Archive for the Economics Category

Culprits of the Financial Crisis

Posted in Economics with tags , , , , , , on December 20, 2008 by indonesiaunderground

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What’s Really Going On With Gold And Silver?

Posted in Economics, USA with tags , , , , , , on December 9, 2008 by indonesiaunderground

By Alex Panameno

When gold hit $700 per oz, it brought the price to a negative 7% compared to a year ago. This would roughly mirror the huge correction “within” the bull market we saw from 1970 to 1980. The same Bull Run that took gold from $34.50oz. In January 1970, to $850oz. by January 1980, that’s roughly a 2,450% increase!

The question still lies… Why has gold dropped?

I challenge you to see things for what they really are, in terms of U.S. dollars; Gold has indeed dropped from its March highs of $1,000 per oz.

That’s only because gold is traded in U.S. dollars and the U.S. dollar has rose so much against other currencies. In fact, if you are in Australia, New Zealand, Europe, or most other countries, gold is actually at an all time high!

Let’s take a closer look at the reasons the U.S. dollar has surged higher.

To say the U.S. dollar rally is real or sustainable is like saying everything we know about economics is wrong! How can the U.S. dollar get stronger as the U.S. economy deteriorates?

The obvious answer is that it can’t!

The U.S. dollar is being devalued at an alarming rate. Faster than what took place in Argentina, Mexico, and Russia put together. The only difference is that our government has better ways to hide it.

Just think about the recent bailouts, how much has our government thrown down the endless “bail out hole”

Let’s add it up!

* $ 800 billion to support mortgage consumer debt.

* $100 billion for Fannie Mae

* $100 billion for Freddie Mac

* $150 billion for Stimulus package (from January)

* $8 billion for Indymac

* $29 billion for Bear Stearns

* $ 700 billion for Wall Street ( Bank of America; Merrill Lynch, City Group, JP Morgan, Washington Mutual, Wells Fargo; Wachovia, Morgan Stanley, Goldman Sachs)

* $143.8 Billion for AIG ( which keeps growing)

* $25 Billion for the big three in Detroit.

* $138 billion for Lehman Brothers (post bankruptcy) through JP Morgan.

* $ 50 Billion for money market funds.

* $ 620 billion for general currency swaps from the feds.

Totaling : $2,863,800,000,000

This doesn’t include the hundreds of billions the feds have and will continue to buy in commercial paper. Plus, what they lend out to other financial firms.

Not to mention, the feds recent supply of new credit lines to Brazil, Mexico, South Korea, and Singapore to “help those countries deal with the global credit crisis.” The feds will start at $30 billion and have promised up to $100 billion dollars per country.

Can someone say hyper-inflation!

If you can’t see where the U.S. dollar and gold are headed, I’ll be crystal clear! The dollar is going in the exact same direction as the Zimbabwe dollar and Mexican peso. Between the last devaluations of the peso, it’s lost 99.9%. If you want to know the price of gold in old pesos; you just have to multiply gold by 100,000.

With everything that has taken place, many “main-stream” TV commentators believe or want us to believe, that the U.S. dollar is now the currency of choice; a safe haven or flight to quality.

Nothing can be further from the truth.

The fact is that the U.S. dollar is now seen as a liability, not an asset. More and more countries are walking away from it.

The reason the U.S. dollar has gone higher is due to the $598 trillion dollar derivatives market. You see, hedge funds have over leveraged themselves and have been hit with tremendous margin calls as markets move against them. They have been forced to liquidate their investments overseas, which is why overseas markets are now crashing. They’re liquidating to come up with equity to pay off margin accounts, which need to be paid off in U.S. dollars.

The dollar is NOT rising because it’s a “safe haven” or a flight to quality; but rather to satisfy U.S. margin accounts. Remember until further notice, margin accounts in most emerging world markets can also be satisfied in U.S. dollars hence, the surge in demand for the U.S. dollar over the past few weeks.

Now let’s talk about deflation. It’s true deflation is here! Deflation is a normal stage in any depressionary economic cycle. Prices of goods and services are going down, they have to. We have an over inventory of cars, electronics, homes, etcS The universal law of supply and demand kicks in. Sellers of goods and services are forced to devalue their prices in order to attract buyers. Regardless of lower prices, people just aren’t buying.

Have no fear, deflation won’t be here long. The un-federal reserve assures us of that, every time they create money out of thin air.

Hyper inflation is just around the corner!

Anyone with a head on their shoulders knows that current consumer price index (CPI) is phony! Real inflation is much higher then government reported numbers.

Whether you believe hyper inflation is coming or not, you better prepare for it.

It happened to the Argentina, Russia, Germany, and recently to Zimbabwe.

It’s true; our government is just as irresponsible in their creation of money.

Another key issue that’s looming on the horizon is the five dollar floor for mutual funds. By law, mutual funds have to sell out of stocks that are trading under $5 per share. With the recent drop in the Dow, a lot of stocks are getting dangerously close to that mark, and when they get there, all mutual funds holding that stock, will have to sell it, creating a snow ball effect. Plus don’t forget we are walking into the worst retail Christmas season, ever forecasted. When the depressing numbers hit Wall Street, get ready to see the DOW take another dive!

Now let’s talk about the nasty rumor of market manipulation and price fixing in the gold and silver markets.

The commodity futures trading commission (CFTC) puts out the “Commitments of Traders” (COT) reports. In where the public can clearly see the net long or short positions held by non-commercial and commercial institutions in all exchange trade commodity markets. Well, without dragging this out.. It’s true! Up until the first week of November, two well known bullion banks held %76 of all the short positions in the silver pits and the same two Institutions also held 60% of all the short positions in the gold pits at the New York Mercantile Exchange and the COMEX division.

The question is, “can this go on forever”? The answer is NO!

In fact, the CFTC is now in an active investigation of both the gold and silver pits.

Plus! At or before the expiration of the specified futures contract (gold/silver) all short positions must be satisfied by either the sale of the commodity (gold and silver) or the buying back of the short position. Well, we know they can’t sell metals they don’t have, therefore the only other option is to buy the short positions back, with a sizable profit I’m sure. Nevertheless, they will be bought back. Which will add a frenzy of buying, ultimately sparking the next Bull Run in that market.

Ladies and gentlemen, the time has never been better to own tangible gold and silver. We all know what gold and silver are capable of when the buying frenzy starts. You don’t need to be a doomsdayer to know that the worst is yet to come.

* The largest load of bank loans re-adjusting the first quarter of 2009 and not stopping until 2012

* Bank failures

* Foreclosures

* Rising unemployment.

* Inflation

* Crashing U.S. dollar

* The introduction of the North American Union and the Amero.

These are all the reasons why more and more people are gravitating to Tangible metals.

Alex Panameno

Trading Director

Goldworth Financial

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