Bullion Buying
May 27, 2008
The Vietnamese, no less, have been the world’s major buyer of gold bullion the past couple of months, at least according to VietnamNet. They have vaulted ahead of India, which normally leads the pack, this month.
On another end of the metals market, silver stories have found their way into the Wall Street Journal. WSJ’s market reporters—not to be confused with their editorial people, who are from a different shop entirely—have a knack for highlighting problems, always problems, in the precious metals world. This time around, it seems there is a shortage of silver coins, caused by screwups at the U.S. Mint, causing long delivery delays and a drastic cutback of coins sent to authorized dealers like “Coins ‘N Things” of Bridgewater, Masschusetts, which sells the ever-popular Silver Eagle coin.
If there were a shortage of shares of GM stock, the price would go up, and the Journal would have the happy stories about that. But with silver, we get puzzled looks from the WSJ. If GM had quadrupled in price in five years, they’d be delirious. In fact, the shortage of silver reflects the fact that price of silver is going way up. The drastic action taken by the U.S. Mint implies higher prices still. On the other hand, the Royal Canadian Mint has moved in to pick up some of the sales.
Other coin dealers, for those interested: Gold Center of Springfield, Illinois; Manitowoc Card & Coin; McAllen Gold & Silver Exchange of McAllen, Texas. All the above were mentioned in a WSJ page one piece last week.
Jason Hommel of the web-based Silver Stock Report noted on May 18 that the actual, inflation-adjusted peak price of silver is $128 per ounce by official federal government inflation numbers since 1980—when the nominal high was $50/oz.
Hommel reckons that the more accurate inflation-adjusted high is closer to $365/oz. The numbers are both important from the point of view of chartists, who analyze markets with brutal realism via charts, which do serve to illustrate human behavior very well over time. If silver is in a bull market, it will easily top $128/oz, and possibly soar way beyond that, toward $365. So would argue Hommel—who is not a chartist but is one of the sharper silver analysts on the scene.
The Gold Index
May 27, 2008
Right Now
May 27, 2008
Famed bond guru Bill Gross wrote a piece three years ago on the longest running con job in Washington history, the Consumer Price Index’s inflation rate reckoning, and repeats his assertion that it is deliberately understated. That practice began 25 years ago and has worsened in the past ten.
Peter Schiff of Euro Pacific Capital notes that the “oil crisis” you keep hearing about—skyrocketing price of oil—is “not an oil crisis, it’s a dollar crisis.” He means: “after years of reckless consumption and dollar debasement, Americans are now being priced out of markets over which they formerly held unchallenged title. As more affluent foreigners consume more of the resources and products they previously supplied to us, Americans are being forced to cut back. The rising dollar-based price of gasoline is simply an illustration of this global trend.” Worse, he explains, “as the Fed creates money to buy bad mortgages and other shaky securities held by banks and brokerage firms, the value of the savings and wages of everyone on Main Street will continue to fall…the various housing bills and stimulus packages now passing through Congress will add significantly to the staggering final price tag. In the end, the ‘free lunch’ currently being dished out by Washington will be the most expensive meal ever served. The cost will be borne by ordinary Americans…four dollar gasoline is just the beginning.”
Lunacy Week
Again the Financial Times cuts through the central bank blabber, as the commentary by Jonathan Weil deftly lays the onus on the quasi-governmental Freddie Mac, another one of those “too big to fail” behemoth mortgage holders.
May 27, 2008
“‘How long does the word “temporary” mean?’ The accountant who wants to stay employed knows the right answer: ‘how long do you want it to mean?’
“That new twist on an old joke goes a long way toward explaining Freddie Mac’s net loss last quarter of $151 million, which was smaller than analysts’ estimates. In reality, Freddie is gushing much more red ink than that. Yet hardly any of it is showing up on the company’s income statement.
“That’s mainly because the government-chartered mortgage financier has deemed $32.4 billion of paper losses from mortgage-related securities as ‘temporary.’ Freddie’s big sister, Fannie Mae, is in a similar, though less extreme, position with $9.3 billion of such losses.
“To ordinary folks, temporary means something of limited duration. Under the accounting rules, the word means almost nothing. The designation means the losses don’t have to be counted in Freddie’s calculations of net income or capital, which is supposed to be the company’s financial cushion against losses. Most of these losses are on securities backed by subprime mortgages. About $13.2 billion of them are on securities that have been valued below Freddie’s cost for a year or longer. Some of the losses stretch back more than two years. All this has occurred under the tolerant eyes of Freddie’s feeble regulator, the Office of Federal Housing Enterprise Oversight.
