Friday, September 30, 2011

Doug Casey Answers The Hard Questions About Hard Times

The following must-watch interview of Doug Casey was conducted on September 9, 2011 by Tommy Humphreys as part of his new Speculator Series.

Humphreys does a great job of pushing Doug to defend his brand of no-holds-barred capitalism and the impact it would have on real people with real problems in today’s tough economy. Doug’s answers might surprise you; they will certainly educate you.

On viewing the video, Doug commented that he thought it was the best interview he’s done in a couple of decades, and we agree.

Time To Invest In U.S. Oil? : APC, CHK, RDS.A, RDS.B

The United States has more oil and natural gas resources than previous estimates, according to a recent study by National Petroleum Council. The study also concluded that development of these resources will reduce but not eliminate dependence on imported energy and production, and delivery of these resources should be done in an environmentally responsible manner.

The National Petroleum Council is a federally-charted but privately-funded organization set up after World War II to advise the government on issues pertaining to oil and gas matters.

The industry is well represented on the National Petroleum Council, with James Hackett, the CEO of Anadarko Petroleum (NYSE:APC), Aubrey McClendon, the CEO of Chesapeake Energy (NYSE:CHK) and Marvin Odum, the director for Upstream operations in the United States for Royal Dutch Shell (NYSE:RDS.A, RDS.B) as members. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)

Natural Gas
The study's first conclusion is rather obvious given the recent media spotlight on domestic onshore natural gas development. The United States is the world's largest producer of natural gas and has an enormous natural gas resource base that can meet demand for generations if new basins are allowed to be developed.

Although this conclusion seems obvious to us now, just a few short years ago, many observers were climbing over themselves to come up with the direst predictions of falling natural gas supply in the United States. The conventional wisdom at that time was that the United States needed massive investment in liquefied natural gas (LNG) facilities to provide for soaring future domestic demand for natural gas.

One finding that may surprise some investors and also strike some fear into peak oil advocates is the conclusion that crude oil is much more abundant in the United States than previously thought. This new supply is coming from a number of different areas, including tight oil areas where new technology has been applied to develop resources that were previously not economic to produce. In the long term, supply will come from offshore areas, the Arctic region and even shale oil deposits in Colorado. (For related reading, see Unearth Profits In Oil Exploration And Production.)

A recent report from an analyst at Goldman Sachs (NYSE:GS) predicts that the United States will surpass Saudi Arabia and Russia and becomes the world's largest oil producer by 2017. The firm expects United States production to reach 10.9 million barrels per day by 2017. This production figure includes natural gas liquids in the total.

This level of production is certainly doable given the current level of industry activity in the United States. The U.S. Energy Administration reported that the United States produced 8.95 million barrels per day of crude oil, natural gas liquids and other liquids in May 2011. The 10.9 million barrel projection implies total production growth of 21.8% over the next six years.

Despite the optimism on oil production, the United States will still be a net importer of this commodity even under an unconstrained development scenario under which production rises to approximately 22 million barrels per day by 2035.

Environmentally Responsible Development
The final conclusion was that the oil and gas resources need to be developed in a responsible manner to gain the trust of the public. The study also recommended educating the public on the risks of drilling and quoted a study from MIT that found only 43 gas well accidents out of nearly 20,000 wells drilled over the last decade.

The Bottom Line
The conventional wisdom on the amount of natural gas and oil resources in the United States appears to be incorrect, with the only question being whether we will allow these resources to be developed. (For related reading, see Oil: A Big Investment With Big Tax Breaks.)

Gerald Celente on Goldseek Radio - 28 September 2011

Gerald Celente on Goldseek Radio - 28 September 2011 : there is no fixing it , this thing is going to continue to collapse in Europe and just like in the United Statesfollowing the panic of 08 when things should have collapsed a lot quicker they pomped it up with all this phony money , this will lead to the greatest depression there is no way out of this , they are doing the same thing now in Europe this is what the FED did and they are doing it again has only been held up again and made up look like a recovery from the continuing dumping of dollars and Euros into failing banks and institutions , in Europe they are doing it against the Lisbon Treaty the Masstricht agreement and every piece of paper they made to design their monetary union ...the European Central bank is not supposed to be buying bonds of failing countries they are not supposed to be covering the debt of failing banks and they are doing it just like they are doing it here in the US ....

Fertilizer Stocks Stink: CF, MON, MOS, POT

The Agriculture Chemicals/Fertilizer stocks have been stinking it up recently after showing promise as recently as this July. The group had been a very strong performer in the last bull market and was definitely worth watching to see if a positive trend could develop. However, after a brief sprint higher, the majority of this group failed to follow through and has been heading lower. Even the lone stalwart, CF Industries Holdings, Inc. (NYSE:CF) eventually caved in and headed lower. With renewed fears of an ailing economy, this group has suffered through renewed selling.

After a brief scare in early August, CF Industries Holdings, Inc.embarked on a month-long rally that carried it to almost $200 per share. This was a powerful move that defied what was going on with its peers. However, the move quickly failed, and CF fell even faster than it rose. CF has not technically broken down into a downtrend, but the reversal has to be disheartening for bulls in the stock. It is now struggling to hold above its 200-day moving average, and could begin a much deeper correction if it can’t hold near these levels.

Monsanto Company (NYSE:MON) also had a brief run in July as it cleared a trendline that had been acting as resistance. However, there was very little upward progress, and MON reversed to head back towards the bottom of its base. It has been stuck moving sideways as it tries to hold near $63 as support, but could be close to breaking under this level. The 50- and 200-day moving averages are starting to act as resistance and MON could complete a topping pattern with a close under $62.

Potash Corporation of Saskatchewan (NYSE:POT) has already broken down under its base after a similar reversal in late July. POT was unable to make any progress on its breakout attempt and instead reversed to dip under the key $50 level. While it found support at $50 in August, it faltered on its rally attempt and is back under this important level. This area should act as significant resistance at this point, and could lead to POT heading much lower.

Mosaic Company (NYSE:MOS) is another fertilizer stock that could be in trouble. Unlike the others, MOS never attempted to rally this summer, and instead has been working its way lower. The past few months have seen very volatile swings, although the end result seems to always be lower lows. MOS should be considered suspect until it can clear its recent highs near $74, as this level has acted as clear resistance over the past few months. (For more, see What The Heck Is Wrong With Fertilizer Stocks?)

The Bottom Line
The recent move in the fertilizer stocks reveals the danger of a bear market. The down moves certainly occur much quicker than the preceding rally attempts. This group likely trapped a lot of buyers after looking strong a couple of months ago and could be headed even lower. Traders should be very careful if they are long in this space, and may be better off looking for shorting opportunities on bounces.

Bears Feast on Economically Sensitive Stocks: XLB, FCX, DD, AKS< XLI, CAT, MMM, NSC, XLE, HFC, SLB, XLF, INTC

Despite bursts of strength, weakness in stocks tied closely to the economy shows the market's true state.

While sexy technology stocks, such as Amazon (AMZN - News), grab headlines with hot new products, basic resource and industrial stocks continue to struggle. And even though the domestic economy may be less reliant on the latter, their struggles remain a giant drag on the stock market.

In other words, strong performance by a few groups cannot change the message of the majority: This is a bear market.

To be sure, trading over the past few days did not feel like a bear market. In afternoon trading Tuesday, the Dow Jones Industrial Average was within striking distance of a full recovery of last week's steep losses. And the technical breakdown below the August-September trading range seemed to be negated.

