By Robert Murphy


Gary North reports that one of the leading deflationists has defected to our side. ("Us" meaning North and me.) It reminded me that I meant to blog an email exchange I had recently (with permission of the correspondent). Craig had emailed me to say I was still missing the point in my critique of Mish. I wrote back:

Thanks for the email. I have to be brief. Do you know that since December, the unadjusted CPI is up 3.7%? And I'm sure you know that gold is hitting (nominal record highs.

At what point is this credit deflation going to result in falling prices? There was a brief spell of falling prices in 4q 2008, but prices have steadily risen in the eight months since then.

I thought (like Darth Vader), "All too easy." But then Craig fired back:

I’m looking at the unadjusted CPI and it is up 2.7% since December, but DOWN 1.9% since its peak in July 2008. Moreover, the CPI understates deflation due to the owners-equivalent rent number. If actual housing prices were used (substitute Case-Shiller) you would already see price deflation. Just like the CPI understated inflation on the way up in housing it is understating deflation on the day down. So despite the absolute greatest amount of monetary and fiscal stimulus human civilization has seen over the past year (there is a reason there are so many hyperinflationists), the CPI is still down (even with bogus housing measures) and gold is right back to where it was in March 2008, i.e. flat since Bear Stearns failed and unprecedented stimulus was unleashed (and not much above where it peaked in 1980 for that matter). Moreover, T-bills are barely yielding above 0% and TIPS certainly don’t look very scary. Stocks and housing are down over 30% and oil down over 50% from their peaks.


I see bargains everytime I walk into any store—EVERYTHING is on sale—cars, shoes, you name it. The official CPI index will plummet once credit really begins to disappear. So far, it has basically just stagnated. The Fed’s Flow of Funds report released yesterday demonstrated the 1st decline in total debt in the U.S. since the data began in 1952—from $52.87 trillion to $52.81 trillion, oh wow (that’s sarcasm). Government borrowing has helped to offset the destruction of private credit so far. In a year’s time, I’m sure it will be much different after this bear market rebound ends. Nothing has changed from a year ago, in fact everything is much worse thanks to the government’s actions. Last fall will look like child’s play for what’s upcoming soon. No matter what, 2010 will settle the inflation/deflation debate either way. Unfortunately, we are losers either way.

So anyway, I think that was the best, succinct statement of the deflationist camp that I've seen. And I really like how Craig concludes, "No matter what, 2010 will settle the inflation/deflation debate either way." However, I think Craig is overlooking the fact that we could both be proven wrong--CPI could stay roughly flat over 2010, in which case Scott Sumner and Paul Krugman end up looking good.

http://consultingbyrpm.com/blog/

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By Andrew Mickey, Q1 Publishing

If there's one thing I've learned over the last few decades, it’s that the mainstream media's goal is to not necessarily give you the full story, its goal is to give you the story it wants to give you.

The same is true when it comes to the mainstream financial media. They may not necessarily give you the information you need to make the best decisions, they'll give you the information they want to give you.

It happens all the time. And one of the best examples is in the controversial global warming debate. The majority in the media want to paint the direst picture possible. The minority want to do the exact opposite.

That's why I wasn't too surprised to see the complete lack of coverage devoted to a recent major event in the global warming debate.

I had to go all the way to the Calgary Herald to find coverage of this major defection from the global warming camp:

When a leading proponent for one point of view suddenly starts batting for the other side, it's usually newsworthy.

So why was a speech last week by Prof. Mojib Latif of Germany's Leibniz Institute not given more prominence?

Latif is one of the leading climate modelers in the world. He is the recipient of several international climate-study prizes and a lead author for the United Nations Intergovernmental Panel on Climate Change (IPCC). He has contributed significantly to the IPCC's last two five-year reports that have stated unequivocally that man-made greenhouse emissions are causing the planet to warm dangerously.

Yet last week in Geneva, at the UN's World Climate Conference--an annual gathering of the so-called "scientific consensus" on man-made climate change --Latif conceded the Earth has not warmed for nearly a decade and that we are likely entering "one or even two decades during which temperatures cool."

By any measure, this is a pretty major event the world should be noting and discussing. But, as we've seen many times before, most of the media doesn’t want to cover all significant aspects of a story.

This is something most investors need to realize. There are thousands of sources of investment advice and investment ideas out there. Most of them, however, simply follow right along with the herd. Most of them provide the information most investors want rather than provide the information they need.

