The bullion broker's goal is to provide gold and silver bullion investors with market commentary when significant developments warrant updates. 
 

November 13, 2007, SNIPPET:  When Lenders Won't Lend AND Borrower's Can't Borrow.


I would first like to address the Chairman of the U.S. Federal Reserve:

"Dear Ben:  I know you don't know me since I did not go to Princeton and have never worked in academia or in Government, but you need to listen for a few minutes even if I only have 6 years of study from that old land grant college called the University of Michigan, very un-ivy-like, I know.  YOU ARE PUSHING ON A STRING, BENNIE BOY.  The cost of money, as so readily manipulated by your minions at the Fed on the short-end of the curve, is not the real problem here.  The problem O' Ivy Tower Economist, is that there is a major deterioration in borrowers' overall confidence levels, in the absolute ability of borrower to assume additional debt, in the collateral required to secure additional debt in today's deflating environment, and in the lending industry's ability and desire to actually lend money out.  Now I know that the Stock Market is all giddy awaiting your next reduction in below-inflation-interest-rates to keep the Wall Street Ponzi Scheme going, but the die is already cast for the U.S. economy, financial markets, and financial system.  You may call me a Fear Monger, but I would rather label my humble street-hardened-self as a Stark Realist who has studied the history of men and money, and have had a growing crowd of Fellow Seers and ezine readers over the last 8 years.  I know it is in your job description that when homeowners, mortgage lenders, realtors, builders, developers, hedge fund managers, derivative issuers, credit rating agencies, GSE's, banks of all genre, and investors start crying over very, very poorly placed bets, that you must do something, even if it knocks the last legs out from under the Currency of the Realm.  But often the greatest courage is summoned when one stands his or her ground, maintaining their current position."

"We both know that Sir Alan Greenspan's flooding of the U.S. financial system with cheap, cheap money and ultra-lax lending standards for about 5 years is the real culprit in the unfolding debacle squarely in front of us, but you did accept the job with your eyes fully open (at least, I hope your eyes were open at the time!).  Often throughout history, it is the modest men of integrity that come behind the naughty elephants to clean up their messes (not a political statement on Bush/Republican free-spending for the last 6 years!).  We hope you have the Right Stuff as Tom Cruise pines for every day, as in the Wizard of Oz tale he is still looking for a brain.  But the ball is in your court, Ben of Princeton, and you need to do the right thing ...... stand pat on interest rates even if you need a supply of Pampers to weather the angry mob that will form outside your Fed office window; the ones in Armani suits are from Broad and Wall.  To lower rates any further below the True Inflation Rate (TIR) of 7% to 10% no contest, is to put the incomes of all U.S. retirees and savers at risk (one more time) as interest income is their safest bet in today's upside down world.  Interest income from Treasuries, U.S., Canadian, Swiss, NOT FROM U.S. COMMERCIAL BANKS OR S&L'S OR INTERNET INTERMEDIARIES SINCE I AM AFRAID THESE BOZO'S HAVE SCREWED UP MONUMENTALLY ONE MORE TIME."  

"Now as a Bullion Dealer whose phone has been ringing off the hook for the last several months, I am grateful that your renewed Interest Rate Cuts that keep the real rate of return of U.S. savers below the 7% to 10% U.S. Inflation Rate (not B.L.S.!) are knocking the stuffing's out of the U.S. Dollar.  Since Gold and Silver are the only real money that us poor men and women on the street can turn to when EVERY GOVERNMENT ON THE PLANET CHOOSES TO DEBASE THEIR DOMESTIC CURRENCY TO MAINTAIN THEIR SYSTEMS AND ECONOMIES, the values of the bullion products I sell to clients are headed for new all-time highs.  Thank Greenspan for me when you see him at the next Austrian Summit on Saving The Global Financial System!  Since foreign investors have come to the realization that the U.S. really does not want a Strong Dollar Policy in actuality, and your rate cutting drives that conclusion ever further home, various central banks are beginning to increase their aversion for U.S. Dollar holdings and the Buck sinks to new, all-time lows!  Gold is going to $2,500 within the next 10 years, Ben, nothing you can do about it since it is a global market for gold and silver, and the common folk are buying every ounce any central bank can or will disgorge.  Silver is headed to $120 per ounce in my non-Ivy League opinion, as good a guess as the recent estimates coming out as to how many $100's of Billions of Mortgage and Derivative Related Debt Instruments are going to vanish off many a financial institutions' balance sheets."

"My hat is off to you, Ben, for taking the helm of the U.S.S. Titanic just at the time that THE Iceberg had floated across the dark financial horizon in a sea of excessive credit generation.  Hopefully, you will not be blamed for the misery that is going to spread across the Nation due to years of ill-founded lending, borrowing, and spending.  But at least you have your generous Government pension to fall back upon should you decide to abandon ship early in your tenure.  And you can always get a professorship at Princeton, specializing in Stable Monetary Policy Theorems.  In case you have not noticed, the IceBerg, the one now named the Sub-Prime and Derivatives Berg (not located in New Jersey!), has ripped open at least 2 of your un-isolated, open bulkheads and the salty, corrosive water is pouring in.  Greenspan should have closed those bulkhead sea-doors years ago by taking away the punchbowl (aren't mixed metaphors great?!  starting to feel seasick?), but there was a press conference on A Deck and he just had to attend.  There is little you can do to save the ship, the U.S. economy and financial system, Ben.  All you can do now is provide lifeboats for the women and children aboard and throw the Wall Street crew a leaden buoy or two (although they seem to be quite good at throwing leaden buoys at themselves decade after decade!).  But we all know you will pander to the Wall Street crew if history is any guide regarding Federal Reserve reactions to financial crises, letting the citizens of the land suffer the consequences of their own financial stupidity, the crookedness of real estate transactors (new WCM word for Webster's), the stupendous greed of debt packagers, and the irresponsible acts of government hacks.  Hopefully, I have not left anyone out, and I purposely included the Citizens Of The Land (COTL's) since their "Spend Everything Now, Pay Maybe Later" psychology and failure to read loan/settlement documents is a colossal portion of these Titanic miscues."


!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Whew, that was almost therapeutic.  We are firmly in a colossal Credit Crunch, O' Loyal Readers and government spies.  If you are fearful of losing your job and/or your most valuable asset is now worth less than you owe on it, are you really going to take on more debt to spend on Xmas goodies or dining out or SUV's or designer shoes in the 2007 economy?!  The Sage thinks not.  Recession is not a probability now, it is a certainty.  The only real question, as has been my query for almost a decade now, WILL THE U.S. AVOID A DEPRESSION?  The debt meltdown that is occurring in the financial sector is now estimated to be on the order of $500 Billion in eventual write-offs for some of the biggest banks and financial institutions in the world.  I will wager that it will most likely approach $1 Trillion or more by the time the dust settles.

But there are other large segments of the global credit markets that we have not even heard from yet where improper risk analysis was performed by both lenders and credit rating agencies (and don't forget the lying borrowers!), and the financial icebergs are still floating out at sea waiting to greet the hull of the U.S.S. Titanic.  I think many M&A financings since 2003 are going to go bad where the junk rating turns into absolute stinking garbage and default/bankruptcy ensues.  But any time you have Billions of Dollars in supposed "assets", these liars' loans with no or questionable collateral AND very questionable financial assumptions, disappearing on a quarter-by-quarter basis, the purse strings of the Nation's lenders draw tighter and tighter.  Case in point, even the most creditworthy of homebuyers are watching real estate closings melt away as the loan originator cannot find a buyer in the secondary market for the origination!  Without this properly functioning secondary market to resell the loan, where is this lender to obtain funds to make additional loans.  The lender will shortly be out of business.  Bad times indeed in CreditVille.  But you, dear Bullion Market Insights Reader, saw it coming years ago.


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Keep buying the metals on the way up; don't get too fancy with market timing and technical hocus pocus.  As we continue the current exponential move, price volatility is going to knock your socks off!  Since financial types have been so creative for the last 30 years, God only knows what icebergs are to break off the NON-Regulated Financial Glacier and head out to sea.  I do disagree with the respected Stephen Roach of Morgan Stanley regarding the Dollar retaining reserve currency status.  I think we will see 2 or more additional regional currencies a la the Euro in the next 5 years making a serious dent in the Dollar's current, albeit diminishing, monopoly in international financial settlements.  Money goes where it is treated best.  And when the country of issue is dead set ........ out of necessity ........ to devalue its sovereign currency and all outstanding debt denominated in it, money will flow elsewhere.

It is already flowing readily into Gold and Silver.  We are just at the beginning of this process.  Heck, I may be too conservative as Jim Sinclair probably is in his $1,650 target for Gold.  We may see $3,200 Gold before the lifeboats reach shore.


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January 1, 2008, min-SNIPPET:  Some Dire Forecasts from the Sage for 2008 (hold the Champagne).


I broke my index finger on Nov. 25th, so no updates have been forthcoming since it is such a pain to try to type with 9 fingers.  Modified hunt-and-peck.  Here goes, but I must say that things are going to be much worse in the years ahead for the Citizens of this country since I never imagined the write-offs of bad debt instruments were going to be in the $100's of Trillions before all is said and done.  Here is what I see as the major events that will shape the landscape in 2008:

1.  Multiple Bank and Financial Institution Failures

Whether it is Money Center/Major Banks or Regional/Local Banks, the continual identification under GAAP accounting standards of "mark-to-market" losses of over-priced/never-sound securitized debt instruments/ derivatives will increasingly take its toll on all but the most strongly capitalized institutions.  AND VIRTUALLY NO U.S. MONEY CENTER BANK WAS DEVOID OF MASSIVE DERIVATIVE EXPOSURE IN RELATION TO CAPITAL ADEQUACY ENTERING SUMMER OF 2007.  Sovereign Wealth Funds will not be interested in taking equity positions in all U.S. institutions, so there will not be avenues for bail-outs from private sources for many banks.  I WOULD NOT HAVE FUNDS IN ANY SAVINGS ACCOUNT OR MONEY MARKET OF A U.S. BANK AT THIS TIME.  Treasury Only Money Markets is where I have parked all of my cash.  The FDIC is grossly under-funded for a Debt Collapse in the Tens and Hundreds of Trillions of Dollars, and I feel strongly that in the future a bankrupt FDIC will pay depositors in 10- to 20-Year Treasury Notes, NOT HARD CASH, in the inevitable case many U.S. banks fail.  All efforts to re-liquefy the global cash markets have failed, I will not even go into their merits since it is like throwing a thimble of water on a forest fire.  Bail out efforts will fail, and have done so in the footsteps of failure of the Super SIV Fund to date.  Make a huge mental note here that we have entered the LOSS OF CONFIDENCE PHASE of this recessionary cycle/ pre-DEpressionary cycle where Lenders are now afraid to lend since they have $Billions of bad bets already on the books to either work-out or write-off, AND Borrowers have compromised collateral and income streams and no stomach for increasing debt loads when they are already defaulting in record numbers ON THE DEBT THEY HAVE ALREADY BITTEN OFF.  Personal Note Here:  The Sage is now totally out of debt for the first time since graduating from Michigan Engineering School.  And if I can't pay cash for something going forward, I don't need it.  That includes automobile and even home purchases!  The Debt Monkey is off my back, and I suggest that you get him off your back too.  In a depression with deflation, debt becomes more and more expensive to service each year.  First we inflate big time through 2008 and possibly into 2009, then the destruction of many financial assets and real estate values in a severe economic decline gradually brings on deflation.

2.  Worsening U.S. Recession as 2008 Progresses

I get absolutely ill when I hear from Government Agencies that all is well with the U.S. economy.  At some point the prevaricators in Washington are going to be tarred and feathered, hopefully not literally,  It is frankly one of the most imbalanced economies on the planet that now has automotive, real estate, mortgage lending, retailing, and the general financial services industry well within recessive sales and earnings trends.  Inflation will exceed 10% in the world you and I live in as we enter 2008, and with oil prices headed well north of $100 this winter, grain crops being bid to the moon by developing country demand and misguided Ethanol producers, money being pushed at Rocket Speed by the world's central banks into a "frozen-up" global financial system, and Governments coming to the "rescue" of all the poor victims of very stupid lending AND borrowing decisions since 2001, I expect to see the Shadow Group print 15% or higher inflation in the U.S. before the wheels come off the cart.  We will Hyper-inflate before we Hyper-DEflate.  The U.S. stock market, even the NASDAQ, did not provide investors with a positive inflation-adjusted return in 2007, and earnings disappointments are going to start coming fast and furious as we enter 2008.  The U.S. stock market has just topped out its Bear Market Rally that started in 2003, nothing more, nothing less.  U.S. Consumers are beginning to panic about variable-rate mortgage resets, continuing home price collapses, food & energy prices, job security, election uncertainties, and debt repayment loads, hardly ingredients to keep the resilient American spenders at their favorite past-time, SPENDING MONEY THEY DO NOT HAVE.  Go ahead, Uncle Sam, make it okay to default on mortgages, auto payments, and installment credit!!!  See what the next generation of Americans become when it comes to honoring financial obligations.  Real, inflation-adjusted GDP in 2008 will average NEGATIVE 5% IN 2008! ( I can forecast as well as Sir Alan did and get paid much less money when I am wrong. )


3.  Many Money Market Funds Will Break The $1 per Share Sanctity

Some high-roller funds that really play on the railroad tracks of debt "quality" have already done so, but based on the massive expansion in money market funds since Sir Alan decided to trade the NASDAQ Bubble for the Real Estate/Credit Expansion Bubble that just burst, many more money markets with non-Treasury paper are going to return less than your principal this year.  Now with Bennie Boy Bernanke pushing yields down probably to 3% before he sees the Inflation Monster on the cover of Time Magazine (Putin, Schmutin, what a choice for 2007 Man of the Year!!! A KGB Kremlin Despotic Oligarch!! who hates American Influence!! AND is selling weapons to our enemies!!), you will have both a loss of principal in many of these funds, not FDIC-insured but who cares, but negative real returns also.  But for liquidity purposes for emergencies like when you break your writing-hand index finger, stash some cash, just be extremely choosey what the fund is invested in.  If a bank or fund cannot or will not tell you what they currently hold in the way of debt instruments, vote with your feet and move your monies elsewhere.  America will eventually technically default on its unpayable debt in the next decade by re-structuring all payment dates and maturities, but until that dark cloud shows up, STAY IN TREASURIES, because no one has audited the Fed's or Treasury's books yet to see how many CDO's, CMO's, SIV's, or other worthless derivative crapola they have bought to save the system.  Don't you feel much better when you know that you as a taxpayer were willing to come to the aid of the Fat Cat Bankers, Hedgefund Managers & Investors, Dumb-Dumb HomeStealers (aka, Fraudulent Homebuyers), AND USE YOUR TAX-DOLLARS, the ink not even dry on them! to BAIL THESE DESTITUTE GAMBLERS OUT!  Be sure to tell your grandchildren to buy a 30-year-lived Hydrogen-powered Scooter for commuting, because that is all they will have left to spend on after the American Bankruptcy.  Bernanke and Paulson, you are just making the size of the final Turkey Coming Home to Roost the size of the Empire State Building or the Sears Tower!  Japanese-style Monetary Policies since 1989 only prolonged the Japanese Depression.


4.  GOLD AND SILVER WILL CONTINUE TO SOAR IN 2008

Of course, you would expect a Bullion Broker to say this, but I think the U.S. public will finally realize there are few secure alternatives for safe-keeping their money in the Debt Collapse we are currently in.  Only about 5% to 10% of Americans have purchased any Gold or Silver since the bull began in 2001, so this incremental demand in a country still flooded with cheap cash (Ben your Xmas gift to a bullion broker just keeps on giving!) will keep the after-burners glowing on the Precious Metals Rocketship.  My forecast for Gold's high in 2008 of $1,138 implies a 36% return at some point during the year, with silver kicking up its heels as the physically more rare metal (at least on the Nymex/Comex!) with a 31% return to just under $20 per ounce at $19.35 some time this year.  ONE SIMPLE FACT TO REMEMBER ABOUT PM PROSPECTS FOR 2008:  THE GLOBAL ECONOMY AND FINANCIAL MARKETS WILL BE OVERALL WORSE THAN THE WORST PERIOD EXPERIENCED DURING 2007!!!  Bad news will be a daily occurrence in the markets this 9th Year of the New Millennium and of greater negative import to all of us.  I have been too conservative in forecasting the size of the financial hole Americans and American institutions are in at this juncture!  The sun will eventually come out again, but we are just at the leading edge of this Perfect Financial Storm System (PFSS).  Although I have been continually surprised about investors' penchant for risk in buying stocks with both hands since 2003, this trend has FINALLY reversed and will precipitate some breathtaking waterfall equity declines in 2008.  MONEY GOES WHERE IT IS TREATED BEST.  And precious metals have blown the doors off of stocks that are basically flat to down since their peak in 2001.  Gold is up some 220% since it's bear market low at around $260 per ounce as the Bank of England impoverished Brits for decades to come with untimely gold sales in 2000.  Silver, not to be outdone, is some 230% off its cycle low.  AND MANY MORE 100% GAINS TO COME IN MY HUMBLE ESTIMATION.

The Nine-Digit Sage now targets Gold's peak to be $3,200 per ounce and Silver peaking at $120 per ounce within the next ten years.  No guarantees, but The Sage has been very right about a lot of topics for the last 9 years.  Just re-read some of the epistles contained herein.  A contribution to the V.F.W. would be appreciated.

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AuAgUAGAUAGAUAGAUAGAUAGauagauagauag


THAT'S IT FOR NOW, OH LOYAL READERS.  GOT TO GO REST THE FINGER.  DON'T FALL ASLEEP AT THE WHEEL IN 2008, BECAUSE WE ARE ALL IN A SEA FULL OF HULL-PIERCING ICEBERGS.  MAN THE GOLDEN AND SILVERY LIFEBOATS! 


