Goodbye 2011

I hope to have a special report for you next week.  I having a call with the chairman of Seabridge Gold today.  I want to hear his explanation behind the recent decline.  I can't believe he actually responded to my request.

Here are a few articles for your weekend reading.
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Here is another way the Fed is bailing out the world under the radar.  You know, I'm not bearish on America because I still think we are the strongest nation in the world.  However, we have to change our way of operation.  The current path is unsustainable.

When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap.

By GERALD P. O'DRISCOLL JR.

America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.

The Fed is using what is termed a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.

Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman's collapse in the fall of 2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.

The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.

The ECB is entangled in an even bigger legal and political mess. What the heads of many European governments want is for the ECB to bail them out. The central bank and some European governments say that it cannot constitutionally do that. The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities. Meanwhile, European governments pressure the banks to purchase still more sovereign debt.

The Fed's support is in addition to the ECB's €489 billion ($638 billion) low-interest loans to 523 euro-zone banks last week. And if 2008 is any guide, the dollar swaps will again balloon to supplement the ECB's euro lending.

This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light. Reporting in Europe is on the mark. On Dec. 21 the Frankfurter Allgemeine Zeitung noted on its website that European banks took three-month credits worth $33 billion, which was financed by a swap between the ECB and the Fed. When it first came out in 2009 that the Greek government was much more heavily indebted than previously known, currency swaps reportedly arranged by Goldman Sachs were one subterfuge employed to hide its debts.

The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed's reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed's Swap Operations report, and the ECB website.)

No matter the legalistic interpretation, the Fed is, working through the ECB, bailing out European banks and, indirectly, spendthrift European governments. It is difficult to count the number of things wrong with this arrangement.

First, the Fed has no authority for a bailout of Europe. My source for that judgment? Fed Chairman Ben Bernanke met with Republican senators on Dec. 14 to brief them on the European situation. After the meeting, Sen. Lindsey Graham told reporters that Mr. Bernanke himself said the Fed did not have "the intention or the authority" to bail out Europe. The week Mr. Bernanke promised no bailout, however, the size of the swap lines to the ECB ballooned by around $52 billion.

Second, these Federal Reserve swap arrangements foster the moral hazards and distortions that government credit allocation entails. Allowing the ECB to do the initial credit allocation—to favored banks and then, some hope, through further lending to spendthrift EU governments—does not make the problem better.

Third, the nontransparency of the swap arrangements is troublesome in a democracy. To his credit, Mr. Bernanke has promised more openness and better communication of the Fed's monetary policy goals. The swap arrangements are at odds with his promise. It is time for the Fed chairman to provide an honest accounting to Congress of what is going on.

Mr. O'Driscoll, a senior fellow at the Cato Institute, was vice president at the Federal Reserve Bank of Dallas and later at Citigroup.

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This article talks about how Ivy League grads are deciding to do something other than go to Wall Street. I believe my generation and the one after are finally waking up to what's happening.

By Michael Lewis
    Dec. 29 (Bloomberg) --

To: The Upper Ones
From: The Strategy Committee
Re: The Alarming Behavior of College Students

    The committee has been reconvened in haste to respond to a
disturbing new trend: the uprisings by students on elite college
campuses.
    Across the Ivy League the young people whom our Wall Street
division once subjugated with ease are becoming troublesome. Our
good friends at Goldman Sachs, to cite one example, have been
forced to cancel their recruiting trips to Harvard and Brown. At
Princeton, 30 students masquerading as job applicants entered a
pair of Wall Street informational sessions, asked many obnoxious
questions (“How do I get a job lobbying the U.S. government to
protect Wall Street interests?”), rose and chanted a list of
charges at bankers from JPMorgan and Goldman Sachs, and,
finally, posted videos of their outrageous behavior on YouTube.
    The committee views this latter incident as a sure sign of
trouble to come. The whole point of going to Princeton for the
past several decades has been to get a job at Goldman Sachs or,
failing that, JPMorgan. That Princeton students are now
identifying their interests with the Lower 99 percenters is, in
its way, as ominous as the return of the Jews to Jerusalem.
    Having fully investigated the incidents in question, we are
now prepared to offer strategic recommendations. Going forward
all big Wall Street banks, when visiting college campuses,
should adopt the following tactics.

