Curried Wealth Building
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September 18, 2011
Issue 165  -  Up Is NOT Down 
 
 
The reality of the situation is that the United States is declining.  Years of expanding debt balances and overspending have had their effect:
 
U.S. Tumbles Down Global Ranking Of Competitive Economies

GENEVA — The U.S. has tumbled further down a global ranking of the world's most competitive economies, landing at fifth place because of its huge deficits and declining public faith in government, a global economic group said Wednesday.

The announcement by the World Economic Forum was the latest bad news for the Obama administration, which has been struggling to boost the sinking U.S. economy and lower an unemployment rate of more than 9 percent.

Switzerland held onto the top spot for the third consecutive year in the annual ranking by the Geneva-based forum, which is best known for its exclusive meeting of luminaries in Davos, Switzerland, each January.

Singapore moved up to second place, bumping Sweden down to third. Finland moved up to fourth place, from seventh last year. The U.S. was in fourth place last year, after falling from No. 1 in 2008.

The rankings, which the forum has issued for more than three decades, are based on economic data and a survey of 15,000 business executives.

The forum praised the U.S. for its productivity, highly sophisticated and innovative companies, excellent universities and flexible labor market. But it also cited "a number of escalating weaknesses" such as rising government debt and declining public faith in political leaders and corporate ethics.

The results of a survey of 142 nations comes a day before Obama is preparing to tackle jobs issues in a speech to the U.S. Congress, and just as U.S. polls show a clear majority of those surveyed say they disapprove of the way Obama is handling the economy.

Switzerland held onto its top ranking, the forum said, because of "continuing strong performance across the board" with innovation, technological readiness, even-handed regulation and having one of the world's most stable economic environments.

Germany, Europe's economic powerhouse, was sixth, followed by the Netherlands and Denmark. Japan came in ninth, and Britain was 10th. France was 18th, and Greece, saddled with debt, fell to 90th.

The report looked at broader trends: While the U.S. slipped, emerging markets gained traction. China took 26th place, highest among major emerging economies; Brazil was 53rd; India was 56th; and Russia was 66th.

"Fiscal imbalances that have been building up around the world are really a danger to future competitiveness, in terms of the ability of countries to invest in those things that will be very important for competitiveness going forward, things like education, infrastructure and so on," said Jennifer Blanke, an economist with the forum.

 
The fiscal misbehavior can continue for quite awhile and all can appear to be well, but eventually gravity takes over.  We have much farther to fall before stabilizing.  We are NOT going to oblivion.  We will survive.  The outcome may be drastically different from our present configuration, but we'll be here.  Of course one of the things that will be different is our access to easy credit:
 

U.S. Credit Card Debt Grows Despite Desire To Control Personal Finances

Consumers would like to spend less, but they are falling further into credit card debt.

Two-thirds of Americans say that the financial crisis has fundamentally changed their view of debt, making them less likely to borrow or spend, according to a new report by Absolute Strategy Research.

A third of respondents to the survey said they plan to pay down their debt in the coming year, and another third said they plan not to take on any new debt.

But even as consumers have become more debt-averse, they have plunged more into debt to pay for essentials. Indeed, credit card debt has been growing at an increasingly higher rate. The rate of increase for credit card debt has risen two-thirds compared to the same period last year, and it has increased 368 percent since two years ago.

Earlier in 2011, Americans started to climb out of the vicious cycle of borrowing and spending, as credit card debt stopped increasing after two consecutive years, but they seem to be falling back into more credit card debt, even as they seem to want to borrow and spend less.

Policymakers hope that consumers will start spending again, so that businesses will be confident enough to invest in new products and hire more workers, bringing the unemployment rate down and spurring economic growth. But a double-dip recession has become increasingly likely, with Paul Krugman putting the likelihood of global recession at 50 percent, as ordinary consumers avoid buying the big-ticket items that could jumpstart the economy.

