The gold market is so thin that it won’t take much buying to push the price of bullion to $2,500 per ounce.
The arrogance on Wall Street always amazes me. I have lived through three stock market crashes, one rolling recession, near hyperinflation and what was almost an economic depression. In all those cases, Wall Street was caught unaware. People who manage financial institutions were incredulous as the events transpired.
The Street’s ignorance was on full display this month when Warren Buffett’s top investment adviser Charles Munger explained that gold is a useless relic.
On May 4, the eve of the Berkshire Hathaway annual meeting, Munger, age 88, said: “Gold is a great thing to sew into your garments if you’re a Jewish family in Vienna in 1939, but I think civilized people don’t buy gold, they invest in productive businesses.”
Munger thinks people should either be facing a Nazi occupation or else be as stupid as cavemen in order to purchase gold. If this reminds you of the Geico cavemen commercials, you won’t be surprised that Munger is big on investing in that company.
Munger said he loves Berkshire Hathaway’s portfolio, which includes Burlington Northern railroad, specialty chemicals firm Lubrizol and insurance giant Geico.
“We just have a wonderful portfolio in business, if you average them out,” Munger said. “By and large they’re doing productive, useful work.”
So confident are Buffett and his associates on Burlington Northern that in 2009, Berkshire Hathaway bought the company for $34 billion. This is just one example of Buffett’s showing faith in Barack Obama’s management of America’s economy.
Buffett and Munger forgot to consider that Berkshire Hathaway’s portfolio is mostly traded in U.S. dollars. Perhaps Munger slept through the past decade. Only that would explain how he missed the worst bear market ever for the U.S. dollar and one of the biggest bull markets for gold.
When I began as the editor for Outstanding Investments in the autumn of 2000, I urged subscribers to load up on gold. Bullion was then trading for less than $280 per ounce. Today, it trades at about $1,600 per ounce.
During those same years, the value of the dollar has gone to hell. The evidence in the graph below shows the greenback’s dreadful decline.
Munger doesn’t seem to understand that when the dollar declines, even against other currencies, the purchasing power of the dollar declines. Even if we accept the Federal government’s cooked books on the Consumer Price Index, what cost $100 in 2000 costs $133 today.
Burlington Northern stock has gone from $25 per share in 2000 to $100 per share now (in large part because of the spike caused by the Berkshire Hathaway purchase). But you have to discount one-third of that increase because of the declining worth of the dollar.
Another Obama Term Will Send Bullion Soaring
Munger does not understand what the dollar will face if Obama is re-elected.
In the 1970s, dollar inflation decimated Big Board stocks. The Dow Jones industrial average hit 996 in 1966. That index stood at 742 in 1980, a loss of 25 percent.
There can be no free society once government has granted itself the power to confiscate property, imprison people under any pretext (or without a pretext) and without charge. This is now true in America.
Even years after his death, the Roman Senate continued to cry “Hannibal is at the gates,” using the peoples’ fear of Hannibal exactly as the U.S. government and its lapdog politicians today use the myth of terrorism. We are sacrificing liberty for “security” because of the created, imagined threat of terrorists.
The government bureaucracy will never accept responsibility for the collapsing economy, and the elite who run the United States will never give up power. Instead, they attack U.S. citizens on all fronts.
The grand design is to take the remaining wealth of the American people. The borders are silently closing. Tax havens are being attacked. And every wire coming into the United States is being traced for identity.
Even if U.S. authorities collected every foreign bank account or investment, it would make absolutely no difference in the financial default that is coming. It’s a ruse!
We have professional, lifelong politicians who are paid by the government and directed by the elite. They don’t dare pass legislation to impose term limits to stop career politicians.
The people are now the enemy of the state, and their remaining wealth is seen by the politicians as their solution to maintaining perpetual power. The peoples’ rights, privileges and immunities are being stripped away.
And after the “Arab Spring” last year, Washington suddenly perceived a cyberattack threat to shut down the whole Internet. For what purpose? There is no threat or capability of such an attack. This is clearly an excuse to stop communication among people as the system collapses, and the government can’t sell its bonds. It is desperation, but dangerous. This Internet “cyberattack” is merely a bogeyman to invoke more control.
The Internet has exposed the crisis, and crisis speeds up events when widely known. The Internet is plainly a serious threat to government tyranny.
All governments turn on their own people in their final days in order to retain power. Those who can’t see this or can’t believe it had better assume it and protect what they have before it’s too late.
Gold and silver is historically the perfect hedge against bad government. It is survival and liquidity in the chaos and crisis of failing government, as now. Please, this means gold and silver in your possession. You figure where to keep your coins.