    No. 1. Send only women. You may not have fully understood
why you hired them in the first place, but now is their moment
to shine. For some time now the standard recruiting mission has
included at least one woman and one person of color, to
“season” the sauce. But typically, in the interests of keeping
it “real,” there has been on the scene at least one white male
recruiter.
    Anyone who studies the Princeton-JPMorgan video will see
that we can no longer afford to keep it real. The camera passes
forgivingly over the JPMorgan women -- the viewer feels sorry
for them, for some reason -- and comes to rest on the lone white
Morgan man. The viewer doesn’t feel sorry for him. Get him out
of there. Now.

    No. 2. Having identified your female employees, gather them
together to explain that they have no obligation to justify your
behavior, even to themselves. They shouldn’t give college
students the satisfaction of thinking that you have devoted so
much as a passing thought to the following subjects: Why it is
OK for Wall Street banks to create securities designed to fail;
why it is OK for them to game the ratings companies; why it is
OK to get paid huge sums of money while working for companies
rescued, and still implicitly backed, by the U.S. government;
why it is OK to subvert attempts by politicians to reform the
financial system?
    Avoid taking questions from college students. For that
matter, avoid engaging them in substantive conversation of any
sort. Your women need to shift the conversation from content to
form. They must say things like, “I don’t mind what you are
saying, I just mind how you are saying it.” And “I don’t
understand why you can’t treat other people with respect.”
    They must cast themselves not as extensions of a global
financial empire but as guests. Everyone at Princeton can agree
that it is wrong to be rude to ladies on a visit.
    Happily, many Princeton students, hiding behind aliases,
have already taken up this cry on campus websites. Encourage
those who still want to work for big Wall Street banks to blog
and post our new defense. Don’t offer jobs to these students who
agree to help, however. They are better suited to being Wall
Street customers than Wall Street bankers.

    No. 3. Focus on what actually angers these angry young
people, rather than what they say angers them. The character of
Princeton students didn’t change overnight; what changed is
their circumstances. They think they are pissed off at us
because of what we did. They are actually pissed off at us
because we can no longer afford to hire them all. To that end
...

    No. 4. Engage, quietly, with the ringleaders. Of course,
all variations of the Occupy movement claim to be leaderless. We
on the committee aren’t buying this. With the possible exception
of Bank of America, there is no such thing as a leaderless
organization, only organizations in which the leaders operate in
the shadows.
    Sources inside inform us that one of the leaders of the
Princeton-JPMorgan protest -- the young man who led the so-
called “mic check” -- is a comparative literature major named
Derek Gideon. Sources further indicate that for his senior
thesis Mr. Gideon is writing -- get this -- a poem.
     This poem of his apparently leaves him with a great deal
of time and energy to stir up trouble.
    “My goal is to change the dominant campus culture,” he
has been quoted saying, “the culture that assumes that going to
work for Goldman Sachs and JPMorgan is the most prestigious
thing you can do, without having any critical sense of their
current role in society. We’re very privileged to be here. We’re
getting an incredible education. All just for us to be sending
30 percent, 40 percent of our graduates to the finance sector?”
    Unsurprisingly, Mr. Gideon doesn’t know precisely what he
is going to do with his life after he graduates. This young man
strikes the committee as an ideal candidate for a job at Goldman
Sachs. Yes, in our experience, even the Gideons of this world
can be persuaded. After all, what better way for him to improve
our behavior than to become one of us? Put that way, he almost
has an obligation to take his natural resting place among us.
    As awkward as it is to find ourselves in a war with
students inside our own trade schools, we cannot simply cease to
deal with them. After all, many are our own children.
Disinheritance is messy. And, anyway, what’s the point of
winning the estate-tax battle if we have no heirs?
    More important, the students at Ivy League schools are our
most devastating ammunition in this looming cultural war. They
show the Lower 99 that today’s economic inequality isn’t some
horrible injustice but a financial expression of the natural
order of man. The sort of people who become Upper Ones are
inherently different from the sort of people who become Lower
99s. The clearest sign of this inherent difference is that we
begin our adult life by getting into places like Princeton.
    Win the battle at Princeton and we might still win this
war.

    (Michael Lewis, most recently author of “Boomerang:
Travels in the New Third World” and a graduate of Princeton,
is a columnist for Bloomberg View. The opinions expressed are
his own.)

