This was originally posted over on my other blog (thelogicspace.blogspot.com) but I think it's important enough to post it here as well...

"
I've recently developed a phrase I like to use to remind myself to take the time to invest in myself. It's called "Play to Win": You've got to PLAY to WIN. Think of the lottery: you MIGHT win IF you play, but you CERTAINLY won't win if you don't play.

You've got to think as if every action you take will result in the most spectacular success even if it won't. Think of yourself as if you're constantly buying lottery tickets. Every minute you spend is productive only if it has resulted in you buying another lottery ticket. This idea is also sometimes called "planting seeds." In the sense that, a tree will not grow unless you plant a seed. Planting a seed takes very little time, but could potentially result in a big reward later on.

Have you ever found yourself thinking, "this is a waste of time. It hasn't worked before, so why would it ever work?" I find myself thinking that a lot. When I release a new product, when I write a new blog article, I think that constantly, because I don't want to feel like I'm wasting time.

Whenever you find yourself thinking that something is a waste of time, you've got to ask yourself two things:
1. What have you got to lose?
2. What have you got to win? What is the biggest potential win?

If the potential win (regardless of probability) is large enough, and the potential loss is almost insignificant (e.g. a few minutes of your time), then why not do it?

You would happily buy a lottery ticket every week. Yet in all logic that seems like wasted money & time. But it's not. You have to apply this same idea to every action that you take. Invest in your future. Plant seeds. Play to win -- emphasis on the "play" part.
"

So now you should understand why you must buy two lottery tickets every week for the rest of your life. I'll be doing that starting this week. It's less than the cost of two subway rides, but the payout could be substantial. I plan to play only when the jackpot exceeds $10 million. I think that's a big enough payoff to be able to retire and live well, but any less than that doesn't seem worth it to me.

Interesting fact: if you buy two lottery tickets every week for 50 years, your chances of winning lotto 6/49 are 1 in 2700 lifetimes. On the other hand, if you never play, your odds are ZERO. I'll take 1 in 2700.

Last week, the SEC voted in favour of limiting short selling on stocks that have fallen by more than 10%. This latest move echoes previous attempts by the SEC in 2008 to limit short selling, during the collapse that occurred in September and October of 2008.

Are we in for another stock market crash?

While it's impossible to say with certainty, I think this is an ominous sign that we may be headed for another rapid decline in the US stock market over the coming months. We've certainly had the longest recovery rally since the Great Depression. No uptrend lasts forever, and when this one turns around, we can expect nothing less than a spectacular and terrifying decline.

I think it's a matter of weeks before some major downward moves in the stock market. The probability of a crash is high enough to warrant evasive action.

Here's a handy chart that explains exactly why Japan had "deflation" for nearly 30 years, and why the US will not experience deflation anytime soon...

Original Article: US Not Going Down Japan's Road (Safe Haven)

I suggest you read that article for more in-depth analysis. Here's my quick summary:

Look how slowly Japan's M2 grew from 1992 until 2004. The average rate of growth is just 2%.

How can you have inflation without monetary expansion? You can't. Japan clearly proves it.

So when you hear a deflationista argue that Japan pumped money relentlessly into the economy, that is simply not true. If they had done that, there would have been inflation. But they didn't.

Now look at the US. Different story entirely. The US money supply expanded at a rate of nearly 10% in 2008.

Bottom line, watch the money supply. If it grows, inflation will soon follow. It's a law of nature. Like gravity. You can't argue against it and make it go away.

Update: It turns out in 2009 the US money supply (M2) only expanded by about 2%. Could this be the start of a long term trend, or just a temporary anomaly?

Toronto residents must pocket $35,000 per year just to stay afloat.

Yes. Anyone in Toronto who is earning less than $35,000 (net) per year is falling behind and will be unable to retire.

This shocking conclusion is based on a careful calculation of required retirement savings based on the cost of living. In Toronto, the typical cost of living is $2000 per month (including food & housing).

For someone who earns $35,000 per year, what is left over after paying off living expenses is just $10,000.

Now, assuming you are 25 and plan to work until 60, that means you can save up $350,000. Assuming you've paid off the mortgage at 60 and your living expenses are reduced by $1200, to $800 per month, that amount will allow you to last 36 years.

That should be just enough to get you to age 96.

The math is more forgiving if you increase the retirement age from 60 to 65, or to 70. However, even if you were planning to work until 70, you would still need to save up $6,000 per year for every year you work (assuming you start saving at 25).

Even in this most forgiving case, you would still need to earn a net income of $31,000 per year. Still very close to $35,000 per year.

How much is $35,000 per year in terms of gross salary? $45,000. Yes, $45,000. That's $23 per hour based on a 40-hour work week with two weeks vacation. $23 is more than double the minimum wage.

Effectively, $23/hr ought to be the minimum wage in Toronto, because it's impossible to get ahead on anything less than that (unless you continue living with your parents).

Here's an article I've posted over on my other blog. It's worth a look so I'm cross-linking it here:

Do Repeat Yourself... If It's Easy

"How many times have you thought of a great idea only to discover that somebody else has already done it?"

(read the full article)

This is a follow-up article to this majestic piece of writing: How a New Jobless Era Will Transform America (The Atlantic)

After reading the above article, a few ideas popped into my head which may not be known to the writer, given that the writer (and his/her sources) are probably members of an older generation. However, since I am a member of the so-called "generation Y" or the "echo boom" generation, I may be able to shed some light on what I am thinking (and maybe what other members of my generation are thinking) with respect to this issue.

First, it's evident at this point that the idea of upward mobility - the idea that you could work your way up the corporate ladder - is no longer an idea that can be embraced. It is far too risky. It used to be that if you worked hard enough, you would eventually end up in a highly-prestigious position, earning lots of money, and having a fair amount of authority (all of which are highly potent aphrodisiacs to undisciplined individuals).

OK, I said a mouthful so let's backtrack a little. What is an "undisciplined individual"? Put simply, all humans have instincts and most humans make decisions solely based on feeling (emotion), rather than rational thought. In basic sociology, a human has several aphrodisiacs which elevate his/her sense of self-worth. These are (to name a few): power, wealth, and social status. Most individuals act as robots seeking these three aphrodisiacs for their entire lives. Unless you are aware of this fact of nature and discipline yourself to be content with seeking happiness in other forms, you are considered an "undisciplined individual," who is purely seeking to maximize one's social status, power, and/or wealth. The vast majority of Americans are what I consider "undisciplined individuals."

Now, believe it or not, there are many people in the world who define themselves largely by the position they hold, or by the organization in which they are members. This is one way you can define yourself, but what happens when you lose your position, or the organization you are in collapses and you're left without a position? It is my belief that if you define yourself in such a way, you will suffer enormous emotional scars resulting from your "break-up" with your organization. In fact, it is almost identical to the break-up of a marriage. In a sense, many people are "married" to their jobs.

So what is the antidote to this madness? And why do I consider it "madness"? Well, it's madness because first of all, you are probably not a founder of the organization in which you are a member. Quite probably you have a very low-ranking position within that organization and even more probably you will never reach the level of power / control that the founding member has. That's number one. Number two, it's madness because in this economic environment, anybody can be fired from any position for any reason (or no reason at all!). While this has always been the case to some extent, it is only now that it is happening on a mass scale, reaching levels where the risk of being fired from a position to which you are married actually exceeds the benefit of "becoming married" to that position.

So what is the antidote to the madness? You have to think clearly and look at the facts. The facts are that these worker-organization relationships are becoming increasingly more transient. This idea was put forth by Alvin Toffler in his 1970 book "Future Shock," in which he describes a condition where relationships (of any kind) become increasingly more transient in the not-too-distant future. This has come to pass in the form of increased divorce rate as well as increased job insecurity. I think there is no question at this point that Toffler was right and that this trend will continue for a long time.

So given all that, it is far more rewarding to think of yourself in terms OTHER THAN your relationships with other organizations. When I look at myself, I value myself based on my ability to solve problems creatively, or by my ability to think logically. These are attributes that are fundamental to survival, but which have been almost eternally ignored at the societal level. I believe these attributes are far more fundamental than anything else. You need to define yourself based on your fundamental attributes that make you a resilient individual in the face of any natural or environmental situation. Always avoid the trap of thinking that your identity is defined by what others think of you. This is a fundamental shift in mentality that needs to occur on a massive scale. This shift is what separates a "disciplined individual" from an "undisciplined individual." We, as humans, need to become far more self-disciplined and far more aware of the destructive aphrodisiacs I mentioned earlier.

As an aside, two things I try to avoid constantly are:
1. Believing (or becoming attached to) others' opinions of me.
2. Following popular beliefs or behaviors unquestioningly.

Coming back to the idea that upward mobility is dead, imagine you start out your career as a Walmart cashier. Then, 20 years later you're back at Walmart as a cashier. If you grew attached to the idea that you would advance over time, you would be devastated to find yourself 20 years later in exactly the same position. However, if you defined yourself by other characteristics which may not be as socially respectable (yet) as the idea of career advancement, you would be relatively unaffected by your career path, however erratic it may be. It is an idea from many oriental religions which must be embraced: "avoid attachment to things which are invariably transient."

Sadly, many are refusing to accept the new reality and construct a belief system which is more consistent with it. Instead, it appears that many are resorting to having children as a way to escape their insecurities and gain social approval. It's understandable that we are social beings. And it requires an enormous shift in thought patterns in order to avoid the common traps that cause us to do undesirable things purely for social approval. Yet, in order to evolve as a species, we must engage in precisely this sort of detachment from the base aphrodisiacs that have driven society for generations. So if you find yourself unemployed, become a Buddhist monk. It's a step in the right direction.

To close off, I will give one last example which illustrates what can happen when jobs disappear but the parasitic aphrodisiacs of power and social approval remain. In Philadelphia, white neighborhoods are now becoming increasingly black. White males, who have held blue-collar and even white-collar jobs have now been unemployed for years. Some are now resorting to precisely the same kind of behavior that blacks have been struggling with for decades: fathers abandoning their children, drug dealing, violent crime, and domestic violence. This is all because, fundamentally, blacks are no different from whites. It is only the economic circumstances which produce a difference. Now that the differences in economic circumstances between blacks and whites are beginning to narrow, we are seeing a convergence in terms of behavior patterns. Unfortunately, this convergence is happening in the wrong direction: instead of blacks becoming more affluent, whites are becoming poor.

All too often, persistent widespread poverty results in a loss of dignity among members of a society. This is certainly understandable, but there are many societies which, by our definitions of wealth, are extremely poor. Yet, these societies are very cohesive and peaceful. We do not have to go through a break-up of society as a whole as a result of increased overall poverty. In fact, the society of the 1930s was very cohesive and generally in good spirits. People helped each other. We should work toward a healthier society, by valuing those things which are fundamental to survival: knowledge, and creative problem solving, rather than those things which are the primal aphrodisiacs of undisciplined individuals.

The latest food stamp report is out: 38 million people in the US are now (October, 2009) on food stamps.
Here is the stunning part: "an increase of nearly 6.9 million people compared with the prior October."

Questions arise:
- How is it that 38 million people in the US are on food stamps yet only about 20 million are considered unemployed?
- 7 million more people are on food stamps now than in the fall of 2008. Where is Obama's recovery?
- What are the social consequences of having one eighth of the US population on food stamps?

For the social consequences, I will write up another blog post shortly, as things are quite troubling.

Have you ever woken up one morning thinking you deserve a raise? Well, if you think logically, if your performance has been excellent (praised by your boss), you'd think you definitely deserve a raise. Not quite. This type of logic no longer applies in today's business environment. Shocked? Confused? Don't worry - I'll elaborate.

Imagine a stellar employee, praised often by his/her manager, is working at a salary of $60,000/yr and gets called into the manager's office for a talk. The talk is about how the employee is exceeding the employer's expectations and the employer wants to assign the employee duties that will be more challenging and possibly more useful for the business. The employee is certainly excited, thinking he/she might end up getting a raise. The employer finally reveals the key figure: the salary. It's $45,000/yr and requires that the employee sign some additional restrictive agreements that are not applicable in the employee's current position.

Is the employee being promoted or demoted?

From the employer's perspective, the employee is being promoted. Duties are being expanded and greater responsibility is placed on the employee. But, from the employee's standpoint, things are not quite so rosy. The employee sees a decrease in salary, and an increase in work and in restrictions. What benefit is there for the employee? ... Give up? There is no benefit!

That's right, the employee is being demoted for achieving excellent performance. Outstanding performance is being punished rather than rewarded. I would be willing to bet that this is happening in a lot of companies these days. In fact, I'd go as far as to say it's becoming a market-wide phenomenon.

So don't be shocked if an employer offers you a demotion for exceeding expectations. The world is, as they say, a little more complicated than it appears to be. This paradox is, like most paradoxes, a mind-boggling one. And its implications are huge. It means that the best employees are those who walk the fine line between doing too little and doing too much. They are those who stay inside the box, and live a life of mediocrity.

In the world of business, mediocrity is rewarded. Creativity is punished. I've just given a concrete example based on personal experience. Yes, it's based on a true story. When you add it all up, isn't it better to just mind your own business?

It was about 4 years ago when I started saving money for the first time. I opened an ING Direct savings account. Didn't know what I was going to do with it all, but I knew one thing: nobody was saving their money. There had to be a reason. Not only that, but saving was frowned upon. It still is. "Live your life, man!" is what everybody would say. But no. I was saving every penny.

At times, I found it somewhat absurd. Why should I keep saving? What's the point? Why not live for today? Life is short, after all. But I kept saving. I decided to treat it like an experiment. I wanted to find out where it would take me. What advantages would I gain (if any) from saving as much as I can?

