Thursday, December 22, 2011

It's Official: US Debt-To-GDP Passes 100%

With precisely one year left for the world and all of its inhabitants, at least according to the Mayans, not to mention on the day of the Winter Solstice, it is only fitting that US debt, net of all settlements for all already completed bond auctions, is now at precisely $15,182,756,264,288.80. Why is this relevant? Because the latest annualized US GDP, according to the BEA, was $15,180,900,000.00. Which means that, as of today, total US debt to GDP is 100.012%. Congratulations America: you are now in the triple digit "debt to GDP" club!

(naturally, this is using purely "on the books" data. If one adds the NPV of all US liabilities, and adjusts GDP for such things as today's housing contraction, then the magical triple digit threshold was breached long, long ago).

And here is the breakdown for the forensically inclined ones:

I. Total debt as of December 20: $15,131,979,264,288,80 (source):

II. Net cash settlement of all completed auctions: $50,777,000,000.00 (source):

III. Total GDP: $15,180,900,000,000.00 (source):

=> Total Debt/GDP= $15,182,756,264,288.80/$15,180,900,000,000.00 = 100.012%


Gold and silver have garnered most of investors' attention over the last year. Both precious metals have seen their prices soar to record highs, before falling back to earth. It seems that each day brings more news about the pair and the SPDR Gold Shares (NYSE:GLD) has seen its assets under management swell. However, as investors have flocked to gold and silver, the other two horseman of the precious metal world have gone almost unnoticed. For contrarians, the duo of platinum and palladium could be a better bet, and some analysts predict a banner year for the two.

Rising Demand

The platinum metals group could be the best metals investment for portfolios in upcoming year. Analysts at Russia's Norilsk (OTCBB:NILSY) (one of world's top platinum group metals producers) estimates that demand will rise as much as 5% next year. This will exceed demand increases for more traditional industrial metals. Fueling this increase in demand is the fact the platinum group features attributes of both precious and industrial metals.

On the industrial side, more than half of platinum and palladium mined goes into making catalytic converters. These devices take damaging greenhouse discharges from automobiles and other emission sources and convert them into less harmful substances. Despite the predicted global economic slowdown, analysts estimate that global automakers will use a record $7 billion worth of platinum in catalytic converters next year. This will be a 17% increase versus 2011 and the most used since 2007. Platinum is also found in a variety of high-tech industries including LCD monitors, hard disk drives, batteries and electrodes.

Platinum and palladium are also seeing their demand rise as both a store of wealth and jewelry. According to data provided by J.P. Morgan (NYSE:JPM), jewelry now accounts for more than one-third of demand for the metals. Analysts estimate that increases in platinum jewelry sales for this year will rise 40% as emerging markets consumers in key markets (China and India) now view platinum in the same regard as gold. In addition, investors held more than 40.33 metric tons of platinum in exchange-traded funds, about 7% more than at the start of the year.

All of these demand increases are coming at a time of constrained supplies. Analysts estimate that production declines in both South Africa and Russia will lead the way. Norilsk estimates that it will take until 2020 before it will see any increases in production.

Playing the Two Other Precious Superstars
For investors, the supply and demand constraints for both palladium and platinum make for an interesting portfolio play. Similar to the physically backed iShares Silver Trust (ARCA:SLV), both the ETFS Physical Palladium Shares (ARCA:PALL) and ETFS Physical Platinum Shares (ARCA:PPLT) hold bullion and directly track the prices of the metals. Investors can use them as proxies for the metals. The futures-based UBS E-TRACS Long Platinum TR ETN (ARCA:PTM) can also be used.

As with the rest of the precious metals space, investors can gain additional leverage by betting on the miners of the platinum metals group. Both North American Palladium (AMEX:PAL) and Stillwater Mining (NYSE:SWC) offer a chance to participate in the growth of the domestic mining sector for these two metals. Anglo Platinum (OTCBB:AGPPY) is responsible for nearly 40% of the world's platinum and Johnson Matthey (OTCBB:JMPLY) produces one out of every three catalytic converters in world.

The Bottom Line
While gold remains the go-to precious metal, the growth in platinum and palladium continues unabated. For investors, these quasi-precious and industrial minerals could be the best portfolio bet in 2012. The previous firms along with the First Trust ISE Global Platinum Index (Nasdaq:PLTM) could make ideal selections.

Superinvestor Mark Mobius makes a bold new call: The euro crisis is almost over

The European crisis may have global markets sick with fear and uncertainty today, but it will likely be over by June, says Mark Mobius, executive chairman of Templeton Emerging Markets Group.

"The European crisis isn't as deep and terrible as people think," Mobius tells Brazilian newspaper Valor Economico, as reported by CNBC.