But when we dig down beneath the surface and go beyond the fresh eight-week high in such strong tech stocks as International Business Machines (IBM - News), we will see the dark underbelly of the bear.

For example, even after a strong open this week, the Select Sector SPDR-Materials (XLB - News) exchange-traded fund still shows a breakdown from its August-September range (see Chart 1).


Last week, this ETF was led lower by the likes of metals miner Freeport-McMoRan Copper & Gold (FCX - News), chemicals maker (DD - News) and AK Steel Holding (AKS - News). The ETF itself shows a steep, high-volume decline and an unsuccessful recovery on declining volume.

Tuesday, the ETF was able to test, or revisit, its point of breakdown, but it could not hold that level. With Wednesday's decline, the bears have resumed control.

The materials ETF contains a cross-section of companies operating at the base of the economy producing the inputs needed for manufacturing and building. As they say, if the foundation is wobbly, then the house will not be strong.

But the next level of the economic house is also struggling. The Select Sector SPDR-Industrial (XLI - News) ETF broke down hard last week (see Chart 2). Some of its higher profile components, such as machinery maker Caterpillar (CAT - News), industrial conglomerate 3M (MMM - News) and rail stock Norfolk Southern (NSC - News) provide solid evidence for the bearish case.


Moving along the economic continuum, energy stocks also hold breakdowns on the charts. The Select Sector SPDR-Energy (XLE - News) ETF cracked last week on heavy volume (see Chart 3). It, too, rallied back to test its breakdown level but seems to have hit a ceiling. This action cuts across all sectors but is quite clear in refiners such as HollyFrontier (HFC - News) and oil-services stocks such as Schlumberger (SLB - News).


Moreover, financial stocks remain weak. The Select Sector SPDR-Financial (XLF - News) continues to underperform the broad market over any time frame we can choose from one month to one year. And its chart shows a breakdown last week with a rather tepid recovery attempt.

Even in stronger groups, such as technology, there are haves and have nots. Internet and computer-hardware stocks are definitely the leaders this month. But semiconductors and networking stocks are not. Giant chipmaker Intel (INTC - News). Select Sector SPDR-Financial (XLF - News) may have performed very well in September, essentially ignoring last week's decline, but its volume statistics show very little conviction in the rally.

Traditional measures of market breadth, such as the advance-decline line are weak, but do not show any real danger. But the technical breakdown in a large swath of the market suggests that overall the list of good stocks is getting smaller.

All of which adds up to a bear market. Don't be fooled by the occasional shows of strength.

Top 5 Easy Saving Tips

Most people could do with trying to save a few dollars. If you are in debt then the imperative to save money is great and certainly urgent. Any savings can be automatically transferred to pay off your debt - which is a positive step to financial freedom.

If you are not in debt you may be among the thousands of Americans who have absolutely no savings at all. The financial worries in the current economic climate might well be eased if there was a 'back-up' plan sitting in the bank.

If you had savings, it would cushion the difference between your income and your expenses, especially if you or a partner suddenly lost a job, for example. As a target, you should try to have three-to-six months income saved in an emergency fund. But how do you go about doing this? If every month you are counting the days until payday, it can be difficult to make cutbacks. Here we will outline five things that you can do straight away to start that savings fund

Consider reducing your 401(k) contributions and instead put that money away in savings. Continue to contribute enough money to your company's 401(k) to receive the matching contribution, if they offer it - but if you don't have sufficient cash savings, don't put in any more than that amount. Don't suspend 401(k) contributions altogether, because it's still tax-deferred savings, which is a big bonus.

You Don't Miss What You Never Had
Siphon off a percentage of your salary at the start of the month into savings. In fact, some companies will allow you to make direct deposits from your paycheck into savings. Ask your employer if you can designate several accounts for your paycheck, and take advantage of this option. See if you can manage to save 10% of your monthly salary - you'll be surprised at how you'll get along without it.

Save the Extras
Do you have a tax rebate? Have you recently had a raise at work or received monetary gifts? Pretend you never received it - however large or small. You didn't have or need that money before, so don't depend on it now. Use an income tax refund, if you're fortunate enough to get one, as the start of your savings pot. Start seeing any extras as welcome additions to the savings fund.

Turn Off the lights
Get the whole family involved on a mission to decrease your electricity bill. Turn off the lights when you are not in the room, unplug the television and stop leaving things on standby, and you will notice the bill decrease. To really make a sizable saving - turn down your thermostat just two degrees and you could save thousands on your annual heating bill. For each degree you turn down the thermostat in the winter, you can save as much as 5% on your heating costs. And remember don't spend this 5% saving - put it straight into the bank.

Get Bank Aware
Did you know that many banks are currently paying 0% on savings? If you don't know if your bank is one of them - you need to find out. Call them up right now and make the inquiry. If they are not paying you any interest on savings then you need to move banks. Many people are blindly loyal to their bank. Your bank is not loyal to you - if you are overdrawn or miss a payment, they are unlikely to consider your lengthy courtship.

Because banks are so keen for our business, they make switching to them very easy, and will often complete all of the paperwork and processes on your behalf. Do not have any savings sitting around and earning no interest whatsoever.

The Bottom Line
By starting today and following these steps, you can easily have one month's expenses saved before long. Once you have achieved this, you can take steps to getting three-to-six times this into that savings account. You'll be delighted you've done it.

Precious Metals Charts Point to Lower Prices – Get Ready

Over the past week precious metal investors have had a wakeup call from their big shiny nest eggs. Last week’s free fall in both gold and silver spot prices was enough to get investors into a panic. More on this in a minute though…

The fall was triggered by three key factors which caused the powerful move down. The first factor is based on pure technical analysis (price and volume patterns). Because the metals had such a strong run up this summer and prices had moved to far too fast, it is only natural so see price correct back to a normal price level. In general any investment that surges in one direction in a short period of time almost always falls back down shortly after. As I stated in my weekly report on August 31st, gold is forming a topping pattern and all investors should take profits or tighten protective stops (exit orders)”. Three days later gold popped to the new high completing the pattern and was quickly sold off which continues to unfolding as we speak from $1920 down to $1532 in only a couple weeks.

The second factor which I think had the most power behind the drop were the margin requirements changes. This new rule literally overnight caused traders and investors holding to much of the metals in their account to liquidate (sell) their positions without having any say in the matter. That is when the most damage was done to the price of gold and silver.

The key factor was the US Dollar which rocketed higher and adding a lot of pressure to the metals. I also covered this in my Aug 31st report in detail. Overall, past few years we have seen both gold and silver move in opposite direction of the dollar. I don’t expect that to change much going forward. Back in August the US Dollar was coiling (building power) and it was only a matter of time before it would explode to the up side and rallied. This high probability move in the dollar was what triggered me to exit our long gold positions shortly after. I expected the dollar rally to last a month or more and that means we would see a lot of pressure on equities and metals going forward.

Now keep in mind, if Greece or other countries continue to get worse then we could see the dollar and gold move higher together as they are seen as the safe haven at this time. But with the nature of the two I am anticipating a rising dollar and sideways trading range for gold.