Mind you, 4 years ago I was 19 years old and was just becoming acquainted with the vastly complex world of finance. I didn't even know where exactly to put my savings. CDs? GICs? RRSPs? What does it all mean?

So 3 years ago I started researching finance, in depth. I started reading online materials on stocks, bonds, GICs, money markets, and everything else. Basically, I wanted to become aware of all the options I had.

A few months passed, it was July of 2007, and I was observing the stock market. I observed one thing: stocks had been rising since 2002. So, it had been 5 years of continuous rise. If I put my money in stocks now, I reasoned, I would probably lose a whole bunch of it when the stock market crashes (at the time I figured it was a matter of months before the next crash).

So I decided to hold off on buying stocks and keep exploring. Maybe there was something I could put my money into that wasn't just a plain vanilla savings account. I turned my eyes toward inflation. At that point, my only recollection of inflation was the disastrous hyperinflation that my parents experienced in Romania during the 1990s. I remembered clearly that there was a time when every week the price of bread would double. I wondered if something like that could happen again, in North America.

After doing a bit of research on the CPI and noticing that inflation had been going on, though at a slower pace, in the western world as well, I realized there was really no difference between Canada and Romania in terms of currency. Fundamentally, the currency system was exactly the same. So, technically, even though my savings account was CDIC ensured, the purchasing power of that money was not.

I decided to look for ways of protecting against inflation. Initially, my idea was to actually start an inflation insurance firm. Yes, I was determined to sell inflation insurance!

But there already was inflation insurance - and in October, 2007, I finally found out what it was. Gold. My research quickly took me on the path of precious metals, which had been inflation-proof for thousands of years. A good enough track record, I figured.

Great, so I decided to move some of my savings into gold. Of course, I realized it must not be too much, because gold is extremely volatile. Not only that, but gold had been going up for 6 years - longer than the stock market. Surely it was due for a correction. I started small, and moved slowly, making sure that my bullion position never exceeded the "safe" limit that I had set for myself.

But how did we end up talking about gold? The topic was savings. In general. And why it's important to have savings.

Well, first I must make it clear that gold is the only true form of savings. Paper depreciates, and is vulnerable to political turmoil. Stocks are risky - companies go under all the time. Real estate also depreciates and is vulnerable to political turmoil. If you want something that can withstand many generations and has a track record of preserving value through time (which is what savings is), that something is gold, and silver. Precious metals.

Now we can talk about why savings is power. What does it mean to have savings? It means you have the power to readily take on adversity, for a prolonged period of time, in the hope of achieving a greater income. For the individual, it means you can go without a job longer, so you have the latitude to negotiate higher pay in full view of the risk of remaining unemployed, because that doesn't bother you, because you have savings. It means you can explore new business ideas and have no fear of failure, because you know you have savings.

But this applies not only to individuals. Savings is power for countries as well. You see, the country that is able to take on the greatest adversity for the longest period of time will come out on top. Wars are won by those countries that have accumulated the greatest savings. In World War II, the US had the most gold of any country in the world. The US won the war and continued to dominate the world for decades thereafter. Remember: gold is savings, and savings is gold.

Now, 4 years after I started saving, I think I can finally appreciate the power of savings. I see now that debt is servitude, and savings is power. For you see, those who are in debt are subservient to those who have the savings. This has always been the case for all of time. Which side are you on?

My 10 predictions for 2010:

1. Inflation will surprise everybody. Watch prices carefully. Everything will be up 10-15% by summer. Your lunch will no longer be $7, but $10, and soon $12. Your bus ticket will no longer be $3, but $4 and soon $5. All in 2010.
2. Revolution will surprise the powers that be. The US is ripe for a revolution. Especially when it becomes perfectly clear that Obama has done nothing but lie, and that the propaganda machine around Obama is more powerful and more terrifying than what Bush could've ever dreamed of.
3. The big important theme for 2010: Cost cutting. The words "budget" and "low cost" will be what keep most businesses alive. It'll be about stretching every dollar, stretching every penny, despite the growing unacknowledged inflation.
4. China will be a big story in 2010, specifically recognition that China is now the world's dominant economic superpower and that US treasuries will soon be liquidated en masse. Furthermore, China will be a story because all of the inflation we'll be seeing will be originating directly from China!
5. Not to be outdone, mobile phones will go big in 2010 (or rather, small). There will be a surprise in the mobile market that neither Google nor Apple will appear to have prepared for - and that will come from Microsoft. Google, Apple, you have been warned! Yes, we're talking about Windows 7 phones.
6. Steorn, and a few others, will surprise the oil companies. Yes, free energy will arrive in 2010, if you know where to look. Steorn will be doing a demo early in the year, so it's pretty much a foregone conclusion. The human race has reason to celebrate, and reason to rise up!
7. Electric cars will reach power parity with gas-powered cars. Range will be hundreds of miles on a single tank. Batteries will charge in seconds! You have been warned...
8. Government will expand to take over every aspect of our lives. Yes, this is a sad one, but as private sector jobs disappear due to income tax bracket creep caused by inflation, government will expand to take over nearly every aspect of industry. We could see 90% of jobs becoming government-run or government-backed in some way.
9. Masses will be waking up, in a surprising way. TV will have a decreasing influence in everyday life, and you will become surprised to know that your next-door neighbor knows as much about the New World Order as you do, plus a lot of other things about free energy, UFOs, and other "black-listed" knowledge.
10. Wage inflation, yes wage inflation, will begin. Your salary will probably be up 50% by the end of the year, but inflation in everything else will have been closer to 100%.
    

Overall themes for 2010: surprise, reform, and revolution! Change will come, but not because of Obama.

Dan's Gold & Silver Recommendation: Buy (with caution)

---

We've now corrected 10% in both gold and silver, from the top reached a few weeks ago.

I think it's time, given the speed and severity of the correction, to start buying again.

However, I do think that further downside is possible. So cautious buying is advised.

---

I will try to have this segment at every major turn in the market so that you can stay up to date with the latest market movements.

So stay tuned for more of "Dan's Gold & Silver Alert."

So gold just shot up above $1090 today - a new all-time high, oil is up above $80 a barrel again, and I'm getting emails in my inbox about contract opportunities with rates of $60+ an hour. So what does all of this have to do with Bob Prechter?

Who is Bob Prechter anyway? For those who don't know, Robert Prechter is a semi-popular financial analyst who occasionally pops out of his wooden shed to warn us all about the impending danger of deflation. Much like Mike "Mish" Shedlock of globaleconomicanalysis.blogspot.com, he was right in the fall of 2008, when the price of everything collapsed spectacularly. However, most prices have pretty much recovered since then and some (like gold) are actually making new highs!

Robert Prechter has an interesting theory, however: that short-term market movements are entirely random - influenced by a recurring cycle known as the "Elliott Wave," which is based on the Fibonacci ratio of 1.618. In short, markets are irrational, but predictably so - they can be predicted by applying this Elliott Wave theory.

I agree with Robert Prechter on the "markets are irrational" bit. I even think he might be on to something with the Elliott Wave theory. But as far as deflation goes, I am strongly against it. I do not believe deflation can happen in a system of fiat currency (where money is created out of thin air).

One example that deflationistas often like to bring up is the case of Japan in the 1990s, and how allegedly Japan experienced deflation from 1990 to now. That is just totally wrong. Japan experienced roughly -0.5% inflation for 3 years. That's it. That's all the "deflation" it ever experienced. Japan is not a valid example of deflation.

One other example some deflationistas hearken back to as a last resort is the Great Depression. However, during the Great Depression the US was still on a gold standard, so that example is totally invalid in today's fiat world.

So given the track record of these "deflation" predictions, why does Robert Prechter think that "this time is different"? And where is he now, when his predictions appear to be falling apart by the day?

OK, remember this article?
"Imminent Stock Market Crash"

On August 24, I warned that a stock market crash is "imminent" and that the "coming weeks" would be "turbulent to say the least."

Well, I was wrong.

The market did dip on August 28 and fell a few hundred points but has since rallied to a new 2009 high.

Where did I go wrong?

I got the timing wrong. That's all. The crash is still coming. The Dow is still going to 2000.

At this point, I think the Dow will probably reach 11,000 before the crash begins. The peak will come in October.

Only suckers are buying now.

That's all I'm going to say.

I want to draw your attention away from the talking heads on CNN/FOX/CNBC (who are all shouting "recovery") and toward a recent video by TheModernMystic:



Apparently, M3 - a measure of US money supply - has been declining now for over a year.
Credit as well as money has been declining at an annual rate of at least 5%!
In other words, we are in deflation (in the US) since March of 2008.

Banks are being paid to hold money in reserve and NOT lend. Why is the Fed doing this?
Could it be that China now has enough power over US monetary policy to prevent inflation (and thus devaluation of their dollar assets)?

Additionally, consumer attitudes toward credit & spending have changed dramatically. This has been pointed out by Mish on his blog many times.
High & rising unemployment has forced people to save (US savings rate now 7%) and has driven salaries lower (people taking 30%-50% pay cuts).

The big question is whether deflation can/will continue.
I believe that it can, and it will. It all has to do with what is in the interest of those who control the money supply.

Let's look at it this way. If you're a bank, and you've given out $5 billion in loans,
you would ideally want to be paid back in full (with interest) on those loans. What happens if there is a sudden 50% inflation?
You get 50% less than what you gave out in loans. That is, you are not paid in full, because the dollar has lost 50% of its value.
So, given this reality, you would ideally want the dollar to maintain its purchasing power or even gain in purchasing power.
In other words, the ideal condition for banks (and other lenders) is deflation!

Now, let's look at China. China has at least $1 trillion in US bonds. They've lent out $1 trillion to the US. They would ideally
want to be paid back in strong dollars so that they can purchase US assets on the cheap. They want to maximize the bang for their buck!
China wants deflation. How much control does China have over US monetary policy? I would argue that, since they are the biggest exporter to the US
and the biggest supplier of cheap labour to US companies, they have at least a tangible influence over what Ben Bernanke decides to do at the Fed.

Clearly, US banks and China want deflation. The US government, however, wants inflation because they have no way of paying their gigantic debt burden.
How much say does the US government have in monetary policy? None. That is just a fact. The Federal Reserve is a private institution, independent of the
US government. The US government has no control over monetary policy. No matter how much inflation they want, they aren't in charge of the printing press.

Now a clearer picture starts to emerge. The picture is a little shocking for those who have been led to believe that the US dollar is headed for hyperinflation.
The picture shows what is likely to happen for the next 5-10 years, and it ain't pretty. The US dollar is likely to maintain its purchasing power or even gain
purchasing power. What is likely to unfold is another depression, similar in magnitude and character to the Great Depression. Prices of all non-essential items
will fall or remain stagnant. Wages will fall or remain stagnant. The stock market & real estate market will collapse.

So what can you do to come out ahead? First, if you have a job and can save some money, save it in gold. Have enough dollars to get by on for a few weeks but
beyond that all savings should be in gold. Why gold? Gold maintains its purchasing power. The likelihood that the dollar will gain significantly in purchasing
power is very low, simply because it's a fiat currency - its supply can be increased arbitrarily. Even if the dollar does not inflate over the coming years, you
will not have lost anything by owning gold, because gold never loses its value. Additionally, gold has no counterparty risk. It's not a loan or a promise to pay.

Secondly, get out of stocks and real estate. Real estate prices are going to continue to collapse. The Dow will go to 2000. Real estate will probably go back to
1980s price levels - $100,000 for a house. The time to buy these assets for the long haul will be in 3-5 years when the lows have been hit. However, these assets
will not perform well for the next 10+ years, so you have plenty of time to wait before getting back into "the market."

Third, bonds are going to be problematic. In a deflationary depression, first comes the stock collapse, then the bond collapse. The bond market collapse will be
far more painful than the stock market collapse. US treasury bonds are in a bubble. Bonds are the last thing to peak after a speculative mania. 0% yields are not
sustainable for more than 2 or 3 years. I've said it before and I'll say it again: owning US treasuries now is like owning dot-com stocks in 1999.

Finally, consider owning some silver. It's more risky than gold but has the potential for higher returns over the long term. Silver outperformed gold from 1932
to 1979 by a significant margin. If gold is your rainy-day fund, silver is your 401k. Regardless of whether there is inflation or not, silver will gain in value
relative to every other asset. That's what's important.

Again, let me emphasize that the inflation/deflation debate has no bearing on whether precious metals will continue to gain in value over the coming decades.
That question is answered by looking at supply & demand over the long term. The same goes for stocks, bonds, and real estate. What matters is the relative
performance of one asset compared to another.

The future of the dollar only concerns those who hold dollars and those who owe dollars. It concerns China and US banks. They wish for deflation.
The Federal Reserve, being in bed with US banks like Goldman Sachs, will probably grant them that wish. The US government will probably continue to borrow and hope for inflation. They will probably just default, like Russia in 1997.

Here are some stories I found very interesting:

Rich people panic over new IRS rules
"2 million" march in Washington, DC
Barrick Gold will cut its short position in gold

My comments:

The first story explains the rise in the gold price. If companies can't keep dollar-denominated assets in foreign offshore bank accounts, they will just move those assets into gold in undisclosed locations. If it can't be audited, it can't be taxed. Problem solved.

Barrick Gold is reducing its short position in gold, which it has been keeping for at least the past 5 years. This is short-term very bullish for gold. In addition to this, many central banks have stopped selling gold and China wants to get out of the dollar.

If you are a gold investor, I think it's time to seriously consider "selling the news" after buying the rumour for the past 10 years. This gold bull market is about to come to an end, or at least cool off for the next 3 years. Take advantage of the big gold rally coming this fall to liquidate some longs.