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This just pisses me off.  I pay my obligations and you know what I get?  High taxes!

Millions of Americans are Realizing They Can Default and Live in Their Homes for Years Free

If you're planning on ditching your mortgage payments and letting your home fall into foreclosure, now just may be the time to do it.
Thanks to record long waits for foreclosure reviews this year, 40 percent of homeowners in default have been sitting pretty in their homes for the last two years without paying a dime, CNN Money reports.
And they know exactly what they're doing.
"It is happening and it's happening more frequently," says Chantay Bridges, a senior real estate specialist with Clear Choice Realty & Associates. "They know they have a least a year (for the foreclosure to go through), at minimum, and people are taking advantage of it."
By enlisting a host of tactics to delay the foreclosure process, like filing bankruptcy, pushing back short sale dates and hitting lenders with requests for more documentation, consumers are able to further delay the inevitable.
But in some cases, the system drags on long enough without extra roadblocks.
The loan modification process alone can take a year or longer and often consumers won't bother making mortgage payments in the process. After all, if you show banks you can afford you monthly mortgage, why would they consider modifying your loan?
The key here is to keep in touch with lenders throughout the modification process. Once you're in, they won't contact your creditors about missed payments.
Walking away from a home that costs more than it's worth could be the best option for some consumers desperate to downsize and start fresh.
If you're going that route, be sure to cover all your bases. Sites like YouWalkAway.com hold homeowners' hands as they navigate the strategic default process and are proven to work.
And even though lenders can choose to go after you for missed payments,  it's something of a rarity.
"You don't often see (lenders) standing in a court of law taking mom and dad to court," Bridges says. "They're going to try to resell the home or something along those lines."
The real threat to your finances is the beating your credit score will surely take once you let your home fall into foreclosure – a 100-point loss or more.

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This is just hilarious, especially if you don't like standing by a smoker.

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See you next year!!!

Welcome Back

I hope everyone had a happy holiday season, we still have New Years to go.  I feel like I need a vacation from the holiday vacation.  I collected a few pieces since my last post.  Some funny and some serious.  Let's get to it.

First, China decided to control the gold trade.  They want to make sure the government can oversee all the trading of gold.  I think that is the reason it is down today.

Second, I believe the dollar has topped which will help precious metals and energy.  Our Chief Analyst, Jeff Saut, agrees with me:

I believe the Dollar Index made it's high last week because I think Mr. Bernanke wants a lower US Dollar.  If those thoughts prove correct, the CRB Commodity Index has likely made a double bottom in the charts and crude oil should be headed higher.

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I think Remy is hilarious.  Here is his A Very TSA Christmas:

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Believe it or not, it's very hard to make investment decisions for clients.  I wish we never lost money, but it happens to everyone.  I'm glad I didn't buy into John Paulson's Advantage Fund.

Over a week ago Zero Hedge broke the news that Paulson's Advantage Plus fund was down more than 50% for the year. Today, Reuters has finally confirmed what our disgruntled throat (don't disparage those who express contrarian opinions just because they refuse to brown nose) reported way back when. "There will be no holiday cheer for hedge fund manager John Paulson this month, as his dismal performance in 2011 is capped off by another miserable performance so far in December. The Paulson & Co.'s Advantage Plus fund, which has been the firm's worst performer all year, is down another 9 percent through December 16, sending yearly losses to about 52 percent, according to a person familiar with the numbers. The Paulson Advantage fund, the firm's largest portfolio, is also hurting again this month, declining about 6 percent. The fund is down about 36 percent year-to-date." Of course, those who follow us would know there was a reason for our increased derision over the past 10 days.

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My brother sent this me and it made me laugh.

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Are Guns and Ammo the New Gold?


Via: Ammo.net


Via: Ammo.net

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I didn't realize this about Kris Kristofferson.  He's a pretty amazing individual.

Many people may have forgot about his time in the U.S.Army. He is the son of an Air Force General, and a accomplished Golden Gloves boxer, and he graduated from Pomona College with a B.S. degree, and then became a Rhodes Scholar from Oxford University.He joined the U.S. Army at the prompting of his father.

After graduating from Officer Candidate School he attended and graduated from both Army Airborne and Ranger training in the very top of each class. He was selected for U. S. Army Special Forces Training but refused so that he could attend pilot training where he earned his wings, and became an accomplished U.S. Army helicopter (gun ship) pilot, and achieved the rank of Captain.