And Furthermore:

to all the men and women in our armed forces that are in harm's way, i say a resounding "thank you and god's speed" for a safe return home.  these are the true heroes of our age, those willing to put their lives on the line for the safety and security of their fellow citizens back home in the u.s.a.  we will prevail in our struggle against Islamic Terrorism, because any enemy that kills the women and children of the populace they vainly strive to control, is doomed to failure.  History and freedom are on our side even if the naysayers on Capitol Hill would rather make political hay than save the day.

Happy New Year and thanks to all of the clients of Wexford Capital Management for making 2007 another stellar year.  Money goes where it is treated best.


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February 9, 2008:  The Delay of Game Penalty Has Been Called.


This ezine is as much physical therapy for my mending index finger as it is a free professional service from the Sage.  I now have to relearn to type correctly since for the last 10 weeks I have been using a modified "hunt & peck" technique that would make a contortionist proud.  But on to the new Dewdrops of Wisdom that I know everyone is waiting for with baited breath .......

(Stage Direction:  The dark, heavy clouds part ever so slightly, a bundle of encouraging sunrays beam to the ground, and a deep, baritone voice booms forth ....... )

THE DAYS OF DELAYING THE END-GAME ARE OVER, OH, MANIPULATORS OF THE HUDDLED MASSES!

This observation, heck, revelation, has been a very long time a' coming.  Taking a page from the Monetary Policy Guide of post-1989 Japan, beginning in 1998 with the Fed/Money Center Bank led rescue of Long-Term Capital Management (which was hardly a Long-Term entity!), Sir Alan Greenspan did everything in his power to avoid the evitable losses and pain to risk-takers that inevitably flows from very poor financial bets, grossly excessive leverage, and financially engineered creations that few fully understand.  Well, Sports Fans, the Umpire called Due Reckoning has finally thrown the yellow flag onto the field of play, in this instance, the Financial Markets and the Economy.  AND THE PENALTY IS HARDLY ONLY GOING TO BE 5 LINEAR YARDS OR A 5% LOSS OF THE PLAYING FIELD. 

(Beleaguered Editor's Note:  Don't take my play on words and analogies to sports/game terminologies to mean that I am being frivolous about the current situation we are in.  Those who do not recognize the severity of this dire economic and financial system calamity AND TAKE APPROPRIATE ACTIONS as advocated by exceptionally wide-awake professionals such as the Sage will suffer greatly in the years ahead.  At a minimum they will be working full time in retirement (an oxymoron?), and many will have to declare personal bankruptcy.)

While many of my erudite comrades in the Prognostication Business are calling for eventual write-offs in the $100's of Billions, even as daring as to go as high as $500 Billion as of this date, the Sage is the virtual Lone Ranger of Financialdom in forecasting the disappearance of Trillions (THOUSANDS OF BILLIONS) of Dollars from the ledgers of the world.  By summer of 2008, the "T" word will be regularly used in conjunction with the total bad debt write-offs related to sophomoric lending and borrowing practices employed since the dawn of the New Millennium.  I will not go into all the literal-string initials of poorly-conceived financial products sold to unsuspecting investors around the world with the "Made in America" label on it, they are too obtuse in how they operate for the Sage's pea brain to comprehend.  Obviously, there is no shortage of pea brains in the world these days.  If all the Monday Morning Quarterbacks (my Giants won, so I is sticking to the football analogies for a while longer!) who shamelessly crucify George Bush for diminishing America's image in the eyes of the world, MOVE OVER CRITICS.  A trainload of Fee-Grubbing Financial Wizards, Bankers, Rating Agencies, and over-accomodating Government Officials are now on board the Train of Shame when it comes to tarnishing America's image on terra firma! 

When that retired kindergarten teacher in Slovakia has to sell pencils on the village streets to make ends meet since the Slovakian Retirement Fund was full of toxic, Moody's or Standard & Poor's or Fitch's AAA-rated junk, THANKS TO AMERICAN INGENUITY, BOY, ARE WE GOING TO BE POPULAR!!!

Plus, when the Sage is trying to keep his arss from being blow into the Heavens by an Islamic Jihadist who has more prospects in the after-life than the here-and-now, I REALLY DON'T GIVE A RAT'S PETUIE (sp?) WHAT THE CANADIANS, THE FRENCH, THE RUSSIANS, THE CHINESE OR WHOEVER THINK ABOUT MY APPROACH.  IT IS MY ARSS AND MY APPROACH.  When they lose thousands of civilians by these madmen on their own sacred soils, they will not be so sanctimonious.  A note to my fellow Americans:  Always easier to be a critic in life than a doer.

(Stage Direction:  The Sage takes a deep breath, puts less caffeine in his next cup of coffee, and sallies forth, inadvertently insulting as many readers as humanly possible ....... )

Turn your attention and slings & arrows to the real villains of our age, the Fed officials such as Alan Greenspan who year after year, crisis after crisis, DELAYED THE INEVITABLE CLEANSING OF THE FINANCIAL SYSTEM AND THE ECONOMY OF POORLY-CONCEIVED AND POORLY-GRANTED FINANCIAL INSTRUMENTS THAT PROVIDED $BILLIONS IN FEES TO THEIR FAT-CAT, WALL STREET ORIGINATORS.  Now, I could expand this list to include American Consumers who forgot long ago how to save and purchased expensive items like houses they could not afford, Realtors & Mortgage Brokers who make Pinocchio look like a choirboy in their failures to disclose or outright obfuscations, Investment Bankers who packaged I.O.U.'s written by hobo's as AAA securitized "assets", Legislators who never said NO to irresponsible allocations of Taxpayer Funds, and Rating Agencies that operated under the most grievous conflicts of interest in who paid them to rate companies and securities. But Sir Alan stands out from the pack as the Single Most Guilty Perpetrator of the Current Credit & Debt Collapse, bar none, who should have know better based on his own former writings and since he was a public servant not operating under profit or consumption motives.

When the Sage, only known as D.W. Young at the time before being Knighted by his legions of clients who have made a mighty bundle following his rants since 1999, first started yapping about the Depression coming sometime beyond 2000, he had no fricking idea it would be this bad in magnitude and duration.  Sports Fans, if Alan Greenspan had let the Recession of 2001 proceed to wash bad debts and excessive speculation out of the system to make way for the eventual recovery, we would only be talking about $200 Billion to maybe $300 Billion of total losses.  Now after 8 years of uncontrolled credit and monetary expansion, we are talking Ten of Trillions of Dollars, at a minimum.

You probably wonder where this tirade is going, but the main point of this missive (aside from getting my formerly lightning fast left index finger back in racing form) is the following Sage-prescient statement:

FASTEN YOUR SEAT BELTS, THINGS ARE GOING TO START HAPPENING AT A MUCH FASTER PACE TO THE DOWNSIDE.  On the reverse of the downtrends in the economy, stock market, bond market, real estate market, and money markets, both Gold and Silver are going to surprise on the upside in magnitude and rapidity.  Next stops are $1000 Gold and $20 Silver, to be followed by $1250 Gold and $27 Silver.  (Or I will refund you the price of this ezine! and in only air-pocket/ descending Dollars!)

When the Sage puts one of his cauliflower ears to the railroad tracks, trying to switch the rails to send the Train of Shame into the Stockyard of History, he comes to the realization that there is nothing anyone or any entity, private or public, can do to save the world economies and financial systems from a very severe retrenchment and REVALUATION.  That last word is key.  Not only is the Dollar going to be revalued to 50 on the Index in a matter of Quarters (holding 75 is hardly a bullish reversal!), but the U.S. stock market is going to take out the 2003 cyclical lows by 20% before Summer of this year.  And, a total market many fold the size of the equities markets, the Bond markets of the world, are going to experience a re-pricing in the $Trillions SINCE THE ERA OF SIR ALAN GREENSPAN'S TUTELAGE WAS BASED UPON A MONUMENTAL MIS-PRICING OF THE RISK PREMIUM ASSIGNED UPON ISSUANCE TO VIRTUALLY ALL DEBT INSTRUMENTS.  When debt instruments are considered to have little chance of default due to either over-rating by a fee-grubbing Rating Agency or a marketplace that mistakenly requires miniscule risk premiums on the assumption that the music will never stop, yields can only adjust upward as today's reality check on risk occurs (defaulting and subsequently downgraded debt instruments skyrocket into the $100's of Billions) and debt instrument prices or bids fall asunder as yields have to rise to reflect TRUE RISK OF NON-PAYMENT OF EITHER INTEREST OR PRINCIPAL.  While the bloodbath in the stock market is going to produce a Hollywood movie before year-end (starring Jim Carrey), the carnage coming in the bond market will seal the fate of the global economy and financial markets.

NOW SAY AFTER ME:  ALL OF THE SUPER-CDO/SIV RESCUE FUNDS, FEDERAL TAX REFUND PLANS, NEGATIVE 'REAL' INTEREST RATES FROM HELICOPTER BEN, AND ENORMOUS MONETARY EXPANSIONS FROM THE CENTRAL BANKS OF THE WORLD ARE AKIN TO SPITTING ON A FOREST FIRE DUE TO THE UNPRECEDENTED ENORMITY OF THE PROBLEM IN THE TRILLIONS OF DOLLARS.  (And spitting with your back turned to the blaze into a headwind while you run from it!  Yuck.)

Both Gold and Silver are going to knock your socks off in this environment, because no one wants to borrow to spend or expand when there is a loss of confidence in economic prospects AND the inner workings of the vast credit markets are freezing up due to no one rightfully trusting the institution or entity requesting funds.  LENDERS DO NOT WANT TO LEND TO PRESERVE CAPITAL AND BORROWERS DO NOT WANT TO OR CANNOT AFFORD TO BORROW.  CONSUMER CONFIDENCE JUST HIT AN ALL TIME LOW, THE LOWEST READING SINCE PUBLICATION OF SAME BEGAN.  Confidence at all levels is going to continue to head to new lows as more and more bad news comes out day after day after day. The reactions of the financial markets, a.k.a., frightened investors (not Insights readers, of course) are going to be more massive in magnitude and swift in occurrence.  Once confidence is lost in the Currency of the Realm, especially when you can't even obtain the 10% current rate of inflation while parked in cash, investors rush to get out of Dollars, as more and more Americans are doing today.

While there might be some more gut-wrenching pullbacks in the Precious Metals in the immediate future (Sage says this current correction is already over, but what does he know!), the spurts to new $100 levels in Gold and $5 levels in Silver are going to be breath-taking.  I have seen it before in the 30 plus years that I have followed the Precious Metals markets, and it is going to happen again, WITH A VENGEANCE.  Because ..... the world has never experienced conditions this grave in the financial markets that will eventually spill over into all the economies of the world.  Emerging markets are going to be saved due to internal savings???  Don't count on it or bet on it by staying in equities ANYWHERE.  THERE IS NOT AN EQUITY MARKET IN THE WORLD THAT DOES NOT REQUIRE REVALUATION IN THIS ENVIRONMENT.

My neighbors next door to me were just foreclosed on in a house that cost them $446,000 in August, 2005.  That same house would be lucky to sell for $325,000 today, IF IT WOULD SELL.  No fricking joke.  As this reality of REVALUATION STRIKES HOME, LITERALLY, MORE AND MORE AMERICANS ARE GOING TO RETRENCH AND SAVE MONEY TO PAY DOWN DEBT OR MEET CURRENT, BASIC NEEDS, NOT SPEND IT AT THE MALL ON NICETIES.  The fate of the U.S. economy is now cast in stone, even resurrecting the Ghost of Sir Alan in the Effigy of Ben Bernanke, will not prevent a very severe recession at this point.  I know we have been in recession for well over a year now, but the current recession is going to be a gut-wrencher.  I know when I began forecasting a Depression back in 1997 while I started putting together a U.S. rare coin portfolio in gold and silver, everyone looked at me as if I was nuts.  Well, that may be partially true due to the evidence contained within these volumes, but I will, unfortunately, be right in spades.  THE TEN YEARS IT HAS TAKEN FOR MY PREDICTION OF 1997 TO OCCUR HAS SEEN THE MOST RECKLESS CREDIT AND DEBT EXPLOSION IN THE HISTORY OF THE WORLD.  MY PREDICTION WILL NOT ONLY COME TRUE, AND IS COMING TRUE, (REGRETTABLY, I AM NOT A MASOCHIST) BUT THE SEVERITY OF THE SITUATION IS NOW BEYOND EVEN MY HUMBLE DISBELIEF.

AuAgAuAgAuAgAuAgAuAg............................


My index finger is getting sore, and some readers are getting sore at me, so I will wrap it up.  Do not ask me where either Gold or Silver is going in the next week, next month, or next year.  If I knew I would not have to be available to even field your inquiry; there are a lot of nice lakes I could be fishing on.  The one truth I do know is this:  BOTH GOLD AND SILVER ARE GOING TO PRICE LEVELS OVER THE NEXT 5 YEARS THAT MOST OF US COULD NOT EVEN IMAGINE TODAY.  I still think $3,200 Gold and $120 Silver is possible (no legal types are allowed to read these pages!), but I have no crystal ball or the one I do have needs Windex.  But in 2013, I want to be in much more Bullion than Dollars whether they take the form of Stocks, Real Estate, Bonds, or Money Markets.

And do not attempt to time the Gold and Silver markets as to a price to pick up x number of ounces of either.  WHEN YOU GOT THE DOUGH, GO!

Now to go rest my finger on a Bud pop-top.  And that mending finger is pointing to a lot of guilty parties for the fine mess we are in, even if it is a little crooked still.


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March 16, 2008:  THE END IS HERE! or Speculative Investors Now Have The "Bernanke Put".

(Stage Direction:  The Sage walks to the front of the classroom full of eager, yet petrified Investors, dressed in his tattered Sunday Best garb, worthy of a Dickens character ...... taps his pointer on the blackboard and begins his monthly ranting and raving ...... )

AH, being right about how things eventually turn out has its just rewards, especially when that lake-side cabin far from the maddening crowd looks more possible than ever thanks to my gold and silver hordes buried in woods where few men tread.  Any scumbag out there that thinks I hide physical here in my not-as-overpriced-as-before, poorly-constructed abode is sadly mistaken (the Sage is stupid, I have heard your comments out there!, but not dumb).  If you attempt to find out for yourself, just make sure you wear your Kevlar vest (and facemask!) and know how to duck like a Presidential Candidate on the issues.  As Gold and Silver shoot ever higher, with only brief and shallow corrections along the way, the amount of land the Sage will be able to acquire in some 10 years when his nimble fingers are stiff as tree limbs grows by the day.  Heck, I will be able to buy an entire construction company's earthmoving equipment to dig the perimeter moat to be filled with mutated reptiles that have been swimming in municipal water supplies.  And for security personnel who I will make grow their own food to keep in shape (no 300 pound cops on my beat!), I will tap the "talent" pool on Wall Street for Investment Bankers to whom I am now sending each a tin cup so they don't evaporate before I can hire them.

Be it know (very Dickens-onian phrase I must admit), that the Sage takes no satisfaction at the suffering of the Common Man and the Average Joe (one of which he is), but revels in the misery being visited upon the Fat-Cat Bankers, Bullion/Money-Center Banks, Mortgage Lenders/Brokers, Investment Bankers, Hedge Fund Managers, and Derivative Engineers to the extent that the system of fraudulent finance that they helped create over the last 15 years is melting away big chunks of the Global Financial System AND THEIR OWN NET WORTHS and possibly their Freedom.  Now we know that they have moved much of their ill-gotten lucre overseas into Cayman Island accounts, hopefully in nuclear waste Dollars that will diminish by the day until they can convert them into Tangible Assets.  But they are not as rich as before Summer of 2007, are not as smug as before as the regulators, citizen-victims, and civil-law-suit attorneys come a' knocking, and not as envied as before as sitting atop the Financial Heap.  That very heap is turning out to be the Garbage Heap.  "Every dog has his day", my Grandpa used to say, but as these are the very same dirt-bags that contribute mightily to the Politicians of the Day, they will not get their full and just desserts I am afraid.  If history is any guide, they will be the same players who resurface years hence professing to be the best parties to put everything back together again.  But they are going to sweat up a river in the days and months ahead!!!  In fact, I should start the Lynch Mob Party for the 2008 Elections while Obama and Hillary duke it out, and run on a ticket of incarcerating the maximum number of Financial Engineer Dirtbags (FED's?????) that have brought us to the collapse of the credit markets, the money markets, the supermarkets (still awake?), the equity markets, and eventually will have played greatly in the Greater Depression of 2009.  If I liked equity investments, which I don't because they are paper promises, are valued based upon utter financial fairytales, have a possibly failing intermediary between me and my money, and don't have negative correlations to the overall gaggle of stocks when they should (mining stocks come to mind!), I would do my own ELITE PRISONS INTERNATIONAL initial public offering.