Recent volatility in the stock market has played some role in shattering consumer confidence, which has plunged to its lowest level in a year and a half. As consumers' retirement accounts have taken a hit because of recent plunges in the stock market, consumers have reportedly felt less wealthy and thus have been less likely to buy expensive products like furniture, appliances, and cars.

Since spending fuels 70 percent of the economy, economists are worried about a negative feedback loop in which less consumer spending and stock market plunges continue to reinforce each other.

"We'll just scare ourselves into a recession," David Kelly, chief market strategist with J.P. Morgan Funds, told the Associated Press.

Nonetheless, since many consumers took on too much debt before the financial crisis, which overburdened them as the economy cratered, it may be a positive sign that consumers have become more watchful of their savings.

While 28 percent of Americans in 2009 said that their income did not cover their spending, now only 13 percent of Americans said that their spending exceeded their earnings, according to the Absolute Strategy Research report.

Similarly, 51 percent of Americans now said they were making ends meet, compared to 35 percent in 2009, and a third of Americans said that their income exceeded their spending.

 
I fear that too many are living with their credit card as a subsidy to their incomes.  As the credit has increased, it has led to overspending.  This chart is exhibit A:
 
 
As you can see the GDP is growing much slower than the debt.  We can't do that forever.  But why are they printing all that money?  To protect the system.  Of course the elite are taking theirs while the system is collapsing.  Don't think they are going to suffer the consequences of this upcoming fall:
 
Wall Street Aristocracy Got $1.2T in Loans

By Bradley Keoun and Phil Kuntz - Aug 21, 2011 7:01 PM ET

Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.

By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

"These are all whopping numbers," said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. "You’re talking about the aristocracy of American finance going down the tubes without the federal money."…

 
Imagine the elite stealing money.  Surprising?  Hardly, considering they make the rules.  How do they get away with this?  It's the plan:
 
 
The current education system has been implemented, by the elite, to make America as passive and dumb as possible.  So much of the curriculum is inane or rote, that our students really have to put in extra work to excel against the rest of the world.  From lowering the scoring system on the SATs so that everyone has a higher score, to grading on a large curve, there just isn't much of substance going on in the classroom. 
 
The sheeple, in stupors from junk food and television don't even notice the evidence of excess and unsustainability:  (from urbansurvival.com) 
 
 

Monetary Inflation Shocker:  42.9% Annualized!!!!!

As I described in Saturday's www.peoplenomics.comreport (so subscribers have already been thinking about this over the weekend), something I call the Velocity of Money War has now broken out and if you know where to look, it explains a lot about why gold is pressing toward $1,900 today and could even pass the $2,000 mark as early as Thursday of this week - but no promises and our usual "This ain't investment advice" disclaimer applies, as always.

 

If you're a first-time reader, you need to understand what the Velocity Problem is:  If you think of a dollar as "working" each time it's spent, but laying fallow - not really doing anything when it's at rest, that's the core concept.

 

Back in 2000, the Velocity of Money (estimated by by green eyeshade wearing assistant editor, Zeus the Cat) was running about 2.2.  In other words, when compared with US GDP, M2 was 'turning over' about 2.2 times per year.

 

When we got into the sucky part of the global market mess, the velocity had dropped to about 1.64 times GDP and here lately it's plain old cratering.

 

I've previous bemoaned the fact that  - as my coauthor and bond guru friend Howard Hill noted in a brilliant post  last Thursday -"The bond market is shouting at you this morning..."

 

But now, thanks to the Federal Reserve's most recent H.6 Money Stock Measuresreport, we can go much further in our analysis.

 

But first, let's look closely at that Money Stocks report:

 

Look at the M1 figure (cash and demand deposits) for the month of June and then the preliminary July figure.  In one month, it was up 3.0194% in a single month  The quickie guess would put it north of 36% annualized, but how far does the 'magick of compounding' get us?

