Curried Wealth Building
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January 23, 2011
Issue 132  -  No One Will Save You,
So You Better Save Yourself
 
 
A big problem I see in this country is the swelling ranks of those who expect the government to "save" them at the first hint of trouble.  These individuals have been trained and indoctrinated into believing that the government is there to take care of them.   Our government was originally developed to provide a framework that allowed maximum freedom while protecting the rights of others.  In other words, you are free to do as you please, but that stops short of throwing a rock through someone's window.  Property rights trump freedom.
 
This is as it should be.  Sadly, people are now willing to give up freedoms in exchange for "help", or to feel "safer."
 
The truth of the matter is that very few give a fig about you, especially in the government, and it's up to you to ensure your survival.  Here's a prime example:
 

THE FED HAS SPOKEN: NO BAILOUT FOR MAIN STREET

Ellen Brown
January 11, 2011
www.webofdebt.com

The Federal Reserve was set up by bankers for bankers, and it has served them well. Out of the blue, it came up with $12.3 trillion in nearly interest-free credit to bail the banks out of a credit crunch they created. That same credit crisis has plunged state and local governments into insolvency, but the Fed has now delivered its ultimatum: there will be no “quantitative easing” for municipal governments.

On January 7, according to the Wall Street Journal, Federal Reserve Chairman Ben Bernanke announced that the Fed had ruled out a central bank bailout of state and local governments. "We have no expectation or intention to get involved in state and local finance," he said in testimony before the Senate Budget Committee. The states "should not expect loans from the Fed."

So much for the proposal of President Barack Obama, reported in Reutersa year ago, to have the Fed buy municipal bonds to cut the heavy borrowing costs of cash-strapped cities and states.

The credit woes of state and municipal governments are a direct result of Wall Street’s malfeasance. Their borrowing costs first shot up in 2008, when the “monoline” bond insurers lost their own credit ratings after gambling in derivatives. The Fed’s low-interest facilities could have been used to restore local government credit, just as it was used to restore the credit of the banks. But Chairman Bernanke has now vetoed that plan.

Why? It can hardly be argued that the Fed doesn’t have the money. The collective budget deficit of the states for 2011 is projected at $140 billion, a mere drop in the bucket compared to the sums the Fed managed to come up with to bail out the banks. According to data recently released, the central bank provided roughly $3.3 trillion in liquidity and $9 trillion in short-term loans and other financial arrangements to banks, multinational corporations, and foreign financial institutions following the credit crisis of 2008.

Think about what is written here.  The Fed came up with $12 TRILLION to help the crooked banks, but are not going to come up with $140 billion to save the states.  What is wrong with this picture.  Remember, the Fed "imagines" money into existence.  No hard work, no effort at all, just a few key strokes.  Now they will claim they have no legal mandate to buy bonds from the states, but that hasn't stopped them in the past.  Hell, congress could just pass a new law allowing them to do it.  Is that happening?  No.
 
This is not my desire, as I believe any entity that screws up should have to suffer the consequences.  I'm merely pointing out the inequality of how different classes are treated in our corrupt system.  Of course the Fed may not want to help the states because they know it won't stop at 140:
 
US public pensions face $2,500bn shortfall
Published: January 17 2011 22:00 | Last updated: January 17 2011 22:00

US public pensions face a shortfall of $2,500bn that will force state and local governments to sell assets and make deep cuts to services, according to the former chairman of New Jersey’s pension fund.

The severe US economic recessionhas cast a spotlight on years of fiscal mismanagement, including chronic underfunding of retirement promises.

"States face cost pressure, most prominently from retirement benefits and Medicaid [the health programme for the poor]," Orin Kramer told the Financial Times. "One consequence is that asset sales and privatisation will pick up. The very unfortunate consequence is that various safety nets for the most vulnerable citizens will be cut back."

Mr Kramer, an influential figure in the Democratic party and still a member of the investment council that oversees the New Jersey pension fund, has been an outspoken critic of public pension accounting, which allows for the averaging of investment gains and losses over a number of years through a process called "smoothing".

Using data from the states, the Pew Center on the States, a research group, has estimated a funding gap for pension, healthcare and other non-pension benefits, such as life assurance, of at least $1,000bn as of the end of fiscal 2008.

Chris Christie, the Republican governor of New Jersey, said in his state of the state speech last week that, without reform, the unfunded liability of the state’s pension system would rise from $54bn now to $183bn within 30 years.

Mr Kramer’s estimates are based on the assets and liabilities of the top 25 public pension funds at the end of 2010. The gap has risen from an estimate of more than

$2,000bn at the end of 2009. He also used a market rate analysis based on the accounting used by corporate pension funds rather than the 8 per cent rate of return that most public funds use in calculations.

Pension liabilities are not included in state and local government debt figures.

Concerns about the financial health of local governments have sparked warnings of a rise in defaults for cities and towns and a sell-off in the $3,000bn municipal bond marketwhere they raise money. Last week, the interest rate on 30-year top rated municipal debt rose above 5 per cent for the first time in about two years. Amid the volatility, New Jersey had to cut the size of a planned bond sale.

Although Mr Kramer said some local governments would experience "severe strain", he did not foresee mass defaults.

"I don’t assume that you will have that level of defaults just because there are various remedies, including asset sales, that you can engage before you have to default," he said. "States have an interest in their major municipalities not defaulting."

The state of Pennsylvania, for example, last year advanced money to Harrisburg, its capital, so that the cash-strapped city could avoid a default on its general obligation bonds.