The title of this month's missive refers to the End of the U.S. Dollar as a store of wealth/value and, eventually, as the Reserve Currency for international trade.  Since each of our daily lives and our financial net worths are based in Dollars, this is a seminal event for Americans.  Most are still unaware of the daily erosion in their buying power versus the rest of the world, but many are cognizant of the absolute magnitude of price inflation at work in all goods sold within this country.  Since oil and most imported goods cost at least 10% more than a year ago, their contribution to U.S. inflation is a constant drag on American consumers' abilities to make ends meet in the recession that is now well underway.  But all actions by Federal Officialdom since Summer of 2007, have been totally Dollar Negative.  (I now find out that Ben Bernanke cut the Discount Rate over the weekend and is now going to lend funds to Wall Street securities firms, a move not taken by the Federal Reserve since the GREAT Depression; can't turn my back on these Liquidators for one minute!) Bernanke's sizable and rapid cuts in short-term interest rates guarantee that yields on global money market funds denominated in Dollars will be substandard in comparison to our largest trading partners' currencies.  Helicopter Ben has made it very obvious that he will reduce U.S. rates well below our internal inflation rate of 8% to 10% per annum in an attempt to prevent economic and financial system collapse.  His plan is not working as one credit market after the other has frozen into inefficient operation where former lenders no longer have the liquid capital or lax lending standards to permit new credit originations; AND THERE IS A PAUCITY OF WILLING AND QUALIFIED BORROWERS TO BOOT.  The Federal Government and U.S. Treasury have been feverishly working on bailout plans to both borrowers and lenders, but when a problem in priced in the Trillions of Dollars as I surmise, Billions of Dollars of newly printed money or lending facilities are too little, too late.  Many taxpayers have already said they intend to use their whopping $300 to $600 Tax Rebate Checks coming in May to pay outstanding bills, not to go on an economy-saving spending spree at the mall.  This is reality.  Americans are having a harder and harder time meeting their monthly expenses, partially due to excessive borrowing at below-inflation rates for the last 7 years encouraged by none other than former Fed Chairman Greenspan.

For the Federal Reserve to accept Debt & Mortgage Derivative Paper as collateral for new lending to cash-strapped financial institutions, it is an implicit Government Bailout.  Unless Fed officials have been living on a different planet since Summer of 2007, they know full well that the market value of this CDO, whatever, paper is virtually zero since the market has slammed shut on the majority of this nuclear waste with no bids forthcoming whatsoever.  Using taxpayer money to make loans, even if very short-term, to entities such as Bear Stearns that is already technically bankrupt and totally insolvent, is nothing more than another grievous breach of their fiduciary duties to American citizens.  The $200 Billion cash infusion the previous Friday by the Central Banks of the World is another prime example of pushing endless amounts of freshly printed " FIAT money" into the global financial system to avoid partial or total collapse (or freezing-up, same thing).  Global inflation will not subside any time soon.  Say those words 5 times when you get up each morning.  The classic reduction in inflation due to a decline in economic activity is not going to happen this time, or at least for a good while.  When such massive amounts of fiat money are created out of thin air in less than a year, I would say at least $500 Billion to $750 Billion since August, 2007, on a global basis, there is little pressure taken off of goods prices because short-term money is as plentiful and cheap as ever to those with good credit.  And there are plenty of non-American entities that still have excellent credit standings and a wIllingness to borrow because they did not gouge themselves in the U.S.-generated Derivatives Explosion.  Global government actions aimed at avoiding a lock-up in the capital, credit, and money markets are not going to work, but will only exacerbate the developing problems with more global inflationary pressures from panicked money creation.  Declining economies AND rising inflation, aka STAGFLATION.  Jimmy Carter would be proud.

Look for the U.S. intermediate and long-term bond markets to start taking it more on the chin in the weeks ahead.  Sell stocks and seek safety in the perceived security of Treasury Note & Bonds, me thinks not!  The steepening of the yield curve will accelerate as Bernanke & Crew cuts rates again this coming week (by as much as 100 basis points) with credit concerns even of U.S. Treasuries and a newly revitalized Inflation Premium entering the pricing of longer-term yields.  Credit/Default Risk plus Inflation Risk will increase 10-year yields on out even more than what Mortgage rates have shown of late.  There is no real safety in U.S. Treasury debt other than the shortest of terms, since 10-year Notes will eventually become 20-year durations from a cash-strapped America and 20-year Bonds will become 30-year and on and on and on.  Ready for the 50-year Treasury Super Bond??!!!  What does a bankrupt party do when it can't meet its obligations for principal repayment?  It lengthens the final payment period to attempt to get more time to regain solvency.  That is what the U.S.A. is going to be forced to do with all outstanding debt in the years ahead.  Not only debase the value of the repayment currency, the Dollar, by cutting rates well below inflation and flooding the system with newly-printed money, but lengthen the time required to pay the entire principal due.  Expect any U.S. paper longer than 90 days in duration to start the upward climb to 10% plus interest rates in the next two years.  I see no other avenue for U.S. debt, public and private, to continue to have buyers around the world with a currency headed for another 30%+ devaluation.

(Stage Direction:  The Sage is now in his Nike running gear, panting bent over with his hands resting on his knees, sweating profusely, too tired to continue the Tirade Marathon Race.  At least for the moment.)

Look for the U.S. intermediate and long-term bond markets to start taking it more on the chin in the weeks ahead, making an already deteriorating U.S. economic picture even worse.  The U.S. Government and U.S. Federal Reserve will pour $100's of Billions into the system to keep the country afloat, but I do not think these efforts will succeed.  We are destined for very hard times Stateside for the next decade, hopefully not longer.

Keep acquiring physical Gold and Silver even if you have to hold your nose at buying $1000-plus Gold and $21-plus Silver.  Personally and professionally, I have never been very good at timing purchases of either precious metals.  When I got the dough, I go, ...... then I go fishing.  You will be doing Dollar Cost Averaging no matter what method you employ in trying to time price entry points, so a blindfolded monkey may even beat us Homo Sapiens at this game.  In late 2007, the ever-so-popular Sage forecast a 2008 high for Gold of $1,138 and for Silver of $19.55.  I think we will break the Gold target by summer.  New targets:  Silver at $27.50 on a panic-buy high and gold at $1,300 before year-end.  No, I am not smoking one of Bill Clinton's Oxford party favors.  You pay me the big bucks to come up with forecasted prices, so here they are.  The bull market in precious metals has cyclonic winds at its back:  an unprecedented Debt Collapse in the Trillions of Dollars, a domestic currency suffering from persistent Devaluation, Raging 10%-plus Inflation and a Recessionary U.S. Economy.

THE PUBLIC WILL FINALLY ENTER THE PRECIOUS METALS MARKETS IN A SIGNIFICANT WAY IN 2008.  Why?  BECAUSE THEY WILL HAVE FEW OTHER PLACES WITH ANY DEGREE OF SAFETY FROM A HISTORICAL (HYSTERICAL?) STANDPOINT TO PUT THEIR MONEY!!!  Many bank and financial institution failures of note to come, stay tuned.

Oh, how could I have forgotten to mention my favorite investment venue:  THE U.S. STOCK MARKET, AND MAYBE EVEN THE GLOBAL STOCK MARKET, HAVE ENTERED PHASE II OF THE 2001 BEAR MARKET THAT WE NEVER LEFT!!!  YIPPEE AYE YAYE (ask a nearby cowboy about correct spelling). 

Until next time, irreverently, 
THE SAGE OF WEXFORD


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April 20, 2008:  Just In The First Inning Of A Nine Inning Event.


(Stage Direction:  Even with billowing Storm Clouds above, complete with rumbles of thunder and flashes of lightning, The Sage winds up his pitch after checking the runner on First getting ready to steal Second.  On second glance, he discovers it is an Investment Banker in baseball disguise trying to run away with the First Base bag itself!  Have they no shame?!)


While I am not a big baseball fan since I was terrible at the game growing up ( 5 letters in track and football, though, so I am not a total spastic ), I will spare most fans many more baseball analogies during this monthly work-out of pent-up frustrations as a citizen of the Financial Realm.  But, everything is about perspective in these very trying times.  Or at least it should be.  One has to get to the dugout as often as possible during any physical (or mental) activity and peer out onto the field of play to take in the broader scope of things.  When you are on the field of battle, there are too many balls (aka, minute-by-minute news releases/stimuli) zinging toward an unprotected part of your body to allow you to get any perspective on the total event unfolding.  As a player on the field, you really have tunnel vision, concentrating on an arch of view of approximately 40 degrees in front of you.  You are decidedly focused, but you seldom see what is occurring to your rear or left or right.  You are fixated on the batter and the base runner(s).

So, Welcome to The Sage's Dugout this rainy Sunday afternoon, grab a Gatorade or like, and take a few moments with me to reflect on where we stand in the history of events, both financially and economically:

FIRST, and since it is already a gloomy day I will stay in character, THE U.S. FINANCIAL SYSTEM IS AT RISK OF COLLAPSE.  See how easy that rolls off the tongue when one is relaxed and sitting down.  I saw a graph of Net Free Reserves in the U.S. banking system the other day and this classic measure of system liquidity was in Negative Territory to a degree equal to the era of the Great Depression.  

The $16 Billion of Total Reserves currently being borrowed to meet Reserve Requirements is an historic event.  (Note how the Fed pushed liquidity into a system that could absorb it in 2001/2002 to save the system that time; another example of Fed Panic (FP) which cratered real interest rates into negative territory and helped put us in the mess we are in.)  At a minimum, this means that the banks are in no position to expand their book of business, i.e., lend money to a receding economy, but necessarily must shrink their balance sheets through the sale of assets and pay-down of liabilities.  U.S. BANKS ARE BASICALLY ILLIQUID AND A GIANT DISCONNECT EXISTS BETWEEN LOAN AVAILABILITY AND DEMAND. How are Variable Rate Mortgagees going to refinance when the lending window is slammed shut!  Shrinkage is naturally occurring through the evaporation of Billions of Dollars of collateralized securities purportedly on the Asset side of the ledger, but that event has a one-on-one shrinkage of net capital, a persistent force at direct odds with liquidity/capital replenishment.  U.S. BANKS ARE CLEARLY IN A CASH-CRUNCH THE LIKES OF WHICH HAVE NOT BEEN SEEN SINCE THE GREAT DEPRESSION.  Since only the dumbest of the banking community is unaware of the Hundreds of Billions of Dollars of write-downs yet to come in unmarketable, worthless Derivative-Spawned Paper, their formerly insatiable appetite for risk has turned into a very bad case of indigestion, a condition that freezes their proclivity to take even the most modest of risk for fear the stakeholders are already outside the bank's door with Tar & Feathers.  More likely, it is Regulators & Authorities with Shackles and Chain, but that much-deserved result in Breach of Fiduciary Responsibilities/ Book Fudging/ Conflicts of Interest will take the better part of the next decade to incarcerate.

So says the 100 mph fast-ball pitching Sage:  DO NOT KEEP MONEY IN BANKS EXCEPT FOR MONTHLY EXPENSES.  FDIC IS GROSSLY UNDERCAPITALIZED AND YOU MAY GET TREASURIES INSTEAD OF CASH, 10-YEAR NOTES, NOT 90-DAY BILLS IN REPAYMENT!!!!!  GREAT STUFF.

While Bear Stearns was more of an obtuse financial entity for the average American as to its day-to-day activities and its risk to the entire financial system should it fail, a major Money Center Bank Failure ( MCBF ) such as Citigroup would be more comprehensible, revealing, and shocking to the general populace.  You just have to love it when Citi reports a $5 Billion Quarterly write-down and the Better-Than-Expected Crowd rallies the stock market.  Pass whatever they are drinking to The Sage!! There is an entire batting list of large U.S. banks that may likely become illiquid in the months ahead; they include such perennial derivative-laden favorites as JP Morgan-Chase, Bank of America,  SunTrust, CapitalOne, Washington Mutual (actually an S&L), and of course, Citigroup.  While our Federal Reserve, Treasury Dept., and Capitol Hill are currently on a path that sets in stone that every U.S. financial-system entity is Too Big To Fail, there comes a point where the persistent pursuit of these near-sighted monetary and fiscal policies cannot be implemented without severe consequences in other key financial markets.  By ramping up the M3 Money Supply at a rate of growth well over 20% per annum up to over 30% of late, the authorities have flooded the world with more Dollars at a time when the world's appetite for the Greenback is in reverse as a store of wealth.  THE U.S. IS DETERMINED TO DEVALUE ITS WAY OUT OF THE CURRENT CRISIS AND THE WORLD IS FULLY AWARE OF THIS STRATEGY.  The Dollar will have its Bear Market Rallies, as will the Stock Market as exemplified this past week, but the trend is decidedly down based on the $100's of Billions the U.S. is throwing at the current Credit and Debt Market Crises.  The U.S. stock market has yet to comprehend what happens to Corporate Profits, coming to a venue near you in the next couple of weeks, during an In-Progress Recession ( IPR ).

Oh, did I mention that Panic Flooding With Multitudes of Dollars (PFWMD) will eventually whack the Bond market and send intermediate- and long-term interest rates much higher.  12% to 15% inflation in our immediate future will be the other part of the Higher Interest Rate Equation.  RISK PREMIUMS IN U.S. DEBT SECURITY ARE GOING MUCH HIGHER, SPORTS FANS!!!

There is a huge lesson to have been learned from the Current Japanese Depression that started in 1990 and has yet to end.  IF YOU KEEP THE GARBAGE ON THE BOOKS OF THE NATION'S BANKS, THERE IS LITTLE HOPE FOR A SOLID AND SUSTAINABLE ECONOMIC RECOVERY SINCE THE LENDING INSTITUTIONS ARE IN NO SHAPE VIS A VIS CAPITAL REQUIREMENTS (Net Free Reserves??!!) OR RISK PROPENSITY TO PROVIDE THE TINDER WITH NEW, ACCELERATED LENDING.  And Borrowers have long memories also, that when an economy has limped along for almost two decades, sticking one's head out of a financial foxhole when ordinance is still going off does not appear a noteworthy action (maybe a Foul Ball analogy here?).  We are on the road to papering over the Collateralized Garbage that is littering the balance sheets of U.S. Banks and financial institutions, and in the end, the length and duration of the in-process Debt Collapse and Credit Freeze are only going to be greater.  Alan Greenspan can attest to what monetary procrastination can do to a financial system and economy.  We should plot Sir Alan's Lucre Per Speaking Engagement as time progresses.


SECOND, in direct contradiction to what Chairman Bernanke has told us, THE U.S. ECONOMY IS IN RECESSION DUE PARTIALLY TO THE SUBPRIME LENDING SCANDAL.  That there would be no contagion effect from such a massive and global mis-allocation of capital is preposterous to even the most casual observer.  Any economic system cannot withstand $100's of Billions of asset-meltdowns without some pretty drastic effects on key financial service segments, not to mention a housing industry that was already in recession as early as late 2006, early 2007.  The housing recession began as a result of overcapacity and overpricing, but continues and gathers momentum today as tightening of credit enters the picture.  If we are truly a "services-oriented" economy, and thanks to money provided by the Fed at some 4% to 5% below the existing inflation rate for a period of 5 plus years, then the persistent demise of the financial services segment over the last 18 plus months cannot but have a significant adverse effect upon overall GDP growth in the U.S.  What began as mortgage lender/ mortgage broker/ realtor/ homebuilder layoffs in mid-2007, has contagioned (new Sage word, use it, it will get into Webster's!) over to investment bankers, stock brokers, M&A lenders, CDO originators, and bank employees.  We are still in the First Inning of the current economic retrenchment, and the BLS statistics are so flawed in their misuse and miscalculation that they have been and will continue to be worthless as to informing anyone of the status of the 2007 Recession.  Yes, the current recession began in 2007, it is just gaining speed to the downside in 2008 to a point where the politicians can't lie about it any longer by Election Time.  But God knows they will try!

I now have my CarMax Pricing Indicator (CPI) to show me how bad things are in auto-land.  If you look at the discount to Blue Book that they show for any given vehicle, my favorite is the Lexus ES330 with under 30k miles, you will see that the discount is growing by the month.  What was $550 under Blue Book in November, 2007 is now $1,500 under today.  It has been growing since the beginning of the year as used car dealers are flooded with autos even in the strongest of markets such as Washington, D.C.  The Blue Book numbers will always be slow to adjust to reality, since banks use them to determine loan amounts and terms on used autos and there is tremendous pressure from dealers and the banks themselves to maintain prices.  What loan officer wants to tell his superiors that a car loan is underwater where the outstanding balance has become greater than Blue Book.

Speaking of Errors, home prices are far from a bottom in most markets.  My home peaked at $415k in August, 2005, and now a market-clearing price would be $285k, no kidding.  There are over 100 homes for sale in this price range within a mile radius of my house, and average discounts to asking prices are easily 5%.  This is a 30% retracement in less than 3 years, a event I am sure will hit all markets before the dust settles and supply is reduced to the days-in-inventory of aggregate demand.  And this area has an employer, the Federal Government, that has no lack of funds to spend at any given moment.  The Bottomless Checkbook, offspring of the Bottomless Coffee Cup.  I fully expect to lose some money when I finally exit to that cabin in the woods by the lake with the 20-acre perimeter with alligator moat with ..........................

It helps not a single American to make them believe that the economy is on a firm footing right now.  In fact, it is a grievous disservice to Americans to paint a rosy picture at a time when they should be paying down debt, getting liquid, and preparing for worse times ahead.  And this means spending less and saving more.  WOW!  What a novel concept!!!  Won't do much for economic growth though.

THIRD, and in baseball it is three strikes and you are out ( or out of here ), THE PRECIOUS METALS ARE JUST TAKING A BREATHER IN THE BIGGEST BULL MARKET THAT GOLD AND SILVER HAVE EVER BEEN IN.  Whatever caused the current correction does not matter.  The simplest and probably most correct observation is that the spurt in prices eventually brought more sellers than buyers to the bullion counter, at least that fictitious bullion counter that is supposed to exist at the Nymex/Comex.  Not to mention margin calls on highly-leveraged speculators when their lenders had to tighten standards due to other messes they were in.  And while the paper, promise-to-pay/ futures markets in Gold and Silver still exert undue influence on spot prices during the U.S. trading day, that day is going to eventually end as physical demand goes off the charts.