He was about to be promoted to the rank of Major, and appointed to teach at West Point when he resigned his commission from the Army to go into music and acting. You can tell in this video that his time in the military means a lot to him.

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Holiday Reading

I probably won't post again until next week so I here is a bunch of reading material for your holidays.  I'll mix in a few videos as well.

So I really like the information from Stansberry Research.  If you don't follow them, I think you should.  I'm not going to put the latest piece from Porter Stansberry on here.  It's fairly long, but here is the link.  I don't think you have to login to read it.  If you can't get in and you want to read it, let me know.  I will email it to you.  Here are some of the highlights.  Even they are long...

The Corruption of America 

The truth is, I am optimistic. I believe our country is heading into a crisis. But I also believe that... sooner or later... Americans will make the right choices and put our country back on sound footing.

For decades, we have papered over these problems with massive amounts of borrowing. But now, our debts total close to 400% of GDP, and America is the world's largest borrower (after being the world's largest creditor only 40 years ago)... And the holes in our society can no longer be hidden...
 
The question we are trying to answer is: What would per-capita GDP numbers look like, if we used a real-world currency, like gold, or a basket of commodity prices, instead of the paper-based U.S. dollar? What would the figures be if we measured GDP in sound money instead of the government's funny money?
Here's how we figured it out. We took the government numbers for nominal GDP and measured them first against commodity prices, and later (after it began to trade freely) gold. We used a standard commodity index (the CRB) up to 1975 and gold post-1975. The result of this analysis shows you the real trend in U.S. per-capita GDP, as measured on a real-world purchasing power basis.
Our analysis shows you what's actually happened to our real standard of living. The results, we suspect, will surprise even the most bearish among you.
America is in a steep decline. 

Consider, for example, annual sales of automobiles. Auto sales peaked in 1985 (11 million) and have been declining at a fairly steady rate since 1999. In 2009, Americans bought just 5.4 million passenger cars. As a result, the median age of a registered vehicle in the U.S. is almost 10 years.
Our data shows that real per-capita wealth peaked in the late 1960s. Guess when we find the absolutely lowest median age of the U.S. fleet? In 1969. At the end of the 1960s, the median age of all the cars on the road in the U.S. was only 5.1 years. Even as recently as 1990, the median age was only 6.5 years.
Rich people buy new cars. Poor people do not.

The average college student now graduates with $24,000 in debt... and by his late 20s has racked up more than $6,000 in credit card debt. Meanwhile, median earnings for Americans aged 25-34 equals $34,000-$38,000. (Source: Demos.org, "The Economic State of Young America," November 2011.)
Can you imagine starting your life out as an adult with a personal debt-to-income level at close to 100%? What does this say about the state of our economy?

It's not only the young that are having trouble in America. It is also the old.
Debt levels among households headed by people older than 62 have been rising for two decades. The average mortgage size for this population is now $71,000 – five times larger than it was in 1987 (adjusted for inflation), according to William Apgar of Harvard's Joint Center for Housing Studies.

Older Americans are also more reliant on credit card debt than ever before... credit card debt. From 1992 through 2007 (which is the latest data available) older Americans took on credit card debt at a faster pace than the population as a whole. According to USA Today, lower- and middle-income Americans aged 65 and older now carry an average of more than $10,000 in credit card debt, up 26% since only 2005.

Given average interest rates of 20% for these debts, it's a fair bet that these obligations will never be repaid. But they will have a terrible impact on the standard of living of these older Americans.

Bloomberg news published an article based on confidential sources about how Henry Paulson, the former CEO of Goldman Sachs and the Republican U.S. Treasury secretary during the financial crisis, held a secret meeting with the top 20 hedge-fund managers in New York City in late July 2008. This was about two weeks after he testified to Congress that Fannie Mae and Freddie Mac were "well-capitalized."

I knew for a fact that what Paulson told Congress wasn't true. I wrote my entire June 2008 newsletter detailing exactly why Fannie and Freddie certainly had billions in losses that they had not yet revealed to investors – $500 billion in losses, at least. There was no question in my mind, both companies were insolvent – "zeros," as I explained.