Ok, so back to precious metals investor sentiment…

Last Friday and all of this week I have been getting emails from traders and friends saying they are going to sell their gold and silver because they are concerned metals will continue to fall and because many of them are now losing money after chasing prices higher through the summer. The good news is that one of my best indicators for helping to time market tops and bottoms is to just read my emails and answer the phone. During market tops, generally the final month when prices are soaring to new highs every day/week is when everyone contacts me and says they just bought gold or are about to buy more gold cause it’s such a great investment. Once I start getting 2-5 of these messages a day alarms start going off in my head. This works the same with market bottoms. So with everyone now in a panic and selling their positions I feel we are darn close to one if we did not see it already…

Let’s take a look at the charts…

Silver Spot / Futures Price Chart

As you can see on the hard right edge silver is forming a very similar pattern which happened this past spring. I would like to note that this type of pattern is typical with extreme market selloffs as to how they generally bottom. I am anticipating silver trades in this range for a couple months and that we could see lower prices in the near term. But my upside target for silver in the coming few months is the $35-$36 level.

Gold Spot / Futures Price Chart

Gold is doing much the same as silver but I have noticed that when gold falls hard the second dip generally does not make a new low as often. If we do get a new low, all the better for buying on the dip but overall I feel gold should trade sideways for a couple months. My upside target for gold is the $1750-$1775 area.

US Dollar Index Price Chart

The Dollar index is looking ripe for another bounce and possibly another rally to new highs in the coming week. If this happens then we should see the SP500 short position (SDS) which we took Tuesday afternoon (Sept 27th) to continue rocketing another 5-8% in our favour again.

Mid-Week Trading Conclusion:

In short, I feel the US dollar is going to continue higher and that will put the most pressure on stocks, oil and silver. Depending how things evolve overseas gold could hold up and possibly rise with the dollar.

Watchdog warns Canada governments of fiscal crunch

The finances of Canada's federal government and its 10 provinces are unsustainable over the long term and they will need to either raise taxes or cut spending, in part because the population is aging, the country's budget watchdog said on Thursday.

"Fiscal sustainability requires that government debt cannot ultimately grow faster than the economy," Kevin Page, the parliamentary budget officer, said in a report that looked at likely trends over the next 75 years.

Page's team projected government debt relative to the size of the economy over the long term in the light of current spending and taxes as well as projected demographic and economic trends.

"(Our) debt-to-GDP projection indicates that the current federal and provincial-territorial fiscal structure is not sustainable over the long term," he wrote.

"Addressing this fiscal gap and restoring sustainability to public finances would require permanent policy actions of 2.7 percent of gross domestic product, either to raise taxes, reduce overall program spending, or some combination of both."

Page said slower labor force growth caused by an aging population would reduce annual average real gross domestic product growth from the 2.6 percent observed over the 1977-2010 period to 1.8 percent over the 2011-2086 period.

Buffett ‘Put’ Gives a Hint of What’s Coming

One of the biggest questions surrounding Berkshire Hathaway stock has been what happens the day Warren Buffett retires or gets hit by the proverbial truck.

Now we know the answer. The stock will trade at least 10 percent higher than Berkshire's book value, or roughly what's left after liabilities are subtracted from assets.

We can infer this from Berkshire's open-ended share repurchase plan, in which it may buy back stock any time the shares fall below 110 percent of book value as long as the company has $20 billion in cash and equivalents on hand.

Among the reasons Berkshire cited for the buyback plan was the recent stock price -- $100,000 for the Class A shares -- which the company said was considerably less than the value of its underlying businesses. The A shares rose 8.1 percent on Sept. 26, the day of the announcement, to $108,449. The stock closed at $106,500 yesterday.

Buffett wants Berkshire's stock price to reflect its "intrinsic value," which in his opinion should be a premium to stated book value. But this has never been a reason for a share buyback before. Buffett has always cited other, better opportunities, or the need to hold dry powder for when they might appear.

Even during the worst of the financial crisis from September 2008 to March 2009, when Berkshire's stock fell by 50 percent, the company didn't start a buyback. Only once in the past four decades, in 2000 at the peak of the Internet bubble, did Berkshire offer to repurchase shares. In the end, it didn't because the announcement drove up the stock price so much.

‘Not a Dime'

In January 2010, Buffett said the shares were undervalued and regretted having to use them for the stock portion of the $34 billion acquisition of Burlington Northern Santa Fe. In his latest shareholder letter this February, Buffett made it a point of honor to say that "not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years."

Now that Buffett has done it, the main effect is to set a floor under the stock. Although book value is subject to market fluctuations, Berkshire's existing businesses over time will grow, increasing book value. Think of it this way: An option to sell, or "put," the stock back to Berkshire at 110 percent of a rising book value is dear -- assuming, of course, that the company does go ahead with repurchasing shares. This again raises the question of why Buffett would make such a commitment simply because the stock is undervalued today. (more)

C$ hits 1-yr low, month end flows spur volatility

Canada's dollar dropped to a one-year low against its U.S. counterpart on Thursday, hurt by ongoing fears about Europe's debt crisis and big investors adjusting currency exposure on portfolios before month- and quarter-end.

Global markets were earlier buoyed by a vote by German lawmakers to beef up the crisis-hit euro zone's bailout package and better-than-expected data from the U.S. labor market, but the relief rally did not last.

Currency dealers said many institutional investors who suffered stock market losses in the quarter were rebalancing their foreign exchange exposure, buying the greenback against the Canadian dollar.

"Just looking at the performance of the equity market over the last month, I think most of the rebalancing flows will be buy dollar-Canada, that's probably why we've seen Canada underperform currencies like the euro," said David Bradley, director of foreign exchange trading at Scotia Capital.

The Canadian dollar ended the North American session at C$1.0366 to the U.S. dollar, or 96.47 U.S. cents, below Wednesday's North American session close of C$1.0326, or 96.84 U.S. cents.

It was a volatile session. The Canadian dollar touched C$1.0403, or 96.13 U.S. cents, late in the afternoon, its weakest point since September 2010, after having climbed as high as C$1.0256, or 97.50 U.S. cents, after the U.S. data was released.

Bradley said the Canadian dollar could weaken further on Friday, the last trading day of the month and quarter.

"We can probably test up toward C$1.0450. Really, on the brink of C$1.04 there is not much resistance until C$1.0675 which is the highs from last summer. It was really gappy when we were up here before," Bradley said.

The Canadian currency had initially firmed after Europe again averted disaster in its debt crisis when German lawmakers rallied behind Chancellor Angela Merkel to approve a stronger euro zone bailout fund, known as the European Financial Stability Facility (ESFS).

"It was nice to get the German passage of the ESFS bill but that's hardly the signal that the EU crisis is over. If anything it is just the start of the next phase of the crisis," said David Watt, senior currency strategist at Royal Bank of Canada.

Bigger challenges loom for the euro zone now. Financial markets are already anticipating a likely Greek default and demanding more far-reaching measures to prevent the crisis that began in Athens from spreading far beyond Europe and its banks.

Initial claims for U.S. unemployment benefits last week fell to a five-month-low of 391,000, well below economists' expectations for 420,000 and below the key 400,000 level for the first time since early August.

Separately, the U.S. economy grew at annual rate of 1.3 percent, the government said in its final estimate for the second quarter, up from the previously estimated 1.0 percent.

That reflected consumer spending and export growth that was stronger than earlier estimated.

Bond prices were mixed. The two-year Canadian government bond was unchanged in price to yield 0.928 percent, while the 10-year bond lost 10 Canadian cents to yield 2.206 percent.

Thursday, September 29, 2011

Francois Trahan Wealthtrack Video Interview

Excellent Wealthtrack video interview with Francois Trahan. Interesting stuff and well worth your time. As usual, Consuelo Mack does a great job. Enjoy.

