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Eric Sprott: Financial Train Wreck Coming Soon! Got Gold? Better Yet, Got Silver?

Editor — Thu, 01 Sep 2011 07:11:50 +0000

We have a financial system that’s on the edge of a cliff here. People have to be in precious metals if they want to protect themselves. Everyone who’s an investor has money. They have it invested in some paper instrument and when they realise they have a problem with their money in a bank or owning some government note the demand for gold could just be overwhelming! It could be parabolic all of a sudden. Currently, only 0.75% of the world’s financial assets are in gold so just imagine what a 5% to 10% interest in gold would mean for its price. On top of that, I believe that silver will get back into a 16:1 ratio to gold in three to five years for sure so that means that silver is going to have a great upside potential. Got gold? Better yet, got silver? Words: 5169

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) presents below a heavily edited and paraphrased (where necessary) version of James Turk’s (www.goldmoney.com) interview* of Eric Sprott (www.sprott.com) to provide you with a fast and easy read. Their views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original interview/article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

James Turk interviewed Eric Sprott recently at the GATA conference in London about the future for the price of gold and silver and the world’s financial system. Below is a heavily edited and paraphrased version of the interview to provide you with a fast and easy understanding of its contents.

James Turk: You’ve called silver the asset of the decade… What are you seeing here?

Eric Sprott: At the peak [recently,] when silver was $49.80 or so, there was something like 800 million ounces of paper money trading [but] there was only about a million ounces of physical silver available each day for investment. So this preponderance of sellers just seemed unbelievable. Whenever anybody talks about the speculators in silver, I always say, “Well, who’s the speculator? The guy buying it or the guy selling it who doesn’t have a hope in hell of delivering it?” [As such,] we have this big short position in silver, and I’m sure it’s going to resolve very positively to the upside.

One other thing I should say about silver is that when I look at the sales of silver versus gold I see that the U.S. mint sells more dollars of silver than gold, the Canadian mint sells about a dollar and a half of gold to a dollar of silver, Gold Money probably sells more silver in dollars than gold and Sprott Money does the same thing. As such, I see this as a decision by people to decide in favour of one versus the other. They can’t keep buying at a 1:1 ratio when the price of silver to gold is 40:1 so I’m sure it’s going to resolve to the upside.

James: That’s an interesting distinction that you’re making, that the specs in silver are the paper shorts, whereas the serious players in silver are the physical longs. I haven’t really heard that before. That’s really an important distinction. What’s likely to happen to the paper shorts?

Eric: Well, they already got seriously burned. We had the price of silver go from $18 to $48. There was this massive short position, I think it might have been 600 million ounces, at least, let alone what’s in the derivative business. When you lose $30 on 600 million, you’ve lost $18 billion and that’s why I think the raid happened that drove the silver price down, so they could get off some of these shorts. They still have a pretty good short position, however, and ultimately they’re going to go the way of fiat currency, I guess.

James: Do you expect they are just going to renege on the contracts?

Eric: There’s no way that they can deliver to the contracts. We know that. There’s not enough physical silver…

James: So you’re more bullish on silver than you are in gold? I mean, you’re a long standing gold bull…but you’re even more bullish, is it fair to say, on silver?

Eric: The line I use is that gold was the investment of the last decade. I think silver’s going to be the investment of this decade. I do believe in the thesis that silver will get back into a 16:1 ratio to gold…Gold probably goes to some number that’s stratospherically higher than it is today, so that means that silver’s going to have a great mobility. The historical relation of 16:1, I see the buying coming in at 1:1. I see the supply of gold above ground in dollars is approximately 100 times greater than silver, but the buying’s 1:1 so something’s got to give somewhere.

James: How long is this going to play out? Are we talking months here? Are we talking years?

Eric: I always think in three to five years for sure it will trade at 16:1. When it actually happens, I don’t know. It could get parabolic at any moment. We have a financial system that’s on the edge of a cliff here. All I know is that you can safely own it. Go to sleep at night and you’ll be a big winner at the end of that time period.

James: I try to conceive why or how somebody would take a short position in silver here, given the extremely bullish and positive fundamentals. Is there any logical [reason why]?

Eric: It boggles the mind. The only logical thing, and that’s what GATA’s been after, is that the cartel is always trying to suppress the price of gold and silver. In fact, I’m of the opinion, laterally, that knocking silver down was intended to keep the gold price weak. Silver’s easier to move. It’s a very small market. Somebody with money and the printing press or the electronic button can keep the price of silver down, which has a negative spillover effect on gold. It wasn’t very effective this last time. Gold only went down 6-7% and while silver went down over a third… it stormed right back here again…I think, quite frankly, one of the reasons gold didn’t go down that much is there’s latent physical demand for gold. We just saw the Bank of Korea announce that they bought 25 tonnes. Mexico bought 93 tonnes.

The paper boys can do all they want, but when the orders come in to buy gold, they have to stop the game. We just raised, in Sprott Physical Gold, another $300 million. We’ve been a buyer of gold recently.

James: OK, Eric. Let’s get into gold a little bit. When you did your Sprott Physical [PHYS] gold trust offering was timing part of the factor behind it?

Eric: Yes, we had a good premium. There was an interest in it. We thought it wouldn’t disturb the market. We raised about $320 million gross, or $300 million net of underwriting fees, and only have another 20 or 30 million dollars more to buy, but it’s not a disturbing number in the gold market. As you know, South Korea spent $1.7 billion on gold in the last two months.

I think gold’s going to be incredibly strong here. I do the same thing with gold I did with silver except I use my starting year as 2000 compared to 2010 and look at the dynamics of change in the market. This is basically a 4,000 tonnes-a-year market with mine supply hardly having increased in a decade…

We can identify 1,900 tonnes of positive change in the fundamentals for gold, other things being equal, in a 4,000-tonne market. I keep scratching my head [wondering] where the gold is coming from and who is not buying it in 2010 that was buying it in 2000? It never makes any sense to me that there’s so much demand and supply’s almost constant so I have just got to believe that we’re going to overrun the paper shorts. In fact, as I see it, we’ll probably have a physical shortage in due course…All I can think of is, “What are the other 30 central banks around the world thinking?” They see Mexico buying. They see South Korea buying. I think Thailand bought. Sooner or later you’re going to get other central banks to say, “Well, we’ve got to get in this game here.”

I think there will be a physical shortage, for sure. We don’t see much increase in gold production. Most major mining companies are stumbling with production, so we’re not going to get much of an increase this year.

James: If you look at a fund like PHYS, it’s always trading at a premium to spot. Isn’t that a form of backwardation in a sense that you’re much closer to physical metal than a lot of the spot market is because there’s a lot of paper involved in the spot market?

Eric: I think that a lot of people have a distrust of both the SPDR Gold Trust [GLD] and the Silver Trust, the SLV. People are willing to pay these premiums where they trust people to have the metal there…and to have access to it, which in the case of our Sprott physical gold trust [PHYS] and the silver trust [PSLV].

James: Getting access meaning that they can actually take the shares and redeem it for physical metal, if they choose to?

Eric: Yes, if they choose to and, as you know, the one time people might choose to is when things go extremely haywire. They might say, “Hey, I want this physical precious metal in my possession rather than a piece of paper” so I see our PHYS competing with the GLD. I think it’s a better instrument. When I look through those numbers and wonder how could all this physical gold be showing up, it makes you wonder, maybe the GLD doesn’t get the gold they’re talking about. Now I don’t pretend to be an expert on the GLD, but I always wonder about the mismatch of supply and demand and how that’s working out in the system.

James: Well, there are different buyers of gold. There’s some people who actually want the tangible asset, so that they have everything that that tangible asset brings to the table and there are other people who are just happy to have exposure to the gold price, the professional traders and the speculators. To get that exposure to the gold price, they might buy a futures contract or an options contract, or maybe GLD because with GLD you don’t really own gold, you own shares in a fund that’s supposedly backed by gold.

Eric: [In addition, there are] the number of people that are willing to buy things electronically, as I pointed out in the silver example. It’s a ratio of 800 to one in the sense of the trading versus the physical availability. I don’t even know what the ratio is in gold, but it must be some incredible number of times the physical amount that’s available that trades every day. I always say, well, what are the sellers thinking? What are they thinking? They know they can’t deliver.

