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What Does Current Global Crisis Comparison with Those of ’08 and ’10 Mean for Stocks, Bonds, Currencies and Commodities?

Editor — Thu, 13 Oct 2011 07:20:07 +0000

How does the current behavior of the global financial markets compare with the two recent crises, namely the great financial crisis of 2008/2009 and the minor one in 2010 when the sovereign debt crisis in the eurozone developed? [I have analyzed 15 aspects of the markets and have concluded that over the next 2/3 months we should see, among other things, increased volatility, declining S&P 500 and MSCI World indices, a bottoming in the 10-year U.S. Treasuries yield, renewed U.S. dollar weakness, renewed strength in the price of gold and silver with silver outperforming that of gold. Take a look at the 19 charts below to see for yourself.] Words: 825

So says Prieur du Plessis (www.investmentpostcards.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.

du Plessis goes on to provide the following charts and commentary:

I have charted the series starting with two months before each crisis developed and ended the series 11 months later. The respective series are as follows:

2008 crisis: July 2008 to July 2009
2010 crisis: February 2010 to February 2011
2011 crisis: from May 2011

1. CBOE S&P 500 Volatility Index

The VIX is following the same trend as in the 2008 crisis. It is likely to rise again before stabilizing.

click on all charts to enlarge

2. S&P 500 Index

The trend is similar to that of the 2008 and 2010 crises but milder and in line with 2010. The Index is likely to dip again in November, with a major threat of a deep sell-off in December.

3. Shiller S&P 500 PE10

The declining trend follows that of the 2010 crisis and is about to stabilize. There is a major threat of a drop in December if 2008’s trend repeats itself.

4. MSCI Emerging Market Index

The declining trend follows that of the 2008 crisis but is milder. Further weakening is possible over the next two months.

5. MSCI World:Emerging Market Ratio

The trend follows that of the 2008 crisis. Emerging markets are likely to outperform mature markets in coming months.

6. Yield on U.S. 10-year Treasury Note

The current trend is in line with both the 2008 and 2010 crises. The yield has either bottomed or will bottom in November.

7. Emerging Market Yield Spread

Trend is in line with that of previous crises. The spread between emerging-market bonds and U.S. Treasuries has peaked and is about to decline soon.

8. U.S. dollar per euro

The current trend lags that of previous crises by about a month. Dollar weakness is likely in November or December.

9. Yen per U.S. dollar

The current trend initially started off in line with that of previous crises but probable currency intervention prevented further strength of the yen. The stability of the yen against the dollar is likely to continue.

10. Emerging-market currencies

My implied emerging-market currency index is calculated by dividing the MSCI Emerging Market Index by the same Index in local currency terms. The Index was initially behind the trends of the previous cycles but caught up recently. While emerging-market currencies are likely to stabilize against the U.S. dollar there is a threat of a major weakening in November and December.

11. Gold price (US$/oz)

Gold’s trend is in line with that of the crisis in 2008 but stronger.

The sell-off in gold in the current crisis mirrors the sell-off during the 2008 crisis. In 2008 the sell-off coincided with the peak in volatilities in financial markets as measured by the VIX. Is gold telling us that the angst in financial markets is likely to be over soon? If so, then gold is likely to resume its upward trend.

12. The platinum-to-gold spread

The spread currently follows the same trend as that during the 2008 crisis. If 2008’s trend is repeated, the current spread is bottoming and likely to rise in coming months.

13. Silver (US$/oz)

The silver price was unmoved by the 2010 crisis. As in the case of gold the silver price initially held up well during the current crisis.

Silver also eventually succumbed to the crisis as it did during the 2008 crisis and fell heavily when volatility in financial markets rose substantially. Silver bottomed during the 2008 crisis when volatility in financial markets peaked. Is silver also telling us that the extreme volatilities are likely to subside soon? If so, then silver is about to resume its upward trend.

14. Gold/Silver Ratio

The ratio is following a similar trend to that during the 2008 crisis.The ratio can be expected to trend downwards over coming months. Silver is therefore expected to outperform gold.

15. Copper (US$/ton)

Copper is following trends similar to those during the previous crisis and especially the 2008 crisis. If the trend during the 2008 crisis is repeated, the copper price is likely to decline further in November before heading north afterwards.

Sources: Robert Shiller; CBOE; I-Net Bridge; Plexus Asset Management.

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*http://www.investmentpostcards.com/2011/10/11/crisis-chartbook/

Ian Campbell’s Commentary: More on Gold!

Editor — Fri, 16 Sep 2011 07:01:06 +0000

I read an article yesterday about the price of physical gold…that I think is worth bringing to your attention [not only because of what was conveyed but who was the source of the comments made and the great credibility of those comments given his] immediate access… to people he knows in high-level positions [and] can, and no doubt does, interact and share views with on a daily basis. [Let me explain more fully.] Words: 840

So offers Ian R. Campbell, FCA, FCBV (stockresearchportal.com/) in Today’s Economic & Resource Stocks Commentary* 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 so as 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.