 

Pretend for a moment you start with a $100 bill.   What do you think this kind of interest rate compounds out to?  I don't mean to offend by  offering amortization tables for breakfast, but you need to see this one:

 

$100.00

Start

$103.02

Month 1

$106.13

Month 2

$109.33

Month 3

$112.64

Month 4

$116.04

Month 5

$119.54

Month 6

$123.15

Month 7

$126.87

Month 8 

$130.70

Month 9

$134.65

Month10

$138.71

Month 11

$142.90

Month 12

 

Bankers would skin you for a few fractions in there perhaps, and to be sure, this is only the M1 rate.  M2 is a little more laid back, but not much.  It's went up a mere 2.21% last month, but this still compounds to a 31.09% monetary inflation rate!

 

This is is a HUGE number and it should be screamed from the front page of every responsible financial rag in the country, but instead there is a near deafening silence about it.  Why?  Because it lays out in stark relief, the 'box canyon' the U.S. has been herded into.

 

On the one hand, the Fed has gotten way behind the power curve by not preemptively lowering rates earlier so this has kept GDP from rebounding.  Worse, the 'idiots on the hill' with their half-hearted stimulus, designed more for vote-fetching and results-getting, blew a chance to kick America's economy back into high gear.

 

Hate to say it, but the Tea Party and the corpgov's & republicorps totally blew it because while they were whacking at government payrolls, they were literally cutting the legs off from under any chance of recovery.  NOW the Fed is seeing that damn velocity of money problem and they have only two things they can do:  Print & Pray.

 

Now, all this money has to go somewhere and that somewhere is, to some extent, precious metals.  Which is why I can make outlandish predictions like $2,000 gold in a week or so, and have and even-money chance of being right.

 

The problem the Fed has (and Ben Bernanke may get smashed on the rocks of history for this) is that they don't have any way to get the economy kicked over into high gear.  So they're doing the only thing they can: print.

 
 
This is just another harbinger of the runaway inflation that is coming our way.  There is no other choice for these scumbags except to inflate.  To do the right thing would give them less time to abscond with the loot.  One of these scumbags is hard at work misdirecting the masses:
 
'Political Dysfunction' at Root of World's Troubles: Geithner

Wednesday, 14 Sep 2011 | 9:04 AM ETs

Jeff Cox
CNBC.com Senior Writer

The global economy is being held back in part by political problems that are complicating an array of other forces that have conspired against growth, US Treasury Secretary Tim Geithner said.

Speaking during the "Delivering Alpha" conference—organized by CNBC and Institutional Investor—Geithner said the US recovery is slower than many would like and that's not being helped by chaos in Washington.

"You have this terribly damaging political dysfunction here and in Europe that leaves the world wondering whether the political system has the capacity to do the right thing," he said. "That is very damaging to confidence."

 
Now I find it amusing that the masters of the universe, the bankers, are blaming their lackeys, the polititians, for the current situation.  That takes some cajones.  Of course, our populace, will probably not even utter a peep of protestation.  Maybe when we have reached the state of Greece they will have awoken:
 
 
In case it's not very clear, the interest rate for 1 year Greek bonds is now 143%.  I don't think our populace will be able to ignore that, should it happen here.  If you're Greek, and don't have real, tangible things, you're basically screwed.  Your savings of 30, 40 years has just been wiped out.  That is why I keep harping on the metals.  It seems that the powers that be are fully loaded up on gold as they are finally advising that it is wise to buy it:
 
 

Morgan Stanley: Here’s Why Gold Will Go Higher

On Tuesday September 13, 2011, 8:41 am

"The market must fear this will lead to a sharp escalation in currency wars. Gold is the only safe-haven asset that will not do QE, put in capital controls, or complain." -HSBC

Gold prices are set for their 11th annual gain as gold reached a new record of $1,921 on September 6th. Gold’s winning streak is the longest since at least 1920. There are many factors influencing record gold (and silver) prices. Recently, financial giant Morgan Stanley released a comprehensive report taking a closer look at gold.

