Gas Shortage in Middle East?

I've never thought about there being a gas shortage in the Middle East.  I assumed they had as many refineries as oil producers.  Apparently, that isn't the case.  This might be a new source of profits for the major refineries.

Oil-Rich Middle-East Running Low On Gas
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I've mentioned this before, but I try to keep my political inclinations to myself.  Sometimes, however, I watch a press conference that makes my blood boil.  That happened yesterday during Obama's attempt to start a class war yesterday.  This guy has either lost touch with reality, or is one of the biggest liars on the Hill.  This is just one of the many parts that jumped out at me:
       "In what appears to be an increasingly tenuous attempt to redirect focus from terminal federal government failure through the imposition of yet another round of class antagonism, Barack Obama, as part of his earlier address to the nation, stressed that more revenue "must be part of any deficit-reduction deal" and criticized Republicans for protecting tax breaks for "millionaires and billionaires" in the process even invoking users of corporate jets (despite that fact that he himself boasted using the $56,000/hour taxpayer funded Air Force one to travel the 110 mile distance between Washington DC and Williamsburg, VA)."

Obama's Attempt at Class Warfare

Make $250k a year - You're a Jet Owner
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I saw this on the news last night.  I'm sure all of us know someone who has had to fight cancer.  What a great gesture from Liz Balogh.

Decorator Creates Sanctuaries for Cancer Survivors

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Gov. Jerry Brown has signed into law California's tax on Internet sales through affiliate advertising which will immediately cut small-business website revenue 20% to 30%, experts say.
The bill, AB 28X, takes effect immediately. The state Board of Equalization says the tax will raise $200 million a year, but critics claim it will raise nothing because online retailers will end their affiliate programs rather than collect the tax.

Amazon has already emailed its termination of its affiliate advertising program with 25,000 websites. The letter says, in part:

Amazon Leaves California

Reasons To Own Gold And Silver

First, Congratulations to South Carolina for winning their 2nd Baseball Championship in as many years.  The SEC dominated baseball once again.
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I'm working on a landscaping project on my house and could use some advice.  If you have a green thumb, shoot me an email.  I need to decide on some plants that can thrive in a more shaded area.  Preferably something I don't have to replant every year.
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I saw this paper today and it reinforced my belief that everyone should have gold and silver as a core holding.  It's a little long but well worth the read.

The Screaming Fundamentals For Owning Gold And Silver
This report lays out an investment thesis for gold and one for silver.  Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well. My timing and logic for both entering and finally exiting gold (and silver) as investments are laid out in the full report.
The punchline is this: Gold and silver are not (yet) in bubble territory, and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.

Introduction

In 2001, as the painful end of the long stock bull market finally seeped into my consciousness, I began to grow quite concerned about my traditional stock and bond holdings. Other than a house with 27 years left on a 30 year mortgage, these holdings represented 100% of my investing portfolio. So I dug into the economic data to see what I could discover. What I found shocked me. It's all in the Crash Course in both video and book form, so I won't go into that data here.
By 2002, I had investigated enough about our monetary, economic, and political systems that I decided that holding gold and silver would be a very good idea, poured 50% of my liquid net worth into precious metals, and sat back and watched.
Since then, my appreciation for and understanding of the role of gold as a monetary asset and silver as an indispensible industrial metal have deepened considerably.
Investing in gold and silver is still a good idea. Here's why.

Why own gold and silver?

The reasons to hold gold and silver, and I mean physical gold and silver, are pretty straightforward. So let’s begin with the primary reasons to own gold.

1. To protect against monetary recklessness
2. As insulation against fiscal foolishness
3. As insurance against the possibility of a major calamity in the banking/financial system
4. For the embedded 'option value' that will pay out if and when gold is remonetized

By ‘monetary recklessness,’ I mean the creation of money out of thin air and the application of more liquidity than the productive economy actually needs. The central banks of the world have been doing this for decades, not just since the onset of the great financial crisis. In gold terms, the supply of above-ground gold is growing at roughly 3% per year, while money supply has been growing at nearly three times that yearly rate since 1980.