And yet, in front of Congress, the U.S. Treasury secretary was saying exactly the opposite. Either I was a liar... or he was.

Then... only a few days later... what did Paulson tell those hedge-fund managers?
He told them the same thing I had written in my newsletter. He told them the opposite of what he'd said publicly to Congress. He told these billionaire investors that Fannie and Freddie were a disaster... They would require an enormous, multibillion-dollar bailout... The U.S. government would have to take them over... And their shareholders would be completely wiped out.

Here you had a high-government official, explicitly lying to Congress (and by extension, the general public), while giving the real facts to a group of people who represented the financial interests of the world's wealthiest folks. The story didn't come to the public's attention for two years.

**(This isn't racist, just statistics)** I'll start with one of the biggest factors in the decline of our civilization – the link between welfare, education, crime, and politics.

Let me give you some of the numbers that define the enormous scope of these problems.
According to the NAACP, Texas taxpayers spent $175 million in 2009 to imprison residents from a small part of Houston – only 10 zip codes out of 75. Thus, people from neighborhoods that are home to only about 10% of the city's population account for more than 33% of the state's entire $500 million annual prison spending. These neighborhoods are overwhelmingly poor and African American.

In Pennsylvania, taxpayers will spend $290 million in 2009 to imprison residents from just 11 of Philadelphia's neighborhoods, representing about 25% of the city population. On this relatively small urban area, the state will spend roughly half its $500 million prison budget. These neighborhoods are overwhelmingly poor and African American.

In New York, taxpayers will spend $539 million to imprison residents from only 24 of New York City's 200 different neighborhoods. Only 16% of the city's population lives in these areas, but they will account for nearly half of the state's $1.1 billion prison budget. These neighborhoods are overwhelmingly poor and African American.

In Detroit, only 27% of the black male students in the school system graduate from high school. This is not a racial problem: Only 19% of the white male students graduate from those same schools. What's causing this problem? A complete breakdown of society. When communities can no longer teach their children the most basic academic skills, such as reading, math, history, literature, and economics... what future can we expect? And what kind of society do you expect after several generations of total ignorance?

These problems are still found primarily in urban areas, but they are spreading across the country. In Pinellas County, Florida, only 21% of black male students graduate from high school. In Palm Beach County, Florida, you find a similar number. Likewise Duval County, Florida... and Jefferson Parish, Louisiana... and Charleston County, South Carolina. In Nebraska, only 40% of black male students graduate from high school. In Nevada, only 45%. In New York state, only 25%.

Take Newt Gingrich. The white, Republican former House speaker was paid $1.6 million for "consulting" by Fannie Mae and Freddie Mac during a period of time the two firms were under constant attack by Newt's fellow Republicans. Were the attacks efforts to truly reform a major threat to our financial system... or were they merely shakedowns? All we know for certain is Fannie and Freddie collapsed, just as many Republicans warned they would. The Republican effort to reform the firms failed. Newt collected $1.6 million.
  
If you think I'm exaggerating the problems we face or the far-reaching impact of the entitlement culture we've allowed to develop in America... then explain the following fact...
The 10 largest American bankruptcies in history have all occurred in the last decade: Lehman Brothers ($691 billion), Washington Mutual ($327 billion), WorldCom ($103 billion), General Motors ($91 billion), CIT ($80.4 billion), Enron ($65 billion), Conseco ($61.4 billion), MF Global ($41 billion), Chrysler ($39.3 billion), and Thornburg Mortgage ($36.5 billion).

I believe they will choose more freedom rather than more totalitarian rule. I don't believe Americans will tolerate martial law for long – even in the advent of a real emergency, which I do believe will occur.
What gives me confidence for the future? Gun sales, for one thing. U.S. citizens legally own around 270 million firearms – about 88 guns per 100 citizens (including children) today.
That's a hard population to police without its consent. America is the No. 1 country in the world as ranked by the number of guns per-capita. That plays a major factor in the kind of government you will see take root in America. Things might go too far in this country for a while... And I'd argue they've been going the wrong way for too long. But the government can only take things so far before they'll be faced with a very angry, well-armed opposition.
If the government attempts to take our guns... my opinion would change immediately. But that's one right the Supreme Court has been strengthening recently. It gives me hope that most people in America still understand that the right to bear arms has little to do with protecting ourselves from crime and everything to do with protecting ourselves from government...