Campbell goes on to say, in part:

[The article** made reference to is entitled] ‘Eveillard – Expect a Mania in Gold Before This is Over’ and it summarizes an interview with Jean Marie Eveillard, who is said to oversee a $50 billion investment fund. Mr. Eveillard is quoted or summarized as saying (among other things) [that]:

any strengthening of the U.S.$ against the Euro in the short-term will be “somewhat negative (to the gold price) in the short-term”;

last week’s “floor setting move” by the Swiss National Bank has resulted in a circumstance where “one could argue that if the Swiss franc was a safe haven and it is no longer a safe haven, this should benefit gold”;

…”gold is far from being over-owned”. Mr. Eveillard says that the person who runs his Investment Funds ‘gold fund’ recently told him that, on average, all world global pension plans have only 4/10ths of 1% of their assets invested in gold. I assume he is referring only to physical gold when making this comment, and is not including gold mining company shares;

“gold today should be seen as a currency, none of the major currencies being appealing”;

“gold will continue to rise as long as monetary authorities continue to do what they have been doing, which is an automatic reflex in a pure paper system, which is to print more money”; and,

“the potential for gold, I don’t want to mention numbers, …is considerable. The whole story could end with some kind of mania in gold mining stocks”.

I think it highly likely that Mr. Eveillard from his lofty perch in the investment community expresses independent and objective comments…[given] the immediate access he must have to people he knows in high-level positions that he can, and no doubt does, interact and share views with on a daily basis [and, as such, this lends, to me, great credibility to his [aforementioned] comments on ‘the price of physical gold’…

You might think about my last comment, and determine whether or not it resonates with you.

*http://www.stockresearchportal.com/commentary/more-on-gold-one-chart-equity-markets-driver?TabId=1; **http://www.thereformedbroker.com/2011/09/12/qotd-some-kind-of-mania-in-gold-mining-stocks-before-this-ends/

Related Articles:

1. Ian Campbell’s Commentary: Gold – The Safest Haven?

Is physical gold the best available ‘safe-haven’ or is it the U.S. dollar - or perhaps even U.S. Treasuries? Words: 793

2. Which Investments Are the Best Safe Havens In A Financial Crisis?

As investors look for safe havens in a potential market panic, I am reminded of the adage, “In the land of the blind, the one-eyed man is king.” Today, I see several metaphorical one-eyed men in this land of the blind that could serve as safe havens were there to be a market panic. All of them have significant flaws. In this post I would like to discuss them one by one. Words: 780

3. Richard Russell: Demise of the “Yankee Dollar” vs. the Rise in Gold

Sadly, the great American public doesn’t understand what is happening…[and that it will be] on a greater scale than has ever occurred before in the history of mankind. It’s going to hit the current generation of Americans like a whirlwind. It will be historic in its intensity and destructiveness. [Here is an attempt to enlighten them.] Words: 939

4. 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

About Ian R. Campbell
Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at icampbell@srddi.com

Your Savings and Investments Will Be in Dire Jeopardy Going Into 2012 Unless…..

Editor — Mon, 22 Aug 2011 07:59:51 +0000

The United States is now so far in debt, it will never be able to pay it off, that is, without hyper-inflation. That subject alone will require many more articles than this. The sky is not falling (yet) but your savings and investments are in dire jeopardy going into 2012. You might wish to now do something to protect yourself. [May I offer the following investment ideas.] Words: 1648

So says H. Pelham (www.retirefund.com) in an article* posted on Seeking Alpha which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted 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. Pelham goes on to say:

Today, as the massive infusion of liquidity into the U.S. economy comes to a head, it is time to consider that the U.S. dollar is skidding down a very slippery slope. No, it won’t be like the Weimar Republic, but if it loses even 50% of its value (in my view, the low end of probability) then your retirement fund is in jeopardy. Across the pond, the Euro may not survive at all.

You already are aware of the destructive government policies that emanated after the vultures of Wall Street picked over a self destructive, over-leveraged real estate market. It was a shady, over leveraged, derivative market and a banking system shot so full of holes, it resembles the pock marked buildings of Europe during the worst of the fighting. You have been hammered with the details for three years now. The question is, and has to be: What are you doing about it?

Have you bought some physical gold, silver or platinum as a hedge?
Do you own land that can grow food?
Do you own land rich in minerals or precious metals?
Do you own those mineral rights?
Do you own property you can rent?
Do you own oil?
How about a piece of the future of energy; natural gas, lithium, wind solar and fuel cell technology?
Do you own a small piece of the burgeoning mobile web business?
Or, do you have a mattress full of cash?

If it is cash you are sitting on, in any form, but especially U.S. treasuries, European bonds, or muni bonds, then maybe you should consider something more solid, with an actual future.