Topics covered:

  • Uncertainty in the world
  • Europe and the possible disintegration of the Euro
  • Fed not effective anymore
  • Gold’s best days might be over
  • Economic recovery probably starting in the first half of 2012
  • US treasuries
  • US Dollar’s function as safe haven
  • Still too early to bet on the banking sector
  • It will get ugly first. No 4th quarter recovery.
  • Inflation / deflation

Robert Shiller: Stock Prices, “Still High By Historic Standards”

Following last week's dismal showing, stocks were heading higher early Wednesday, seeking a third fourth-straight gain.

In such a highly volatile, uncertain market, many investors are feeling whipsawed by the dramatic swings. "Where do you get a grip on what reality is?," asks Yale Professor Robert Shiller.

The answer, as you might have already guessed, is the cyclically-adjusted P/E model Shiller co-created. By this measure, which values stocks based on the past 10 years of earnings — in order to smooth out cyclicality — the stock market is "still high by historic standards," at a cyclically-adjusted P/E around 20, Shiller says. "I'm kind of surprised stocks are expensive as they are given the economic turmoil we're going through."

That said, Shiller believes equity returns will be low single-digits over the coming decade -- "not bad" especially relative to Treasuries and TIPS. But it's a "very risky, very uncertain return," he adds, citing the "precarious economic situation."

In the accompanying video, Shiller discusses his view on equity valuations and responds to recent comments from Wharton Professor Jeremy Siegel, who discussed the flaws in the Shiller P/E model here last month. (See: Jeremy Siegel: Stocks Are Cheap! And Getting Cheaper)

Stocks looks "alright…but I'm not Jeremy Siegel in my enthusiasm," Shiller says.

BMO forecasts Canadian dollar to slip to 93 cents US by end of the year

The Bank of Montreal is predicting that the loonie will slip to as low as 93 cents US by the end of the year as the global economic slowdown weighs on commodity prices that support the Canadian dollar.

BMO said in a report Wednesday that it expects the loonie to remain around that level until the second half of next year, before global growth helps ro push it back to parity with the U.S. dollar.

"While market action over the past few days has been positive in the hope of a broad European solution, we expect the crisis to linger well into 2012, if not longer," the report said.

"Even if European leaders are able to satisfy markets with bold action, global growth isn't likely to rebound quickly, which should weigh on commodity prices and the loonie. Indeed, European economies are likely to be hamstrung by austerity measures and restructuring for at least the next few years."

The Canadian dollar was down 0.42 of a cent to 97.66 cents U.S. in trading Wednesday.

Trading in the Canadian dollar has been volatile in recent days. The currency lost about five cents against the U.S. dollar last week amid the turmoil of the European government debt crisis.

The BMO forecast suggested that the loonie would remain near 95.2 cents U.S. until the second half of 2012, by which time the global economy would start to improve.

"Accelerating global growth will provide support to the Canadian dollar, pushing it back to parity by the end of 2012," the report said, noting that it would appreciate further as the Bank of Canada raised rates ahead of the U.S. Federal Reserve .

However, once the U.S. Federal Reserve starts hiking interest rates in the second half of 2013, the loonie would be expected to weaken, settling towards a long-run value of 95.2 cents to 90.9 cents U.S.

McAlvany Weekly Commentary

A European Tragedy of Errors: David McAlvany in Brussels

A Look At This Week’s Show:
-Euro zone now estimates 2 Trillion Euro’s needed for adequate “Shock and Awe” backstop to Euro banks
-Last week’s realization that recession is far from over triggered a flight to liquidity (Dollars and long bonds)
-The selloff in Gold and other commodities was purely a “paper” sale to raise quick liquidity. Real physical gold is not being sold and is in fact become harder to acquire

SHILLER: House Prices Probably Won’t Hit Bottom For Years

The July numbers for the most widely followed measure of house prices, the S&P/Case-Shiller Index, were released this morning.

The numbers weren't terrible--on a seasonally adjusted basis, July was basically the same as June--but one of the creators of the index, Professor Robert Shiller of Yale University, isn't taking much solace in them.

The economy has deteriorated significantly since July, Professor Shiller observes, and he suspects that the housing market has followed suit. And, from a broader perspective, house prices are still down more than 4% year over year.

In February, Professor Shiller startled those looking for an imminent "bottom" in house prices by suggesting that house prices could still fall 10% to 25%. He's standing by that assessment.

House prices won't necessarily plunge from here in nominal terms, but in real terms--after adjusting for inflation--they could still drop significantly, Professor Shiller says. And the bottom might not arrive for years.

Head Of UniCredit Securities Predicts Imminent End Of The Eurozone And A Global Financial Apocalypse

Either the YesMen have infiltrated Italy's biggest, and most undercapitalied, bank, or the stress of constant, repeated lying and prevarication has finally gotten to the very people who know their livelihoods hang by a thread, and the second the great ponzi is unwound their jobs, careers, and entire way of life will be gone. Such as the head of UniCredit global securities Attila Szalay-Berzeviczy, and former Chairman of the Hungarian stock exchange, who has written an unbelievable oped in the Hungarian portal which, frankly, make Alessio "BBC Trader" Rastani's provocative speech seem like a bedtime story. Only this time one can't scapegoat Szalay-Berzeviczy "naivete" on inexperience or the desire to gain public prominence. If someone knows the truth, it is the guy at the top of UniCredit, which we expect to promptly trade limit down once we hit print. Among the stunning allegations (stunning in that an actual banker dares to tell the truth) are the following: "the euro is “practically dead” and Europe faces a financial earthquake from a Greek default"... “The euro is beyond rescue”... “The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece’s spirits.”...."A Greek default will trigger an immediate “magnitude 10” earthquake across Europe."..."Holders of Greek government bonds will have to write off their entire investment, the southern European nation will stop paying salaries and pensions and automated teller machines in the country will empty “within minutes.” In other words: welcome to the Apocalypse...

But wait, there's more. From Bloomberg:

The impact of a Greek default may “rapidly” spread across the continent, possibly prompting a run on the “weaker” banks of “weaker” countries, he said.

“The panic escalating this way may sweep across Europe in a self-fulfilling fashion, leading to the breakup of the euro area,” Szalay-Berzeviczy added.

Szalay-Berzeviczy has just arrived in Hungary from a trip abroad and can’t be reached until later today, a UniCredit official, who asked not to be identified because she isn’t authorized to speak to the press, said when Bloomberg called Szalay-Berzeviczy’s Budapest office to seek further comment.

And now, for our European readers (first) and everyone else (next), it is really time to panic.

Full op-ed from, google translated from Hungarian. Some of the nuances may be lost, but the message is bolded. If any one our Hungarian-speaking readers have a better translation, please forward it to us asap.

Europe's common currency is virtually dead. The euro's doomed situation. The only open question now is, that European governments and the European Central Bank's desperate rearguard action even number of days to keep the spirit in Greece. For the moment, when Athens is declared bankrupt, a "10 magnitude" earthquake will shake Europe, which will be the overture to a whole new era in the life of the old continent.

Indeed, Greece is not only bankruptcy will mean that the Greek government securities holders did not get back their money invested, but also to the interior of the state will not be able to meet its debts. (more)

5 Water Stocks To Tap Into : AWK, AWR, CWT, SJW, WTR

Usually when the talk shifts to resources where demand outstrips supply, the focus is oil or precious metals, but there is another resource that is finding its way into these discussions - clean water.Two-thirds of the Earth's surface is covered by water, but only a fraction of that is potable. While desalinization efforts may help satisfy some of the demand, increasing population and pollution has made water a very fragile and important resource. (Discover ways to invest in this scarce resource, check out Water: The Ultimate Commodity.)