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Here is a cool video of the best sports videos in one montage.

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I'm going to continue to harp on gold and silver until everyone I know understands what I'm saying.  Don't let the paper trading trick you into thinking there is an abundance of there precious metals.


Watch these two videos from Kyle Bass and Eric Sprott.  The best minds in the metal markets.

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Goldman Sachs estimates the latest bailout amounts to nearly 63% of all European bank debt maturing in 2012. Consider the larger issue. This from Porter's August issue of Stansberry's Investment Advisory…

In Europe, the 90 largest banks must finance 5.4 trillion euro in debt over the next 24 months – 45% of GDP. That's not counting any of the European sovereign debt that must be refinanced over the next two years, which I estimate will add another $1.5 trillion-$2 trillion euros to the credit required.

The ECB calls the latest liquidity efforts a "Long Term Refinancing Operation." But it's quantitative easing, plain and simple. We bet it's not enough… We'll see another, larger bailout before the end of next year. Remember… we've already seen the ECB buy hundreds of billions of dollars in sovereign debt and the Federal Reserve open the dollar swap lines with the ECB. This is yet another doomed effort.

 Co-chief investment officer at PIMCO Bill Gross – and our favorite billionaire bond investor who uses social networking website Twitter – was actively commenting on Europe's refinancing efforts. He "tweeted": "What does #LTRO stand for? 1. A shell game; 2. Cash for trash; 3. Three-card 'monti'; or 4. All of the above."


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As I said, silver is unlike gold because industry consumes a huge amount of silver.

It has more than 10,000 uses. (Inventors filed more patents on silver uses than any other precious metal in the world.) And when silver is used for most industrial and technological purposes, it is used up forever... It simply costs too much to try to recycle the tiny bit of silver from every cell phone or casino chip.

Just consider these facts...

• Americans throw away 130 million cell phones every year. Together, these phones contain more than 46 tons of silver.
  
  
• One out of every seven pairs of prescription glasses sold in the U.S. (more than 1 million pairs a year) contains silver to protect the eyes from damage caused by sunlight.
  
  
• The plastics industry uses more than 22 million ounces of silver in the making of polyester fabrics.
  
  
• 500 ounces of silver are used in each Tomahawk missile. The U.S. recently launched 112 of these missiles into Libya ($1.96 million worth of silver).

TGIF

I'm kinda glad this week is coming to an end.  It's been rough.  I've got a little serious and a little funny for you today. 

Most importantly, here is Mike Krieger's weekly post.  I'm glad he decided to cover the markets this week.  There is a link to his podcast at the bottom.  I suggest everyone listen to it.  Thomas Jefferson has to be one of the smartest Americans in history.  I love this quote.

I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.
- Thomas Jefferson

The Worst Generation
Anyone that has been a long time reader of mine knows that in the past year or so I have transitioned much of my writing away from financial markets and toward social and political issues.  There are several reasons for this but the primary driver is the fact that money in the bank doesn’t mean anything if we lose our freedom.  The message I have been trying to get across to leaders of business in all industries is stop making these deals with the devil in order to take one more large bonus or beat EPS for another quarter.  Your choices in pursuit of transitory wealth and status will be paid for by the loss of liberty and the tears of your children and grandchildren.  Sadly, very few in positions of power in America seem to be listening and the lack of high profile/powerful people coming out and risking their own treasure for the long-term benefit of the Constitution and sacred values of this once great nation has been shockingly disappointing.  To the so called “leaders” of America of today I send you a warning from the grave of the great Austrian economist and author of “The Road to Serfdom,” Friedrich Hayak.  You will as a class be remembered as the worst generation in American history.  A generation of leaders so filled with greed, hubris and selfishness that you sold out your nation without ever thinking twice about the tragedy that your silence would bring.  A generation that never had the guts to risk any of their power or possessions for the good of their country.  As Hayak so perfectly put it so many years ago about the rise of Nazi Germany…

The movement is, of course, deliberately planned mainly by the capitalist organizers of monopolies, and they are thus one of the main sources of this danger.  Their responsibility is not altered by the fact that their aim is not a totalitarian system but rather a sort of corporative society in which the organized industries would appear as semi-independent and self-governing estates…But while the entrepreneurs may well see their expectations borne out during a transition stage, it will not be long before they will find, as their German colleagues did, that they are no longer masters but will in every respect have to be satisfied with whatever power and emoluments the government will concede them.

