Monday, February 28, 2011

'Global Credit Warfare': China Preparing for a Treasury Bond Sell-Off?

China may soon call time on Western quantitative easing. More worryingly, the language she is using is far from friendly.

In a report issued last month, the Dagong Global Credit Rating Company praises "emerging creditor countries" for preventing the collapse of "debtor economies" during the recent crisis, but stresses the "vulnerable position" of America, whose "excess issuance" of dollars has triggered a "global credit war" that "arouses all the countries in the world to take various credit resources as a financial weapon to safeguard the national interests."

Dagong blames QE for increasing exports of capital and raising international commodity prices, causing price and asset inflation in developing countries where, according to a cited World Bank estimate, net capital flows to stockmarkets soared by 42% and to bond markets by 30%.

Signalling that a US Treasury bond sell-off is a "financial weapon" that China may be prepared to use in its defense, Dagong notes that creditor nations stabilised the situation in 2010 not only by "continued buying" of treasury bonds but also because they "continued to hold" them.

China is by far the biggest holder of US Government debt - $891.6 billion at December 2010, according to the US Treasury. This is about the same as a year before, but ignores possible purchases via intermediary nations. In 2009, ex-Roubini associate and now NEC adviser Brad Setser plausibly argued that much of the British buying was on behalf of the Chinese.

This is all the more credible because of the UK government's own deep and long-standing financial troubles: Why would one near-bankrupt lend to another? In December 2010 the ostensible UK holding was $541.3 billion - triple the figure from 12 months earlier. Setser's January 2009 estimate was that taking US Treasuries and Agencies together, China controlled $1.425 trillion-worth.

The UK has since increased "its" stake in Treasuries by over $360 billion, though China appears to have been reducing its exposure to Agencies for some time, according to a July 2009 report from the Congressional Research Service:

Data from the Department of Treasury indicate that in recent months China has sought to reduce its holdings of LT U.S. agency debt, while increasing its holdings of short-term U.S. Treasury securities.

This shift from Agencies to Treasuries, and from long- to shorter-date debt, is itself a subtly troubling trend.

Total Chinese foreign exchange reserves - mostly denominated in dollars, one understands - were $2.45 trillion in June 2010 and the current figure may be over $2.8 trillion. The effect of currency depreciation on its foreign assets is massively expensive to the People's Republic, and it is little wonder that she should be reconsidering her investment - and musing on using her leverage to further other objectives.

Officially, China repudiates the notion of using its foreign exchange reserves as an "atomic weapon", but the use of an ostensibly unconnected agency to convey diplomatic messages would not be out of character. Founded in 1994, Dagong is based in Beijing, and in 2008 its chairman Guan Jianzhong received a "special government allowance" - not merely a monetary prize but a sign of governmental approval.

America still has the world's largest economy, but of developed nations it is also one of the most dependent on refinancing in 2011 - third in GDP terms (27.6%) after Japan and Iceland, and first in absolute terms.

As early as 2007, Brad Setser gave evidence about the US' economic vulnerability to foreign sovereign wealth funds, to the USCC. The US-China "Strategic Economic Dialogues" also began that year and one suspects that some home truths were being told even then. Now the noises are being made more publicly and discordantly, if still at one remove from official sources.

It is getting more serious, and Dagong is not hopeful:

The United States, as the biggest country involved in sovereign debt crisis around the world, will continue its quantitative easing policy when the country is in danger, and the world credit war will be escalated due to the overflow of US dollars.

Clearly we are still at the shot-across-the-bows stage, but we have come a long way from four years ago.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The Only Chart You Need To See To Understand Why The US Is Screwed

Here's the one chart you need to see to understand why the US is screwed.

This is the "income statement" of the United States in 2010. "Revenue" is on the left. "Expenses" are on the right.

Note a few things...

First, "Revenue" is tiny relative to "Expenses."

Second, most of the expense is entitlement programs, not defense, education, or any of the other line items that most budget crusaders normally howl about.

Third, as horrifying as these charts are, they don't even show the trends of these two pies: The "expense" pie is growing like gangbusters, driven by the explosive growth of the entitlement programs that no one in government even has the balls to talk about. "Revenue" is barely growing at all.

As we'll illustrate with more of Mary's charts next week, the US cannot grow its way out of this problem. It needs to cut spending, specifically entitlement spending. We hereby announce that we'll give a special gold star to the first "leader" with the guts to say that publicly.

Goldman Sachs Group Inc. GS Stock Analysis 2/26/11

The following is technical analysis on Goldman Sachs Group Inc (GS) stock for February 28, 2011

Goldman Sachs Group Inc GS Resistance, pivot & Support Levels - 02/28/2011

Resistance levels: $168.24, $167.20, $166.16

Pivot point: $164.84

Support levels:$163.80, $162.48, $161.44

Shares of Goldman Sachs Group are trading back over $165. Goldman Sachs does not have any major resistance until $175.50 area need to watch now. Goldman Sachs remains a strong buy below $162.Goldman Sachs is now a strong buy below $150.

FDIC Bank Closings

Rate Of Spread Between GBP And JPY Spec Bets Cut In Half, And Other Commitment Of Trader Observations

A week ago we highlighted the major inversion in the non-commercial spec bets between the GBP and the JPY, after the two had been trending with very close correlation for almost a year. This week, after GBP spec bets had hit the highest in over a year, on expectations that the BOE would commence a tightening regime (which we believe are unfounded and largely premature considering the worsening stagflation the UK finds itself in), GBP bets dropped by a the second largest amount in over a year, or by 16,563 contracts (only the 18,788 decline in February of 2010 was greater), to 36,009. And as we suggested last week, when we told readers to "note the surge in GBP bullish bets, and the plunge in JPY. Those willing to bet that the spec crowd is always one step behind the curve may be well advised to take the other side of the trade" this is indeed what is starting to happen: the drop in Yen specs was roughly half the GBP decline, at 9,198 to a total of -27,746. In other words the GBP-JPY convergence is starting to play out. Nonetheless with Yen specs at the lowest they have been since May of 2010, this is a level of concern.

GBP-JPY net non-commercial specs and trendlines:

All FX. Note the continuing destruction of the USD. The EUR and the USD continued to trade with a -1.000 correlation.

Next: grains and softs. Slight reduction in spec bets except in Cocoa, which have surged since the Ivory Coast violence.

And last, the distribution of spec bets along the Treasury curve. Most bullishness is in the belly, while the outlook for the 10 Year continues getting worse, and is now at the lowest since August 2010.

Top 12 Countries Most Likely To Go Belly Up

By Dian L. ChuRisk analysis firm Maplecroft just released its new fiscal risk index ranking of 163 countries. Europe trumps all other regions with 11 out of twelve courtiers rated as "extreme risk." However, quite surprisingly, only one PIIGS country--Italy which takes the top spot--is in the top 12.

The others include many big economies in Europe - Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), United Kingdom (10), Finland (11) and Greece (12). Japan at No. 9 is the only other country not in Europe within the highest risk category (See map below).

Aging Demographics

While high national debt and public spending are two common denominators, the study finds it is the aging demographic that puts these countries at extreme fiscal risk. An aging population will place increasing pressure on public expenditure such as pension and health care, while a shrinking working-age population means less productivity and less tax revenues to support public spending and debt payments.