James: Yeah, but is that not a sign of times, though? A lot of speculation, a lot of paper. As we work our way through this financial bust, we’re ultimately moving back to basics and gold, being money for 5,000 years, is one of the most basic of them all.

Eric: Sure, and by the way, James, I give you credit all the time for explaining it best. You used the words it’s a “managed retreat” and that’s what I think it is. There’s a shortage of gold… Gold should be the most emotional commodity out there, but it’s the least emotional in terms of price. I happen to be in the camp that believes that there are hands out there trying to keep it under control. They lost the battle, but they’re willing to fight lots of little wars on a daily or weekly or monthly basis.

James: Even though the price is high, gold still remains very, very undervalued, by all historical measures.

Eric: [Absolutely,]…the world has $200 trillion in financial assets, and the gold market is worth $3 trillion. Theoretically, the central banks own half of that, which is $1.5 trillion, which means that investors own another $1.5 trillion, which is 0.75 percent of all the financial assets are in gold.

Well, as you well know, there have been many times when people recommended 5% – 10% interest in gold but the fact is, nobody’s in it and if you look at the pool of financial assets, it probably hasn’t even grown in the last 10 years, in the sense that’s the stock market’s done nothing while gold has gone up over six times…

I don’t think history will mean anything when people all realise they have a problem with their money in a bank or owning some government note. I mean, the demand for gold could just be overwhelming! It could be parabolic all of a sudden. They just realise that this fiat currency is not worth what it’s made out to be. I always think of fiat currency as “trust the government.” [laughs] I always wonder why would history tell us to trust government? [laughs] It would tell you the opposite.

James: Even from a diversification point of view, to mitigate risk you need to own some gold, you have to have some silver. You need to have a tangible asset for your monetary asset, rather than just fiat based on nothing except the rheteric of politicians and government.

Eric: Right. You have to own it yourself or have access to it. You have to own it through trustworthy people like yourself, like ourselves, like people who have tried to persuade people to get into precious metals for all the right reasons for the last 10 or 11 years, or even longer, for that matter…It’s shocking that it’s been the best asset for the last 11 years and we can still hardly muster up a real surge of common interest in – but it’s coming.

When we sold the silver trust, we raised $550 million. When we sold the gold trust, we raised $440 million. So again, it’s another example of people being more willing to buy silver rather than gold and I would say, if I was willing to sacrifice the premium on PSILV – which I’m not – compared to the 300 we just raised in gold, I could do multiples of that in silver if it was available…I know the demand is there.

James: Yeah. Is it retail, or is it institutional, or both?

Eric: I would say it’s mostly retail. Both times when I’ve done this circuit trying to sell these issues, certainly on the IPOs, it’s probably been 80-90% retail. I was shocked…that I didn’t get much resonance with institutions whatsoever. In fact, very few of them had even looked at it. People that had invested in gold, already, hadn’t even looked at silver so I kind of know that that’s coming. It’s like you recommending gold in 2000 and some people coming along in ’08, such as John Paulson and David Einhorn, buying gold and everyone saying, “Oh, my god, it must be a good investment!” – but they’re eight years late to the party, right?

James: But still early in terms of where the bull market’s going to go.

Eric: Oh, early enough. They’ve done very well by it and they will do well, of course, going forward, but it takes that kind of time period for people to latch on to it.

James: It’s interesting, the point you raise about silver. I think I may have an answer as to why the lack of interest is there. Every bull market has three stages. In that first stage you see apathy and neglect and disbelief. Silver is still in stage one.

It’s been my point that we’re not going to stage two until we are over $50, which was the January, 1980, high and I think that’s likely to happen here in the not-to-distant future. Once that happens, then that’s going to go onto people’s radar screens and you go into the second stage of silver’s bull market so maybe in a year’s time when you make that circuit, you’re going to get a lot more interest than you get at the present.

Eric: I can feel the difference already. I mean, it was a year ago, almost a year ago we did the…

James: Yeah, who thought $50 silver a year ago was possible, other than a couple people like ourselves?

Eric: It was quite predictable. I thought so anyway. [laughter]

James: When it comes to markets, nothing’s predictable, but it was an easy call.

Eric: Right. It was easier than most because if you looked at the history [you knew that] if this thing goes back to 24, it’s going to 50 almost automatically, and it did, and it did it almost in the time frame that you would have imagined…

I think investors are coming around to it…Every third guy likes gold now, and is willing to admit that maybe you got to have gold in portfolio. I found that disturbing, however, having gone through the 11 years when no one would even mention it, or said it was a barbarous relic or whatever. [Because of that] I now monitor how many people talk about silver. It’s not many, but you can see it creeping into the conversation.

James: Gold has been in the second stage of its bull market since it went over a $1,000 so you likely can expect to have more people talking about it but the question is not talk, but whether they’re buying it. Given the fact that this percentage of assets is still 0.75 per cent, which I keep coming back to, it shows that is an under-owned asset compared to, say, the U.S. dollar, which is an over-owned asset.

Eric: Yeah. They’re going to come back. Having dealt with large institutions and pension fund, they’re so rigid in their programmes that they can hardly consider owning something physical. It’s so against the grain of what their advisors are telling them but gold having gone up by whatever it is, 700 per cent here, the advisors are coming around. Of course, seeing silver go up and all the other commodities going up, they’re finally giving some credence to investing in that area but it will be slow. We saw the first example of that move when Texas Teachers bought close to a billion dollars worth.

James: I was going to ask you about that. Was that sort of a watershed event and that sort of added some legitimacy to the sector and the institutional investor side?

Eric: Well, I think John Paulson going into GLD, David Einhorn buying physical, the Texas Teachers buying physical, are huge eye-openers. Some of the central banks stepping in to buy gold are sea changes in what’s going on out there. It makes it all more acceptable for the mainstream, who never even considered it before, to come in but it’s still a tough, tough sell. I can’t tell you how difficult it is…

James: I’m very bullish on both the metals going forward, as you are, but the other side of that coin is that it’s really being dollar bearish or fiat currency bearish, because that’s the issue.

Eric: [Yes,] it’s a fight of the curses to see which is the worst or which is going to be the first one to collapse.

James: Let’s talk about that a little bit. Some big picture analysis…How do you see the financial system changing? Let’s be honest here. Most banks are insolvent. They’re way too overleveraged…any one of a number of potential candidates, including countries, could be the next Lehman. How do you see this evolving?

Eric: I’ve always believed, and I believe this as a chartered accountant, that you can not be levered 20:1 – that is only five cents of capital supporting a dollar of paper assets. Everybody knows that any paper asset can move two or three per cent in a day, be it a government bond, a Spanish bond, an Italian bond, a mortgage security, the stock market or a commodity. Why would you ever let yourself be levered 20:1?

I just think that we grew into this. We created the Fed in 1913. Banks found ways that they get comfortable with the system, found ways of leveraging themselves and increasing the leverage all the time, always on the understanding that the situation would remain normal. Well, the situation isn’t normal anymore. We have had violent upheavals in the credit markets as we went through the lending crisis in ’08. I see now that whenever you think of the bank’s strongest asset - it used to be mortgages and sovereign risk - they might well be the weakest assets these days, particularly as I think about a European bank owning sovereign risk.

The banks kept expanding because they wanted to have this great return on capital. The only way to get more return on capital is to use more leverage…[As such,] people in Italy and Spain, Greece, Iceland and Ireland took their money out of the banks. Governments had to come in and fund the banks. It’s happened all over the world. The best example I can give to Americans or people who think their banking system is secure [is to imagine that] every Friday night in the U.S. there is a bank failure and then look at the deposits that each of these banks that failed has and how much the FDIC has to pony up to get someone to buy it… We already know they lost the first five cents, otherwise they wouldn’t be bankrupt. The FDIC typically has to come in with 25 cents on the dollar of the deposits. I just say, “Oh my God, they lost their capital six times over.” It’s a staggering number and it happens week after week after week. The same kind of reference of numbers, of the losses versus the deposits.

