Friday, September 30, 2011

Down We Go

What does it mean to have your credit rating downgraded? Why did the Fitch ratings agency do so now for New Zealand in particular?

Credit ratings are based on your ability to repay credit (money) that is extended to you for whatever purpose you deem fit. The word 'credit' comes from the Latin word Creditum, meaning to loan or entrust or 'I believe'. So when you take out a loan, a counterparty will entrust their money to you and receive interest on that loan. The interest charged depends on the risk the counterparty thinks you have of not repaying. The higher the risk, the higher the interest rate. The counterparty may also ask for assets as collateral to ensure that if you don't pay, they get those assets.

How does this latest fall in ratings from AA+ to AA affect New Zealand? Simply put, people don't trust us as much as they used to to pay back debt. Interest rates are headed higher.

As I mentioned last week, these are the figures Fitch is concerned about:

As at June 30, 2011:

International Assets = $113 billion
International Liabilities = $253 billion

Net International liabilities = $140 billion (or 70% GDP)

This net external debt of 70% to GDP is too large Moreover, New Zealand continues on a path to increase this debt through deficit spending. Fitch "noted that New Zealand had one of the highest levels of household indebtedness among developed countries at 150 per cent of disposable revenue, which hasn't declined significantly since 2008."

We are in the poo.

Reason? Our debt is too high to manage in this current world economic climate. The path to growth needed to pay back such an horrendously high debt level has vanished.

We hear our politicians say we 'are in good shape' and that we will return to growth within two years, or whatever. But, strangely enough, when those time frames play out, the growth forecasts get pushed out to another future time frame. They are playing games with the truth, they are not saying where this is really headed. They want to walk the fine line between all out anger from their constituents (translated to lack of votes for them) to maintaining calm and confidence in the system.

New Zealand's economy is totally reliant on our large trading partners to maintain growth. Their books aren't in any better shape than ours. Australia is in trouble as the China real estate and growth bubbles start to deflate. Trading in isolation from them will not produce the wealth we need to repay this debt. This is what Fitch sees, the unwinding of trust and confidence in our ability to repay that which was entrusted to us.

When, and not if, interest rates rise, more people will be in financial stress. Add this to jobs disappearing as growth departs, New Zealand is set up for a torrid time in the next medium term.

As Gerald Celente says, when the money stops flowing to the people on the street, the blood starts flowing in the street. Let's hope it never comes to that.

Gold in New Zealand dollars: $2095.88 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $39.72 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
_____________________________________________________________

YOUnique Gold and Silver

Buy small, affordable physical gold and silver or start a savings program towards
physical gold or silver grams for as little as US$25 per month.

_____________________________________________________________

The Anglo-Far East Company
AFE is the gold bullion custodial provider of choice for the sophisticated investor,
families, and institutions that require the highest level of discretion, competence,
safety, and service.
Your reference: an-001
_____________________________________________________________

Thursday, September 29, 2011

Silver Washout - Correction Or Crash?

Here is the latest from Duncan Cameron of The Anglo Far-East Company. Duncan describes the latest knock-down in silver prices in the context of the gold-silver ratio and the long term trend for silver.

The Anglo Far-East Company deal in the physical market at the high end. They have their fingers on the pulse of the physical market

Silver Washout - Correction Or Crash?

"Looking at events over the last week, it's somewhat humorous to see the way those who knock silver want to dump on its precipitous drop, but when you observe the violent ratio spike of 2008 in which we had a sustained period of Richter-scale-like spikes typical of a credit event earthquake, its plain to see that silver investors over gold are better off in terms of bang for their buck. The primary trend of silver in recent years, even amidst an ongoing global credit episode, bears testimony to silver's outperformance when looking at the gold to silver ratio.

 
(source: Duncan Cameron)

What we are witnessing today is the equivalent of an obese weightwatcher on an austerity program missing their morning tea donuts and complaining they haven't lost their kilos fast enough. Silver investors are fickle and so often think in terms of double baggers in extra quick time.

 
Source - Greg McCoach

The great issue for many when it comes to silver is the mental physiology of a volatile metal that, still at inexpensive valuation, is quickly dispensed with when emotion rules reason. When this period of earthquakes is done with and global leaders find some marvel to forestall the issues until our next crisis, it's not hard to imagine the same events all over again when gold is $5000 and silver $166 or a ratio of 30. Then, amidst the next crisis, it spikes wildly back to 40. Out goes the family silver, and on come the silver knockers bemoaning how they are disillusioned with it as an investment.

On a supplier level, try calling a local dealer to see if they are reflecting the drop in their prices. Lo and behold, I find their premiums have gone up on silver coins and 1 kilo bars, leaving a buyer no better off. We have also seen this before in 2008 when the paper market met reality in the physical market. Sellers wouldn't part with metal at a depressed spike-like event, so why should you? On the contrary, being an Anglo client puts you in a unique position of being able to source silver at the highest end of the Nile verses some type of local dealer dried out stream way down in a valley.

Gold in New Zealand dollars: $2073.18 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $38.46 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
_____________________________________________________________

YOUnique Gold and Silver

Buy small, affordable physical gold and silver or start a savings program towards
physical gold or silver grams for as little as US$25 per month.

_____________________________________________________________

The Anglo-Far East Company
AFE is the gold bullion custodial provider of choice for the sophisticated investor,
families, and institutions that require the highest level of discretion, competence,
safety, and service.
Your reference: an-001
_____________________________________________________________

Wednesday, September 28, 2011

Get Prepared

"This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!...The biggest risk you can take right now is not acting."

These are the words of Alessio Rastani who is described as a 'trader'. We don't know what sort of trader, but his words are worth heeding. This interview is being reported widely now (even in the NZ Herald), mainly lambasting him for his candour, especially his view that he wants to make money out of the recession.

Complain all you like, but this is a trader and he wants to be on the winning team. For him it's about making money and to hell with the consequences. Does that make him bad or just smart. Yes, all sorts of moral questions will need to be asked during this crisis. Least of all, how are the Central Banks affecting you? Perhaps the immorality of their money printing looms large as compared to one traders lack of caring?

Here is the interview:



This week, the Finance Minister of New Zealand returned from the joint meeting in Washington of Central Bankers and Finance Ministers. He commented that the mood there was black (not exact words) and at the meeting there were "People who (were) concerned that something bad might happen."

