Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
September 4, 2009
Issue 60  -  Golden Lifeline
 
I haven't written much about gold lately, but since it is making another run at $1,000, I thought it was a good time.  Gold is only one thing, money.  It's not a commodity.  It's not a liability.  It's not an asset class.  It is money.  What is the future for gold?  I think it is up.  Time frames are not predictable, but the ultimate direction is.  Gold is an ABSOLUTE necessity for your portfolio.  No excuses.  Gold has made new highs for 8 straight years.  Do you know of any other investment that did that?  There isn't any.  One thing that most people don't know is that the gold of the United States is never audited.  Why is this?  How hard could it be.  EVERY government agency does an audit of all equipment over a couple thousand bucks.  Why isn't the gold counted.  Is something being hidden?  Is it gone?  From GATA:
 

"WhyWon't the Fed Show Us (the Taxpayer) Our Gold?

For some reason, Ben Bernanke and the Federal Reserve have decided that they do not need to show the world, and especially all the inquiring U.S. Taxpayers, proof that the U.S. Mint holds in physical custody the 8100 tons of gold that the U.S. has been reporting going back to the Bretton Woods Treaty signed in 1944. The last time a genuine independent audit of the 8100 tons was performed was when Eisenhower was President.

The question is raised then, how come the Federal Reserve is putting up a formidable legal blockade in order to prevent GATA (the Gold Anti-Trust Action Committee) from gaining access under repeated Freedom Of Information Act inquiries? Wouldn't everyone reading this like to see, for sure, that the 8100 tons really exists? This is OUR gold folks.

Here's a link to the latest attempt by GATA to force the Federal Reserve to show proof to the world that the United States' gold holdings is bona fide:

Please Ben, Show Us Our Gold

Undoubtedly, this issue among several, are the reasons why the Fed hired the former Enron chief lobbyist, Linda Robertson, and is spending millions to fight the attempt of Congress to force an audit of the Fed. At last count, Ron Paul's HR 1207 had 282 co-sponsors - and Barney Frank is sitting on that Bill in Committee and it would overwhelmingly pass a Floor vote - and Bernie Sander's similar Bill in the Senate now has 23 co-sponsor's. Moreover, polls show that 75% of all Americans would like to see this Legislation passed into law.

Here's my compromise: forget the full audit, just show us our gold. What are you trying to hide Ben?"

 

What if the gold is not there?  Do you suppose that would have a positive effect on the price of gold?  Might the government want to keep the "canary in a gold mine", so to speak, under wraps?  I firmly believe that gold is a fundamental concern of the Fed and they will do anything necessary to keep it's price under control.  I intend to use this information to my benefit.  The key to the gold price suppression is the physical market.  When a physical market runs out of physical, the paper market loses.  That day in gold is much closer to happening.  This also applies to silver, although in a less significant way.  Here is some very encouraging news for silver, again from GATA:
 
"For the last two years I have followed the economic events with a bit of disbelief that the cartel could repair the damage. There have been so many bullish events for gold and silver which have had little or no effect on their prices, that when another bullish event occurs, it is human nature to think it will have little effect also. I think the recent moves by China are going to change this status quo. One of their moves was to nearly eliminate exports of rare earth minerals of which China produces nearly 90% of the world total. Their most recent stunning move was the declaration that their government run companies reserve the right to default on their derivatives. The one that will kill the cartel though is their legalization of silver ownership by Chinese citizens. As far as I can tell, Chinese officials announced this change on July 30, 2009. The silver price at that time was $13.40/oz. The price now is $15.38/oz which is a $2 gain in one month. This has to have the cartel talking to themselves with a sense of impending doom. America was supposed to be the free and capitalistic country and China was supposed to be socialist at best, but now Chinese officials are promoting silver to their citizens and telling them that it is undervalued. Can you imagine U.S. Press Secretary Robert Gibbs doing that? The bars for sale to the Chinese public are ½, 1, 2, and 5 kilograms of silver which equate to 16, 32, 64, and 161 ounces each. There are 400,000,000 households in China and the government is recommending that they invest 3 to 5% in precious metals. Can you imagine if just 10% of these households buy a ½ kg bar per year? That is 40,000,000 x 16 = 640,000,000 ounces of silver per year. That’s your total world annual silver mine production right there. If Bunker Hunt and a couple of Arabs could take silver to $50, what can 1,300,000,000 Chinese do? Pick a number, $50 silver? $100 silver? Regards,
Bryant"
 
Silver, the poor man's gold, will outperform gold.  This is due to it's relative shortage.  Remember that silver is rarer than gold and that will be reflected in it's price, sometime in the future.  Here's another snippet from GATA:
 
 

"Hi Bill -
Here's a picture that should make any fiat money advocate sweat! The rumors of US Dollar printing presses cranking out truck loads of $100 bills around the world are getting louder and louder.