James: It’s interesting you’re talking about the FDIC covering these losses, 25 per cent of the assets missing…We have central banks around the world leveraged at 50:1 or higher. It’s a train wreck coming.

Eric: It’s a train wreck coming. There’s no way of stopping it. The funny thing that has happened since ’08 for sure, is that every step along the way – I think – the purpose of central banks and governments getting in is to prevent liquidation. Nothing is ever liquidated. The FDIC takes it or the ECB bails out somebody, the Icelandic government goes and takes over the Icelandic banks, the U.K. buys big interest in their banks, the Irish fund their banks, so there’s never been a liquidation. What are values in liquidation versus a value on a balance sheet at some quarter end? A liquidation value would be considerably smaller. In fact, there would be no market.

James: You always run the risk of throwing good money after bad, though. Isn’t that what governments are doing?

Eric: Totally, but they’re caught between a rock and a hard place. They think, “Well, the system’s going to collapse if I don’t do something” and they are right. It will collapse if they don’t do something, so they do something and then, of course, now the governments are going to collapse, just as the Greek government, the Icelandic government and the Irish government have done…

James: Then what happens?

Eric: I have no idea…All I know is that people, to protect themselves against that happening, have to own some physical precious metals because it will be something that will be usable, no matter what the situation is.

James: At some future date, will gold become overvalued in your view?

Eric: People just ask me the question in a different way. They say, “What are the things that would make you sell it?” and I say, “There are three possibilities:

if I see a mania in the market. Just somehow I see crazy, crazy things happening, OK, fine, maybe I’ll get off the train,
if governments and central banks became responsible. Luckily, we don’t see that happening,
if they would make it the reserve currency. Then you don’t need to own gold and silver because you can trade for it at any time you want. Maybe you could then consider investing in other things knowing that it was backed by gold and silver.

James: Would you care to assign any probabilities to those three possible events?

Eric: I think the probability of a mania is very high. You can feel it coming. You can feel the interest building in gold all around the world. You see it. I see it. You see it in GoldMoney. I see it in Sprott Money. I see it in our ability to raise $300 million overnight in the Sprott Physical Gold Trust. I can see it in the latent demand for the physical silver trust. I can see it in what the central banks are doing. You kind of see it in the misunderstanding of the market by the gold producers. There’s hardly a gold producer around who really believes the price is what it is, let alone that it’s going to stay there. There’s this huge scepticism in the industry about the gold price. I think it will go parabolic here. I’m going to rely on you to tell me when it’s going parabolic, James, because you’re the expert, OK.

James: I don’t know. Getting into a market is one thing. Getting out of a market is something different but what I always say is that gold will become overvalued. Not when you’re going to sell it, but when you’re going to spend it. In other words, I firmly believe that gold’s going to be circulating again as currency in some form. Maybe digital through GoldMoney or other alternatives but given the fact that gold’s been money for 5,000 years, and we’ve been experimenting with a money substitute called fiat currency for 40 years, and given the fact that this experiment with fiat currency seems to be going horribly wrong, it seems inevitable that we’re going to come back to gold in one way or another.

Eric: I would think so. That’s the ultimate thing that’s going to happen. You need something to back the currencies. It has got to be something physical. So gold has got to play a big part. Silver’s going to play a big part. Maybe other commodities too. I have no idea, but those would be the two key ones that are usable, fungible in everyday use.

That’s another reason why I think silver could be caught in this. Imagine if we actually had to go to a real currency that we use in our hands. That’s a lot of physical currency we’ve got to create, having created all this paper that might disappear.

I had a very interesting thing. I was talking to a guy who ran a mint. He said, “There are people buying copper coins.” I thought that seemed really odd to me. I said, “Maybe the guy’s really farsighted and he can see it coming back as a currency because you need the lower denominations to have everyday currency exchange.”

James: Interesting. Eric, are there any last comments that you would like to leave, in terms of things that you see important?

Eric:

I still believe that an investment in silver is a very safe investment today. When we look at the data points, they scream at us that it’s undervalued. When you look at the history of what has happened in both the silver and gold market, I happen to believe…that there are these hands from the outside keeping things restricted and they’re going to lose control.

People have to be in precious metals if they want to protect themselves. There aren’t many other investments that you could consider (maybe agricultural investments) but those are the key things in my mind that will protect one…Everyone who is an investor has money. They have it invested in some paper instrument. They should take part of it and own some gold and silver.

*http://www.goldmoney.com/video/sprott-turk-interview.html

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1. Sprott: Shocking Shenanigans in Paper vs. Physical Silver Market

The recent bear raid on silver – a 30% drop over only four days – has left many concerned about the sustainability of its historic run…with [many] commentators… making the bubble call. Silver bubble 2.0? Hardly. Anyone who has been fortunate to have been invested in silver over the past few years would unfortunately be used to such blatant takedowns. The Chinese don’t call it the “Devil’s Metal” for no good reason. With so much talk these days about the risks of investing in silver, we think that perhaps it may be timely for us to weigh in on the matter. The silver market is riskier than ever – but for reasons the vast majority of pedestrian commentators have failed to grasp. [Let us explain.] Words: 1517

2. Why Silver Provides Much Greater Upside Potential than Gold

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3. These 100 Analysts Now Say Gold Will Go To $5,000/ozt. – or More!

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4. Buy Silver Instead of Gold! Here are 10 Reasons Why

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5. Here’s the Definitive Article on Why Gold is Going Even Higher

Whatever you call it – a bubble, a frenzy or a mania – there seems to be a large number of voices in the marketplace who just are not fans of gold, whether prices are moving up, down or sideways [but] the reality is that gold doesn’t possess the traits necessary for a financial bubble to form. In fact, the current worldwide economic and fiscal environment suggests that gold will go MUCH higher. Let me explain. Words: 2368

6. Sprott: Gold is NOT Forming a Financial Bubble – Here’s Why

Despite gold’s continuous ten-year rise…[which has] produced consistent returns in virtually all currencies year after year, some market pundits still question its validity as an asset class…[but our analysis of the gold market clearly shows that...,] despite all this talk about the gold bubble, the capital flows into gold vis-à-vis other financial assets have simply not been large enough to indicate any speculative mania. [Let us show you the results of our finds.] Words: 1460

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Jim Rogers: Stop Buying Gold! These Other Commodities are a Better Buy!

Editor — Wed, 31 Aug 2011 07:58:56 +0000

Jim Rogers is one of the most successful investors of all-time…and he buys value. Back in 1999, he predicted that a “supercycle” commodity bull market would see raw material prices advancing for longer than in any previous uptrend led by gold and silver. Gold was trading near its low at $252 and silver at $4 at the time but with gold up 650% from its lows and silver with an even greater gain – obviously Rogers was right. Rogers has now stopped buying gold moving, [instead,] towards a greater commodity opportunity that he thinks offers the same kind of values that gold and silver did a decade ago. Words: 909

So says Robert Zurrer (www.moneytalks.net) in edited excerpts from his original article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Zurrer goes on to say, in part:

Agriculture: The Next Big Bull Market

Consistent with his devotion to buying undervalued assets, Rogers now sees the same quality of values in agriculture that he saw in gold and silver. [While he] is not selling his gold and silver believing that “gold is certainly going to go to $2,000 over the years; it looks like it’s going to go much higher during the course of the bull market” and that “gold prices are not in a bubble because not everyone is buying yet”, he believes that “agriculture prices are still, on a historic basis, extremely depressed, and in my view I’ll probably make more money in agriculture than other things.”

Rogers thinks that the current commodities supercycle will last for 20 to 25 years, a view supported by the research of Chris Watling of Longview Economics who traced secular bull cycles back to 1750. As this commodity bull started in 2000, if Whatling and Rogers are correct, this bull will run higher until 2020-2025.

In short, if you missed buying gold and silver at extremely depressed levels, Rogers thinks you have another great chance to buy into an imminent bull market at great value because the fundamentals are [so much better than they have ever been].