- Chapter Twelve “The Totalitarians in our Midst”

So in the end you will be also be made into a serf and for what?  Was that last bonus really worth it?

Let’s Talk Markets
Ok, so as promised onto markets now.  What is happening at the moment reminds me of 2008 in every way.  We have seen tremendous inflationary pressures in the emerging world, which has now finally resulted in serious slowdowns in many nations.  The China credit bubble, mal-investment house of cards that I first warned about in mid 2009 has started to unravel in earnest and this can be seen in industrial commodity prices such as copper.  Europe is…well we all know about Europe.  So in this type of environment the optimists will always invent a story that finds a silver lining.  That’s fine, everyone is entitled to an opinion and clearly I have my own biases but I think the similarity to 2008 is what is important.  Back then the spin was decoupling.  Despite the blowup of the U.S. housing markets and it’s financial institutions, the spin back then was that the BRICs would keep growing and support the global economy.  Of course, this is not the way it turned out and those economies plunged as well, just with a lag.

Well here in late 2011 we find ourselves in a similar situation; however, this time we are led to believe that the U.S. economy is the Atlas that will hold up the world with its strong corporate balance sheets and moderate growth.  A bigger bunch of nonsense hasn’t been heard since 2008.  That said, corporate earnings have held up in the U.S. better than in many other parts of the world and for the time being this makes it look better compared to the basket case situations happening in many emerging markets and in of course Europe.  In a world where capital flies from one region or asset class to another in a split second we have seen U.S. equities vastly outperform most areas of the world this year.  For example, the S&P 500 is down only 3% this year compared to -18% for Japan, -18% for Brazil, -17% for Germany and -22% for China.  Let’s take a quick look at the Shanghai Composite.

Shanghai Composite One Year Chart
 
                    
  
Not pretty, so now for the S&P 500…Looks ok doesn’t it!



There is a huge disconnect between these two charts and in fact most of the world’s markets look like China’s.  So who’s right?  I think it is pretty simple.  Capital has been hiding in dollar denominated assets, equities included.  In my opinion, this creates a huge opportunity.  That said, I think the best way to play this is not to just straight up short U.S. stocks but to long gold against it.

The Dow/Gold Ratio
I have been writing about this ratio for years saying that it would hit 1:1 by the time this massive macro cycle has run its course.  All that this ratio charts is the performance of equities in real terms (it is the Dow Industrials/Price of Gold) and it has been in a consistent downtrend since the stock market bubble popped in 2000 (it has dropped from 42 to 7.6 currently).  Within any trend there will be counter rallies and these should be seen as a gift to take advantage of.  Due to the fact that I believe markets are now consistently manipulated by the world’s central planners, it isn’t even worth the time or effort to make short term calls as it was hard enough when there was some semblance of a free market.  Nevertheless, I am also of the belief that central planners can only make markets do their bidding in the short term and that in the end markets will win.  This brings me to the current opportunity.
   
Dow/Gold One Year Chart
 


This counter trend rally has now hit 32% since the mid-August low when sentiment on stocks hit a low and that for gold hit a high.  This is the biggest rally in the ratio in over two years.  Look at the RSI and see how overbought it is.  It is also testing the 200 day moving average as we speak, a level that stopped the last counter trend rally in early July.  Even if you are bullish on stocks relative to gold, this rally is extraordinarily stretched and I think people and algos will pick up on this soon enough and we will have a vicious move in the other direction.  Of course this can occur in many ways.  Stocks can rally and gold can rally more but this is not what I think suspect will happen.  I think U.S. equities will get a reality check and join in the weakness of the rest of the world’s markets.  My sense is stocks will fall and gold will generally consolidate.  I rarely see opportunities like this and that is why I decided to write about markets today.  Let’s not forget that despite the recent plunge, gold has once again outperformed stocks by more than 13% this year.  I suspect even great outperformance in 2012, when I think the Dow/Gold ratio will hit at least 5:1.  On a side note, I purchased physical gold for the first time in over a year yesterday.  I rarely do that anymore since I did most of my purchasing in 2008/2009 and I only do so when I have very high conviction that the worst is over.