Now this is admittedly an unfair view, because the economy has been growing, too, but money and credit growth have handily outpaced even the upwardly distorted GDP measurements by a wide margin.  As the economy stagnates under this too-large debt load while the credit system continues to operate as if perpetual expansion were possible, look for all the resulting extra dollars to show up in prices of goods and services.  
Real interest rates are deeply negative (meaning that the rate of inflation is higher than Treasury bond yields). This is a forced, manipulated outcome courtesy of central banks that are buying bonds with thin-air money. Historically, periods of negative real interest rates are nearly always associated with outsized returns for commodities, especially precious metals. If and when real interest rates turn positive, I will reconsider my holdings in gold and silver, but not until then. That is as close to an absolute requirement as I have in this business.
Monetary policies across the developed world remain as accommodating as they’ve ever been. Even Greenspan's 1% blow-out special in 2003 was not as steeply negative in real terms as what Bernanke has recently engineered. But it is the highly aggressive and ‘alternative’ use of the Federal Reserve balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried. There seems to be no way to end these ever-expanding programs, and they seem to have become a permanent feature of the economic and financial landscape.  In Europe, the equivalent would be the sovereign debt now found on the European Central Bank (ECB) balance sheet.
Federal deficits are seemingly out of control and are now stuck in the -$1.5 trillion range. Massive deficit spending has always been inflationary, and inflation is usually gold/silver friendly. Although not always, mind you, as the correlation is not strong, especially during mild inflation (less than 5%). Note, for example, that gold fell from its high in 1980 all the way to its low in 1998, an 18 year period with plenty of mild inflation along the way. Sooner or later I expect extraordinary budget deficits to translate into extraordinary inflation.
Reason #3, insurance against a major calamity in the banking system, is an important part of my rationale for holding gold. I’m not referring to “paper gold” either, which includes the various tradable vehicles (like the "GLD" ETF) that you can buy like stocks through your broker. I’m talking about physical gold and silver because of their unusual ability to sit outside of the banking/monetary system and act as monetary assets.
Literally everything else financial, including your paper US money, is simultaneously somebody else’s liability, but gold and silver are not. They are simply, boringly, just assets. This is a highly desirable characteristic that is not easily replicated.
Should the banking system suffer a systemic breakdown, to which I ascribe a reasonably high probability of greater than 1-in-4 over the next 5 years, I expect banks to close for some period of time. Whether it's 2 weeks or 6 months is unimportant; no matter the length of time, I'd prefer to be holding gold than bank deposits.
During a banking holiday, your money will be frozen and left just sitting there, even as everything priced in money (especially imported items) rocket up in price. By the time your money is again available to you, you may find that a large portion of it has been looted by the effects of a collapsing currency. How do you avoid this? Easy; keep some ‘money’ out of the system to spend during an emergency. I always advocate three months of living expenses in cash, but you owe it to yourself to have gold and silver in your possession as well.
The final reason for holding gold, because it may be remonetized, is actually a very big draw for me. While the probability of this coming to pass may be low, the rewards would be very high.
Here are some numbers:  The total amount of 'official gold,' or that held by central banks around the world, is 30,684 tonnes, or 987 million troy ounces (MOz). In 2008 the total amount of money stock in the world was roughly $60 trillion.
If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($60T/987MOz) = $60,790 per troy ounce.
Clearly that's a silly number (or is it?), but even a 10% partial backing of money yields $6,000 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world's money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a fraction of the world's money supply by gold will result in a far higher number than today's ~$1,500/Oz.

The Difference Between Silver and Gold

Often people ask me if I hold goldandsilver as if it were one word. I do own both, but for almost entirely different reasons. Gold, to me, is a monetary substance. It has money-like qualities and it has been used as money by diverse cultures throughout history. I expect that to continue.
There is a chance, growing by the week, that gold will be remonetized on the international stage due to a failure of the current all-fiat regime. If or when the fiat regime fails, there will have to be some form of replacement, and the only one that we know works for sure is a gold standard. Therefore, a renewed gold standard has the best chance of being the ‘new’ system selected during the next bout of difficulties.
Silver is an industrial metal with a host of enviable and irreplaceable attributes. It is the most conductive metal known, and therefore it is widely used in the electronics industry. It is used to plate critical bearings in jet engines and as an antimicrobial additive to everything from wall paints to clothing fibers. In nearly all of these uses, plus a thousand others, it is used in such vanishingly small quantities that it is hardly worth recovering at the end of the product lifecycle -- and often isn’t.
Because of this dispersion effect, above-ground silver is actually at something of a historical low point. When silver was used primarily for monetary and ornamentation purposes, the amount of above-ground, refined silver grew with every passing year. After industrial uses cropped up, that trend reversed, and today there are perhaps 1 billion ounces above ground, when in 1980 there were roughly 4 billion ounces.
Because of this consumption dynamic,  it's entirely possible that over the next twenty years not one single net new ounce of above ground silver will be added to inventories, while in contrast, a few billion ounces of gold will be added.
I hold gold as a monetary metal. I own silver because of its residual monetary qualities, but more importantly because I believe it will continue to be in demand for industrial uses for a very long time, and it will become a scarce and rare item.

Scarcity

If we cast our minds forward ten years and think about a world with oil costing 2x to maybe 8x more than today, we have to ask how many of our currently-operating gold and silver mines, or the base metal mines from which gold and silver are by-products, will still be in operation, and how many will close because their energy costs will have exceeded their marginal economic benefits.
After just 100 years of modern, machine-powered mining, nearly all of the good ores are gone. By the time you are reading stories like this next one, you should be thinking, 'Why are they going to all that trouble unless that's the best option left?'
South African Miners Dig Deeper to Extend Gold Veins' Life Spans

Feb 17, 2011
JOHANNESBURG—With few new gold strikes around the world that can be turned into profitable mines, South Africa's gold miners are planning to dig deeper than ever before to get access to rich veins.
The plans raise questions about how to safely and profitably mine several miles below the surface. Success would mean overcoming problems such as possible rock falls, flooding and ventilation challenges and designing technology to overcome the threats.
Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., has a picture in his office of himself at one of the deepest points in Africa, roughly 4,000 meters, or 13,200 feet, down in the company's Mponeng mine south of Johannesburg. Mr. Cutifani sees no reason why Mponeng, already the deepest mining complex in the world, shouldn't in time operate an additional 3,000-plus feet deeper.
"The most critical challenges for all of us in South Africa are depths and depletion of reserves," Mr. Cutifani said in an interview.

