Importing Inflation

If you’ve been following this blog for any length of time, you know that I’ve been warning that Washington would be seeking to devalue the dollar to try and inflate its way out of the great financial crisis, and especially the patently unpayable $133 trillion in IOUs it has.


In much less certain terms and with greater reservations, I believed that China would eventually cooperate with Geithner & Co to revalue their yuan higher.

A higher yuan is essentially the same thing as a LOWER dollar.

Now, it’s all coming to pass. Over the weekend Beijing agreed to depeg its currency from the dollar and start pushing the value of the yuan higher.

To do so, China’s central bank will effectively have to start buying its own currency — largely by selling some of its reserve currencies, chiefly the dollar.

Already, the dollar is plunging. Gold — which has hit one new record high after another — is leaping again, up more than $7 in early morning trading today ( 6/22 ).

Most brokers will tell you stocks will now rally because China’s revaluation of the yuan means the U.S. can now create more jobs and compete with China.

But that’s hogwash and merely a cover for the truth: This is a dollar devaluation, and an attempt to inflate all dollar-denominated assets. Even the stock markets.

Think it through: Washington is telling you this is about creating more jobs in America and that China has had an unfair advantage with an undervalued currency. But there is simply no way the yuan can be pushed up enough to account for wage differentials between the two countries and create millions of jobs in the U.S.

Just ask yourself: How could a $25-an-hour worker in the United States ever compete with a 75-cents-per-day worker in China? China’s currency would have to gain nearly 3,333% to level the playing field on jobs.

Even at $12.50 an hour, China’s currency would have to gain something like 1,500% to level the playing field.

Or, there would have to still be some very punitive trade sanctions against China, which would put the world on the path to a major depression and war somewhere.

And quite frankly, although there are some real dummies in Washington, I don’t think they’re stupid enough to knowingly put the world on that kind of course. 

So this is not about jobs. It’s about the dollar and inflation.

Keep in mind that when a currency strengthens in value, it effectively imports deflation into the country whose currency is rising. Put another way, its currency buys more.

Conversely, the currency that is losing value imports inflation, which is precisely what Obama, Geithner and Bernanke want for the U.S.

Bottom line: You are now witnessing Phase II of the Great Dollar Devaluation.

The Chinese will attempt to “control” the rise in the value of the yuan (and thereby, the devaluation of the dollar). And for a while, they may succeed at slowing down the yuan’s appreciation.

But history has repeatedly show that when a country depegs its currency from the dollar, market forces eventually take over, rapidly pushing the undervalued currency higher (in this case the yuan), and the dollar lower.

So while China is talking up a gradual appreciation of the yuan right now, don’t be surprised if they lose control, and the dollar starts to plummet.

Moreover, in the next phase, as the sovereign debt crisis leaps from Europe to the U.S. — you will see the worst of the dollar devaluation occur. Chairman Ben Bernanke and the Federal Reserve will use the sovereign debt crisis to create trillions of dollars out of thin air, further devaluing the U.S. dollar.

And in the final phase of the great dollar devaluation — you will see countries all over the world actively band together to replace the dollar as the world’s reserve currency.

Lest you forget: We already saw the opening acts of the move to replace the dollar last year, with China, Russia, India and even Japan calling for a new reserve currency.

And this weekend the G20 meet in Toronto, and Russian President Medvedev is already resurrecting the calls for a new world order and new world reserve currency to be put on the table at those G20 meetings.

Where will we be on Monday ?

The Shadow Market

Did the Federal Reserve collude with the big banks to hold millions of houses off the market until the Fed finished adding $1.25 trillion to the banks reserves? Did the Fed do this to make it appear that its bond purchasing plan (quantitative easing) was stabilizing prices when, in fact, it was the reduction in supply that stopped prices from plunging? It sure looks that way. This is from Bloomberg News:


"U.S. home foreclosures reached a record for the second consecutive month in May, with increases in every state, as lenders stepped up property seizures, according to RealtyTrac.Inc.


“Bank repossessions climbed 44 per cent from May 2009 to 93,777, the Irvine, California-based data company said today in a statement. Foreclosure filings, including default and auction notices, rose about 1 per cent to 322,920. One out of every 400 U.S. households received a filing." (Bloomberg)

Inventory steadily declined during the period the Fed was exchanging cash-for-trash (toxic assets and non performing loans for reserves) with the banks. Now inventories have begun to rise again as the banks try to get back to business as usual. The sudden uptick in repossessions and property seizures coincides perfectly with the ending of the Fed's giant "no bankster left behind" program. Clearly, there must have been a quid pro quo.