Physical demand for Silver refined and minted products has gone off the charts since the shiny metal pulled back from $20 plus to the upper $17 area.  Patient investors finally had an entry point.  A KEY FACT HERE:  WE ARE NOT YET IN A PHYSICAL SILVER SHORTAGE.  WE ARE IN A REFINED PRODUCT SHORTAGE AS THE BULLION DISTRIBUTORS AND REFINERS/MINTS SUCH AS JOHNSON-MATTHEY AND SUNSHINE MINTING GOT CAUGHT WITH THEIR INVENTORIES DOWN DURING A SPIKE IN ORDERS WITHIN A PRICE PULLBACK.

When an industry had been in a stalled market for some 20 years, just-in-time inventory has been the rule and not the exception.  You only keep enough product on hand to meet about 2 weeks worth of sales and not much else.  When demand surges to some 8 weeks worth of prior sales, you are going to have 3- to 4-week delays in restocking inventory for shipment.  Unlike the U.S. Mint which can't seem to get its act together with production ramp-ups on American Silver Eagles, the private refiners and mints are well-driven by the profit motive.  They have not seen demand like we have seen over the last 6 weeks in silver since 1980/ 1981.  Give them a chance to ramp-up production to include weekend shifts and possibly 3rd shifts, and you will not be disappointed by locking in prices in the $18 range.  And expect delays in shipments in the months and years ahead.  There is no better sign of demand for a product than a backlog situation.  No reputable bullion dealer is not going to deliver the locked-in silver at the price agreed upon.  Word spreads on the internet like wildfire, and this is one reason the Northwest Territorial Mint may not survive as a retail bullion dealer.

We are going to see $3000 plus Gold and $130 Silver before 2020.  I am as sure about this as the nose on your face, which I can't see, so any prediction is a matter of faith in the prior record of the predictor.  BUT WHAT ELSE IS GOING TO PRESERVE YOUR BUYING POWER IN TODAY'S 12%-PLUS INFLATION AND PERSISTENT DOLLAR DEVALUATION??!!!

These are the ultimate currencies of last resort.  Frankly, you can have the Euro and the Swiss Franc, I will take Gold and Silver over paper every time.  Watch what these entities' Central Banks have done with their bullion reserves.  But it soon and probably already is "buying time" for the world's best-managed Central Banks (China, Russia, Singapore, Brazil, Dubai, Saudi Arabia) regardless of what a non-governmental organization such as the IMF may say it is going to do regarding Gold sales.


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May 19, 2008, SNIPPET:  Stick Your Head Above Your Foxhole Only If You Dare!


(Stage Direction:  While the Central Bank/Treasury Dept. claxon blares the "All Clear", the Sage can be seen as a demure figure faintly in the bomb-crater-pocked landscape throwing shovels-full of battlefield dirt high into the air; in fact, so feverishly is the Sage digging a Deeper Foxhole that he is even filling in the abandoned foxholes of some of his more naive neighbors.  The Sage has been on this mutating planet almost 6 decades now, and he has finally learned over the last two decades that no problem that took decades to create is going to be un-created, i.e., SOLVED, in a few short months!  PLUS, HE HAS GROWN SO SKEPTICAL OF GOVERNMENT PRONOUNCEMENTS AND THE PRONOUNCERS (new Sage word, 25 cents per use), THAT HE TAKES LITTLE THAT HITS THE AIRWAVES AS EVEN REMOTELY TRUE.  Up periscope, keep your head down, keep digging, this ezine will hopefully keep you from being financially vaporized if you listen and act on only 10% of its venomous rantings.)


I really don't have a lot of NEW ideas to throw at you (kind of like playing dodge-ball!) this month, and since you have collectively chosen to pay me not one Devaluing Dollar for all of the Trillions of Dollars of sound advice I have given you over the last decade, I am going to hold back the best tidbits for my paying customers!  Actually, I have little time during the trading day to spend more than 10 minutes per client, aside from getting their order straight and executing a great price, since this is a volume-oriented business which means I have to write a lot of orders per day to just pay the lighting bill.  There is more than an adequate level of very comprehensive information on this website, that took more than just a few minutes to compile, I just wish some of my prospective clients would take the time to READ and not request that I re-invent the wheel verbally on every aspect of the world know as BULLION when they make that first terrifying phone call.  Maybe this tendency to want to be spoon-fed information that is right in front of them is another sign of our American society's inherent laziness and superficial approach to making investment decisions.  True of some, not of all.  We are told by the "experts" that Americans spend more time deciding on what $40,000 vehicle to purchase than in doing their own due diligence in making a $40,000 investment decision.  This would apply to making Bullion purchase decisions also.  ONE REASON FOR WRITING THIS EZINE EVERY BLOOMING MONTH (about 120x issues to date and counting) IS TO PROVIDE MY MOST RECENT THINKING ON THE ECONOMY, FINANCIAL MARKETS, AND THE BULLION MARKETS ALL IN ONE HANDY, PORTABLE ELECTRONIC BILLBOARD.  To ask me the next minute what I think about anything except the price of eggs after I have spent hour upon hour putting some of the most precious jewels of wisdom on these pixeled pages is enough to cause mental anguish for the Sage.  I was raised by a West Point graduate to be very polite and patient, but as I age and repeat myself ten times over per hour, don't expect miracles from a fellow mortal.

I don't mean to be rude if I repeat the gist of this "time-out" message during any given phone conversation as incoming phone calls stack up in the message queue (but I can assure you I don't rush to Confession immediately afterward also!), but I am a businessman first, the unsung hero of the masses SECOND.  Okay, now that I have managed to alienate anyone that I did not alienate last month, LET'S MOVE ON.

WE ARE HARDLY OUT OF THE WOODS IN THE CURRENT COLLAPSE OF THE DEBT/CREDIT MARKETS, DEMISE OF THE DOLLAR, AND THE CURRENT DEEPENING RECESSION.  AND WE ARE NOWHERE NEAR A TOP IN THE PRECIOUS METALS!  

Had to throw that last one in in case I fall asleep listening to my own dribble.  I think there should be a special prison established for Official Prevaricators who mislead the American Public into thinking everything is just fine, the worst is behind us, it is clear skies ahead.  Alcatraz is an underutilized resource in my opinion; it even comes with room service.  How they can do it with a straight face is beyond me, but it comes easier with practice I guess.  But how are these bozo's going to get re-elected or re-appointed if they admit to squandering your Social Security and Medicare benefits, your children's and grandchildren's future standards of living and financial well-being, not to mention your global buying-power through Dollar Devaluation.  I guess politics is just another term for prevarication.  I can think of no government statistic that is useful at face value for planning one's life, business or career, or one's financial solvency.  They are only meaningful without adjustment as potential trend points, especially with humongous post-release revisions.  I know I harp on this issue virtually every month, but when I see otherwise reputable and knowledgeable analysts quoting this government statistic or that to put the economic or financial landscape into perspective, I just cringe.  I know these are intelligent people, otherwise the Sage would not read their dribble.  But using a ruler of inaccurate measure to gauge the distance to make an incision next to the heart (of the matter) is a recipe for disaster.

I am sure, and probably proud of the fact, that in years past many of my readers have turned off their monitors shaking their heads at what a fear-monger, alarmist the Sage has been.  Well, let me tell you, the eventual satisfaction at being right about the implosion of uncontrolled growth of debt at all levels, the collapse of the housing market and industry, the continual devaluation of the U.S. Dollar, the superb performance of certain tangible assets over financial ones, the political and social unrest caused by the former developments ........ well, it is being greatly overshadowed and subdued by the human misery that is unfolding and going to unfold all around us.  The bankers, mortgage brokers, home appraisers, shoddy home builders, financial engineers, hedge fund managers, hedge fund investors, and even Central Bankers can all stew in their own juice if they ever get their just desserts.  But the average American, who has almost chosen to ignore the bared facts staring him or her squarely in the face in May of 2008, is going to suffer tremendous financial and mental pain in the immediate years ahead.  Either he or she has continued to let the good times roll and has built up an insurmountable debt load since the Government has promised to make all boo-boo's feel better with a band-aid of freshly printed Dollars and rescue programs OR he or she has failed to seek alternative avenues to traditional ways of managing their financial futures.  Even for us more "enlightened" ones who have seen today's very scary economic and financial landscape morphing into reality over many a year, our success at having made some pretty sage-like decisions will be tempered by the scores of people, some relatives I am afraid, who have failed to do so in time.  And since it is the Government's tendency to be all things to all people, you and I will pay through higher taxes and reduced services for the sins of others in the Government's current, last-ditch effort to flood the system with massive liquidity, hair-brained rescue programs, and negative real interest rates.  

Just a short note on negative real interest rates below the actual rate of inflation that most mortals today experience outside of the Bureau of Labor Statistics. 

When you put rates below the current inflation rate of some 8% to 12% depending on your locale and age group, you are effectively encouraging excessive financial market risk to be assumed once again by market participants with money that is literally being given out as free.  You have to repay the principal (unless you are a U.S. financial institution borrowing from the Fed!), but the time cost of money is below zero, nada, since you will make interest payments with severely inflated Dollars made less valuable with the surging ravages of 2008 and beyond inflation.  NEGATIVE REAL INTEREST RATES ARE GREAT FOR GOLD AND SILVER BULL MARKETS.  A look at historical chart periods during which this condition existed shows some very strong bullion markets.  The conditions that lead a central bank to push rates below the rate of inflation are usually those of panic.  We have basically had negative real interest rates since the Fed's Internet Bubble Rescue (FIBuR, instead of LIBOR) began in 2002, and look what the precious metals did during that period!! 

Probably the best way to describe this action, since no responsible central bank would make it impossible for savers to stay above water with positive real earnings ( 1.7% money markets are an absolute joke ....... with no one laughing!) or would provide so much liquidity that the market is literally flooded with money, grossly cheapening the cost to obtain it.  Ben Bernanke's 2008's moves have actually facilitated more derivatives to be written of late, instruments that should have already gone the way of the Dodo.  Since the Fed is responsible for monetary system stability as well as sustainable economic growth (we citizens should paste this mandate on Bernanke's forehead the next time he is on television), the recent slashing of interest rates to 2.00% has effectively shown a U.S. central bank that has abandoned its resolve to simultaneously keep inflation from getting out of hand while fulfilling its dual mandates.  This means that the collapse of the credit and debt markets has the Fed so spooked that they are willing to possibly be faced with 15% inflation in 2009 partially due to their irresponsible, panicked actions that began in Fall, 2007 and continue at warp speed today.  SAVE THE SYSTEM AT ANY COST.  FINANCIAL INSTITUTIONS TO THE LIFEBOATS FIRST, WOMEN AND CHILDREN GRAB A LIFE VEST.

Courtesy of www.jsmineset.com, Jim Sinclair, Guru

NOTHING COULD BE BETTER FOR GOLD AND SILVER THAN A SEVERELY COMPROMISED GLOBAL FINANCIAL SYSTEM AND CENTRAL BANKS WHO HAVE ABANDONED THEIR MANDATES TO ATTEMPT TO PUT THE INFLATION GENIE BACK IN THE BOTTLE.

If you think Gold and Silver have peaked and are about to fall back into a bear market, I have a CDO or Florida condo or "honest" politician to sell you.  As the obnoxious Sage ups periscope to view the blossoming field of battle, his adroit and well-trained eye also see the following INCOMING ORDINANCE:

1.  Multiple bank and financial institution failures as early as Summer, 2008.  One major brokerage company requires rescue by October, 2008, and two Investment Banks require "special dispensations" to remain solvent.  Note that the Bank of England is now questioning the risk levels of assets U.K. banks are shoving onto their Central Bank to get virtually free liquidity funds!!!  The global banking system is basically broken, just a matter of time before victims are identified.

2.  No further interest rate cuts by the U.S. Federal Reserve as the Dollar breaches 65 on the Dollar Index.  Every other trick in the book will be used to keep the economy and system afloat, including direct open-ended, non-collateralized loans from the Fed and Treasury and a reduction in reserve requirements.  In fact, inflation may get so out of hand in early 2009 that the Fed has to gently nudge rates higher to maintain any semblance of The Inflation Fighter of First Resort (TIFFiR).

3.  Gold will hit $1,200 before Fall and silver will soar to $23 to $27 due to continuing signs of financial system distress and actual bank/institution failures:  automatic CD rollovers and restricted account withdrawals imposed by the most insolvent banks.  More and more withdrawal restrictions will be imposed by even more solvent banks.  Banking fees to go through the literal roof.

4.  Consumer spending will hit a brick wall due to gasoline at $4 per gallon, higher and higher food prices due to global demand and energy costs, housing and autos already in severe recession, employment concerns, and excessive debt servicing.  Those with resetting Variable Rate Mortgages may get no reprieve with a LIBOR re-jiggering that shows actually higher inter-bank lending rates than currently posted.  All stops will be pulled out to avoid reporting a recession prior to November Presidential election, i.e., much more jiggering of economic statistics going into 2009.  Take government statistics with a grain of salt if you value your noggen.

Military action against Iran via bombing, greater than 70% probability, will cause some Middle Eastern oil exporters to suspend or reduce oil exports to the U.S. to attempt to quell internal unrest by Islamic extremists and the Average Muslim.  The mouse gnawing on the "Paper" Tiger's tail eventually gets swatted.  It could even be a Democrat President that takes this action due to increasing signs of nuclear weaponry development in Iran or overt & persistent Iranian terrorism activities around the globe.

5.  Mortgage interest rates will continue to firm even as the economy slumps.  Foreclosures and defaults will continue at high levels, forcing lending standards to stay tight and get tighter.  Only the most creditworthy of borrowers will get a loan at a decent rate; many formerly "prime" borrowers will not get a loan at all due to formerly considered "modest" debt loads or will consider the rate offered as exorbitant and fail to go to closing.

6.  Systems in systemic failure tend to provide more rapid and unexpected events versus any tendency to stabilize.  We are talking $Trillions of assets disappearing, highly deflationary in a counter-imposed inflationary surge.  The global financial system is hardly showing signs of stabilization either in the short-term or thereafter.  THE FED AND ALL CENTRAL BANKERS DO NOT HAVE A CONFIDENCE RESTORE BUTTON TO PUSH!!!!

It literally takes years to restore confidence within a failed financial system.  A loss of confidence has occurred based on write-offs in the $100's of Billions, soon to be $Trillions, where banks are afraid to lend to one another and/or require the cash for liquidity purposes, all rating agencies have lost credibility, bond insurers have lost their AAA, investment-grade financial ratings, bids have disappeared for many engineered financial products, the municipal bond market is in disarray, and no one knows the extent of eventual write-offs in highly-leveraged derivative products spanning the alphabet soup of acronyms.  STICK YOUR HEAD UP ON THIS ONE, I DARE YOU!


!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!  

So on this happy note, this Sunday, May 18th, WHILE MOST MORTALS ARE OUT HAVING A GOOD TIME or trying to, I will leave you with much food for thought and your GOLDEN FOXHOLE SHOVELS.  I don't have a crystal ball by any means, but I do know that Muddle Through ain't going to be the state of affairs going forward no matter how soothing this palliative condition may seem.  We have been coasting without brakes for decades now.  There is a Stop sign directly up ahead.  THERE IS GOING TO BE A CRASH OF HISTORIC PROPORTIONS.

( Stage Direction:  Like Edgar Alan Poe becoming frightened after writing his own prose, The Sage starts digging like a groundhog in the sights of a rancher.  A tunnel system connecting all of the compatriot foxholes comes to mind to assist in subterranean communications without risking life or limb.  What a world we live in!  But we do have to share some of the blame in its creation. )

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June 23, 2008:  Over Niagra Falls Without The Barrel.


(Stage Direction:  Federal Officials are seen, accompanied by the gasps coming from the Maddening Crowd onshore, attempting to get Joe Citizen into the safety barrel with applications of torrents of below-inflation money, ill-conceived and executed bail-out programs for financial institutions and borrowers alike, promises of Congressional investigations into derivatives, hedge funds, and high oil prices, and jawboning to keep the U.S. Dollar from becoming a extinct species.  However, with all the flailing arms pushing in this direction and pulling in that direction, Joe Citizen is last observed shooting over the edge of the Falls at lightning speed to an uncertain fate below in the churning, milky bottom, incessantly bruised by tons of crushing water.  While all of these Keystone Cops were trying to show they were on the beat and doing their jobs, the very person that they have been entrusted to protect, Joe (or Josephine) Citizen has had his or her fate virtually sealed by these incompetent do-gooders.  Maybe we should mention Alan Greenspan here since he opened the Floodgates of Easy Money starting in 2001 and forgot to close them before handing the wheel to Ben Bernanke!  NO WONDER THE FALLS ARE ONE OF THE SEVEN WONDERS OF THE WORLD!!!)

NEWSFLASH FROM THE SAGE:  In case anyone has more important things to do like calling their stock broker and getting out of all equities immediately, WE ARE ALREADY OVER THE EDGE OF THE FALLS.  We as citizens of the realm, our economy, and our financial system, all have failed to get into the Safety Barrel, collectively speaking, and now await our less than auspicious fates.  As of August, 2007, when the first Collateralized Mortgage Obligation Debt-Bomb went off, the bodies started going over the Falls and are merely, as I type, being tumbled about in confused disorientation before hitting the crushing bottom below.  All of the idiotic, self-serving, reactionary missteps constantly being made by Unenlightened Officialdom are analogous to the shouting and screaming of onlookers still temporarily ashore that try to throw a lifeline to the Fall Jumpers, but are very short on intellect, short on targeting,  and, more germane to the scene .......... short on rope.  ( A "solvent" country could possible pull it off at this junction, but the United States is regrettably not in that category. )  That "bottom" is one of extinction of the Dollar as the reserve currency for international trade, the extinction of the highest standard of living in the world for Americans, and the extinction of the financial system once dominated by paper hangers on Wall and Broad, selling securitized Mold Spore Futures if anyone would buy them.  The center of the earth is shifting, and it is not to our advantage as Americans.  It is shifting away, not toward America.  This is not an overly pessimistic view of today's REALITY, but a studied reflection of the facts as they are being presented to me hour after hour during the trading day.