The above article is just a different version of the story that led to the Deepwater Horizon incident.  By the time exceptional engineering challenges are being pondered to scrape a little deeper, it tells the alert observer everything they need to know about where we are in the depletion cycle.  We are closer to the end than the beginning.
We are at the point in history where we can easily look forward and make the case for declining per capita production of numerous important elements just on the basis of constantly falling ore purities and gold and silver fit into that category rather handily. Depletion of reserves is a very real dynamic and it is not one that future generations will have to worry about; it is one with which people alive today will have to come to terms.
The issue of Peak Oil only exacerbates the reserve depletion dynamic by adding steadily rising energy input costs to mix. Should oil get to the point of actual scarcity where we have to ration by something other than price, then we must ask where operating marginal mines fits into the priority list. Not very high would be my guess.

Supply and Demand - Gold

Not surprisingly, the high prices for gold and silver have stimulated quite a bit of exploration and new mine production. With over decade of steadily rising prices, there has been ample time to bring on new production. Which leads to a real surprise: in the case of gold, relatively little incremental mine production has occurred.
The analytical firm Standard Chartered has calculated  a rather subdued 3.6% gold production growth over the next five years:

Most market commentary on gold centres on the direction of US dollar movements or inflation/deflation issues – we go beyond this to examine future mine supply, which we regard as an equally important driver. In our study of 375 global gold mines and projects, we note that after 10 years of a bull market, the gold mining industry has done little to bring on new supply. Our base-case scenario puts gold production growth at only 3.6% CAGR over the next five years.
(Source - Standard Chartered)

Of course none of this is actually surprising to anyone who understands where we are in the depletion cycle but it's probably quite a shock to many an economist. The quoted report goes on to calculate that existing projects just coming on-line need an average gold price of $1,400 to justify the capital costs while greenfield, or brand-new, projects require a gold price of $2,000 an ounce.
This enormous increase in required gold prices to justify the investment is precisely the same dynamic that we are seeing with every other depleting resource: energy costs run smack-dab into declining ore yields to produce an exponential increase in operating costs. And it's not as simple as the fuel that goes into the CaterpillarD-9s; it's the embodied energy in the steel and all the other energy-intensive mining components all along the entire supply chain.
Just as is the case with oil shales that always seem to need an oil price $10 higher than whatever it currently is to break even, the law of receding horizons (where rising input costs constantly place a resource just out of economic reach) will prevent many an interesting, but dilute, ore body from being developed. Given declining net energy, that's forever as far as I am concerned.
The punchline of the Standard Chartered gold report is that they think $5,000 gold is a realistic target and go on to note the most important shift in gold accumulation of the past 30 years:

The limited new supply comes at a time when central banks have turned from being net sellers to significant net buyers of gold. The result, in our view, will be a gold market in deficit, even assuming flat growth in demand.
With the supply-demand balance so out of kilter, we see the gold price potentially going to US$5,000/oz.
(Source)

The emergence of central banks being net acquirers of gold is actually a pretty big deal. Over the past few decades central banks have been actively reducing their gold holdings preferring paper assets over the 'barbarous relic.' Famously, Canada and Switzerland vastly reduced their official gold holdings during this period, a decision that many citizens of those countries have openly and actively questioned.
The World Gold Council out of the UK is the primary firm that aggregates and reports on gold supply and demand statistics. Here's the most recent data on official (i.e. central bank) gold holdings:

(Source)
Note that the 2009 data is lowered by slightly more than 450 tonnes in this chart to remove the one-time announcement by China that it had secretly acquired 454 tonnes over the prior six years, so this data may differ from other representations you might see. I thought it best to remove that blip from the data. Also the data for 2011 is for the first four months only, so we might expect 2011 to be a record-setter if the current pace continues.
Overall, world supply and demand are a bit out of alignment right now with supply increasing by 2% last year and non-official demand increasing by 10%:

The summary of the fundamental analysis is that with mine production seriously lagging the price increases for gold, coupled to increased central bank and investment demand, we have set the stage for some hefty prices increases irrespective of any fiscal or monetary shenanigans.
However, once we put those back into the mix, I forecast a quite volatile but upwardly sloping price for gold over the coming years. Possibly a very steep upward slope at points.