High Dependency Ratio

Aging population also means high dependency ratio, or the number of people 65 and older to every 100 people of traditional working ages. For example, according to Maplecroft, the dependency ratio in France is 1 to 47 (i.e. 47%), Germany at 59%, Italy with 62%, and Japan at the very top with 74%, while the ratio in UK is currently 25%, and is forecast to rise to 38% by 2050.

Low Senior Labor Participation Rate

Another problem within Europe is that it has the low labor participation rate in the 65+ age bracket. In fact, the labor market participation of age 65+ amongst the ‘extreme risk’ nations range from 1.4% in France, 7.71% in UK, to 11.7% in Sweden, vs. a 28% average across all countries ranked in the index.

Maplecroft cited pensions and discrimination as two examples that would push people away from the work force.

U.S. – High Fiscal Risk

Although the United States is not ranked among the "extreme fiscal risk," the nation is nevertheless classified as "high risk", along with Spain, another PIIGS country, Australia, Canada and Russia.

Let's take a look at the two metrics mentioned here.

The dependency ratio in the U.S. is 22 in 2010, but is projected to climb rapidly to 35 in 2030, according to the U.S. Census Bureau, mainly due to baby boomers moving up into the 65+ age bracket. The ratio then will rise more slowly to 37 in 2050.

The labor participation for age 65 and over in the U.S. is at 17.5 according to data at Bureau of Labor Statistics (BLS). This is better than most of the European countries, but below the overall average of 28%.

U.S. in Wave 2

Most people typically associate a country’s fiscal risk to its government’s monetary and fiscal policies, and Lehman Brothers has taught us that banking and housing crisis could push the entire world into the Great Recession.

While these are all definite risk factors, a highly productive labor force and relatively young population makeup tend to ensure more sustainable prosperity and better odds at climbing out of a hole.

The Maplecroft study concludes:

" high risk countries, it is increasingly likely that the private sector will be called upon to contribute in the form of pensions and private health care.... Without significant adjustments, such as raising taxes or reducing spending, countries risk going bankrupt."

So, while Europe is being forced to do all that amid sovereign debt crisis in the middle of widespread protests over raised pension age and austerity measures, the U.S. and other "high fiscal risk” countries seem be set up as the wave 2 of this global fiscal chain of events.

Leading Indicators of Revolt in the Middle East and Northern Africa: Corruption, Unemployment and Percentage of Household Money Spent on Food

What determines which Middle Eastern or North African (MENA) countries will face revolt?

On February 3rd, the Economist came up with a list of "vulnerable" countries based upon the amount of democracy, corruption and press freedom:


But the Economist index doesn't take unemployment into account unemployment.

As Alternet notes:
Arab Labour Organisation (ALO) figures show that Arab countries have among the highest unemployment rates in the world -- an average of 14.5 percent in fiscal year 2007/08 compared with the international average of 5.7 percent. The rates may even be higher if one accepts unofficial estimates.
Global risk specialist Mi2g notes:
There are a lot of “orphans” and most are young – 65 percent of the population of the Arab League is under the age of 30. Youth unemployment rates are exorbitantly high – as high as 75 percent in some countries like Algeria. While the informal economy provides partial compensation, this does not provide security; the Jasmine Revolution was triggered by the self-immolation of a young man, Mohamed Bouazizi, unemployed after police confiscated his wheelbarrow, used to make ends meet by selling fruits and vegetables.
On February 2nd, Nomura published a report written by Steven Cook of the Council on Foreign Relations, arguing that youth unemployment and underemployment - along with a large proportion of youth - are primary factors driving revolt in the Middle East:
In both Tunisia and Egypt factors were at play which are also to be found in other economies in the region, notably:–An autocratic and corrupt regime [and] A significant―youth bulge and related unemployment and under-employment....
In other words, when there alot of young, unemployed (or under-employed) people, they might revolt.

Here are statistics from Nomura showing the percentage of youth under 15 years old and median age in years in the Middle East and Northern Africa:

CountryPopulation Aged <15>
Median Age (2010)
Algeria 27.0% 26.2%
Egypt 32.1% 23.9%
Iran 23.8% 26.8%
Iraq 40.7% 19.3%
Jordan 34.0% 22.8%
Libya 30.1%26.2 %
Saudi Arabia32.0 %24.6%

On February 9th, the Economist came up with a revised index, which they call the "shoe thrower's index" (throwing one's shoes at someone is the ultimate sign of disrespect in the Arab world).

The index gives a 35% weighting for the share of the population that is under 25; 15% for the number of years the government has been in power; 15% for both corruption and lack of democracy as measured by existing indices; 10% for GDP per person; 5% for an index of censorship and 5% for the absolute number of people younger than 25: (more)

8 Stocks George Soros Is Buying

NEW YORK (Stockpickr) -- At Stockpickr, we track the 30 of the top holdings of a variety of high-profile investors, such as Warren Buffett and Carl Icahn. On the heels of the most-recent quarterly 13F filings with the SEC, we're drilling down into these portfolios to offer you the stock picks of some of the world's most famous and followed investors.

One of our most popular professional portfolios is that of George Soros' Soros Fund Management. Keeping in mind that Soros Fund Management conducts hundreds of transactions every quarter -- in the fourth quarter, for example, just positions initiated by Soros clocked in at more than 250 -- we thought we'd single out some of its recent top buys.

What follows is a closer look at eight of the 30 holdings that Stockpickr tracks in its George Soros portfolio. These stocks, including one brand-new buy, saw position increases in the most-recent quarter of 100% or more. They are organized here by increasing position size.

Related: 7 Stocks Leading the Market in 2011


Ford(F) comprises 0.6% of Soros' portfolio. The 2.6 million-share position is a 7,070.5% increase over the previous quarter.

Ford also shows up in the portfolios of Leon Cooperman's Omega Advisors, which maintained a 6 million-share position at 2.5% of the total portfolio, and Ken Heebner's Capital Growth Management, in a 41.6 million-share position that, at 10.3% of the total portfolio, is its largest holding.

Stock Overview: Ford Motor is a producer of cars and trucks. Its business is divided into two sectors: automotive and financial services. It has a market cap of $53.6 billion, a 1.9 short interest ratio and a P/E of 8.8.

Analyst Ratings: Of 14 analysts covering the stock, seven rate it a buy, six rate it a hold, and one rates it a sell. TheStreet Ratings has a C hold rating on the stock, earning it a spot on the top-rated automobile stocks list.

More on Ford: Ford is one of Goldman's 11 best consumer stocks for 2011, and according to Dirk van Dijk, chief equity strategist at Zacks, it's one of several stocks to ride an economic recovery. Comcast

Comcast(CMCSA) comprises 0.6% of Soros' portfolio. Soros Fund Management increased its position by 112.2% in the most-recent quarter to about 2 million shares.

Comcast also shows up in the portfolios of John Paulson's Paulson & Co., at 3% of the total, and Steven Cohen's SAC Capital, at 0.6% of the total.

Stock Overview: Comcast is a provider of cable services, offering a variety of entertainment, information and communications services to residential and commercial customers. It has a market of $53.1 billion and a 3.4 short interest ratio, it yields 1.8, and it trades at a P/E of 19.9.