There is a powerful underlying demand for food. When food prices surged in 2007 millions went hungry with riots from Egypt to Haiti and Cameroon to Bangladesh. Rioting calmed down in 2008 when prices dropped, but starting at the beginning of 2009 they’ve been going up and Rogers expects “more turmoil, but I didn’t expect it to happen this quickly because food prices are somewhat depressed”. Clearly a bull market rise from current levels will cause even more starvation, riots and urgent demand [as the chart below shows].

The FAO Food Price Index measures the prices of Dairy, Oils & Fats, Cereals Sugar & Meat.

On the longer term chart [below it is evident that] real food prices were more expensive in 1917 than they are here today. Demand is there. Agriculture will be “wildly exciting” as global food shortages worsen, according to Rogers. “You pick an agriculture product and I’ll say buy it,” he said.

Who in the world is currently reading this article along with you? Click here to find out.

Shortages are showing up right now as the world population has more than doubled from 3 billion in 1960 while the amount of arable farmland has been decreasing. If the world population rises from its current 6.8 billion to 9.1 billion by 2050 as the United Nations forecasts, a lot of people are going to be scrambling for food.

Click on the 1900-2008 FAO Food Chart for a Larger Image

What to Invest in to Take Advantage

Good advice from Daniel Keirnan in his article “Farmland Investment, the Next Big Portfolio”:

The question is what are the best ways for making money from the agricultural sector? One way is to invest directly into agriculture stocks such as farm equipment maker John Deere (DE), global seed giant Monsanto (MON) or fertilizer company Potash Corp of Saskatchewan (POT).

Another method is to invest in agricultural futures through Exchange Traded Funds (ETFs) such as AIGA on the London Stock Exchange or DBC in the U.S. which tracks an entire basket of agricultural commodities including corn, soybeans, wheat, cotton, sugar, coffee, cattle and pigs. These commodities ETFs try to track the spot price of the various commodities they include.

The advantage of these stocks or ETFs is that they are easily trade-able by anyone who has an online brokerage account. The disadvantage, however, is that they are still financial instruments, and as such can fluctuate widely in price.

One option most individual investors tend to overlook is direct investment in farmland. In many ways, a farmland investment is more secure, stable and tangible then putting money into stocks.

Farmland investments for individuals will pay a regular yearly dividend from the sale of crops, and also provide the opportunity for long-term capital gains as farmland increases in value during a bull market in food.

Conclusion

Don’t buy gold now. Rogers says food and agriculture are great values and will be the next big demand driven bull market.

*http://www.moneytalks.net/daily-updates/5658-jim-rogers-stop-buying-gold-now-buy.html

Related Article:

Here’s Why Agricultural Stocks Are a Better Buy! http://www.munknee.com/2010/11/buffett-says-buy-stocks-i-say-buy-agricultural-stocks/

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Soros and Rogers Agree: Greater Returns from Farmland Than Gold! Here’s Why

Editor — Wed, 31 Aug 2011 07:38:14 +0000

Question: What asset has appreciated more than any asset since the year 2000? Answer: Farmland – by 1,200%! [George Soros and Jim Rogers have recognized that fact and invested accordingly. Here is what you need to know to do likewise.] Words: 974

So asked George Maniere (investingadvicebygeorge.blogspot.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Maniere goes on to explain:

Food Prices Skyrocketing

Food prices are skyrocketing all across the globe, and there’s no end in sight. The United Nations says food inflation is currently at 30% a year, and the fast-eroding value of the [U.S.] dollar is causing food prices to appear even higher in contrast to a weakening currency. As the dollar drops in value due to runaway money printing at the Federal Reserve, the cost to import foods from other nations looks to double in just the next two years — and possibly every two years thereafter.

That’s probably why investors around the globe are flocking to farmland as the new growth industry. Investors are pouring into farmland in the U.S. and parts of Europe, Latin America and Africa as global food prices soar. A fund controlled by George Soros, the billionaire hedge-fund manager, owns 23.4 percent of a South American farmland venture Adecoagro.

Commodities are still the best play for the long term and legendary investor guru Jim Rogers confessed that he has been buying farmland himself [see article 1 below].

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People are still going to eat. Mother Nature has taken her wrath out on the world as of late to such an extent that farmers cannot get loans for fertilizers right now without putting their land up as collateral and with too little rain or too much rain the farmland that has been in a family for generations could be wiped away in a trick of fate. Therefore the supplies of food are going to continue to be under pressure. This leads me to conclude that agriculture is going to be one of the greatest industries in the next 20 years, 30 years.

That’s because demand for food is accelerating even as radical climate changes, a loss of fossil water supplies, and the failure of genetically engineered crops is actually reducing food yields around the globe.

South America: Agricultural Commodity Exports Growing Rapidly

Ceres Partners, which invests in farmland, has produced astonishing 16% annual returns since its launch in 2008 – and this is during a depressed economy when most other industries are showing losses – with investments in dairy, green house vegetable, beef cattle and rice plantation operations. Ceres reported that most commodity exporting countries of South America are facing highly favorable conditions, particularly those with stronger fundamentals that have easiest access to external financing and stand to benefit the most from low global interest rates. Foreign direct investment in the economies of the region increased almost 20% during 2010 compared with the same period a year ago.

The region’s economy expanded 6% in 2010 and according to ECLAC´s latest report, South America will grow 5.1% in 2011. In terms of countries, the fastest growing this year will be Argentina (8.3%), Peru (7.1%). Uruguay (6.8%), Ecuador (6.4%), Chile (6.3%), Paraguay (5.7%) followed by Colombia (5.3%), Venezuela (4.5%) and Brazil (4%).

For its soils and weather conditions, abundance of natural resources, good infrastructure and the unique possibility of acquiring large extension of productive farmland, South America is considered a top place to buy, lease and manage agricultural lands for profit. The region accounts for 59% of global exports of oil seeds, 11% of grains and 37% of meat, with Argentina, Brazil, Chile and Uruguay being among the top 10 food exporters.

How to Invest in Farmland

While it does not invest in farmland directly, the Market Vectors Agribusiness ETF (MOO) is the closest thing to a farmland ETF. MOO seeks to replicate the price and yield performance of global agricultural business. It is a modified market capitalization-weighted index consisting of publicly traded companies engaged in the agriculture business that are traded on global exchanges. It provides exposure to companies worldwide that derive at least 50% of their revenue from agriculture business. Another interesting agribusiness ETF is BARN. Barn offers global exposure to the farmland industry, focusing exclusively on companies involved in agricultural products, livestock operations and the manufacturing of farming equiptment.

*http://investingadvicebygeorge.blogspot.com/2011/08/why-george-soros-is-selling-gold-and.html

Related Articles:

1. Jim Rogers: Stop Buying Gold! These Other Commodities are a Better Buy!

2. 7 Agricultural Stock Buying Opportunities

The Federal Reserve has guaranteed super-low interest rates for two more years – an unprecedented step to arrest the alarming decline of the stock market and the economy – and I believe the following seven agricultural stocks have been unjustly oversold and have significant upside potential. Words: 665

3. Get Ready: Egypt’s Inflation-sparked “Unrest” Will Likely Spread to U.S. by 2015!

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Global Money Printing Is A Recipe For A Global Economic Nightmare

Editor — Thu, 17 Feb 2011 07:42:02 +0000

The Whole World is Going Crazy With Money Printing!

If the U.S. dollar is being devalued so rapidly, then why does it sometimes increase in value against other global currencies? It is because there are times when one particular global currency will fall faster than the others but the reality is that they are all being rapidly devalued. As the 6 charts below illustrate, the UK, the EU, Japan, China and India, as well as the U.S., have all been printing money like there is no tomorrow. Unfortunately, this is a recipe for a global economic nightmare. Words: 1102

So says theeconomiccollapseblog.com in an article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted and edited below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.) The article goes on to say:

Right now you can almost smell the panic as it rises in global financial markets. Paper money is no longer considered to be safe. All over the globe investors are watching all of the reckless money printing that has been going on and they are becoming alarmed and an increasing number of investors and financial institutions are putting their wealth into hard assets that are real and tangible in an effort to preserve their wealth. Gold hit a record high last year and it is on the rise again… Demand for silver is becoming absolutely ridiculous right now. Oil is marching up towards $100 a barrel again. Agricultural commodities have exploded in price over the past year. Many investors are even gobbling up art and other collectibles.