I think analogies are a great way of describing a situation.  One can readily visualize the unfolding scene and its aftermath, and it gives the viewer a backstop that he or she can identify with.  Plus, I know I am dealing with a very visually-oriented audience, cartoons may be next.

So that I don't get too far into this rant without mentioning the Safety Barrels of First Resort:  GOLD & SILVER, take the opportunity this summer to put down your fishing pole, tennis racket, ipod, or whatever instrument you employ for leisurely diversion aside from the shot glass, AND JUST BUY THE BEJEEBEE'S OUT OF THE PRECIOUS METALS WHILE PRICES ARE SO LOW.  When word gets out that only one material has the historical fortitude to withstand the pummeling of the water's fury (the torrents of collapsing debt, if you will!), and that is precious metaL, it will be more and more expensive to find this material for Safety Barrel construction.  AND PHYSICAL CAPACITY TO REFINE AND PRODUCE BULLION PRODUCTS WILL BE AS CONSTRAINED AS EVER.  When people cringe at maybe waiting 8 weeks for 100 ounce J-M Silver bars or even 2 to 3 weeks for Silver Rounds, I say, diplomatic as the Sage ever is:  "BUY NOW, CAUSE I DOUBT IF WE WILL SEE A BULLION MARKET WITHOUT BACKLOGS ANY TIME SOON!"  After I hear the sickening thud on the other end, I politely hang up.  No one said the Road to Financial Security was going to be a quick or painless one, but one that doesn't lead to Financial Ruin in the end.

Since the Sage always delivers what he promises (to include Armageddon in so many words), a client of WCM just has to occupy his or her mind on something else while the Sage personally hammers out the silver blanks into finished product.  Our longest backlog to date has been just over 8 weeks in Johnson-Matthey 100 ounce Silver bars, but that is the product with the longest lead time, 2 to 3 weeks is more normal for Rounds and possibly 10 ounce Silver bars.  Virtually every other bullion product that WCM sells is on the shelf ready for immediate delivery, provided, of course, that you pay WCM immediately; have Silver Eagles, but it is first come, first serve, my distributors get only weekly allotments from the U.S. Mint, NOT MY FAULT.  It appears to be a planchet or blank supply issue with the Mint and Silver Eagles, certainly not raw material shortfalls at this junction; Sunshine Minting makes our Rounds and 10 oz. Silver Bars, but they also are a major supplier of silver blanks for the U.S. Mint's Silver Eagle program, so they are running flat out to meet all of their customers' product demands.  

THAT IS THE LAST COMMERCIAL MESSAGE IN THIS MISSIVE, but I think it is instructive, versus destructive, to let you in to industry insider secrets every once in a while, even though most of you free-reading, non-buying slackers don't deserve such dewdrops from the Sage.  So in conclusion with this thought, DON'T LET BULLION PRODUCT BACKLOGS DISCOURAGE YOU FROM BUYING GOLD OR SILVER THIS VERY MINUTE.  Price action is mostly noise at this point, the short-sellers on the Comex have to make a living also you know, but surging global demand will eventually take the ball out of the Comex's hands and place it in the growing trading volumes in overseas exchanges that trade while the Comex whipsawers sleep.  Since the Sage has 35 years of front-line business experience, to include 7 years in manufacturing, I am quite certain that refiners like J-M are going to continue to move like molasses in adding production capacity after having been so badly burned in 1980 & 1981 with a surge in demand that fell of a cliff just after the newest production line was added.  Some businessmen have very long memories while most politicians have none.  Only a continuation of this surge in silver demand well into 2009 will force most silver bullion product producers to add to production capacities.  They are profit-driven and privately held in many cases, so there is plenty of internal pressure to take full advantage of the historic surge in precious metals demand that will last well into the next decade or two.  And this is at a time when many other U.S. industries are on the downward slope of demand.

THIS PERSISTENT AND GROWING SURGE IN GOLD AND SILVER DEMAND IS NOT A FLASH IN THE PAN, FOR THIS TIME IS TRULY DIFFERENT!!!!!.  I know that is a dangerous statement to make, but when it comes to bullion, the Sage knows his stuff and readers of this electronic verbal-barrage for the last decade know he knows.  If you are not going to buy bullion from WCM, make a contribution to the V.F.W.  These men and woman are making it possible for us to safely consider and act on our investment options.

Were all global bullion refiners and producers to increase volume capacities by 25% in 2009 alone, THERE WOULD STILL BE BACKLOGS IN CERTAIN PRODUCTS, probably still silver and eventually even gold.  DEMAND IS GOING TO SHOOT THROUGH THE ROOF IN THE YEARS AHEAD, 2008 TO DATE IS JUST A PEEK INTO WHAT IS IN STORE ON THE DEMAND SIDE FOR PRECIOUS METALS.  And probably on the Backlog, delays-to-deliver, side also.  Did I mention we are on our way, us gnomes at WCM, to setting another record year for bullion sales??!!!  And we are talking about a 30% increase over the best sales volume year within the last decade.  Not chump change, and certainly indicative of a failing currency, a failing financial system, a failing economy, and a failing of investment alternatives.  OH, AND DID I MENTION AN UTTER FAILING IN WASHINGTON!

Now many Americans are still in the spectators' nest along the Falls, gazing mindlessly at the spectacle before them, not comprehending most of what is right before their eyes.  Never mind that they are bombarded nightly with the News that does give them some tidbits to chew on along with their TV dinners that will give them equal indigestion.  When reporters interview Americans, and ask them who the Secretary of State or Treasury is and they answer, "Yogi Berra", well, you can see how on top of things many Americans are!  So it should be no surprise that the majority of Americans still are tourists at the Falls and not Safety Barrel Builders.  Unfortunately, many will wake up way too late and become more flotsam and jetsam within the turbulent cascade, so much cannon fodder in the annals of history.  Maybe I should do a TV show sitcom about a dysfunctional family and I will reach more people!  Or what about a really violent shoot-'em-up Rambo-style show that will keep their attention for Five Nanoseconds.  Or how about a Reality Show about the daily lives of Investment Bankers at Goldman-Sachs.  Nope on the last one.  Even the viewers may get subpoenas for even watching what goes on!!  Raise your kids to be Securities Attorneys or Real Estate Work-out Specialists, they will have plenty of work in the decades to come!

Oh by the way, Bernanke, one of the Chief Fussers at the Edge of the Falls, will not be increasing interest rates any time soon.  He and the Fed are backed into a dead-end corner, and he is only giving lip service to being a Son of Volcker (SOV, versus SIV!) and having a predisposition to fight inflation in the U.S. economy.  This he does in a belated manner, as 12% inflation roars across the land at the cashier's counters everywhere, to try to put a bottom under the Dollar at a time when no bottom is really in sight.  Now the Bond Vigilante's, an almost extinct group of bond traders with a sense of history who still remember what inflation does to bond coupon payments over time (hint:  erodes them), are getting old time religion again and bidding yields up and prices down from even 2 years out.  The Bond Vigilantes are back in the saddle again, and with more-alert Central Banks and Treasuries holding record amounts of Decaying Dollars (DD's), the combined effect upon the interest rates that Americans use to finance everything they buy except deodorant are going UP, UP, UP, UP, UP.  Oh, and did I mention that U.S. Banks are basically insolvent and need to goose you for every last basis point they can suck out of you while paying you diddley-squat on your savings account?!  Just because we are in a worsening recession, don't thing for a minute that money to finance cars, planes, trains, boats, vacations, homes, educations, ipods, milk, are going to go down, down, down!  No, no, no.  Since the borrower's prospects are going down, down, down for credit-worthiness due to variable rate pops to the upside and income pops to the downside, rates for American consumers, bless their buy-everything-now, pay-maybe-later mentalities, are going UP, UP, UP.  CREDITWORTHINESS IS A NEW LENDING TENET BEING ADOPTED BY U.S. AND OVERSEAS LENDING INSTITUTIONS, to include Central Banks!  WHAT A NOVELL CONCEPT.  Bill Gross has or will come over to the Sage's line of thinking on this thesis in time.  I have bet him his house in Aspen that rates are going up during this unfolding, severe, pre-depression recession.  Not sure if he wanted my winter cottage in Buffalo on the bet, must check.

Another very salient reason to buy Gold and Silver when you got the dough is that over the roar of the Falls, there is the ding of the village bell going off that another major financial institution is in trouble.  Lehman is just one of the most talked about, but you could easily put the 10 biggest financial institutions in the country on a dart board, throw the dart behind your back blind-folded, and hit a winner.  Actually, I mean a very, very big, big loser.  THE PROBABILITY THAT A CASCADING FINANCIAL COLLAPSE COULD OCCUR AT ANY MOMENT, WITHOUT WARNING, FROM THE MOST PROBABLE OR IMPROBABLE SOURCE IS SO HIGH TODAY THAT TIMING SAFETY BARREL PURCHASES IS LIKE TRYING TO BODY SURF THE FALLS.  When someone tells the Sage that there are a Thousand Trillion Dollars (Quadrillion Dollars!!!!!!!!!!!!!!) worth of hair-trigger derivatives going tick, tick, tick out there, it gets my attention.  The larger the field of landmines, the greater the chance that a gnat will set off not one, but a cascading series of explosions.  Financial systems IMplode, not EXplode, however.  And to think that the Fussers at the Edge of the Falls can stop that tsunami wave from sweeping everything along the shore into the Watery Abyss is like thinking that the American people ever wanted Bill Clinton roaming the halls of the White House again!

Okay, I am tired, you are tired of reading my dribble, and the situation we Americans have put ourselves in is most depressing.  Get ready for more fireworks after the Fourth of July.  And it will not be a celebration of independence.  It will signify just the beginning of a growing dependence by more and more Americans on government assistance that will eclipse what occurred during the Great Depression.  Can we have a run on banks similar to what occurred in late 2007 in Great Britain?  You bet your booty we can.  However, I wouldn't bet anything at this point, and that means that stocks, bonds, real estate, non-Treasury money markets, and even CD's are not a reasonable "bet" in the current cascading environment.  The force of gravity is purely at play today.  Free rhyme, terse verse.

KEEP NO ONE BETWEEN YOU AND YOUR MONETARY ASSET (yikes, Gold and Silver are Monetary Assets!), UNLESS IT IS THE MOST TRUSTED OF BULLION DEPOSITORIES HOLDING YOUR BULLION IN AN ALLOCATED/SEGREGATED ACCOUNT FOR YOUR BENEFIT ONLY.  

(Stage Direction:  The Sage is seen cobbling together a Golden/Silvery Safety Barrel that is still firmly on terra firma; it does not take an Alchemist to craft this safety device, it just takes a prudent planner who is willing to liquidate less secure assets to do so.  When the Next Financial Tsunami Wave comes this year, the cranky old Sage can climb within, get swept over the Falls, and still be able to roll the barrel back up the hill when the coast is clear.  He has some extra barrel materials if you need them.  How neighborly!)


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July 19, 2008, WARNING:  The Scout Motto Has Always Been:  "BE PREPARED".


(Stage Direction:  The Sage is seen dragging dozens of foxhole shovels into his labyrinth of tunnels that are becoming his Security Zone for the Financial & Economic Battles which have just begun.  With bombs bursting in air overhead, The Sage knows that he must have a multi-pronged defense against the unfolding collapse of the U.S. Financial System and the Severe Recession To-Be-Depression that is also unfolding methodically around him.  Based on what he is seeing by the day, one major financial institution or corporation coming close to the edge of outright failure on a grand scale, he is not sure he is digging fast enough or employing enough ingenious embattlements. )

After seeing queues of fearful depositors outside of IndyMac this past week, and hearing how some "UNINSURED DEPOSITORS" were actually getting screwed out of their hard-earned savings, I decided to pay a visit to the F.D.I.C. website and see what I could learn about this grossly under-capitalized Banking Insurance Agency.  WOW, to actually see how FDIC Insurance works for us Working Stiffs is a little scary:

Okay, I think I have done my Public Service Duty for the day or year, for that matter, but this was an eye-opener for me and I am sure it has been one for you also.  The end result or conclusion is that there are very few totally secure places to keep your assets these days, and we all need to put on our thinking caps to make sure we find and devise as many secure stores of wealth as possible.  Swiss safe deposits boxes may come back into vogue in a heartbeat (The Sage has agreed to sell you Fancy Colored Diamonds to safely store there!), so I am giving each and every one of you a homework assignment:  "FIND A SWISS BANK WITH LARGE SAFE DEPOSIT BOXES FOR THE SAGE WHERE THE DOORS OF THE BANK ARE GUARANTEED TO BE KEPT OPEN DURING THIS ENTIRE MESS".  This is how we all need to be thinking now.


BUY GOLD AND SILVER AT TODAY'S TEMPORARILY DEPRESSED "SUMMER SALE" PRICES WHILE YOU CAN.  BOTH OF THESE MONETARY METALS ARE GOING MUCH HIGHER EVEN BEFORE YEAR-END BECAUSE THE GLOBAL FINANCIAL SYSTEM CART HAS THE WHEELS FALLING OFF.  EXPECT MORE FREQUENT ANNOUNCEMENTS OF FINANCIAL INSTITUTION FAILINGS, AND WHEN THE FIRST MAJOR BROKERAGE FAILS WHERE YOU HAD YOUR GOLD AND MINING STOCK HOLDINGS, YOU WILL NO LONGER WONDER ANEW WHY THE SAGE IS SO NEGATIVE ON HOLDING PAPER ASSETS OF ANY GENRE OR FORM!


I borrowed the image below from the Jim Sinclair website, on of my favorites, http://www.jsmineset.com, and must give credit where credit is due.  ANOTHER HOMEWORK ASSIGNMENT, TOO HOT OUTSIDE TO PLAY ANYWAY:  Do try to figure out the following formula for the potential price of gold per Jim's statements .........

( Stage Direction:  The Sage puts down his Financial Survival Shovel, FSS, for a second, leans gingerly against his earthen Foxhole, slowly wipes his sweaty brow, and a smile peers out from his battle-soiled face.  He just finished a monthly ezine with 50% of the content taken directly from a Government website.  "Ah, finally a return on my tax dollars!" he chuckles to himself. )



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August 10, 2008, SNIPPET:  Speculators Grant "Informed Investors" Another Buying Opportunity!


I am going to keep this short and sweet.  First, I want to admonish all prospects and current clients of Wexford Capital not to ask me where gold or silver are going in the next couple of weeks.  The Sage knows, as you probably do by now, that both Gold and Silver are going to double several times from today's $850ish and $15.30ish levels, respectively.  My long-term target for Gold is still $3,300 per ounce and for Silver a princely $130 per ounce.  SO WHAT THE PRECIOUS METALS ARE GOING TO DO IN THE NEXT NANOSECOND IS OF LITTLE INTEREST TO THE SAGE AND SHOULD BE OF LITTLE VALUE TO YOU IN THE LONG RUN.  The real question that you should be asking YOURSELF is:  "Where is my money or net worth going to be better protected in the next several weeks AND NEXT SEVERAL DECADES???"  This is not a trick question, you already have the answer since you have contacted WCM to purchase highly-liquid bullion products, you are just embracing the almost impossible task of trying to pick a bottom in the two metals.  Simplistically, is $15 a cheaper price than $18 for Silver, and is $850 a cheaper price than $935 for Gold???  A no-brainer there.  Please re-read last month's epistle, conveniently located above this month's epistle, and tell me how much risk you have of not hitting the absolute interim bottom in either precious metals VERSUS YOUR BANK FREEZING UP AND MAKING IT DIFFICULT, IF NOT UNTIMELY, TO GET YOUR CASH OUT IN TIME TO TAKE ADVANTAGE OF THE PRICE PULLBACK THAT HAS ALREADY OCCURRED.  This is a more dire situation than most Americans are fully award of ....... YET, but the number of bank failures going forward is going to multiply like CongressPeople without a brain.  (Pelosi wants to save the planet, not lower energy costs for Americans????  If ever we needed a sinkhole to swallow Congress, now is the time!)

Let me also give you some insight, oh artful bottom-pickers out there, that backlogs and higher premiums over spot at wholesale are a coming down the not-so-distant pike.  While these increases in the cost of acquiring bullion products will not be in the range of the 10% correction in price we have just seen for both metals (more of the  PLUS 1%, 2%, 3% varieties), be advised that energy costs, insurance costs, transportation costs, currency translation costs for overseas suppliers such as Credit-Suisse and Pamp-Suisse as the Dollar swirls down the toilet bowl, and warehousing costs are going to be passed on to you and me, the Consumers of Precious Metals (CPM's).  My percentage over cost stays the same regardless, so you won't see any Bentleys parked outside of my abode anytime soon!  However, since we are in a rip-roaring bull market in precious metals (with pulse stopping corrections along the way!), refiners and mints are going to pass the inevitable cost increases in production and distribution on down the line and not take the hit to already Lilliputian Sized Margins (LSM's).  With the metals marching steadily upward, even with such French General Retreats as we just saw these past several weeks, the Premium over Melt Percentages shown as a public service on my websites will not move that much higher, but the dollar premium at wholesale will and has over the last 2 years in particular. 

Case in point:  American Eagle Silver Bullion Coins, one ounce, had a $1.35 premium at wholesale from one of my distributors for at least 4 years until 2008, at which time they jumped to $1.70 to $1.75 over spot at wholesale.  I can get them from another long-term supplier for $1.60 over spot, but pricing has definitely gone up due to the scarcity of product versus demand coming from the U.S. Mint.  Bottom Line:  As you wait for that bottom, demand for physical is going off the charts ( set a record trading day Friday at WCM), the backlogs to deliver for many silver products and some gold products such as Ten Ounce Gold Bars, are likely to lengthen AND THE PREMIUM AT WHOLESALE IS QUIETLY SNEAKING UPWARD BY $0.50 HERE AND A $1.00 THERE.  Plus, and I repeat, how safe is the fricking Dollars in your bank account?!!!  This is not scarce tactics, this is reality my fellow country-persons.  WCM just opened a second commercial bank account at a small, conservative local bank, and may even open a third.