Analyst Ratings: Of 25 analysts covering the stock, 15 rate it a buy, and 10 rate it a hold. TheStreet Ratings has an A- buy rating on the stock.


Citigroup(C) comprises 0.7% of Soros' portfolio. Soros Fund Management increased its position in the stock by 49.4% to 1.1 million shares in the most-recent quarter.

At 5.7% of the total portfolio, Citigroup is the top holding of Steve Mandel's Lone Pine Capital. The 145.1 million-share position is new as of the most-recent quarter. The stock also comprises 7.1% of Bruce Berkowitz's Fairholme Capital Management portfolio.

Stock Overview: Citigroup is engaged as a financial services holding company, whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services. It has a market of $142.6 billion and a 0.7 short interest ratio, and it trades at a P/E of 14.

Analyst Ratings: Of 20 analysts covering the stock, 10 rate it a buy, eight rate it a hold, and two rate it a sell. TheStreet Ratings has a C- hold rating on the stock.

More on Citigroup: Citigroup showed up on a recent list of the 10 cheapest big U.S. bank stocks, and according to Lauren Tara LaCapra, it's one of 18 big banks that could see dividend increases. Goldman included the stocks as one of its seven best financial stocks for 2011. Wal-Mart Wal-Mart(WMT) comprises 0.7 of Soros' portfolio. The 938,400-share position is a 6,595.7% increase over the previous quarter.

Wal-Mart is also a top holding of Stockpickr's most popular portfolio, that of Warren Buffett, who owns 39 million shares. The stock comprises 4% of the total Berkshire Hathaway portfolio. The Bill and Melinda Gates Foundation Trust also likes Wal-Mart. It owns 9.8 million shares, for 3.5% of the total portfolio.

Stock Overview: Wal-Mart Stores operates Walmart discount stores, supercenters, Neighborhood Markets and Sam's Club locations in the U.S. It has a market of $197.3 billion and a 2.5 short interest ratio, it yields 2.2%, and it trades at a P/E of 13.8.

Analyst Ratings: Of 28 analysts covering the stock, 17 rate it a buy, and 11 rate it a hold. TheStreet Ratings has a B buy rating on the stock.

More on Wal-Mart: Wal-Mart showed up on a recent list of 16 Dow stocks selling at five-year discounts and according to Jake Lynch is one of the 10 cheapest Dow dividend stocks for 2011. Frank Byrt included it as one of four stocks that could get a boost from inflation.

Coca-Cola Enterprises

Coca-Cola Enterprises(CCE) comprises 0.8% of Soros' portfolio. He increased his position by 1,276.3% in the most-recent quarter, to 2.4 million shares.

Coca-Cola Enterprises also shows up as a holding of Michael Price at MFP Investors, at 1.5% of the total portfolio.

Stock Overview: Coca-Cola Enterprises markets, produces and distributes soft drinks to customers through license territories in 46 states in the U.S, the District of Columbia, the U.S. Virgin Islands and certain Caribbean islands and the 10 provinces of Canada. It has a market of about $9 billion and a 2.3 short interest ratio, it yields 1.8, and it trades at a P/E of 14.8.

Analyst Ratings: Of 13 analysts covering the stock, seven rate it a buy, and six rate it a hold. TheStreet Ratings has a B- buy rating on the stock, earning it a spot on the top-rated beverage stocks list. Best Buy

Best Buy(BBY) comprises 0.9% of Soros' portfolio. The 2.1 million-share position is a new one for the most-recent quarter.

Whitney Tilson at T2 Partners also initiated a new position in Best Buy in the most-recent quarter, which now comprises 0.4% of the total portfolio.

Stock Overview: Best Buy is a multinational retailer of consumer electronics, home office products, entertainment software, appliances and related services. It has a market of $13 billion and a 2.2 short interest ratio, it yields 1.8%, and it trades at a P/E of 9.9.

Analyst Ratings: Of 25 analysts covering the stock, 11 rate it a buy, and 14 rate it a hold. TheStreet Ratings has a B- buy rating on the stock.

More on Best Buy: Forester Value Fund manager Tom Forester selected Best Buy as one of his five best value stocks for 2011.


Dendreon(DNDN) comprises 1.9% of Soros' portfolio. The 4.2 million-share position is a 131.2% increase over the previous quarter. SAC Capital also boosted its position in Dendreon in the most-recent quarter, by 16.6% to 7.1 million shares.

Stock Overview: Dendreon is a biotechnology company focused on the discovery, development and commercialization of novel therapeutics that improve cancer treatment options for patients. It has a market cap of $4.9 billion and a 4.7 short interest ratio.

Analyst Ratings: Of 18 analysts covering the stock, 12 rate it a buy, five rate it a hold, and one rates it a sell. TheStreet Ratings has a D- sell rating on the stock. Delta Air Lines

Delta Air Lines(DAL) comprises 2.4% of Soros' portfolio. Soros Fund Management increased its position by 299.1% in the most-recent quarter, to 14.7 million shares.

Delta also shows up in the portfolio of Ronald Muhlenkamp at Muhlenkamp Fund in a new 1.7 million-share new position, comprising about 3% of the total portfolio.

Stock Overview: Delta Air Lines operates as an airline, providing scheduled air transportation for passengers and cargo throughout the United States and around the world. It has a market of $9.6 billion and a 0.9 short interest ratio, and it trades at a P/E of 16.4.

Analyst Ratings: Of 13 analysts covering the stock, 11 rate it a buy, and two rate it a hold. TheStreet Ratings has a C hold rating on the stock, earning it a spot on the top-rated airline industry stocks

To see these stocks in action, check out the 8 Top George Soros Buys portfolio. For Soros' top 30 holdings, visit the George Soros portfolio at Stockpickr.

US Economic Calendar for the Week

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
Feb 288:30 AMPersonal IncomeJan-0.3%0.3%0.4%-
Feb 288:30 AMPersonal SpendingJan-0.1%0.4%0.7%-
Feb 288:30 AMPCE Prices - CoreJan-0.1%0.1%0.0%-
Feb 289:45 AMChicago PMIFeb-62.067.568.8-
Feb 2810:00 AMPending Home SalesDec--1.5%-3.2%2.0%-
Mar 110:00 AMConstruction SpendingJan--1.0%-0.6%-2.5%-
Mar 110:00 AMISM IndexFeb-61.560.560.8-
Mar 13:00 PMAuto SalesMar-NANA3.95M-
Mar 13:00 PMTruck SalesMar-NANA5.64M-
Mar 27:00 AMMBA Mortgage Index02/25-NANA+13.2%-
Mar 27:30 AMChallenger Job CutsFeb-NANA-46.1%-
Mar 28:15 AMADP Employment ChangeFeb-160K163K187K-
Mar 210:30 AMCrude Inventories02/26-NANA0.822M-
Mar 22:00 PMFed's Beige BookMar-----
Mar 38:30 AMInitial Claims02/26-400K400K391K-
Mar 38:30 AMContinuing Claims02/19-3800K3800K3790K-
Mar 38:30 AMProductivity-Rev.Q4-2.4%2.3%2.6%-
Mar 38:30 AMUnit Labor Costs - RevisedQ4--0.6%-0.3%-0.6%-
Mar 310:00 AMISM ServicesFeb-
Mar 48:30 AMNonfarm PayrollsFeb-200K180K36K-
Mar 48:30 AMNofarm Private PayrollsFeb-NA185K50K-
Mar 48:30 AMNonfarm Private PayrollsFeb-220K193K50K-
Mar 48:30 AMUnemployment RateFeb-9.2%9.1%9.0%-
Mar 48:30 AMAverage WorkweekFeb-34.3%34.334.2-
Mar 48:30 AMHourly EarningsFeb-0.2%0.2%0.4%-
Mar 410:00 AMFactory OrdersJan-3.2%2.1%0.2%-

Saturday, February 26, 2011


According to the latest data from the exchanges the bears are becoming an endangered species. As short interest craters investors are taking on record levels of debt to borrow at low rates and purchase equities. In essence, the Bernanke Put is spurring on another risk taking binge for Wall Street.

