Saturday, December 11, 2010

John Williams Talks To BNN About The "Great Hyperinflationary Collapse"

Any interview that starts off with John Williams saying "Eventually it is going to be a hyperinflationary great depression" is sure to be controversial. While not necessarily news to those who subscribe to the editor's newsletter, sometime we wish that Blackhawk Ben was among them, because despite his 100% confidence that rates will never do the kind of move that they exhibited in the past two days, they, well, did. To quote Williams, who actually keeps track of the US economy as if it were a GAAP audited corporation: "The annual deficit is running $4-5 trillion a year, that includes the Y/Y change in the NPV of unfunded liabilities... There is no political will to deal with this." The catalyst is well-known: "When you see panic selling of the US dollar, that's when you have to be really careful. But what's already been done with the dollar has spiked oil prices, and other commodity prices." On the question of why Bernanke would not be able to pull off what Volcker did in the early 1980s, Williams' explanation for why this time it is different, mostly focuses on the size of the US trade and budget deficits, which are not even remotely comparable on both an absolute and relative basis. Most specifically what consumers should do in the post-apocalypse world, Williams is not too optimistic. Ironically, he notes that Zimbabwe in its hyperinflation may have been lucky in that it had the dollar to fall back on in the black market, and now every market. However the US does not have that facility, and this "will get very difficult when food starts disappearing from shelves." Having goods for storage and barter would be critical. However, there may be a snag... (more)
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Identifying Top Seeds in the Potash Boom

The Energy Report: Adrian, in our last interview with you, while discussing the sustained commodity boom that you foresee, you said you were talking about the whole shebang—from precious and base metals to uranium, oil and gas to geothermal. You also included agriculture, noting that you expect agricultural assets to be among the best-performing assets over the next decade. Would you expand on that thought for us?

Adrian Day: Absolutely. As you may recall, we also talked about how China has been driving the resource market and will continue to drive it for the next decade. Even if China's economic growth slows from 9.5%–5%, the demand for resources will still be very dramatic—much higher than now. As China becomes more industrialized, increasingly more people in its massive population will move up into the middle classes.

Middle class people want houses with electricity, running water and indoor plumbing. They want to have cars, as well as bicycles, which takes copper, aluminum, platinum, rubber, oil, etc. And as more Chinese go from eating the chickens and goats they raise in rural China to an urban environment, they lose their taste for goat meat and want beef instead. Cows consume more wheat than do goats. That's just an example. The point is, the basic factors driving all the resources are also driving agriculture. (more)

Buy Physical Gold and Physical Silver Through a Commercial Bank and You May End Up with a Vault Full of Air

Recent news this week again proves that bankers are among the largest charlatans in the universe. First Jim Rickards reported that a Swiss bank refused to deliver roughly $40 million of gold bullion to a wealthy client for 30 days and only finally physically delivered his gold when the client brought in his lawyers and threatened to take his story to Reuters and other syndicated financial news networks. Then later this week, James Turk reported that he is aware of another individual that has been trying to take physical possession of approximately $550,000 of silver for two months now from a Swiss bank with zero luck. Turk further elaborated that the bank has been trying to pressure the client into accepting the cash equivalent market value of the silver rather than deliver the physical silver to the client. In both of these cases, I presume that neither of these Swiss banks ever held allocated gold and silver for their clients or if they did, had then leased out the gold/silver or sold the same gold/silver to multiple clients, and thus were forced to stonewall their clients until they could secure the physical metal. Why else would a bank take 30 days to deliver something that was supposed to be sitting in a vault in an allocated account? (more)

10 reasons to shun stocks till banks crash

(MarketWatch) — Do not buy stocks. Not for retirement. Not in the coming decade. Don’t. Huge risks.

Wall Street is a loser. Stocks are Wall Street’s ultimate sucker bet. And it’ll sucker you again. You’ll lose, worse than in the last decade. Wake up before Wall Street banks trigger the next meltdown, igniting mass bankruptcy.

Here are 10 more reasons not to bet at Wall Street’s casino … wait till after they implode:

1. American stocks are a high-risk sucker bet

That’s the view of Peter Morici, the former chief economist at the International Trade Commission: that U.S. stocks are a sucker bet. Is Main Street waking up to Wall Street’s con? Maybe. “With corporate profits breaking records, Wall Street anxiously anticipates the return of the individual investors to the stock market. It may be a long wait, because the little guy may have concluded investing in stocks is a sucker bet.”

America’s divided into two stock markets: one for Wall Street’s rich insiders, another for Main Street’s suckers: “Investors, as opposed to traders, buy stocks in companies whose profits they expect to rise. The conventional wisdom says stock prices will follow profits up, but over the last two business cycles, that simply has not happened.”