From a Bullion Broker who personally cannot pick a bottom in the metals even if his life depended on it and no longer tries, the recent correction has produced a record surge in buying from investors!  This is most heartening, not just that it provides the means for the Sage to add to his own Bullion Hoard at a local sinkhole, but that more and more Americans are finally getting the message that the Currency of the Realm isn't going to buy diddley-squat in the years ahead, AND THAT HAVING GOLD AND SILVER IS BETTER THAN MONEY IN THE BANK.  AND HOW ABOUT THOSE RUSKIES?!!!!!!!!!!!!!!!

Similar to the excuse that Hitler used to invade the Sudetenland of Czechoslovakia at the outset of World War II, Mini-Man, KGB-retiree Putin turned Elected Dictator sent in overwhelming Soviet force into South Ossetia TO PROTECT RUSSIAN CITIZENS from Georgian military forces!!!  Never mind that Georgian forces were fighting insurgents attempting to break that province away from sovereign Georgia toward a re-absorption of that territory back into Mother Russia.  What the hell can I boycott that comes from Russia, besides oppression, aside from the one ounce of Vodka that I consume each year??  Killing civilians at will as they did in Afghanistan up until their resounding defeat, the Hun-like, ruthless Russians can be seen trying to put the Soviet Union back together again, at the tip of a bayonet of course, in the years ahead.  Georgia is like Serbia was at the beginning of World War I, a tipping point.  THERE IS NO KINDER, GENTLER RUSSIA, and American and NATO forces will be pitted against the Soviet threat once again, even if only in a CIA-lead, clandestine fashion as we secretly supplied the nationalist Afghans weaponry against the Soviets in that Soviet Vietnam Disaster.  POINT? 

Even WHEN Radical Islam is gradually defeated in the decades ahead, the re-emergence of an Imperial Russia will guarantee that U.S. military engagements and expenditures will stay enormous in the years ahead.  The world is by no means a safer place with the Fall of the Communism of the Soviet Union.  Putin's Russia is a new threat that should never be under-estimated that will work tirelessly against American and Western interests, if not global interests.  Ex-Commie Putin probably has dreams about being reincarnated as NAPOLEON THE SECOND.  The U.S. will and probably already is providing clandestine aid to Georgian forces; here comes a Hellfire up your Mig, Putin.  And we happen to have the best anti-tank weaponry in the world.  U.S. Air Force has transported Georgia's 2,000 troops loyally stationed in Iraq back to defend the Georgian homeland.  Russia will continue to destabilize Eastern Europe in hopes of additional territorial acquisitions.  

So get your wits about you, Deer in the Headlights, take the buying opportunity that the speculators on the Comex have given to you by throwing the Baby (Precious Metals) out the window along with Oil, the Euro, and most Commodities and buy with both fists.  You are losing purchasing power by the day with 1% yields in the bank anyway since U.S. inflation remains in the 8% to 9% range, minimum; oil ain't going away as a cost problem for U.S. and global consumers anytime soon!  Go to www.prudentbear.com and read the astute Doug Noland, who was one of the few who saw the Credit Collapse coming:

Credit Bubble Bulletin

by Doug Noland | Aug 8

Burst Bubble: Energy or Speculator?

I want you to read every word of this week's CBB by Noland, there will be a quiz.  He astutely points out that the downdraft in oil and gold and silver and commodities this past week was likely the result of highly-leveraged speculators such as hedge funds trying to reliquify their operations as bank credit becomes scarcer and scarcer.  Speculators, and 10 : 1 to 20 : 1 leveraged players such as hedge funds are painfully aware of the squeeze in available lines of credit from traditional lenders to their trade.  Another blossoming and blatant sign of the Credit Collapse.  So when a trend has a short-term reversal as we did in Gold and Silver precipitated by Oil being turned back at the paltry $140 level, the move is exaggerated by speculators who must cover positions quickly, by outright selling of their long positions such as in Oil or the Euro or in the Precious Metals to cover short positions such as in the Dollar and definitely the U.S. stock market.  Without the ability to borrow additional funds to say hedge their now losing positions by going short with the freshly borrowed money, they must sell outright to cover elsewhere and the waterfall begins. 

NOT TO WORRY.  IT IS JUST ANOTHER TELLING EXAMPLE OF HOW STRAINED THE GLOBAL FINANCIAL SYSTEM REALLY IS.  AND ANOTHER SUPERB FUNDAMENTAL REASON FOR PERSONALLY OWNING PRECIOUS METALS.  These speculators are not going away, even if the U.S. Congress bands every form of speculation to include Friday Night Bingo at the YMCA, but these speculators new-found lack of liquidity is going to rock and roll all markets like we have never seen before.  So ................ Take an aspirin and see me in the morning, trading starts at 8:20 am EST.

But I have to say my phone is ringing off the hook during this correction, and in years past, investors generally sat on their hands during precious metals corrections, usually during the historically slow summer months.  THAT HAS CHANGED IN 2008.  WHEN THERE ARE FEW ALTERNATIVE PLACES TO CONVERT DOLLARS INTO PHYSICAL ASSETS AND MONEY IN THE BANK AIN'T WHAT IT SHOULD BE WITH GREENSPAN-LIKE 1% YIELDS AND SHAKY BANK FINANCIAL CONDITIONS, IT IS A NO-BRAINER TO BUY THE PRECIOUS METALS BEFORE FALL.  The question is, not what the low in Gold's price or Silver's price is going to be, but what their availabilities are going to be, especially as we enter 2009.  Kind of like the Depression-Era Hobo trying to jump into an accelerating boxcar.



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September 8, 2008, SageFlash:  Fannie Mae and Freddie Mac Have Failed, Just As The Sage Predicted Years Ago!


Now I am not going to do any Victory Laps in celebration of this prediction having come to reality in 2008, since as a taxpayer I will be one of 300 Million Americans picking up the tab in the quarters and years ahead for inept regulators, inept Fed officials, and inept, but ever so generously-paid GSE executives, those being booted today and those having bailed previously.  In the world of High Finance in America, NO ONE EVER SEEMS TO GO TO PRISON FOR STEALING MONEY FROM THE PEOPLES' COFFERS!!!  Michael Milken, the former Junk Bond King, went to prison in the 1980's for misrepresenting the values of Hundreds of Millions of Dollars of high-risk bonds, maybe a few $Billion, but has anyone in the New Millennium gone to prison for overstating the credit-worthiness of borrowers for Trillions of Dollars of mortgage backed paper sold to widows and orphans around the globe???  Heck No!  And it is this absence of accountability and responsibility-taking that has the Fall of the Roman Empire being replayed in the United States today.

SO PLEASE DO NOT THINK THAT THE RECENT DEAD-CAT BOUNCE IN THE U.S. DOLLAR IS ANYTHING MORE THAN THAT, A CONTRIVED, CENTRAL-BANK LED AND FUNDED, COUNTER-TREND RALLY IN A DOLLAR DEVALUATION BEAR MARKET THAT HAS MUCH, MUCH LOWER TO GO.  No asset in the history of the World has ever been produced in endless quantities such as the Dollar is being produced currently without the end value of that asset sinking progressively lower over time.  

When a country through its Central Bank and Treasury is willing to add at least another $Trillion here and another $Trillion there to the National Debt at the stroke of a pen ( some write that this GSE Mega-Bail-Out inevitably adds another $9 Trillion to the National Debt, effectively doubling the National Debt in a single brazen move! ), THEN THE CURRENCY OF THE REALM IS DOOMED TO SINK IN RELATION TO MOST ASSETS, THE MOST NOTICEABLE ONES BEING GOLD AND SILVER.  Addressing each and every mega-collapse of a U.S. financial institution with $100's of Billions of Freshly Printed Dollars at the stroke of a keyboard entry, the U.S. Government has chosen to remove Moral Hazard once again from the Investing Landscape, AND TO INFLATE VIA MONETARIZATION THE NATION OUT OF THE BLOSSOMING CREDIT AND DEBT COLLAPSE.  Since the Dollar was destined to breach the 72-level a matter of weeks ago, the U.S. and Foreign Central Banks had to stage their own version of Custer's Last Stand to attempt to prevent the inevitable collapse to 50.  A delaying tactic only, Oh Loyal Readers!  Sewage has a habit of adhering to Newton's Law of Gravity.  Hate to say that about my own currency, but Weimar Dollar here we come.

SELL STOCKS, SELL ETF'S, SELL POOLED BULLION ACCOUNTS, SELL BANK C.D.'S, SELL THE DOG, CAT AND CANARY, AND TAKE THOSE ROTTING DOLLARS AND BUY BOTH GOLD AND SILVER AT THESE TEMPORARILY DEPRESSED PRICES!!!!!!!!  Only the shrewdest investors buy when there is "blood in the streets".

Granted, Junk Silver may be all you can lock in Silver right this minute due to extended backlogs at the refiners and mints for other silver bullion, and Silver Eagles for 24-hours on Mondays only, but don't forget about that Barbarous Relic, GOLD, that can be purchased in American Eagle, American Buffalo, Canadian Maple, and PAMP-Suisse Gold bar form till the cows come home.  This is what WCM has available as trading opens at 8:20 tomorrow, can't speak for my competitors and their attorneys won't let me anyway!

And since we all know that refined Silver and Gold products in the REAL & PHYSICAL MARKET are in increasingly short supply, the recent Bullion Bank led selling of PAPER CONTRACTS IN GOLD AND SILVER TO TODAY'S $795 LEVEL FOR GOLD AND $12.33 IN SILVER represent a disconnect of historic significance in the pricing of a Tangible, Real World Asset.  How can two markets, the Futures Exchange known as the Nymex/Comex and the Physical Bullion Market be so out of whack with one another??  Well, loyal followers, one of those markets, the Futures Exchange referred to as the Comex, does not represent the Laws of Supply & Demand for the underlying commodities, in this case Gold and Silver.  Through the abject failure of the CFTC and other Government Agencies to regulate this market as a CLEARING EXCHANGE FOR ALL COMMODITY TRADERS, not just the moneyed few, largest traders that generate the most fees, the bullion market is in TEMPORARY DISEQUILIBRIUM, a condition that never lasts for a myriad of reasons The Sage will not go into here.  SUPPLY AND DEMAND ALWAYS WINS OUT IN THE PRICING OF AN ASSET OVER TIME, THE LAWS OF ECONOMICS HAVE NOT AND WILL NOT BE REPEALED IN 2008 OR BEYOND.

AND REST ASSURED ALSO THAT THE U.S. AS THE LEADING FINANCIAL MARKET FOR PRICE REALIZATION IN THE WORLD WILL NOT STAND WITH TIME EITHER.  AS MORE AND MORE FOREIGN HOLDERS OF THE TRILLIONS OF DOLLARS OF GARBAGE DEBT THAT AMERICA'S WALL STREET HAS SOLD THEM OVER THE LAST DECADE GROW UNABLE TO ENDURE CONTINUING LOSSES DUE PARTIALLY TO FAILING ECONOMIC AND FINANCIAL SYSTEMS AT HOME, MARKET LEADERSHIP WILL BE SOUGHT AND FOUND ELSEWHERE.  AND WE CAN EXPECT THESE EXPANDING FOREIGN COMMODITY EXCHANGES, FOR ONE, TO BE TRUE PRICE CLEARING MECHANISMS, NOT ARTIFICIALLY CONTRIVED ONES.  STAY TUNED.

SINCE THE FUNDAMENTALS FOR OWNING BOTH GOLD AND SILVER ARE INCREASINGLY POSITIVE BY THE MINUTE, THANK YOU BEN BERNANKE AND SECRETARY PAULSON, GET A STRONG ROPE TO STRAP YOURSELF TO THE MAST AS YOUR SHIP SWIRLS ABOUT IN THIS MAELSTROM.  Pushing Hundreds of Billions of Dollars into the Financial System in a Period of Declining Final Demand at the Consumer Level ( since many American Consumers are technically broke ) has one mighty result:  INFLATION OF THE PRICE OF MOST GOODS PURCHASED WITH DOLLARS.  Yes, we have DEFLATION IN FINANCIAL ASSETS AND REAL ESTATE AT THIS JUNCTION (an American Integrity I must add!), a deserved reaction to years of speculation and over-pricing in my view, but we have continued inflation of Goods and Services simultaneously.  With oil even at $100 per barrel, Americans and their Global Benefactors will still find it difficult to make ends meet in a RECESSIONARY GLOBAL ECONOMY.  Sprinkle in more and more U.S. banks failures in the days ahead, and the Loss of Confidence engendered by a deteriorating financial system on top of a deteriorating economy almost guarantees that things are going to get much worse before they ever begin to appear to be getting better.  The Credit System has locked up where Lenders are not prone to Lend and Borrowers are in no shape to Borrow.  And Foreign Lenders are coming to the conclusion, more certain by the hour, that American Financial Assets are not of the quality and liquidity that was once expected.

One little message to a certain Bond Guru:  "Dear Financial Professional (?), it is not my fault or the fault of millions of Americans that you made a giant Boo-Boo in recently loading up on Fannie and Freddie mortgage instruments in 2008 as appears to be the case.  Your offspring and the offspring of your employees and the offspring of your clients will also be burdened for decades to come by the Nationalization of Fannie Mae and Freddie Mac that you have so ardently advocated for of late.  The continued demise of the U.S. Dollar's purchasing power around the globe, eventually higher domestic interest rates, compromised U.S. Treasury Debt ratings, and higher U.S. taxes all come to mind as eventual burdens to be visited upon future generations.  Since you have been recognized through your own writings as having overtly and vociferously encouraged U.S. authorities to take this historic, drastic step for the Citizens of This Land, you may find yourself and your organization being partially blamed for the less than stellar results such a Mega Bail Out With Taxpayers' Dollars will engender.  When we play in the instantaneous Theater of Public Information known as the Internet, it becomes most difficult to hide from the consequences of our actions AND statements."

ONE LAST NOTE BEFORE CLOSING:  EVERY SINGLE CLIENT OF WCM WILL RECEIVE THEIR BULLION PRODUCTS AS ORDERED, ALBEIT WITH A DELAY KNOWN IN COMMERCE AS A BACKLOG.  THE FACT THAT REFINED BULLION PRODUCT CAPACITY HAS NOT INCREASED IN THE UNITED STATES IN DECADES IS NOT THE FAULT OR RESPONSIBILITY OF WCM.  IT IS ALSO NOT THE FAULT OF WCM THAT OUR FINANCIAL SYSTEM AND CURRENCY ARE FAILING TO THE EXTENT THAT RECORD VOLUMES OF BOTH GOLD AND SILVER PRODUCTS ARE BEING SOUGHT BY AMERICANS.  COMBINED THESE TWO EVENTS CREATE WEEKS' DELAYS IN THE SHIPMENT OF WCM SILVER BULLION PRODUCTS IN PARTICULAR.  IF GOLD BULLION PRODUCTS ARE NOT ON THE SHELF, I SELDOM SELL THEM.

So everyone take a deep breath and relax.  WCM has never cheated any client, big or small, of a single red cent in almost 20 years of being in business; never have had a client complaint to anyone, public or private and don't intend to ever have.  AND DON'T BELIEVE EVERYTHING THAT YOU READ ON THE INTERNET ABOUT THIS BULLION COMPANY OR THAT BULLION COMPANY BEING OUT OF BUSINESS BECAUSE THEY TEMPORARILY DON'T HAVE ANY GIVEN BULLION PRODUCT ON THE SHELF TO SHIP AT THIS MOMENT.  Backlogs happen all of the time in industries where production capacity is fixed and difficult to expand in a short period of time.  People get worked up when they read supposed "information" from those not in the bullion business day-to-day who merely write about precious metals.  You should be somewhat pleased that the decision that you made to get out of Dollars into a classic store of wealth is being emulated by thousands of Americans who are on the same page in this investment selection.  Unfortunately for delivery timing, EVERYONE CAME TO THE SAME REALIZATION AT THE SAME TIME AND RUSHED THE STOREKEEPER.

Whatever you do in the days ahead, besides bugging your beleaguered bullion dealer about when your shipment is going to be on the door-stoop, DO NOT GET COMPLACENT.  MOST AMERICANS ARE BLIND TO WHAT IS HAPPENING TODAY AND EXPECT THE AUTHORITIES TO RESCUE THEIR FINANCIAL FUTURES AND WE WILL SOMEHOW MUDDLE THROUGH.  NOTHING COULD BE FURTHER FROM THE TRUTH.  AMERICANS ARE HEADED AND ARE ALREADY IN VERY HARD TIMES. 

Gold and Silver are excellent tools to help you get through this most trying period.  At a minimum, they will hold their values versus the Currency of the Realm.  Take this recent sell-off for what it is, a concerted effort by the Fed and Treasury to keep you from jettisoning your Decaying Dollars for True Money, Gold and Silver.  Instead of this naive strategy working, it is pushing more and more Dollars into the precious metals.  Be patient.  Few in this business will stay in business if they do not deliver product.  Remember, we are the resellers and distributors, not the manufacturers of the bullion products who schedule production and shipping releases.  Delivery delays are outside of our control.