Supply and Demand - Silver

Silver demand is growing by double-digit percentages, being led primarily by industrial uses and investment demand. The Silver Institute does a fine job of tracking and reporting on these matters.
First demand:

Total fabrication demand grew by 12.8 percent to a 10-year high of 878.8 Moz in 2010; this surge was led by the industrial demand category. Last year, silver’s use in industrial applications grew by 20.7 percent to 487.4 Moz, nearly recovering all the recession-induced losses in 2009, and is now seeing pronounced advances in 2011. Jewelry posted a gain of 5.1 percent, the first substantial rise since 2003, primarily due to strong GDP gains in emerging markets and the industrialized world’s improving economic picture. Photography fell by 6.6 Moz, realizing its smallest loss in nine years, as medical centers deferred conversion to digital systems. Silverware demand fell to 50.3 Moz from 58.2 Moz in 2009, essentially due to lower demand in India.
(Source)

Now Supply:

Silver Production 2010
Silver mine production rose by 2.5 percent to 735.9 Moz in 2010 aided by new projects in Mexico and Argentina. Gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year.
Mexico eclipsed Peru as the world’s largest silver producing country in 2010, and Peru is followed by China, Australia and Chile. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010.
(Source)

Again, we are comparing double digit demand increses against low single digit supply increases.  After a decade of rather dramatic price increases for silver, the alert observer should be asking exactly why this is the case.
In table form, we can clearly see that the silver balance for the world requires both dishoarding from government stockpiles and from the recycling of scrap silver. That is, shortfalls from mining have to be made up from above ground stocks:

(Source)
There's only so long that such an imbalance can continue before the shortfalls require much higher prices to cool off demand.
One of the reasons that I originally invested quite heavily in silver is precisely because I came to the conclusion that the price was far too low, artificially so, and that it would therefore be a great investment. So far so good.
Given the above fundamentals, I project that prices for the precious metals will be many multiples higher - in today's dollar terms - by the end of the decade.

If you will it, it is no dream

Thought of the Day:
One of the most basic principles in our lives that becomes important to understand is that we won’t find success until we imagine what success feels like inside of us first. This is as true of a golf shot as it is with anything else.  It is how we emotionally activate an idea through imagination, intention and belief that either brings an experience closer to us or pushes it further away.  So while we may think that it is a golf shot which is the cause of our happiness or misery, this is simply not true.  In truth, the golf shot – good or bad – can’t even show up until we have given it sufficient attention through our thoughts, emotions and beliefs.

- From our upcoming "Thoughts of the Day: Book III" (released this fall) with original artwork from PGA professional Amy Lourie   
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Glenn Beck discusses our 4 outcomes and Texas dominating the US Job Market.  You can watch the whole video, but I especially like it from about the 9 minute mark.

Glenn Beck's 4 Outcomes and an interview with Texas Gov Perry
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For all the Razorback fans out there, we should be proud of our student athletes.

Razorbacks lend a helping hand

Photo Album

 

FAYETTEVILLE - For the fifth-consecutive year, Razorback Athletics and Lift Up America teamed up with Tyson Foods, Inc. to tackle hunger in Northwest Arkansas. University of Arkansas student-athletes were on hand Saturday at the Broyles Athletic Center, to help unload and distribute 29,000 pounds of protein, donated by Tyson, to more than 55 of Northwest Arkansas Food Bank's member charities.

"We are proud to once again partner with Tyson Foods and Lift Up America to help provide food to those in need through the Northwest Arkansas Food Bank," University of Arkansas vice chancellor and director of athletics Jeff Long said. "Each year, more than 460 Razorback student-athletes volunteer more than 2,500 hours in a variety of service projects and efforts. This annual event is at the very core of our commitment to ending hunger and enriching the lives of those in our community and around the state."

Long joined Tyson Foods chairman and University of Arkansas Board of Trustee member John Tyson, Lift Up America chairman and founder Dave Hannah and Northwest Arkansas Food Bank president and CEO Marge Wolfe for a press conference in the Broyles Athletic Center to raise awareness of the need for hunger relief.

Following the press conference, a total of 122 Razorback student-athletes representing many of Arkansas' 19 sports programs helped load the food into vehicles from the participating charities. Even with 11 Razorback teams competing this weekend, the student-athlete turnout nearly eclipsed the Lift Up America record for a single university's participation. Arkansas set the record with 134 student-athletes participating last year.  

"It was exciting to see so many of our student-athletes volunteering their time to help make a difference in Northwest Arkansas," assistant athletic director for student-athlete development Eric Wood said. "Teaching our young men and women the importance of giving back to their community is an important part of our student-athlete development program. Lift Up America provides an opportunity for our student-athletes to work side by side to help provide hunger relief." 

The donation event was part of Tyson's KNOW Hunger campaign. Tyson's KNOW Hunger campaign is focused on helping more people understand and join the effort to eliminate hunger in America. The campaign includes the recent release of a study on hunger, as well as the commitment to donate 1 million pounds of protein to 37 food banks during the month of March. Each food bank will receive approximately 29,000 pounds of high-quality protein, enough to serve 116,000 meals in each community.