"Nations there are in a process of negotiations and that takes time."

Even emerging markets, which have taken a pounding lately, are not as bad as the world seems to think when economic fundamentals are considered.

Take Brazil, which "is in a very good situation," Mobius says.

Brazil "is a little like the United States. They can isolate themselves from crises since they have a big consumer market, they produce raw materials, they have industry and agriculture," Mobius reportedly said.

The European debt crisis has carried on for two years now, intensifying lately on fears that pressures inside Greece to default and abandon the euro have spread to the larger Italy.

The European Central Bank (ECB) has resisted market calls to step in and buy government bonds directly from banks in order to ease tight credit conditions on the grounds that it would fuel inflationary pressures.

Bank officials have, however, made more short-term loans available to the banks themselves, and some of that money is finding its way to government bond auctions and is alleviating the crisis indirectly.

The ECB has arranged the euro equivalent of $639 billion to 523 banks in three-year loans, the biggest ECB infusion of credit into the banking system in the 13-year history of the currency, Reuters reports.

"The fact that the ECB is taking this step is a good thing," says Louise Cooper, markets analyst at BGC Partners, Reuters adds.

"It is helping to alleviate some of the strains within the system and does on the margin help banks fund themselves."

The Risks that will Cause a Global Currency Devaluation

There are clear signs of a liquidity crunch in the asset markets right now, and the question I keep hearing is, Is this 2008 all over again?

No, it’s worse. Much worse.

In 2008 there was a lot more faith and optimism upon which to draw. But both have been squandered to significant degrees by feckless regulators and authorities who failed to properly address any of the root causes of the first crisis even as they slathered layer after layer of thin-air money over many of the symptoms.

Anyone who has paid attention knows that those "magic potions" proved to be anything but. Not only are the root causes still with us (too much debt, vast regional financial imbalances, and high energy prices), but they have actually grown worse the entire time.

As always, we have no idea exactly what is going to happen and when, but we can track the various stresses and strains, noting that more and wider fingers of instability increase the risk of a major event. Heading into 2012, there's enough data to warrant maintaining an extremely cautious stance regarding holding onto one's wealth and increasing one's preparations towards resilience.

Here’s the evidence:

  • Oil prices higher now than in 2009
  • Derivatives up more than $100 trillion since 2009
  • Government debts exploding
  • Weak GDP growth
  • Europe in trouble
  • Small investors leaving the market
  • China hitting a wall

One of the most important things we need to track is simply untrackable, and that is market perception. When faith in a faith-based money system vanishes, the game is pretty much over.

If you have been reading my work (or anyone else's) with a decent macro view, you likely lost your faith in the system a while ago and marvel that it can continue along for another moment, let alone all the years it has been creaking towards its eventual date with reality. But along it creaks, day after day, week after week, and month after month, threatening to wear down the observant and vigilant before finally letting go.

2012 promises to be an interesting year, with more than $10 trillion in funding and rollover financing required to keep the developed world floating along. But where will that funding come from? The lesson from defunct economies is “not internally!” And if China’s recent slowdowns and projections of an even more lackluster 2012 come true, then we might also scratch a few external sources off the list as well. (more)

Chart of the Day - Starbucks (SBUX)

The "Chart of the Day" is Starbucks (SBUX), which showed up on Tuesday's Barchart "All Time High" and "Gap Up" lists. Starbucks on Tuesday posted a new all-time high of $45.15 and closed up 3.30%. TrendSpotter has been Long since Dec 2 at $43.91. In recent news on the stock, Jefferies on Dec 12 resumed coverage on SBUX with a Buy and a target of $50. William Blair on Dec 9 said that Starbucks' launch of single-server K-Cups is off to a good start and said that the company is positioned to exceed its target of 3-5 cents of 2012 earnings from K-Cups. Starbucks on Dec 9 announced it had opened new stores in 5 new cities in Mainland China and reiterated that there will be about 150 new Starbucks stores opening in China in fiscal 2012. Starbucks, with a market cap of $32 billion, sells Italian style espresso beverages, a variety of pastries and confections, and coffee-related equipments primarily through its company-operated retail stores. Starbucks also sells whole bean coffees through a specialty sales group and supermarkets.


It Begins? Anti 'Money Power' Lawsuit Filed in Canada ...

A press release announces that Canadian constitutional lawyer, Rocco Galati, "on behalf of Canadians William Krehm, and Ann Emmett, and COMER (Committee for Monetary and Economic Reform)" has been filed in Canadian Federal Court, "to restore the use of the Bank of Canada to its original purpose, by exercising its public statutory duty and responsibility." – Rocco Galati Law Firm/ via Rense

Dominant Social Theme: The money system we have now is the best it can be.