P.S.  Gold and Silver premiums over spot at wholesale are increasing almost by the week due to spot shortages in various bullion products.  Shipping and insurance cost increases due to higher energy costs are also a factor.  So if you see the Percentage Premium over Melt (or Spot value) on my websites increasing, part of that increase is due to this price increase at wholesale, none of it is due to WCM increasing it's pricing formula over cost.  Recognize also that as spot for a precious metal decreases as it has of late, the Premium will increase if pricing at wholesale is done as a whole dollar number (vs. percentage) over spot.  Another sign of the glaring disconnect between the Comex futures market and the real world of physical bullion sales.  ALL MARKETS EVENTUALLY COME BACK INTO EQUILIBRIUM.  THE SAGE.



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October 23, 2008, SNIPPET:  SYSTEMIC FAILURE IN PROGRESS (just as the Sage predicted years ago!).


It takes hours to do these ezines, and based on the number of hours that the Sage is working these days, they may become shorter and shorter and less frequent.  I have been writing them for over 10 years now, and am frankly a little tired of beating the same DEAD horses.

Before I go into a very brief overview of the financial markets, financial system, and sagging economy, as a professional in the bullion trade, I want to elucidate some points about current product shortages and wholesale pricing:

1.  Expect delays in shipping of 2 to 3 weeks to be standard going forward, with a solid 4-week delay in Silver.  Even if you pay via wire, and all trades are soon going to be funded via Wire Only going forward for WCM since distributors want 2-day settlement on the trade in many cases, expect some multi-week delays in shipping.  Refiners and MInts are making partial shipments to distributors on many products, so what product we just identified as being "almost on the shelf" for your order, suddenly becomes delayed in being "on the shelf".  No trickery at work here, just the reality of the ability of current bullion production capacity to meet surging demand.

2.  Premiums over melt value or spot are off-the-charts for some bullion products, such as $5 premiums for Silver Eagles and $3 premiums for Silver Rounds, 10 Oz. and 100 Oz. Silver Bars which appear excessive to WCM and some of its suppliers.  We are not even bidding on the Lilliputian allocations for Silver Eagles from the U.S. Mint each Monday since we feel this product is currently over-priced at wholesale.  WCM fees over cost have stayed the same for all products, 1.1% over cost for Gold and 1.7% for Silver, with volume discounts still applicable, a practice that has ceased for many bullion dealers.

3.  With the recent pullback in the metals due to illiquidity on the part of leveraged speculators on the Comex ( commodity index funds and hedge funds ) selling all commodities to raise cash and meet frightened investors' redemption requests in the $Billions in relatively thin bullion PAPER markets, don't be too picky as to what you buy in the precious metals, i.e., the particular form of product, since it is likely that the prices of the item you are waiting for ( with 3- to 4-week delays in restocking for virtually every bullion product ) will be priced some $1.00 to $2.00 higher per ounce on the Silver side and $10 to $30 higher on the Gold side.  Pre-summer of 2008 pricing premiums at wholesale have gone the way of the DooDoo bird, and higher prices are here for the foreseeable future.  Buy the lowest premium over melt bullion products you can obtain, such as Kilogram Gold bars at 2.1% over melt value ( 32.15 troy oz. of 24 karat Gold ) or Academy 100 oz. Silver bars at 9.4% over melt or 90 cents over spot, .9995 pure Ag, 25x bar minimum directly from the refiner.  

4.  Production capacities at all suppliers are increasing due to additional production shifts, overtime and new production equipment ( but manufacturing never turns on a dime!!), but the volume of bullion orders is 3x to 5x times the pre-summer 2008 levels.  Order rates would be some 6x to 10x times prior weekly levels if all requests for product had been fulfilled or prices locked.  Most Mints and all Refiners are profit driven, and will add to production capacity in these historic, FAILURE TIMES, to meet demand that is likely to continually increase as more and more global investors get the message that THE GLOBAL FINANCIAL SYSTEM IS BROKEN.  Suppliers are shipping partial shipments of distributor orders and placing them on weekly allocations per product, so delays to ship-date will persist even as bullion production capacity increases.  DO NOT EXPECT PRODUCTION CAPACITY TO CATCH UP WITH SURGING DEMAND FOR SEVERAL YEARS TO COME.  In fact, based on the $10 Trillion Gorilla sitting in the room this minute, it may be much longer before Supply can match Demand for bullion without shipment delays.

5.  Order minimums are going to increase.  When WCM deals directly with a world-class refinery such as Academy Corporation in New Mexico, they are doing us a favor to offer continuous price locks throughout the day (versus noon, Handy-Harman once-per-day locks) and drop-shipping 5x bars boxes directly to WCM clients via UPS Ground.  Aside from non-gouging premiums over spot of 70 cents delivered for the 100 oz. silver bars, they deserve considerations such as 2500 ounce minimums per order to make their operation as efficient as possible.  EVERYTHING IS GEARED TOWARD VOLUME IN THE BULLION BUSINESS.  If you have to, consider going in with trustworthy relatives and/or associates on an order because you may not like the prices or minimums being offered when other WCM products finally come back on stream.  Form will have little bearing on bullion products when the U.S. Dollar collapses, recent strength to be a short lived phenomenon in an illiquid credit market.

6.  The order window for various products will close from time to time, i.e., WCM will not lock prices for certain bullion products, until the time-to-ship from payment date shrinks to 4 weeks or less.  When backlogs go out to 8 to 10 weeks, everyone is unhappy and nervous (though, WCM has never failed to complete a product shipment to anyone in almost 20 years being in business!!!), so WCM and my suppliers are not going to get in this situation anymore.  This costs me money I can assure you, cutting off price locking, but I am not about to get into arguments about when or when not an order is going to ship.  The WCM Terms of Sale clearly addresses the nature of events out of the control of the bullion broker and the non-cancelable nature of bullion sales; if I can't cancel a trade with the distributor/supplier without penalty or cost, neither can you.  Ain't got time for it, don't have the patience for it since I do not control production scheduling and shipping at the suppliers/mints, and I am a member of the NRA with a short fuse at an advancing age.

7.  Don't fret about unrealized losses in bullion purchases in 2008.  I am very certain the pullbacks in the Precious Metals this year are due to illiquidity on the part of Commodity Index Funds and Hedge Funds, some of which are leveraged by 30 to 20 to 1; short-term financing is no longer available to these Commodity Cowboys so they must sell long positions to raise cash, another aspect of illiquid credit markets.  They gave us a tailwind on the way up to $1,000 Gold and $21 Silver, now they are creating a selling panic in the paper pits where price declines trigger Margin Calls that add to the selling pressure. 

THE FUNDAMENTALS FOR OWNING GOLD AND SILVER CONTINUE TO IMPROVE BY THE DAY.  THE GLOBAL ECONOMY IS HEADED FOR SEVERE RECESSION, IF NOT DEPRESSION, AND THE FINANCIAL SYSTEM WITH $TRILLIONS OF BAD INVESTMENT BETS IMPLODING IS IN THE PROCESS OF COLLAPSING AS WE KNOW IT.  HE OR SHE WHO BUYS WHEN THERE IS "BLOOD IN THE STREETS" WILL DO VERY WELL IN THE YEARS AHEAD.  WHAT WOULD YOU RATHER HAVE?  GOLD AND SILVER TUCKED AWAY OR DEVALUING DOLLARS IN A SHAKY U.S. FINANCIAL INSTITUTION BEING PAID LESS THAN 1% PER ANNUM FOR THE PRIVILEGE???!!!!!!!!!!!!!!  Negative Real Interest Rates on deposits or cash is hardly an argument for going all to cash.


&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&


Now a special note to Ben Bernanke and Henry Paulson, a terse message that will sum up the Sage's thinking as to why shoving endless Newly-Printed Dollars and U.S. Guarantees toward failed and failing global financial mechanisms is not going to solve the basic problem ........ DRUM ROLL (OR EGGROLL, it is almost lunchtime), PLEASE ........ 

A HUMONGOUS LOSS OF CONFIDENCE HAS OCCURRED AND IT WILL TAKE YEARS TO REGAIN FAITH IN THE SOUNDNESS OF U.S. FINANCIAL INSTITUTIONS, THE U.S. DOLLAR, AND THE U.S. GOVERNMENT.

1.  The Greenspan Put that effectively removed Moral Hazard from the Financial Landscape and Investment Risk-Taking starting in 1998 with the LTCM Panic has now been replaced by the BERNANKE/ PAULSON PUT that virtually guarantees all bank deposits for retail customers, falsifies the asset value of NON-marketable DERIVATIVES, institutes a guarantee of the FALSE-sanctity of $1 per share for non-Treasury Only money markets, establishes the nationalization of AIG and other large Insurers, facilitates the nationalization of BANKRUPT Freddie Mac and Fannie Mae, and PROMOTES THE PREMISE THAT VIRTUALLY ALL U.S. BANKS, INSURANCE COMPANIES, AND MAJOR BUSINESSES ARE PERPETUALLY "TOO BIG TO FAIL".  Risk has been removed from private businesses as the U.S. Government stands willing, but not able, to print money to support any poor investment decisions, operational shortcomings, and fraud or neglect perpetuated upon the American public and foreign investors by parties who have received obscene compensation in the process.

2.  The actions of these two Renegade Monetary and Fiscal Authorities along with a Spineless Congress and Wimpy Administration have guaranteed higher interest rates on U.S. sovereign debt for decades to come, the demise of the U.S. Dollar as the Reserve Currency in International Transactions, and Weimar Germany levels of inflation with the creation of $Trillions of Bail-Outs and Guarantees backed by the Full Sinking Faith and Soon-to-be-Worthless Credit of the United States.  Wonder if the beaten up Credit Rating Agencies will someday downgrade U.S. Sovereign Debt to below Investment Grade!!!   Additionally, to think that the creation out of thin air of some $7 Trillion in Plug The Dike funding will not be inflationary to the American economy is to reject hundreds of years of history.  Granted, demand for discretionary goods and services is on a steep slope of decline and may temper price reflation in the months ahead, but the basic necessities of life such as food, energy, healthcare, insurance, credit are all destined to creep steadily higher as the cost to finance daily business operations markedly increase and the value of the Dollar retreats as Dollar buying to take advantage of endless U.S. Guarantees subsides.  

3.  You two gentlemen, IN TOTAL PANIC MODE, AND I MUST ASK WHY HIGHER STOCK PRICES ARE A GOD-GIVEN RIGHT TO AMERICAN INVESTORS (Paulson, did your buddies on Wall Street influence your actions?), have lead the charge to guarantee the bankruptcy of this country and the demise of the Currency of the Realm to Banana Republic Status.

Men of average capabilities with too much power can wreak permanent damage in a very short period of time.  No investor in the history of the world has ever been guaranteed either a return on his investment or return of his principal without the system that requires this form of guarantee TOTALLY FAILING; higher potential returns always entail higher risk and government intervention cannot intercede to disrupt this relationship without disrupting the entire financial system.  THE U.S. FINANCIAL SYSTEM HAS FAILED, THE U.S. CREDIT MARKET HAS FAILED, AND THE U.S. ECONOMY IS IN PROCESS OF FAILING.  We are at the beginning of this process, and the results of "the condition our condition is in" have yet to manifest themselves.  I can't even imagine how things are going to look even one month from today.  But it will not be pretty.


AuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAg


We effectively live in very unsettling, corrupt, and dangerous times.  Take little chances in whatever you undertake.  Constantly review all financial entities that you deal with.  Stocks and bonds are destined for much lower prices as company earnings fall off a cliff and corporate and U.S. bonds are revalued for creditworthiness, currency risk, and liquidity.  Cash is a wasting "asset" except for an emergency stash of 6 months of living expenses.  And don't tell me that I didn't tell you this was coming as early as some 7 years ago, the writing was plainly on the Wall for all to see who cared to sift through the pabulum called financial news each and every evening.  Americans can be a very lazy lot when it comes to doing their homework and examining flaws in the Common Wisdom of Wall & Broad in particular.  

America has been a Debt-Based Economy for decades and is now going to pay a very dear price for Leveraging Its Future.  The American Future just around the bend is going to be very different than the Future of our Past.

Being right is not always a joyous state of being.




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November 15, 2008:  Money, Money, Everywhere, And Not A Drop To Lend (or Borrow!).


When I was growing up in the 1950's and 1960's, and people did live in those Ancient Times, one of the funniest things that high-schoolers used to do was stop their jalopy on hopefully a deserted road or intersection, all get out and run around it frantically several times waving their arms wildly above their heads, screaming and yelling, to only jump back in, no seating assignments being honored, laughing gleefully.  This came to be known as a Chinese Fire Drill in the vernacular.  Not particularly flattering to the Chinese sense of organization and efficiency, but few products came from China in those days except for those little umbrellas that went in exotic mixed drinks.  This is how I now view the efforts by Officialdom to prevent the global financial system and economies from rapidly sinking into dysfunction, collapse, and depression. 

Oh, I know I am the ever-cheerful one in the ezine writing world, but I think little can be done that will effectively prevent a multi-year depression from gracing our shores.  American resolve, ingenuity, stick-to-it-ness, and hard work sound great from a political podium or a Steinbeck novel, but the proponents of these admirable traits make the assumption that the American being elevated in the annals of human history has two plug nickels in his or her pockets to rub together.  When any country is technically bankrupt as the U.S. is right now, it is virtually impossible to avoid a lowered standard of living as "assets" formerly known as "debt" implode all around us.  We are at the beginning of a severe Adjustment Period in U.S. History.  Those leaders that have the guts to tell it like it is may not get re-elected because they made their constituents cry, but they will do the most good in preventing Americans from repeating imprudent behaviors that got them into this historic soup in the first place.  Spending what one does not have at the moment immediately comes to mind.  Americans are destined to become savers again, kicking and screaming to the piggy bank.

Americans do not need soothing platitudes from their officials and leaders right now, they need a little Reality Check in the way of the hard facts about what they should be doing to help them survive the very hard times that we are currently in and will be in for some time to come.  Government cannot be all things to all people and all legal entities at all times; Say that phrase twenty times a day for the next 10 years and you will have your head in the right place to even begin to keep your noggin above the murky financial waters ahead.  The U.S. Government is not the U.S. Auto Industry and if we end up with one efficient, consumer-oriented automobile company in this country so be it.  Both Labor and Management at the Big Three have received excessive compensation packages for decades in relation to their competitors and the often-mediocre products Detroit has produced.  Invest in new technology or die is all a part of Capitalism, why should American citizens be asked to provide financing or guarantees when the Big Three failed to do so for years now.

We are sliding down the slippery slope of throwing Taxpayer Dollars at a laundry list of industries and companies that are touted as "TOO BIG TO FAIL".   Kind of like the alcoholic reaching for that one last drink.   There is not enough Tea in China (to stick with our Oriental analogies for the moment) to prevent this Tens of Trillions of Dollars Debt Collapse from occurring around the globe.  The U.S. Government, the Treasury, and the Federal Reserve cannot create enough "money" fast enough and apply it forcefully to the areas where most needed fast enough to prevent the collapse that is well under way.  Most American consumers are not creditworthy borrowers at this time, many teetering on the financial edge after years of over-spending (at the encouragement of certain monetary officials, I might add!) and most U.S. financial institutions are in no position to expand their balance sheets with new loans.  Money, money everywhere but not a drop to .....................................

The sun will come out tomorrow, but it will be shining upon a much different world that will be morphing before your eyes each and every day.  And it will be a world where the United States is not the leading financial center of the world.  And eventually the U.S. Dollar will not be the Reserve Currency for international transactions, our major trading partners, soon to be stung in the Trillions of Dollars of U.S.-centric losses, will see to that.

In a cracked nutshell, here is what Fearless Leader Sage sees in the immediate future for Americans:

1.  Precipitous Decline in Economy Activity:  

For those new to class, this is also dubbed a "RECESSION" by all economic definitions, forget the two quarters in a row hogwash, we have had declining activity now for over 8x quarters if the Bureau of Labored Statistics' GDP Deflator had reflected Man-On-The-Street Realty of annual price inflation upwards of 8% in just about in every good and service we Americans employ.  When year-to-year auto sales decline by 35% to 45%, you basically have an economy falling off a cliff.  In 2009, I expect economic activity in the Real World, not the B.L.S. world of fudged statistics, to show a 3% to 5% or greater decline in GDP by summertime.  Retail sales just had their worst month-to-month drop in recorded history, so don't go wild this Christmas to cover all of the flooring around the tree.

Retrenchment is a good thing because the sooner Americans get their balance sheets rebuilt with more cash and less debt, the sooner they will be able to spend at a responsible level to get our economy going forward again.  However, the propensity to spend in the U.S. of A. will never be as high as it has in the past 50 years, partially due to financing costs that will not return to their below inflation levels as instigated by the Federal Reserve.  And Americans are going to learn to live with less gadgets, recreational toys, and expensive getaways than in the past also.  There will be many bankruptcies in the years ahead, at all levels, private, business, and government ( Caleeefornia probably at the top of the list on the latter!)  Higher and higher unemployment in this country will eventually lead to some forms of civil unrest, which will be about the time we throw most of the bums out in Washington.


2.  Housing Prices Will Not Recover For Another Decade:

From 2001 to late 2005, U.S. housing prices increased some 70% in many areas of the country, while the economy was lucky to log in 5% annual non-inflation- adjusted growth.  So in that 5-year period, nominal home price increases historically would have given us a 27.6% cumulative housing gain, when in fact, excess credit creation and lax lending standards gave us an additional 42% speculative gain that is not fully reversed in today's, 2008 home prices.  Since the current retrenching of paid prices is only at about the 20% level nationwide, we have at least another 20% price decline to eliminate this housing price bubble's effect.  Note that this simplistic analysis is predicated on future economic growth being zero, when it in fact will be negative for several years to come.  So the severe recession we are currently in will do nothing to stop home price erosion, but will act to aggravate the situation even more than the 20% further decline outlined here.  Buy real estate only as a roof over your head or for recreational purposes, not for your retirement nestegg; using home equity as an ATM account is also a thing of the past, since only the very top tier of American homeowners will be offered this form of lending, home equity or second mortgage, and I don't think the terms or rates will be particularly attractive either.