"There are millions of hard-working adults, children and seniors who simply cannot make ends meet and are faced with the realities of hunger," said John Tyson.  "We're trying to make a difference in their lives by providing nutrient-rich protein and by increasing public understanding of hunger in our country."

The Northwest Arkansas Food Bank distributes more than 5 million pounds of food annually throughout its four county service area.  Approximately 120,000 residents, including nearly 50,000 children and 16,000 seniors, receive emergency food assistance each year from the Food Bank and its member agencies.

Geithner on Govt and Gross Leverage

I saw this on Friday and just had to post it.

Geithner wants more taxes on small business

Geithner: Taxes on ‘Small Business’ Must Rise So Government Doesn’t ‘Shrink’
Thursday, June 23, 2011
By Terence P. Jeffrey

Treasury Secretary Tim Geithner testifies in the House Small Business Committee on Wednesday, June 22, 2011. (Congressional photo)

(CNSNews.com) - Treasury Secretary Timothy Geithner told the House Small Business Committee on Wednesday that the Obama administration believes taxes on small business must increase so the administration does not have to “shrink the overall size of government programs.”

The administration’s plan to raise the tax rate on small businesses is part of its plan to raise taxes on all Americans who make more than $250,000 per year—including businesses that file taxes the same way individuals and families do.

Geithner’s explanation of the administration's small-business tax plan came in an exchange with first-term Rep. Renee Ellmers (R.-N.C.). Ellmers, a nurse, decided to run for the U.S. House of Representatives in 2010 after she became active in the grass-roots opposition to President Barack Obama’s proposed health-care reform plan in 2009.

“Overwhelmingly, the businesses back home and across the country continue to tell us that regulation, lack of access to capital, taxation, fear of taxation, and just the overwhelming uncertainties that our businesses face is keeping them from hiring,” Ellmers told Geithner. “They just simply cannot.”

She then challenged Geithner on the administration’s tax plan.

“Looking into the future, you are supporting the idea of taxation, increasing taxes on those who make $250,000 or more. Those are our business owners,” said Ellmers.

Geithner initially responded by saying that the administration’s planned tax increase would hit “three percent of your small businesses.”

Ellmers then said: “Sixty-four percent of jobs that are created in this country are for small business.”

Geithner conceded the point, but then suggested the administration’s planned tax increase on small businesses would be “good for growth.”

“No, that's right. I agree with that,” said Geithner. “But just to put it in perspective, it's important to recognize why are we doing this. You know, our deficits are 10 percent of GDP, higher than they've been since any time in the postwar period really. We have a big hole to dig out of, and we have to figure out how to do that in a way that's balanced, good for growth, fair to people as a whole.”

Geithner, continuing, argued that if the administration did not extract a trillion dollars in new revenue from its plan to increase taxes on people earning more than $250,000, including small businesses, the government would in effect “finance” what he called a “tax benefit” for those people.

“We're not doing it because we want to do it, we're doing it because if we don't do it, then, again, I have to go out and borrow a trillion dollars over the next 10 years to finance those tax benefits for the top 2 percent, and I don't think I can justify doing that,” said Geithner.

Not only that, he argued, but cutting spending by as much as the “modest change in revenue” (i.e. $1 trillion) the administration expects from raising taxes on small business would likely have more of a “negative economic impact” than the tax increases themselves would.

“And if we were to cut spending by that magnitude to do it, you'd be putting a huge additional burden on the economy, probably greater negative economic impact than that modest change in revenue,” said Geithner.

When Ellmers finally told Geithner that “the point is we need jobs,” he responded that the administration felt it had “no alternative” but to raise taxes on small businesses because otherwise “you have to shrink the overall size of government programs”—including federal education spending.

“We're not doing it because we want to do it, we're doing it because we see no alternative to a balanced approach to reduce our fiscal deficits,” said Geithner.

“If you don't touch revenues and you leave in place the tax cuts for the top 2 percent that were put in place by President Bush, if you leave those in place and you're trying to bring our deficits down over time, then you have to do exceptionally deep cuts in benefits for middle-class Americans and you have to shrink the overall size of government programs, things like education, to levels that we could not accept as a country,” said Geithner.

“So to do a balanced approach to reduce our deficits you have to make modest changes in revenues,” he said. “There's no realistic opportunity to do alternatives to doing that.”

According to historical budget tables published by the White House Office of Management and Budget, federal spending has climbed from $2.89 trillion in 2008—the year President Obama took office—to $3.82 trillion this year, an increase of approximately $930 billion.

Meanwhile, according to the National Center for Educational Statistics, although federal education spending in inflation-adjusted dollars has jumped from $71.64  billion in 1995—when Bill Clinton was president--to $163.07 billion in 2009—when Barack Obama was president—federal spending still accounted for only 8.2 percent of spending for public primary and secondary education in America in the 2007-2008 school year. Historically and presently in the United States, local and state governments have  funded the cost of public education.
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The 4 Outcomes of the Global Debt Situation

I thought this Gross Leverage Chart put the debt situation in perspective.  This is from the IMF.