That's why we have a different slant when it comes to investing – especially when it comes to investing in alternative energy. We believe the global warming ideology is fundamentally flawed. It's certainly not founded on basic science (there are no other naturally occurring positive feedback loops). It's more of a religion than anything else.

But with that in mind, we at Q1 Publishing still foresee investing in alternative energy as one of the great opportunities of the next decade or so. There are going to be so many government mandates, subsidies, and other factors which push alternative energy investments to the next level. Also, the failure to cover Professor Latif's findings shows the media will be on board to help get the bubble building.

We may find the global warming scientific rationale highly questionable, but we certainly believe in the investment opportunity from the green revolution.

By Julian D.W. Phillips

This is a snippet from a recent issue of the Gold Forecaster with

 Subscriber-only parts excluded.

As the sixth and final part of this series we now look at this question: “Is it possible to get a synthesis of world governments to override the attraction of gold??”  

The greatest issues that face the global monetary system is twofold: -

1.       The vast over-issuance of the U.S. $ internationally, has debauched its international value.   In time this will lead to hugely falling buying power and translate into very high prices for the resources of the world.   Few believe the plans put forward to reduce quantitative easing will work as expected, as this will simply return the world to recession or worse still, depression.   Such liquidity reductions can only take place in a climate where confidence can be maintained as money tightening kicks in.   This is not just inside the States but globally.   So 'confidence' in the $ and its future value and credibility has waned tremendously even amongst foreign [particularly Asian] governments.   The globe's currencies are like branches of a tree coming out of a trunk.   The U.S. $ is the trunk, resulting in the entire monetary system facing irreparable fractures should anything like another 'credit crunch' happen again.   Most people believe that the current state of the international monetary system is headed towards such stresses.   Hence, gold is an alternative wealth preserver for governments, as well as individuals and institutions [demonstrated by central banks being net gold buyers now].

2.      The rise of China is underestimated.   In a relatively short period of time the Chinese presence in the global economy will be so great that it will outgrow the U.S. economy. To quote President Sarkozy of France, "The political and economic reality of a multi-polar world will have to find sooner or later a translation on the monetary level.    A multi-polar world can't count upon one currency only."   Whether the Yuan makes its presence known as part of a newly shaped Special Drawing Right component or stands alone in the world monetary system, it will take the place of the $ eventually as it does so.   This will force major changes in the global monetary system, not simply by adding another currency to it, but by diminishing the role of U.S. Monetary politics in the global monetary system.   I have no doubt that the vast political differences between the two will bring a degree of uncertainty that will damage the cohesion of the global monetary system and make sure that gold once again finds the respect it had before 1971.

These are dramatic changes, the impact of which will form the foundation of our future global money systems.   If the world’s governments could act in unison over the issues facing the money system we have no doubt that monetary reformation would be so successful as to remove the need for gold in any part of the system. But with national interests always taking precedence over international interests, few governments could survive the voter revolts if their national interests or economy were held back or restrained in any way, by the interests of other nations.   So it is nigh-on impossible for a global forum of governments to agree to a dominant money system.   Even if they were, you can be sure that they would keep a firm grip on their gold in the probable event that the unity would only be temporary.   Future money systems must reflect that!  

On the other hand the potential for the strains caused by the U.S. $ and the shift in the world’s power base to the East certainly have the potential to cause more global currency crises.   This will only be seen as the world moves to a full-blown recovery. Then as oil and other resources become the focus of more vigorous demand, so higher prices, the strains will make these future crises mature.   In that environment, governments that do not produce their own resources will face the dangers of rationing and capital flight restraint [Capital Controls, etc].    The stresses felt then, will considerably lessen any global cohesion on the monetary front.   Gold will again become vital in maintaining confidence in paper money [Central and other banks, will fight any restoration of a Gold Standard or any form of money used as a means of exchange].   Because of their ‘national interests’ gold will only be allowed to remain as a confidence builder in paper money.   Thus, it will continue to be used as only a reserve asset.

Citizens store gold for governments.

We are witnessing the Chinese government encouraging Chinese citizens to investment in gold and silver.   In all lands where gold is respected, including the U.S.A., citizens are holding increasing amounts of gold in their portfolios in one form or another.   In so many gold-aware nations gold is taking a rising part in investment portfolios.   Since the turn of the century, European central banks have made it clear that they believe gold to be an important reserve asset and have limited their sales of the metal.   In the last year European central bank signatories have lowered these sales to a trickle.   Russian and Chinese central banks have increased their purchases of gold enormously making global central banks net buyers of gold, by a long shot.  

As we mentioned earlier in the series, the U.S. government has believed that gold ownership is a privilege, not a right.