Update:

I have to comment on the Washington march story, because apparently there were nowhere near 2 million people at the march. Regardless of how many people there were, the fact that many signs praised FOX News is a giveaway that this rally was staged by FOX News and its minions. Edit: BBC confirms "tens of thousands" attended the protest, not millions.

Sadly, a legitimate point of view about the importance of the US constitution has been hijacked and turned into a freak show of uninformed "morans" who can't even put together a coherent thought. It's a fake revolution. All efforts toward an intelligent debate about the role of the US constitution have been stifled by the controlled corporate media.

I'm still waiting for the REAL revolution.

The following articles discuss (in different ways) the demise of the dollar:

1. TIME - America and Its Deficits

2. Bloomberg - UN Says New Currency Is Needed

3. iStockAnalyst - China Now Net Seller of US Treasuries

Still bullish on the dollar?

Article: Up to $3,800 fine for failure to get health insurance

"WASHINGTON (AP) - A top senator is calling for fines of up to $3,800 on families who fail to get medical insurance after a health care overhaul goes into effect."
...
"The plan from Democratic Sen. Max Baucus of Montana would make health insurance mandatory, just like auto coverage."


I'm not going to comment too much other than to say that this just another example of fascism in the US. Public-private partnerships. Government subsidizing private industry. And guess who gets stuck with the bill? The dumbed-down American people, that's who.

The American people lost their country in 1913, when the government took over the financial industry via the Federal Reserve and declared a monopoly on money creation. The US at that point became a fascist state. Ever since 1913, America has been nothing but a banana republic, ruled by brute force rather than law.

I will leave you with this alleged quote from Woodrow Wilson:

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson, after signing the Federal Reserve into existence

"Cut My Pay" Nonsense

Inquiring minds may want to read the following article:
Cut my pay... please! - CNN Money

Apparently workers in the US are taking 30-50% cuts in salary in order to get jobs. This is grim, folks. Really grim.

"Rebecca Eason, who used to make a comfortable $33,000-a-year living in Tennessee."

Hmm... $33,000 was a comfortable living? I wonder how that's possible. If you just take rent, add food and electricity, and sprinkle a dash of transportation costs on top of all that, you can easily get up to $1800 a month in living expenses! Now suppose you want your "comfortable" lifestyle to include some savings for retirement ($400 a month), plus a few nights out ($100 a month), a small vacation ($300 a month) and a very limited clothing budget ($200 a month) and you get to $2800 a month necessary for a comfortable lifestyle. $33,600 in annual cost. Assuming a very modest tax rate of 15%, you would need almost $40,000 for a comfortable lifestyle.

But now Rebecca isn't even making $33,000. Apparently she's making $18,000/yr in a temporary position! You can't even survive on that kind of salary. Or if you do, it's in a very compromised lifestyle. The economic situation in the US must be extremely dire for people to resort to such madness!

Downsizing of the American Lifestyle

It's now become quite clear that the American dream is finished. The US is rapidly devolving into a third-world country. That has been the plan all along, at least since the 1970s when manufacturing jobs started moving to China. Slowly, the US became a hollowed out consumer-driven "service" economy (in reality, the vast majority of wealth was concentrated in the financial sector, which was just a money-laundering front for the arms & drug trade).

But no matter how it happened, it's clear that the American lifestyle has been downsized. In the 1960s, the average salary for 2 years was enough to afford a house. Now, it takes at least 6 years worth of the average salary to buy a house. The real wage has declined to a third of what it was in the 1960s! No wonder it takes 3 salaries nowadays to support a household!

The average CEO makes up to 500 times what the average worker makes. The difference was 10 times smaller in 1980! Times have changed. The rich have gotten richer while the poor have gotten poorer.

Power Corrupts: US as the Lone Superpower

The only reason why US society was so equitable, just, and civilized 30+ years ago, post World War II, was because of the cold war. The cold war was the main reason why the US maintained such an elevated standard of living for its citizens. Social decline could not happen in the US, as it would immediately show the "weakness" of the capitalist system and, as a result, give credence to the socialist system. As long as these two rival systems fought for supremacy, the US had to maintain an image of prosperity and fairness.

The Soviet Union collapsed in 1991 for economic reasons, and since then the US has been the lone superpower in the world. As the old saying goes, power corrupts. No longer charged with maintaining an image of prosperity, the US gradually declined into a society of poverty and inequality, which is the typical outcome of a capitalist system. Capital concentrates increasingly into the hands of the few, the well-connected, the corrupt few who have absolutely no morals and total self-interest. Power begets power. Money begets more money. Influence begets more influence.

To give credence to this theory all you have to do is look at the evidence: the decline in US standard of living from 1969 (the peak of US-Soviet rivalry as exemplified by the moon landing) to today. Nothing could be clearer than the steady downward trend in real wages and upward trend in income inequality that started in the 1970s.

The Future: Economic Crisis, Followed by Revolution

The US will follow the path of the Soviet Union in its final decline from its throne of global superpower. The first signs are already occurring. The economic crisis that the US is now seeing is far different from previous recessions. There is a deep, fundamental problem with the US economy that was caused by 30 years of easy credit, corruption, and out-of-control unproductive spending.

This economic crisis will only deepen, and it will deepen as a result of present policies being put in place to "stimulate" the economy. The current policies only serve to increase government spending, expand military operations, and continue the unsustainable American empire. The collapse of Empire America is what is necessary for the US to begin recovery.

There will come a point when Americans will become so sick of the injustice which is currently occurring that they will rise up in a new American revolution. This time, it will be a revolt against every single unconstitutional policy that has served to destroy the foundation upon which America was built. America was once a land of opportunity, and there was great prosperity because the government adhered to the US constitution and was not in bed with giant multinational corporations or hostile faraway nations.

A Look Back

Go back to 1932 and imagine that you saved a year's salary ($600) worth of silver, a total of 2400 oz. Now suppose you did not touch your stash of 2400 oz until 1979, when you decided to sell it all for $30 an ounce. How much money would you have earned?

Answer: $72,000

You could have bought a decent house with that money in 1979. $72,000 was 9 yearly salaries in 1979. Good investment, I'd say.

Now suppose you did the same thing, but with gold. So, you would've bought $600 worth of gold in 1932 (29 oz) and then sold it in 1979 for $800 an ounce. How much would you have pocketed?

Answer: $23,200

OK. Still a decent investment. I mean, that was 3 average salaries back then, but certainly not as good as silver.

Now imagine you did the same thing, but with the Dow Jones Industrial Average, which you would've bought at the rock-bottom price of $40 a share. That's 15 shares. How much would you have gotten for your investment in 1979?

Answer: $13,500

That's still a bit above the average salary. Certainly not as stellar as gold or silver though. And you had to get the market timing exactly right to snap up 15 shares at precisely the all-time low in 1932.

My point should be evident by now. Over a period of 47 years (almost an entire adult life) in the last century, starting in 1932, the best-performing asset class as an investment was silver. The worst-performing was the Dow!

A Multi-Decade Trend is Ending

The last 29 years have been exceptionally good for stock market investors, and exceptionally awful for precious metals investors. This trend will change, just as it has in the past.

Already, the metals have been outperforming the Dow for the past 8 years. However, they are still very cheap by historical standards. Silver is just $0.28 in 1930s dollars, which is close to the actual low of $0.25/oz in 1932.

Even after going up 3-fold in the last 7 years, silver is still undervalued!

The Future Looks Bright for Silver

In 1979, silver hit a high of $50/oz which it has yet to surpass. That high, adjusted for inflation, is $153. However, if I use M3 money supply growth and adjust it for net silver supply growth, I get about $250. Considering that I see gold hitting $5000 and the gold:silver ratio has been as low as 12:1 in the recent past, I don't see why silver can't even go above $400 when the real speculative mania sets in.

Assuming the odds of hitting $8 are about the same as the odds of hitting $500, the midpoint falls around $60/oz. That means, to properly balance out the downside risk & upside potential, the price of silver should be $60/oz right now. That's over 4 times higher than today's actual price.

Warren Buffett, eat your heart out! Silver will likely have incredible returns for the next 40+ years, just as it did from 1932 to 1979. Forget about buying gold. Why not get the best returns? Why not buy silver?

I decided to use the Bank of Canada's Inflation Calculator to see what some prices from 1968 would amount to in today's dollars. I got the 1968 prices from http://www.thepeoplehistory.com/1968.html

The average house in 1968 cost about $15,000. I challenge you to find me a house today (that isn't a dump) that sells for $91,000 (the price given by the Inflation Calculator).
The price of oil in 1968 was about $5 a barrel. Is oil anywhere near $30 today?
Gasoline was 35 cents a gallon (10 cents a litre). Is gas 60 cents a litre today?
A brand-new GM car was $2800 in 1968. Show me ONE new GM vehicle I can purchase for under $17,000 today and I'll buy it.

The CPI is understating inflation (since 1968) by anywhere from 50% to 200%. The CPI should be at least 200, not 114.7.

The consistent understatement of the CPI is causing major problems for savers, retirees, and tax payers. It is essential that this problem be rectified or else the Canadian standard of living will continue to decline.

Bank of Canada, if you keep adjusting the CPI downward (for whatever reason), there will come a time when the CPI will be so out of touch with reality that people will revolt and the corruption that has been going on will become evident for all to see. So I would say it is in your own interest (for the purpose of maintaining credibility) to provide a CPI that is as accurate as possible.

Or maybe I'm just mad that I'm only getting 1.2% interest on my savings account, while the Core CPI as reported by Bank of Canada itself is 1.8%!

Article:
Preparing for the Worst - Robert Kiyosaki

"
The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst.
"

He then goes on to outline several reasons why the talk of green shoots is all baloney:

1. Market manipulation, with which I agree 100%. The correlations between the Dow, TSX, and other unrelated indices are just freaky. The mysterious uptick every Friday afternoon just before the close. The signs are there that there's something fishy going on.

2. The Fed caused the problems we are seeing now. I couldn't agree more. The policy of interest rate manipulation by an independent central bank interferes with the free market. This causes all sorts of bubbles and mal-investments leading to a fundamentally weak economy.

3. Demographics. Boomers are retiring, and in the process are becoming more frugal. This is a trend that will continue through the 2010s.

4. Social Security & Medicare are unsustainable and will slowly drive the US into bigger & bigger deficits.

"
Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.

This war is not coming...it is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."
"

This is all the more reason to get out of the stock market now, while it's still high.

This is an alert that a stock market crash is imminent in the TSX, Dow, and other global stock markets.

Get out now before it's too late! Safety can be found in gold, silver, and bonds.

It is imperative that you take cover now. The coming weeks will be turbulent to say the least. The crash will start Wednesday or Thursday of this week.

Get out of long positions. REPEAT: Get out of long positions! I don't care if you're invested for the long term.

The Dow is going to 2300. It will be a stomach-churning ride if you have any money in the stock market.

Forget all the rosy nonsensical predictions made by Bernanke & gang. The US is in a depression. 34 million are on food stamps. Dow 9500 just doesn't reflect that reality.

The FDIC went bankrupt on August 14, 2009!

You have been warned.

Source: chartoftheday.com

Meanwhile Bernanke is talking about recovery. The same man who never saw this recession coming. Why hasn't he been fired yet?

Abolish the Fed.

Story:
Dow Jones Mulling Sale of its Indexing Business - FOX Business

Did I not say a few months ago that there won't be anymore Dow Jones?

And I quote...

"There will be no Dow Jones anymore. This will be such a spectacular and catastrophic collapse that it will be talked about for GENERATIONS. It will be written about in the HISTORY BOOKS."

- March 9, 2009

Mark my words, there will be no Dow Jones just like there will be no dollar 10 years from now (probably sooner).

Nothing is forever.

China reduces holdings of US debt - BBC
"
China reduced its holdings of US government debt by the largest margin in nearly nine years in June, according to data from the US Treasury.

China holds more US government debt than any other country and cut its holdings of US securities by more that 3% in June, said the BBC's Chris Hogg.

"China has said it would like to establish an alternative to the US dollar as the world's favoured currency for foreign exchange reserves," said our correspondent.
"

Stiglitz sees risk to dollar - Bloomberg
"
The dollar’s role as a good store of value is “questionable” and the currency has a high degree of risk, said Nobel Prize-winning economist Joseph Stiglitz.

“There is a need for a global reserve system,” Stiglitz, a Columbia University economics professor, said at a conference in Bangkok today. Support from countries like China should ensure orderly discussions on a new reserve system, he added.
"

And lastly, a sign of the times... Man Charged For Stealing Railroad Tracks!

So much for green shoots.

Original Article:
The Greenback Effect - NY Times

"
An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.

The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.

Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.
"

My Comments:

To say that Warren Buffett's assumptions regarding demand for US treasury notes are optimistic is a MAJOR understatement. You'd have to live in fantasy land to imagine $900 billion in demand for US treasury bonds!

China doesn't want anymore US paper. And it's perfectly understandable. US bonds are currently a non-performing asset, just like US real estate and US stocks. In fact, the whole US stinks. It reeks of poverty and despair. The US lacks prospects for future economic growth. The US consumer, 70% of US GDP, is maxed out and won't be back for at least 20 years. Where am I going with all this? I don't see a single dollar worth of demand for US bonds coming from China.

What about US citizens? They should have some demand for US bonds. How much is a bond yielding these days anyway? 2%? 1%? HA! Even if US citizens HAD savings they surely wouldn't put them in bonds. Sorry Uncle Sam (US). I'm guessing there might be about $200 billion worth of sucker money AT BEST that might make it into bonds.

So, let's see... $1.8 trillion deficit, $200 billion in revenue... That means $1.6 trillion in brand spanking new money, hot off the printing presses! Yikes!

Brace yourselves for inflation.

Since 2007 when I first started tracking the price of gold, I have never been more bullish than I am right now.