Free-Market Analysis: Well, it is finally happening. A legal challenge to the power elite's money system has been launched in a Canadian Court "for the benefit of Canadians ... and to restore the use of the Bank of Canada for the benefit of Canadians. Here's some more from the press release mentioned above:

The action also constitutionally challenges the government's fallacious accounting methods in its tabling of the budget by not calculating nor revealing the true and total revenues of the nation before transferring back "tax credits" to corporations and other taxpayers. The Plaintiffs state that since 1974 there has been a gradual but sure slide into the reality that the Bank of Canada and Canada's monetary and financial policy are dictated by private foreign banks and financial interests contrary to the Bank of Canada Act.

The Plaintiffs state that the Bank of International Settlements (BIS), the Financial Stability Forum (FSF) and the International Monetary Fund (IMF) were all created with the cognizant intent of keeping poorer nations in their place which has now expanded to all nations in that these financial institutions largely succeed in over-riding governments and constitutional orders in countries such as Canada over which they exert financial control.

The Plaintiffs state that the meetings of the BIS and Financial Stability Board (FSB) (successor of FSF), their minutes, their discussions and deliberations are secret and not available nor accountable to Parliament, the executive, nor the Canadian public notwithstanding that the Bank of Canada policies directly emanate from these meetings. These organizations are essentially private, foreign entities controlling Canada's banking system and socio-economic policies.

Strong stuff. As we've been writing since 2008 now, the current central banking money system is probably finished. It is not finished because it has worked so badly (for most people anyway) but because it is seen as profoundly immoral.

The argument used to be that you needed a central banking system as a lender of last resort. But in practice, people have simply decided that the system is a kind of ruse that protects a certain financial class while leaving everyone else to fend for themselves. You can read two initial articles on this here:

Beginning of the End? Fed Cannot Account for $9 Trillion

Have the Immoral Actions of Central Bankers Precipitated the Decline of the West?

Of course, beyond its immortality and incredible unfairness, the current money system as it operates throughout the West IS illegal; it has been corrupted by the people who run it entirely for their own benefit. Knowing human nature, this is entirely expectable. When individuals are granted a money monopoly, they will inevitably abuse it.

The Canadian plaintiffs make this point as well, stating that officials are "engaged in a conspiracy." They wield a perfectly justifiable broad brush, naming the BIS, FSB and IMF as part of a larger effort to "render impotent the Bank of Canada Act as well as Canadian sovereignty over financial, monetary, and socio-economic policy, and bypass the sovereign rule of Canada ..."

If the lawsuit had stopped there, we'd be all for it. Unfortunately, the announced goal of the lawsuit as expressed by the plaintiffs is to support "making interest free loans to municipal/provincial/federal governments for 'human capital' expenditures (education, health, other social services) and/or infrastructure expenditures."

The lawsuit is a good idea because it may publicize what's happened to the West's money system, and Canada's in particular. But it beggars common sense to believe that Canadians – or citizens of any country – can simply print money without interest to pay for an endless stream of social programs.

Unfortunately, this idea has taken hold in the US as well, thanks to intrepid campaigners such as financial author Ellen Brown. It simply isn't possible, though. Only the free market can regulate how much money-stuff is necessary for an economy. A government simply CANNOT know.

When people run the printing presses, there will likely always be too much money circulating, with the attendant impact of booms, busts and ongoing, ruinous inflation. This is one reason why gold and silver-based money economies are perhaps the preferable alternative.

Such money-stuff is self regulating. When there is too much of it, value goes down and it ceases to circulate in such abundance. When there is too little, value goes up and MORE circulates. Simple. The magic of the markets.

Litigating the current ruinous money system may not remove it, but it will certainly bring it yet more unwanted attention. That's good. Now if only people would stop thinking that the printing press is a magical instrument and that in "good" hands it can enrich everyone the way it has enriched the Anglosphere elites. Not so.

Why Silver Could be the Hottest Commodity of 2012

If you're around my age, then you probably remember exactly where you were when you heard the news in November 1963 that President Kennedy had been shot. The first lunar landing in July 1969 is another such time marker for my generation, as is Sept. 11, 2001.

Jan. 21, 1980, on the other hand, is probably notable only to the extreme financial market aficionados among us.

That's the day the price of silver peaked at an intraday high of a record $50.35 per ounce, or about $140 an ounce in today's (inflation-adjusted) dollars -- more than four times the current price.

Even more memorable than the record price 32 years ago, was the run-up during the preceding weeks and months, at which time inflation in the United States was well into the double digits.