It amazes me how people will buy gold and silver and then trust this survival wealth to somebody else. If you let another person, bank, public vault or any entity “store” your survival wealth, it may not be there — and probably won’t be there — when there is economic mayhem. It’s time to be sober. All of you must know about MF Global and how it used clients’ funds.
Something Americans don’t understand: There can be no free society once government has granted itself the power to confiscate property, imprison people under any pretext (or without a pretext) and without charge.
It is well-known that Goldman Sachs recommended stocks related to the housing mortgage mania at the same time that it shorted the stocks.
Goldman Sachs is the ghost over America, and it is a proxy for the elite crime that has wrecked the country and impoverished the middle class.
Goldman Sachs rules the world for the 1 percent.
The U.S. political system — indeed, that of the whole world — is dysfunctional because it is run by Goldman Sachs for Goldman Sachs. It is well-known that Goldman Sachs recommended stocks related to the housing mortgage mania at the same time that it shorted the stocks. Nobody goes to jail, and there are only hand slaps from the Securities and Exchange Commission.
Because of the heavy influence of Goldman Sachs in our government and in governments around the world, it operates above the law and takes every advantage for its own people. This is getting to be public knowledge, but the American people are paralyzed as far as any action by the lapdog U.S. Congress. There is nowhere for the people to turn in a nationwide system of organized crime under the aegis of private investment banks. The recent collapse and bankruptcy of MF Global is a huge factor in eroding public confidence. It appears that client funds (investors), even though segregated, were used to speculate for MF Global’s own account.
Jon Corzine, who ran MF Global into the ground, losing vast sums of investor funds, told a Congressional committee that he “didn’t know where the money went.”
Corzine is a former CEO of Goldman Sachs and a former Governor of New Jersey, a bankrupt State. Some people believe Corzine is in line to be the next U.S. Secretary of the Treasury in the Obama Administration.
The likes of Corzine, Raj Rajaratnam, Bernie Madoff, Rajat Gupta and a legion of legal gangsters are gaming the system to enrich the Wall Street club. When widespread corruption is on the public stage, how long before the collapse of the whole system?
The pied pipers of Babylon have no clothes and they have no shame. They fear no prosecution because they are the privileged elite. These are the same people who ghostwrite things such as the recent 2012 National Defense Authorization Act and then turn the military loose on the American people whom they brand “terrorists and extremists.”
They are not oblivious to the coming economic collapse and the fact that they may be victims of the wrath of oppressed Americans and subject to public hanging. This is the expected pattern that develops in the chaos and crisis of the collapse of a despotic government. All this is in the next chapter of the default of national governments. It is already beginning for those who have eyes to see. All that is needed now is the trigger.
Goldman Sachs doesn’t stop at the U.S. border. Mario Monti, the new Prime Minister of Italy, the new European Central Bank President Mario Draghi and the freshly appointed Greek Prime Minister Lucas Papademos are all Goldman Sachs alumni.
Al Gore reminds me of the Wizard who had the curtain pulled back on him planning to be taken more seriously by getting Toto sent away to obedience training.
Former U.S. Vice President Al Gore wants to end the default practice of quarterly earnings guidance and explore issuing loyalty-driven securities as part of an overhaul of capitalism which he says has turned many of the world’s largest economies into hotbeds of irresponsible short-term investment.
Together with David Blood, senior partner of ‘green’ fund firm Generation Investment Management, the environmental activist has crafted a blueprint for “sustainable capitalism” he wants the financial industry to adopt to support lasting economic growth.
“While we believe that capitalism is fundamentally superior to any other system for organising economic activity, it is also clear that some of the ways in which it is now practised do not incorporate sufficient regard for its impact on people, society and the planet,” Gore said.
At a briefing ahead of Thursday’s launch, David Blood said capitalism has been blighted with short-termism and an obsession with instant investment results, which had ramped up market volatility, widened the gap between rich and poor and deflected attention from the deepening climate crisis.
The Goracle has reportedly made around $100 million just in the last decade, much of it very quickly — dare I say “short term.” But that was “good” short term… right now we’re discussing “baaad” short term.
How come losing billions in taxpayer money overnight on clean energy “investments” is good for society and the economy in the long run, but a private investor seeking to earn a fortune overnight is bad for society and the economy in the long run? The answer is that both are perfectly acceptable as long as Gore has a piece of the action.
If Gore wants to get rid of corporate quarterly reporting, let him be the first to invest millions in a business that is only compelled to update him on it’s progress, or lack thereof, every few years or so. I’ll even volunteer to be the person who heads up that company just to show how much I care about the cause.
Olli Rehn, the European Commission’s top economics official, warned there would be “devastating consequences” if Greece defaulted, and pleaded for eurozone governments to approve the bail-out quickly. Officials said Mr Rehn has support from the European Central Bank and the French government.