Here are my favorites in the areas mentioned:

Oil:

Suncor (SU) has a portfolio of oil reserves from Canada to the Middle East, however it is in Canada, and in particular the Canadian Oil Sands that Suncor is a true heavy weight. There is a growing consensus that the oil sands will help power North America for the next 100 years. Cenovus (CVE) also has key holdings in the oil sands and is moving ahead with state of the art technology. Exxon Mobile (XOM) is, well, Exxon Mobile! It is the big kahuna. Nuf said!

Gold:

As the major fiat currencies of the world begin to flutter and fall over the next year, there will be a rush to own precious metals like physical gold, silver and platinum. Some will tell you these are in a bubble. I think they are currently half priced, if that.

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I have a preference to hold physical gold instead of ETFs like the GLD. Governments around the world are, at this writing, amassing more physical gold holdings for their foreign reserves. Recent moves in countries as diverse as China and Argentina keep gold firmly in the bull category. I also like gold miners in this environment, especially miners with lots of gold in the ground, little or no hedge book, increasing production and more than one mine.

[Incidentally,] fall is the traditional marriage season in India, where gold in a dowry is considered an absolute must. India buys tons of gold every fall.

Heavy weights in gold production Barrick (ABX) ,Gold Corp (GG) and Kinross Gold (KGC) are three of the big fish in this small pond. (Small pond if you consider that all of the gold, currently above ground, if melted down, would barely fill two Olympic sized swimming pools – and that is after 6,000 years of digging.) These three all have good, low cost production, lots of gold in the ground, and good management.

Smaller players with great upside, good production and huge deposits include Sangold (SGRCF.PK) and Brigus Gold (BRD) They are well positioned with lowering costs, good management and great properties holding millions of oz of proven reserves that may lay in the sites of some of the bigger fish. Their shares can still be had for only a few bucks (for now).

Nautilus Minerals (NUSMF.Pk) is a growning company in a brand new gold mining area, seabed mining, and has recently been granted huge swaths of undersea mineral deposits by several South Pacific governments. They are years ahead of the nearest competition in developing undersea mining equipment. They have some serious mining heavyweights as investors and the gold, silver, copper and cobalt reserves they are amassing is staggering. (This is a speculative stock but with immense upside potential.)

Silver:

Eric Sprott of Sprott Asset Management unequivocally sees silver as this decade’s play in the commodity sector, for a number of reasons, not the least of which is silvers traditional trading range of 1-16 gold to silver. Today it is trading in the range of 1-46. Sprott, like me, favors physical silver over ETFs such as the SLV however he recently started his own company’s silver ETF while holding the physical silver for it at the Bank of Canada.

Green Energy

Lithium:

Talison Lithium (TLTHF.PK) of Australia is the largest “pure” lithium producer in the world with the largest and richest spodomen deposit in the world (Greenbushes Australia) and huge new brine properties in Chile (acquired when it swallowed junior Salares Lithium last year). It is the largest supplier of lithium carbonate into the lucrative Chinese market. It is ramping up production by 100% at this writing and has all production pre-sold to its 300 current customers. If Talison seeks a listing in New York over the next year, it could be a grand slam. More speculative plays in the space (with huge resources but no current production) include Western Lithium (WLCDF.PK) and Rodinia Lithium (RDNAF.PK). Both are currently penny stocks with huge upside.

Larger players like Sociedad Quimica y Minera S.A (SQM) of Chile produce lithium as a by product of their larger potash operations and help supply the burgeoning mobile web device industry. However, their preference for selling on the spot market instead of signing contracts is a real turn off for the electric and hybrid vehicle markets who need a constant supply for their industry.

Fuel Cells:

Ballard Power Systems (BLDP) is my pick here. Ballard is the market leader, with 20 years in the industry. Competitors (such as Plug Power) are often called baby Ballards as a number were spun off of this company which holds hundreds of original patents in the development of PEM fuel cells. They currently power buses in cities in North America and Europe, they are supplying 10,000 mobile units to the burgeoning mobile web industry of India, as well as several countries in Europe. They make fuel cell powered fork lifts, recently signed an agreement with Daimler of Germany in the development of FC vehicles and have a working fuel cell stack power plant currently powering a small town in Ohio as a pilot project. That stacking technology will one day allow Ballard to replace entire power plants, from small buildings up to and including large cities, that currently use much dirtier forms of energy. Their fuel cells can operate on pure hydrogen (no pollution at all) or Natural gas, which is now known to exist in vast pools under the United States.

Solar:

Although, like other stocks, First Solar (FSLR) has suffered pullbacks over the past year, this stock is a market leader with first mover advantage (in the larger scale solar field).

Cash:

Canadian dollar, Australian dollar, and New Zealand dollar, are all considered resource currencies, which should do well in a hyper inflationary environment. Canada, in particular, is in good shape. The Swiss franc is up over 14% this year against major currencies. Each of these countries is a small market by comparison to the major fiat currencies, however, taken as a whole, with cash spread around through all four, (and maybe even some Chinese RMB) the risk is laid off substantially.