The report explains in great detail why Morgan Stanley is bullish on gold. First, the report explains that the bank maintains a positive view on gold as portfolio insurance against several macro headwinds. These include extended low interest rates, double dip recession, and financial systemic risk. The Federal Reserve has already confirmed extended interest rates for at least another two years. The double dip recession is questionable, but only because the first recession still haunts consumers. With unemployment still above 9% and zero new job growth in August, many argue the first recession never ended. Financial systemic risk is put to the test everyday with the Euro zone debt crisis. The United States debt ceiling debacle did not help the global financial landscape either.

More Insight on Europe: Is the Swiss Franc to Euro Peg Bullish for Gold?

The gold report takes note of the Fed’s August FOMC meeting. The Fed explained that it " anticipates that economic conditions, including low rates of resource utilization and a subdued outlook for inflation over the medium run, are likely to warrant exceptionally low levels for the Federal Funds Rate at-least through 2013." Morgan Stanley believes this statement was important for gold investors, as it will strengthen demand for gold, even if the Fed doesn’t announce more controversial quantitative easing programs.

In addition to growing individual gold demand, central banks around the world are increasing their appetite for gold as well. Morgan Stanley explains, " This absence of European central bank selling activity only serves to highlight another positive feature of the gold market, namely that the official sector activity has been shifting steadily towards net purchases over the past decade. For example, in May 2011, the Bank of Mexico announced the acquisition of 100t of gold as part of a strategic asset allocation program. In addition, Russia increased its net purchases by 48t, and the Bank of Thailand increased its holdings by 26.3t, and South Korea by 25t. Year-to-date net purchases by central banks amount to 203t, compared with 76t for the whole 2010." In addition to the countries listed in the report, the Central Bank of Romania is also considering a move to double gold reserves.

Although the gold bull cycle is over a decade old, the future looks bright for gold. Investors looking to add gold to their portfolio should keep an eye on the developments discussed above. A possible catalyst for even higher gold and silver prices could come from the Fed’s next meeting later this month, which has already been extended in order to discuss monetary policy tools.

 
This would have been unheard of a few years ago.  Gold was stupid, barbaric, a relic of the past.  No longer:
 
 
That's right, now banks even have silver accounts in some quarters.  Slowly but surely, gold and silver are becoming the not so ugly stepchildren of investing.  Even the much maligned accusations of gold suppression are gaining some mainstream adherents:
 

The Motley Fool

Is Gold Being Suppressed?

By Christopher Barker
September 13, 2011

The topic of gold price suppression has been an intensely controversial idea, but because it carries sufficient ramifications for the financial world, investors need to consider the matter without jumping to a rash conclusion.

As gold's trailing price performance has been strong, it may seem counterintuitive to consider that an unhindered market could have already hit substantially higher prices. But I want Fools to understand that a large and growing number of economists, analysts, and investors are reaching those very conclusions…

 
The Motley Fool is a "value" investing web site.  For them to be bringing this up, shows they are admitting or at least allowing for the possibility that gold is undervalued.  I firmly agree.  The big question is how high can we go.  Here is a chart based on the number of dollars in circulation:
 
Gold-Backed Dollar Signals $10,000 Metal Price: Chart of the Day
2011-09-15 04:01:00.5 GMT

 


By David Wilson
Sept. 15 (Bloomberg) -- Gold has the potential to jump more than fivefold as the precious metal’s price catches up with the surging amount of money in the U.S. economy, according to Dylan Grice, a global strategist at Societe Generale SA. 

 

The CHART OF THE DAY shows the price at which each U.S. dollar in the monetary base, compiled by the Federal Reserve, would have been backed by an ounce of gold for the past half century. International Monetary Fund data on the country’s gold reserves were used in the calculation.
Grice, based in London, identified this price as the metal’s "fair value" yesterday in a report. Since June, it has exceeded $10,000 an ounce, as depicted in the chart’s top panel.