Yesterday, CNN reported on the decline in short interest. As you can see, total short interest in the S&P has declined as the seemingly unstoppable bull market forces shorts out of the bearish game:

This is perfectly normal during a bull market, however, there are more disturbing trends in margin data. While Ben Bernanke fails to keep rates low and induce business borrowing, he is in fact stoking a speculative boom at the Wall Street casino. According to Bloomberg Wall Street has been leveraging up in preparation for the Fed’s “wealth effect”:

Debt at margin accounts at the New York Stock Exchange minus cash and unused credit from margin accounts climbed to $46 billion, according to data released by NYSE yesterday. Hedge funds had $290 billion of debt from margin accounts in December, the largest sum since Lehman Brothers Holdings Inc. collapsed in September 2008.

“It makes a lot of sense given the low cost of borrowing and some equities’ valuations,” said Patrick Armstrong, who helps manage $356 million in multiasset strategies at Armstrong Investment Managers LLP in London. “There is a capital- structure arbitrage to be made by buying stocks with leverage.”

We’re not yet back to 2007 levels, but as the rally progresses it becomes more and more clear that nothing has really changed in the USA. We are simply back to all the same gimmicks, policies and speculative games that got us into this mess. The Bernanke Put is only helping to reinforce this.

The Economist - 26th February-4th March 2011

read more here

Dmitry Orlov: The Future US Collapse and How to Survive

Update of Oil, Natural Gas and the AMEX Oil Index


The daily chart of oil is shown below, with oil shooting well above all three Bollinger bands, suggestive that oil will consolidate for at least 7-10 days before trending higher. Normally, when prices run well above upper Bollinger bands, a consolidation is required, or a pullback is in order. Given the fact that all three lower Bollinger bands are positioned in close proximity to each other and the lower 55 MA Bollinger band curled lower, oil prices are highly likely to remain above $90/barrel and eventually rise above $100/barrel before summer's end. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. The %K in stochastic 1 appears to have curled up and if the trend continues, then upside should drift into late March/early April. As mentioned, the spike above all three upper Bollinger bands is likely to have a consolidation period before advancing higher....geopolitical tensions of course could stretch this, which would make the collapse price much more drastic...remember the Bollinger band always resorts to the mean and if anything stretches outside of them, then they will spend a consolidation time between them again. If the opposing Bollinger bands are spread out (not the case here) then a dramatic reversal generally occurs. If opposing Bollinger band are in close proximity to each other (as per below), then further upside potential exists after the short-term overbought condition wears out.

Figure 1

Figure 1

The weekly chart of oil is shown below, with all three upper Bollinger bands in close proximity to each other. Oil prices spiked above all three upper Bollinger bands, indicating that a short-term pullback is likely. Lower Bollinger bands are in close proximity to each other and fanned out, suggestive that a break in oil prices above $100/barrel is not likely to occur until later this summer/early fall. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 1 and 3. Positioning of the %K in stochastics 2 and 3 suggest that sideways to upward price action in oil is likely to persist into late fall.

Figure 2

Figure 2

The monthly chart of oil is shown below, with upper 34 and 55 MA Bollinger bands still drifting well above the current price in close proximity to each other, suggestive that the the consolidation period is still not yet complete. The lower 55 AM Bollinger band appears to be curling over, suggestive that further upside potential lies ahead in the not too distant future. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2 and beneath the %D in 3. Extrapolation of the %K trend in stochastic 1 strongly suggests that the price of oil will remain sideways up between December 2011 and June 2012. It is impossible to pin any sort of tight date for when a top is put in place because a lot can happen between now and then. However, there will be volatility along the way as this is “Climbing the Wall of Worry”.


Celente: “When the money stops flowing down to the man in the street, the blood starts flowing in the streets.”

Trend forecaster Gerald Celente, of the Trends Research Institute, says that the further expansion of government austerity measures and impoverishment of the majority of the world’s populace will lead to more violence, riots and revolutions.

In his latest Trend Alert® to subscribers, Celente discusses the revolutions breaking out in the middle east and provides a different reasoning than mainstream pundits and politicians for why it is happening and why it will spread to Europe and the US:

As we wrote before Tunisia and Egypt erupted, the outbreaks would go global and the reasons behind the unrest would be more about bread and butter issues than politics. As economies decline, unemployment rises, taxes are raised and services cut – while those at the top get richer and most everyone else gets poorer – revolutions will continue to spread.

But that’s not the way it’s being represented by the same people who didn’t see it coming. The media, pundits and politicians have misrepresented the historic geopolitical events that have occupied the news since the onset of the New Year. Virtually overnight, the revolutions have been glorified as courageous fights for freedom and liberty by democracy-hungry-masses.

But it is not hunger for democracy that drives them. Democracy, autocracy, theocracy, monarchy – right, center, left – it is mostly a gut issue…an empty gut issue. When the money stops flowing down to the man in the street, the blood starts flowing in the streets. It’s a simple equation. A few at the top have too much, and too many others have too little.

What’s Next

In response to the current Middle East uprisings, gold has broken above $1400 an ounce and Brent Crude climbed to $113 a barrel. There is no end in sight to market volatility. As the violence escalates and expands, the fallout will be felt around the world.

From the onset of the financial crisis that began in August 2007, and through the ensuing Panic of ’08, Washington, the Federal Reserve and central banks have managed to forestall a Great Depression-grade meltdown by way of a variety of multi-trillion dollar rescue packages, bailouts and stimulus programs. For three years the programs were able to induce an illusory and superficial recovery that, barring a major external geopolitical jolt, might have continued to run its course until the inevitable denouement.

But now the jolt felt around the world is in the process of shattering the recovery illusion. Whether deliberately (as calculated policy) or as fallout from fear-based denial, the pieces are not being put together. The current unrest is not confined to the Middle East and North Africa, and as we had forecast, it will spread to Europe and other parts of the world. The more volatile and widespread the insurrections, the greater the probability that some combination of events (e.g., oil shock, terror attack, cyber wars and regional wars) will crash already fragile economies, and roil sound ones.

Be Prepared

Conditions are spinning out of control. In some countries, bank and stock market closures are real possibilities, as is the imposition of martial law. We reiterate our forecast for gold $2000. We recommend keeping cash and necessities on hand to help weather emergency situations. If the worst does not happen, nothing is lost. If the worst happens and you are not prepared, you are lost.