New Zealand politicians are trying to take the winning side though. Their favorite comment being: "We are in pretty good shape". They point to Banks being well capitalised and commodities looking strong. They attempt to deflect any blame for the coming mess to a coming lack of Chinese growth which in turn will affect Australia and flow to New Zealand. But don't get them discussing the huge debt mountain they laid on us over the last ten years. Don't ask for accountability in mismanaging our resources and spending our children's future.

The rhetoric coming from world leaders over the past few weeks is unprecedented in its negativity. It signals that the time for protecting assets is soon to be gone. It will be too late. You don't necessarily have to even consider gold or silver as a mechanism to protect your assets. But whatever you do, think carefully and quickly.

An a light touch to finish.


Gold in New Zealand dollars: $2094.95 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $40.56 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
_____________________________________________________________

YOUnique Gold and Silver

Buy small, affordable physical gold and silver or start a savings program towards
physical gold or silver grams for as little as US$25 per month.

_____________________________________________________________

The Anglo-Far East Company
AFE is the gold bullion custodial provider of choice for the sophisticated investor,
families, and institutions that require the highest level of discretion, competence,
safety, and service.
Your reference: an-001
_____________________________________________________________

Tuesday, September 27, 2011

What is Happening to Gold and Silver?


The fear gripping the market is palpable. Fear can cause people to do irrational or reflexive things in order to survive. The alternative is to hold your nerve and confront your fears and survival instincts and think in a calculating and careful way.

Markets are not for the fainthearted and I am sympathetic to why some are just happy enough to take no risk and work at their daily jobs, live off the proceeds, and save some in a nice safe deposit account.

This past week has been fascinating. If you study this daily, as I do, you get to a point of seeing large violent and unusual moves as being captivating. Watching the silver price go from $31.00 to $25.00 and back to $30.00 yesterday was highly unusual and speaks to me of a wobbling world economy seeking stability.

So what is happening to gold and silver prices? Is this the end? Should you bail and get cash and put it under that old mattress? This from Dan Norcini who has provided the best explanation so far of the selling of precious metals in the past three days:
"What positions could a hedge fund actually sell that are PROFITABLE if they need to raise cash? Answer - They have none -  the only market that is still showing a profit for this year (other than the treasuries trade) is GOLD. It started the year at $1422 on the Comex and closed today at $1640. That is a gain of 15% on the year even after the whipping put on it this week. A short note here - silver is back to where it began this year so there are no profits left in it after this week. 
Now consider that hedge funds are getting a boat load of redemption requests from disgruntled clients and from those who are simply scared stiff and have had enough of the insane volatility. They want their money back even if it means sticking it under a mattress. That requires these funds to sell the assets that they have to raise the necessary cash. 
In other words, gold, is the only profitable investment these funds have that is both liquid and available for them to meet margin calls and meet redemption requests. This is why it is being sold. The selling has nothing to do with it not being a safe haven but rather functioning as an extremely liquid investment that has shown them a solid profit. Winners are getting sold to meet losing trades and redemptions. Nothing more; nothing less. 
Once this money flows issue is resolved sufficiently, the factors that have led gold to rise will reassert themselves."


Gold in New Zealand dollars: $2082.87 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $39.20 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
_____________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
_____________________________________________________________

Monday, September 26, 2011

Unprecendented Turmoil Ahead; Hold Gold

These are unprecedented times. The financial turmoil, now in progress, will be significant historically. It is by far uncertain how all this will pan out, but what is certain is that the measures now taken by the financial leaders of the world will change the way we do business in the future.

It started with the housing bubble bursting in 2007 and is progressing to the point where unlimited money printing will see this system collapse. The mountain of debt needs to be dealt with, not built upon

Is the doom and gloom and talk of change an overreaction? Remember, just last week, the major central banks promised unlimited cash to plug solvency gaps in top euro banks and to pay for debt maturing in troubled euro nations. Mr Trichet repeated, this weekend, that the ECB stands ready to provide banks in the euro area with unlimited liquidity, and stressed the central bank has ample means to do so.
"The ECB is supplying roughly EUR550 billion of liquidity to banks, which compares to EUR1.8 trillion of collateral it has on its books, he said. Trichet added the ECB can mobilize up to EUR4 trillion to EUR5 trillion of additional collateral with banks."
Yesterday, the meeting of finance ministers and central bankers in Washington decided to band together and promise £1.75 trillion deal to save the euro. Yes, save the euro and their banking cronies and abandon the rest of us to being the new middle-class poor. I cannot stress enough, that inflating the money supply will devalue all the paper money you think you hold. It's an economic and universal law. The more money you supply then the less value it has.

This from the Seeking Alpha on Saturday:
"Conditions in Europe continue to deteriorate as now 8 Greek banks have been downgraded by Moody's to basically junk.  So not only is the sovereign nation of Greece have junk bonds yielding over 70% per annum but also their individual banks.  The problem of course is very simple, the ECB must cover all citizens bank deposits to prevent a complete collapse in Greece.  Greece has over 10 million citizens"
Translated: Greece has no money. The banks cannot get funding. Remember the basics of fractional reserve banking; those funds deposited by hard working people weren't there before this crisis. People will soon discover the truth of this. Greeks, and other people in Europe, will want their money out this week. It won't be there, banks may close. This is what frightens the banking elite. They want an orderly default of Greece and order in the world markets. Good luck with that. Cat's out of the bag.

So what of the large down moves in gold and silver on Thursday and Friday? Here's a view from Art Cashin:
"Yesterday, the textbook was thrown out the window. All asset classes saw sudden and sharp moves far in excess of normal volatility patterns. To an old timer, that points to one conclusion. Liquidation. Wide-spread liquidation across asset classes. Currencies, bonds, commodities and stocks all moved swiftly and sharply in a direction that screamed - Seek safety! Raise cash! Get liquid...