Why?

Fit young men are seen as a national asset in times of war.   When the need arises, citizen’s gold will be seen as a national asset.   If the need then arises, gold will be confiscated by government in the interests of the nation.    The question you have to ask yourself is am I prepared for that eventuality or will I wait until it’s too late as U.S. citizens did in 1933?  

That is why the gold Exchange Traded Fund, The Ultimate Gold Fund has been designed to accommodate U.S. gold owners, holding their gold in Switzerland, in a manner that will prevent their gold from being confiscated!  

 

Gold Forecaster

This regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. 

To Subscribe go to www.GoldForecaster.com

 

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

By David Morgan

It seems more and more people are waking up to the fact that gold and silver are not only moving up but are also much safer investments currently than any other alternative. At the present time,I treat the commodity differently than I treat the underlining mining equities. As far as buying bullion or coins, basically I think investors should buy them at any time. Certainly you’re better off buying silver at $15.00 than you are if you’re buying it at $20.00, but the metals themselves, from a long-term perspective, will preserve your wealth and possibly multiply it. Many agree that the real metal is your core position. That is the investment that really counts the most. 

After that’s accomplished then you can move into a higher risk-to-reward profile, such as your underlying mining equities. I have found those to be actually better risk/reward profiles than futures or options. This is where timing plays a more important part, because these markets can be very dull for a fairly long period of time, as we’ve witnessed during this long consolidation. And their moves can be extraordinary to both the up- and the downside. Many of the juniors that have substantial merit are still undervalued, relative to where they were a few years ago when gold was at the $800.00 level. 

We have a long way to go to the upside for the mining equities. But mining equities trade as stocks. In other words, normally, if the general stock market is not performing well, most of the mining stocks won’t either. Of course there are always exceptions. If a company makes a great discovery, that stock will take off; or if a company misstates their financials, their stock will go down substantially. But generally, the mining equities pretty much go with the general stock market. 

A bit of caution is advised here, because there is a point—and I believe we’re approaching it rather soon—where the mining equities in general will go opposite to the general stock market. So there will be a day when you’ll see the general stock market going to the downside and the metal stocks going to the upside. Again, I think we’re getting close but think it will actually be taking place in 2010. It might start before the end of this year; at this point, it is a difficult call to make, as gold is moving around the $1,000.00 level again.

It is my belief that most people who are going to participate in the gold and silver market from the next leg up to the top are going to do it through the stock market. Most people are not that comfortable buying physical gold and silver, although it’s the easiest investment you can make. Basically, it’s a phone call . . . send your money and get your metal. It’s literally that simple. Yet as simple as that is, many people will not buy the physical but will jump into the mining shares.

Most people have some type of trading platform, Ameritrade, Scottrade, E*TRADE, you name it. They’ve got a stock portfolio of some type and it’s very simple for them to sit there and press a mouse and buy a stock. That is what is going to take these mining equities to heights we’ve probably never seen before. We’ve still got some more work to do, as far as I’m concerned, going through the general stock market, the general malaise that is hitting the American and world economies, and how that’s going to play out in the short term. I’m rather cautious. Longer term, again, you’re going to see more and more interest in anything gold and silver related, particularly in the stock market. 

It is a distinct possibility that buying the physical metal is going to be tougher and tougher at some point. We witnessed that last summer for a fair amount of time, several weeks. The premiums on the physical metal were extraordinary high, relative to what they had been in the past. This was because there was a demand squeeze. In other words, there was a strong demand and the amount of metal that was being put into the market was rather low, relative to the demand. So the premiums went up and up and up, and again stayed there for several weeks. 

The premiums are more reasonable right now. But I think the summer of 2008 was a precursor to what we can expect in the future. There could be a time when some dealers are flat out of silver. It’s just too hard to get. The dealer might think they have to pay the wholesaler too big a premium so might not bother with it. Let us not overstate the situation because we’re not there, but we did get a hint of it already. 

Most people are probably going to look to the gold and silver equities. They might think, “Oh, the heck with it—I don’t want to pay a large premium on a gold coin or a silver bullion coin when XYZ Mining I just read about on the Internet is going to go to the moon. Get me in.” That is going to bring more and more people into the sector as time moves forward.

It is an honor to be.

Sincerely,

 

David Morgan

 

Mr. Morgan has followed the silver market for more than 30 years. He wrote the book Get the Skinny on Silver Investing. Much of his Web site,Silver-Investor.com, is devoted to education about the precious metals>; it is both a free site and does have a members-only section.