What's so impressive about Bernanke's trillion dollar sleight-of-hand operation is its simplicity. We're just talking "supply and demand" here, not rocket science. The banks agreed to cut supply (by temporarily stockpiling homes) while the Fed loaded them up with a cold trillion-plus in reserves.
The Gov is doing its part in this “shadowing” by shunting off an unpublished number of properties (of all descriptions) from failed banks that are now in its possession to its own black holes, such as the FDIC and other such agencies for an indeterminable amount of time. The public (including most real estate professionals) are left to assume that Bernanke's program stabilized prices. It's a very ingenious deception.

These properties in government possession are actually just sitting, under the management of law firms specializing in such matters, receiving bare bones maintenace from contractors, all at the taxpayers expense. You probably drive by more than one such property a day and are unaware of its vacancy.

I drive by two a day that I am aware of.

Those properties shadowed by the banks are usually less fortunite.
Regardless, the taxpayer is getting the bill one way or another.

Those who follow the Fed may remember that "quantitative easing" was promoted as a way to increase lending to consumers and to keep interest rates on mortgages low. But that was all public relations hype. Consumer lending contracted in the last year while interest rates on the 30-year mortgage have fallen since Bernanke's QE program ended at the end of March.

So what does it all mean? It means the public was snookered yet again. It also means that housing prices will fall further as the banks & Gov eventually dump more inventory on the market. How far prices drop will depend on how quickly this “shadow” inventory clears which, in turn, depends on agreements they've made with the Fed and the other banks. Housing inventory is being released in drips and drabs according to an unknown plan of some banker/Treasury bureaucrat – or worse – with no plan at all.

Some would call this price-fixing. Here's an excerpt from an article in the Wall Street Journal that says that there's a 9-year backlog of distressed homes:

"How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern. As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20 per cent from a year earlier....

“Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30 per cent from a year earlier. Based on the rate at which banks have been selling those foreclosed homes over the past few months, that entire inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices — and thus boost their losses." ("Number of the Week: 103 Months to Clear Housing Inventory" Mark Whitehouse, Wall Street Journal)

No matter how you look at it, housing will be in a funk for the next 5 to 10 years. There's just too much product and too few buyers. The uncertain hand of Team Obama will only put more pressure on sales and prices.

Now that the government's homebuyer credits, subsidies and incentives have ended, demand for housing is drying up fast. The Mortgage Bankers Association (MBA) reports that new mortgage purchase applications have tumbled nearly 40 per cent to their lowest level since April of 1997. Sales are in freefall. Prices have already slipped 30 percent from their peak in 2006. Another 10 percent could be the straw that breaks the camel’s back.

Housing market guru Whitney Tilson explains this excerpt from his recent article titled "The Housing Non Recovery".

"Today about 17.2 % of homeowners are underwater. But if home prices drop 10 % from here, 27 % of homeowners would go underwater. In other words, as little as a 10 % drop in home prices would cause a 56% increase in the number of people underwater…which would almost certainly lead to another surge in defaults." ("The Housing Non Recovery", The Daily Reckoning)

This excerpt deserves a second reading. The next 10 % dip in prices will be more painful than the first 30 percent. The market is on a razor’s edge and any further downward move could prove deadly. It has been reported recently that more than 7 million homeowners have already stopped paying their mortgages which means that the inventory-pipeline will be bulging for years to come.

The administration needs to get on top of this problem before the next downward spiral begins, but I expect nothing further to come from that direction. The elected are far too concerned with other problems: both the real and the ideological. Foremost of which is jobs: Theirs jobs that is.  What Bernake & the unelected will do is obvious: print more money and shadow more property as more banks fail.   

The next disaster becomes unavoidable and its only another 10 % away.

Omar P Bounds III

What I was told on Tuesday.

If you haven’t headed my warnings, it is too late to do anything today.
Regardless what the DOW does on Monday morning – sell and keep selling.