The Eurozone and the United States will not fall as far as the Weimar Republic’s D-mark did. That is not what I am saying here. What I am saying is that they will fall, and no one knows just how far. As these fiat currencies begin to slide further into the abyss, no one will be able to put a bottom on their value.

If the Germans, who own the strongest economy in the Eurozone, and the third largest economy in the world, suddenly tire of propping up deadbeat countries looking for hand outs and decide to abandon the Euro (a distinct possibility) then the Euro, as we know it, will slip into the trash bin of history as countries like Greece, Spain, Portugal and maybe Italy, revert to their original currencies and default on their debts. French banks as well as other European banks and by proxy, U.S. banks, will suffer huge losses. Many will not be left standing.

*http://seekingalpha.com/article/289156-are-the-euro-and-u-s-dollar-sliding-into-an-abyss?source=email_portfolio

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.

With U.S. Facing Default Where Should You Put Your Money?

Editor — Thu, 21 Jul 2011 07:42:41 +0000

With the United States quickly approaching the deadline for raising the limit on its debt load, squeamish investors are thinking about how they can preserve their hard-earned money. [Let's discuss the alternatives: gold and silver, cash, currencies other than the USD, and the VIX.] Words: 683

So says Jonathan Ratner (www.FinancialPost.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted 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. Ratner goes on to say:

“If the debt ceiling is not raised, the result would almost certainly be a recession,” said Michael Cloherty, head of U.S. interest rate strategy at RBC Capital Markets. [In addition,] the U.S. budget deficit has to be contained to keep investors in U.S. treasuries happy [and that] will only come via spending cuts, whether to Medicare, Social Security or government jobs… [As such,] where should investors go to protect themselves in [such] a doomsday default scenario? Here are a few ideas:

1. Gold and Silver

Gold is the ultimate safe haven, and its dramatic rise is a reflection of both fear and its role as a store of value. While the volatility of gold and silver prices means investors should’t dump their entire portfolio in favour of a stack of bullion under the bed, many believe a portfolio allocation of 10% is a wise move these days. A weaker greenback is bullish for commodities, since gold, oil and other resources are typically priced in U.S. dollars.

2. Cash

The U.S. dollar will surely take a hit in a default scenario, but the currency shouldn’t see a major collapse in the 10% range. Nonetheless, the likely sell-off that will simultaneously occur in equities, and bonds suggests investors might want to lighten up their market exposure. That should put them in a good position to take advantage of a wide range of buying opportunities once the dust settles.

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If the U.S. budget and debt negotiations break down, and a default looks increasingly likely, sentiment will turn even more negative. Whether markets will fully price the default scenario is impossible to guess but the best time to reload in stocks or bonds may come before an actual default occurs.

3. Other Currencies

the Swiss franc and Japanese yen have rallied on poor U.S. economic data,

the euro and British pound are taking advantage of U.S. dollar weakness,

Latin American currencies also seem to offer more safety than the greenback, with the U.S. dollar hitting new lows against many of them…

[while] strength in commodities will provide support for the Canadian dollar, Canada’s close ties with the United States make the loonie vulnerable as economic weakness may force the Bank of Canada to also postpone rate hikes.

4. The VIX

[The recent] reversal of sentiment on weak U.S. jobs figures indicates that times remain very uncertain yet, even before the weak number, traders anticipated significant volatility would continue throughout the summer. Uncertainties related to inflation and the overall health of the global economy, continuing developments in Greece, Portugal and elsewhere in Europe, and unpredictable policy moves by central banks around the world could lead to more fear among investors.

The VIX index, a measure of options volatility on the S&P 500, remains far below its March 2011 highs, and can easily be bought in an ETF providing investors with an easy way to hedge in more turbulent times.

*http://www.nationalpost.com/Where+hide+faces+debt+default/5076526/story.html

Related Articles:

Raising the Roof – On a Higher Debt Ceiling That Is! http://www.munknee.com/2011/05/raising-the-roof-on-a-higher-debt-ceiling-that-is/
Top Myths on the U.S. Debt-ceiling Crisis http://www.munknee.com/2011/05/top-myths-on-the-u-s-debt-ceiling-crisis/
America’s Political Process Guarantees Another Financial Crisis! http://www.munknee.com/2011/03/america%e2%80%99s-political-process-virtually-guarantees-financial-crisis-2-0/

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

Gold Will be the Crutch to Lean On for a While – Here’s Why

Editor — Fri, 15 Jul 2011 07:54:53 +0000

Gold Will Keep Cruising as Currencies Come Under Pressure

Regardless of what certain pundits and investors say, I believe gold will have a great run into the end of 2011. [Why?] Because I think a currency crisis is brewing worldwide, and gold will be a safe place to store value. The Euro and USD are fundamentally weak, and inflation is nearly out of control due to huge stimulus packages and low interest rates that aren’t helping struggling economies. Gold should be the crutch to lean on for a while. [Let me expand on the aforementioned reasons.] Words: 675

So says Eric Kelly (www.hedgefundlive.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted 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. Kelly goes on to say:

The European debt crisis is far from over.
The U.S. Dollar is not very appetizing.
Italy, which holds monstrous amounts of debt compared to Greece, seems like it is ready to take the spotlight.
The Euro will get smashed when the EU can no longer delay dealing with its problems.
When funds exit the Euro and with the USD so unappealing, gold is the next logical safe place to store value.
Inflation may become more than a lingering issue throughout the world and, while Bernanke has been able to maintain some control over the rate of change in goods and services, countries with huge GDPs such as China and Brazil are having trouble. Gold can be used to hedge against the inflation by investors.
The Chinese have been encouraged by the government to buy gold for years, this will only spur more demand from one of the most populous countries on earth, as the inflation rate stays above 6.0%.
Foreign governments and large financial institutions will most likely hold their gold positions or add, due to the currency problems in the near future stemming from the Euro and USD. Gold can be used as a currency, although it is a commodity, when fighting with inflation.
Commodity price inflation (food and oil) should also continue to grow, gold will follow / lead, while currencies become less valuable comparatively; basically– if you can’t beat them, join them– buy gold.
The problems faced by the U.S. government are not going to be an easy fix… [and] over the last few years it has been obvious that when investors are risk averse, the first choice is to buy gold. Just think, one more negative headline from Standard & Poor’s about the U.S. debt rating could bounce gold 75$/ounce in a day.
If QE3 is coming, and some are expecting it this fall, then gold may be a safe vehicle to ride out the currency storm.
Indians are one of the largest buyers of gold, and it is a well known fact that Gold performs well from September to December.

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[As I said at the beginning of the article]…I think a currency crisis is brewing worldwide, and gold will be a safe place to store value. The Euro and USD are fundamentally weak, and inflation is nearly out of control due to huge stimulus packages and low interest rates that aren’t helping struggling economies. Gold should be the crutch to lean on for a while.

*http://seekingalpha.com/article/278946-gold-will-keep-cruising-as-currencies-come-under-pressure?source=email_macro_view

Related Articles:

Don’t Dismay: 6 Reasons to Hold Your Gold Through The Summer http://www.munknee.com/2011/07/dont-dismay-6-reasons-to-keep-holding-your-gold-through-the-summer/
July Breach of Gold’s 150-Day MA Would Suggest 22% Rise by Year End http://www.munknee.com/2011/07/july-breach-of-golds-150-day-ma-would-suggest-22-rise-by-year-end/
Gold’s Recent Price Action Suggests Ultimate Top of $5,000/ozt. http://www.munknee.com/2011/06/golds-recent-price-action-suggests-ultimate-top-of-5000ozt/
Gold to Repeat? http://www.munknee.com/2011/07/gold-to-repeat/

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.

Gold

Will Greece Default, the Euro Unravel and the U.S. Dollar be Saved?

Editor — Wed, 29 Jun 2011 07:03:50 +0000

Five Trades to Make Before the Euro Implodes

Greece is going to default and even take the euro, and maybe the EU, with it. There will be 5 investment opportunities should that unfold as expected and one of them will be the U.S. dollar. [Let me explain.] Words: 1187

So says a commentary* from the staff of www.thedailybell.com on an article by Marketwatch’s Matthew Lynn which Lorimer Wilson, editor of 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. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. The article goes on to say:

Lynn contends in his article that:

You don’t exactly need a crystal ball to know what the biggest event in the financial markets of the next 12 months is going to be: Greece defaulting on its debts. This week Standard & Poor’s cut its rating on the country to CCC, the lowest of any nation in the world. Only last week we learned that Greek industrial production was down 11% year-on-year. Unemployment has risen 40% over the past year, and now stands above 16% nationally. The debt is too high and the deficit is too deep. Greece will default and every one knows it – even though no one will say it! The question is simply one of time and amount.

With this in mind, Lynn provides us with five trades based on the unraveling of the euro that he believes are positive:

German bunds: Buy them and sell the DAX stock index. The deutsche mark that will arise from the ruins of the euro will be a dominant currency. This means German bonds will rise in value as the currency appreciates; at the same, Lynn believes Germany’s exports may not have such a good time of it, at least not at first. Eventually German manufacturers will once more figure out how to do business with a strong currency as they did throughout much of the 20th century but the learning curve will offer pain. Why participate? Sit on the sidelines.
The Swiss franc: Sell it. Investors are buying the franc right now, and even the Israel shekel, desperate for a safe haven. What IS safe right now? The dollar? The yuan? The Japanese yen? Most countries are struggling these days one way or another, but if the euro evaporates, several currencies will likely emerge that might definitively claim safe-haven status. The deutsche mark, Lynn writes, will certainly draw money away from the Swiss franc, which will then depreciate.
The Belgium index: Another sell. This is an obvious one for Lynn. Brussels, a tiny little pimple of a country, has been in the right place at the right time. The euro and the EU have puffed it up, and today somehow it presides over a super-state the size of America. Maybe not for long. Brussels is chock full of lobbyists, politicians and diplomats, all buying expensive meals and renting luxurious flats. That will change if the euro withers and the EU collapses. The economy shall surely deflate and many Belgium companies along with the stock index.
European travel companies: Buy them. A problem with the strong euro is that it has virtually eviscerated the travel business to Southern Europe – one of the reasons the PIGS are having so much trouble economically – but once the pesky euro goes away, the normal balance of Europe will reassert itself. Northern Europeans will continue to enrich themselves and then, in the summer, travel south to Spain, Italy or Greece to relax. The local travel industry will re-establish itself. Even the Greeks will prosper.
The US dollar. Buy. (Imagine that!) Lynn believes the PIGS debt, dumped by German and French banks, has ended up in US hands. Thus, [while] the U.S. economy will take a hit, the dollar as a currency will appreciate. There is no alternative. The dollar, he writes, will be the recipient of a second wind and spend at least another decade as the world’s reserve currency.