All of that had a quick and discernible negative impact on markets. But, the selling was far more pervasive and dramatic than simply a conscious adjustment of positions based upon new data. Thursday’s action screamed liquidation - and not all of it voluntary."
So should we be selling gold and silver now before it's too late? That really isn't the question. If you are long gold and silver and not into trading, then fundamentals haven't changed. These are violent and volatile times. The Golden Truth blog has this to say:
"If you merely only held your gold/silver from their peak prices in 2008 until now/today, you would have achieved a 66% increase in your real wealth in gold ($1020 to $1700) and a 57% increase in silver ($21 to $33).  Got any other part of your portfolio that has performed like that?  No way.  So, are you top-ticking the market it you buy some more today?  I don't know short term.  But I would be willing to bet that a year from now that gold and silver will be much higher than where they are today.  Hold tight and be right."
The last 40 years has seen an incredible shift from producing things which are meaningful and useful, to a process of shifting large amounts of paper around in order to create phoney wealth.

Well, the tide is about to go out, then we will see who is swimming naked.

Gold in New Zealand dollars: $2136.67 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $39.88 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
_____________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
_____________________________________________________________

Friday, September 23, 2011

Rest Easier With Gold Amidst Market Turmoil

If you owned gold in New Zealand dollars yesterday at $1811/oz then today at $1740/oz, you can buy the same amount of stuff in New Zealand dollars today.

This may not always be the case of course, some days up, some days down. But over the long term gold tends to be the true arbiter of value. This is because gold is money in it's ultimate form and the direct opposite of fiat money and the paper derivatives thereof. All goods and services are eventually measured against gold.

However, the major talking point this morning is the decimation of the world markets overnight:

Dow Jones -3.51pc
S&P 500 -3.18pc
Nasdaq -3.25pc
FTSE 100 -4.64pc
DAX -4.91pc
CAC 40 -5.16pc

Many pension funds, hedge funds, kiwisavers and sovereign funds have lost paper value by the billions. Those holding commodities, like silver, also were flattened somewhat. In London alone, £64bn was wiped off the value of Britain's biggest companies on FTSE 100.

One market participant said today, "Markets rely on confidence and certainty. Right now there is neither." How true.

With the leaders of major economies all bickering like schoolboys, it's no wonder confidence and uncertaintly reign. Here's a few quotes:

"Barack Obama has been having stern words with eurozone leaders this week, claims press secretary Jay Carney." Is this the same USA that holds the largest deficit by all emasures in history?

"World Bank president Robert Zoellick say today that the world was in a "danger zone" and the IMF's Christine Lagarde blaming politicians for bringing us all to the brink of recession."

Market participants have digested the latest 'operation twist' from the Federal Reserve, where they have said they will sell short term treasuries (of less than three years) and use the proceeds to buy longer term debt. The market has deemed this will not be enough to boost the economic system and the Fed will need to bring in QE3 in October. Yes, money printing on a scale never before seen. One that would even make Weimar Germany blush.

The markets have reacted as they should to the plans and bickering from our Leaders. Now the only course of action they really have is to print more money.

Is there another planet I can head to?

Gold in New Zealand dollars: $2225.33 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $45.94 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

_____________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
_____________________________________________________________

Thursday, September 22, 2011

How is Little Old New Zealand Going?

The latest figures measuring New Zealand's external assets (stuff we own) and liabilities (stuff we owe) are in from the New Zealand government statistician.

It shows the nation's external liabilities exceeded assets by $140.2 billion at June 30, amounting to 70% of GDP. The nation's international financial liabilities edged up to $253.9 billion.

What are we to make of this? How is little old New Zealand going?

As at June 30, 2011:

International Assets = $113 billion
International Liabilities = $253 billion

Net International liabilities = $140 billion (or 70% GDP)

Therefore, if we put 70% of the production in all goods and services for one year (GDP) plus sold and added to this all the assets we have internationally, we would be able to pay off our debt. Cool.

But wait. This is like having a house worth $100,000 as your only asset. But you owe on this, and other things, $223,000. But we earn $176,000 per year. So to get rid of our debt we could sell the house and put 70% ($123,000) of our next years paychecks toward the debt. Doesn't look so good.

Economist Rogoff tells us what happens when a 90% debt-to-GDP ration strikes. Negative growth in GDP. That is, the debt consumes more wealth than a country is able to produce and unless that debt is redupiated, the life-blood of that economy is sucked out.

I heard an Emiretus Professor at MIT (and Nobel prize winner) say on National Radio this morning, that a 70% debt-to-GDP is of no concern. I know he's far more educated than I will ever be in economics, but I would worry if my household debt looked like that. Wouldn't you?

So don't be alarmed, normal debt service (or servicing) will resume.

Also out today, economic activity, as measured by gross domestic product (GDP), was up 0.1 percent in the June 2011 quarter. Could this be a slightly manipulated figure? This is so negligibly positive it warrants suspicion. Remember, a positive figure gets us out of having to admit that we are in recession. Funny that...

And this from Dan Norcini yesterday before the Fed's announcement:
"Commodities are still poised to run from here, stoking inflation, although everything hinges on what the Fed and ECB do next. 
The entire world awaits the Fed's pronouncements on Wednesday September 21st. Will they announce just a little more thin-air money to be injected into the system or a lot? Or maybe none at all?
To those of us watching all this unfold, it's every bit as surreal as it appears. How can it be that we've gotten to the point that trillions upon trillions of global paper assets are poised to inflect upwards or downwards depending on whether seven people currently seated around a board room table decide to manufacture infinitely leverageable 'wealth' out of thin air now or wait another six weeks before doing it? 
That true wealth cannot be manufactured out of thin air seems lost on quite a few market participants, who are more than happy to continue trading stocks and bonds back and forth for as long as the music continues to play. What their exit strategy is for when the music stops is open to question but in many cases it will be a forlorn hope such as "I'll get (my clients) out in time!" 
More on the Federal Reserve's pronouncements tomorrow.

Gold in New Zealand dollars: $2224.16 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $49.34 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
_____________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
_____________________________________________________________

Wednesday, September 21, 2011

Here's What I'd do

Here's some of the latest post from Franklin Sanders today. Particularly look at the three points about what you might do to prepare for the next wee while.

I hope you enjoy this, Franklin is witty and funny, but a highly experienced trader in gold and silver.

Daily Silver and Gold Price Comemntary by Franklin Sanders:

"Y'all know already that trying to find information on the Internet resembles trying to drink out of a fire hose. But that's nothing new, it's always been that way, trying to pick the important events & causes from the middling-piddling ones. Great traders, I've heard, find a few very reliable indicators & stick with those, & don't vex themselves trying to find out everything about everything.