As per my post a few days ago....Why has the US not released the new, counterfeit proof, $100 bill if it is the most counterfeited bill in the world?

This is not rocket science.

Total monetary destruction is at our doorstep....

Got Physical?"

 

Yes, why haven't they released the counterfeit proof bill?  Could they want the inflation game to continue?  The authorities desperately want to avoid a deflationary collapse.  This would be total devastation to the economy.   The economy is in dire straights as shown here from urbansurvival.com

  

"1.  See Table A.  The civilian labor force reportedly shrank 422,000 in the most recent month. 

 

2.  See Table A.  Number of people not in the workforce increased by 637-thousand.  If you're confused when payrolls fell by only 216,000 for the month, don't feel like the Lone Ranger.

 

3.  See Table U-6.  The number of people who are unemployed, plus all marginally attached workers, PhD's flipping burgers and so forth was 16.8% this month, up from 16.3% last month.

 

4.  See CES Birth/Death Model Adjustments:  This is the 'statistically made up because we think so" department.  Hmmm, lemme see here:  15,000 new jobs in construction...sure, whatever... 26,000 in professional services, and 24,000 leisure and hospitality.  Uh huh.  In all, 673,000 new jobs have been 'estimated into existence' since January and if you back out January, it's more than a million jobs that have been 'estimated into existence' so far this year.".

 
 
Governments try more and more nonsense as they get desperate.  How, when the economy is collapsing, did 1,000,000 jobs get created from new businesses?  It just doesn't seem feasible.  Especially when I read this:

 

"Food stamp list soars past 35 million: USDA
Thu Sep 3, 2009 3:17pm EDT

"WASHINGTON (Reuters) - More than 35 million Americans received food stamps in June, up 22 percent from June 2008 and a new record as the country continued to grapple with the worst recession since the Great Depression of the 1930s."

 

Food stamp receipitants are up 22% over the last year, but there were a million more "make believe" jobs created?  I don't think so.  Doing the math, there are over 6.3 million more people receiving food stamps then a year ago.  That's 2% more of the population relying on the government to eat.  Does that sound like a firm footing for an expanding economy?  How about the retail industry, that's picking up right?  Uhhhh...no.   From Gata:

 

 

"I'm not sure where Bernanke gets off telling the world that he saved us all from global financial nuclear meltdown, he can't even diagnose the state of the U.S. economy. Anyone see "green shoots" or "signs of recovery" in these numbers? And don't forget, August is the heart of "back-to-school" sales for retail. These were big retailer August same-store-sales released today:

Saks -19.6%, JC Penney -7.9%, Nordstrom -7.6%, Target -2.9%, Abercrombie Fitch -29.7%, Macy's -8.1%, Dillards -12%, Gap -3%, Limited -4%.

And don't forget that auto sales for August released earlier this week were much worse than expected, and were quite negative for GM and Chrysler. The economy is still spiraling down, despite the $23 trillion in direct Govt/Fed stimulus and toxic debt guarantees. The only thing Banana Ben Bernanke saved, with help from Obama, Geithner, and Larry Summers, was massive bonus packages for Wall Street."

***

 It really can't be that bad, can it?  Maybe it's worse.  Watch what this retail expert has to say:

 
 

This guy says we are going to close 200,000 stores!  But things are getting better?  Doubt it.  Oh, and those 2000 more bank branches that he says need to go away.  Yeah, things are really looking up.  At least consumers have their credit cards to count on.  What, those limits are being reduced:

 

"Banks Cut Credit for 58M Card Holders in 1 Year

 

By THE ASSOCIATED PRESS

Published: August 20, 2009

Filed at 2:31 p.m. ET

MINNEAPOLIS (AP) -- Credit cardcompanies slashed limits for an estimated 58 million card holders in the 12 months ended in April, even though a high percentage had good credit scoreswhen their limits were cut.