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The charts below show how central banks all over the globe have been recklessly printing money. Over the last 30 years virtually the entire world has developed a great love affair with fiat currency….

Charts of 6 Countries Printing Money Like There Was No Tomorrow

The United States is printing lots of money…..

Source: The St. Louis Fed

The United Kingdom is printing lots of money…..

Source: The BoE

The European Union is printing lots of money….

Source: The ECB

Japan is printing lots of money…..

Source: The BoJ

China is printing lots of money…..

Source: The People’s Bank of China

India is printing lots of money…..

Source: Reserve Bank of India

What Will Result from All This Money Printing?

Anyone with half a brain can see where all of this is ultimately headed. In the end, inflation is going to spiral out of control and we are going to witness financial implosion on a global scale. It would make a lot of sense if the above mentioned nations, and many more too, just adopted sound money but, believe it or not, as members of the IMF, they are specifically prohibited from having gold-backed currency. Yes, you read that correctly – specifically prohibited!

U.S. Representative Ron Paul once sent an open letter to the U.S. Treasury and the Federal Reserve [informing them, as if they did not already know, that because] the IMF prevented its member countries from linking their currency to gold they were, in fact, forbidding countries suffering from an erratic monetary policy from adopting the most effective means of stabilizing their currency and, as such, delaying a country’s recovery from an economic crisis and retarding economic growth, thus furthering economic and political instability. He did not receive a reply.

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Sadly, the truth is that the global elite don’t want nations to start adopting gold-backed currencies. They want countries to use fiat currencies that they can openly manipulate for their own benefit.

At this point, every nation on earth (to the best of my knowledge) uses a fiat currency. All of the major global currencies are being continually devalued. In fact, there are times when counties will purposely devalue their currencies even more rapidly in order to gain a competitive advantage in world trade. This is why so many investors now have such an aversion to paper currency. It starts losing value the moment you take possession of it.

Which Assets Benefit from Excessive Money Printing?

In some areas of the world, “gold fever” is absolutely exploding. For example, China imported five times as much gold in 2010 as it did in 2009. On the Shanghai Gold Exchange, trading volume soared 43 percent during the first 10 months of 2010. [Indeed,] gold, silver and other precious metals are now seen as a great hedge against inflation worldwide. Investors all over the globe are demonstrating a strong preference for “real money” over “paper money”.

What Does All This Money Printing Mean?

It means that some tremendous imbalances are being built up in the global financial system. The central banks of the world must continue to inflate these bubbles with constantly increasing amounts of paper money and debt in order to keep the game going. If, at some point, the reckless money printing comes to a screeching halt it is going to unleash hell on global financial markets. [However,] if all of this reckless money printing continues we are eventually going to see horrific inflation all over the planet. In fact, we are already seeing significant inflation happening in many areas of the globe. Almost every single day [we read] a new headline about inflation in China… rising food prices… sparking unrest in the Middle East and elsewhere. Even U.S. consumers are starting to see some uncomfortable price increases at the gas pump and in the supermarket. [In fact,]… the whole world is going crazy with money printing.

Conclusion

Hopefully this whole thing is not going to end as badly as many of us fear that it will but right now the central banks of the world are pumping unprecedented amounts of cash into the global financial system, and those in the global financial system are funneling a very large percentage of that cash into hard assets. Unless something changes, that is going to mean that prices for basic necessities such as food and gas are going to continue to rise.

We are in quite a fine mess… Does anyone see a way out?

*http://theeconomiccollapseblog.com/archives/6-charts-which-prove-that-central-banks-all-over-the-globe-are-recklessly-printing-money

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

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Money

Why Commodities Are The Conservative Choice Of Cautious Investors

Editor — Wed, 09 Feb 2011 07:59:50 +0000

Confessions of a Conservative Investor

Back in 2004 I made the momentous decision to sell my house in a real estate market that was still spiralling northward rather than wait for it to peak and then try to bail out as it declined. I knew that my cautious [and conservative] inclinations would cause me to miss out on further upside gains, but I saw the writing on the wall – two walls, in fact. I realized it was just a matter of time before the housing bubble burst and believed that commodities were about to take off. Words: 1111

So says Arnold Bock (www.FinancialArticleSummariesToday.com) in an article edited by Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Bock goes on to say:

So what did I, a conservative investor, do with the cash kitty from the sale of my house and my other savings? I bought precious metals…gold and silver bullion as well as major, mid tier and junior mining companies. Some exploration and development stage junior stocks and warrants were added for balance and growth. For diversification, I also acquired some energy…oil and uranium, a few select base metals miners as well as some agricultural grains and fertilizers.

Back then, when someone asked about my new investments, my response was guarded but it invariably engendered head shaking scepticism bordering on wonder…about my stupidity. ‘Goldbug’ was a term I think I heard. It meant that I was one of those true believers whose judgement was impaired.

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I always justified my investment decisions on the need for a conservative investment stance. Suggesting that ‘volatile’ commodities and precious metals were conservative investments clearly proved my ignorance. My investments seemed bizarre, given unlimited consumer credit and multigenerational low interest rates available to anyone with a pulse, at the time. It was an unprecedented sweet spot for all consumers.

My explanation for investing in precious metals, and other select commodities, such as oil, uranium, agricultural grains and fertilizers, was that I wanted a stronger and longer term financial foundation and greater certainty with my investments. This comment was invariably met with mirth bordering on derision.

At that time the merits of residential real estate was the obvious ‘no-brainer’ investment. (See a previous ‘no-brainer’ article of mine here.) The wisdom of buying, and even flipping multiple houses, was clearly apparent, wasn’t it? However, I used to respond that residential real estate was too risky for a [conservative] investor with a delicate constitution such as myself.

What about a ‘balanced’ portfolio of DOW and S&P stocks? Surely they were the tried and true formula for asset growth and retirement freedom [for a conservative portfolio]? Oh yes, since I was getting older and had already retired, conventional wisdom demanded that I shift ever greater percentages of my investments into [more conservative] ‘safe’ fixed interest rate assets comprised of money market funds, government and corporate bonds as well as bank term deposits.

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Assuming one wanted to be less actively involved in the management of his treasured savings, the obvious answer was to call one’s friendly neighbourhood Financial Advisor. You know, that nice man [or woman] who remembers your birthday and who seems knowledgeable and confident… surely he wouldn’t steer me wrong, would he? He was a master in getting his clients into ‘balanced’ and ‘diversified’ [and supposedly conservative] mutual funds which seemed to make sense since they covered what appeared to be the investment waterfront.

Upon closer examination there was precious little exposure to commodities, including precious metals, or emerging markets. Because these were ‘buy and hold’ investments, one needed only to sit back and watch his portfolio grow. If it didn’t grow, your financial advisor advised you that your returns were no worse than the herd comprised of the comparator group of funds managed by the industry’s leading money managers.

A conservative investor looks at economic fundamentals and trends. Unfriendly governments and geopolitical conflicts, such as those in the mid east, must be central to one’s investment strategy. Another festering factor is huge and growing government/sovereign debt. If debt can’t be serviced, it won’t be. Unlimited money creation leading to devalued currency, price inflation and higher interest rates are the inevitable consequences. Cash and fixed interest rate securities such as bonds and CD’s can be hazardous to one’s financial health in these circumstances. (For more on my views on why it is imperative to invest in commodities today to withstand and prosper from the economic realities of tomorrow please go here.)

If the reasons which caused one to buy a specific investment or sector remain intact, the conservative investor remains firm and resolute. During a market correction, one should test his judgement by asking himself whether he would still buy the investments already owned, at their currently depressed prices. Above all, one should not pay attention to the chattering ‘talking heads’ on business television. They represent nothing but ‘industry cheer leading’ and ‘trading noise’ which frequently results in doubt and a loss of perspective.

How Well Has This Cautious and Conservative Investor Done?

Since I climbed on to the precious metals and commodities wagon gold bullion has not had a down year although some of the PM stocks have not been as consistent. The monster correction in the financial markets in 2008/09 was brutal, but most everything has recovered nicely since.