The Hunt brothers, Nelson Bunker and William Herbert, sons of a Texas oil billionaire, began buying silver in 1973 at $1.95 an ounce. Six years and some 2,500% in price appreciation later, the brothers were said to have controlled a third of the world's nongovernmental holdings of silver.

In 1979 alone, with inflation about to hit 13% by year-end, prices rose from $6 an ounce to $48 an ounce. In search of a scapegoat, jeweler Tiffany & Co. (NYSE: TIF) took out a full-page ad in The New York Times calling the silver "hoarding" by the Hunt brothers "unconscionable." The balloon burst after commodity market regulators made it much more difficult to buy silver on margin.

Fast-forward to the current decade. Silver made another move to nearly $50 an ounce this past April, from lows of about $5.50 in 2004, making the metal one of the best-performing assets in recent years.

This time, though, no one was attempting to corner the market. And inflation was negligible.

So what's going on? Plenty, according to our researchers.

Consider this: By some accounts, all known silver reserves will be mined out in 27 years, at current usage rates.

Silver is already found in just about every electronic device modern society runs on, from appliances to cell phones to computers to MP3 players. And as the rest of the world ramps up its usage of silver, supplies will become even scarcer.

The recent pullback in silver prices to the lower $30s has set the stage for what could be a rebound to new highs. In fact, according to the StreetAuthority researchers, a climb to $200 an ounce -- in today's money -- isn't out of the question. That's a potential return of more than six times the initial investment.

So, as we used to say in Chicago: "Ubi Est Mea -- Where's mine?"

Well, here's the best news: You don't have to corner the market to get a piece of this action. And the time is now.

I'll explain in a moment. But first, consider this:

In the precious metals boom of 1979-1980, you could have bought 17 ounces of silver for the price of one ounce of gold. That put the silver/gold ratio at 17:1. At current prices the ratio is 55:1, meaning there's lots of room for silver to run higher in its historic relation to gold prices.

Just recently, in fact, legendary investor Jim Rogers, chairman of Rogers Holdings, told CNBC in an interview that he would buy silver over gold given the relationship in prices between the two precious metals.

Action to Take--> We at StreetAuthority think every investor should have some money in precious metals, and we're especially bullish on silver. There are several options out there for investors (silver miners, ETFs), but we think the best way to own silver right now is with silver coins. But whichever way you choose, we think you're getting a deal at these levels.

McAlvany Weekly Commentary

When Will the Requisite Purge Occur in the World Economy?: An Interview with Bill King

A Look At This Week’s Show:
There are only two possible outcomes of this ongoing crises:
1) New and bold leadership will force a purge of debt and overspending (Paul Volker on steroids?)
2) The market will force the purge destroying everything in its path.
-For now, the only relatively sound action an investor can take is to stay liquid with cash and gold until one of the two forms of purge occur.

About the Guest: Bill King, has authored “The King Report” for over 18 years. It is an independent view on global, political, financial, and economic factors that influence world markets. Bill’s candid observations and forecast on the economic, financial, and political forces that are impacting the markets have been extremely accurate.

The Pros And Cons Of Buying Distressed Property

No doubt about it, real estate bargains abound these days – but there's more to cutting the best deal on a distressed home than meets the eye. With one-third of all home sales coming from the distressed property market, it's time to get smart about getting the best deals.

According to the National Association of Realtors, "all cash sales," known in the industry as "distress" sales, comprised about 30% of all U.S. home sales in October, 2010. That's up slightly from the 29% number the NAR recorded in October, 2010.

On top of that, RealtyTrac r eports there is no shortage of distressed homes to choose from these days. The real estate analytical firm says there are just under 1.4 million foreclosed homes in the U.S. through December 7, 2011. The average selling price for those homes came in at just over $180,000, RealtyTrac adds. The firm adds that one in every 579 U.S. housing units held a foreclosure filing during the quarter.

That scenario may not be getting better soon. "U.S. foreclosure activity has been mired down since October of last year, when the robo-signing controversy sparked a flurry of investigations into lender foreclosure procedures and paperwork," notes James Saccacio, chief executive officer of RealtyTrac, in a statement. "While foreclosure activity in September and the third quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up."

So, that could mean more buying opportunities for distressed properties. But that does mean you should take a bite out of the apple? Maybe and maybe not, as the following pros and cons illustrate.


  • Low Prices
    Prices are cheap, as the RealtyTrac data shows. Sellers, including homeowners about to be foreclosed upon, and banks and lenders who already own foreclosed homes, are anxious to get rid of the property. When you're dealing with a highly motivated seller, that usually means bargain basement prices.