From 1998 to 2010, profits rose 203%. But the S&P 500 was up just 7%. And still, naive investors buy into Wall Street’s sucker bet. (more)

The Economist - 11 December 2010

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$9,000,000,000,000 Loss in Real Estate Values

A new report from Zillow puts an absolutely jaw-dropping figure on the housing crash: $9 trillion. That's the total home value destroyed since June 2006.

It gets worse. $1.7 trillion of that damage occurred this year, primarily in the first half. More loss is coming next year, as Zillow economist Stan Humphries predicts a double dip in housing that won't hit bottom until summer -- or later by Case Shiller estimates.

See how much equity your city lost here:

Eric Sprott's Double Barreled Silver Issue

Just released from Eric Sprott, Sprott Asset Management

Regular Markets at a Glance readers may have wondered why we remained so silent on the subject of silver over the last several months. Considering the significant exposure we have to silver as a firm, we can assure you that it wasn’t for lack of desire to share our views, but rather due to strict solicitation restrictions imposed on us by the cross-border listing of Sprott Physical Silver Trust (PSLV) this past October. It therefore gives us great pleasure to finally share our views on silver with you.

We have included two separate articles in this issue of Markets at a Glance: the first was written back in June 2010, and contains the information we used in the prospectus for the PSLV. The second is an update article written this past month that discusses new developments in the silver market and confirms our views on the metal. We urge you to read them both in order to understand our investment thesis for silver, and we hope they compel you to take a much closer look at silver as a long-term investment. Silver’s dramatic rise over the last two months is no fluke - it’s the result of a compelling supply/demand dynamic within a unique market structure. We hope the following articles convey our enthusiasm for "the other shiny metal" as an exceptional investment opportunity. (more)

Investors Intelligence - Important Bull/Bear Chart Watch Out!

This is an extremely important chart from Investors Intelligence showing 10 years of up to date Bull/Bear surveys. From their report, “The Investors Intelligence Advisors Sentiment Survey bull-bear spread is once again moving towards the +40% danger zone. When the spread last broke above 40%, in October 2007, the market collapsed spectacularly.” The entire write-up is below.

From Investors Intelligence:

In last month's report we were cautious and anticipating a correction. Subsequent trading in November saw the markets perform the much needed correction, a move that retraced a Fibonacci 23.6% retracement of the September and October rally on both the S&P 500 and the NASDAQ 100. Not that deep but it was sufficient enough to take the boil off our indicators. We piled back into equities over the last two weeks of November, just ahead of the market reasserting. The Coe Report portfolio for instance moved rapidly from net short mid month to a 110% net long last week.

However, 2010 has been all about switching between risk-on and risk-off and that looks set to continue going into 2011. The technicals are now implying a shift back to the latter. Two key reasons for caution are highlighted in this report. Of course, over the short-term, seasonality now favors the upside. The final five trading days of the year historically generate a Santa's rally, so the hangover, as it often does, may not rear its ugly head until January. (more)

HES Radio: World Financial Report

The World Financial Report brings you timely information on the worlds most exciting markets like oil, precious metals, currencies, commodities and hard money markets like very rare color diamonds and collectibles. The World Financial Report makes predictions and gives investment advice and has been very successful in identifying trends in the marketplace.

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The Q-Ratio Is Now Moving Into Nosebleed Territory, Showing A Hugely Overvalued Market

The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It's a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. The data for making the calculation comes from the Federal Reserve Z.1 Flow of Funds Accounts of the United States, which is released quarterly for data that is already over two months old.

The first chart shows Q Ratio from 1900 through the first quarter of 2010. I've also extrapolated the ratio since the end of Q3 based on the price of VTI, the Vanguard Total Market ETF, to give a more up-to-date estimate.

Interpreting the Ratio

The data since 1945 is a simple calculation using data from the Federal Reserve Z.1 Statistical Release, section B.102., Balance Sheet and Reconciliation Tables for Nonfinancial Corporate Business. Specifically it is the ratio of Line 35 (Market Value) divided by Line 32 (Replacement Cost). It might seem logical that fair value would be a 1:1 ratio. But that has not historically been the case. The explanation, according to Smithers & Co. (more about them later) is that "the replacement cost of company assets is overstated. This is because the long-term real return on corporate equity, according to the published data, is only 4.8%, while the long-term real return to investors is around 6.0%. Over the long-term and in equilibrium, the two must be the same." (more)

Bloomberg Businessweek - 13-19 December 2010

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