More particularly, I didn’t allow myself to lose confidence in the fundamentals which caused me to invest as I have. I refused to lock in my losses in down market corrections, including the current one in precious metals. Most corrections have been short and shallow. In fact, a correction is the pause that refreshes when one is in a secular bull market.

This conservative investor confesses optimism in the future direction of his precious metals, agriculture and energy investments…the best safe haven during the turbulence ahead. Above all, they allow me to sleep soundly.

Editor’s Note:

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

Conservative investor

Get Ready: Egypt’s Inflation-sparked “Unrest” Will Likely Spread to U.S. by 2015!

Editor — Fri, 04 Feb 2011 07:07:06 +0000

U.S. Economic Ponzi Scheme Could Cause Rampant Inflation In Years Ahead

The rioting and looting currently taking place in Egypt is primarily a result of massive food inflation and shows what all major cities in the U. S. will likely look like come year 2015 due to the Federal Reserve’s zero percent interest rates and quantitative easing to infinity… Words: 1891

So says the National Inflation Association (http://inflation.us) in an article* reformatted and edited [...] below by Lorimer Wilson, editor of www.munKNEE.com, for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Also included below are links to additional articles on those countries most at risk of getting crushed as a result of food inflation; the extent of global agricultural commodity inflation since 2003 and one providing a greater understanding of the full picture behind what has led up to the current events in Egypt. The NIA goes on to say:

Food Related Commodity Inflation Is Rampant

Food inflation in Egypt has reached 20% and citizens in that nation already spend about 40% of their monthly expenditures on food [See research Here by Nomura that puts the figure at 48.1% and list 25 countries whose governments could get crushed by food price inflation]. Americans for decades have been blessed with cheap food, spending only 13% of their expenditures on food, but this is about to change… (For more on the subject matter in this article go here to listen to a well received video by NIA.)

Over the past year, agricultural commodities as a whole, have outperformed almost every other type of asset [except] silver. [See here for a graph showing how prices in global agricultural commodity have escalated in the past year.]

Wheat… is now up to a new 30-month high of $8.63 per bushel and has doubled in price since June of last year. Algeria bought quadruple [the expected quantity]… of wheat this past week… [and] Saudi Arabia is also beginning to stockpile their inventories of wheat.

Rice futures have gained 8% during the past few days with Bangladesh plans to double rice purchases this year and Indonesia’s latest rice order was quadruple its normal allotment… Meanwhile, the U.S., which is the world’s third largest exporter of rice, is expected to cut production by 25% in 2011.

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Cotton’s recent spike in price reminds us of the 2008 spike in oil. At its current price of $1.80 per pound it may have gotten a bit ahead of itself in the short-term as we could possibly see a dip to below $1.40 per pound first. [Nevertheless,] we believe cotton will ultimately rise above $3 per pound later this decade.

Many people in the mainstream media [have been] claiming that agricultural commodity prices have very little to do with prices of food in the supermarket. CNBC’s Steve Liesman, in particular, claims that “rising commodity prices won’t cause inflation”. Liesman has it backwards… Rising commodity prices are only a symptom of inflation… While gold is the best gauge of inflation and is often the best tool for predicting future money printing, agriculture is where the majority of the monetary inflation ends up going after the Fed’s newly printed money trickles down to the middle-class and poor…

Come year 2015, middle-class Americans will be spending at least 30% to 40% of their income on food, similar to Egyptians today. As NIA warned in its latest documentary ‘End of Liberty’, if you don’t have enough money to accumulate physical gold and silver, it is important to begin establishing your own food storage, and store enough food to feed you and your family for at least six months during hyperinflation. Many store shelves in Egypt are now empty after recent panic buying, with shortages of nearly all major staple items throughout the country. [See here for details of which 11 other countries could well follow the lead of Egypt in overthrowing their current governments and here for a greater understanding of what else lies behind Egypt's problems.]

Groundwork Being Laid for Hyperinflation

[The UK Telegraph newspaper questions whether the central banks of the developed world might be creating hyperinflation, saying:

The European Central Bank (ECB) has taken a strategic gamble that the current surge in food and commodity prices is not a repeat of the inflation virus of the 1970s and will subside without the need for a monetary squeeze. Jean-Claude Trichet said the jump in eurozone inflation to 2.4pc is a 'short-term' effect of rising energy and commodity costs ...Yet is a risky move at a time when a powerful new cycle of global growth may be under way and the whole nexus of commodities is on fire. March contracts for Brent crude oil jumped to a two-year high of $103 a barrel on Thursday, while copper broke through $10,000 a tonne and cotton reached the highest price since the US Confederacy halted exports during the Civil War in the 1860s. The UN's Food and Agriculture Organization (FAO) said its index of global food prices had hit a fresh record in January, while Goldman Sachs's farm index has risen 90pc since June.]

The U.S. Treasury [for its part] is getting ready to sell $72 billion in new long-term bonds next week, as the U.S. rapidly approaches its $14.29 trillion debt limit. The debt limit is now expected to be reached by April 5th and Treasury Secretary Geithner warned the U.S. will see “catastrophic damage” if it isn’t raised. With the Federal Reserve now surpassing China and Japan as the largest holder of U.S. treasuries, the real “catastrophic damage” ahead will be hyperinflation as a result of the U.S. government doing absolutely nothing to dramatically reduce spending. It is an absolute joke that Obama during his State of the Union address announced $400 billion in spending cuts over the next 10 years, but then the very next day, the Congressional Budget Office increased its 2011 budget deficit projection by $400 billion to $1.48 trillion.

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Not raising the debt limit would be a good thing, as it would force Washington to live within its means. Sure, the stock market would collapse and the U.S. economy would enter into its next Great Depression, but at least it would save the U.S. dollar from losing all of its purchasing power. In fact, the standard of living for middle class Americans might actually improve if the government allowed the free market to put our economy into a depression, because goods and services would get cheaper.

The U.S. Economy is a Drug Addict Dependent on Cheap and Easy Money

The U.S. economy has become a drug addict that is dependent on cheap and easy money from the Federal Reserve… The more monetary inflation (heroin) the Federal Reserve creates in order to satisfy the (in the words of Gerald Celente) “money junkies” on Wall Street, the more middle-class and poor Americans become dependent on unemployment checks and food stamps just to survive [and] millions of American students are graduating college with hundreds of thousands of dollars in debt but no jobs.

Further Quantitative Easing May Be Coming

China and Japan recently saw their credit ratings downgraded, while the U.S. credit rating remains at “AAA”. NIA believes it would make far more sense for the world’s largest debtor nation to be downgraded instead of the world’s two largest creditor nations. The Federal Reserve’s second round of quantitative easing has yet to even reach the halfway point and the Fed already holds about $1.11 trillion in U.S. treasuries. By the time QE2 is over at the end of June, the Fed will own $1.6 trillion in U.S. treasuries, about what China and Japan own combined. Shockingly, Kansas City Fed President Thomas Hoenig is already dropping hints about QE3. According to Hoenig, the Fed may consider extending treasury purchases beyond June 30th, 2010, (the scheduled completion date for QE2) if U.S. economic data looks disappointing.

China Protecting Itself From Future Hyperinflation By Investing More in Gold

With the Fed taking over as the largest holder of U.S. treasuries, China is beginning to rapidly move away from the U.S. dollar and into gold. In just the first 10 months of 2010, China imported 209 metric tons of gold compared to 45 metric tons in all of 2009, a stunning five-fold increase. While the western world is downplaying the threat of inflation as much as possible, Asian countries understand that hyperinflation is the most devastating thing that can possibly happen to any economy. The demand for gold in Asia right now is the most intense it has ever been, as they look to tackle rising inflation before it becomes hyperinflation.

The Chinese are so smart that families are now giving each other gold bullion as gifts instead of traditional red envelopes filled with cash. China is now on track to soon surpass India as the world’s largest consumer of gold. The China Securities Regulatory Commission recently gave Beijing-based Lion Fund Management Co. approval to create a fund that will invest into foreign gold ETFs.