In February, Illinois, which is facing an unfunded pension obligation of at least $80bn, plans to sell $3.7bn of bonds to pay for its annual contribution.

How bad is this pension problem?  Critically bad.  Some states have laws that pensions must be paid before anything else!  Now I feel bad for anyone who is living off of a pension which is cut, but the fact of the matter is that the states are close to bankruptcy (except for Illinois and California, which ARE bankrupt) and need to reassess their priorities.  Here is the problem in visual form from contraryinvestor.com:
 
 
Why is this getting so little attention?  Public pension funds are basically flat over the last 12 years!   Where is the money to pay the retirees going to come from?  There just isn't enough money to go around.  This will probably get worse as our job market, which is the direct source of increased government revenues is not moving at all.  Check out this additional chart from contraryinvestor:
 
 
Compare the job growth of these decades.  Absolutely amazing that there has been ZERO job growth in the last 10 years.  Where are the tax revenues going to come from?
 
If we have an increasing population, why hasn't the unemployment rate surged higher during the decade?  Here' your answer: (contraryinvestor)
 
We will not take you on a wild goose chase or subject you to a lengthy discussion of the calculated unemployment rate, but suffice it to say that it understates the weakness in the US labor market.  Not only are folks who have officially dropped off the unemployment benefit rolls nowhere to be found, but the labor force body count numbers can and do influence the headline rate.  And as of now, supposedly the headcount in the total US labor force rests at a 25 year low.  Very tough to swallow as over the last quarter century the population in the US has grown by roughly 50 million folks.  And we are to believe that absolutely none of them need or want to work?  C'mon.  But this is nothing new in terms of US government data reporting.
This is the way governments report data.  Do you think it is possible for the U.S. to add 50 million people and yet the number of available workers is the same?  Of course not.  Here's a nice video that describes the process of fuzzy numbers and government reporting of statistics:
 
 
And so it goes.  The American people are so dumbed down by years of indoctrination and training, that they rarely question what's happening.  They're too preoccupied watching television drivel.   
 
A Tough Week for the Metals
 
I can't be sure if this takedown of gold and silver has anything to do with the rumored takedown (which I emailed about), but it sure looks like it.  Just about every single gold and silver investment was slammed.  The takedown, if the rumor is true, is probably not over.  Let's watch this week as I think there could be continued weakness.  Even with the large takedown, it's still totally normal for a bull market to pull back 10-20, and even 30-40% and still be nothing to worry about long term. 
 
Here's what I'd do.
 
If you are waiting to buy metal, I would still be on hold to see if the takedown continues.  This would be GOOD, as you will get lower prices.  Think of it as a sale.
 
If you are wanting to buy precious metal stocks, the time is still not here.  GORO is down 4-5 bucks, but it could go lower.  I would be a big buyer if it hits anything under $22.  That's about 10% further down from here.  That would be a fantastic price on a stock I believe could reach $70.  Of course, it could fall further, but that would make it that much more enticing.
 
The main thing is to keep your head and trust what you know about our financial system.  Buying metals and stocks is the best insurance there is and don't let a quick fall in price keep you from buying.  Treat it like a blue light special.
 
 
Positions
 
Goro  (closed at $25.02, down $2.28, average price paid, $6.10)
 
GORO had a pretty bad week.  This is nothing to get excited about unless you want to buy more.  In fact, there was a video of president Bill Reid on thestreet.com,  it can be seen here.  There was a very interesting tidbit in there where Bill says that he doesn't want to be taken out.  He mentions that if you are $100 million company and find a couple billion dollars in gold, that is dangerous.  He says they STOPPED drilling after they found so much gold.  The reason is that someone would find them as an attractive buyout.  He feels that his property is too good to give up cheap. 
 
As I've said before, this is the single most enticing company I have ever found.  The complete driver of the stock going down this week was the gold price dropping.  I believe the stock is going much higher.
 
Mexus Gold  (closed $.23, down $.02, average price paid, $.20) 
 
Mexus also had some news:
 
Mexus Gold U.S. Provides Funding for Acquisition of 7,900 Acres in Northern Mexico
 

CARSON CITY, Nev., Jan. 18, 2011 (GLOBE NEWSWIRE) -- Mexus Gold U.S. (OTCBB:MXSG- News), is a company engaged in the evaluation, acquisition, exploration and development of mining properties and conducts salvage operations for the recovery of precious metals. Mexus Gold U.S. has announced that the Company agreed to provide funding to Mexus Gold Mining S.A. de C.V. for the purpose of acquiring purchase and lease rights covering lode deposits and placer deposits to approximately 7,900 acres situated in northern Mexico. The lands are located in what is commonly referred to as the "Golden Triangle" in geological terms because of the number of gold deposits discovered in the area. About 30km to the south lays the largest open pit mine in Mexico that is a joint venture between Newmont and Penoles. Historically, the area produced a gold nugget, shown in the photo, weighing 12 kilos (26.45lbs) in total weight. Initial tests are planned to evaluate the placer deposits in February of this year.

Mexus President/CEO Paul Thompson stated, "This is a tremendous opportunity that came together after many months of effort and will provide our Company with excellent property to explore and evaluate."

If nothing else, this company is ACTIVE.  I've rarely seen such a small company do so many things.  This is their 3rd property and they are obviously still pursuing the cable reclamation project which should kick back into high gear in a few months. 
 
I'll close this blog with a video of dogs, my favorite pet animal.  Have a great week!