Now I'm nothing but a natural born fool from Tennessee & don't claim to be anything more, but even I can see that some things are causes, and some effects. If you can spot those CAUSES, then 'tain't too taxing to forecast the effects.

For instance, an Obama speech is not a cause. Shucks, it ain't even an effect. It's just bloviating, whistling, skizzing, steaming, and smoking, & don't mean as much as a wasp buzzing in a jug. Sounds fierce, but can't hurt nor help nobody.

On th'other hand, the sovereign debt crisis over in Europe is a CAUSE (well, actually it's an EFFECT of central banking, but here lately it's assumed the size of a cause). Last week, S&P announced it was downgrading the credit ratings of two of the biggest French banks because of their exposure to Greek sovereign debt, and it was eyeing with jaundice another big one, BNP. Not only that, it was squinting with suspicion at the big German banks. Just to mix things up real special, the Eurocrats announced they wouldn't give Greece its promised next dose of bail out if Greece didn't get on the stick & fire a hundred thousand or so government "workers" & kiss the dirt and kowtow more earnestly. That provoked the appearance of the NEXT cause.

Five central banks -- the ECB, Fed, Bank o'England, Bank o'Japan, & Swiss National Bank -- announced they were opening the 2nd story window & flinging out dollars for the banks to pick up, seeing as they needed 'em so bad. And they'd make it easy with "repurchase agreement."

Think of it this way: you have a really sorry old Ford car, & you need money really bad. You don't just go down to the car title lender with that thing dusty and dirty. No, first you detail that rascal, to make it look like something. But then you get there, & lo an behold! That usurious scoundrel at the title discount shop just beams and smiles like you had driven up in a new BMW, & he's happy as a beaver in bark to loan you something on your sorry old Ford, but you have to pay him back in 90 days.

In a repurchase agreement, the central banks agree to loan dollars for whatever "collateral" -- sorry Greek debt, rotten Portuguese debt, bad stinking mortgage-backed securities -- the banks want to put up, but at the end of 3 months, the Central Banks get back their US dollars, & the banks get back their sorry paper.

What signifieth this moiling hugger-mugger? Just this: central banks have only two weapons in a crisis, BLARNEY & LIQUIDITY. This re-purchase offer is the liquidity cannon firing. A panic is brewing with a flight to US dollars, so the central banks will temporarily flood the market with dollars to meet the crisis, then soak them back up in 90 days to minimize the damage -- or so they think.

The repurchase offer, complete with public and publicized co-operation among five central banks (the blarney cannon a-blazing away) shouts, screams, & outright hollers that a big panic is loose, & the central banks are desperate to stanch the flow of liquidity out of the system.

Now you can sit there calmly sipping on your High Fructose Corn Syrup drenched fizzy drink if you want, but this leaves me somewhat less than optimistic about the state of the financial system. For me, here's what I'd do:

1. Reduce bank balances to the absolute minimum needed for the next three months.

2. Get at least three months' cash needs in currency. If it costs you $3,000 a month to live, get $9,000 and put it someplace you can reach it 24 hours a day.

3. Put unused cash balances into gold. It may go down, but at least I can get my hands on it, whereas those balances in banks? Well, maybe we'll let you have it, and maybe we won't, if we need it worse than you. Maybe we'll let you have just a little drab and drib of it, with limited withdrawals. & remember, we're the banks, & we've got the government to back us up.

Don't y'all ever forget this: a bank is a thirty-horse, multi-action, sharp-knived, steam-powered threshing machine, & when it gets finished with you, there won't be enough scrimpshions left to cover a pin head with.

But you all go on enjoying your HFCS drink, & don't pay me no mind. I'm just a natural born fool anyway."

Gold in New Zealand dollars: $2189.22 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $48.29 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

_____________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
_____________________________________________________________

Tuesday, September 20, 2011

Gold Fundamentals Strong


Gold was down 2% last night. Gold is trading in a narrow range between $1770 and $1820. Apparently this is completely normal and it is no sign of weakness. With all that is going on in Greece and Europe, let alone the US, the fundamentals for gold are good.

Here's the first reason. If you take the money base of the US and divide it into their gold reserves, then gold could conceivably be around $10,000 per ounce, easily.

Remember gold is just a hunk of metal, it has as much value as people put in it, like sea shells or cows. It may just be a nice looking door stopper after all said and done. But tell that to all cultures with their combined monetary history over the last 5000 years. They have all eventually accepted gold and silver as being the best value preservers for their labor. (See at the base of this blog for other reeasons why gold and silver are considered best.)

Inflation is also a pointer to higher gold and silver prices. Inflation is around 3% in the US and around 5% in New Zealand. You may be old enough to remember the panic that such high inflation rates caused in the 1970s when President Nixon brought in wage and price controls to suppress it. Now the reverse is true. The Federal Reserve is printing money in a high inflation environment, like a drunken sailor. Eventually this inflated money supply will show up in the price levels that you and I pay at the supermarket or gas station. This is bullish for the price of gold. Inflation is not going away anytime soon.

And let's not forget, that all major Central Banks have promised 'unlimited' funding for European Banks!

This from The Daily Reckoning today:
"But it is what it is. We have to live (for now) with the Fed and the ECB and their dogged determination to persist living in an alternate monetary reality. To be sure, the markets have already spoken about Europe's financial and monetary reality. Greek default is almost 100% certain according to credit default swap markets. And the fact that US money market funds won't lend to European banks at the moment is another market reality.  
Yet Europe and the Fed keep doubling down on the basic premise that more debt is the solution to a solvency problem. We reckon they have two more chances to recapture the confidence of the market. If they don't, they will have to borrow money from China and post central bank gold as collateral."

As far as purchasing precious metals go, if you wait to buy on dips, then perhaps you shouldn't wait too long. Yes, gold could correct still to $1600 and below, but it simply cannot, bar a bit of Central Bank selling of paper gold, go down for too long. The fundamentals, that is the real base reasons that things go up or down, firmly point to gold and silver prices much higher than present.

(Note you can purchase physical gold and silver here on my website)

We are in a highly volatile worldwide economic situation. Where would you like to 'safe harbor' your wealth in a situation like this?

Gold in New Zealand dollars: $2176.03 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $48.43 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
_____________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
_____________________________________________________________

Monday, September 19, 2011

Greece to Default? Banks to Get Unlimited Cash.

The talk over the weekend is of the major Central Banks preparing to bailout European banks.