U.S. Looking Like a Safe Haven Instead of the Riskiest Place to Invest

U.S. stock mutual funds saw $6.7 billion in net inflows during the past two weeks, the most in any two week period since May of 2009. The rioting, looting, and civil unrest in Egypt is now making the U.S. look like the safe haven of the world, even though it should be considered the riskiest place to invest. From the Dow’s low in August until now, about $38 billion was actually removed from U.S. stock mutual funds, despite the stock market rising 20%. The Dow Jones has been rising from September until now solely due to the Federal Reserve printing around $350 billion out of thin air. When central banks print money, stock markets often act as a relief valve due to there being too much inflation going into the hands of financial institutions.

The U.S. M2 money supply has surged by an annualized rate of 16% over the past two weeks with the M2 multiplier now standing at 4.218… A return to the long-term average M2 multiplier of 10 [would require] a 192% increase in the M2 money supply and that is not even including a possible QE3 and QE4.

The U.S. Economy is a Ponzi Scheme

The U.S. economic ponzi scheme could unravel very quickly in the years ahead, with the velocity of money increasing much faster than anybody expects. As more Americans… become educated to the truth about the U.S. economy and inflation, a complete loss of confidence in the U.S. dollar could occur very suddenly.

Conclusion

It is important for all Americans to prepare as if hyperinflation will be here tomorrow. In Egypt… their citizens are trying to implement a regime change before it is too late. By 2015 in America, [however,] it will already be too late and the civil unrest here has the potential to be many times worse.

*http://inflation.us/egyptpreviewamerica.html

Editor’s Note:

The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.

Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

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Inflation

Doug Casey’s View of the Future is Very Disturbing – Got Gold?

Editor — Tue, 15 Jun 2010 07:53:42 +0000

Absolutely every currency in the world is going to reach its intrinsic value in the next few years. Basically all the governments are going to wind up destroying their national currencies. That won’t be just an academic thing; it will have the consequence of destroying a lot of the middle classes around the world. That will likely create ugly political and sociological fallout. Words: 3299

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below further reformatted and edited [..] excerpts from Scott Smith’s (www.thedailybell.com) original interview* with Doug Casey regarding his views on a number of fiscal, monetary and political issues of the day:

The Economy’s Mood is Likely to Go from Merely Grumpy to Psychotic
The Greater Depression is going to get much worse because not just the U.S. government, but every major government in the world, has been doing exactly the opposite of the right things.

The right thing would be for these governments to get totally out of the picture. What they are doing instead is inserting themselves further into the economy. I suppose this is what the average person wants them to do, however, because, idiotically, the average person thinks that the government is some kind of a magic cornucopia and is the solution to their problems when actually government is the basic cause of all these problems. Its only products are taxes, regulations, and inflation – along with wars, pogroms, persecutions and the like. Government produces nothing so I guess I’m not overly sympathetic to them; they are pretty much going to get what they deserve in the years to come.

Financial Chaos of 2 Years Ago to Return Soon and Get Much, Much Worse
The Greater Depression is on a temporary hiatus at the moment because the stimulus measures and extra debt these governments have created to deal with the crisis have given the appearance of a recovery but in the months to come, things are going to devolve back to the financial chaos of a year or two ago and actually get much, much worse. I’m not talking about the end of the world – just a bit of a social and economic upheaval.

We Are In the Eye of a Financial Storm
I expect this thing is going to be much worse on the other side of the hurricane and it’s not going to be brief. This could linger on for years with a lot of consequences, not just the obvious economic and financial ones.

Basically Every Currency is Going to be Destroyed
Absolutely every currency in the world is going to reach its intrinsic value in the next few years. Basically all the governments are going to wind up destroying their national currencies. That won’t be just an academic thing; it will have the consequence of destroying a lot of the middle classes around the world. That will likely create ugly political and sociological fallout.

In particular the Euro, which is a totally artificial construct, is a dead duck. The bailouts are completely insane, counterproductive, and the opposite of what should be done. It’s not just Greece. The EU is going to have to bailout Spain, Italy… in fact the whole structure is rotten. The EU will try to bail itself out, which is rather absurd.

The EU is Going to Break Apart
The EU is a Frankenstein’s monster, cobbled together. You have countries with very different cultures. The history of Europe is a history of warfare and I see no reason why that will change. Of course the EU is something that is supposed to keep them from going at each other’s throats again but the EU will actually cause more conflict, resentment, and hatred – not less.

The way to improve matters would have simply been to take down barriers to travel and trade, which would have been fine. In other words, get rid of regulations and taxes, and make the states less powerful. What they have done, however, is centralize power in Brussels, and add yet another layer of bureaucracy and this has created more resentment, not less, between different national groups.

You don’t need a gigantic, and necessarily corrupt and inefficient bureaucracy – with an arcane rule-book the size of the London phone directory – to enable free trade and free travel. What you need is simply to abolish the existing restrictions but, with the prevailing philosophy and psychology in Europe being so deeply socialistic, they took the wrong approach. It’s why in a couple of generations Europe will be fit for nothing but to be a source of maids and houseboys for the Chinese.

Canada and the U.S. Will Break Apart
Another reason the EU is going to break up is because the tendency all over the world is towards smaller political units, not bigger ones. Before this is over I wouldn’t doubt that Canada breaks up into a number of different enclaves, and I don’t mean just Quebec. I think over the next 50 years, the U.S. itself will start to fall apart; no way is a young Hispanic in California going to submit to paying 25% of his income to subsidize an old Anglo woman in Massachusetts. That is true of most countries in the world; they are artificial constructs. Every country in Africa was created out of whole cloth by European invaders, and that is one of the main reasons why Africa is such a Hell-hole. It was divided up with no regard whatsoever to cultural and linguistic and tribal boundaries.

Governments Will Become LESS Powerful
The good news is that you don’t have to worry about a world government, which a lot of people think they need to worry about. One favorable consequence of the Greater Depression will be the bankruptcy of most of the world’s governments. As a result, they’ll become less powerful. The nation-state, which has been around since the middle of the 17th century, is actually going to start disappearing in the years to come. I see that as a good thing. The EU is going to be the first to go.

The U.K.’s Debt is Junk
Britain used to be somewhat different from other countries in Europe because of its Common Law tradition but [that is not the case] now. Their debt is [also] junk. Pity the poor fool who owns it, especially with interest rates as low as they are.

The U.S.A. is Financially and Ethically Bankrupt
The era of one trillion dollar plus annual deficits is definitely here – and those are just the official deficits, which are going to be running a trillion or a trillion and a half dollars per year for the indefinite future. In addition, they’ve got $100 trillion of unfunded liabilities of Social Security, the Medicare, the Medicaid. In a few years, they are going to have Obama-care, which is going to make the problem considerably worse. Then add on the probable federal bailouts of numerous bankrupt states like New York and California; then hundreds of billions more for the FDIC, which is also totally bankrupt; then the bailouts for Fannie and Freddie; then the Pension Benefit Guarantee Corp. which will be hundreds of billions more; then there is General Electric [which] is just like a gigantic, 30-1 leveraged hedge fund and is going to be bailed out too; then there is Amtrak, which despite its outrageously high fares, continues to loose a couple billion dollars a year – and then there are these wars and supporting military bases in over 100 countries.

Furthermore the ethical fiber of the country has eroded. You’ve got 40 million Americans getting food stamps; that number is going much higher. People feel no shame in living on extended unemployment benefits. No shame in living in a house for a year or more after defaulting on the mortgage. No shame in gaming the system – which is encouraged by a plethora of laws. America was once a great idea – in fact America IS an idea, much more than a place – but now it’s just another corrupt nation state.

I don’t see any way out, I just think it’s going to get worse for the United States.

Things Could Get Ugly in China
I have always been a big bull on China. The good news is that Maoism and communism have collapsed totally, but the bad news is that one of their leading imports has been stupid ideas from the West – first Marxism, then Keynesianism in more recent years. They have ignited a gigantic real estate bubble in that country which is going to bust with the consequences of bankrupting most of their banks and bringing down real estate speculators, which are widespread in China. The size of their bailouts, in response to this crisis has been even bigger proportionate to the size of their economy than in western countries, so I think it’s got the potential to be very ugly in China. In the long run, however, after they get through this misadventure over the next ten or fifteen years, China is going to be resurgent again.