Basically, I see no downside risk at all. Back in the fall of 2008, there was VERY STRONG buying pressure when gold fell below $900. I mean, so strong that there were gold shortages everywhere. Even the Indians were buying, and buying more than usual! So I can't possibly imagine gold going below $900 ever again.

According to my own research, the right price of gold is somewhere around 2000 current US dollars. That's where the upside potential equals the downside potential.

Basically, to calculate where the price of gold should top out, take the $850 price it was in January 1980, multiply by the change in money supply, and then multiply by the change in demand and divide by the change in supply. This calculation gives me $4700, using the supply & demand data from 1979.

The supply & demand data is available at Kitco's website, and M3 is available at nowandfutures.com.

Now I already identified $900 as a key support level. So now taking the geometric mean of $900 and $4700 I get just over $2000. That's the price necessary for the downside risk to equal the upside risk. Below that, gold is undervalued. Above that, gold is overvalued.

I'm pretty sure I can even put a date to when gold will go above $1000. Gold will be above $1000 by April of next year (2010). My guess is it will happen well before that date. Probably this summer.

Let the debate begin!

Here's my 3-part YouTube video series:

Part 1

Part 2

Part 3

Mike Shedlock is suggesting that US treasuries are a good buy at this point. Let's see if he's right...

Currently yields are at 4%. If yields drop to 2%, that means the price of 30-year treasuries would be double the current price. Could it happen? Short-term, based on this chart, it sure looks like a possibility.

Short-term (i.e. within the next 12-18 months), the outlook for US treasuries is quite bullish.

But let's look at the longer term. Since 1980, yields on US treasuries have been going down. We have a 29-year unbroken uptrend (bull market) in treasuries (downtrend in yields). The current bull market in treasuries seems just a tad ancient. When this trend finally reverses, look out below.

Fundamentally, you'd be mad to own US treasuries right now. The average rate of inflation in the US since 1971 has been 7% per year. A long-term yield of 4% makes absolutely no sense. Ignoring inflation when buying bonds is like ignoring P/E ratios when buying stocks.

Buying US treasuries now would be like buying dot-com stocks in 1999. Sure it might go up 100% in three months, but if you don't time the trade perfectly you'll be wiped out. You better get the timing exactly right, or else you could lose your money.

By 1999, the US stock market had been in an unbroken uptrend for 16 years. In 2000 the trend finally reversed, and all the suckers that got in after 1997 have yet to make any return on their investments.

Don't be a sucker.

Right after I posted my "worst case scenario" calling for exchange controls by fall of 2009, Jim Rogers (in this Bloomberg article) is basically saying the same thing!

"
May 12 (Bloomberg) -- A rally in the U.S. dollar has run its course and a currency crisis may take place in the fall, investor Jim Rogers said.

“We’re going to have a currency crisis, probably this fall or the fall of 2010,” Rogers, 66, said in an interview with Bloomberg Television in Singapore. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”

Rogers may consider buying the yen and prefers the euro to the dollar or the pound, he added.
"

Jim Rogers correctly predicted the dollar rally last fall.

I've taken the time to compile a timeline of global economic stats for 2009. It will be an interesting year. I'm not ready to drink the kool-aid that the worst is over. The worst is yet to come. After a quiet summer, the next leg of the collapse will start at some point in August. I really hope what I say does not come true, because if it does, it will be a living nightmare.

• Unemployment figures (officially) in the US will hit 10% by July. However - the government may massage the figures, keeping them under 10% until late September.
• I'm expecting very little volatility in the markets over the summer, until early August when unemployment figures in the double-digits will be first released. I'm expecting the Dow to continue somewhere between 9000 and 10,000, and gold between $900 and $1000, until at least early August.
  
• Watch out on August 8, 2009. This is exactly a year after the Georgia incident. Russia may again try to attack Europe, in retaliation to growing NATO influence over former Warsaw-pact territory. The men behind the curtain may give Russia the green light, in light of the horrendous economic stats coming out. In other words, to make a quick buck and prevent social unrest, the corrupt banksters may choose to start a third world war.
  
• By fall it will become clear that the world is in total economic collapse. In September, 2009, the Dow will begin to crash violently, along with the US dollar. News will be coming out that US unemployment has just hit 12% and the US economy is expected to contract 15% in 2009.
• From a high of 9000, the Dow will end up at 4000 by November. US treasuries will go into hyperinflation in October, 2009. The entire world will enter a World War II-like state economically starting in October.
  
• In October, 2009 a dangerous new influenza virus begins to spread. It begins by claiming 200-300 lives every day. It is clear that it is a bioweapon, because it is spread by way of covert agents, appearing simultaneously on different continents. By December, this mystery flu is killing 1000-2000 people every single day. It has a kill rate of 40%. This means 40% of people who become infected die. The government encourages vaccination, not knowing that the vaccine also has a kill rate of 40%. It will turn out to be the worst pandemic the world has ever seen.
  
• Somewhere in early October, gold will definitively cross the $1000 barrier while the Dow crosses 4000 on its way down. Shortly after that, the COMEX will be shut down and all markets in the US will be closed. All commodities will be declared illegal. The US will be under full martial law. No person will be allowed to own property, and all land will be seized by the US Federal Government. Movement will be strictly controlled with military checkpoints. UN peacekeeping forces will be deployed worldwide to contain civil unrest.
  
• Although no longer reported, unemployment will continue to climb, reaching 16% by the end of 2009 (by official measures) or 30% according to shadowstats.
• It will not be visible, but the US dollar will reach hyperinflationary collapse by November, 2009. The US dollar will only be exchangeable on the black market. Exchange controls will be in place worldwide. Gold will sell for over $4000 USD on the black market.
• At some point in October, 2009, there will be a concerted effort to take down the Internet. ISPs will be forcefully shut down for allowing "subversive" material to be downloaded. If the attempt is successful, there will be mass riots. 70% of every city's population will be violently protesting. All economic activity will go underground. The Internet may be forced to go underground.
• Be prepared for widespread long-lasting power outages starting in August, 2009. Remember what happened in 2003. It will be similar to that, but it will last longer. Blackouts may end up lasting for weeks. It's quite possible that by the end of 2009, reliable electricity service will be a thing of the past.
• One also needs to prepare for food shortages and shortages of other essential goods. The government and corporations will hoard all food for themselves and possibly give some out in small rations (e.g. you are allowed 3 eggs per month). The blackouts will make it hard for supermarkets to continue operating. The fixed exchange rate and worthless fiat currency will mean that imports & exports will be impossible.
  
• By November, 2009 nearly every country on the planet will have instated a total military draft. Every single citizen will be openly apprehended and forced into either military service or civilian service (forced labour).
• The speed with which all this happens will make "shock & awe" seem like slow motion.

I suggest to everyone (including myself) to prepare for all of these possibilities. What do you do if your city's power goes out for 2 weeks? Or if the Internet is shut down? What if all the local grocery stores close down for 3 weeks? What if all your paper currency becomes worthless, or you're no longer allowed to withdraw money from your bank account? And lastly, what are you gonna do... when they come for you?

Peace. Love. Understanding.
Hope for the best. Prepare for the worst.

It's tax refund time, and my suggestion to you all (especially US citizens) would be to spend 50% of your tax refund on precious metals. Here's a little known fact: The average rate of inflation in the US over the past 40 years has been 7% per year. This means in 10 years you lose half your money.

The case for precious metals as an inflation hedge really doesn't need to be re-stated. But before you get into precious metals, here are some important things to know:

1. The COMEX price means nothing. Be prepared to set your own price.
The COMEX is just one of many markets for precious metals. Other markets are eBay and Craigslist. The COMEX is in fact a very small market. Use the COMEX price (like all other prices) to your advantage. When the COMEX price is the lowest, buy from the COMEX (or from dealers who base their price on the COMEX price). The primary objective here is to always buy low and sell high.

2. For buying, coin shops and bullion dealers are the most reliable & usually the cheapest.
eBay is very expensive these days, mainly because of cash-back. If you're in the US, take advantage of the cash-back offer. Otherwise, forget about eBay. Craigslist rarely has bullion up for sale and if it is, it's usually local pickup and quite expensive (because the seller knows how valuable bullion really is).

3. Always tally up all your costs (shipping, exchange rates, and other fees) before determining price.
It's often easy to forget about shipping costs, customs fees, eBay fees (for selling), or exchange rate arbitrage. Typically, exchange rate arbitrage is 3% of the price (if you're paying in a currency other than your bank's).

4. Always prefer domestic dealers over foreign. But not necessarily local.
There's certainly more risk involved in sending precious metals across international borders. You could be hit with customs fees or run into some kind of draconian restriction on imports. Now, in Canada, if you choose a dealer within your own province, you'll have to pay provincial sales taxes. So it's usually better to buy from dealers outside of your province (or other regional jurisdiction) to avoid taxes.

5. Do not sell anything unless you must.
Given the uncertainty of a fiat monetary system, you never know if something is a bubble or if it's hyperinflation. There's really no way to judge if precious metals have become overvalued. The best exit strategy is to never sell. However, there are those cases where you desperately need some money. In such a case, you are forced to sell. There are also situations where you may find a better investment (e.g. a stock or a piece of property) but don't have enough money to invest in it. In that case, again, you are effectively forced to sell to raise cash.

6. There is such a thing as having too much.
Keep enough cash lying around so that you won't be forced to sell in the event of some minor setback (e.g. losing your job). The problem with selling precious metals is that in many cases you are hit with taxes & fees, on top of the premiums you paid originally to purchase the metals. Therefore, too much buying & selling will cause you to lose all your money.

7. Keep yourself busy.
Sometimes it's tempting to obsess about the daily spot prices or constantly second-guess your investment decisions. To avoid such foolishness, you should keep your mind occupied. Basically, forget about the fact that you have precious metals and go on with your life.

There is another question precious metals investors struggle with, and that is, "Which metals should I buy?" My belief in this regard is that the oldest metals, those that have been money for thousands of years, need to be given priority. You should have a much larger proportion of gold & silver relative to platinum & palladium.

Deciding between platinum & palladium is quite easy. Palladium can be substituted for just about every use of platinum and it's much cheaper. Plus, Russia controls much of the palladium supply, meaning it could create artificial scarcity quite easily, raising prices dramatically. Palladium can be used to produce the cold fusion effect observed in 1989 by Fleischmann & Pons. There's also a growing palladium jewellery market in Asia. I would recommend palladium over platinum any day of the week.

Now, deciding between gold & silver is more tricky. On the one hand, gold is owned by central banks and is therefore more capitalized. It's more liquid & less volatile. The problem with silver is it's a wild ride. If you don't like wild rides, you should keep more gold than silver. However, silver has the potential to go much much much much higher than gold. Silver can be substituted for all other precious metals, and there's less silver bullion out there than gold bullion! So if you want maximum upside, you should go with silver. And because silver is correlated with gold, you won't miss out on gold's upside by owning silver. However, I would recommend holding some gold because of its low volatility. In cases where you need to sell something, you would sell the gold & keep the silver.

Historically, the best performing portfolio is 50% gold, 20% silver, 5% platinum, and 25% palladium. However, it's also very volatile & illiquid because of palladium and not very well exposed to silver. So instead, I would recommend a portfolio of 40% gold, 40% silver, 5% platinum, and 15% palladium.

In the end it's up to you. Remember: DYODD (Do Your Own Due Diligence).

My word is not gospel. Amen.

The people who believe the worst is over in terms of real estate are completely delusional.

The people who believe real-estate in Canada will continue to appreciate are lunatics.

The truth is simply this: Real estate prices will go to zero. Capitalism is finished.

Suppose you're looking to buy a shitty-ass single-bedroom apartment for $140,000. First of all, good luck finding such a low-priced apartment. However, if you do, what will your monthly mortgage payment be (supposing you take out a $140,000 mortgage)?

A simple calculation using ING's mortgage calculator yields $740 / month (with 4% interest rate). Let's suppose for simplicity that mortgage payments are 0.5% of an asset's price with today's low interest rates. For instance, if you took out a $140,000 mortgage, you'd be paying $700 / month.

Now let's add utilities, property taxes, and condo fees, totaling $400 / month.

Total now is $1100 / month in the "expenses" category of your balance sheet.

In order to be in the black marginally you need to rent out your apartment at a minimum of $1100 per month. Now, considering that you actually want to make a decent profit, let's say you want to make $400 in profit per month, so let's go for $1500 per month rental cost.

Who in their right mind pays $1500 rent for a shitty-ass single-bedroom apartment? The rent would be more like $600 at best. But if I rented out my apartment at $600 I would be losing $500 every month! Clearly not a good investment.

So how much do real estate prices have to fall before real estate is a profitable investment again? Let's see... Supposing you'd be happy with even $1 in profit per month, we're looking at mortgage payments of $200 per month (maximum). This means the apartment would have to cost $40,000.

Bottom line is real estate prices need to fall into 5 digits again. It's also not impossible for real estate prices to go to zero or negative. Suppose you have a property that costs $500 per month to maintain (not counting mortgage payments) but only returns $400 per month in rent revenue. How much would you sell this for? Wouldn't it make sense for the price to be negative? You would be willing to pay someone to take the property off your hands. This is already happening in Detroit.

The broader reality is that capitalism is finished. Property taxes have eaten away all incentives to own real estate. Unemployment just puts the final nail in the coffin. Banks can lower rates to 0% and it won't do any good. It's over. We are all slaves. The people who own the government now own everything.

In this article I will attempt to explain why this is not 1929, and why it will get worse.
Economically, America is on a path toward certain death, if it's not already dead.
The only thing that can revive America is a revolution and a new declaration of independence.