Gold for immediate delivery closed at ,819.63 an ounce on the spot market yesterday.

The bottom panel tracks the value of U.S. gold holdings, based on the spot price, as a percentage of the monetary base for the 50-year period. August’s proportion was 18 percent of the $2.66 trillion in the economy. The latter figure was more than triple the amount three years earlier, reflecting efforts by the Fed to spur economic growth.
"There is a demand for an honest currency," Grice wrote.

"The last time honesty was perceived to be so scarce -- in the 1970s gold mania -- the dollar was over-backed by gold. If it happened then, why not again?"

U.S. gold holdings peaked at 131 percent of the monetary base in January 1980, when spot gold climbed to $850 an ounce after a more than 14-fold advance in the preceding decade. The high equals about $2,330 an ounce in today’s dollars, according to a Labor Department calculator.
 
I'll take $10,000 for my gold.  In the end it will go much higher as there is no fever like gold fever.  This is a good guess for a final stability level, after the dust settles.  In case any of you are wondering why the metal mining stocks have been trailing the metal, here is an interesting snippet from GATA last month:
 

Shorting The Mining Shares Continues!

Bill:
Here is a look at last weeks’ short sales of some selected mining companies which show little if any drawback on the shorting of those stocks in spite of record highs in gold and strong silver gains! These cretins are not letting up on their program yet. These perverse profiteers/manipulators just love to bury the good miners. Here is a compilation of last weeks’ activities:

8-16-2011; AEM 41%; AG 40%; GG 25%; NEM 54%; PAAS 31%; RGLD 55%; SLW 24%

8-17-2011; AEM 40%; AG 43%; GG 47%; NEM 52%; PAAS 54%; RGLD 43%; SLW 34%

8-18-2011; AEM 51%; AG 36%; GG 50%; NEM 47%; PAAS 27%; RGLD 50%; SLW 35%

8-19-2011; AEM 26%; AG 37%; GG 47%; NEM 49%; PAAS 41%; RGLD 61%; SLW 34%

These are percentages of short sales in relation to total share volume on the day. The winner for the week is RGLD with Friday’s short sales percentage zooming to an astounding 61%! It is amazing that the price of this company rose in spite of this powerful and determined suppressive force! RGLD held the top two short sales highs followed closely by NEW and PAAS above 50%. All of the selected stocks had 50% or higher short sales days except for SLW which the vermin short sellers couldn’t the mid-30% level and AG(another silver miner). Though the stocks are moving up they are clearly being held back by the powerful forces of evil so far! Why would anyone be shorting a company whose revenues and profits are going up so? What could motivate such shorting in the face of solid and improving balance sheets? May they have a spiritual event next week!
Dan Mason

 
This is a month old, but the practice is still going on today.  How can short activity account for over 30% of the volume in a rising metal environment.  Who would take that bet?  Only a trader uninterested in profit.  The governments and banks are the only two candidates for this behavior.  Eventually this manipulation will fail and we will be off to the races.  The gains in some of these stocks will be amazing.  Hope you have yours. 
 
GORO  (closed $22.60, up $1.04, average price paid $6)
 
During a week where the shorts would have greatly profited by a close under $20, they couldn't even get it below $22.50, the next highest option strike price.  Very bullish for GORO.  They released news too:
 

Gold Resource Corp expands high grade mineralization at Arista

Tue 10:55 am by Deborah Sterescu
 

Gold Resource Corp (AMEX:GORO) said Tuesday that it has extended the high grade mineralization at its Arista deposit outside of the previously drilled envelope.

The high grade Arista deposit is part of the company's El Aguila project in the southern state of Oaxaca, Mexico, which went into production in July 2010.

