Saturday, August 25, 2012

The Fantasy of Debt: No Trade-Offs, No Sacrifices / By Charles Hugh Smith / August 24, 2012

Easy, cheap credit has created a fantasy world where everyone “deserves” everything right now, and trade-offs and sacrifice have been banished as unnecessary.

Debt offers a compelling fantasy: there is no need for difficult trade-offs or sacrifices, everything can be bought and enjoyed now. In the old days when credit was scarce and dear, buying a better auto required substituting 1,000 brown-bag lunches for restaurant meals: yes, four years of daily sacrifice.

Sending a child to college meant no meals out (or perhaps once or twice a year), driving an old car, no vacations other than camping, working overtime to make a few extra dollars, summer jobs for every teen in the family and a hundred other sacrifices and trade-offs. All too often, only the oldest got to go away to university; younger siblings had to sacrifice their education for the greater good of the family.

If the oldest sibling was fortunate enough to earn a decent salary after graduation, he or she sacrificed to pay for the education of younger siblings.

Trade-offs and sacrifices were the core of household finances for those families that sought to “get ahead” or purchase things that required substantial cash.

Abundant, cheap credit upended the incentives to make adult trade-offs and sacrifice consumption for future benefits. Why eat 1,000 brown-bag lunches when you can buy a new car for $500 down and “easy” monthly payments? Heck, you don’t even need to pay for the lunches with cash; just charge them.

Want to go to college? Just borrow the money via student loans. Why scrimp and save when Uncle Sam will guarantee $100,000 in student loans?

Why choose between a lavish vacation, a year of college or a boat? Buy all three on credit.


Silver $150, “This Will Happen,” Says Swiss Money Manager / by Dominique de Kevelioc de Bailleulon / August 24, 2012

If there was ever a sleeper asset poised to moonshot, it is silver. And $150 is the target price for the white metal on this next major move higher, says Swiss money manager Egon von Greyerz

“We could see those levels ($4,500 – $5,000 on gold) within a year and possibly much faster,” von Greyerz tells King World News, Thursday. “This autumn we are going to have a very strong move.

“If we look at silver, silver is going to move a lot faster than gold. The same technical target for silver is $150. That would move the gold/silver ratio down to 30/1.”

With PIMCO’s bond king Bill Gross going on the record today on CNBC, saying an open-ended quantitative easing program by the Fed is all but a “done deal”, silver investors can expect, not only a massive and unprecedented short squeeze in the silver market, but momentum traders and value-based accumulators hopping on board the silver bullet, as well—a veritable trifecta of rocket fuel presently under-appreciated by the casual investor, according to von Greyerz.

A move in the silver price, from $30 to $150, is “hard for investors to comprehend, but this will happen because we have had an energy building up in these markets for almost a year,” von Greyerz continues.

von Greyerz outlook for the silver price is, indeed, the most optimistic of King World news legion of forecasters, but the chart shows that his assessment has much technical evidence to support his thesis, given the fundamental backdrop of bizarre monetary and fiscal policies endemic to both major reserve currencies, the dollar and euro, which, together, comprise 89 percent of all global currency reserves.


Sprott – We Are Staring At Chaos & Collapse In Front Of Us / August 24, 2012

Today billionaire Eric Sprott spoke with King World News about one of his frightening predictions, “I always postulated that the financial system would go bankrupt, and it has, save for one thing, it got bailed out.” Sprott, who is Chairman of Sprott Asset Management, also added, “But I don’t think the central planners have a winning hand here. They’re not going to win.”

Sprott then warned, “God knows when we get there (to the end of the current system) what we are all staring at.” But first, here is what he had to say about the last decade: “When I reflect back over the decade, I think my God, I can come almost come up with 2,500 tons of net change in physical demand, in a 4,000 ton market on the supply side, which hasn’t changed in that 12 years, that was in balance 12 years ago. How do these ETF’s get to buy gold? How do these central banks go from sellers to buyers?”

Eric Sprott continues:

“How does China come in and buy 500 tons? How did all of this happen with no increase in the supply of gold? It’s getting more extreme by the day. If I take today’s numbers, I think there’s probably a 2,500 ton shortfall of physical gold. I must conclude that the G6 central banks are continuing to lease their gold into the market.

It’s not called a ‘sale’ because theoretically they still own it (on paper), but it’s been leased to a bullion bank that’s sold it to someone, and it’s not coming back again….


BILL MURPHY of GATA: The Coming Gold Boom after the Storm

Dennis Gartman Just Dumped All Of His Stocks

Back in February when the DOW crossed the 13,000 mark, Dennis Gartman said he had made a mistake reducing the size of his long position.

He said, "you make it sound like I'm short of equities. Not on your life. Not right now"

Now Gartman, publisher of the Gartman Letter, who cut his long position by half earlier this week, has exited stocks entirely.

In his investor note he writes:

"Stock prices are weak as our proprietary International Index has fallen 62 “points” or 0.8% in the past twenty four hours. Having traded to 7805 earlier this week, this index is now down sharply from its highs... yet; but we are more and more fearful that it shall be, and having cut our long position in half earlier this week, and further having noted how rather badly the market responded to the belief that QE III was on the way, and noting that far too many individual stocks and one or two important international broad indices posted “reversals” earlier this week, we are exiting the other half of our long positions this morning upon receipt of this commentary.