Anyway, let's explore the reasons why it's worse than 1929:

1. The US is a military superpower
   How is this bad? The US is totally dependent on continuing its military dominance over the rest of the world. It forces countries to accept T-bills at gunpoint. Any slight weakness or decline in this military dominance spells disaster. It would lead to hyperinflation and shortages of just about everything. The US imports more oil than any other country. The US economy is heavily reliant on imports, mainly of oil and drugs. These imports usually come from hostile regimes like Iraq, Iran, and Afghanistan.
   
2. The US produces nothing
   There was a time when the US was a leading producer in the world. It produced automobiles, commodities, and other tangible products. However, partly because of rising taxes, these days hardly anything is produced in the US. Why do that when it's so much cheaper to produce it in China and import it? Of course, when the US was a producer, people had jobs. With jobs, people were able to save, invest, spend, and thus contribute to the growth of the US economy. Nowadays, the only jobs left are government jobs, and the US produces only fiat currency, which is worth nothing.
3. The US Federal Government is gigantic and wants more
   Income taxes are rising. They are already higher than in many of the developed nations (including Canada!). Property taxes are high and rising. The reasons why house prices are falling are two-fold: first, there are no more jobs and therefore rent income has diminished. But also, property taxes are still as high as they were in 2006 if not higher, and certainly rising. So what you have now is houses with negative earnings, selling for $1 on eBay!
4. The US dollar is worthless
   In 1971, Nixon removed any ties between the US dollar and gold. In 1929, the US dollar was still backed by gold. Today, it's backed by nothing. In the absence of a stable currency, all economic activity in the US is distorted, unpredictable, and volatile. Speculation runs wild, and everyone makes miscalculations and misallocations of capital while the Federal Reserve quietly manipulates the markets. The result: through repeated cycles of inflation & deflation, the private Federal Reserve takes ownership of all property and the people are left homeless.
5. Auto workers no longer make $5 a day
   Just to give you an idea of what it was like in 1920s America, Henry Ford established the $5 per day "efficiency" wage. In today's money, this would be equivalent to about $500 per day (or $120,000 per year). This was way above the average, but Ford believed that it would motivate employees and lead to increased productivity. This is the polar opposite of what most employers are doing these days (i.e. slashing wages in every possible way).
6. Farming has disappeared from America
   Back in the 1930s, many people moved back to the countryside where they could live off the land. Nowadays, most people are crammed into cities where everything is 100% dependent on reliable supplies of goods from overseas. If those supplies are interrupted for any period of time, chaos will break out. Just imagine what it would be like in a major city without electricity for 2 weeks.

We need to stop comparing the present situation to the 1930s. Things today are very different, and much more perilous. We are treading through unprecedented historical territory. As I see it, Americans need to reverse the 6 things I listed above. Otherwise, the US is headed for disaster. I believe that, at this point, the US government has become so totalitarian and so unconcerned with the will of the people that only a revolution (i.e. a total overthrow of the government & return to the constitution) would affect any change.

To put things more clearly, the states need to remove their support for the federal government by seceding from the union, citing the 10th amendment.

An excellent synopsis of what's to come, as predicted by Gerald Celente, and with which I agree 100%.

Here's a scary story. This is how hyperinflation (defined here as >20% per year or the doubling of prices in 4 years, as measured by the gold price) has crept up on Canadians over the past 2 years.

It was the summer of 2007. Gold was below $700 US. The Canadian dollar was reaching parity with the US dollar. Thus gold was around $700 Canadian.

Gold shot up through the fall of 2007 until November, when it reached $800 Canadian. The Canadian dollar was stronger than the US dollar!

Through March of 2008, gold was on the rise. Price in March? $1000 Canadian. The Canadian dollar was still close to parity.

Through the summer of 2008, not much change. Still $1000. Then came the great devaluation. The crash of August, 2008.

Gold fell precipitously. But the Canadian dollar was now far below the US dollar. So, in Canadian dollars, gold was still around $900. (At the worst of the Great Collapse in Everything that was the fall of 2008)

Then, gold quickly shot up through $1000. By January 2009, it was $1100.

Today, it's just over $1200.

So the Canadian dollar inflated 71% in 18 months! That's 43% inflation per year!

Still waiting for a correction to buy gold?

What's more is that central banks still haven't raised interest rates!! They're all expecting deflation! What a bunch of fools! Now is the time to take advantage of the greatest contrarian trade in the history of the world. Short currencies and buy gold.

To put a final nail in the coffin of the "fiat currency deflation" argument:

Japan's so-called deflation - the only example of a fiat deflation - lasted 3 years and had a maximum annual decline in the CPI of just 1%.

If we define inflation as the rise in CPI, within a margin of error of 1%, then Japan had absolutely NO deflation.

Of course, there have been short-term periods of deflation in just about every fiat currency. For instance, the year 1970 in the US was a major deflationary year. However, I'm talking here about periods longer than 2 years (length of your average recession). I'm talking about 4 years or more of deflation. There's never been such a case. Not even in Japan.

So again, one only needs to adjust the definition of inflation slightly to mean "net inflation over a period of 4 or more years" to state confidently that all fiat currencies have always inflated.

And what exactly is inflation? The way I define inflation is "a rise in consumer prices without a corresponding change in supply & demand."

Deflation would be the opposite: "a fall in consumer prices without a corresponding change in supply & demand."

The latter part is critical, because prices rise & fall all the time due to supply & demand imbalances. However, when you have the same supply and the same demand and prices are rising, it can only be because there are more dollars with which to denominate the price.

So knowing all this, what would you rather prepare for? Inflation, or deflation? If you say deflation then you're probably also preparing for the second coming of Jesus Christ and you probably already have a bunker set up in preparation for the 2012 arrival of Planet X.

I've been reading Mike Shedlock's financial blog for a while now, mainly to have a contrarian view to the inflationary perspective that the US dollar will collapse.

He posts great news and analysis and always very timely. His deflation thesis always seemed rather bizarre to me. I mean, here you have the US dollar - a fiat currency - and yet his thesis is that because of debt destruction, we're going to see deflation in the US and a rise of the US dollar. Also strange because no fiat currency has ever deflated for more than a few months. Look it up. Prove me wrong.

Anyway, for a long time I gave him the benefit of the doubt, mainly because his arguments all seemed so compelling. But here's what he posted in an article yesterday:

"Hyperinflation?

No, this madness is nowhere close to causing hyperinflation. You do not get hyperinflation with this much consumer and corporate debt when unemployment is soaring globally, overcapacity is rampant, and wages are falling. Please see Fiat World Mathematical Model for more details."

Well, he's finally lost it. There is NO way I'm going to agree with that argument. That sounds more like something Jim Cramer might say on CNBC. Here's why...

In the history of the world, there have been MANY recorded incidents of hyperinflation occurring precisely at moments when there was "overcapacity" in the economy, huge indebtedness, soaring unemployment, and falling wages.

Look at Zimbabwe. How many people have jobs there? How many people can actually spend money on anything but the most basic necessities of life? Yet there's hyperinflation.

Mish, you have totally lost your credibility with this one argument. Maybe it was an honest mistake. Maybe a moment of total absent-minded foolishness. But if your entire thesis of deflation relies on this argument, then you are just plain wrong.

The bottom line is, the value of a currency has little to do with economic fundamentals. If the US dollar went down 50% tomorrow (i.e. prices doubled), you'd say consumers went on an insane over-the-top shopping spree. Maybe Obama finally gave the PEOPLE a stimulus package. But you'd be wrong. The dollar could depreciate 50% without ANY FUNDAMENTAL CHANGE in the economy! This is very important to understand.

For example, you might have salaries $27,000 one day and $32,000 the next. Gas would also go from $2.70 a gallon one day to $3.70 the next. If you were Mish, you would argue, "consumers just got a raise and so they're spending more!" Or, "there's a glut of savings!" In reality, what happened is consumers got a PAY CUT! REAL wages went down. Savings didn't change. The dollar just depreciated nearly 40%. That's what happened.

This depreciation of the dollar thing is very hard to understand intuitively, because it's a complex mass-psychology phenomenon, and because it has never happened in the United States. But it will happen. It's not a matter "if" but "when". All fiat currencies in the history of the world have eventually become worthless. The question is, are you prepared for this eventuality? What good is the FDIC if you have $100,000 in the bank and the minimum wage is $50,000 an hour?

I consider the possibility of hyperinflation in a fiat regime to be far more likely (by a factor of 100) than the possibility of a sustained multi-year deflation. I'm much more in agreement now with Peter Schiff than Mike Shedlock.

It seems that these days every company out there is losing earnings. However, there are some companies that are still making money and will make even more money in the future. These are companies that have restricted themselves to local markets, produce real stuff, and as a result are mainly unaffected by global financial collapse.

In the next 10 years, the following sectors will do well:
- Rail (most cargo will be moved by rail rather than by plane or truck, due to fuel shortages)
- Energy (anything needed for the production or distribution of electricity)
- Minerals (gold, copper, silver, zinc, uranium)
- Agriculture (soil, fertilizer, seeds, and anything else needed for growing food)
- Information (innovative processing & distribution of information; keyword "innovative")

Also, for a company to prosper in the coming decade, they will need to be highly local due to the fact that a lot of political upheaval is coming. Companies that have expanded globally will see their market share shrink dramatically. Companies that have assets in unstable countries will lose revenue.

So with that, I present to you 5 companies I have selected based on the above criteria:

CNR - Canadian National Railway
ECA - EnCana Corp.
G - Goldcorp Inc.
POT - Potash Corp.
T - TELUS

One for each sector. I would argue that these are the best companies in each of the 5 sectors I described earlier.

The stock prices of these companies may not go up tomorrow, or next year, but perhaps over the next 10 years these companies will provide a very good return on your investment. They should greatly outperform the market.

WARNING: Do not blindly buy the stocks I mentioned above. Do your own research.

Here's a neat little story for you. The Bank of Canada claims that over the past 14 years (from 1995 to 2009), there has been only 28% inflation in consumer prices (Core CPI). That averages out to 1.78% per year. But that's not the most shocking thing about this story. The shocking thing is, they're more or less right!

My own calculation of inflation (using various commodities, housing prices, and wages) indicates that we had just 49% inflation since 1995. That's 2.87% per year. For 14 years.

How can this happen in a fiat currency regime? I mean, aren't all fiat currencies supposed to inflate at faster & faster rates until they become worthless? Isn't growth in the money supply supposed to translate into higher prices?

By that logic, if we look at the Canadian M3 money supply, we should see little growth there as well. But guess what? M3 money supply grew from about $470 billion in 1995 to $1.3 trillion today. That is a 177% growth! That should have translated into 7.55% inflation per year!

We are operating today as if the M3 were just $699 billion. Where did the other $600 billion go?

Why am I saying all this? Because, arguably, inflation is better than deflation for the average person, in a debt-based monetary system, because it reduces the burden of debt over time. We should all be rooting for inflation, especially wage inflation. Everyone should get out there and strike!

But I would go further and say that it is not inflation, but an uncontrollable money supply, that leads to rapidly-changing property ownership and shifting societal structure. It means that few people ever gain the wealth & power to control society. It makes societies more prudent (saving for a rainy day) and leads to a more equitable distribution of wealth, since no one person can amass a huge amount of wealth. It also leads to a fairer distribution of wealth, because only those who are competent will end up retaining their property for any period of time. Therefore, it should be in everyone's interest (except those who wish to control society) to relinquish all human control over the money supply and turn it over to mother nature.

Abolish the Fed.

Greenspan admits that the Federal Reserve is a PRIVATE entity.

Here's how I see things right now...

If you look at the last 10 years, what do you see? I see a period of little to no change. Just briefly go back mentally to 1999. You had powerful computers, 3D graphics, Internet, Google, hip hop, house music, Seinfeld, and all sorts of things that are (remarkably) still popular today. The Dow Jones Industrial Average hasn't moved in 10 years. Hardly anything has changed.

If you look at history, such long periods of stagnation are usually followed by periods of MUCH MORE RAPID change. I believe we are entering one of those periods now. In 10 years, we'll look back to 2009 as if it were ancient history. Seinfeld will no longer be relevant. "The Simpsons" will be regarded as we regard "I Love Lucy" these days. There will be such a profound change in society that a whole new culture will emerge, which will regard the "old culture" of the 1990s and 2000s as irrelevant to the new present-day reality.

There is the real possibility that THERE WILL BE NO Dow in 10 years, and no US dollar, because the US government will have defaulted on its debt, and the US will have split up into separate sovereign states by 2020. We are at the beginning of an unprecedented period in world history. I expect that we'll see major political upheavals and a major restructuring of the current world order similar to what took place during World War II. Currencies will fall. There will be exchange controls. Countries will cease to exist. Borders will be redrawn. Only gold & silver will protect wealth.

In terms of lifestyle, people will go back to farming and a heavily rural, heavily local way of living. Transportation will be very difficult. Most people will simply ride bikes. Petroleum or gasoline will be a very unusual item to see in the 2020s. This is because the global interconnected system of distribution that currently still (barely) exists will be completely dysfunctional. It's not that there won't be enough oil. It's that it will be very hard to convince countries like Venezuela or Iran to sell it to us or distribute it to us, with global currencies in hyperinflation and price-fixing mechanisms like the COMEX in default.

Traffic will be scaled back to 1920s levels. People who can afford to drive will be regarded as extremely well-off financially. Companies will be forced to adapt to this new lifestyle. People will simply not go to work if it costs them more to get to work than what they're getting paid.

As far as food is concerned, you will only be buying items that are "in season." That means locally-grown produce. For us Canadians, that means no more oranges in February I'm afraid. Although such items will still be available. They'll just be very expensive. Oranges, and other exotic food items, will be given as gifts for Christmas.