Source: The Trends Journal Subscriber Trend Alert (February 24, 2011)

Politics is playing a small role. For 30 years Egyptians lived under the rule of President Mubarak. For 30 years we heard how great Egypt was from the people that lived there, as well as our own media. Then, from one day to the next, everything changed and Mubarak was a dictator. A similar story was presented in other parts of the middle east that are now in turmoil.

This is not about deposing leaders for political reasons, though it may seem like it based on how it’s being presented in the media.

Consider the latest union protests in Wisconsin. It was portrayed by the media as a partisan issue – a fight between republicans and democrats. But had a democrat governor been forced to take similar action, the unions would have been in the streets protesting anyway.

This is happening because the flow of easy money is being systematically withdrawn from Main Street (the world over).

This is happening to public and private sector workers alike. No one is immune.

Keeping the arguments in a political space diverts the focus of the masses so that they hate each other, as opposed to targeting the fundamental reasons for why we’re in the position we are in the first place.

We’ve suggested it before, and we will yet again: As the people get broker and hungrier, and they lose their jobs, their homes and finally realize there will be no return to the boom times of the 80′s, 90′s and early 2000′s, the unrest will foment and spread.

Author: Mac Slavo

Investing Like Buffett: 5 Ways to Achieve Legendary Returns,

People are always interested to hear what Warren Buffett has to say about the current state of the economy, but what everyone actually cares about is how he continues to achieve such amazing returns after all this time. Of course he’s always willing to impart pieces of his wisdom to the public, but sometimes they sound like cryptic messages from the future, while others are crystal clear to understand. Unfortunately, a conceptual understanding of what he says is very different than turning his thoughts into sound investment principles and actions. This is why we have pinpointed five easy Buffett investment principles, which build upon each other, that hopefully will help the everyday investor to achieve better returns.

1. Be a Bear Market Investor

Buffett is, in our opinion, a bear market investor; he has historically made some of his most successful investments and deployed the greatest amount of capital specifically during bear markets. Think for one moment about how well a portfolio would do if a good chunk of its assets were consistently invested only during bear market periods, and that during bull markets capital was deployed much more sparingly. It’s not hard to understand that it would probably do much better over the long term with this general mindset. This is due to the fact that investments would be made more often when stocks are trading at depressed prices. Below is an example of Buffett being a bear market investor:

Investment: PetroChina (PTR)

Investment Date: 2002-2003 ( crash/recession period)

Total Capital Invested: $488 Million

Holding Period: 6 Years (Sold in 2008)

Capital Received from Sale: $4 Billion

Total Return: 819.67%

Annualized Return on PTR: 136.66%

Most investors were obviously not looking at investing in a Chinese state-owned oil company after the crash -- or anything else, for that matter. Still, this simple investment principle is no different than if a person only bought clothes when they were on sale at a department store. He bought a great company when it was on “sale” because he realized that the intrinsic value of the company never changed; just the price tag on it. Remember, a great company generally only goes on “sale” during a bear market -- so when there is fear in the streets, it’s time to go shopping.

2. Invest in What the World Needs

During the last recession, investors hated Goldman Sachs (GS), Burlington Santa Fe Rail (BNI), and General Electric (GE) equally. Investors crushed their respective stock prices based on illogical fears, emotional hatred, and very little analysis. Putting personal opinions aside, GE, BNI, and GS are all marble pillars of the U.S. economy. Buffett always invests with objectivity, and that’s why he bought shares in each of these firms. In particular, he bought the remaining shares of Burlington Santa Fe and folded them into Berkshire Hathaway (BRK.A). One man’s “trash” was definitely Buffett’s treasure. The takeaway point here is that Buffett went into heavily distressed industries that were crucial to the U.S. economy recovering and then bought the best in breed.

3. Fundamental Analysis and Due Diligence

The Oracle of Omaha is constantly quoted for saying “I only invest in what I understand.” As simple as this sounds, it actually goes over the heads of about 80% of investors. What he means here is that he spends a good portion of time educating/doing due diligence for himself about industries that he is interested in but potentially unfamiliar with. This includes taking time to understand the industry as a whole, how it fits into the world economy, and the company itself. We doubt he was a chocolate connoisseur before or after he bought See’s Candy, but either way, he knew what he was buying because he did his due diligence.

As an investor, he is probably one of the few who still directly requests the financial statements from firms he has an interest in. Everyone can call Buffett a “value investor” till they’re blue in the face, but he is a fundamental analysis investor at the end of the day. We have little doubt he goes through every number and checks every financial statement ratio in the book to find potential “hidden value.” He is even known to go through the granular footnote details for assumptions and/or additional information about inventory classification.

Doesn’t doing all this due diligence and research take time though? Yes, of course it does. Still, this is what he does in order to beat the market. He realizes and understands that most investors won’t take the time to do this consistently. Imagine how successful anyone could be at anything if they knew exactly how much effort they needed to give in order to outperform the competition. When it comes to investing, Buffett knows exactly how much effort he has to put forward.

This may all sound boring so far, but becoming the third-richest billionaire in the world by investing in names like Coca-Cola (KO) is not. He may like the taste of a Coca-Cola soda, but we doubt he would have invested in the company if it were short on cash, up to the eyeballs in red, and leveraged to the hilt with debt and with no hope of being able to pay it back. When he invests in a company, he knows it and its industry inside out. The time involved with principle three is substantial -- but so is the potential payoff.

4. Pricing Power beats Sound Management

The pricing power of a firm generally holds more value than does sound management, plain and simple. Further, it reduces the risk that a firm will underperform longterm should key personnel leave. Do you agree? Well, Buffett certainly does; he was quoted saying the following in two separate, recent interviews:

  • "The single most important decision in evaluating a business is pricing power …. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.” (For more, see here.)
  • “The extraordinary business does not require good management.” (For more, see here.)

His argument here makes sense and we are happy to follow this principle without question.

5. Patience

It’s true that Rome wasn’t built in a day, but sometimes it’s tough to remember that. Buffett understands the power of patience, and that is why he remains bullish over the long term. The rules are no different for anyone else, in that if an investor follows all the other principles then all that is left for him to do is be patient enough to wait and watch hard work pay off.


The Oracle of Omaha will always be bullish long term because he follows these principles without fail, in our opinion. With these five simple principles he has consistently outperformed the market and continues to see the investment landscape differently than almost everyone else.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

US Will Be the World's Third Largest Economy: Citi

The world is going to become richer and richer as developing economies play catch up over the coming years, according to Willem Buiter, chief economist at Citigroup.

"We expect strong growth in the world economy until 2050, with average real GDP growth rates of 4.6 percent per annum until 2030 and 3.8 percent per annum between 2030 and 2050," Buiter wrote in a market research.

"As a result, world GDP should rise in real PPP-adjusted terms from $72 trillion in 2010 to $380 trillion dollars in 2050," he wrote.

As the world watches oil prices rise sharply amid unrest in the Middle East, Buiter's analysis of the world's long-term prospects offer some hope that better times are ahead but if he is right power will shift from the West to the East very quickly.

"China should overtake the US to become the largest economy in the world by 2020, then be overtaken by India by 2050," he predicted.

One Way Bet on Emerging Markets?