Another factor to consider is the high cost to tap sub-surface water supplies, and to create the infrastructure necessary to transport it to remote areas. Unfortunately, this makes accessing and distributing water quite difficult for struggling economies. Companies that treat waste water are also important because they play a major role in keeping our environment clean and preventing transmittable diseases. Investors may get in on the demand for clean water by investing in this resource.

Water Stocks to Know
The following is a list of larger, better known public companies that provide water services or wastewater treatment:


Market Capitalization

American Water Works Company, Inc. (AWK)


Aqua America Inc. (WTR)


California Water Service Group (CWT)


American States Water Company (AWR)


SJW Corp. (SJW)


Data as of 9/28/2011

Bottom Line
The growing world population means that companies that process, deliver and/or transport water will always be in high demand. The stocks covered here are definitely worthy of follow up research for investors looking to capitalize on the attractive long term fundamentals that exist with water.

Investors Intelligence: Nearing Extreme Pessimism Readings

from King World News:

With stock markets and commodities, including gold and silver, tumbling, today King World News interviewed 32 year veteran John Gray from Investors Intelligence. When asked what we were seeing in the way of pessimistic readings, Gray responded, “Normally when you start to see the number of bears exceed the number of bulls, and we have seen that by a modest margin the past three weeks, that generally signals the end of a correction or at least the area of a bottom. That is also what we saw at the end of August, 2010, after about three and a half months of sideways trading at that time.”

John Gray from Investors Intelligence continues: Read More @

More Gloom Lies Ahead for Cities, Report Says

Nearly a third of the nation’s cities are laying off workers this year. More than half have canceled or delayed infrastructure projects. And two out of five have raised their fees.

The catalog of service cuts and fee increases comes as America’s cities are bracing for what they expect will be their fifth straight year of declining revenues, according to a survey of city finance officers to be released on Tuesday by the National League of Cities.

One of the main culprits is the property tax, which many cities and local governments rely on heavily. Property tax collections, which are usually quite resilient, are projected to fall by 3.7 percent this year — their second year in a row of declines — as tax assessments belatedly catch up with the lower property values left behind by the battered real estate market. Sales tax collections are projected to be slightly higher this year, but income tax collections are projected to be slightly lower, as unemployment and lower wages take their toll in many places.

“For cities, the collective impact of property values continuing at levels far below their 2007 peaks, consumer spending slowing, consumer confidence eroding and markets possibly entering a double-dip recession is the worst since the Great Depression,” according to the survey, a copy of which was obtained by The New York Times. The report raises the possibility that “lower property values and declining sales may portend something entirely new, a ‘new normal.’ ”

In what passes for a bright spot in an overwhelmingly gloomy report, the number of city finance officers who said their cities would be less able to meet their fiscal needs has dropped. This year 57 percent of the 272 finance officers surveyed said their cities would be less able to meet their needs than they were last year. In 2010, 87 percent said so. But the number was still high this year when it came to cities that rely heavily on property taxes: nearly three quarters said they were less able to meet their needs.

One of the report’s authors, Christopher W. Hoene, said many cities were still unsure if the worst was over. “The question is, are we going into the low point or are we emerging out of it?” said Mr. Hoene, director of the Center for Research and Innovation at the league of cities. “Right now, in the early fall of 2011, the answer to that question is unclear.”

Cities have been unable to look for help in some of the traditional places. Half of the cities reported that their state aid has been cut since 2009, as states struggled to balance their own budgets.

So many cities have resorted to service cuts. Two in five report cutting things like libraries and parks and recreation programs. Nearly a fifth are making cuts to public safety. Nearly three-quarters are cutting their personnel costs through hiring freezes, wage freezes or reductions, layoffs or reduced health benefits for their workers.

In recent days mayors from both parties have gone to Washington to speak in support of President Obama’s proposal to increase infrastructure spending and give more aid to states and cities, but the proposal is still deeply unpopular with Republicans in Congress.

With cities and states required to balance their budgets, city officials see the federal government as the one entity that can spend more money now to get them through the lingering downturn. The survey finds that the outlook for cities next year was not much brighter. “The effects of depressed real estate markets, low levels of consumer confidence and high levels of unemployment,” the report said, “will continue to play out in cities through 2011, 2012 and beyond.”

Copper breaks key technical level: What it means

Copper has broken a key support level, and that does not bode well for the equity market because the two assets have been positively correlated, with Katie Stockton, MKM Partners.

Add The Ukraine To List Of Countries On Verge Of Technical Default

In this messed up post-Keynesian world which is so insolvent, it is virtually impossible to keep track of who is about to default, either technically, selectively, or really, who is already bankrupt, who is hyperinflating, and so forth. And while we all know that Europe and the US can at best hope to kick the can for a month at a time until finally they all have to face the truth, we are happy to bring to your attention the latest entrant to the technical default club: Ukraine, which will shortly join its former USSR satellite Belarus in the hyperinflation club. The fact is that the Ukraine is slowly imploding - the government had stopped Treasury payments for all budget expenses in an attempt to accumulate the cash needed to make a coupon payment on debt and which apparently investors are unwilling to roll. In all fairness, the news update indicates that the country just barely made the 5.3 billion hryvnia payment, but that may be it for now. What about the next one? Time to add some Ukraine CDS to that bankrupt sovereign basket, no matter how overflowing it may be at this point.

From, google translated:

A few hours of Ukraine may find itself in a state of technical default

Since Friday, September 23, TREASURY stop the flow of funds for all treasury accounts at the central and local levels.

This is the Ukrainian Center for entrepreneurship with reference to this derzhustanovi.

VTSSPD believes that this situation indicates an attempt to accumulate the funds needed to repay the September 28, two series of bonds totaling over 5.3 billion USD.

"As of 5:00pm on Sept. 28 debt is not paid. This suggests that within a few hours of Ukraine may find itself in a state of technical default" - said in a statement.

Wednesday, September 28, 2011

Porter Stansberry's crisis update: This is what will happen next

From Porter Stansberry in the S&A Digest:

In Friday Digests, I always do my best to teach you something new about finance... something you're unlikely to learn on your own… something your broker would never mention... something valuable... something that gives you a better "toolbox" as an investor.

It's funny that I continue to write these messages because I don't believe in teaching. Or as I like to say: There is no teaching. There is only learning. Few subscribers actually want to learn anything. It's a wonderful thing to be confident about your ability to invest successfully... to always know how take money out of the market in any environment. What I'm really trying to do is to broaden your horizons and inspire you to learn more about finance. Having access to this knowledge has greatly enriched my life.

Take the short positions in my newsletter, for instance. Since the market peaked on April 29, I've recommended seven short sells against only two long positions. That means, while most people were losing money in stocks this summer, we've been able to make a lot of money – about 22% on average for each position. And all the recommendations have been profitable.

Did I know exactly when the market would peak? No, of course not. Do we make money on every single short recommendation? No, of course not. But… as you watched the market turn over this year… it didn't take a rocket scientist to see why adding short positions made sense. If you're familiar with shorting stocks, employing this strategy was simple and kept you in the market this summer. But if you've never tried it… if you don't understand it… you were probably left absorbing losses with no good way to hedge.

So if you're a new subscriber, I urge you to see what I've written about buying discounted corporate bonds, selling options, and the importance of having access to the downside of the market, via selling stocks short. Looking at the various gauges of market volatility (the VIX is now over 40!), it's probably a good time to look carefully at selling some options. I firmly believe that if more of our subscribers understood these financial options – bonds, shorting stocks, selling options – they would be unlikely to ever simply buy stocks again.