But a group of eurozone governments, particularly those that retain triple-A credit ratings, has lost faith Greece will ever deliver its end of the bargain. Hardline officials in Germany, the Netherlands and Finland are increasingly urging a Greek default.
“We are getting closer to default,” said a senior eurozone official. “Germany, Finland and the Netherlands are losing patience.”
Finance ministers will hold a conference call on Wednesday and reconvene at a scheduled meeting on Monday.
One key reason for the increasing boldness in northern Europe is a growing belief the EU can contain the blowback from a disorderly default, having built up the eurozone’s financial “firewalls” against contagion. Some officials also believe financial markets have priced in a default, meaning any adverse reaction will be limited. . . .
As we watch the Eurozone struggle with its financial challenges Keynesians keep telling us the solution to our economic problems is to spend more money, to pile up bigger debts.
A week and a half ago, Standard & Poor’s downgraded the debt of more than half of the Eurozone’s countries, and the failure of those policies should be very obvious by now.
Solving the Greek debt crisis hit yet another snag on Sunday afternoon. New aid for Greece from the IMF, the European Commission and the European Central Bank would have relied on private bondholders “voluntarily” agreeing to a 50 percent cut in the value of the Greek bonds they hold as the Greek government claims it can’t afford the interest rates demanded on the remaining debt. Unfortunately, for the Greek government, it lacks the power to abrogate the rights of foreign bondholders.
Greece can’t simply apply the Obama administration’s method of doing away with the rights of GM’s and Chryslers’ bondholders.
The European countries that have fared the best, such as Germany and Poland, rejected the Keynesian medicine. In contrast, countries following the Keynesian path with massive deficits to try to “stimulate” the economy — such as Greece, Portugal, and Ireland — have done poorly, with low growth and increased government debt. . . .
Remember how the pressure to give loans to individuals who couldn’t afford them lead to the financial crisis (see here and here)? Failure to count welfare or unemployment payments as income is viewed as evidence of discrimination. Now the Obama administration forces Bank of America to pay record $335 million penalty for supposedly discriminating against minorities:
Bank of America Corp. will pay $335 million to settle allegations that its Countrywide Financial Corp. unit discriminated against black and Hispanic borrowers, in the largest residential fair-lending settlement in history.
The agreement, announced on Wednesday, involves more than 210,000 minority borrowers who were charged higher fees or who could have qualified for a prime mortgage, one offered to borrowers with the best credit histories, but instead were steered into a more costly subprime loan.
The case is the first by the Justice Department that accuses a lender of steering borrowers to more costly mortgages. The agreement also ends a separate discriminatory lending lawsuit filed by Illinois Attorney General Lisa Madigan in state court in June 2010.
Bank of America neither admitted nor denied the allegations in the settlement. The bank said it settled to resolve issues tied to Countrywide’s practices before Bank of America’s July 2008 purchase of the lender. The bank said it is “committed to fair and equal treatment of all our customers.” . . .
Gold prices have been undergoing a minor correction the past couple of months. I believe it is a healthy correction with higher prices for gold to come in the new year. However, I appreciate that very few people can take advantage of rising gold prices. Bullion has gotten too expensive and doesn’t have the upside it had a few short years ago.
One thing is certain: When it comes to gold and this Christmas, it is far different from Christmas 1979. During the closing days of that year, the gold bubble was about to burst. Over the next 20 years, gold lost 80 percent of its real value (accounting for inflation).
Of course, nobody thought gold was set to correct during the days leading up to Christmas in 1979.
I was lucky to get a firsthand look at the frenzy that was going on. I was a senior at the University of Calgary, and I was visiting my parents in Spokane, Wash., where my dad was publishing his newsletter.
The hub for it all was on the fourth floor of the Peyton Building, one floor above my dad’s office. The Spokane Stock Exchange consisted of one large room that had a blackboard on which an elderly man busily scribbled prices as brokers and a handful of private investors shouted out their bids.
The frenzy went on throughout the week before Christmas and became so intense that it was reported nationally on the CBS Evening News on Christmas Eve. That alone should have been a sure sign that gold and silver prices were close to a blowout. Yet I doubt one in 20 gold speculators — including my father, who was one of the three original gold bugs — saw it coming. (However, my dad, C.V. Myers, got his subscribers out of gold over the next year at an average price of $650 per ounce.)
I know that some of you are concerned that gold may have hit its high. Bullion prices are down nearly $300 per ounce from the all-time highs it set earlier this year. Yet the fundamentals indicate to me an even weaker U.S. dollar and higher prices for precious metals.