On Tuesday, June 1st I received my regular e- newsletter from one of my favorite contrarian brokers. It said this:

“This is no time for mincing words or pulling punches. This is a special red alert, the great global debt disaster is about to trigger a U.S. stock market implosion. “

Here we are Friday and look where we are at.

I was a little busy trying to cobble together a living and didn’t take much notice of the newsletter until yesterday ( Thursday June 3rd ) There are 3 fundamental indicators that when taken together shocked even I, the consummate contrainian investor.

Spain is already beginning to seize banks. Portugal, Italty, and especially Ireland are now on what the Euro bankers are calling a “blacklist”.  My source on this is an analyst with a major European bank with offices here in Phila..  As these Euro socialist economies head the way of Greece, we as investors – nay Americans must be ask the question, what is the difference between these Blacklisted Sovereign Debts and Greece. Greece goes broke – so what?

Greece went south over a measly $236 Billion in external bad paper owed almost entirely to European banks. BUT Spain – one of the worlds larger economies is on the hook for $1.1 TRILLION, owned either directly or indirectly to American Banks.

“ Like several Lehmans all failing at the same time” said newsletter:

When Lehman Brothers went under 20 months ago, instantly, global markets froze up, shutting down short-term lending, sent the economy into a nosedive, and helped drive the Dow down nearly 5,000 points.

But by any measure, a default by a country like Spain would be far bigger than that of any single corporation, with the potential to wreck even greater havoc in financial markets.

Indicator #1 The single most important interest rate in the entire world is now on the rise!

The London Interbank Offered Rate — LIBOR. This is the rate that’s behind virtually every short-term loan in the United States.

When LIBOR goes up, it promptly drives up the rates in the multi-trillion-dollar market for adjustable-rate mortgages, the $7.2 trillion market for corporate loans — and more all right here in the U.S. And right now, that’s precisely what LIBOR is doing — GOING UP!

That alone can be a shock to the global economy. But what is especially shocking is the fact that there’s virtually nothing the Federal Reserve or even the European Central Bank (ECB) can do about it. This has earth-shattering implications. It not only means the global debt crisis is heating up. It also means that the Fed and central banks around the world are losing their power to STOP the global debt crisis from getting a lot worse!
Indicator #2 The cost of insuring against big corporate defaults has nearly DOUBLED in just the past few weeks!

The two-year swap spread — essentially reflecting what banks charge for managing the risk on two-year loans over and above equivalent Treasury yields.

Last year, when Washington borrowed & printed trillions of dollars to rescue nearly every major U.S. bank in trouble, this crisis indicator fell sharply, signaling — at least temporarily — that the worst of the crisis had passed. But now, it’s surging again, up SEVEN-FOLD from its lows. The clear message: A new, potentially BIGGER debt crisis is in the offing.

That means investors believe the risk that corporate bonds will default has also nearly doubled - and I am NOT talking about just junk companies that everyone knew were risky to begin with. I’m talking about INVESTMENT-grade companies, the ones meriting some of the highest ratings handed out by S&P, Moody’s, or Fitch.

The big question: If even supposedly “safe” corporate BONDS are growing riskier almost by the day ... Imagine the massive risk investors are taking with STOCKS issued by those same corporations!

These are exactly the same indicators that told us that a Great Debt Crisis would soon crush the U.S. stock market beginning back in late 2007.

Indicator #3 American Banks Are Exposed.

This is NOT rocket science. The big dilemma is that despite the recent recovery, many of the nation’s banks are STILL vulnerable. Weiss Ratings, the only ratings group that has consistently warned investors of nearly every major banking failure in recent years rates the following in their recent report:

* Bank of America merits a Weiss Financial Strength Rating of D (weak). It still has huge amounts of bad loans on its books, with close to one third of its capital tied up bad loans alone. It’s taking massive risks with derivatives. It’s definitely not yet out of the woods.

* Citibank gets a D- for similar reasons.

* SunTrust Bank also gets a D-. Its bad loans make up an even bigger share of its capital than BofA’s.

* Overall, there are 2,259 banks and thrifts in the U.S. meriting a weak rating from Weiss, with only 962 getting a strong rating. The bigger problem: The strong banks control only 3.7% of the banking industry’s assets. The weak banks control 43.8%.

And this is BEFORE they feel the inevitable impacts of the European debt crisis on global markets or our economy!