Happily, I think we've made some progress. Paid-up subscriber John Howlett wrote to me this week…

I wanted to echo a comment that Porter made a while back in the Digest concerning Mike William's True Income (discounted corporate bonds) and Doc Eifrig's Retirement Trader (which focuses on selling option to generate income) being two of your best newsletters. The comment stuck with me because I had come to the same conclusion probably about a week prior...

When I first subscribed to one of your newsletters about three years ago, I made mistake after mistake – wrong position sizes, lack of trade stops, buying leveraged short funds to try to time the market, lack of discipline, doing too much, etc. If you can name it, I did it. The funny thing is that I considered myself a conservative investor... yet somehow these things "happened." In any case,
True Income is fantastic. Not much needed except to be patient and to buy the bonds at a good price… His calls on Global Industries and Western Refining doubled my investment in them – safely.

I had seen where Porter had several times mentioned the power of selling options – particularly puts. Not buying options, but selling them. It only took a couple of trades with Dr. Eifrig's principles to see just how right this was. In just a few weeks, I understood enough to expand his ideas to other stocks – mainly with Dan's World Dominators – putting together a spreadsheet to keep track of the option and stock together and treat them as one position.

It was stunning to see that with careful work, a person can make 18%-20% per year – or more – selling options while reducing risk. On market down days, I'm looking to sell puts. On market up days, I'm looking to sell calls. Bottom line... I have learned tremendously from these guys. My personal opinion is right along Porter's on this one. These two newsletters are gems – your readers that don't use them are missing out.

Let me emphasize... John Howlett is not an employee or a relative. We didn't solicit his comment in any way... And we didn't edit his comment for anything other than length and clarity. I say so because I understand there is a tremendous amount of cynicism and skepticism in the newsletter subscriber community – and rightfully so.

The simple truth is... the sophisticated strategies found in our publications True Income and Retirement Trader make these newsletters difficult to sell or even to explain to novice investors. Subscribers must be willing to learn. And most people are not. It's simply up to you. Try these products – along with shorting stocks via my newsletter (Stansberry's Investment Advisory) – and see if it doesn't change everything about your outlook on investing. I know it will. But I also know most people will never, ever take the first step.

In today's Digest, I'm going to return to the unfolding global banking crisis. I know, I know... many of you are tired of reading about it. A longtime reader – probably the first subscriber I ever gained – complained to me this week via e-mail that he doesn't even read the Digest anymore because he is so tired of my doom and gloom...

I used to NEVER miss an issue because I was sure I'd learn something useful and they were exquisitely smart in some sort of truncated way… Now I feel like I'm getting an ongoing macro analysis of the world economic crisis… The truth is that I often glance at the Digest now and then delete them… I think I read this stuff for wit and attitude more than for his analysis… since your analysis is pretty much the same as it's always been.

He's right, of course. If you go back and read my March 2010 issue of Stansberry's Investment Advisory – "The Greatest Danger American Has Ever Faced" – you'll see that I specifically warned about the huge losses facing Europe's banking sector 18 months ago. I didn't believe these losses could be financed, given the perilous state of Europe's sovereign creditors.

To give a specific example, I picked Italy's UniCredit, because it is the direct predecessor of Kreditanstalt, the Austrian bank whose failure in 1931 knocked Europe and eventually America, off the gold standard.

Today, UniCredit is the largest creditor to Eastern Europe. It owns, for example, Bank Pekao, Poland's largest lender. It generates about half of its profit from Ukraine, Hungary, Romania, and Slovakia. JPMorgan estimates loans to Eastern Europe will generate roughly $40 billion of losses by the end of 2010. And who will bail out UniCredit's depositors if it fails? The Italian government? It can't. It is already struggling with enormous deficits and a debt-to-GDP ratio more than 100%. The rules of the European Monetary Union won't allow Italy's government to add that much more debt to its balance sheet. So what will happen…? I believe the crisis that began with subprime mortgages in 2008 will continue to spread until the world's sovereign credits collapse and the global system of paper money fails.Stansberry's Investment Advisory, March 2010

Given that outlook... it's not surprising that most of what I've written since then has been a continuation of these warnings. My monthly titles since then include: "Hungary Matters," "The Worst Is Yet to Come," "Risks of a Global Famine," "The BIG Collapse in Bonds," "Time Is Running Out," "For Whom The Bell Tolls," "The Day the Dollar Dies," "Phase III of the Monetary Crisis," and last month's "Europe's Breaking Point." Clearly, I've been hitting people over the head with the message.

And for some people, the message has gotten old... They're tired of reading it. Perhaps they didn't take action sooner to protect themselves... Or perhaps they believe the tide is about to turn, and they want to know what to do next... Or perhaps they're simply tired of reading bad news. Sorry. I don't make the news. I just report it... and I continue to believe these risks are so serious that nothing else is as important. Not even close.

So... here's what will happen next. Soon, Greece will default. This will begin a chain reaction of European bank failures, because most banks in Europe have only written off a small portion (21%) of the value of the Greek bonds they hold. French banks are particularly vulnerable right now. This, in turn, will cause banks to stop lending to each other out of fear.

It will also lead to big losses in the commercial paper market. That's how the crisis will spread to the U.S. – our money-market funds still hold roughly 42% of the assets in loans to Europe's banks. Companies with exposure to European financial assets (like GE) and those that depend heavily on the commercial paper market for funding (like Capital One) will see their share prices plummet. As the global economy stalls and then moves into recession, unemployment will worsen… and political tensions will greatly increase. I expect large-scale civil unrest in both Europe and the U.S.

In the short term, commodities are also likely to fall sharply. The crisis is nearing a breaking point. Europe represents the world's largest economic area. I expect oil will fall at least in half from its peak. You could see silver fall, temporarily, by maybe another 30%. Gold could fall by maybe 25% from its peak. Base metal and energy commodities – stuff like copper and coal – will get crushed, like they did in 2008. In short, this is Europe's turn to have a Lehman Brothers-like banking collapse. Only this time, it will involve dozens of huge banks and several different countries, all of which have different ideas about how the crisis should be solved.

And that means it will probably be a longer and deeper crisis than Lehman Brothers. But... sooner or later... we're going to see a massive reversal. The Fed will step in to support the ECB, and a tremendous amount of new euro will be issued. I expect the euro to fall to parity – 1:1 – with the dollar before this crisis is over.

The hard part will be knowing when the time comes to jump back into blue-chip stocks, strategic commodities (like oil shale assets), discounted corporate debt (which I believe will get much, much cheaper from here), and strategic metals (like gold, silver, copper, and iron). During the Lehman crisis, the peak interest rate spread between junk bonds and U.S. Treasurys was around 22%. The spread on European bank debt could get at least that high, as will most of the sovereign debt of the peripheral nations. And we're just not there yet.

Is there a chance I'm wrong? Is there any realistic way to solve this crisis without a Greek default and a European banking crisis? I don't see how. Germany is the only truly solvent, large European country left. And the German voters continue to hand the ruling party loss after loss in local elections, specifically because the public is almost unanimously against Germany bailing out the rest of Europe. Likewise, the German representative of the ECB resigned last week out of protest against any future quantitative easing, aka money-printing.