The widespread cuts hurt about a third of consumers, but most people did not see a big impact on the credit scores, according to a study by FICO, the company that produces the most widely known credit scores. The limited effect may be because lenders often cut limits on cards that were unused or lightly used.

The statistics in some ways verify complaints from consumers that they were targeted despite doing nothing wrong, but also show that the cuts seem to have little negative effect for the majority of people.

FICO, formerly called Fair Isaac Corp., separated the cuts into two waves as it examined data provided by credit reporting agency Equifax. About 25 million card holders saw their limits cut between April 2008 and October 2008. Limit cuts jumped 32 percent in the following six months, as the economy faltered and banks looked for ways to cut risk.

Focusing on the 33 million card holders in the group that saw cuts between October 2008 and April 2009, FICO found the majority had strong credit histories.

About 73 percent of the group, or 24 million, had credit limits cut despite no new negative information in their files. Lenders may have used information not in credit reports to decide whose credit limits to cut, FICO spokesman Craig Watts said.

FICO said this group had a median credit score of 760, on a scale of 300 to 850. That's above the median score in the U.S., which stands at 723.

The results support the perception voiced by many consumers that the cuts to their credit limits took place despite holding up their end of the bargain by making on-time payments, said Gail Hillebrand, senior attorney with Consumers Union. ''The consumer perception that 'I did everything right and my limit were cut' is true,'' she said.

FICO said 9 million card holders, or 27 percent of the group it examined closely, had negative information like late payments in their histories. That information might have triggered their cuts, FICO said. Late payments are considered a sign that the individual is a higher credit risk.

The average credit limit reduction from October through April was $5,100, more than double the cut for comparable consumers six months earlier, FICO said.

That total represented about 14 percent of the average total revolving credit for the group hit with cuts, the study said. The credit reports for these consumers typically showed very low account balances and low ''credit utilization'' ratios -- the amount of available credit that the card holders actually used. They also had few, if any, reports of missed payments and long credit histories, FICO said. These elements all play big roles in determining an individual's credit score.

Hillebrand said one group that was hurt by limit cuts but has gotten little attention was small business owners who used their personal cards to fund their companies. In some cases, the cuts created cash-flow problems, she said.

About one-third of the group FICO took a close look at, or 8.5 million people, saw their credit scores drop after their limits were cut, typically less than 20 points, FICO said.

The cuts had ''negligible impact'' on the scores of about 3.5 million people, and 12 million consumers saw score increases.

Credit scores are used by banks and other lenders as part of their formulas for determining if a borrower is a good risk. Higher scores are usually considered to indicate lower risk. That translates into consumers with higher scores typically being able to get lower interest loans and credit cards, making it cost less for them to borrow money.

Hillebrand said the results show the importance of managing credit carefully, including regularly using cards to keep them active and keeping a close eye on balances. ''The only way to protect yourself in this environment is to keep your balances as low as you can,'' she said.

The study was released on the day when new credit card regulations signed by President Obamain May start taking effect.

The new rules at first require banks to notify consumers if they are changing credit limits, interest rates or other significant parts of a credit agreement 45 days before the changes take place. They must also give customers the chance to close accounts if they don't want to accept interest rate hikes, and pay off balances at the lower rates.

Banks must also now give customers 21 days to make payments after statements go out, up from the prior 14.

In February, broader regulations will kick in, covering issues ranging from how payments are applied to how card companies can market cards to college students."
--
:

If things turn for the worse, as I expect, these cuts will start to affect people negatively.  This is a looming problem that should be watched as I expect it to continue.  Banks, contrary to the governments' pronouncements, are NOT lending more, they are lending less.  Here is a sobering article about the problems facing the mortgage market:
 
"U. S. Economy
More On Mortgage Armageddon

September 4, 2009

Preface

I have found professional investors have been willing to consider various adverse scenarios now that the stock market has had a 50% plus rally and the economy will show significant positive growth in this third quarter. Professional investors are willing to be concerned that the market has become overbought and may be ahead of the economic recovery. I find that many express great concern about the outlook for the commercial real estate and commercial real estate mortgage markets – which are relatively small in size. I find that professional investors are especially willing to discuss the possibility of a significant economic slowdown in 2010 once the government’s fiscal stimulus peaks.