Our Comments on Lynn’s Expectations/Recommendations

The above suggestions are logical trading strategies, clearly laid out. Our only disagreement might be with the initial assumption. We’re not convinced the euro is going away, nor the EU, at least not any time soon. We would like to think so, but we’ll settle for a hampered euro and a humbled EU that cannot do so much damage to people’s civil liberties as its handlers would prefer.

The initial idea of the EU as a free trading zone might be seen as a good one. The current monstrosity is a vicious mess that aspires to be an empire, though it’s crumbling now. This is one trend worth encouraging.

Sure, Greece may drop out of the euro, even Spain and Portugal. The eurozone might simply default toward the North – Germany and the Scandinavian countries. If there is to be a euro, the northern industrial engine will run on it. They can form a formidable currency block if they wish to.

Lynn’s remarks about selling the Swiss Franc seem feasible to us, if we accept the euro lingers on in the North. If so, Brussels won’t entirely shrivel away. Too bad.

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We are not sure we agree about buying the dollar. The U.S. is in terrible trouble financially; we might be tempted to make it an honorary PIG. The U.S. has been under attack by the power elite for over a century and we have trouble believing that attack will diminish any time soon. They regard the libertarian and republican sentiments of the U.S. with enimnity; they are trying to crush the culture and the economy and these attacks will no doubt continue.

Even a shrunken EU and euro would be an enormous victory and a defeat for the powers-that-be who are trying to use the EU as a stepping stone to a kind of one world order. The most poisonous ambitions of the Anglosphere elite would be lanced. Defeat is a terrific prophylactic.

There would be knock-off effects as well. The currency unions that the Western elites have been so assiduously encouraged in South America, Asia, Africa and even the Middle East would likely become less attractive given the euro’s implosion. All to the good.

Concusion

There will surely be numerous trades to contemplate as the euro situation evolves. Who knows, they may even hold it all together. We hope not. We would much rather bet against this evolving authoritarian empire than for it.

*http://www.thedailybell.com/2501/Ways-to-Invest-as-Faith-in-Fiat-Money-Withers.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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Will the U.S. Dollar or Euro Collapse and Cause Financial Armageddon?

Editor — Sun, 06 Mar 2011 07:35:12 +0000

What event could trigger an unstoppable domino affect leading to a financial meltdown? You may think [that such a possibility is extremly unlikely] but daily we move closer to the real possibility that a major fiat currency such as the US Dollar or the Euro could collapse in the blink of an eye. [Let's take a look at why and how such an event could unfold.] Words: 499

So says the editor of www.goldcoin.org in an article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted and edited [...] further 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:

Mounting economic pressures mean that eventually something will have to give. [Take a look at what is happening:]

Inflation is rising
Oil prices are rising
Debt is unresolved
Property prices are falling
Unemployment is rising
The cost of living is rising
Wages are stagnating
Raw material costs are almost out of control
Energy costs are rising
Growth is negligible (and most estimates are over-egged by floundering politicians)
North Africa and the Middle East are unstable.

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What will happen next? What will be the net effect of all these things stirred up with a huge dose of uncertainty? It’s like a tinderbox to start a Financial Armageddon. Just one single event could trigger an unstoppable domino effect that would lead to a financial meltdown. [If you] don’t believe me [then consider the following:]

What if Greece cannot keep to the rescue plan imposed on it? What if it defaults? Will a whole country go broke – and then what?
What if the Eurozone feels the knock-on effect?
What if another bigger Eurozone country requires a bailout?
What if the US dollar, as a benchmark for the world, for oil prices, trade, banking, etc. and the most important currency on the planet as we know it, were to collapse? Is it even conceivable?

Take a look at [this video (9:02 minutes)] and decide for yourself. Impossible? Possible? Probable? Highly likely?

Conclusion

This is a timely reminder to the fragility of wealth stored in currency or as a paper promise reliant on the success and existence of a large institution. Wealth needs protection for survival and the acquisition of valuable physical assets that can survive a crisis is the only way.

No wonder Central banks and the biggest fortunes on the planet are stocking up on Gold!

