. per Kg. The closing price on Thursday, April 14, 2011 was Rs.61,585 per Kg. Since there are 32.1oz to a kilo, the price per oz comes out to Rs.1918.54 per Kg.

Next, check out the rupee-to-dollar conversion rate. At the time of writing, the rate was Rs.44.4050/US$. Using this conversion rate, we arrive at the price of silver at $43.21/oz. In fact, the price has hovered around $43/oz for several days now. Compare this to the manipulated price on the Comex, which has varied from $37 and change to almost $42 per oz.

Now, here is some up-to-date information that you will not find on any website. Refineries in India have been out of silver since April1, 2011. The only silver that has been traded since that day has been scrap. April 4 was GudiPadwa, which is the Maharashtrian New Year. It is an extremely auspicious day in the State of Maharashtra, and significant amounts of jewelry are bought around that time. Bombay, or Mumbai, with all its wealth, is in Maharashtra. Ordinarily, you’d expect demand to wear off after a big holiday like this. But it hasn’t. And, of course, there is a shortage. People who want to buy bullion are asked by the dealers to call back in 7-10 days. The refineries are idle.

 
This is a week or so old, but the point is valid.  REAL life sales of silver are happening at a higher price than the phony "spot" price.  Again, the paper market (like SLV) is controlling the real market.  However, this is breaking down.  Eventually it will fail.  The true price will manifest.  Make sure you have your REAL silver (and gold) before the hammer drops.
 
Positions
 
GORO  (closed $29.68, up $.83, average price paid $6)
 
Goro had quite a week with the first ever close over $30.  Unfortunately, they had a tremendous rain storm where they received 10 inches of rain in about 3 hours.  This strange event caused some flooding in the lower level of their decline ramp in the underground mine.  This will delay things for 2-3 weeks while the water is removed.  This should have minimum long term effect on the company's performance.  They are going to take steps to ensure that any future rains don't have an impact.  I would take any weakness in the price to accumulate more shares up to $35.
 
Mexus Gold  (closed $.22, up $0.01, average price paid, $.22)
 
A couple things to report on Mexus.  First, there was bulletin board message from someone who seems to have an inside track that the boat will sale on May 2.  Also thanks to Jim for getting some info from PR:
 
Hello Ms. Black,
 
I have a couple of questions regarding Mexus Gold.
 
1.  Can you quantify the length and or the weight of the cable that was salvaged last year?
 
2.  Can you confirm if a there is a royalty agreement in place with Universal Systems, Inc. (UVSS) for the cable salvage project and if so what is the royalty percentage?
 
Thank you very much,
 
Answers:
 
Jim,
 
In regards to your questions
 
1. About 52,800 feet of cable were pulled late in the season last year. It was mainly done to test the equipment and the crew, and it was very succesful for that purpose.
 
2. Yes Universal Systems Inc has royalties in the cable salvage operations they have 22 2/3% royalties.
 
Thank you for your questions.

MEXUS GOLD US
1805 N. CARSON ST #8
CARSON CITY, NV 89701
 
There is FINALLY confirmation that they will pay a royalty.  We had heard it was in the high 20s so the fact that it is 22 2/3% is a good thing.  The revelation that they pulled 10 miles of cable also was a surprise.  We had estimated only a couple miles.  This really bodes well for this year and that they will be able to pull a LOT of cable.  If they pulled that much while just fooling around and calibrating the equipment, with a permanent crew it should just get better. 
 
Stocks    (Current status, out, sold on March 18)
 
Physical Gold  (Closed $1,508,  up $22,  average price paid $395)
 
 
Physical Silver  (Closed $46.68,  up $3.63,  average price paid $5.31)
  
This week's video is of a young lady who has a little too much free time.  Have a great week!