What should you do while this crisis continues to deepen? The same advice I've been giving since March 2010. If you're sophisticated, you want to build a large book of short sells to hedge your stock market exposure. You should own at a minimum 15% of your assets in gold and silver. If you're unable or unwilling to hedge your portfolio, I recommend putting half your portfolio in Treasury notes (via the iShares short-term Treasury Bond fund, SHY) and half your portfolio into gold (via the iShares gold fund, GLD). Doing this 50-50 split between gold and the U.S. dollar is the only true way to go to "cash," given the tremendous uncertainty in the future of the global paper money system.

I wish I had better news… or a more promising strategy I could endorse. But as always, I've got to write what I believe. I hope you'll remain patient with me and continue to subscribe. When the market turns, I'll get you back in... just as I did in November 2008 through May 2009.

10 Cheap Stocks With Dependable Earnings

Bargain hunters should focus on companies that can deliver on forecasts. The evidence favors these names.

Cheap stocks are suddenly abundant. The S&P Composite 1500 index of large, midsize and small U.S. companies has lost 12% in three months. More than 300 of its members now have price-to-earnings ratios in single digits, suggesting a discount of more than one-quarter to historical levels.

That alone doesn't make these stocks bargains. If earnings in coming quarters prove much lower than expected, today's P/E ratios will have misled. The task for investors is to figure out which companies are both modestly priced relative to forecasts and likely to meet or exceed those forecasts.

One tool professional investors use to predict that is past earnings volatility. Companies with relatively smooth earnings histories — a low standard deviation of quarterly earnings, in statistical parlance — are more likely than others to deliver the same in coming quarters.

But this tool is of limited use now, because the past five years have produced chaotic results for much of the market, and traditionally stable industries now face challenges. Food makers must deal with crop inflation, soap and toothpaste firms are battling a shift in shopper preference to discount brands and even some utilities are seeing a drop in electricity usage. Some companies in these industries will report stable earnings over the next year, but perhaps not all of them.

So here are two ways to tell which firms are reliable. The first is to look for a recent dividend increase. That puts more cash in shareholder pockets, but just as important, it signals that managers are confident about future results. After all, no company wants to raise its dividend only to find the new payments unaffordable in the coming year.

The second is another statistical clue: a tight clustering of the earnings estimates issued by different analysts. Three decades of research, including recent studies by Anna Scherbina, now at U. C. Davis, show two important things about estimate dispersion. First, tightly grouped estimates are more likely than scattered ones to precede an upside earnings surprise. Second, stocks with clustered earnings estimates tend to outperform those without.

One theory on why this is so has to do with the earnings guidance that companies provide to analysts. Firms with good news to report tend to be more forthcoming with details than firms that are struggling, the thinking goes.

The 10 stocks below have modest P-E ratios and healthy dividend yields. They've also raised payments over the past year and have earnings estimates that show relatively close agreement among analysts.


* Based on forecasted EPS for current fiscal year
Data as of Sep. 22, 2011
Source: Thomson Reuters

4 Banks Account for 94% of Derivatives Exposure

A new report from the Office of the Comptroller of the Currency reveals U.S. banks have $249 trillion of exposure to derivatives — futures, forwards, swaps, options and assorted credit instruments. Among those are the credit default swaps they wrote for the European banks, whose considerable risks we’ve documented extensively.

Four banks alone account for 94.4% of that total.

Jay Taylor: Turning Hard Times Into Good Times

Understanding and Profiting from Asian Economics

Don't Join the Ostrich Generation


Stocks are volatile, the economy is stagnant, and corporate pensions and Social Security seem less viable by the day. One might expect such a dismal confluence of events to jolt aspiring retirees into financial-planning overdrive, furiously making budgets, cutting spending and salting away every spare nickel.

Yet many Americans are responding to the market and economic malaise by putting their heads in the proverbial sand. Half of U.S. workers who are at least 45 years old haven't even tried to calculate how much they will need to save to live comfortably in retirement, according to a March study by the Employee Benefit Research Institute.

Others are shelving retirement dreams because they are paralyzed by fear. According to EBRI, 20% of employees say they intend to retire later than they had planned, for reasons ranging from the slowing economy to worries over the future of Social Security.

Even wealthier people are nervous. Two-thirds of "affluent investors" with at least $250,000 in investable assets surveyed in June were concerned that their retirement stash won't last throughout their lifetimes, up from 57% in December, according to Bank of America Merrill Lynch.

"People are frozen because they don't know which way to go," says Jeannette Bajalia, president of Petros Estate & Retirement Planning in St. Augustine, Fla. "Anytime there's ambiguity, it immobilizes them."

The good news is that there are ways to fix derailed retirement plans. Among the essential tasks: talking honestly with your spouse, planning realistically for health-care expenses and rethinking your retirement age and Social Security assumptions.

The first step is looking beyond the current market realities of volatile stocks, low-yielding bonds and slow economic growth — and having the fortitude to continue taking measured risks. (more)

The Fiat Money Scheme Explained

Everybody, especially those at the bottom of the pyramid, should start buying gold coins now! If you don't have a lot of money, buy a little at a time, and a few times a year. Very good introduction to the concept of fiat money, However, the role of the Federal Reserve is not mentioned here. And while banks do indeed create "money" out of nothing with fractional reserve banking, the Federal Reserve also creates money out of nothing by purchasing interest bearing treasury bonds from the treasury, using federal reserve notes, which it create out of nothing.

7 Things You Didn’t Know About Sovereign Debt Defaults

Investors have renewed their obsessing over the risk of sovereign default, as fear creeps back into the market that contagion will lead to a replay of the financial crisis and the return of a recession. While sovereign debt defaults are frightening, they are actually quite common and may not lead to the worst-case scenario that many are expecting. Here are seven facts about sovereign debt defaults that might surprise you.

The PIIGS countries - or Portugal, Italy, Ireland, Greece and Spain - are on everyone's watch list as having the greatest risk of sovereign default. These five countries have a mixed historical record of sovereign default over the last 200 years, with Ireland never defaulting on its obligations and Italy only once during a seven-year period in World War II.

Portugal has defaulted four times on its external debt obligations, with the last occurrence in the early 1890s. Greece has defaulted five times and has spent a total of 90 years in this status since achieving independence in the 1820s.

Spain holds the record on the PIIGS list and has defaulted six times, with the last occurrence in the 1870s. If you extend the date range back another three centuries and start in 1550, the default count rises to 12.

2. Pristine
There are a number of countries that have pristine record of paying on sovereign debt obligations and have never defaulted. These nations include Canada, Denmark, Belgium, Finland, Malaysia, Mauritius, New Zealand, Norway, Singapore, Switzerland and England.

Don't think that these countries skated through the last 200 years without financial problems, because endemic banking crises were a common occurrence. England has suffered 12 banking crises since 1800 or an average of about one every 17 years.

3. The U.S. Has Defaulted on Debt (Technically Speaking)
Although the conventional wisdom is that the United States has never defaulted on its sovereign debt obligations, there have been some instances that may qualify under a strict and technical definition.

In 1790, the United States passed a law that authorized the issuance of debt to cover the obligations of individual states in the union. Since some of this new debt didn't start paying interest until 1800, some purists consider this a technical default.

Many issues of U.S. government bonds issued prior to the 1930s contained a gold clause under which bondholders could demand payment in gold rather than currency. In 1933, President Roosevelt and Congress decided that this promise was against "public policy" and obstructed the "power of the Congress" and ended this right. The issue was litigated and ended up before the Supreme Court, which ruled in favor of the government.