*http://goldcoin.org/gold/financial-armageddon-from-worthless-paper-money/1385/

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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U.S. Dollar

IMF Proposing New World Currency to Replace U.S. Dollar and Other National Currencies!

Editor — Fri, 19 Nov 2010 07:29:29 +0000

Over the past few years, there have been many rumors about a coming global currency, but at times it has been difficult to pin down evidence that plans for such a currency are actually in the works but not anymore. A shocking new report by the IMF is proposing just that – a global currency beyond national control! Words: 820

Goodby dollar/euro/yen/pound – hello world currency!

So says an article* on theeconomiccollapseblog.com which Lorimer Wilson, editor of www.munKNEE.com, has reformatted into edited [...] excerpts 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 reposting to avoid copyright infringement.) The article goes on to say:

More on the Proposed New Global Currency

The IMF recommended on April 13, 2010 that the world adopt a global currency called the “Bancor” and that a global central bank be established to administer that currency. This is not hype and it is not a rumor. This is a very serious proposal in an official document from one of the mega-powerful institutions that is actually running the world economy. Anyone who follows the IMF knows that what the IMF wants, the IMF usually gets. So could a global currency known as the “Bancor” be on the horizon? That is now a legitimate question.

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So where in the world did the name “Bancor” for a global currency come from? Well, it turns out that “Bancor” is the name of a hypothetical world currency unit once suggested by John Maynard Keynes. Keynes was a world famous British economist who headed the World Banking Commission that created the IMF during the Breton Woods negotiations and the IMF report referenced above proposed naming the coming world currency unit the “Bancor” in honor of Keynes.

So what about Special Drawing Rights (SDRs)? Over the past couple of years, SDRs have been touted as the coming global currency. Well, the report does envision making SDRs “the principal reserve asset” as we move towards a global currency unit….However, the report also acknowledges that SDRs do have some serious limitations. Since the value of SDRs are made up of a basket of currencies – U.S. dollar (44%); Euro (34%); Yen (11%); Pound (11%) – so anything affecting those currencies will affect SDRs as well.

The IMF report recognizes that moving to SDRs is only a partial move away from the U.S. dollar as the world reserve currency and urges the adoption of a currency unit that would be truly international. The truth is that SDRs are clumsy and cumbersome. For now, SDRs must still be reconverted back into a national currency before they can be used, and that really limits their usefulness according to the report….so the IMF report believes that the adoption of a true global currency administered by a global central bank is the answer [to the shortcomings of the SDRs].

The authors of the report believe that it would be ideal if the “Bancor” would immediately be used as currency by many nations throughout the world, but they also acknowledge that a more “realistic” approach would be for the “Bancor” to circulate alongside national currencies at first.

A global central bank would print and administer the “Bancor”. It would be something like the Federal Reserve, only completely outside the control of any particular national government.

Is that what we really need – a world currency administered by an international central bank modeled after the Federal Reserve? Not at all! The Federal Reserve has devalued the U.S. dollar by over 95 percent since it was created and the U.S. government has accumulated the largest debt in the history of the world under this system – so now we want to impose such a system on the entire globe? [I think not!] Considering how disastrous the Federal Reserve system and other central banking systems around the world have been, why would anyone suggest that we go to a global central banking system modeled after the Federal Reserve?

Conclusion

A global currency (whether it be called the “Bancor” or given a different name entirely) would be a major blow to national sovereignty and would represent a major move towards global government. The truth is, however, that there are some very powerful interests that are absolutely determined to create a global currency and a global central bank for the global economy that we now live in.

It would be a major mistake to think a global currency can’t happen

*http://theeconomiccollapseblog.com/archives/bancor-the-name-of-the-global-currency-a-shocking-imf-report-urges-the-world-to-adopt

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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Why We Are Likely to See a DROP in Gold Prices

Editor — Sun, 23 May 2010 07:29:46 +0000

The key point to understand about gold is that it is neither a risk nor a safe haven asset because it doesn’t move with or against risk appetite. Instead, it rises with fear about the value of paper currency, regardless of overall risk appetite – and that fear can occur in both bull and bear markets. Here’s the proof. Words: 481

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below further reformatted and edited excerpts from Cliff Wachtel’s (www.avafx.com) original article* for the sake of clarity and brevity to ensure a fast and easy read. Wachtel goes on to say:

Throughout the entire risk asset rally of March – December 2009, gold rose right along with the S&P 500. Why? Because of fear of inflation. The US dollar was selling off on fears of impending hyperinflation from the Fed’s massive stimulus program. The global economy was widely believed to be recovering, and it was feared that this growth would soon unleash inflation from the supposed large increase in the money supply – albeit an oversimplification because this reasoning fails to consider whether the money was actually circulating in the economy.

During the period from mid-April to mid-May 2010 the S&P 500, our risk appetite barometer, fell hard as the EU debt crisis metastasized into the global market-crasher it remains yet gold rose sharply during the same period, just like a safe-haven asset such as the USD. Why? Because of fear that the euro would lose value, either via disintegration of the EU or devaluation via money printing needed to bail out Greece and other troubled nations (or more correctly, the big European banks holding their bonds).

