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Why do we end with a
question mark? This has been the lament of Treasury Secretary Hank Paulsen at
the slightest hint that the US is purposely allowing the dollar to fall
against other currencies which would not be well received by other countries
investing in our Government bonds. The question mark is there because we are
questioning if this is true then haven’t the policies of the US over the past several years been an unmitigated disaster for our future? If a strong dollar
is in our best interests then it must follow that we are really screwed. It
is getting to be more and more visible to more and more people that that is
exactly the case. All of the ridiculous under-reporting of inflation, the
fabricated strong economic reports, all the plays on words to avoid stating
the reality of the situation are coming home to roost. Foreigners are
increasingly not accepting dollars; even some of the oil producing countries
are turning their heads away from the dollar. The subprime bailout plan
Paulsen spoke up for is ridiculously incompetent. It was really about bailing
out the banks which were “still dancing” as Chuck Prince, ex CEO
of Citigroup, said. It did insure one thing, that instead of very, very few
buyers of subprime debt there would be no future buyers of subprime debt. Why
would anyone be stupid enough to buy something that could have the payment
stream adjusted to their detriment while it was already risky enough on its
own merits? We are truly seeing the Keystone Cops in action. One of the
latest schemes to keep the feel good society in tact involves doing repos as
long as 43 days of total garbage paper to get it off the books of the banks
for the year end dog and pony show.
The producer price index recently hit a 34 year high, the CRB index hit an
all time high, M3 money supply in the US is now up to +15.3%, yet most
investors are only mildly worried about inflation or not at all. Central
banks have injected over a $1 trillion since August 9th. If you do any
shopping in the supermarket or pay any bills at all you will know that
inflation is already far out of control even if you are economically
illiterate. Yet people still believe the Government’s version of
inflation. My water bill is what my electric bill was a few years ago and my
electric bill is what my rent used to be. I don’t think the average
American will grasp the severity of the situation until they are literally
starving and because of all the statistical deception and misplaced trust our
people will be the last to move to protect themselves – a true tragedy.
Foreigners already shun the US dollar and are trading them in for real money
– gold, especially in China. India, Russia, and the Middle East. Eight
of the ten richest men in Russia are heavy accumulators of gold. Meanwhile, South Africa and Australia are still reporting declining gold production. How have we managed to
fill the gap when production is dropping yet demand has been soaring? Perhaps
some of the less sharp buyers are accepting promises of gold in the future
rather than gold. They will end up with broken promises while the buyers of
gold in their possession will reap the rewards of the price that will soar
higher than thought possible when it is discovered that the promised gold
will not be fulfilled. Even gold suppressor extraordinaire, Barrick Gold has
stated that mine supply is going to fall much faster than is believed.
It is ever more
impressive that gold is in the $800’s even with all the high level
efforts to undercut its price to keep it from reaching free market levels
that would sound the alarms that the financial system is completely unsound. Commercial
shorting on the Comex has been unrelenting and unprecedented and it seems the
commercials are on the verge of getting run over. The Bank for International
Settlements reported total gold derivatives are now over $1 trillion which is
equivalent to a third of all the gold ever mined. One piece of advice –
know your counter party!
2007 has been a disappointing year in regards to the leverage that gold
stocks have provided relative to the gold price, in fact it has been
negative. 2008 will go down as the year when that leverage returns in a big
way. 2008 will be the year it is discovered why mining costs were going up
faster than the gold price; why gold went down when super bullish news or
events should cause it to go up; that reason being it was artificially
suppressed.
I think what I
regard as the quote of the year as far as gold goes explains it best. Rob
Kirby stated, “Isn’t it amazing how we can have a four billion
negative miss on the Trade report, import prices higher than expected
(inflationary), zero reaction in the bond market, gold getting pummeled and
the US dollar going higher? I better not drop my coffee cup in amazement
– it might fall up!”
Richard J. Greene
Managing Partner, Portfolio
Manager
Thunder Capital Management
More articles by the author can be accessed by the
"Research Articles" choice at: www.thundercapital.com
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