America Will Continue to Lack Strong Leadership
One of the problems with Obama is that he is a sincere believer in all these destructive actions that he is taking. At least Bush, who was a numbskull – at once thoughtless, unintelligent, arrogant, and certain – at least kind of talked the free market talk. At least he probably didn’t really believe in all the stupid domestic economic policies he implemented – like the Medicare Drug Benefit, No Child Left Behind, TARP, and so many more -but that was probably only because he had no core beliefs and Obama apparently does – and all his appear bad. Obama, unlike Bush, has a high IQ, but he has the instincts of a Chicago ward healer, or small-time community organizer. He’s a statist, through and through.

We will see who comes after him; I believe he will be a one-term president. I am sure the next guy will even be scarier than he is, since we’ll then be in the throes of a real crisis. God forbid should Americans then opt for a strong leader, in the mold of leaders in the 1930s and 40s!

Further Armed Conflict With Muslim Countries
Bad economic times usually lead to war for all kinds of reasons. One reason is because people tend to blame other people for their problems and that leads to war. Another reason is that, idiotically, a lot of people believe that war can cure economic problems.

Something resembling WWIII has already started; you might describe it as a continuation of the Crusades. The war with Islam has been going on since the Muslims invaded Spain. They were turned back at the Battle of Tours in 732, then Europeans invaded the Middle East in 1095, then the Muslims reinvaded Europe, and were stopped at Vienna in 1683, then the Europeans colonized the Muslim world throughout the 19th century – so this has been going on between Islam and the west for 1300 years now – and I expect it is heating up again. Although it’s camouflaged as the War on Terror – which is ridiculous, because terror is a tactic, not an enemy. The US has stuck its nose into the tar baby of Iraq and Afghanistan, maybe Iran, or even Pakistan, is next on the dance card – and they are all Muslim countries.

The ‘Recovery’ of the American Economy is Just PR
It is a delusion. Maybe it’s more than a delusion. Maybe it’s an outright lie, although I suppose it’s possible they just don’t know any better. Look, the whole US economy has been directed and oriented toward consumption, not production, for generations. Artificially high levels of consumption, financed by debt. This is coming to an end, and there are a lot of people in economically unsustainable occupations that will have to become unemployed, and find new jobs at much lower wages. They’re competition isn’t other Americans and Europeans; it’s billions of smart and motivated Chinese and Indians, among others. The same is true for a lot of companies, as well.

The “recovery” is mostly PR because, for some reason, the political apologists who masquerade as economists think this is all a matter of psychology, not reality. They believe if you think everything’s going to be all right, everything will be all right. So, they put out happy PR. This is basically Wile E. Coyote economics, where after he runs off the edge of the cliff, he doesn’t start falling until he realizes he’s walking on thin air.

The Greater Depression Is Going to Get Worse and Last For Many, Many Years
This is going to develop into the biggest thing since the industrial revolution. What you’ve seen so far is just the overture to the main opera which is yet to come and we’re a long way from the fat lady singing.

Most of the nation-states of the world are on their way out; they’re anachronistic at this point. Just as nation-states replaced kingdoms, and kingdom’s replaced tribal forms of organization. I think that nation-states – where you give your loyalty to some government because you were born in a certain geographical area – are going to lose the loyalty of their subjects in the years to come. They’ll prove unable to provide needed services, and will mostly be disliked for burdensome taxes and regulations.

The Internet has changed the game. Your real countryman will likely be people that you find that you share values with, no matter where in the world he might be. That’s who you are going to be loyal to. Not some guy with whom you have little in common with the same passport. Most of your fellow citizens today are basically liabilities to you, recipients of your tax money. I expect the Greater Depression is going to last quite a while, and it’s going to turn a lot of what you see today completely upside down, things are going to be very different. I think the world is going to re-organize itself in ways that are going to impress people in the future as very different than what we have today.

How One Should Invest During Such Times
1. Stocks
I don’t like the stock market, because when the stock market’s cheap, dividend yields are typically in the 6-8% range. Not so terribly long ago, in the mid-80′s, markets like Spain, Belgium and Hong Kong were all yielding 15% in current dividends, selling to half to one times book value, and 2, 3 or 4 times earnings. I think things can get much worse than they were in the 80s, so I don’t think stocks are the place to be.

2. Bonds
Bonds are even worse. Bonds are a triple threat to your capital. You have the currency risk, and I talked about currencies earlier. You’ve got the interest rate risk; interest rates are going to go much, much higher and bonds fluctuate inversely with interest rates. Then you’ve got the credit risk, whether or not the person you lent the money to will ever pay it back. Bonds are now the worst possible place for your capital.

3. Real Estate
Real estate is a disaster that’s not nearly over yet. You’ve still got real estate bubbles in China, Australia, and Canada although I think they’re popping even as we speak. Real estate is going to get hurt much worse. Property has been driven to absurd levels by government policies making borrowed money easily available. It will be an object of taxes from bankrupt governments, it will be crushed by higher interest rates.

4. Gold Bullion
I guess gold is the least bad thing to be in. I say that because gold is no longer where it was even 10 years ago, $250-$300 an ounce, it’s up 4 or 5 times in price. Not withstanding that, it’s still probably the best place to be because it’s the only financial asset that’s not simultaneously somebody else’s liability. You know what they say about a depression? Everybody loses, the winner is just the person who loses the least.

A good bit of your personal possession of gold and silver should certainly be outside the political bailiwick of your government, because your government will increasingly treat you as a milk cow in the future, simply because they are all bankrupt. Their first interest is to maintain themselves. The government is an entity onto itself, like a corporation, like General Motors. It’s not “the people”; it’s a thing which puts it’s own interests first. As such, you have to insulate your wealth from where they can get at it because they think that your wealth is their wealth. Therefore, the gold and silver you save should mostly be outside your native country.

Silver and gold are headed up a lot higher, if only on a speculative basis, because fear is going to drive people into them wholesale in the future. After that starts happening, greed is going to drive people into them too. Of course prudence on the part of people who know what’s going on is what’s taking them higher right now. So these are three very powerful factors, emotional factors, which will underpin gold and silver in the future. I don’t know how high they are going to go, and I don’t know when I’m going to sell them. Perhaps when I see a picture on the front cover of Newsweek magazine with a golden bear tearing apart the New York Stock Exchange. That will probably mean, among other things, that the time has come for me to sell all my gold and buy Dow Jones stocks – but we’re a long way from that now.

5. Precious Metals Stocks
From the speculator’s point of view, the nice thing about these governments printing up trillions of new units of their currencies is it will ignite bubbles in other places in the investment world, and it is possible that they are going to ignite a bubble in the world of precious metals, and perhaps a bubble in the precious metals stocks. And it’s possible to get 20, 50, or 100 to 1 return on your money in these volatile small – actually micro cap or nano cap – stocks.

6. Agricultural Commodities
I think that agricultural commodities are in a good buying area right now. If you are able to buy productive farmland in the right location, that’s also something that’s likely to treat you well in the future from an economic point of view.

We are in a kind of a twilight zone and I don’t see any screaming bargains anywhere in the world today. If you’re a competent investor, you really only want to buy when you see screaming bargains someplace. Although I try to look everywhere, every country in the world, in every market, and every type of investment, there’s nothing yelling out “buy me” at the moment. So stay liquid, mainly in gold and wait for the bubbles that will get ignited.

Conclusion
I would like to see money once again become nothing but a medium of exchange and a store of value and that means it is going to be a commodity and gold historically has always been the best commodity to use because it has unique characteristics that make for good money. Gold is uniquely well suited for money. You don’t need a government currency or central banks.

*http://thedailybell.com/1128/Doug-Casey-Revisits-the-Greater-Depression-and-Explains-the-Realities-of-Investing-in-the-21st-Century.html (Doug Casey, with his team, has been correctly predicting major budding trends in the overall economy and commodity markets for nearly three decades.)

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