Conversation with my uncle

Let me start this by saying I have no political party affiliation.  I believe that 95% of our politicians are completely inept.  I believe in the Constitution and small government.

I had a conversation with my uncle yesterday.  He has been a very successful investor over his lifetime.  We were discussing an overseas investment he is going to make.  That led to our rant on our country's current regulations and taxes on business.  I've seen these stats before but they came across an email I read this morning, so I thought I would share.

From the S&A Digest:
*** "Finally… an interesting data point to consider for those of you interested in the tax revenue discussion we've been having in the mailbag this week. From 1951 through 1963, the U.S. maintained extremely high marginal tax rates. The lowest rate of federal income tax was 20%, and the highest equaled 91%. The tax structure back then generated revenue equal to 7.7% of GDP.

Marginal rates were lowest from 1988 through 1990, when the lowest rate was 15% and the highest rate was 28%. With that structure, federal income taxes brought in revenue equal to 8.1% of GDP. (This information comes from Alan Reynolds' well-sourced piece in the June 16, 2011 Wall Street Journal.)

The point is, the liberal Democratic policy goal of using income taxes for social engineering is extremely inefficient. It lowers tax revenues at a time when the government is deep in debt. The amount of revenue generated is only one small part of the puzzle. What goes unmeasured is the resulting disincentive to work and invest under high marginal tax rates. And yes, this second consideration is vastly more important than merely the technical detail about revenues. But the technical detail about revenue is a clearly proven fact that the tax-'em-until-they-bleed crowd can't ignore."***

The people who make the most know how to hide the majority of their income.  Or they just leave the US for a more business friendly nation.  So all this really does is hurt the middle class.  I have to give props to the Republicans right now for fighting the tax hikes.  Statistics don't lie, and they say raising taxes actually lowers tax revenue.

I hope everyone has a wonderful weekend!

Jon Stewart on Greece

Here is a true yet hilarious explanation of the Greece debt problem.

Jon Stewart on Greece

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Michael Krieger's Comments today:

Right now, thanks in large part to Federal Reserve policy, Uncle Sam can borrow at an average cost of just 2.5 percent. The average borrowing cost over the last three decades was 5.7 percent. Our debt is now $14 trillion and scheduled to grow to $25 trillion by the end of the decade. If interest rates normalize over that period the added interest costs in 2021 alone will be $800 billion—more than 20 times the mere $37 billion in budget cuts that tore up Congress in March. It would take virtually all of the cuts in the Ryan budget just to cover that added interest, much less to start bringing down the national debt. Unfortunately, the Fed is now in a fiscal box. A normalization of interest rates would break the Treasury. Hence, a normalization of rates really can't happen—we're stuck in a world in which the Fed must keep rates artificially low in order to prevent a budget disaster.

- Lawrence Lindsey writing in the Weekly Standard June 13, 2001 (and you think we won’t print more!!!)

QUESTION: During the Japanese lost decade in the 1990s, you strongly criticized Japan's (inaudible)policies . Recently, Larry Summers suggested in his column that the U.S.is in the middle of its own lost decade. Based on those points, with Q.E. II ending, what do you think of Japan's experience and the reality facing the U.S.? Are there any historical lessons that we should be reminded about?  Thank you.

BERNANKE: Well, I'm a little bit more sympathetic to central bankers now than I was 10 years ago.

- Q&A During The Bernank’s Second Press Conference Yesterday

The Bernank Flop:  Part Deux
That’s two press conferences laden with softball questions from “the press” and two epic flops by The Bernank.  Two extremely important things that came out of the disaster that was this event yesterday.  First, I want to point your attention to the quote I pasted at the top.  In response to the question of where The Bernank stood on monetary policy in light of his prior arrogant and cocksure statements a decade earlier about how the Japanese were being too passive in their methods he stated “Well, I'm a little bit more sympathetic to central bankers now than I was 10 years ago.”  BINGO.  That was far and away the most important thing he said the whole press conference.  Why?  Well, for several reasons.  First, it was pretty much the only spontaneous unscripted thing he said the whole time.  Second, because this is him basically admitting that sitting in an ivory tower telling others how to save the free world via monetary policy was a naive and idiotic thing to do (why people still believe in central banking, I mean planning, is beyond me).  Talk is cheap and The Bernank now has had time to test his sad statist theories and guess what happened?  He failed miserably in front of the entire world.  By saying that he is “more sympathetic to central bankers” he is saying that theories are one thing and he now realizes that.  This is HUGE.  The Bernank has no clothes.