In conclusion : It was mostly the recovery in our nation’s largest banks — bought and paid for by Washington — that created the illusion that a real, sustainable economic recovery was beginning.

That illusion triggered a recovery in the Dow.

But now, with thousands of U.S. banks barely able to fog a mirror ... and with European borrowers in danger of defaulting, these banks are now facing a new peril that they did not anticipate and we ( US taxpayers) could be on the hook for.

Adding to these 3 certainties, you cannot ignore that the prime indicator of the American markets, the mood of the American people is in the toilet. They are out of work, out of money and out of patience with big government, big oil, & big banks.

They are sellerish.

Prediction : We will see Dow 8000 ( maybe 7500 ) before we see DOW 11,000 again.

What to buy: More gold, ETF’s that are designed for short selling profits. Canadian natural gas trust that are still paying dividends.

Or go to France this summer; visit the Louvre, Normandy and Epernay while your dollar still has some buying power.

Omar P Bounds III
The Bounds Auction Company

Real Estate recovery? 5 reasons you are delusional.

As an auctioneer specializing in real estate, I see a plethora of circumstances and indicators that conflict with the reported information. Lately, our industry has experienced a shortage of interest in our offerings. Less bidders equates to lower prices realized.


In conversation with other real estate auctioneers, observation of results and from direct experience at our own auctions, it is obvious that there are still serious challenges ahead. The next time you see one of those up beat housing reports on the MSM propaganda outlets, I want you to consider these 5 facts about the American real estate situation.

#1) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March. This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report in January 2005. So can you please explain again how the U.S. real estate market is getting better?

#2) The Mortgage Bankers Association just announced that more than 10 percent of U.S. homeowners with a mortgage had missed at least one payment in the January-March period. That was a record high and up from 9.1 percent a year ago. Do you think that is an indication that the U.S. housing market is recovering?

#3) Existing home sales in the United States jumped 7.6 percent in April. That is the good news. The bad news is that this increase only happened because the deadline to take advantage of the temporary home buyer tax credit (government bribe) was looming. Also, this so called incentive was effective only upon the lowest price point sector of the market. An $8,000 1st time buyer & $6,500 reseller credit isn’t going to have much influence above the $250,000 sale price mark. If one needed the credit to qualify for the mortgage, could they really afford the house? So now that there is no more tax credit for home buyers, what will that do to home sales?

#4) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010. In fact, that was almost twice the level of a year earlier. Does that look like a good trend to you?

#5) How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together?
There are many other signs that point southward and these are but the most obvious 5. Many small realty companies are dropping their franchise relationships and going it alone. A great deal of rank & file licensees have been forced to leave the business. Many agencies have the “Career Night” signs out, trolling for fresh meat, assuming the old adage that every new licensee has at least 1 listing in them.

From our vantage point as auctioneers, we are seeing an overall liquidity crisis. Our sellers can not afford to carry the property they own, nor can they usually afford to necessary expenses required to properly market their property. Ready, willing and able bidders on the other hand are in short supply. A few bidders, smelling the blood in the water are stepping up but they are doing so with extremely low offers. Due to the liquidity crisis on the buyer side of the market, those bidders are not being sufficiently challenged to the point of truly competitive bidding often resulting in protracted negotiations. In essence, this is a protracted way of saying: Prices are in the tank because everybody’s broke.

This situation obviously reflects a true market value that is very hard for sellers to accept.

The facts often are.

Omar P Bounds III
The Bounds Auction Company

Another Perfect Storm or just Shorting?

“Capitulation fever has swept global markets on triple fears of faltering recovery in the US, Chinese credit curbs and Europe's intractable escalating debt crisis.”
Is what we are seeing a correction, a manipulation, investor capitulation or - all three or a short selling consolidation?

4 Points to Ponder

• Financial Reforms Are Just 'Cosmetic'

• Market Selloff Isn't Over: Pros

• Germany to Curb Naked Short Sales

• Market Meltdown Still a Mystery

The “Faux” financial reform being hailed as a victory for Obama is really a commitment to business as usual by the “White shoe boys” of Goldman Sacks et al. In its essence, this bill makes the Federal Reserve a true monopoly, ignores Freddy Mac and Fannie May’s problems, ignores the meltdown of American banks, the FDIC insolvency, & doesn’t restore Glass ~ Segal. What it does is assure a continuous bailout. Wall Street will be backed by the Federal Reserve and its printing press.