Consider today’s price of bullion of roughly $1,700 per ounce. That is twice the price of bullion right before the bubble burst. However, if you factor in the depreciation of the dollar over the past 32 years, you will discover that is not actually the case. For gold to eclipse its 1980 high, it would have to trade above $2,500 per ounce.
Another measure to determine gold’s relative value can be made by comparing gold to the Dow Jones Industrial Average. Gold is overvalued when it takes only one ounce to buy the DJIA. For instance, when the stock market bottomed out during the Great Depression, one ounce of gold at $35 per ounce bought a single share in DJIA. That relationship happened again in 1980 when an ounce of gold was $850 and the DJIA was under 800. By 1999, it took 40 ounces of gold to buy a single share in the Dow.
After viewing a number hours of direct testimony by officials of MF Global and others before Congress, I am struck by the disingenuous behavior of Members of Congress, the Administration, the financial community and the financial media.
This entire situation is almost a mirror image of what occurred during the broader financial meltdown.
There were the ratings agencies who knew weeks before their disclosure that there might have been problems with MF Global and their overwhelming and overleveraged bet on foreign sovereign debt. And it was the pronouncement of a “ratings downgrade” that precipitated an investor and counterparty crisis of confidence in MF Global, much in the same way an old-fashioned bank run is created.
There were the accounting gurus who, while openly enabling ENRON-type accounting, once again had put forth rules that allowed MF Global’s “Repurchase to Maturity” securities to be treated as sales rather than financings and that made it legal to allow these transactions to be held “off the balance sheet.” Thus burying the transactions in the footnotes of voluminous official filings and disclosures.
There was the widely touted Sarbanes-Oxley legislation which criminalized executive behavior for knowingly signing-off in a financial statement that the executive had reason to believe was incorrect. In which executives claim that they relied on the representations of honest brokers and various third-parties to attest to the accuracy of the statements and disclosures they were signing.
There were Congressional hearings to demonstrate to the American public that Congress was taking the MF Global situation seriously and was considering even more legislation to prevent further situations of this nature. Of course, these hearings were mostly smoke and mirrors with legislators asking questions to which there were no coherent answers. Such answers could not be rationally provided until the end of an multi-jurisdictional investigation and a forensic audit of all accounts. Accomplishing nothing except reminding one of Shakespeare: “Told by an idiot, full of sound and fury, Signifying nothing.”
The failure of the regulatory agencies to detect wrongdoing or even provide adequate explanations of what had taken place after the fact. It turns out that one regulatory agency only audits the self-regulating group who is responsible for firms like MF Global. Only occasionally looking directly at companies such as MF Global; and only then to determine the adequacy of the self-regulators audit capabilities.
Who has the money?
Policies, Procedures and People form a system of safeguards and controls against accidental or deliberate wrongdoing. People who actually transfer money using computer terminals are tightly controlled, must work under direct supervision and have the appropriately-signed paperwork before initiating a transfer. The idea that some rogue clerk decided to transfer funds to save a company in crisis is almost incomprehensible.
At this point in time, there are a number of working scenarios:
Money was borrowed from a foreign subsidiary or third-party and when the money was not paid back, this party simply withheld funds legitimately due to the firm which precipitated a cash crisis.
A temporary loan was arranged using client securities plus an additional buffer amount as collateral – something that can be permissible under certain circumstances – and when the loan remained unpaid, the customer’s collateral was converted to cash, thus producing a shortfall.
Yet another day of “Occupy Congressional Hearing” for former MF Global CEO & Joe Biden phone-a-friend economic advice lifeline, Jon Corzine. C-SPAN 3 is carrying the hearing live.
WASHINGTON – Jon Corzine has told a Senate panel that he never told anyone to “misuse” customer money that vanished when MF Global collapsed this fall.
An estimated $1.2 billion in client money is missing. Senators are demanding Corzine and two other executives at the securities firm explain who authorized the transfer of money in the days before the firm collapsed in the eighth-largest bankruptcy in U.S. history.
“I never gave any instruction to anyone at MF Global to misuse customer funds,” Corzine testified at a hearing of the Senate Agriculture Committee on Tuesday.
Corzine, a former Democratic New Jersey senator and governor, resigned as CEO of the securities firm last month.
Bradley Abelow, the firm’s president and chief operating officer, and Henri Steenkamp, the chief financial officer, also tried to distance themselves from any decision to transfer the money at the hearing.
[...]
All three witnesses said that they don’t know where the money is.
Yet their testimony varied in subtle ways. Corzine said he did not direct anyone to misuse the money. Abelow said he does not recall directing anyone to divert the money. Steenkamp said clearly that he did not “authorize, approve or know of any transfers of customer funds” out of their accounts.”
Wow. It’s like asking my kids what happened to the $1.2 billion worth of cookies that were in the jar.
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