Why now and what is happening?

But firstly, maybe the bigger question is, do you even know it is happening? Remember the fanfare of the $700 billion TARP program in October 2008? The politics and the scaremongering about the TBTF banks.  So why the stealth and quiet announcements of large 'unlimited' dollar funding bailouts to European banks last week?

Maybe because this is the last throw of the dice? If the populous knew what this meant (and many at the top do) then the fan would be hit by undesireable and smelly things.

You see, as reported by Bloomberg, the Central Banks of England, Switzerland, Europe (ECB) and the US Federal Reserve have announced 'unlimited' funding availability for European banks.

The Daily Reckoning explained the banking crisis in Europe like this:
"The problem is the market between banks for overnight cash. At the end of each day banks tally up their deposits and withdrawals. Some have a surplus of cash and some have a deficit. The surplus banks have a choice of leaving it at (in this case) the ECB or giving it to another bank to satisfy their short-term liquidity requirements. They charge a fee on the loan.

But lately, banks have been choosing to forego the fee and deposit at the ECB instead. As a result, interbank lending rates have increased. This signals there is a liquidity issue in the banking system. But really it's a solvency issue.

Everyone knows the French banks are in a spot of bother over their exposure to Greek debt. If the Greeks default, the French (and many other banks) would go close to collapsing."

This concerted action by Central Banks is all about timing. One factor being many of the insurance policies on Greek debt are due on Wednesday, September 20th. If banks cannot re-insure their Greek debt then Greece may not be able to raise cash to pay it's bills as no one will lend to them. The Central Banks might sensing a problem, hence the highly unusual signal of supplying unlimited cash to the banks who are already insolvent.

Yes, insolvent, it's your money and mine that these banks do not actually have.

So if Greece defaults this week, this liquidity measure is likely to stabilize the impending chaos, but maybe not for long. If the problems get stickier, look for all sorts of market mayhem and volatility maybe ending in a complete economic freeze. No banks open, no business happening, supermarket shelves empty in days, police unpaid...it goes on.

Not only are we nearing the end-game, but I urge you to think about inflation again.

Why? Because this move is desperation by Central Banks and is highly inflationary. They bailed out Wall St in 2008, now they are bailing out sovereign nations and the world's largest banks. They will create money out of thin air to achieve this goal.
"Central bankers, are merely creatures, albeit powerful actors, in a system of privilege and legalized looting." (source)

Inflation is a stealth tax. Just look at these figures. The typical U.S. family has gotten poorer during the past 10 years. Adjusting for inflation, median household income fell 2.3% to $49,445 last year and has dropped 7% since 2000. Meanwhile, the share of people living in poverty has hit 15.1% — the highest level since 1993.

These figures show that we may all be poorer than we think. With unlimited money printing, we will all be poorer whether we think or not."

Gold in New Zealand dollars: $2199.10 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $49.33 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

_____________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
_____________________________________________________________

Friday, September 16, 2011

House Prices Decrease in New Zealand

An update on the New Zealand house price situation as compared to gold ounces.

You might remember from last weeks blog, that the figure for July, 2011 was that house prices, as compared to gold, decreased by a staggering 60% since the May, 2005 peak.

The figures for August are in and the decrease is a further 5% to 65%. So, if you sold your house in May 2005 and purchased gold ounces, then today, you could buy back nearly three houses at the median price.


     
Gold in New Zealand dollars: $2154.67 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $48.06 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
_____________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
_____________________________________________________________

Thursday, September 15, 2011

Orderly Please

Greece will default. There is nothing surer than the sun rising each morning.

The question is, will the default come suddenly or quickly? Will the market get used to the daily headlines grooming the populous to a default or will we wake up one morning to chaos in Greece and Europe?

Orderly is the name of the game. Sudden shocks cause fear and panic. The Eurocrats are desperate to hold the zone together (or appear to be) and do not want very upset locals rioting on the street if a catastrphic monetary and fiscal failure occurs.

That would make the London riots look like a Teletubbies birthday party. Because the people are getting restless.

In the UK, unions have announced a strike in November including up to three million workers in the State sector. If these people aren't listened to and get angry, look out.  (Meanwhile, in New Zealand, University students are demonstrating on the basis that their fees are too high. Once again, they admit the government doesn't have money, but do not want to be the ones sacrificing their benefits first. In New Zealand, those who own property are still not seeing the big black bus coming up from behind them, however, those who have public sector jobs are beginning to wise up.)

But back to the ordely default of Greece. German Chancellor Angela Merkel said today that Greece is not heading for a chaotic default. That's good news, but she didn't mention 'no default'. Try paying 24% interest on the bonds that you sell, and this only on the 10 year bond. Can't last. The only reason they haven't been seen to have defaulted yet is because the eurocrats have managed to delay the fateful day with more loans and the ECBs promise of a eurobond scheme. Merkel says that there is a good chance of Greece getting some more bailout funds. Madness. Imagine having a mortgage you cannot pay, with high interest rates, and someone comes along and lends you more money to afford the installments! Have you not technically defaulted?

Zerohedge says today; "China could buy every single penny of Greek debt and it still wouldn’t solve the underlying problem: Greece would still be in debt! And more, still hemorrhaging billions of euros each month. Throwing more money at the problem only makes it worse."

What really happens when a nation defaults? This too from Zerohedge; "Argentina’s millennial debt crisis is a great example of this (default)… suddenly the power failed, the police stopped working, the gas stations closed, the grocery stores ran out of food, the retirement checks stopped coming, and the banks went under (taking people’s life savings with them).

So the planning for the orderly default is in play. Slowly feed rumours to the media and let markets adjust accordingly so that when the real news arrives, the market has it all factored in.

Such a large gamble with so many people's lives don't you think?

Gold in New Zealand dollars: $2225.47 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $49.80 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Wednesday, September 14, 2011

Obama's Golden Smile


A few weeks ago I cheekily forecast that the next version of quantitative easing would have some fancy name attached.

Well, the moment has arrived. Mr Obama couldn't really call it a stimulus package or QE3, that would be too obvious. No, he called it "The American Jobs Act".

Interestingly though, the market reacted like it has to all other statements coming out of the mouths of politicians as of late. They ignored it, or even sent a message that all is too far gone and we are adjusting accordingly...down.