There will be a general negative attitude toward debt, banks, and conspicuous consumption. Those who flaunt their wealth will be ridiculed because it will be assumed that they are actually in debt to finance their extravagance. People will work diligently at building up savings. The neighbour across the street might look & behave as if they are poor when in fact they have amassed quite a bit of wealth in the form of savings. But all of this will be known & obvious to everyone.

The era of the full-time permanent job with benefits is over. People will enter labour contracts of a very different form from what they are today. The contracts will be very short-term, very uncertain in their duration, and very uncertain in compensation. They will also often times be quite informal. In other words, nobody will have a guaranteed income. It will be quite common to see one person doing 3 or 4 jobs simultaneously, and those jobs may not all be in the same field. In other words, it will be possible for people to truly do what they love, expanding in multiple dimensions of their personalities, *provided* that they are OK with the fact that they have no guaranteed income.

Incomes will drop dramatically. A worker in China will make roughly the same amount as a worker in Canada. That is, a typical salary for a Canadian worker might be $7000 to $8000 a year (in today's money). Of course, lots of other prices will also drop, so rent would cost only $300 a month or so... and even less if sharing an apartment. To own a modest apartment will cost somewhere between $20,000 and $40,000 in today's money, and I'm more inclined toward the low side.

University will become cheaper if not free. Attendance at colleges and universities will drop off a cliff in the coming years. The reason? Price. And pretty soon professors will realise that if they want to keep their jobs, they better (a) ask the government for assistance by socializing post-secondary education or (b) lower tuitions and accept pay cuts as a result. I'm more inclined at this point toward (a) as the solution that will be sought, simply because no professor would ever ask for a pay cut.

The most secure jobs will be government jobs. There will still be teachers, doctors, police officers, and other government workers. These will be paid the highest and have the highest job security. I would put public school teacher as the top job for the next 20 years. High pay, high security, low stress, and 3 months of summer vacation.

During the tougher periods, there will be shortages of many essential goods. Some people will be prepared to go to extraordinary lengths to obtain certain things. Be prepared to witness more bribery and underground commerce. There will be MANY shadowy deals done under the table. Some may be 100% legit, others may be scams. It will be a dangerous world.

Barter will be an accepted method of exchange. Barter may be in terms of labour (e.g. I will mow your lawn for 2 weeks if you give me 3 cans of coffee), or "I will pay you $50 a month if you let me rent your garage to sell widgets.

How do I know all of this will happen as I described? Well, I've seen it before. I've lived through it. My parents lived through it. This was Romania, from 1978 to today & still ongoing. It is a perfect example of a once-great society destroyed by greed and corruption. It was a *little bit* better than what I think is coming, because you had a lot of government safety nets in place, like guaranteed employment and guaranteed housing, and you had a lot of surplus wealth of previous generations that had been kept and passed down to the younger generations. Plus, you had farms all over the place. Farmers were a major part of society and encouraged and heavily subsidized by the government. People could go to farms to obtain produce that they would not normally find in the city, and many had relatives who worked on farms.

Here in North America the principal difference is that everyone is broke. All the wealth was sucked out by the central bankers. Second difference is there is little or no farming. Food could become nearly impossible to obtain for many people. There's also no safety net in place. Unemployment could easily reach 40% or higher - there's nothing to prevent that from happening. Homelessness could become a major problem. There could also be a revolution, or multiple revolutions where various groups of people take over the government by force. Also, with such bleak economic prospects, crime is sure to rise. The government will be nearly broke, so it will have a very hard time keeping crime in check. See, this is what I mean by "it will get worse."

For some reason, I'm in a really revolutionary ("revolted") mood today.

Anyway...

I have a theory:

The 1950s and 60s - an era regarded as an era of "prosperity" by most historians - was actually the EXACT OPPOSITE.

Starting with World War II, and going on until today, the real wealth of Americans has been slowly sucked away, to the point where most Americans today not only have NO wealth but they actually have NEGATIVE wealth, where they are on the hook for hundreds of thousands of dollars of debt which they took out to buy a giant mansion, multiple imported cars, and of course a whole lot of Chinese junk.

The era of conspicuous consumption, starting in the 40s and going on until recently, was actually the slow process of bankrupting America and plunging it into the darkness of the third world.

It was engineered by design, using Nazi-style propaganda...actually even the Nazis would marvel at the American propaganda of the 1950s where the middle class was always portrayed as owning a really large house, multiple top-notch cars, and lots of useless (but expensive) decorative trinkets.

It all started after World War II. Using the savings that Americans had built up over the Great Depression (and in the century prior to that), the international bankers created an incredibly convincing propaganda image of the middle-class American living the suburban lifestyle with a giant house, etc. All Americans of more modest means, who didn't have giant homes but who had savings and maybe even a modest house, were lured into this consumerist materialist lifestyle of "more stuff is better". The result was that Americans gradually slipped from savings into debt, while moving from frugality into conspicuous consumption in trying to keep up with the Joneses (because that's what they saw on TV).

International corporations were fooled too. They were given money and told to expand, just keep expanding. As long as they expanded exponentially every year, everything would be great. So they started out expanding nationally first. Then, once they saturated that market and profit margins started to slip, they expanded internationally, looking for cheap labour and resources. They secured cheaper & cheaper labour for a long time. They harvested rainforests and cleared the Earth of all its precious natural resources, all the while getting deeper & deeper into debt. But finally, the game is up. The bankers have come to collect on their debt. Once-giant international companies are falling into bankruptcy. They have no more rainforests left to exploit. They have no more Malaysian children left to exploit. It's over. Just like the American consumer who was lured into mountains of debt, so were once-respectable American corporations lured into more and more debt. With each generation, as they devised new ways of paying off that debt, they became more despised all over the world and their day of reckoning drew closer.

We're now at the endgame. It is checkmate for the international bankers. The world owes trillions to them, but they won't be able to collect, because the people will revolt and the international bankers will be exposed for the gigantic fraud they created, and for the rigged monetary system that led to unfathomable destruction of the Earth and of the human spirit.

Like they did in the 1960s, we must unite in love & peace. We must maintain solidarity, because the bankers will not go without a fight. We must model heroes like Gandhi and MLK in the struggle for justice. We must not give in to their plan of global despair and poverty. We must fight for a future of prosperity and peace.

The time is NOW to get into debt - at a fixed interest rate.

Consider 1970. Average house prices were down to $26,000 after a sharp recession. By 1982, house prices had risen to $80,000. A tripling of prices in just 12 years!

Interest rates are now 6% or less. People are defaulting left right & center. House values have collapsed. Interest rates will only go up from here. Inflation will take hold in a BIG way - erasing fixed debts. By 2025, a debt of $200,000 will amount to about $30,000 in today's money, and that's if the US dollar still has any value. Get as long an amortization as possible, with as low an interest rate as possible (but it must be FIXED!).

Of course, it is extremely difficult to get a loan these days EVEN IF you are in good credit. The reason for this is that the banksters on Wall Street (who are in control of the banking system) don't want anyone to get in on what will become the biggest inflation in history.

You see, the banksters WANT credit to be frozen up until people build up enough savings in the form of bonds & cash. That could be several years. Then those savings are going to be utterly wiped out by inflation, while they (the banksters) make even bigger profits thanks to low-interest (0%) loans directly from the Federal Reserve, which they took out during the so-called credit freeze, and used to purchase all the depressed assets at that time. Through deflation *and* inflation, they can distort the markets in a way that allows them to make enormous profits at the expense of the "little guy". It's all about blowing bubbles and then popping them.

We really need to abolish the Fed.

A few hours ago I posted the following:

"
That's it. I'm calling a bottom.

It's here. It's now. The bottom of this bear market has arrived. (In *nominal* terms)

Dow 6000 will NEVER be broken on the downside. Don't look for it, it's not going to happen.
"

I was wrong. It WILL get worse. It will be worse than the Great Depression. In fact, comparing the Great Depression to what's coming would be like comparing a helicopter to a Boeing 747. Sure both are flying machines, but that's where the similarities end.

In fact, the present situation we are in ("we" = North America) has NO PRECEDENT in the history of the industrial Western world. The closest thing is the situation that led to the American Revolution, which was when Britain basically forced the US into a depression by forcing them to use the British Pound as currency.

Here's the sad (and revolting) truth: You are slaves, folks. You've handed over all your assets and those of your ancestors to the international bankers. You have nothing. Welcome to the third world.

I have come to realize that what is to come will be nothing short of the most revolting economic conditions ever seen in the Western world since the early 20th century. The first world will resemble the third world. In fact, the "first world" will MERGE with the third world, because the entire world will be plunged into an economic depression. It will be so bad THERE WILL BE NO ECONOMY. There will be no Dow Jones anymore. This will be such a spectacular and catastrophic collapse that it will be talked about for GENERATIONS. It will be written about in the HISTORY BOOKS.

Let's look at the Great Depression. Many people *truly* owned their homes (no mortgage). People were property owners. Many people had farms or had relatives who had farms. An income was considered a bonus, nice to have but not necessary in order to live. People had savings. People were WEALTHY in the 1920s and 30s. People went to the city to take advantage of the economic boom there, fully knowing that it could end at any time.

In the Great Depression, people used to rent their garages to underground whiskey producers. This means the middle class OWNED homes! So people were wealthy, but they were just frugal. They chose not to spend their money. They chose to save it because they had recently seen hard times and knew that jobs were not guaranteed. Furthermore, during the Great Depression, tax rates were low. States were solvent. The Federal Government was in its infancy. There was no war spending. There was no US military global empire. There was no global bond market flooded with worthless paper.

Anyway, the point is, comparing the current situation to the Great Depression is like saying Germany and Russia are the same country. It's a totally false comparison. Now is worse.

Now let's compare the downturn in Romania (and Eastern Europe) of the 1980s to what's happening now. First, there was a tyrannical government. This means there was little freedom and no economy. However, people were property owners. Seems ironic that in a communist regime, people owned property. But they did. People had guaranteed housing, and a guaranteed job. Sure, they couldn't buy much of anything with the money, but at least they had jobs and housing. EVERYONE was employed. There was no such thing as unemployment. EVERYONE had housing. So, comparing the current downturn to the downturn of the 1980s in Eastern Europe, again, is a false comparison. Now is worse.

So we've established that now is worse than both the 1980s in Eastern Europe *and* the Great Depression. What about Japan from 1990 to now?

Well, let's see... The downturn in Japan was caused by excessive SAVINGS (not debt). Actually - the bubble was caused by excessive savings. The downturn was simply a correction of the bubble. Also - Japan has no military and runs trade SURPLUSES - not deficits.

Our present situation in North America is unprecedented. And it may lead to unprecedented consequences, such as REVOLUTION. The bottom line is, we are in a situation that is worse than the Great Depression. We cannot apply Great Depression techniques to get us out of this. The closest thing is the American Revolution, so we should apply American Revolution techniques: restricting government, restoring freedom, establishing a stable independent currency (gold/silver), and abolishing international central banks.

Of course, we could just continue as usual. But if we do, there will be no economy, there will be no freedom, there will be no property, there will be no progress, there will be no innovation, and we'll just end up under a new form of high-tech feudalism world-wide, ruled by a few secret individuals who own the world.

In looking at historical data for the Dow, gold, and treasuries, I was able to find some interesting correlations which could be used to predict what will happen over the next 30-50 years.

First of all, gold is inversely correlated with US treasuries. Next, the Dow is positively correlated with US treasuries. Here's what that means:

A secular bull market in treasuries => A secular bear market in gold => A secular bull market in Dow
A secular bear market in treasuries => A secular bull market in gold => A secular bear market in Dow

We can illustrate this by looking at the past 80 years...

1932-1960	Secular bull market in treasuries	Gold up 100% ($21 to $42)	Dow up 1300%	Interest rates went from 20-30% (depression-era) to 2% (1950s)
1961-1981	Secular bear market in treasuries	Gold up 1900% (from $42)	Dow up 25%	Interest rates went from 2% (1950s) to 20% (1980)
1982-2008	Secular bull market in treasuries	Gold up 100% (from 1980s average)	Dow up 1400%	Interest rates went from 20% (1980) to 0% (2009)
2009-2030	Secular bear market in treasuries	Gold up ????%	Dow up ??%	Interest rates will go from 0% (2009) to ??% (2030)

This means we can say what the financial world will look like in 2030:

Dow: 12,000 to 15,000
Gold: $15,000 to $19,000 (don't laugh! this is scary!!)
Interest rates: 15 - 20%


To get some sense of how much money that is, we have to take into account inflation. From 1961 to 1981, wages went up about 120%. This means inflation was *at least* 120%. The price of oil went up 400%. This means inflation was *at most* 400%. The geometric mean of that is 230%. This translates to a yearly inflation rate of 6.2%. I'm not using the CPI because it's heavily massaged.

So let's assume that the same rate of inflation (6.2%) takes hold over the next 20 years. This means that, in today's dollars, gold would be between $4500 and $5700. Plausible, given that the 1980 peak is $2200 in today's dollars. Now, how much would the Dow of 2030 be in today's dollars? 3600 to 4500. Many analysts (including Peter Schiff) contend that the Dow will go down to 3000 in the next few years. So it's VERY plausible.

Let's do some more math and see what other things might cost in 2030 (using the 6.2% rate of inflation):

Average Salary: $91,000 / year
Average House: $650,000
Oil (if there's any left): $130 / barrel
Gasoline (if we still use it): $7.15 / gallon
Rent: $3000 / month
Car (new): $90,000
Bread: $6.29
Can of Coke: $3.30
Fancy Dinner: $400
Movie: $30
Pair of Shoes: $200
Decent Suit: $1200
Really Nice Suit: $2900
Flight to Amsterdam: $3500

Ladies & gentlemen, I see before me a crisis that will lead to the thirdworldization of America.