  • Low Interest Rates
    Right now, the average 30-year fixed mortgage rate is around 4.0%. Historically, you're not going to get a better interest rate, and that low rate will keep the price of your monthly mortgage on that distressed property even lower.

  • Buy Low, Sell High
    There are no guarantees in the real estate business, but distressed properties, like any commodity, have some investment value. Economists say that home prices are starting to creep back up again, and after a few years, the value of your distressed piece of real estate is bound to rise in value.


  • Onerous Paperwork
    Buying a foreclosed or distressed property can take longer than a conventional property purchase. That's because many distressed properties are owned by the lenders, who are spread too thin to give the property your undivided attention (they may be looking for a better deal, too, or the property has a second mortgage attached with a different lender). So you'll need the patience of a saint to get your dream home via distress sale.

  • Location, Location, Location
    Unfortunately, most distressed properties are in low-income neighborhoods, and that can negatively impact the value of your home.

  • High Maintenance
    Some foreclosed properties may have been abandoned by the previous owner, or not kept up, maintenance-wise. When you dip your ties into the distressed property market, keep your eyes wide open. Always factor in the money you may have to plow into the property to make it livable.
The Bottom Line
If you have some extra cash, and have a handyman's penchant for fixing the odd broken sink or crumbling front walk, buying a distressed property can be a good investment. Just know what you're getting yourself into, and have some patience when you spot a great piece of real estate. If you play the game right, you'll have a good home – and a good investment – on your hands.

Pierre Lassonde: This Gold Bull Market is Far From Over

from King World News:

With so much worry surrounding the gold and silver markets, today King World News interviewed legendary Pierre Lassonde, to get his thoughts on what to look for going forward. Pierre is arguably the greatest company builder in the history of the mining sector. He is past President of Newmont Mining and past Chairman of the World Gold Council and current Chairman of Franco Nevada. When asked about the plunge in gold, Lassonde responded, “On the correction, I would say to people don’t panic. If you look back at history, for example, the 1970s bull market, between 1971 to 1980 there were no less than nine corrections. The corrections ranged from 11% to 43%. A lot of them were in the 15%, 20%, 28%, 30% (range).”

Pierre Lassonde continues: Read More @

The Middle-Class Welfare State

The Federal budget and budgetary process has its own lexicon. Most are familiar with some of the more common terms bandied about by the press and politicians as they debate how to bring the deficit under control. To the vocabulary of earmarks, discretionary and mandatory spending, and on- and off-budget, readers will be introduced in 2012 to the phrase "tax expenditures".

The subject of tax expenditures will prove as contentious as entitlement spending; and tax expenditure reform will be as critical as entitlement reform to fixing the nation's finances.

What are tax expenditures? They are concessions written into the tax code. Individual concessions may apply solely to individuals or corporations; or, they may span both groups. Periodically the Congressional Joint Committee on Taxation estimates what these tax breaks cost the Federal government in foregone revenue. The last, published in December 2010, spans fiscal years (FY) 2010 to 2014.

Mention tax breaks to the man on the street, and the phrase conjures up concessions written to benefit certain industries or individual corporations. Certainty based on the separate, individual line items, the majority are directed at American businesses. But in terms of the dollar amounts the big beneficiaries – by a wide margin – are individual taxpayers.

For FY 2010 to 2014, thirty-one out of the forty largest tax expenditures largely accrue to individuals. Projected tax expenditures, corporate or individual, for this period total $5.6 Trillion – an average of $1.1 Trillion per annum. Thirty-one of the forty largest items are targeted at individual filers. Number one is the exclusion for employer health care contributions (worth $659.4 Billion for FY 2010 to 2014); number two is the mortgage interest deduction ($484.1 Billion); and, number three is long-term capital gains and dividend preference rates ($402.9 Billion). In total the bill for these thirty-one items comes to $4.6 Trillion.

Now the largest corporate specific tax concession is projected at $70.6 Billion for FY 2010 to 2014. The next is estimated at $45.3 Billion. Both are small-change in comparison the largest individual oriented tax expenditures. Of the top forty, the largest corporate concession ranks 22nd on the list. Corporate tax breaks are a small part of the problem.

President Obama's budget for FY2012 anticipates revenues of $2.6 Trillion, expenditures of $3.7 Trillion and a deficit of $1.1 Trillion. In other words, the projected deficit for FY2012 is roughly equal to the average annual revenue loss from tax expenditures.

Obviously the reduction of a tax expenditure is tantamount to a tax increase. These concessions have become de facto entitlements, as sacrosanct as Social Security. If our fiscal problems are to be resolved, the average American, many middle-class, must forego the largess each expects as his due from the Federal Government.