Hole 111717, a step out hole drilled roughly 50 metres outside the previously drilled envelope of mineralized material, intersected 7.6 metres of 9.92 grams per tonne (g/t) fold and 129 g/t silver, and 7.28 metres of 6.19 g/t gold and 419 g/t silver.

The step-out drilling continues to confirm vein continuity and high-grade mineralization, the company said.

Other highlights of Arista infill drilling include 5.03 metres of 20.20 g/t gold and 559 g/t silver in hole 111712, and 9.79 metres of 14.89 g/t gold and 499 g/t silver in hole 111713.

The company's president, Jason Reid, said: “A step-out hole intersecting seven and one half meters of over nine grams gold confirms the continuation of mineralization outside our previously drilled envelope."

“This gold intercept and other confirmation intercepts, including five meters of over twenty grams per tonne gold and one of over two kilograms per tonne silver, demonstrate and underscore the Arista vein system’s high-grade gold and silver values.

"We are pleased with the continued high-grade gold intercepts that show this is a
significant gold mine and that we are fortunate we also have high-grade silver and base metals."

Indeed, in addition to the above noted holes, hole 111716 returned 14.31 metres of 6.96 g/t gold and 394 g/t silver, and hole 111710 intersected 5.53 metres of 6.46 g/t gold and 542 g/t silver.

All intercepts also included copper, lead and zinc credits, and Gold Resource said it expects the base metal by-products to ultimately generate enough revenue to pay for all precious metal production costs. 

Currently, the company has three surface drill rigs and one underground rig at the Arista deposit, conducting ongoing mine development and resource definition drilling.

The drill program is focused on tightening in-fill drill hole spacing as well as step-out drilling to expand the deposit for the upcoming NI 43-101 compliant technical resource report.

In early August, Gold Resource Corp reported a second quarter profit of $4.9 million, beating its first-ever profit recorded in the prior quarter, despite some challenges at its operations.

For the three months ending June 30, the relatively new Denver-based gold producer,  recorded net income of $4.9 million, or 9 cents per share, excluding losses from a storm at its El Aguila operations in April.

Even with these losses of $1.76 million, the company still generated a profit of $3.14 million, or 6 cents per share. This compares to a loss in the year-earlier period, and a profit of $2 million, or 4 cents per share, in the first quarter.

The company said it managed to generate record revenue in the latest quarter of $20.7 million, versus $11.3 million in the previous three month period - an increase of 83%.

All this was acheived despite the anomalous storm that negatively impacted April and May production at its high grade Arista mine.

In March, the company announced that it had begun the transition from processing lower grade, open pit ore, to processing underground ore from the high grade Arista deposit, which is now set to expand based on the latest drilling results.

Arista, the largest deposit discovered to date at the project, underwent cleanup and repairs that were completed in June.  In the second quarter, the company produced 13,457 ounces of gold equivalent at a cash cost of $156 per ounce, generating a $17.2 million gross profit from the mine.

Since beginning production at El Aguila last July, the company has returned more than $24.6 million to shareholders in special dividends each  month.

 
The results get better and better, and yet, the shorts continue to fight the tide.  Eventually they will be overrun.  I expect a bounce in price this week as the president of GORO was interviewed on Financial sense.  You can hear it here.  GORO part starts at around 46 minute mark. 
 
Mexus Gold  (closed $.16, up $0.005, average price paid, $.22) 
 
Word from Mexico is that they are up and running on their first gold/silver mining project.  Could produce many thousands of dollars in profit per day.  I expect news soon.  First revenues should be before year's end..
Alexco Resource Corporation -  AXU  (closed $8.90, down .18, recommended at $7.90)  
 
Stocks    (Current status, out, sold on March 18)
  
Physical Gold  (Closed $1812, down $40,  average price paid $395)
 
Physical Silver  (Closed $40.66,  down $.76,  average price paid $5.31)
 
This week's video is of pendulum waves, sounds boring but strangely hypnotic.  Have a great week!