Okay, so "thirdworldization" isn't really a word. But it could become one.

One thing is clear: the United States of America is rapidly heading toward third-world country status.

"But... this has never happened before" you say! Actually, it has. The Roman empire collapsed in a similar way. The government became more and more draconian while trying to fight inflation (caused by all the excesses of past politicians), which led to disenfranchisement, factionalization, and a 50-year period of relative anarchy known as the "Crisis of the Third Century".

But history aside - I'm going to show you how America is set to enter the third world.

I'll begin by defining the term "third world" in terms of the way it's used in the modern vernacular. Initially, "third world" was used in reference to specific countries during the cold war. But today, it's used more broadly to describe countries where the standard of living is very low and the level of political organization borders on anarchy.

So what are the characteristics of a "third world" country? One only needs to look at Mexico for an example. Here are 7 characteristics of a third world country:

1. Militias and/or warlords control much of the country's means of production.
2. All public officials are corrupt, even at low levels (e.g. police officers).
3. Most business owners/officers are tied to militias and/or corrupt government officials, and are themselves corrupt.
4. Trade relations with foreign countries are very limited or non-existent.
5. The country has little in the way of credit rating, and as a result has high inflation (possibly even hyperinflation).
6. Unemployment is high, wages are very low, and the standard of living is similar to the Great Depression.
7. The country is incapable of producing enough to sustain its own people (i.e. GDP is very low).

Romania from about 1985 to 1995 met all 7 of these criteria. Though I was only a child then, I still remember it quite well. After 1995, #4-7 improved considerably, but #1-3 still continue unchanged.

Back to the US - how many of the criteria are met right now? Let's see...

#1 - No. A secretive elite controls America's means of production. Better than a militia...I guess.
#2 - Yes & no. At the high level, it's called lobbying. It's not happening yet at the low level.
#3 - Yes. This is absolutely the case with 99% of US corporations. They lobby the government, and the government does what they want.
#4 - No.
#5 - No.
#6 - No.
#7 - Yes. If you take social security for instance, that is unsustainable. Also, all of America's manufacturing has been exported, and agriculture is being done by a handful of multinational corporations.

So America meets 2.5 out of 7 criteria right now. But where is America heading? What will it look like in 2012? Let's look at current events, because as Gerald Celente says, current events form future trends...

#1 - Squatters are busy taking over abandoned properties these days. If you think you can defend your property with a gun, think again. Squatter "tribes" are large - maybe as many as 100. Bigger than gangs. Think your guns can help you now?

There is increasing factionalization (development of tribal factions) in America. Some are united by ethnicity, others are united by political beliefs. These factions are growing in size and power. The vacuum of power left by the bankrupt US government will be filled in by these factions. There is one thing in common among all these factions: disenfranchisement by the US government.

#2 - When police officers have virtually no food on the table because their government paycheque has either disappeared or shrunk because of inflation, they will gladly accept bribes. A little disenfranchisement will also help. Many will feel disenfranchised when their government paycheque has become a cruel joke. If that doesn't do it, increased taxes will. Not to mention the fact that the government will be perceived as powerless and incompetent after its collapse. Most police officers will become sympathizers of the "people" (the disgruntled masses) as long as they receive some decent bribes.

#5 - When China realizes it's been royally screwed, after the default of the US on all of its dollar-denominated debt, they will no longer lend to the US so willingly. Or perhaps all it takes for China to dump its dollars is for the US to be downgraded from AAA credit rating. The day that happens, the US dollar will begin to resemble the Zimbabwe dollar pretty quickly.

The US is not AAA no matter how you put it. Even if you believe they have 8,500 tons of gold at Fort Knox, that's only worth about $250 billion. The total amount of US dollar-denominated credit outstanding is about $36 trillion. So the gold at Fort Knox doesn't even cover 1% of that. Gold would have to go to $13,000/oz just to back 10% of the US dollars sloshing around out there. And that's if you believe the whole Fort Knox business.

#4 - See #5. Basically, with no more credit, the US will be forced to withdraw from all of its global outposts purely for financial reasons. Since they are heavily reliant on imports, a loss of credit rating would immediately result in shortages of the most basic goods out there, including gasoline and food.

#6 - Unemployment in the US will go above 10% and likely even above 15%. After inflation, a salary of $30,000 a year will look similar to what a Chinese worker makes today. Without basic goods such as gasoline (see #4), the average American will be plunged into - literally - a "dark age".

So now you see that it is possible for the US to fall into third world country status. Out of all the criteria, I have to admit that #2 (street corruption) seems the LEAST likely to happen. I just don't see your typical God-fearing American bribing a police officer. But I could be wrong. Actually - let's hope I'm 100% wrong and none of these doom & gloom predictions ever happen.

Based on historical data, I make these predictions:

1. The Dow will bottom at 2400.
2. Gold will reach a major top at 2600.
   ...but it could fall to 600. If it does, consider that the buying opportunity of a lifetime.
   
3. Housing will bottom at 140,000.
4. Commodities have bottomed.
   This includes oil, gasoline, copper, silver, palladium, platinum, cotton, lumber, sugar, etc.
   Buy commodities now or you'll regret it for the rest of your life.
   
5. Real wages have bottomed.
   ...but they may not rise for another 3 years.
   After that, protectionist government policies will cause real wages to skyrocket.
6. Interest rates have bottomed.
   There's no way we can go below 0%.
   Here's an idea: buy commodities with borrowed money (if you can get a loan at all).
   
7. Deflation is at its peak. Inflation will follow.
   We've deflated 10% in 6 months. In the worst year of the Great Depression, deflation was 8%.
8. Unemployment in the US will peak at 25%.
   Official government figures may peak at 10-15%, but in reality, 1 in 4 people will not have a job.
9. This recession will last until May/June, 2011, which is about 3 months longer than the first phase of the Great Depression.
10. The world will NOT end in 2012. There are no end-of-world events in the historical record.

The Federal Reserve is printing rapidly. Right now. Right at this moment. It's just not being reflected in bond prices. Here's why:

Ever wondered how the Federal Reserve has been able to keep interest rates so low? What have they been doing, behind the scenes, in order to prop up US treasury bonds? Why is it that now, when the US's financial future looks so shaky, 30-year treasuries yield less than 3%? Are investors really THAT stupid?

The answer is simple: The Fed is printing. Fast. Ultra-fast. Super-duper-fast. Constantly. Right now. ...and now.

Here's how it works.

The US government issues bonds which it sells to any investors willing to buy them. An investor swaps his/her cash (money) for the bond (i.e. buys the bond) and can then hold it and sell it at any point in the future.

The bond market is then the place where investors buy and sell bonds. Every bond has a price, as well as a coupon (a fixed interest rate). The yield (or interest rate) of a bond is the ratio of the coupon to the price. When most people refer to interest rates on bonds, they refer to yields.

The interest rate of a bond is inversely proportional to the price of the bond. For instance, if a bond costs $100 now and yields 3%, and it drops to $80 tomorrow, the yield goes up automatically to 3.75%. Therefore, you can refer to a bond simply by its yield or by its price (using both is somewhat redundant).

Suppose investors start to lose interest in US bonds, because they don't believe the 30-year inflation rate will be under 3%. Let's do a survey. Do YOU believe the average inflation rate for the next 30 years will be under 3%? Thought so.

Just to give you some historical background - for the last 30 years, the inflation rate averaged 7% per year. Yes you read that right. 7% per year.

So let's suppose 80% of investors want nothing to do with US treasury bonds. Thus, 80% of the US bond market drops out. This means bond prices might collapse to $20 from $100. That would force the yields (which are currently under 3% but let's assume 3%) from the current 3% up to 15%! What does this mean?

An interesting thing about bonds is that they directly affect the interest rate set by the Federal Reserve. That is, the Fed can't just arbitrarily set rates with no connection to the bond market. It always bases its benchmark rate on the current yields in the bond market.

So what happens if the bond market collapses like I described earlier? Well, the Fed would be forced to raise interest rates to around 12%. Nobody wants that right now. Entire companies would collapse (not that enough haven't collapsed already).

So wait a minute - how can the Fed control interest rates if it's constantly getting pushed around by the bond market? They devised a clever trick:

The Fed can issue currency (i.e. print money) with which it can buy bonds. Note that this is fictitious money - it has NO backing whatsoever. In the event of a bond market collapse, the Fed can act as a gigantic investor with a blank cheque that has an unquenchable thirst for bonds, sucking in bonds and thus raising bond prices.

The Fed can also take in money and sell bonds to investors. It would do that if it wants to raise interest rates. It did that between 2005 and 2007, causing the current "deflation" crisis.

So what is a bond collapse, and when does it happen? Whenever investors lose confidence that bonds will at least keep up with inflation. That is, when the real (adjusted for inflation) interest rates on long-term bonds become negative, investors lose confidence in bonds.

Therefore, it follows that during a bond collapse the Fed must constantly keep printing money to keep bond prices stable. It doesn't suffice for the Fed to just print a giant sum once and then stop. Whenever the interest rate of the Fed is under the rate of inflation, the Fed must constantly (24/7) run the printing presses at a rapid pace just to keep bond prices from falling.

So what does it all mean to you? Simple: If interest rates at the Fed are under the rate of long-term inflation (i.e. 7%), save your money in gold instead of cash or bonds. You'll be very glad you did. Oh, and expect BIG inflation.

Remember this post I made on August 8, 2008?

In that post I called for $640 gold, $1100 platinum, $11 silver, $200 palladium, and Canadian dollar at 84 cents. I also predicted that the US would pull out of Iraq, and predicted that oil would slide to $55 a barrel. My prediction was that all of these things would happen before the US elections.

Let's look at just how remarkably right my predictions were.

When I made that post, prices were as follows:
Crude oil: $120/barrel
Gold: $870/oz
Silver: $16/oz
Platinum: $1550/oz
Palladium: $350/oz
Canadian dollar: 94 cents US

Today's lows?
Crude oil: $62/barrel (Prediction: $55)
Gold: $680/oz (Prediction: $640)
Silver: $8.60/oz (Prediction: $11)
Platinum: $760/oz (Prediction: $1100)
Palladium: $165/oz (Prediction: $200)
Canadian dollar: 79 cents US

Clearly some of the prices overshot to the downside but that's to be expected in any bear market.

So what about my prediction that the US would pull out of Iraq in October? Well, let's see...

US to pull out of Iraq within a timeframe of 18 months (Obama) to 48 months (McCain).

US forces to withdraw from Iraqi territory no later than Dec. 31, 2011.

I strongly encourage you to read both those articles so you can see for yourself that this Iraq timeline is a very important (and recent) development, and it applies to both Obama and McCain.

Stay tuned for the bitter-sweet celebration of the fulfillment of my final prediction: McCain becomes President.

It's official: The Council on Foreign Relations now calls the US dollar a "historical anomaly," a "piece of paper of no intrinsic merit."

Check it out - straight from the horse's mouth.

What is the Globo?

By now, you should have heard about the Euro, as it is Europe's currency. If you look hard enough you can also find something about the Amero - a proposed currency for North America. But the Globo?

The globo is the global currency to be imposed by Russia, Saudi Arabia, Brazil, Japan, China, the EU, Canada, Australia, and possibly the UK, in a joint effort to detach themselves from the US dollar.

Why do all countries want to detach themselves from the US dollar? Are they even attached to the US dollar to begin with?

Unless you've been living under a rock, you should know about the Bretton Woods agreement signed after World War II that gave the then-gold-backed US dollar reserve currency status for the entire world. The dollar then was said to be "as good as gold," and was in fact 100% backed by gold. $35 was an ounce of gold - literally.

In 1971, after a decade of deficit spending on the Vietnam War, Apollo, and Great Society programs, the US had to end the Bretton Woods agreement. The US-gold link had come under pressure from France and the UK which were buying up gold like mad and dumping US dollars, knowing that dollars were intrinsically worth less than gold. Thus, Richard Nixon was forced to terminate the Bretton Woods agreement on August 15, 1971. What followed was a decade of inflation known as the "stagflation" era, after the dollar essentially became a worthless piece of paper.

However, in the early 1980s, after the middle east was driven into bankruptcy, a new deal was established with the Arab nations (except for Iraq and Iran), whereby those countries would sell their oil in exchange for US dollars, which they would then keep in gigantic savings accounts - called "reserves" - for ever & ever & ever (because if they ever spent those dollars, the US would experience hyperinflation and the US empire would come to an abrupt end).

During the Reagan, Bush, and Clinton years, a new kind of American imperialism flourished, where the US struck deals with increasingly more countries for those countries to purchase enormous amounts of US dollars (like the Arabs did) to finance a growing US debt. Japan is now the world's foremost holder of US dollars. China also holds a lot of dollars. Keep in mind that the dollar is nothing but worthless paper. Worse still, all the countries holding US dollars must be forced (coerced) NOT to sell those dollars because if they ever did, the US would suffer a Zimbabwe-like hyperinflation.

Today, virtually every country in the world holds large quantities of US dollars in reserve. The US dollar is a price-fixed currency. The US treasury (or more accurately the Federal Reserve) sets the price of the dollar. The dollar has no purchasing power, because it's a worthless piece of paper. However, the Fed gives it the illusion of value by DECREEING what its value is. It does so by simply readjusting the number of dollars in circulation. The dollar is a FIAT currency (FIAT implies "by government decree").

Whenever the value of the dollar is driven upwards (by the Fed selling treasury bonds), all other countries suffer because their own currencies inflate relative to the dollar. Thus, it becomes harder for those countries to purchase things (like oil) on the market, because those things are sold in US dollars. However, if the dollar is driven downwards (if the Fed buys treasury bonds), the US dollar reserves of the other countries now become less valuable. Furthermore, the rapid appreciation in the domestic currencies of the other countries causes problems for exporters. So you can see why the more volatility there is in the dollar, the harder it is for other countries to maintain stable economies.