But what I have found investors as well as business economists unwilling to consider is the Mortgage Armageddon scenario which I have touched upon yet again and again. It seems to me that these parties are willing to game all manner of future perturbations in the markets and the economy, but they are unwilling to consider a scenario that involves a renewed phase of serious financial crisis. Somehow they seem determined to ignore the fact that the unprecedentedly high level of the private debt-to-income ratio – which has been ultimately responsible for the crises of the last two years – still persists and can still pose a major threat. Somehow they cannot deal with the prospect that the cause of financial crisis has not gone away, that all the policy measures taken to date have not made it go away, and that the financial system still remains profoundly at risk.

This is why I believe the Mortgage Armageddon scenario is so important. If it unfolds, we will have renewed financial crisis. Except now the policy makers will have fired almost all their ammunition. Further declines in Obama’s poll ratings and likely greater political conflict may obstruct new major policy initiatives. The profound moral hazard behind today’s risk-seeking in markets may dissipate if investors come to believe today’s bailout policies are no more of a safeguard than the Greenspan and Bernanke puts which failed them in the recent past.

Executive Summary

  1. Bank of America reports that it has cut its rate of foreclosures in half in order to give the government’s mortgage loan modification programs a chance.
  1. At the same time it reports surging mortgage delinquencies.
  1. As a consequence it expects an increase in its foreclosures for the months to come.
  1. Two years ago there were about 1.3 million homeowners delinquent on their mortgages and about 100,000 foreclosures completed monthly. In August there were 3.1 million delinquent homeowners and about 200,000 foreclosures completed each month.
  1. The implication is that there may be a rising future backlog of foreclosures ahead.
  1. However, matters are worse than that. One has to combine the delinquency data with the data on the delinquency cure rate.
  1. Several years ago almost half of mortgage delinquencies in any time period returned to prompt status as borrowers caught up on their mortgage payments. Today, only about 6% of delinquencies "cure" – that is, return to current payment status.
  1. The number of delinquencies has risen about two and a half fold over the last two years. If one creates a "cure adjusted" measure of delinquencies – equal to chronic delinquencies – the number of such delinquencies highly likely to end in foreclosure has risen, not by 2.5 times, but perhaps by five times or much more.
  1. Consequently, the likely future backlog of foreclosures may be exploding.
  1. This means that the increase in foreclosures indicated by Bank of America might prove to be extremely large.
  1. This would put downward pressure on home prices, increase loan-to-value ratios, feed back into more delinquencies and foreclosures and propagate a downward spiral.
  1. At the same time, this increase in home supply might coincide with a fall off in demand as the first-time home buyer credit program winds down in the coming two months.

 

 The real estate bust is NOT over.  This rise in prices, is only temporary, as I predicted months ago.  Need more convincing?  How about prime (the best of the best) borrowers having more problems?:

 

"20:08 Prime borrowers increasingly coming under pressure - WSJ
The Journal reports that prime borrowers are now falling behind on mortgage and credit-card payments at a faster pace than those in the subprime space. The paper notes that such losses could ultimately exceed those from weaker borrowers given that prime loans account for 80% of US bank exposure to mortgages and credit cards. Citing data from the Mortgage Bankers Association, the Journal points out that rising delinquencies on prime mortgages helped drive the total mortgage delinquency rate to a record 9.24% in Q2. Delinquencies on mortgages made to prime customers rose 5.8% last quarter, compared with a rise of 1.8% among subprime customers. However, the delinquency rate for prime loans was 6.4%, significantly below the 25.4% for subprime loans.
Reference Link(subscription required)"

 

Doing some more math here.  If 80% of loans are prime, that leaves 20% for subprime.  Lets assume there are about 50 million mortgages. (from 2005 data)  That means there are 10 million subprime and 40 million prime.  25% delinquent yields 2,500,000 mortgages for subprime.  9.24% of primes delinquent yields 3,700,000 loans.  So, even though the percentage is much smaller, the total number of loans late is larger.  This leads to a total of 6,200,000 late loans which is 12.4%!  That is an incredible number.  Guess what?  It's going to get worse next year, much worse.  This leads the economy down the shoots so please be prepared.   The only escape boat is gold.  Make sure you have at least 10% of your net worth in gold and silver.  If things completely collapse that will save your bacon.  As always, call or email with any questions.  703-791-6066 or currymagic@gmail.com