This Act is purported to cost around half a trillion dollars. Small by QE standards but large by "where in the heck are they going to get this new money" standards. Mr Obama says he is going to reduce the deficit by $1.5 trillion over ten years and raise taxes on the rich to fund this. But the US is already has a large deficit and is already in a huge debt hole. This new stimulus package will need the Federal Reserve to step in and newly monetize fresh bond issues.

Governments never create anything, let alone jobs. They just use other peoples money until it runs out. Having them stop spending and taxing outrageously is the best way to create jobs.

On gold, the main stream financial press, like CNBC, are still stating that gold is in a bubble and you should sell if you have some. But gold isn't in a bubble, currencies are. Gold is only moving upwards via a loss in value of currencies. The more you print the more paper you have chasing the same amount of real money; gold.

Further to yesterdays blog, Bill English, the New Zealand Finance Minister, says that risk is building for the NZ economy. He states, "jitters in global financial markets were a risk for the government and banks here due to their reliance on access to international funding lines". He finishes off by saying; "We are concerned, but it's not too serious".

Mr English, you can fool some of the people some of the time, but...


Gold in New Zealand dollars: $2235.00 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $49.93 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Tuesday, September 13, 2011

Gold setting New Highs in Euros; Down in NZD


Gold set a new record high in euros of €1,375 per oz last night on fears surrounding a Greek default.

In New Zealand dollars, we dropped to about $50 from an all time high. Why is this?

New Zealand is part of the smallish group of currencies seen as a relative safe-haven. The large amounts of capital sloshing around the world, looking for a home to maintain value, is piling into currencies like the NZD. This capital is even in flight to the US dollar as a safe-haven. With figures coming out of the US recently, the only reason for this play is because they are the best of a bad bunch.

But New Zealand has it's huge issues. We probably have considerable exposure to the Eurozone banks that are in trouble. The world's banking system is a complex web of counter-party risk. New Zealand relies on a healthy Australian banking system and Australia relies on it's parent banks in Europe. The Euro crisis is not called a contagion for nothing. If Europe catches cold we will all feel unwell. Paper promises could go 'poof' overnight.

Where would this leave New Zealand? Probably as part of a larger call on capital to be repaid from banks around the world. We may need to fire-sale assets to honour our contractual obligations. This would be politically damaging. Where, for example, would this leave the plans for a devastated Christchurch?

Massive flows are yet to hit the gold and silver prices. Gold has taken a necessay breather from it's 'too high, too fast' phase recently. A healthy market needs to stop and back fill a bit. Gold is doing this, marking it as a market still in steady incline. The longer term picture of gold increasing on money printing and banking turmoil remains in place


Gold in New Zealand dollars: $2222.18 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $49.37 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Monday, September 12, 2011

Markets In Panic Mode?

"The G7 is in full panic mode." This the headline in many economic commentary websites over the weekend.

The reasons are miriad, but according to German Finance Minister Wolfgang Schaeuble, "Greece is “on a knife’s edge". There were even rumours that Greece was about to default on the weekend, however, the Greek Finance Minister specifically came out and denied such rumours.

1 year Greek bonds are at 100%, 3 year 50%, 10 year 10%. Absolutely unsustainable.

A counter response to such bond action came from the monetary authorities via a joint statement from European Central Banks saying, “Monetary policies will maintain price stability and continue to support economic recovery. Central Banks stand ready to provide liquidity to banks as required. We will take all necessary actions to ensure the resilience of banking systems and financial markets."

"Liquidity...as required", read: print as much currency as needed to pay debt. The Madness and downright theft of your wealth will now step up a notch it seems.

But the debt issues are not only affecting Greece. European bank credit risk surged to an all-time high on Friday. Shares worldwide dropped from 2% - 4% on worries that the debt crisis is coming to a conclusion. Money is rushing around the world in huge quantities looking for safe havens. Even some German bonds dropped to a record low as money rushed in. As did US 10 year bonds. What will happen this week is anyones guess.

Further afield, the Japanese have intervened in their currency to bring the value down to help their exporters.

Also, read these statements from various newswires this weekend:

"The (Swiss) franc had the biggest intraday loss ever against the euro on Sept. 6, falling as much as 8.7 percent after the nation’s central bank said it would defend the 1.20 ceiling with the “utmost determination.”

“In circumstances of a continued crisis in the euro zone, we believe that the SNB (Swiss National Bank) may be required to purchase foreign currency of between $500 billion and $1 trillion,” Derek Halpenny, European head of currency research at Bank of Tokyo- Misubishi UFJ Ltd. in London, wrote to clients.
Note: the SNB doesn't have $1 trillion. They will create it.

This too from Ambrose Evans-Pritchard at The Telegraph:

"Central banks and official bodies have parked record sums of dollars at the US Federal Reserve for safe-keeping, indicating a clear loss of trust in commercial banks. Data from the St Louis Fed shows that reserve funds from "official foreign accounts" have doubled since the start of the year, with a dramatic surge since the end of July when the eurozone debt crisis spread to Italy and Spain.

"This shows a pervasive loss of confidence in the European banking system," said Simon Ward from Henderson Global Investors. "Central banks are worried about the security of their deposits so they are placing the money with the Fed."

Debt out of control, bond yeilds at unsustainable levels, inflation rampant, money printing beginning with a vengenace.

What to make of this spiraling, out of control approaching storm? This sort of chatter in the markets is telling us all something. Not all is well. We maybe on the brink of the end of the fiat currency systems as we have known them since 1971.

I need to mention gold here in this context. As I said last week, house prices in gold terms have decreased 60% since the highs of 2005 in New Zealand. How many people in this country actually know what that means? In currency terms, prices have increased in some centres here in New Zealand, but in actual wealth terms most people are 60% poorer in just 6 years.

Gold is waving it's flag to all who will listen right now. Gold is showing highs in GBP and EUROs daily. Gold is the canary in the gold mine, so to speak. (Canaries don't like poisonous gas, so miners used to carry them into mines with them. If the bird died, the miners cleared out, as it meant the presence of poisonous gas in the mine). Gold will always do it's thing to signal what is true value and where.

But don't take my word for it, I urge you to do your due diligence and study this from all angles. If you come up with a different conclusion to mine, please let me know.

Gold in New Zealand dollars: $2263.27 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $50.39 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Friday, September 9, 2011

Auckland House Prices; Measured in Gold

Here is the second part of the series on gold verses property.