“Stocks are likely to continue their aggressive decline and shed another 20 percent in value as the world economy weakens”, noted economist Nouriel Roubini told CNBC.
As the market slides into correction territory, Roubini said weakness in euro zone countries and a slowdown in the US and other developed countries will make things even more difficult for investors in the months ahead.

"There are some parts of the global economy that are now at the risk of a double-dip recession," said Roubini, head of Roubini Global Economics. "From here on I see things getting worse."Prices in both stocks and commodities are likely to take a hit, and investors may only be safe in cash and other safe havens. Roubini said investors also can use options to hedge against future market risk that he said is sure to come as conditions weaken in the US, Japan, China and through much of Europe.

This was easily checked by the fact that gold slid in harmony with the Dow. While this doesn’t equate to traditional thinking, this can mean only two things; either Dow sellers were not moving to hard assets or gold was being shorted. I think the later.

"There is that risk because the problems on the macro level are first in the euro zone. Then in China there is evidence of economic slowdown...Japan is in trouble and US economic growth is going to slow down," he said. "There is also regulatory risk because we don't know how financial reform is going to occur."

"Apart from cash I would invest in short-term government bonds of countries that don't have a serious debt problem, countries like Germany and maybe Canada, a few other advanced economies that from a fiscal point of view are sounder than the weaker economies," he said. These are also countries who are taking on issues like naked short selling.

Naked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "fail to deliver". The transaction generally remains open until the shares are acquired by the seller, or the seller's broker, allowing the trade to be settled. Naked short selling can be used to fraudulently manipulate the price of securities by driving their price down, and its use in this way is illegal as is its trading sister, front running. Both are ways for a trader to profit from his investor’s losses.

Most stock market investors know little about flash trading, black box trading or nano second trading. Top trading houses, bankers, well financed foreign day traders and the like have been using high level electronic trading systems that can trade at the nanosecond level. On eBay, we call this use of trading/bidding software as sniping and its users as Snipers.

The recent sudden meltdown of the Dow was clearly a Sniper event. One large trader armed with a nanosecond trading capacity could easily set in motion a series of trades that would have not only set off the run, but profited from it by buying back at the same speed. Illegal? No. Controllable? Maybe, but at what price?

Omar P Bounds III
The Bounds Auction Company

Still A Time for Gold?

The frightening financial gyrations unleashed by the unrest in Greece, and compounded by the mysterious kinks of electronic stock markets, have quickly reintroduced naked fear into the hearts of investors. Not surprisingly, while these concerns throw into question the safety of just about every asset class, gold and silver are beckoning once again as a means to help protect purchasing power.


We are now in the early stages of what I believe will be a global sovereign debt crisis. With Greece, Portugal and Spain, we are seeing the results in what might be considered the “subprime” nations struggling with overly burdensome debt payments. However, just like in the mortgage crisis, many “prime” nations, like the United States and Great Britain suffer from the same disease. It is just that for these countries it will take a bit longer before the symptoms materialize.

The bottom line is that many nations, including the United States, have simply borrowed more than their citizens can realistically repay.

For many such countries, default may be the only way out. The only question is how to do it. Will governments simply refuse to pay, or will they pretend to pay by printing money? I believe either option would be very bullish for gold and silver. If nations default, gold and silver prices should rise, if they inflate, they should soar.

Today the collective governments of the European Union, who had been following a more responsible policy than the United States, decided to capitulate. With their massive trillion dollar bailout package to any euro zone country that needs help financing their debt, the Europeans have decided to follow the path blazoned by the Federal Reserve. All debt problems, on both sides of the Atlantic, will now be monetized with a printing press.

While gold sold off on the bailout news, there is no question in my mind that the development is extremely bullish for gold. Germany has caved and the inflationists have prevailed. The moral hazard of the bailout will mean bigger deficits in more euro zone countries. Eventually even Germany itself will succumb and join the party. To defend the euro and sterilize their bond purchases the ECB will have to sell dollars. But to whom? The U.S. is certainly not buying.