Ok, so what else did we learn?  Well, what happened after the press conference was very significant.  For one thing the stock market tanked.  Interestingly, guess what else happened?  Oil prices started to soar and closed up.  While off their highs gold and silver were also strong on the day and the gold miners were up.  This drove these guys absolutely nuts.  Remember what happened after the first disastrous press conference?  Gold soared and then flew higher again the following day.  What was The Powers That Be (TPTB) response to that?  Well they miraculously rolled out Bin Laden and then initiated the monster raid on silver immediately afterwards.  The lesson that we all learned from that prior episode is that TPTB are petulant little children.  When markets do not act as they decree they whine and lash out.  Since they possess all of the mechanisms of control they can create certain moves in the short term and “pain” for those that bet against them.  In light of that, we should have all expected a panicky response today…and boy did we get it.

Widespread Panic
So right on cue, TPTB freaked out and showed their desperation by coordinating a 60 million barrel release of oil from OECD inventories (of which 30 million barrels is to come from the U.S Strategic Petroleum Reserves).  Brilliant strategy guys.  First of all, the world consumes around 85 million b/d of oil so this release isn’t even one day’s worth of demand.  It’s a joke.  Second of all it just demonstrates how completely desperate they are to just delay the inevitable.  Just like global leaders have shown no interest in dealing with the economic imbalances of the globe resulting from a pyramid scheme global monetary system where money consists of digital confetti that can be and is being printed into oblivion, they have NO INTEREST in dealing with the real issues of peak cheap oil.  Just as the solution to every other structural problem has been to pretend it doesn’t exist and place band-aids on cancerous tumors, their solution to real, serious long-term issues in oil are to release reserves?  My lord this is sad.

More than sad; however, this move makes me much more bullish on oil over the next two years than I was before.  First of all, the Saudi’s just said that they would increase production to 10 million barrels of day on their own (from 9.3 million b/d), effectively ending OPEC as an organization.  Because this didn’t do what the petulant children in charge wanted they resorted to this tactic.  First it was speculators.  Now it is supply and demand.  What is it really?  I’ll tell you what it is.  They have no freaking clue what they hell they are doing.  Just like The Bernank.

As a result of this action and the direction that TPTB are heading in (price controls), my ultimate forecast for where crude might go is now higher than it was.  Whereas I previously thought we would see $150-$200/b oil within the next two years I now think that it will be over $200/b.  The reason for this is simple.  The reason price controls like this do not work is because they destroy supply/demand signals, which then ends up causing supply shortages down the road.  Let’s think about this pathetic move from two angles.  First, from the perspective of an oil company.  Oil exploration, development and production is extraordinarily capital intensive.  From the exploration to the development phase of a large field we are talking at least 5-10 years.  So let me ask you.  If you are running an oil company and you see this type of action are you more or less willing to drill that marginal production or exploration well?  The answer of course is much less willing.  Furthermore, we have recently seen cost overruns all over the commodity space.  Let’s look at what just happened with Woodside Petroleum’s flagship Pluto project offshore Australia.  They just announced a 25% cost overrun and a 15 month delay to the project and Standard & Poor’s took down the credit outlook for the company as a result.  I will tell you without any shadow of a doubt that this policy by the “authorities” to control oil prices via manipulation will kill the supply side relative to demand and cause oil prices to ultimately soar to unimaginable heights.  Sad but true.  This is Why Central Planning Fails 101.

Then what about the demand side?  Well of course by unnaturally knocking down the price of the most important commodity in the world demand will be maintained at artificially high levels for longer.  So demand is kept up artificially while supply growth constrained.  Can you say complete unmitigated disaster.

Speaking of Panic…
Speaking of panic, it looks like after a couple of weeks of begging and pleading I have scored a ticket to the Widespread Panic show at Red Rocks this weekend.  Apparently some guy that was driving up from Memphis for the show can’t make it so I get his seat.  I am supposed to pick it up at the show so we shall see how this works out…Anyway, have a great weekend!  God Bless the Central Planners.  They are gonna need it.

Peace and wisdom,
Mike


The information contained in this communication is provided for informational purposes only and has been obtained or derived from sources believed to be reliable.  No representation or warranty is being made, express or implied, as to the accuracy or completeness of such information, nor is it recommended that such information serve as the basis of any investment decision.  This report contains forward-looking statements that are subject to change.  Forward-looking statements involve inherent risks and uncertainties, and the predictions, forecasts, projections and other outcomes described herein may not occur.  A number of important factors could cause results to differ materially from the views and opinions expressed herein and there are no guarantees of return.  This material is not an offer to sell or a solicitation to purchase securities of any kind.  Before making an investment of any kind, readers should carefully consider their financial position and risk tolerance to determine if such investment is appropriate.  No information contained herein may be reproduced in any way without the express prior written consent of Michael Krieger.  Mr. Krieger may allocate assets to positions described herein and reserves the right to enter, modify or exit any such positions without notice.

Economic Stabilization Fund

I used to read several strategists who would talk about the President's Plunge Protection Team.  I thought it sounded like a crazy conspiracy theory.  It isn't a hoax, just something no one likes to talk about.  The video is drier than sand, but the information is mind-blowing.  I hope everyone watches it.

ESF Part 1

ESF Part 2

Congratulations to Rory McIlroy on his US Open win!