As I said yesterday, I have the figures for Auckland today, because, like other large cities worldwide (this goes for Sydney and London at least), house prices in Auckland have held up better than the national average.

However, I did note an article from the Telegraph today stating that the property bubble in London is about to burst. The number of "distressed sellers" is rising for the first time. This will be interesting to follow in the coming months.

Here are the facts about Auckland's property market as compared to gold.

The gold ounces to house price ratio in Auckland also peaked in May 2005 at 635 ounces to buy the average house. Again, I am going to take this as being the height of the property boom (as measured in constant money - gold). The average house price at the time was $372,000 (compared to the high in November, 2010 of $490,000 which equaled only 276 gold ounces).

So, in 2005 the average house cost in Auckland was 635 ounces of gold equivalent. For July 2011, this average Auckland house price dropped to 254 ounces of gold. Therefore, from the high to July 2011, houses have dropped by 59% against gold.

So, even though, at the average price of $474,000 in July 2011, house prices have increased by 22% in dollars since May 2005, they have actually decreased by 59% when measured against gold. This is a similar figure to the 60% nationwide as reported yesterday.

I would welcome someone doing their own analysis on this to see if my figures are correct.

The house price website I used was: www.reinz.co.nz

Have a good weekend. In New Zealand, the World Rugby Cup begins today. Go the All Blacks!
Gold in New Zealand dollars: $2246.72 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $50.97 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Thursday, September 8, 2011

House Prices Have Fallen by 60%; Measured in Gold

If, as I keep harping on about, gold is real money, then how has housing performed against gold since the highs of 2005? Can we buy more of a house now than we could back then with our real, constant money? Here's some facts.

The gold ounces to house price ratio peaked in May 2005 at 470 ounces to buy the average NZ house. I am going to take this as being the height of the property boom (as measured in constant money - gold) even though the average house price at the time was $275,000 (compared to the high in March, 2010 of $360,000)

According to the July,2011 data from the Real Estate Institute of New Zealand, the average New Zealand house now costs $345,000.

So, in 2005 the average house cost 470 ounces of gold equivalent. For July 2011, this average NZ house price dropped to 186 ounces of gold. So, from that high to July 2011, houses have dropped by 60% against gold.

What is also noteworthy, is that since Jackson Hole, August 2010, prices have decreased by 11% against gold or 24 ounces of gold.

So, even though, at the average price of $345,000 in July 2011, house prices have increased by 25% in dollars since May 2005, they have actually decreased by 60% when measured against gold. Or, it now takes 284 ounces of gold less now to buy the average house.

If you had sold your house in May, 2005 and bought 470 ounces gold with it, you could now buy 2.5 houses with that same 470 ounces in July 2011.

Some commentators in the UK predict that houses there should be around 100 ounces of gold before they have bottomed. Some even go as low as 55 ounces.

Tomorrow I hope to have the figures for Auckland only, because, like other large cities worldwide (this goes for Sydney and London at least), house prices in Auckland have held up better than the national average.

Gold in New Zealand dollars: $2177.68 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $49.74 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Wednesday, September 7, 2011

Race to the Bottom Intensifies. Gold to Rise.


Yesterday the Swiss Central Bank took the last fiat currency on planet off any form of 'gold' standard. Well, it wasn't really on a gold standard, but it was treated as a safe haven currency. The Swiss have a very stable government and respected history. It was almost as 'good as gold'.

They have pegged the Swiss Franc to the Euro. This to remain competitive in the export market. An overvalued and popular safe-haven franc was causing export prices to rise. They weren't getting enough income.

So now all currencies are in a race to the bottom in order to remain competitive. Gold will be the benefactor of this madness as it will be revalued upwards as the currencies fall.

You see, gold is true money. The more currency you have the more currency it takes to swap it with physical gold.

In the 'good 'ol days', currency used to be a claim on a certain amount of gold. Before 1933, if you had 20 dollars in your pocket, you could go and ask for one ounce of physical gold, and get it. Currency was actually as 'good as gold'. However, since the link with gold was broken in 1971, your dollar is merely a claim on the next dollar or IOU, maybe a bond. It only has value for as much confidence in it exists.

The nature of money and the system we work under, now comes more into focus.

As Mike maloney says, it's only our labour, our ideas, our work that gives the currency value. He also says that the cruelest joke of all is that we then pay taxes to the government who then hand that money over to the Reserve Bank to pay a bond that was originally created by them from nothing.

The system is setup so that we need to borrow into existance more currency every month or the whole currency supply begins to collapse. This is because of the interest due on previous debt created.

For example it took 200 years to go from zero dollars in existence to $850 billion, then came the financial crisis of 2008 and it has only taken three years to more than triple that base money amount. This is the power of exponential compounding on a currency system which has no peg to a fixed asset; like gold.

The franc to euro peg will work for a while. But with the possibility now that all your wealth is being debased through fiat currencies (currency is not money), then your labour and future is being stolen.


Gold in New Zealand dollars: $2266.12 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $50.80 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Tuesday, September 6, 2011

Not a Good Time to Be a Bank

Last night, £49bn was shed from the FTSE 100 in London. Once again, fear has gripped the share market. The Dow will likely follow tonight after the Labor Day holiday in the US.

Recent news about the UK economy and fears about the banking sector seem to have driven money into the safe haven of US dollars (choke) and gold, although gold hasn't likely yet seen the full result of this. Gold will likely climb easily over $1900.

Now is not a good time to be a Bank

But the problem with the Banks are of their own doing of course.

Banks in the US are only allowed to have a small percentage of the loans on their books as bad debts. However most banks have far more than the ratio allowed and have been marking up, what they know to be bad loans, to any value that will produce a result on their balance sheets that will satisfy the regulators.

This means the value of the assets backing the liabilites are inflated. A house used as collateral for a mortgage loan is marked up to whatever the bank thinks is fair value in order to make it's balance sheet, and therefore solvency, look good and legal.

How can this happen you ask? Well, talk to the regulators, they are the ones who allowed this change from 'mark to market' to 'mark to fantasy'. No one wants banks to be transparent. If they were, it would be clear glass; nothing there. This is the reason for the latest bout of fear.