In 1979, the government could not make timely payments on portions of three maturing issues of treasury bills due to operational problems in the back office of the Treasury Department. These payments were later made to holders with back interest.

4. Ground Zero
Ground zero for modern sovereign debt default seems to be in South America and Central America where Venezuela and Ecuador share the dubious honor of 10 defaults each.

Brazil, which today is one the fastest growing of the emerging economies, has defaulted nine times, while Costa Rica and Uruguay have disappointed foreign investors nine times as well over the last 200 years.

5. China
Another oasis of financial strength today is China, which has trillions of dollars in reserves and suffered only marginally during the recent recession. China has defaulted only twice, both times during times of external and internal conflict.

6. Confrontation
The Western Powers sometimes reacted with military force when a country decided not to pay back money that was borrowed. In 1902, Venezuela refused to pay on its foreign obligations and after negotiations failed to resolve the issue, Britain, Germany and Italy imposed a blockade on Venezuela.

The conflict escalated quickly and a number of Venezuelan ships were sunk or captured, ports were blocked and coastal areas were bombarded by the Europeans. The U.S. eventually intervened to mediate and after several years of negotiation Venezuela combined its outstanding debt into a new issue, added back interest and made payments until the issue matured in 1930.

7. Revolutions
Some sovereign defaults are intentional and are not necessarily due to a lack of financial resources. In February 1918, the new government in Russia repudiated all debt issued by the previous Tsarist government. Bondholders have long memories and this default officially lasted until 1986, when Russia settled with British holders of this paper. In 1997, an agreement was reached with French bondholders as well.

The Bottom Line
Sovereign debt default is a terrifying thought to many investors and the dread is only amplified in the current environment of financial gloom that pervades the market. Investors that examine the issue more rationally, and in the context of the history of such events, will realize that the global financial system has seen this before and survived.

Peter Schiff: Government Perpetuates Poverty

Doug Casey: How to Prepare for "When Money Dies"

Doug Casey If dollar-dumping turns from a trickle into a flood, look out. Exploding prices (aka exorbitant inflation) resulting from the devaluation of the dollar will compound the problems we saw in 2007–2009. Catastrophe will come when everybody realizes that the dollar is an "IOU nothing." That's the downside in the decade(s) ahead, according to Casey Research Chairman Doug Casey. But an optimist at heart, in this exclusive interview with The Gold Report, Doug also identifies some reasons to be hopeful.

The Gold Report: You've been talking about two ticking time bombs. One is the trillions of dollars owned outside the U.S. that investors could dump if they lose confidence. And the other is the trillions of dollars within the U.S. that were created to paper over the crisis that started in 2007. Are these really explosive circumstances that will bring catastrophic results? Or will it just result in a huge, but manageable, hangover?

Doug Casey: Both, but in sequence. One thing that's for sure is that although the epicenter of this crisis will be the U.S., it's going to have truly worldwide effects. The U.S. dollar is the de jure national currency of at least three other countries, and the de facto national currency of about 50 others. The main U.S. export for many years has been paper dollars; in exchange, the nice foreigners send us Mercedes cars, Sony electronics, cocaine, coffee—and about everything you see on Walmart shelves. It has been a one-way street for several decades, a free ride—but the party's over.

Nobody knows the numbers for sure, but foreign central banks, and individuals outside the U.S., own U.S. dollars to the tune of something like $6 or $7 trillion. Especially during the recent crisis, the Fed created trillions more dollars to bail out the big financial institutions. At some point, foreign dollar holders will start dumping them; they are starting to realize this is like a game of Old Maid, with the dollar being the Old Maid card. I don't know what will set it off, but the markets are already very nervous about it. This nervousness is demonstrated in gold having hit $1,900 an ounce, copper at all-time highs, oil at $100 a barrel—the boom in commodity prices.

Some countries are already trying to get out of dollars, but it could become a panic if the selling goes from a trickle to a flood. So, yes, it's a time bomb waiting to go off, or maybe a landmine waiting to be stepped on. If a theatre catches fire and one person runs out, soon everybody rushes toward the door and they all get trampled. It's a very serious situation.

TGR: If panic erupts on the U.S. dollar, would products manufactured in the U.S. become super-cheap or super-expensive?

DC: They would become super-cheap. Everybody says that devaluing the dollar will stimulate U.S. industry because the products will become cheaper and foreigners will buy them. This is a huge canard everybody repeats and nobody thinks about. Yes, it is true for a while, but if devaluation were the key to prosperity, Zimbabwe should be the most prosperous country in the world as it has already collapsed its currency.

A strong currency is essential for a strong economy. Sure, a strong currency can hurt exporters for a while. But, a strong currency encourages manufacturers to invest in technology, and become more efficient. It rewards savings and results in the growth of capital that's critical for prosperity. A strong currency allows businessmen to buy foreign companies and technologies at bargain prices. It results in a high standard of living for the country, and yields social stability as a bonus. The idea that decreasing the value of currency to stimulate exports is a short-lived, stupid and counterproductive solution to the problem. People seem to forget that while the German currency was rising about sixfold from its level of 1971, and the Japanese yen about fourfold, those countries became the world's greatest export economies. It didn't happen despite a strong currency, but in large measure because of it.

TGR: Given that the U.S. is the world's biggest consuming nation, wouldn't fleeing the dollar create a big consumer vacuum in the international community? Doesn't the rest of the world want to keep up the high level of exports to these U.S. consumers? (more)

Case-Shiller Home Price Index Continues Downward

The S&P Case-Shiller Home Price Index for July came out today. Here were the two headlines from the mainstream media:

Case Shiller Home Prices Fell 4.1% in Year Ended July (Bloomberg)

U.S. Home Prices Post Seasonal Rise (WSJ)

So which was it? Did home prices rise or fall? Technically they are both correct, but each one slanted the information in the way they wanted the story to read. Glass half-full or half-empty?

The truth is more in line with what Bloomberg said and that is that home prices are still falling, the current gains are technical results from the foreclosure problems that lenders have, and that foreclosures will resume and increase shortly and the market will continue to be depressed.

“The enormous supply overhang of existing homes, particularly factoring in all those in foreclosure or soon to be, promises to keep pressure on prices for some time,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said in a note to clients. “We look for further declines to be registered in the quarters ahead, although in all likelihood the rate of deterioration will be nowhere near as steep as that recorded earlier.” [Bloomberg]

Here is what it looks like:

The ten-city index is identical. There are seasonal factors at play here as well (summer having higher sales).

According to the Report:

U.S. home prices, showed a fourth consecutive month of increases for the 10- and 20-City Composites, with both up 0.9% in July over June. Seventeen of the 20 MSAs and both Composites posted positive monthly increases; Las Vegas and Phoenix were down over the month and Denver was unchanged. On an annual basis, Detroit and Washington DC were the two MSA that posted positive rates of change, up 1.2% and 0.3%, respectively. The remaining 18 MSAs and the 10- and 20- City Composites were down in July 2011 versus the same month last year. After three consecutive double-digit annual declines, Minneapolis improved marginally to a decline of 9.1%, which is still the worst of the 20 cities. …

[T]he 10-City and the 20-City Composite Home Price Indices. In July 2011, the 10- and 20-City Composites recorded annual returns of -3.7% and -4.1%, respectively. …

The S&P/Experian Consumer Credit Default indices showed a continuing decline in mortgage default rates, a two-year trend. However, if you look at the state of the overall economy and, in particular, the recent large decline in consumer confidence, these combined statistics continue to indicate that the housing market is still bottoming and has not turned around.