“To put this in perspective, $32.4 billion is more than double Freddie’s $16 billion of shareholder equity under generally accepted accounting principles. It’s almost twice as much as the company’s $17 billion stock-market value. And it’s infinitely greater than the fair value of Freddie’s net assets, which at March 31 was negative $5.2 billion.” [Readers of CommonSenseGOLD: the behemoth company is worthless by normal standards. Yet there is huge public money in it, including pension fund and mutual fund money, possibly, say, even including that of someone in your family…or you.]
Good Question
Why do you keep reporting about dollar problems, the Federal Reserve, and investment banks? What do these have to do with gold?
May 27, 2008
Answer: They have everything to do with gold and precious metals. If the dollar continues to sink in terms of other currencies, that means there will be ongoing, if gradual, loss of confidence in lesser currencies and in other securities which are denominated in dollars. Looking back on the behavior of gold since the late 1990s, the quadrupling of its price (and silver and platinum with it, per usual) was predictive of the crisis we’re living through right now. What is disturbing and unprecedented is that major voices, none thought to be gold fans, predict more inflation and a worsening dollar outlook, including more Bear Stearns episodes and regional closures of banks. This in turn implies a constricting of consumer activity—stock purchases included—and home buying, although this need not happen for gold et al. to continue their rise.
More Schiff:
May 27, 2008
“For all the talk of increased global demand, few seem to understand from where it actually comes. The surge in global demand is both a function of the increased purchasing power of foreign currencies and the fact that foreigners are choosing to spend more themselves. In other words, Greenspan’s “global savings glut” is turning into a global consumption binge, with Americans unable to crash the party. This trend will only get worse as the dollar -denominated price of just about everything that is either imported, or capable of being exported, goes through the roof. We can look for scapegoats all we want but the simple fact is Americans are going to have to get used to a much lower standard of living. Those who have been putting all the food on our tables are finally pulling up chairs themselves.”
Right Now
Jim Sinclair More Interesting Than Obama
May 16, 2008
The veteran gold analyst sends e-missives when necessary. They tend to duplicate his remarks on forums like CNN’s “Your Money.” On Wednesday, Sinclair quoted former Fed Chairman Paul Volcker: “We are back in the 70s or worse if confidence in the Federal Reserve is lost.”
Commented Sinclair: “This means to me that we are back in the 70s.”
He theorizes that there is a grave risk of a dollar collapse, adding, “I listen when Paul Volcker speaks, and I suggest you do the same. His comment today is one of the most bullish statements for gold I have ever heard.” Sinclair, one of the original gold mavens and one of the earliest gold-book authors, was vindicated a few short years after his first book on the topic appeared. Gold rose slightly—from $42 per ounce to $850. He now sees it rising to “a minimum $1,650″ and thinks “the Euro will trade at $2″ from its current $1.55, though the best minds disagree. Richard Russell of Dow Theory Letters suspects a dollar rally shortly. Russell also dismisses both currencies in the long run as junk, as paper.
Lunacy Week
Fannie Mae
May 16, 2008
The nation’s most significant underwriter of home loans has been in trouble for years, and many (not including Wall Street brokerage houses) have been watching for that long. On May 12, Barron’s Jonathan Laing wrote in part:
“…We surmised that the U.S. government might be forced to nationalize the company in order to fulfill its implicit guarantee of Fannie’s huge corporate and guaranteed debt obligations….
“The latest earnings report did nothing to change our gloomy view. For example, in the first quarter Fannie was forced to torch its ‘fair value’ net worth by $23.6 billion to a paltry $12.2 billion. After subtracting $14.3 billion in net worth…that left shareholders with negative equity of about $2 billion. That’s surely not much protection against future losses on Fannie’s $3 trillion credit book.” [Note to CommonSense readers: if Fannie were you, you’d be hauled into court—they’re $2 billion below zero.]
The Gold Index
May 16, 2008
May 16, 2008
On another matter entirely, but one worthy of comment if only because Italy remains the world’s seventh largest industrial economy: the European Union’s statistics center, Eurostat, reports that 56 percent of those Italians who responded to its latest survey (done in 2005) “had never used a computer,” according to the Financial Times, “and 72 percent had never used the Internet.”
The FT scolded, “A vast number of Italians are, in effect, not participating in the 21st century.”
The problem is, they’re still participating in the 20th, which is bad enough.