If Europe, like America, becomes a net foreign borrower, the industrialized West must expect emerging markets to pick up the tab for both America and Europe! After all not every nation can ride the debt wagon; someone has to pull the cart. This will mean that China in particular will have to buy even more foreign exchange to prevent a collapse of both the euro and the dollar. This may push them to the breaking point much sooner than many like to think.

Last Thursday as the Dow Jones plunged 1,000 points, gold surged $35 to just under $1,200 per ounce. Yes, gold and silver may already be “hot”, but I believe there are still great quantities of kindling now lying around which could fuel a continuing fire.

I do not think we should wait for the sovereign default disease to spread. I do not think that it is too late to buy physical gold and silver. Once more people comprehend the magnitude of the problem, I believe prices may go higher than they are today.

We are at the dollar/gold high water mark at this writing.

 As for your IRA. Most people own dollars in their IRAs along with equity based mutual funds. These are both poor long term investments in consideration of the above. I believe the next recession will be worse due to this debt hangover. The world will run out of trees if Bernanke thinks he can print his way out of the next round.

The problem with moving an IRA fund to gold has always been the “holding” issue. One may not actually “hold” or use those funds designated as tax deferred. It must be held by an intermediary. Until just recently, this has limited ones ability to rollover an IRA to gold as only stocks of gold producing companies have fit that requirement. For some time, these stocks had not been stellar performers as the net cost to actually mine gold had been exceeded by it trading value. Much like many natural gas and shale oil investments, they only paid off when the price of the commodity itself was expanding. Now, with more money on the table from investors and more expansion in spot price, these gold based equities are attractive and are receiving lots of attention from IRA investors. But, these are gold “related” or gold based” but not gold backed or let alone gold. They are equities in higher than average risk ventures.

Samuel Clemens wrote that a gold mine was “a liar standing next to a hole in the ground”. He also recommended that when the next gold rush comes along, invest in shovels. Both great words of wisdom.

Next came the ETF’s (Exchange Traded Funds) or so called venture funds with are nothing more than mutual funds investing in commodities rather than equities. Many of these ETF’s are built on a combination of gold mining stocks, gold investment ventures & gold holding trusts. These have been very lucrative over their short history, but like all “cooperative” funds, raise some strong questions. Who’s calling the shots? Where are the hard assets? What are the assets? And, much more importantly, as they are simply taking your money and buying gold based or actual gold with that money, do they hold enough actual hard assets to cover their investors when a run comes? While I like ETF’s based on a commodity or even an entire regiaonal stregety, like a Brazilain ETF, I balk at these all glitter and maybe no gold venture funds.

Both of these avenues of gold investment are oft time NOT actually here in the lower 48 or even Alaska. Also, these vehicles are largely not investing in actual refined gold in hand out of the ground. A mining stock is investing in a future production or even a futures sale to another company and most ETF’s only hold actual gold in trust as hedge on their more speculative activities.

Also, other than actually in hand, gold is more often an offshore investment. Most gold stocks and gold ETF’s are based on an offshore mining group. Most gold mines are not in the lower 48.

Most recently, the opportunity to purchase gold, physical, out of the ground refined bullion, and have it held for you in trust is now being offered by a few mints around the globe. In the past, this was a service open only to the very wealthy. One that I do business with is the Perth Mint of Australia. OK, so the gold isn’t “in hand”, but for IRA use, it can’t be anyway. It’s in real, out of the ground gold rather than a piece of paper. It’s safe, in that no one can take it, it’s in their vault. I can sell it back to the mint at any time at current spot value. I am charged a small storage fee annually. I can also fly to Perth anytime and visit my gold or withdrawal it physically if I wish. Why would I want to? It’s an IRA.

Gold has been the best long term investment over the last decade. Period. One doesn’t need to bury coffee cans full of coins in the back yard to take advantage of this surge in gold and one shouldn’t miss the tax loophole that an IRA affords when investing in gold.

How long will this surge in gold run? Is there a top?
Mor elater - please comment.

Omar P Bounds III


Opinions expressed are those of the writer.

Week of 5/1/2010

Largely because of the sovereign debt crisis, the world’s second most important paper currency — the euro — has lost a massive 16% of its value in just over four months! At that rate, Europeans will effectively see HALF their wealth wiped out in just one year.


But as disturbing as that may be, I count three solid reasons why this great sovereign debt crisis could do even greater damage to the world’s MOST important paper currency to you and I — the dollar.