TF Metals Podcast
To conclude, I had the distinct pleasure of doing a podcast with “Turd Ferguson” of TF Metals.  Since doing this interview I have spent quite a bit of time on his site and I have to say it is a must read for anyone in the precious metals sector.  I am really pleased with how it turned out and I was able to cover some very important topics that I haven’t had a chance to in these pieces.  You can listen to it here Mike Krieger's Podcast  .  I hope you enjoy!

Peace and wisdom,
Mike        

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Most of you know I'm a huge St. Louis Cardinals fan.  I'm sad to see Pujols go, but I think the team made the right decision.  His contract would have held them back for years.  This might be my favorite of the "Hitler Reacts" series.

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From Stansberry Research:

Another trading expert on CBNC yesterday said he wouldn't be surprised if gold fell to $1,100 an ounce. A trader I know says, "Sell all the rallies in gold."

If you're speculating on the gold price, those sorts of insights are pretty important to you. It's like that with stocks, too. If you spend most of your time trying to trade short-term share price movements, obsessing over price quotes and their potential direction in the next few days is important. Lots of people make money doing that sort of thing. Heck, my colleague Jeff Clark has been on the hottest gold trading streak I think I've ever seen. I bet he could tell you what to make of all this…

 But Jeff and I are different. I take a longer-term view. I'm only interested in gold as a long-term holding. Gold (and silver) is how I save money. I buy Krugerrand coins on a fairly regular basis.

Once I buy my gold or silver, I don't view its value in terms of U.S. dollar price quotes. To me, that money has exited the dollar-based, central-bank-manipulated financial system. It's mine, and its value is safe… no longer under the control of some weird academic banker who thinks the Great Depression was caused by the failure to print enough money.

So… really… what do I care that gold was down 5% yesterday? Does it mean the Fed will stop printing U.S. dollars like crazy? Does it mean the U.S. government no longer has $15 trillion of debt it'll never repay? I don't think so. It just means a bunch of people are really scared, and they're going to their warm, fuzzy place, which is the U.S. dollar. The dollar might make them feel good. But it won't preserve the value of their savings. I can't imagine selling gold out of fear. The more scared I get, the more gold I want.

We've said since Day 1 of the euro crisis that the Fed would eventually step up with a massive bailout. Maybe you think we're nutty about holding gold as an exit of the U.S. dollar because we fear the massive printing of money… Well, at least we're in some decent company…

None other than Julian Robertson, the billionaire founder of hedge-fund Tiger Global, is among those who agree with us. In an interview with CNBC this morning, Robertson said the most important thing to watch in today's market is "the printing presses and how fast they go."

"I find almost no one worries about printing money anymore," Robertson continued. "I feel like I'm a total reactionary, but I do worry about it."

 Robertson understands, as few do, that governments always print money. Inflating debts away is far easier than placing the burden on constituents.

"[Printing money] is the easy way out of our problem. It's always the way politicians have faced up to financial problems. We're maybe overdoing it this time. It worries me tremendously. That's why you have so much volatility right now."

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I can't stand Chris Berman from ESPN.  It blows my mind that he didn't end up #1 on this list.

15 Worst Sports Commentators

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I couldn't find any fast food violence, but here is another theft story.

Stay Classy Detroit!

Van Dyke Public Schools in Warren are closed Friday because of bus vandalism.
A recording from the Superintendent’s office says: “Today is Friday, December 16 and due to a transportation problem, the district will be closed today.”
WWJ’s Mike Campbell was live at the scene, where the district’s 20 buses are kept in a the bus yard at 9 Mile and Hoover.
Van Dyke Superintendent Joseph Pius said thieves broke into the bus yard by cutting a hole in the fence. He said the crooks stole three battery each from 15 buses, costing the district about $3,000.

Thieves entered the lot through this hole they cut into the fence.

“They came through somebody’s yard, cut the fence and came in. The interesting part of this is that they did not cut the cables. They actually took the time to undo each of the cables, to unbolt them as opposed to cutting them. So, they had some time to get in there,” said Pius.
The district rushed to find replacement batteries so they could reopen the school next week.
The district does not have security cameras at the facility and so far, no suspects.
“So they can sell them on the streets someplace. I’m sure that’s what happened. So if there are any salvage groups out there that may be approached by somebody with a whole stock full of batteries to please contact the police,” said Pius.