In sum:
Gold rises when:
markets think paper currency is more likely to lose value, be it due to:
a) inflation from growth during good times when too much money chases too few goods, or
b) financial system or currency collapse

Gold prices drop when:
a) there is no concern about the loss of value of paper currency
b) its value is rising in deflationary periods regardless of whether overall risk asset markets are rising or falling.

Why is this especially important to know [right] now? Because for the coming months, deflation is the bigger concern than inflation as China and the EU both experience slowing growth, and the inflation figures remain tame in both the US and Japan – [and that means we are likely to see a DROP in gold prices.]

*http://seekingalpha.com/article/206487-the-must-know-truth-about-gold?source=article_sb_popular (www.avafx is a leading online trading site for global currency,commodity, and stock index trading.)

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.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.

New! A Gold Bullion Index That Identifies Influence of Demand vs USD Strength

Editor — Wed, 07 Apr 2010 08:31:58 +0000

Up until now we have always questioned to what extent the price of gold was due to the U.S. dollar’s weakness or to gold’s secular strength but with the introduction of The Kitco Gold Index now we know – precisely – because it measures the price of gold, not in terms of U.S. dollars (USDs), but rather in terms of the same weighted basket of currencies that determine the US Dollar Index. How ingenious! Words: 956

By way of explanation below are further edited excerpts from Kitco’s introductory article* on the subject:

The Relationship Between the USD Strength/Weakness and the Price of Gold
When the USD gets stronger, it takes fewer dollars to buy any commodity that is priced in $USD. When the USD gets weaker it takes more dollars to purchase the same commodity.

The price of all USD denominated commodities, like gold, will change to reflect the fact that it will take fewer or more dollars to buy that commodity. As such, it’s almost always the case that a portion of the change in the price of gold is really just a reflection of a change in the value of the USD. Sometimes that portion is insignificant but often the opposite is true where the entire change in the gold price is simply a mathematical recalculation of an ever-changing USD value.

When the dollar gets strong, gold appears to go down, and vice versa. That accounts for part of the fluctuations that we see in the value of gold. The other part is an actual increase in the supply or demand for gold. If the price is higher when being measured not only in USDs, but also in Euros, Pounds Sterling, Japanese Yen, and every other major currency, then we know the gold demand is higher and it has actually increased in value.

When gold is higher in USDs while at the same time cheaper in every other currency we conclude that the USD has weakened and that gold has actually lost value in all other currencies. The price, however, because it is being quoted in $USD, will be higher and give the illusion of gold becoming more valuable. In such a case the devaluation of gold, due to increased supply on the market, is camouflaged by a weakened USD.

The Kitco Gold Index (KGX) approach to evaluating gold breaks the change in the price of gold into 2 components.
1. One part shows you how much of that change can be attributed to USD strength, or lack of it.
2. The other portion is indicative of how much the price changed as a result of normal trading.
Interestingly whatever changes happen to the price of gold as a result of USD strength/weakness also occurs to every other USD denominated commodity by the exact same proportion.

What is the Kitco Gold Index and Why is it Relevant?
The purpose of the KGX is to determine whether the value of gold is actual, a reflection of changes in the USD value, or a combination of both. The U.S. Dollar Index® represents the value of the USD in terms of a basket of six major foreign currencies: Euro (57.6%), Japanese Yen (13.6%), UK Pound (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%) and Swiss Franc (3.6%). It is an exchange traded (FINEX) index and has become a standard used worldwide. The KGX is the price of gold measured not in terms of USDs, but rather in terms of the same weighted basket of currencies that determine the US Dollar Index® and, as such, needs to be compared to the actual USD price to give it some perspective.

Here are a few possible situations that you may see and what the meaning could be:
a) The Kitco Gold Index is up and the USD price of gold is up even more:
This would definitely mean that gold has increased in value. It also means that the USD has weakened and so the degree of the gold value increase will be exaggerated when examined strictly in terms of the USD. This is the exact scenario that we’ve witnessed over the span of the early years of the 21st century.

b) The Kitco Gold Index is down and the USD price of gold is down even more:
This would definitely mean that gold value has declined in value – but not by as much as it may appear in USD terms.

c) The Kitco Gold Index is up and the USD price of gold is down:
This would indicate that the USD has strengthened relative to the other major currencies, but that gold has gained in value.

d) The Kitco Gold Index is down and the USD price of gold is up:
This would indicate that the USD has weakened relative to the other major currencies, and that gold is really not up as it may appear.

Conclusion
While there has definitely been a bull market in gold over the past 6 years or so it has been aided and abetted to a large degree by the weakness in the US dollar. Seen through the lenses of other currencies via the KGX, the gold bull has been much less robust.

*http://www.kitco.com/kitco-gold-index.html#RT (Check this URL for the most recent Kitco Gold Index chart)