In Europe, governments are at least STARTING to cut their deficits.

But like four drunken sailors on shore leave, Obama, Geithner, Reid and Pelosi are still spending hundreds of billions of dollars that not only we don’t have ... but that we are BORROWING!

In Europe, the Central Bank is NOT aggressively inflating the money supply.

But like a deranged counterfeiter, Fed Chief Benjamin Bernanke is printing unbacked paper dollars like there’s no tomorrow...

In Europe, the governments and their people are not beholden to China or Japan to finance their follies.

But we ARE! And U.S. Treasury Secretary Timothy Geithner is begging China to effectively devalue the dollar by jacking up the value of the Yuan...

In Europe, this great sovereign debt crisis has already pushed the euro off a cliff — driving it to 14-month record lows in the last week alone.

So I ask you: What will happen to the U.S. dollar — YOURS & MINE — when investors awaken to the fact that our government’s debt load is larger than that of most of these failing European nations?

The answer is clear: The tragedy now taking place in Greece and the rest of Europe is merely a sneak preview of the chaos that this great debt crisis is about to bring to America’s shores.

When you read today’s top news stories, simply substitute “The U.S.” for “Greece” ... “Washington” for “Athens” ... and “the U.S. dollar” for “the euro” ... and you will, in effect, be reading tomorrow’s top news stories today.

Obama, Bernanke, Reid, Pelosi, Geithner, The Clintons, GW Bush, Paulson, Dodd & Barney Frank and others will be remembered as arsonists. And, they keep asking for more matches – and Congress keeps giving them more.

Other minor players who either deserve a firing squad, like the Bonus babies (Fannie Mae’s Franklin Raines and Goldman Sacks’ Blankfein come to mind) are soon forgotten while some who aren’t as culpable, like former Fed Chairs Greenspan & Volker will be pilloried by history, as after all, the winners write history.

BUT – the Greek Tragedy is NOT the driving force of this week’s Drama on Wall St.

Last week I told you that DOW 11,000 was unsustainable. I believed that there COULD be high volatility, but the last two days out paced even my contrarian prognostication… but… what is up with this “bounce”? I understand how so called programmed trading can set off a 1,000 point drop and I know that in such a situation there is oft times a midsession bounce as traders buy in on assets exposed to undervaluing at the valley of such a drop, …. But… as I pointed out last week, the markets were vulnerable to such sudden corrections because there was at that time & still is a huge shortfall in liquidity.

The very signal which forecast this week’s events are exactly the reason that the degree of “rebound” must be questioned. Where did the liquidity to fund such a rapid rebound come from when absence of liquidity was the problem? Who or what is falsely supporting our liquidity?

I leave you to ad 2+2 and get the Fed as the answer.

If you are a player you need to take this into account as you adjust for the next round.

3 three thoughts for the coming week:

1. Gold. Yep… more gold. Even as it flirts with 1,200 an ounce it is still a buy sign. I increased my gold holding by 20% this quarter. Gold stocks are good; some will skyrocket as there will be consolidation in the mining sector by the big winners. Bullion is good, but I don’t like holding hard money too closely. I hold mine offshore. Risky? Less so than under you pillow or in a bank deposit box. I like a 25% of portfolio position in gold at this time. Silver, platinum, palladium, copper are also all reasonable buys if you wish to diversify within metals. Silver is always as a good in hand hedge.

2. Oil & Natural gas. Energy stocks. When BP drops, buy it. Natural gas – buy it. I especially like Canadian gas & hydro trusts. A. they pay dividends, always have – B. they are not demoninated in Euros or US dollars. While the Canadian dollar is nothing to brag about, it is less exposed to sovereign debt than either of its western counterparts.

3. China investments. I do not currently hold any, but I am watching their markets via a broker who specializes in offshore investing. He is an all in bull here while I am less inclined. I can’t point to any sound fact to back this statement, but I believe that the Chinese will have a sharp adjustment (a crash?) sooner than later. Nothing can go as well for as long as their markets have without an adjustment. 6 to 9 months out? Perhaps as big as a 30% sudden slide. They don’t have a strong or broad base of consumer equity. China is a bubble.

It will be the sudden drop in Chinese speculation that will trigger the long predicted run on the dollar. I plan to be ready to buy at the bottom of that adjustment with gold.