Growth will not be smooth, according to Buiter. "Expect booms and busts. Occasionally, there will be growth disasters, driven by poor policy, conflicts, or natural disasters. When it comes to that, don't believe that 'this time it's different'."

  • The Most Extreme Cases of Hyperinflation, Ever
  • However, there are some easy wins for poor countries with big, young populations, he said.

    "Developing Asia and Africa will be the fastest growing regions, in our view, driven by population and income per capita growth, followed in terms of growth by the Middle East, Latin America, Central and Eastern Europe, the CIS, and finally the advanced nations of today," he wrote.

    "For poor countries with large young populations, growing fast should be easy: open up, create some form of market economy, invest in human and physical capital, don't be unlucky and don't blow it. Catch-up and convergence should do the rest," Buiter added.

    Buiter has constructed a "3G index" to measure economic progress; 3G stands for "Global Growth Generators" and is a weighted average of six growth drivers that the Citigroup economists consider important:

  • A measure of domestic saving/ investment
  • A measure of demographic prospects
  • A measure of health
  • A measure of education
  • A measure of the quality of institutions and policies
  • A measure of trade openness
  • Using that index the nations to watch over the coming years are Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, the Philippines, Sri Lanka and Vietnam.

    "They are our 3G countries," Buiter said.


    By Charles Rotblut, CFA, AAII

    Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 9.9 percentage points to 36.6% in the latest AAII Sentiment Survey. This is the first time in 25 weeks that optimism has been below its historical average of 39%.

    Neutral sentiment, expectations that stock prices will remain essentially flat over the next six months, edged down 0.6 percentage points to 27.2%. This is the 29th consecutive week that neutral sentiment has remained below its historical average of 31%.

    Bearish sentiment, expectations that stock prices will fall over the next six months, surged 10.7 percentage points to 36.2%. Pessimism is at its highest level since September 2, 2010. This is just the fourth time in the past 24 weeks that bearish sentiment has been above its historical average of 30%.

    The ongoing instability in the Middle East is intensifying concern about higher rates of inflation. Individual investors are already seeing higher gas prices at the pump, and there is worry that even higher prices could slow down the pace of the economic recovery. Though AAII members had been optimistic about the direction of stock prices, there was underlying unease about jobs, the federal deficit and the potential for rising interest rates and inflation. Thus, though individual investors were hopeful, they were not exuberant.

    This week’s special question asked AAII members what economic or market-related catalysts they are looking for over the next few months. Responses varied, though the possibility of higher inflation was cited by the largest number of respondents. Many individual investors said they were monitoring events in the Middle East, expecting higher interest rates and watching to see if Washington will make any meaningful progress on the deficit and avoiding a shutdown.

    Here is a sample of the responses.

    • “Inflation. I believe there is growing pressure for producers to start passing on some of the rise in commodity costs soon, or their profitability will begin to suffer.”
    • “North Africa is like a smoldering tinderbox, and that is sure to have ramifications on the U.S. markets.”
    • “I am watching Washington. Will it engage in problem solving or political behavior with respect to its fiscal agenda?”
    • “I am looking at the all the capital that corporate America is sitting on. If I see them start to utilize the capital, I will be long on large-cap stocks.”
    • “Employed people spending money drive our economy. Steadily increasing employment is key to our continued recovery.”

    This week’s sentiment survey results:

    • Bullish: 36.6%, down 9.9 percentage points
    • Neutral: 27.2%, down 0.6 percentage points
    • Bearish: 36.2%, up 10.7 percentage points

    Historical Averages:

    • Bullish: 39%
    • Neutral: 31%
    • Bearish: 30%

    The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at:

    Oil SHOCK: How the British gov't just guaranteed an energy crisis

    Gonzalo Lira,

    Today, the UK’s Telegraph is reporting that British government drones in Whitehall are figuring out the legal means to seize Muammar al-Gaddafi’s assets in Britain, which are said to total some £20 billion.

    Notice that’s pounds sterling—the equivalent of US$32 billion: Enough cash to plug up California’s and New York State’s deficits, and still have enough left over for a very respectable weekend at The Palms in Las Vegas.

    That these assets are going to be seized is, according to the story, a done deal: The only issue seems to be the legal means by which to do so—

    —which means that the British government isn’t worried about pissing off Gaddafi—

    —which means that Gaddafi’s days in power are numbered: Whitehall would never dare seize his UK assets, unless they were sure that Gaddafi won’t be around to exact revenge or retribution. After all, the Brits let the Lockerbie Bomber go in 2009, in order to shore up relations with Gaddafi.

    Now, for my patented History Flashback™ (All Rights Reserve, All Wrongs Deferred):

    When the Shah of Iran was overthrown by the Islamic Revolution in January 1979, Iran’s oil production dropped from 5.75 million barrels a day to zero. Such was the chaos of the Revolution.

    Production eventually picked back up in the days that followed, to a new average of 2.25 million barrels a day in 1980—but as they say, the damage was done: In short order, the price of crude shot the moon from $14.95 per barrel in 1978, to $25.10 per barrel in 1979—the inflation adjusted equivalent of $74.67 in today’s dollars. By 1980, even though Iran’s oil production was improving, the price situation was worse: Oil averaged $37.22 in 1980, the equivalent of $99.11 per barrel. (Data is here.)

    This led—directly—to the recession of ‘79–‘83, the worst since the Great Depression. Unemployment got to double digits, as did inflation. Gold famously went up to highs never seen before, as a hedge against that inflation, and it was all Paul Volcker could do to reign it in by inflicting 20% interest rates—that’s right: 20%.

    An Oil Shock is nothing to take lightly.

    Today, Libya represents far less of the world’s total oil production than Iran did in 1979. As of last year, from the worldwide total of 84 million barrels per day, Libya produced just 1.79 million barrels per day, according to the CIA Factbook—that’s less than 2% of world production, compared to Iran’s 5%.

    But what’s happening in Libya is not just limited to Libya: 2011 is shaping up to be the region’s very own 1848, as Anne Applebaum cleverly pointed out. What started in Tunisia and spread to Egypt has now spread to Libya. And now this morning, there are reports that of severe disturbances in Iraq (Iraq! Where the U.S. is sitting like an army of occupation, and there are popular riots!). The Saudis—conspicuously—ominously—are giving free money and promising more benefits to their people.

    Even before the revolutions in the Middle East, oil prices have been steadily rising—along with food, precious metals and industrial metals—as hot money flows to commodities. Regardless of what Krugman says, this rise in commodity prices is a direct product of the U.S. Federal Reserve’s zero interest rate policy (ZIRP, otherwise known as “free money”) and Quantitative Easing 2 (QE2, otherwise known as “money printing”).

    So what does this all mean?

    It means that, when Gaddafi falls, Libyan oil production is going to be hurt or outright interrupted. And just as Mubarak’s fall embolden Libyan dissenters, Gaddafi’s fall will embolden more waves of unrest in other parts of North Africa and the Middle East—perhaps Iraq, perhaps Saudi Arabia, perhaps the U.A.E.—putting more pressure on oil prices.

    Brent Crude is today at $112 per barrel—and poised to rise even further. If Libyan production is tripped up or outright shut down, there’s every reason to believe that oil will reach its historic high of $140. Reach it, and surpass it. And if, say, disturbances in Iraq or Saudi Arabia or any other oil producing nation trigger further falls in oil production, then the price per barrel could rise even further—and much more drastically.