PGA Young Guns

This will be my only post for the week, since I will be out until Sunday.

I saw this on the PGA website and couldn't stop laughing.  I know some don't like to watch the tour now that Tiger is MIA.  However, there is an amazing amount of young talent.  And as you can see, they don't take themselves TOO seriously.
GOLF BOYS - "Oh, Oh, Oh!"

Here is the Fed's new "twist" on Quantitative Easing.  I mentioned they might try this a few weeks ago.  Now it seems that Bill Gross agrees.  It didn't work the first time they tried it.
Operation Twist

Silver inventory continues to fall, yet the price keeps going down.  Hmmmm...
Comex Silver Inventory Shrinking

I can't recommend anything on this blog.  But I own physical gold as protection.  It has more value than paper.
Gold Could Reach $5,000 on Shortage

TGIF!

Here are a few stories that peaked my interest.  I'm still waiting to hear from RJA compliance on what I can and can't say on the internet.  Therefore, I won't make comments right now.  I hope everyone has a wonderful weekend.

Meet The Squatters: Here Are The Millions Of Americans Who Live Mortgage-Free For Up To 5 Years And Counting

http://www.zerohedge.com/article/meet-squatters-here-are-millions-americans-who-live-mortgage-free-5-years-and-counting

Bill Gross Is Selling His Hole in the Ground for $26.5 Million 

http://www.cnbc.com/id/43354714 

 

A woman in New Mexico has been reunited with a $30,000 diamond engagement ring that she lost while making dinner in 1997. 

http://www.happynews.com/news/692011/woman-gets-back-30k-engagement-ring-14-years.htm 

 

This article is older, but wow!  What an amazing move by a 9 year old.

9 Year Old Boy Rescues Sister 

http://www.happynews.com/news/4232011/year-old-boy-rescues-sister.htm

 

Some Good Advice

I received some input from a close friend and client.  I'm glad he told me this, I wanted to try and clarify my stance.  Here is what he told me.

Hey Aaron,
I would say to not be only negative. Look at both sides of the equation.
A 'doomsdayer' will run off most of his customers eventually.
A negative outlook gives negative results.

Hopefully, my response will clear some of this up.

I'm not trying to be "negative", but realistic.  If, as a nation, we continue on the path we are on, it will lead to terrible results.  My hope is to try and get people to stop doing the things that will cause this.  I believe our country is great and will continue to be.  I'm sorry if I came off that way.  I believe there are positives out there, once we clean up the current mess.  I will post all the positives I find.  Thank you for your input, I really appreciate it.

With that said, I will make it a point to always have something positive on the blog.  In my research, I found a pretty cool site called Happy News.

Surprise proposal at the Royals game:
I don't think our military men and woman receive enough of our praise.

http://sports.yahoo.com/mlb/blog/big_league_stew/post/Video-Serviceman-8217-s-surprise-marriage-prop?urn=mlb-wp8250


A great business promotion, helping those less fortunate, in the St. Louis area:
It was a year ago that Panera converted the Clayton restaurant into a nonprofit pay-what-you-want restaurant with the idea of helping to feed the needy and raising money for charitable work. Panera founder and Chairman Ronald Shaich said the café, operated through Panera's charitable foundation, has been a big success, largely because of people like Thornton.

http://www.msnbc.msn.com/id/43050301/ns/business-retail/

***I also want to clarify something.  This is a place for me to put down my personal thoughts and ideas.  I do not represent the outlook, recommendations, or opinion of Raymond James and Associations.***

Where's The Money?

This is my first blog.  I sent this out as an email earlier and I'm testing out the blog site.  I believe we are seeing the destruction of our great nation.  A good portion of it is our own fault.  I hope to arm you with as much information as possible. 


56 percent of American workers have less than $25,000 saved. Even worse 60 percent of retirees have less than $50,000 saved. 45 million on food stamps and the consequences of peak debt.

Middle Class Destruction



"On "The Early Show" Thursday, financial journalist and Newsweek columnist Joanne Lipman said, "Right now we have 30 percent of people who have 401(k)s have loans against their 401(k)s, which is a historic high. And the problem is, it's growing like crazy: By 2014, we're expecting to see 30 million people take loans against their 401(k)s."
"It's a big, big problem," she remarked to co-anchor Chris Wragge, "and it's one that's really been under the radar. And the big problem is that, if you lose your job, you have to pay that loan back within 60 days. So suddenly, you have no income, you owe all this money back, and the fact is that most people are unable to pay it back.

"There was a survey recently that found that 70 percent of people who lose their jobs are unable to pay back the loan and go into default. And the number is even higher ... for young people -- it's closer to 80 percent."

Don't Loan From Your 401(k)



Stock Volume Collapses: Must Be An Up Day

http://www.zerohedge.com/print/403513




US Treasury Burns $90 Billion in 8 Days
http://www.zerohedge.com/article/us-treasury-burns-90-billion-8-days



Have a good night,
Aaron