Yes, we do indeed understand that this is a shift in sentiment; and yes we do understand that we had said that stock prices might “melt up,” and yes we further understand that we may look foolish in the weeks ahead for standing down, but call it trader’s intuition or call it what you will, but we wish to move quietly to the sidelines trust we are clear."

Gartman, who says he is bullish of "simple things", said earlier this week that the plunge in steel shares had signaled a buy.

But after receiving a report from a friend in a "small but influential broking firm in New York" downgrading the steel industry, Gartman writes, "we’ll 'bet' in its favour once again in the not too distant future, but not now given that we are standing down from our previous bullish posture this morning."

Marc Faber: Global Recession Certain

Marc Faber, “The Gloom, Boom & Doom” Report, explains why he thinks there is a 100% chance for an economic recession ahead.

Shifting ground rocks diamond industry

Antwerp’s Square Mile is an assortment of tired office blocks and shops. Groups of men talking business congregate in the streets. But the main clue to what brings them to the city is the heavy security at the entrances to the rundown buildings.

Inside, they will pore over rough diamonds – gems that could easily be mistaken for lumps of glass or stone. Some will spend hours using high-tech equipment to analyse their potential. Others use a handheld loupe, or magnifying glass, to eyeball what polished stones they think they can cut from the misshapen rocks.

“It is like a piece of art,” says Johnny Kneller, chief executive of Safdico, the diamond manufacturer that was cofounded by Laurence Graff and that is part of his high-end jewellery and retail empire. “Then there is the commerciality. You can choose to give up weight because you like the product.”

The Lesotho Promise, a 603-carat stone from Gem Diamonds’ Letseng mine, sold for $12.4m and was cut into 26 stones for one necklace, now on sale with a rumoured price tag of $75m. Another, the 478-carat Light of Letseng, produced the first flawless round brilliant cut to exceed 100 carats.

Many cutters and polishers have left Antwerp but about 80 per cent of the world’s rough diamonds still pass through the city. This year has been a difficult one, both for the miners and the diamentaires who transform rough stones to polished ones.

The economic slump has hurt demand for jewellery while a squeeze on financing has limited diamentaires’ ability to stock up on rough stones. Rough diamond prices, estimates Royal Bank of Canada, are down about 15-20 per cent this year after a volatile 2011, when prices leapt sharply only to plummet.

The diamond industry also faces a period of considerable change.

Soaring demand from China, where the share of brides receiving diamond engagement rings has risen from about 1 per cent in the early 1990s to 31 per cent in 2010 – a similar pattern to the US in the 1940s – means a buoyant outlook despite the short-term ructions. (more)

Canadian Real Estate - Bubble, Bubble, Toil & Trouble

Joelle Fricot & Chris Callahan
Thursday, August 23, 2012

It is almost four years after the global financial meltdown of 2008 and many parts of world are still trying to recover. Given the impact of the crisis, which rocked financial markets across the globe, it is shocking to many that Canada seems to be following many of the same lending trends as we saw in the United States in 2006. These trends were at the core of the subprime mortgage crisis, which led to the global recession of 2008.

In the year and a half leading up to the crash housing prices rapidly increased in the United States, with a corresponding increase in subprime lending. We are now seeing the same trends in Canada. When analyzing the Canadian housing market, housing prices increased almost 100% since 2000, with the average home in Canada costing roughly $348,000. This is almost double our U.S. counterparts.

Big banks have become stricter with lending policies, and have upped the stakes for those looking for mortgage financing. This has created a huge market for sub-prime lenders in the marketplace that didn’t exist before because more and more people who would have been approved five years ago are now being turned away. There is now a huge shift in the lending marketplace. Once small, Canada`s subprime mortgage industry is now booming. More and more Canadians with highly questionable credit are highly benefiting from the available financing.

The Canadian Government has been moving quite aggressively in attempts to cool down the Canadian housing market. As home prices are soaring there are fears that there is a bubble in the making. This is evident through the recent actions of Finance Minister Jim Flaherty who is now acting for a fourth time, reducing the maximum amortization period for government issued mortgages from 30 to 25 years. On top of this he is also lowering the amount of equity that can be borrowed against a property to 80% down from 85%.

More than $500B of Canada's estimated $1.1T housing market are considered to be high-risk mortgages. Recently Ottawa began increasing its scrutiny of the CMHC for allowing this level of high-risk mortgages to rise to the level that it’s at now.

The Conservative Government has started putting stops to banks using mortgages insured by the CHMC as collateral on covered bonds. In addition new legislation will be implemented to ensure that corporations will have to give more consideration to the broader implications of their decisions. Essentially the CHMC is being told that, for every mortgage they insure, they will have to put consideration into the potential risk that mortgage put on the full Canadian economy.

The CMHC has dramatically expanded use of insurance by banks for covered bonds. These securities are made up of a package of mortgages, which is partly due to the steep rise in CMHC`s mortgage portfolio according to Jim Flaherty, Canada's Finance Minister. CMHC has a legal limit of 600B for mortgage insurance which it is fast approaching. The $600B limit has already been raised twice since the end of 2007.

Another significant type of lending in Canada is Home Equity Lines of Credit (HELOCs). HELOCs are loans which are secured by the equity of a borrower’s home. These types of loans in Canada have increased almost 170% since 2001 (which is double the rate of increase on Canadian mortgages). In 2011 they accounted for approximately half of total Canadian consumer credit.