So the threat of regulators delving into US banks, for their part in selling toxic mortgages to the likes of Freddie Mac, could show how healthy the banks really are and significantly hollow out the confidence of investors and depositors.

As they say in another realm of investing; "When the tide goes out, you see who is swimming naked".
Gold in New Zealand dollars: $2284.29 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $51.53 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Monday, September 5, 2011

Jobs Zero, Gold One

In the world of soccer (football), a one nil win can be quite comprehensive. Difficult to believe if you like NFL or Rugby.

On Friday, the US job numbers came out and surprised everyone. Team US Economy, on the comeback trail from two years of hard slog and much incentive (read money printing), was dealt a blow to their championship chances when they lost the game.

In fact, gold didn't even score a goal, it was an own goal from Team US Economy that did the trick. The Federal Reserve has piled over 3 trillion dollars into the US economy over the last two years and the results have been a big fat zero in economic growth.

Some are calling for QE3 to begin, but this would be a disaster, not only on the monetary policy front, but the pschological front as well. People now know that monetary stimulus doesn't work. The masses are wising up to the phoney monopoly money and it's uselessness. If they try another round, look a out for massive price increases and no growth. The game of stagflation will be here. No one wants that.

The issue is that you can keep throwing money at the problem, but if households have too much debt, they ain't gonna spend. Simple really. Sure, some still don't get it and put the new TV on their already over-mortgaged house. But many can't squeeze that last cent of increased mortgage payment for luxuries when they can't even afford food and fuel.

The Fed, and in turn all Central Banks and Governments in the West, have tried to be the big spenders instead. We admire them for trying their best, in a game that is definitely a losing one, but when you are the printer of new money and the spender of first resort, it means that the economy is doomed. In fact, the market is just a fake. No tenable price discovery as no one knows how to measure their economic output anymore.

The one shining light though is gold. As the ultimate monetary asset, it is being valued against currencies that are falling in price. Gold, the scarce resource which has been money for 5000 years or more, is being purchased by the few that understand the dangers that the world faces. Ask yourself why Central Banks are buying gold? Why would China want a RMB currency backed by gold and why would the European Central Bank be calling for the gold of the PIIGS to be collateral for any further loans to their sadly insolvent economies? Is gold ultimately money or not?

The game is going to have new rules in the coming years. Rules which make a flowing game into a nightmare spectacle. But no matter what the world does, debt needs to be dealt with.

Look for gold to continue to win every game from here on until Bankers and Governments see sense.

Gold in New Zealand dollars: $2229.46 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $51.18 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Friday, September 2, 2011

The Outlook for Gold and Silver

Here are a couple of excellent articles out of Casey Research today discussing the outlook for gold and silver.

Articles here

Enjoy your weekend. In New Zealand, the Rugby World cup starts next week and is shaping to be real exciting. Go the All Blacks.

Gold in New Zealand dollars: $2142.64 per oz
Previous all time high: $2319.47 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $48.82 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________

Thursday, September 1, 2011

Not Worth the Paper it's Not Printed On

Gerald Celente has a way with words. His accent may make him sound like a mobster, but his views are refreshingly honest. His latest interview on King World News is a must listen.

The miriad of problems that have flowed from the issuance of too much debt over the last 40 years, are coming home to roost. Too much money has been printed and loaned out and it has to be dealt with. If not, the world economy will continue to grind to a halt and the poor will be poorer, the middle class desist and the rich will hold a majority of the world's resources.

Debt is issued by banks through loans. For example, when you make a credit card payment, that money is literally created out of thin air. Or when you obtain a mortgage, the money that is lent to you is created. Perhaps you thought it was someone else's deposit that you are borrowing? Now the bank own your asset (and they own it till the last cent is paid) and you are paying that debt back with your future wealth. All debt has to be paid back.

The process that allows banks to create money out of nothing is called Fractional Reserve Banking. John Galbraith put it like this:

“The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems only decent.” Galbraith, 1975

There comes a point, mathematically, where debt explodes exponentially. Take this example from Chris Martenson's Crash Course. If we take an eye-dropper to a ball park (see pic) and place one drop into the centre of the park and then double the size of the drops every minute.



First minute, one drop, second minute, two drops, third minute, four drops and so on, compounding. After six minutes you have enough water to fill a thimble. If you started the whole process at 12.00 noon and you were sittng up in the top row, by 12.49 pm (49 minutes) the park would be completely filled and you would be floating out of there. Note, at 12.44 pm (5 mins before the park is filled), the park would only be 93% full.

This is the power of compounding and it will happen with debt. But what people perhaps do not realise, is that wealth gets redistributed when debt goes bad. Those holding the collateral, the real assets, get to own them. This of course are the big banks that issued the money in the first place. Just look at the amount of housing stock that the Federal Reserve owns becasue of the bailouts of large home loan institutions like Freddie Mac.

New Zealand is in a power of trouble financially. Just another case of too much debt. The Christchurch earthquake costs have ballooned. As a country, do we need to ask the serious questions about the rebuild of this city. Hearts and memories aside, can we look at this objectively and be practical about the money we spend on this going forward. Do we rebuild in the same place or think of other options.

We cannot afford the new debt. What would happen if there is another large disaster, say in Auckland? There would no money to fix that. The Goverment would have to quickly reprioritize resources from Christchurch to Auckland as Auckland is the economic hub of New Zealand. Issues surrounding that would be highly problematic.

The Government is now forced to sell critical state-owned assets to merely fund the ongoing duties of government. Duties like building schools and hospitals. Not even to pay down old debt. NZ is even borrowing to pay for welfare programs. How international investors are seeing the New Zealand dollar as a good buy here is beyond sense. Maybe it's just the better of a bad bunch right now.

Perhaps New Zealanders need to face up to the fact that they can't totally blame the Governmant anymore. Using the house as an ATM before 2007 caused massive private debt. Accepting the common mantra that house prices always go up will haunt those who accepted it. The consequences of folly are about to bite us.

Wealth, yours and mine, is being transferred. The middle-class is being screwed. This is why some are very passionate about owning real assets. They put information and views about the world economy, and particularly the debt situation, to others for them to consider shifting some of their wealth from their paper money, that's encumbered, to real assets they can own. Not financial instruments that are not worth the paper they are not printed on.

Gold in New Zealand dollars: $2138.69 per oz
Previous all time high: $2319.47 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $48.62 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
______________________________________________________________________