3.  Commodities, Including Gold and Silver, Will Recover In Price:

This one will be tough to comprehend in a world economy basically falling off an economic cliff, but it all depends on what currency through which you are viewing the world.  Since we are currently stuck with the Dollar for now ( a currency backed in some measure by Gold is in our future, I am certain now), rest assured that the some $4 Trillion that Uncle Sam in all his persona's has throw at the Debt and Credit Collapse problems to date guarantee a severe devaluation in the Currency of the Realm.

Exploding Supply of Dollars with waning global Demand.  It has been written that the recent surge in the value of the Dollar from the 72 precipice to the 88 level in about 2 month's time is really another effect from massive de-leveraging in the global financial system; highly-leveraged carry trade and derivative positions, in order to be closed out to generate plug-the-dike cash, entail buying back U.S. Treasuries which in turn require U.S. Dollars.  In effect, the rapid closing out of Treasury "short" positions in these exotic trades had nothing to do about the international attractiveness of the embedded "real" interest rate, sovereign default risk, or long-term currency prospects of the issuer, the United States.  So this temporary, rather artificial, demand for U.S. Treasuries is destined to reverse itself in the months ahead as the U.S. Government creates Dollar deposits around the world in the Trillions of Dollars.  Not to mention a 2009 Fiscal Deficit that will be in the $800 plus Billion range, if not in excess of $1 Trillion the way money is being throw at every problem.  Won't you like to have the Bottomless Federal Checkbook, kind of like the Bottomless Coffee Cup at diners in days of yore!

So when the Dollar goes back to the 72 level on the Dollar Index as it inevitably will since there is nothing sound about the U.S. Dollar today, this 18% devaluation closer to global purchasing parity will increase the gold price from the depressed level of $750 today to over $900 without any change in gold demand.  Another Simplistic Analysis by the Sage (SAS), but quite instructive as to how all commodities will come roaring back in Dollar Terms with the assumption of flat demand.  Now I am not at all convinced that commodity demand is going to fall off a cliff like Starbucks Coffees have here in the States, since world population growth is still cooking along at 1% to 2% per annum.  Assuming of course, that the Newly Nastier Soviets (NNS) don't divert a meteorite passing by the planet with a nuclear inter-spacial missile that I personally know Putin has been working on; aiming the darn thing has been his problem to date with one test firing targeting his countryside Dacha by mistake.  This sustainable growth will be best exemplified in the Asian regions of the world were financial wizardry was not bought into as it has been in Europe and the United States.  Commodity demand in India, China, and Southeast Asia will be just fine in the immediate years ahead, even flat demand would buoy overall global demand for virtually all commodities.  And many production operations have been closed this year due to the collapse in prices, a supply spigot not quickly turned back on.

Why in the world have Gold and Silver been whacked to a inch of their lives when the Global Financial System is collapsing?  Not to mention an accelerated loss of confidence in the banking system and the stability/buying power of all currencies.  Once again we turn to that bastion of fair and accurate price realization and efficient clearing mechanism known as the Comex/Nymex and discover that those Lamborghini driving hedge fund managers and commodity index fund operators have had massive redemptions and margin calls that required cash and not long positions in precious metals.  So the de-leveraging process claims another asset class besides Dollar Shorts/ Oil Longs, and many rallies in both Gold and Silver since August have been met with increased selling even as physical product becomes as hard to find as an Honest Politician.  Makes no sense does it that the physical market for an asset can be tight as a drum while the futures/paper market on commodity exchanges shows severe price erosion??!!!  Ah, thank you C.F.T.C. and all associated regulators who will be put under European or E.C.U. control as of Monday morning in punishment for allowing financial/paper positions to exist that are 10 to 20 times greater than the ability of the exchange and its participants to deliver the underlying commodity upon demand. 

Keep buying the physical metals, stay away from paper surrogates and leverage in all forms, since the more Gold and Silver product that comes off the market with staying power, the sooner this perverse control of daily prices will cease to be manipulated by the Comex/Nymex and other distant exchanges.  The prospect of a massive Comex default, as in "FAILURE TO DELIVER", increases by the day which can only bring widespread public outcry, scrutiny, and reform to this dysfunctional exchange.  Americans need to take back their markets out of the hands of those who operate them only for the benefit of a moneyed few.


4.  U.S. Interest Rates Are Going Higher in 2009:

Now I know that Helicopter Ben is now hinting at Fed Funds at less than 1%, but there is about to be a bursting of the Bond Market Bubble.  Jim Rogers and other proven sages have stated that U.S. Treasuries are overpriced which implicitly means that their yields are grossly understated in relation to the fundamentals of the U.S. economy, U.S. creditworthiness, U.S. Dollar prospects, and competitive real interest rates on a global scale.  The Sage forecasts, as he has in the past to no avail in shaping the financial landscape or being right about higher rates to this point, that all but the shortest of U.S. paper is going to yield from 6% to 8% by the end of 2009.  Always good to forecast a range of yields, you may actually hit one in a 200 basis point spread, and a broad time window for it happening.  This will not help the U.S. real estate market, whether residential or commercial, and it will increase borrowing costs to the now non-creditworthy U.S. consumer at a time when lenders are looking the other way ....... to rebuilding their balance sheets by investing in Treasuries or Swiss Notes or Gold instead of pushing more credit into a pipeline that has sprung historic leaks via defaults, foreclosures, and delinquencies.  Pushing on a string easily describes what Officialdom is doing in flooding the system with U.S. credits.

Amazingly, this entire scenario ties together all so well the moment that de-leveraging by Treasury Shorts has run its course (Sage guesses via Waterford Crystal Ball on December 9, 2008 at 2:13 pm) and the demand for Dollars begins its Devaluation Journey anew, with aplomb and alacrity.  Also known as a Waterfall Decline.  The Dollar reverse will be swift as global investors rush to get out of the burning theater and the bond market mayhem will be stupendous.  The Bond Vigilantes of yore are about to come back onto the world stage:  Soaring inflation, soaring U.S. money creation, a severely compromised U.S. Balance Sheet, U.S. Repayment via Devaluation Policies, and all of the elements that set U.S. Treasury and Corporate Bond yields for about 200 years are then going to come back in vogue again.  Since the U.S. will have lost its appetite for conspicuous consumption due to holes in its pockets with the linings turned inside out, there will not be the need for Supreme Exporter China, for example, to launder so many U.S. Dollars brought ashore by this lopsided trading.  The demand for U.S. Treasuries precipitated by $700 Billion per annum Trade Deficits is going to wane due to a severe decline in export volumes to the States AND A DESIRE BY ALL SOVEREIGN GOVERNMENTS WITH A PULSE TO DIVERSIFY OUT OF THE U.S. DOLLAR.  As a Banana Republic Nation from the Weimar Germany mold, the United States' sovereign debt is about to experience its first buyers' strike in recent history.  And the repercussions for domestic U.S. interest rates will exacerbate the lack of demand from U.S. consumers who will have lost their ability and appetite to borrow and spend like the good old days.  Actually, make that the Too Good To Be True Days.

You can rest assured that if history is any guide, and me thinks it still is even in the New Millennium, that many of the world's largest holders of Dollars and U.S. Treasuries will turn to Gold and eventually Silver to diversify their international reserve positions with something of tangible worth.  An asset that cannot be devalued by governmental edict or policy or whim.  All currencies are going to be greatly compromised as to holding value and buying power in the years ahead.  Only a select cadre of Tangible Assets will maintain and preserve buying power in the decade ahead and possibly the one after that one.  Not a sales pitch, but a reflection of my predicted reality over many prior forecasts.


AuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAgAuAg


HAPPY THANKSGIVING, AND GOD BLESS THE MEN AND WOMEN IN OUR ARMED SERVICES THAT ALLOW FREEDOM TO RING HERE IN THE UNITED STATES AND AROUND THE WORLD.  While our plates may not be as full as in prior years here at home, we have not suffered a civilian loss due to terrorism since 9/11/01.  Servicemen and servicewomen don't make Foreign Policy, they just see that it is implemented at the least cost to human life possible.  Try judging our enemies by that standard.



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December 29, 2008:  Welcome To The United States of BANANAS.


It is with some disgust and amazement that I wrap up 2008 with my final missive to the Enlightened Ones, Bullion Market Insights Readers.  Not sure how much longer I will undertake this exercise of ranting and raving upon the electronic pixel-waves, since those in power never seem to heed my advice and they continue to dig a hole for future American generations of such depth that these yet-to-be-born debtors will not have a chance of repaying.  It is only proper that I and many other small businessmen in this country today work 60- and 70-hour weeks so that multi-millionaire Auto Executives, Money Center Bankers, Insurance Executives, and Businesses A Thru Z can have their decades of inept decisions PAPERED OVER BY U.S. TAXPAYERS' EVENTUAL OBLIGATIONS TO PAY THE TAB.  I will try to keep this short, since I have year-end tax accounting to attend to, and as a patriotic American, it is my duty to send as much moola to Washington in order to keep the subsidies, guarantees, and outright bailouts a-going.  I feel so good inside when I write those quarterly tax payments, knowing that I am doing my part to keep one of the most gargantuan Ponzi Schemes in the history of the universe going.  THE PRINTING OF TRILLIONS UPON TRILLIONS OF FRESHLY MINTED U.S. OBLIGATIONS, REGARDLESS OF WHAT FORM THEY TAKE, IS INDEED A PONZI SCHEME OF THE FIRST ORDER.  Bernard Madoff move over, you is a piker compared to what the U.S. Treasury, Federal Reserve, and Congress can concoct in a Washington-minute to flood the world with newly printed U.S. Obligations. 

A little light bulb went off in the graying noggin of the Sage over the weekend.  I have had most of my liquid "cash equivalent" funds in a respected and conservative All-Treasury Money Market fund, but when I saw that the fund was paying a niggardly 1/2 of One Percent and the management was taking 1/2 of One Percent per annum in fees, I had to pause for at least a few minutes.  Since Government Officials are guaranteeing every bank deposit accepted by a U.S. institution (or they will be before Inauguration Day), what is the real difference between a $250,000 insured deposit account, regardless of form, and a Treasury Bill.  Maybe I am falling into a trap here, one possibly intended by Bernanke when he promised to pay investors absolutely ZILCH FOR TREASURY BILLS as a return on their money, to get the economy back on its feet, of course!!!  Personally, I think I should be paid something for buying this evolving junk called Treasuries, since the issuer has entered technical bankruptcy with the recent issuance of some $8 to $11 Trillion in additional U.S. Indebtedness in the last 6 months.  Although the world seems to think otherwise for the moment and are willing to accept below inflation yields from the U.S. close to the zippo level, one really has to begin to question the credit rating of the United States and its desire AND ability to pay all current and future financial obligations to its paper holders.

Let's face it folks, the United States is just printing unprecedented sums of money to attempt to avoid the inevitable failure of the global financial system and an economic retracement that world inhabitants have not seen since the Great Depression.  I am of the belief we are in the early stages of the Greater Depression, at least for the proliferate and irresponsible United States of Banana's.  (Now I don't want nasty emails from banana growers, since I can't eat this particular potassium-rich fruit, they give me indigestion, so there!)  No disrespect intended, just a reality check here!  As I have told everyone fortunate enough to read THIS FRICKING FREE EZINE FOR OVER A DECADE NOW, the Loss of Confidence in any system or institution or political entity is a monumental roadblock to stability and normalcy.  That is where we are now, and that is where we are going to be for a good length of time, try at least a decade to get full confidence back, if then.  This country will not be the same place to work and live in the years ahead, get that concept firmly planted in your noggins also.  We have squandered our own and our offspring's' futures, and we are destined to slip down the ladder of Standards of Living since history shows the Collapsed Debtor has to do without many things to get his or her house back in order.  Think of Charles Dickens' Times.  We are at the Gates of Debtors' Prison in the classical sense, and it is going to be a real stinky place to be stuck in for many years to come.

Since I am digressing here, let me say this about the Change Candidate Barrack Obama getting anointed on January 20th:  LOTS OF LUCK, FELLA.  Since you are bringing in Clinton Admin II, I am hard pressed to see the foundations for change that we can expect from your Enlightened Administration, but I will give you the benefit of the doubt that old bureaucrats can sometimes come up with new, productive ideas.  The best analogy I can apply to President-elect Obama is the Captain of the Titanic, who has just been piped aboard ship with stupendous fanfare and not insignificant expense to the bankrupt nation.   As the new Leader of the Free World steps aboard, he notices that the ship is listing at 20 degrees starboard, there is a giant iceberg called the Debt Collapse stuck to the bow of the listing vessel, and two major compartments below deck called Solvency and Creditworthiness have already been flooded with icy/briny fluid.  If I were Mr. Obama, I would head directly for the lifeboats and forego any ceremonial entry into the wheelhouse.  Since the traditional honeymoon period with the public and the press will be unduly shortened in his case, a coattail of putridly corrupt Illinois politics has guaranteed that, he might as well don a bright orange life vest from the get go.  Almost feel sorry for the guy.  No matter how magnificently he waves his arms above his head for rescue during his Administration, he may be the very Captain that the rescuers will never see because someone hocked the helicopters or sent them over to Treasury or Ben Bernanke.  He is doomed to failure no matter what he does since no President in the history of this once-great country can run the economy or the financial system.  They often try, but have always failed badly since it is the realm of the citizens of the land to fulfill those tasks, not someone remotely tucked away in Washington, most of whom never even operated a lemonade stand, much less one at a profit.

Since we still have Freedom of Speech, I thought I would get that one out before the Black Boots start marching.

Back to the "where do I park my cash" discussion.  Go to the following link at BankRate.com:  http://www.bankrate.com/brm/safesound/ss_home.asp and type in your present or prospective bank's name in the search box and make an executive decision since you are better qualified to do so than most Overpaid Executives (OE's).  If the institution does not rank a 4 or a 5 star rating from this free service, think about finding one that does when it comes to parking large sums of cash, $50,000 and above to the insured limit, whatever that may be on a given day.  Then get a whopping 3% to 4% on your money in the newly-discovered SOLVENT BANK, hard to say if that beats the rate of current inflation which is in temporary decline, but sure beats a 1/2 of One Percent Treasury Bill that has only more freshly-printed Treasuries behind it.  I know, I know, I am like a political candidate doing a 180 degree turn here, but now that the U.S. Government is bankrupt and soon to be increasingly insolvent as investors begin to awake to our Junk Bond or BANANA REPUBLIC status I feel:  I NEED TO BE PAID A HIGHER YIELD TO BUY COMPROMISED PAPER WHETHER IT BE GENERAL MOTORS, AIG, OR THE U.S. GOVERNMENT.  We have fallen off the highest-credit pedestal and won't be able to crawl back up any time soon.  Keep C.D.'s short to 6-months to 1-year if you decide to go that route since the Sage is of the learned conviction that we will have higher interest rates forced down our recessionary throats by our international creditors who are waking up by the hour to the realities of compromised U.S. Debt in never-ending issuance.  Worst case that I can think of right this minute:  THE BANK STILLS FAILS DUE TO BOOK COOKING AND YOU GET PAID BY THE GOVERNMENT WITH LOUSY 10-YEAR TREASURIES, YIKES.  Kind of a Chase 22 system right now.

Got to start wrapping it up here since I might have a higher tax rate this year:  The conditions for higher and higher Gold and Silver prices have rarely been so favorable.  Hardly any other investment choices make sense right now, and eventually all of the additional money creation in the United States will have an upward effect upon U.S. inflation:  Way too much money chasing a reduced quantity of goods and services shrunk by the accelerating recession.  There can always be monetary-induced inflation during a recessionary period, just ask Jimmy Carter about it.  The de-leveraging of the hedge fund and commodity index fund crowd has just about run its course with these highly-leveraged funds no longer able to find cheap lines of credit for their high-risk plays (cash and carry, a welcome DE-LEVERAGING), with massive redemptions by loss-scarred investors, and by outright closures of funds due to all of the above.  I am quite hopeful that increasingly global prices for both Gold and Silver will be set by more rational and accurate pricing mechanisms than the Comex/Nymex, an eventuality that is increasingly likely as the U.S. fades as the center of the financial / price-setting world.  Demand for the precious metals, not sure about the economically sensitive Platinum Group, will continue to grow in 2009 as Americans sell stocks and bonds and cash, and even more retirement funds transfer into Precious Metals I.R.A.'s.  This movement of retirement money, badly beaten in the traditional financial asset arenas, will add $100's of Millions to the already $Billions finding their way into both Gold and Silver.  American investors are still in the panic mode, and the economy and financial system will not get better in 2009 (fourth quarter recovery my arss), only worse in my humble opinion regardless of the $Trillions thrown at the problem by Officialdom.  We will have increased volatility in both Gold and Silver, but little to prevent gold from shooting past $1,250 per ounce sometime in the coming year and silver from shooting upwards of $27 per ounce before falling spectacularly back to the upper teens; could be almost a double for Silver in 2009, my professional guess, nothing else (the Sage has been remarkably correct in his decade of forecasts, but most of the predicted outcomes are really quite depressing!!!).  Fasten your seat belts, comrades (might as well start using old Commie phrases these days since we are heading for some form of Socialism before the people rebel, Gandhi style, not Castro style).  WELCOME TO THE UNITED STATES OF BANANAS.  NO GOVERNMENT CAN BE ALL THINGS TO ALL PEOPLE ALL OF THE TIMES, PERIOD, WITHOUT THE COLLAPSE OF THE INSTITUTION OF GOVERNMENT ITSELF.


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Bullion Insights ARCHIVES

WHERE'S THE BEEF?

Since Nothing of Value comes out
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Regards,
The Sage