    In other words, we could be about to experience another Oil Shock—just like 1979.

    Now, what happened after 1979’s Iranian Oil Shock? Like I said: Severe inflation, unemployment, and a Fed that had to raise rates catastrophically, in order to stop an inflation that was spiralling out of control.

    But back in 1979, there was no kindling for that inflationary fire. Federal Reserve money policies were fairly responsible. The Federal government’s total debt and liabilities was less than 50% of GDP. Back in 1979, the U-3 unemployment rate was about 5%, compared to over 9% today.

    Back in 1979, there was no ZIRP, no QE2, no $1.6 trillion deficit. There weren’t so many freshly-minted dollars sloshing around, looking for yields like army ants looking for dead meat. There wasn’t a total government debt that was bigger than the total gross domestic product of the United States.

    In short, back in 1979, the economy, the fiscal situation and the monetary policy were far healthier than they are today.

    Yet the 1979 Oil Shock brought us the worst recession since the Great Depression.

    And that is very, very bad for us today, in 2011.

    When—not if, but when—Gaddafi falls, the bloodiest, longest-lived dictator in the Middle East/North Africa region will be gone. And that’s a good thing.

    But in all likelihood, his fall will also trigger another Oil Shock—which just might kill us.

    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.

    click here for audio

    Marc Faber: ‘We Are in the End Game’

    Investment analyst Marc Faber joins radio host Alex Jones to discuss the state of the global economy and what he sees in the future for precious metals, inflation, and commodities.

    Part 1:

    Part 2:

    Faber believes the cost of living increase in the US is much higher than what the government is publishing, and forecasts that standards of living will continue to fall under the present economic policy. He says the stock market is overbought and may experience a 10-15% correction.

    Faber predicts QE3 in the future, benefiting the price of gold and silver. He advises investors to gradually accumulate gold each month. “Not to own any gold is to trust the US government, trust that they will ever balance the budget again,” Faber comments.

    Instead of the US government defaulting on its debt, Faber believes the Fed will continue to print more money. He thinks the euro isn’t much better than the US dollar. “The only true currencies that exist today are gold, silver, platinum, and palladium,” Faber argues. He advises against the 10 year and 30 year government bonds. Although real estate may go down another 10% in the US, Faber says this may not be a bad time to buy a house or farmland.

    “This crackup boom will end very badly, but before it ends badly, we’ll have money printing, very high inflation, and when everything fails, the US will go to war. They’re already in war, but they’ll increase it.”

    What You Need to Know About Buying Silver Today

    It’s hard to believe that less than three years ago, silver was $8.80 an ounce. Since then it has nearly quadrupled in value (up 385%) and more than doubled in the last 12 months alone.

    That’s great for those who already own the metal – but is it too late for the rest of us to get in?

    To answer that question, BIG GOLD Editor Jeff Clark sat down with our friends of The Daily Crux. Read what he had to say about the silver rally, and why you should view any correction as good news.

    Crux: Jeff, silver has had an incredible run over the past year or so... Where do you think it's headed next?

    Jeff Clark: Well, that's probably the most common question we get these days. Silver has definitely been very exciting. The price has basically doubled in a year, and many of the stocks have done much better than that... So you could be forgiven for asking how long that can continue.

    I think the bullish case for silver going forward comes down to three main factors.

    The first is industrial demand. Everyone knows industrial use is much greater for silver than gold, and that does make it more susceptible to an economic slowdown. But what's interesting is these industrial uses are growing rapidly.

    For example, all of the following uses for silver are increasing: medical, electronics, food processing, water treatment, paper, building materials, wood preservation, textiles, consumer products... the list goes on and on. Every bandage-maker, for example, now offers a silver-based product. You can buy silver-laced toothbrushes, hairbrushes, combs, and make-up applicators. In England, you can buy silver-based soap.

    The takeaway is that all these uses are on the rise, so even in an economic slowdown, there is a higher level of base demand. The demand for any individual application could decline, but the total number of applications for silver is increasing. Over time, I think we'll see increasing levels of demand.

    The second major factor is investment demand. Investment demand is soaring and can't be ignored. The U.S. Mint sold more one-ounce Silver Eagles in January than in any other month since they began creating them in 1986. China's net imports of silver quadrupled in 2010. Against all this you have the fact that most Americans don't own any gold or especially silver. So even though there's already incredible investment demand, the potential for it to increase is still tremendous.

    The third factor is supply. Ask yourself what's wrong with this picture: Total global demand for silver is about 890 million ounces a year. Worldwide mine production is about 720 million ounces a year. Scrap currently makes up the difference, but I think the crucial point to recognize is that producers can't dig up enough silver to meet current demand.

    So what happens if industrial uses continue to rise? What happens if investment demand continues growing? What happens if we do get some type of currency collapse? What happens if Doug Casey is right and we get a true mania in gold and silver?

    We had bottleneck issues with physical supply in 2008, where mints across the world couldn't keep up with orders. A lot of it was due to them being unprepared for the rush, and they've since improved some of their operations. That's great.

    But even with all the improvements, even after adding equipment, even after adding staff, even after adding work shifts... they're still having issues. Over the past three or four months, we've been hearing about mints having delays, temporarily running out of stock, etc. So it's still a problem.

    And if all the factors I just mentioned come into play, then I think you could say "Bottleneck, meet desperation." Regardless of how well prepared a manufacturer might be, demand at some point could legitimately overwhelm the system, and I think that's a very real possibility. Anything could happen. But the scary thing is, we may not have enough supply to meet demand if we get a mania.

    So based on these factors, my view is that silver can continue rising for quite some time. I don't think it stops until SLV, the silver ETF, is a favorite of the fund managers... until Silver Wheaton is a market darling of the masses... until Pan American Silver is Wall Street's top pick for the year... That's when I'll be looking for the end of this silver bull market.

    Crux: Speaking of a mania, just how high do you think silver could go?

    Clark: Many people don't realize this, but silver rose 3,646% in the 1970s, from its November '71 low to its January 1980 high. If you were to apply the same percentage rise to our current bull market, silver would climb another 500% from here, and the price would hit $160 an ounce.

    Those are just numbers, but it shows that we have an established precedent for the price to go much higher.

    It's the fundamentals, of course, that will determine how high the price ultimately goes. Show me a healthy dollar, show me no threat of inflation, show me a responsible government that stops printing money... Show me a repentant Iran and North Korea... Show me that the sovereign debt issues in Europe are resolved... Show me positive real interest rates... Show me that unemployment is plummeting, that bank closures have stopped, that real estate is recovering...

    Show me all that and we'll talk about the gold and silver run being over... But until those things start changing in a big way, I'm buying.

    Crux: Silver bears often suggest that a large part of the rally in the last bull market was due to the Hunt brothers, who were accused of trying to corner the market. What do you say to that? How much do you think they attributed to the price rise in the '70s?

    Clark: Well, I'm skeptical that the reason silver went as high as it did was primarily due to the Hunt brothers' activity in the market. It's interesting to note that they bought silver primarily because they mistrusted the government, and because they thought silver was going to be confiscated. Remember... gold ownership was illegal when they first started buying silver in the early '70s.

    Yes, they bought a lot of silver... But if you look at the correlation, you'll notice the price didn't necessarily move up when they bought. In fact, when the rumors that they were trying to "corner" the silver market really started going mainstream, which was in the spring of 1974, the silver price dropped solidly for the next two years. One would think that the price would've risen, not fallen, if silver was being "cornered."

    Secondly, if you look at price charts, silver moved in lockstep with gold back then. They rose and fell pretty much together. They both peaked on the very same day, January 21, 1980. So unless the gold market was equally spooked by what the Hunt brothers were doing with silver, it seems a stretch to assume they were the primary cause of the rise.

    Last, as my editor pointed out, you have to consider that it was the mainstream media that largely promoted this idea the Hunts were "cornering" the market. With that in mind, one has to be suspicious that was, in fact, the case.

    To be clear, I'm sure they had some effect, but to suggest they were the main impetus behind silver's tremendous rise doesn't seem wholly accurate. And look at the price today... It's outperforming gold in our current bull market, just as it did in the '70s, and there's no Nelson Bunker Hunt around.

    Besides... who's to say that we won't see other "Hunts" come along today and try to buy up large quantities of the metal? I wouldn't rule it out.

    So again, I think it's more important to look at silver's fundamentals for any kind of price projection than a one-off event. And those fundamentals are very bullish.

    Crux: What are the bearish arguments for silver?

    Clark: Well, I touched on it earlier... but if the economy crashes, silver is likely to suffer more than gold due to its large industrial use component. Another factor is that silver is not bought by central banks, so one source of demand for gold is not present with silver. But I think the bigger trend of a currency crisis is going to dwarf those concerns... And I think that silver will do very well in that environment.

    Silver is more volatile than gold, but that just means you get better opportunities to buy it cheaper, and probably make more money on it if you sell near the top.

    So yes, there are bearish arguments for silver, and one has to be prudent in buying it – you don't want it to be the only asset you own, for example. But it would be equally a mistake to not own a meaningful amount.

    Crux: So... is today a good time to buy?

    Clark: Well, how many ounces do you own? And what percentage of your assets do those ounces represent?

    There's your answer. If you have minimal or no exposure, I suggest buying. Don't rush out and spend all your available cash, because there will always be corrections, but the less you own, the more you want to make a plan to add a meaningful amount to your portfolio.

    Remember... silver is a currency replacement just like gold. It's money... and therefore you want to make sure you own enough for both protection and profit. If you don't own enough, I suggest going into "accumulation" mode... buying some on a regular basis, like dollar-cost averaging.

    Our recommendation in Casey's BIG GOLD– which is a conservative letter, by the way – is that approximately one-third of your investable assets be devoted to the precious metals market. That includes gold, silver, and precious metal stocks. That may sound extreme to some, but we think the risk to currencies right now is extreme. Therefore, being overweight precious metals is justified. Obviously, each individual investor has to be comfortable with what they do.

    Crux: Do you a recommend a certain percentage of ounces in silver versus gold?

    Clark: We generally recommend you hold more gold than silver. We suggest approximately 70%-80% in gold versus 20%-30% in silver. Depending on your situation and risk tolerance, you may wish to have more or less in silver, but again the point is to have meaningful exposure.

    Crux: For individuals who are new to buying precious metals, what are your preferred ways to purchase silver?

    Clark: The options are becoming more and more mainstream, so it's getting easier to buy both metals. The alternatives are growing, and they're also improving. You basically have two choices: You can either buy and store it yourself, or you can buy and have someone else store it for you. Ideally, you want to do both... you want to diversify.

    There are risks to storing metals yourself, such as theft, loss, or fire. You can put it in a safe deposit box, but then it's in the financial system and it's subject to banking hours and could even be susceptible to confiscation, though I'm skeptical that will actually happen. But I do think everyone should have some physical silver handy, at least a couple months worth of expenses.

    So the short answer is to diversify what you buy and how you store it. For physical silver, I would stick to buying the popular one-ounce bullion coins – Eagles, Maple Leafs, etc.

    You can also buy silver funds and ETFs in your brokerage account or online, and there are definitely some advantages to doing that. They're easy to buy, sell, and trade. There's no need to mess with the storage yourself, and it's especially beneficial for those who have larger holdings. You can put $50,000 worth of gold in the palm of your hand – but $50,000 worth of silver would require a small suitcase, so space is an issue. A lot of online options now have delivery alternatives available, and some even have free storage. Options here include the various ETFs, closed-end funds, online options like GoldMoney or BullionVault, and certificate programs like the Perth Mint Certificate.

    So find a couple options you're comfortable with, diversify your holdings, and just continue to buy on the dips, with the intention to hold until the bull market is over.

    Crux: How about silver stocks. Can you give us a favorite?

    Clark: Well, it's pretty clear the go-to stock in the silver industry – in my opinion at least – is Silver Wheaton. It's definitely been a sweetheart the past two years. It's given us everything we could want in a silver stock.

    The stock suffered badly in the meltdown of '08, and things did get a little dicey at the time, but I remember thinking that unless the world comes to an end and the silver price never recovers, this company is going to survive and bounce back – in part because of management and in part because of the business model. They have no exposure to mining costs, for example.

    Shares back then were around $3... If you bought at the time, they're now a ten-bagger. So it's been an incredible run.

    The question, of course, is going forward: Since the stock is already at $35, can it be another ten-bagger from here?

    Well, the company expects to increase "production" by 70% by 2013. And their costs will basically stay stagnant. Meanwhile, imagine where the silver price could be in the next two to three years, and you can see this company can make enormous amounts of cash. Some of that is probably priced into the stock already, but you can't deny where this company is headed over the next few years.

    In the bigger picture, you have to look at our currency issues – they're very real. They're deep. They're intractable. So when I look at what is likely to happen to the dollar and thus what level of inflation is probable, I think silver will go substantially higher, which means Silver Wheaton is going to go much, much higher. Only if you believe deflation ultimately wins the war and that inflation doesn't occur do you think silver or Silver Wheaton won't do well.

    Could it have a big correction? Well, it recently dropped as much as 28%, but sure... it could easily fall more than that in a major correction. But if that happened, I'd consider it a big buying opportunity.

    In my opinion, the bigger the correction, the bigger the buying opportunity, because I really believe the future is very bright for that company.

    Crux: Sounds good. Any parting thoughts?

    Clark: If you're bullish on gold, I think you need to be bullish on silver, unless you think inflation will never come to pass. Regardless of the short-term fluctuations in the market, it's only a matter of time before the currency issues punch us in the gut and inflation really takes off.

    Second, remember that silver will be volatile, but focus on the fundamentals and use selloffs as buying opportunities. Until the fundamentals driving the bull market change, buy.

    Bottom line, the bull market is far from over. I think it's going to go much longer and much stronger... So buying on dips is the best advice I could give anyone.

    Crux: Thanks for talking with us, Jeff.

    Clark: You're welcome. Thanks for having me.

    Editor's Note: Readers of Casey's BIG GOLD can access Jeff's full list of the world's best gold and silver stocks, along with Casey Research's preferred and trusted precious metals dealers. Get your three-month trial with a full money-back guarantee today.