For countries other than the US, the US dollar as a reserve currency is extremely detrimental. The current system of US dollar hegemony (where the dollar is used as the de-facto global currency) is an offshoot of American imperialism and is a way for the US to control world markets.

The problem we are faced with today is an impending devaluation of global currencies (other than the dollar). The Canadian dollar has been devalued enormously this week. The Australian dollar has been totally decimated. Every currency other than the US dollar has been falling. The Japanese Yen thankfully was spared, but if the US has its way, all other currencies will be devalued massively. Why? Because the US must inflate away its debt. In order to do that, it has to print more dollars. It can only do that while maintaining stable prices (otherwise inflation will result). The ONLY way to do that is by devaluing the currencies of ALL OTHER COUNTRIES.

So China, Japan, Russia, and other economically-strong countries are now deciding (behind closed doors) that in order to maintain some kind of economic stability, they must - ASAP - decouple their currencies from the US dollar. The only way to do that is by making some other currency the global reserve currency, and therefore forcing the US dollar to be valued against that currency. And that currency is the Globo.

So as not to repeat the mistakes of the past, the countries proposing the Globo have decided that it will be backed 100% by gold. In other words, the Globo is gold. Therefore, gold will be the new global currency. One ounce of gold will be worth exactly G2461. (G=Globo)

The common wisdom of Warren Buffett, Benjamin Graham, and other great investment mentors has always been that you should pick an asset that you believe is undervalued, and go long (purchase and hold that asset) for many years as its value increases exponentially. However, since the introduction of short selling, this age-old wisdom could not be more wrong.

In today's market, it is far more advantageous to be short for the long term, than to be long. The reason is simple: when you are long, you are paying a price for holding an asset that may or may not appreciate in value. Every day that you hold that asset, you are missing out on the interest that you would otherwise earn if you had not purchased that asset and instead kept your money in a savings account. However, when you are short, you don't have to pay that price. You borrow the asset at a specific lease rate. If the lease rate is less than the interest rate that you would earn in a savings account, then you are actually being paid for being short.

Nowadays, it is very hard to find an asset that grows by more than the interest rate in most savings accounts. It is (and has always been) very risky. However, it is very easy to find a bank that will lend you a particular asset (e.g. gold) at a near-zero lease rate. You then sell that gold immediately, pocket the money, and put it in a savings account where the growth rate is guaranteed. If gold goes down, you cover your short and make extra profits. If gold goes up, you simply double your short position. As long as the rate of return in gold does not exceed the rate of return of the savings account with virtually no volatility, you can always eventually cover your short position for a profit or simply use the interest to gradually cover your short.

Longs are getting killed, especially in the precious metals, precisely because shorts are always fundamentally favored. Lease rates on gold and silver are almost always zero or negative. Negative lease rates mean that you actually get paid for borrowing gold!

In recent news, the SEC banned short sales on all stocks. Too many ordinary people had caught on that short selling big financial firms could be extremely profitable. However, despite the short ban, the Dow plunged 7% today. Yet, the SEC remains silent on the shorting of commodities. If you cannot see the political agenda here, you are blind.

Bottom line - as long as short selling commodities is fundamentally favored by the banks (through low or negative lease rates), it is far more profitable to be short than long. Last month, three banks shorted one tenth of the yearly supply of gold (that's 250 tons), causing a devastating plunge in the gold price - all the way from $990 to $745 with no rebound. The shorts made it out with a 33% profit, even though they never sold any physical gold. The longs got destroyed. This is the sad reality of the "free market" casino. If you want to make money, you better be short, because long just doesn't pay.

Guess what, American taxpayers just got SCREWED OVER by their OWN government! The government just used their OWN money to erase the debts of PRIVATE COMPANIES.

If you're an American, now would be a good time to yell, "I'm as MAD as HELL, and I'm not going to take it anymore!"

Here's a video from Don Harrold that should get you fired up:




This is the greatest example of government tyranny since the days of Nazi Germany. Everyone should be up in arms. But the ignorant debt-slave sheeple are just happy that they still have their low-paying jobs at Walmart or McDonald's and their infinite lines of credit, while owning NOTHING.
 
Way to go America, land of the FREE, home of the BRAVE.

What is "indeflation"?

It's inflation and deflation, at the same time. And it's what's happening right now in the financial markets.

Let me explain to you how it works. As you may already know, inflation is a loss of purchasing power. Deflation is the opposite of that. So how can both be happening at the same time? Isn't that a paradox?

Right now, vast amounts of money are being wiped out as the Greenspan derivatives bubble finally implodes. There is no doubt that money is disappearing from the system at an alarming rate. As a result, prices are collapsing in just about every asset class, including commodities, and the dollar index has rallied from 70 to 80 in just a few weeks.

Yet, there is inflation going on as we speak. The dollar is losing its purchasing power. Just look at gasoline prices at the pump. Even though gasoline futures are now under $2.50/gallon (!), gas prices at the pump are unchanged! Check out the price of bullion on eBay. Just try to obtain any gold or silver at current spot prices. You will be faced with severe shortages. Bullion dealers are even offering to buy back bullion at a premium to the spot price!

Even though most asset prices are about the same as (or lower than) what they were in 2007, and even though the money supply has not grown at all, the dollar has lost purchasing power because you cannot obtain the same quantities of REAL STUFF that you once were able to obtain. The limitation is imposed by supply shortages, rather than price. The US dollar fantasy has finally slammed against the hard concrete wall of reality.

The cold reality is that the liquidity of the dollar has evaporated. The dollar is no longer liquid. Nobody wants dollars, even though the supply of dollars is dwindling. Basically, demand for dollars has dried up faster than supply. Demand for REAL things, on the other hand, is stronger than ever.

Remember how everyone was saying in 2007 that the global financial system was suffering a liquidity crisis? Well, now the US dollar is suffering a liquidity crisis. Soon, every currency in the world (since they are all backed by the dollar) will also become illiquid.

Check out the LIBOR rates this week. They were as high as 6%. The money markets are coming apart at the seams. All of this is indicative of a liquidity crisis in fiat currencies themselves. All signs are pointing toward indeflation. The REAL purchasing power of the dollar (and other fiat currencies) is going down at the same time as prices are falling and the US dollar index is rising.

A most dire thought ran through my mind... What if the US dollar has bottomed? What will happen between now and the US presidential elections?

Long-term trends in commodity prices would surely be broken if the US dollar staged any sort of rally. Already, the long-term bullish trends in palladium and oil have been broken (trends going back at least two years). Where will commodity prices be four months from now?

I have some rather shocking predictions which I hope will NOT come true, because if they do, the US will be going right back to its terminal oil addiction, and the world will not make the progress towards renewable energy that it needs to make.

I predict that by December, 2008, prices will be as follows (again, I HOPE this doesn't happen):

$55 a barrel oil

This has been predicted a while ago by Lindsey Williams, who has stated that the oil cartel will open up two gigantic oil fields: one in Indonesia and one in northern Russia. They will both be foreign, so America will continue to import its oil, when there is still plentiful oil under US soil sitting untapped.

$640 an ounce gold

We're going right back to mid-2007 levels. If you're invested in commodities, hold on to your gold because it will be the one commodity that will decline least. Gold is far less volatile than the other commodities, so you won't lose much if this scenario unfolds.

Canadian dollar at 84 cents US

This one seems almost incredible, but it will happen. The Canadian dollar is heading down, fast. Why? As commodity prices collapse, so will the Canadian dollar. Already it has broken down below a key level of support and it's now sitting at just 94 cents US! The resulting inflation, combined with extremely low oil prices, will push the Canadian economy over the edge into a recession. The only positive is that manufacturing would slowly return to Ontario thanks to the weaker dollar. Also, the lower Canadian dollar will cause Canadian commodity prices to decline less than in the US.

Collapsing commodities --
$11 an ounce silver
$1100 an ounce platinum
$200 an ounce palladium

Palladium will retreat to levels not seen since 2003. I have a feeling Russia has way more palladium than it's telling the world. Remember that palladium has only been mined for 200 years. Therefore, the total world reserves are still very uncertain. Also, palladium has virtually zero industrial applications. Plus, with cheaper platinum, the use of palladium as a cheap alternative to platinum in catalytic converters would decline substantially. Silver is also vulnerable because it's not gold. It's not held by central banks. The decline in all of these metals will be greater than the decline in gold. The prices I'm predicting are the absolute worst-case scenario bottom prices. So you might actually want to hold on to silver and platinum because the decline will be fairly small from where we are now.

And the October surprise will be...

The October surprise that will seal McCain's victory in November is this... are you ready for this?

Victory in Iraq

Yep! There. I said it. In October of 2008, the Iraq war will come to an end. Troops will be redeployed to Afghanistan temporarily while war plans are drawn up for a war with Iran, right after McCain's landslide victory.

You may wonder what sort of psychedelic drug I took to give me this level of clairvoyance. I'll tell you in November, right after all of my predictions are fulfilled :)

Arguably the most important skill of any investor is the ability to predict the future. Why is this an important skill? Because investing is like placing a bet on a particular future outcome. If that outcome occurs, you can win many times your original investment. Take for instance Microsoft. If you could somehow have predicted in 1986 that Microsoft would take over the computing world, and placed money on that prediction by buying 1000 shares of Microsoft's stock, at 10 cents a share, you would now have $27,390 worth of Microsoft stock, from an initial investment of just $100. Predicting the future is clearly a lucrative skill.

Now, what if the primary goal for your investment strategy was less ambitious? Let's face it, Microsoft was just one tiny stock out of thousands. The chances of losing all your money were very high; over 95%; virtually certain. Not everyone has that kind of appetite for risk. Suppose you have $10,000 and want to primarily, above all, preserve its purchasing power for 50 years. How would you invest that money so as to minimize risk? How would you ride the waves of inflation and deflation safely into the future? Before we look at investment strategies, let's first look at what exactly happens to each asset class during inflation and deflation.

But before we can even do that, we need to define what it is we're talking about:

Inflation: When the value of money falls. As a result, prices generally rise.
Deflation: When the value of money rises. As a result, prices generally fall.
Steady State: When the value of money remains the same for a period of time.
Purchasing Power: The quantity of goods & services that can be purchased with a particular good or service

The Value of Money

Notice that in my definitions of both inflation and deflation I mentioned the value of money. What exactly is the value of money? How is it measured? It really depends whom you ask. But one definition which I believe to be the most correct is this: the value of money is the quantity of goods & services that one unit of money can purchase.

The CPI (Consumer Price Index) measures the price of a basket of goods & services. If you invert the CPI (take 100 and divide it by the CPI), you get the value of money. Thus, the value of money = 100/CPI. Why is this so? Recall that the value of money is the quantity of goods & services per unit of money. The CPI is the number of units of money (price) per (fixed) quantity of goods & services. Therefore, 100/CPI is the (fixed) quantity of goods & services per unit of money. That is none other than the value of money.

Note how we defined purchasing power. The value of money is exactly the same thing as the purchasing power of money. Keep this in mind for later on.

Asset Classes

Three asset classes are considered for this discussion. They are:

• Resources (Commodities)
  
• Obligations (Money, Bonds)
• Capital (Stocks, Real Estate)
  

Each asset class behaves differently during inflation and deflation, so let's take a look at each of these.

Resources

Resources are your typical commodities and hard assets. They are the physical products of an economy. They are no one's liability. Gold and silver, though considered monetary, are included in this category because they are not debt-based.

Whether it's inflation or deflation, resources (a.k.a. hard assets) are guaranteed to preserve their purchasing power. They are only subject to the laws of supply & demand. The value of money theoretically has no effect on the purchasing power of these assets, because purchasing power itself is measured in terms of hard assets. It is impossible for hard assets to lose or gain purchasing power, except through fundamental changes in supply and demand. Hard assets are a hedge against both inflation and deflation, in that they never lose purchasing power.

Many argue that deflationary periods cause hard assets to lose purchasing power. They argue that hard assets are only a hedge against inflation, not deflation. That is not the case. If milk goes down from $5 a gallon to $4 a gallon and you purchased 2 gallons of milk at $5 a gallon as an investment, rest assured that you'll still be able to exchange your 2 gallons of milk for 2 gallons of milk at any time. Now, suppose gasoline cost $2.50 a gallon prior to the deflation and $2.00 a gallon after the deflation. Before the deflation, your 2 gal of milk could buy 4 gal of gas. Guess what? After the deflation, your 2 gal of milk can still buy 4 gal of gas! As long as the supply-demand fundamentals remain the same for both items, the ratio between milk and gas prices will remain the same whether there's an inflation or a deflation.

In a steady state, something interesting happens. Resources fall in price, because production is increased. However, once again resources preserve their purchasing power, by definition.

Obligations

Obligations are of a different nature than resources. They are somebody's liability. Governments, corporations, and even individuals can finance themselves by issuing bonds. Money is also in this category because all money is created from debt.

In an inflationary period, stay away from obligations that pay less than the inflation rate in interest. Why? Suppose you hold a bond that pays 5% interest and the inflation rate is 7%. You're guaranteed to lose 2%. Worse still, the bond will have to collapse in price so that the interest rate can rise above the inflation rate. The same goes for money. In an inflationary period, money is by definition losing purchasing power.

In a deflationary period, however, money is the place to be. Debt is hoarded, especially if it pays an interest rate, no matter how small. Suppose the inflation rate is -1%. Now, suppose you hold a bond that yields 3%. In reality, you gain 4% in purchasing power. Plus, the bond will also have to appreciate in price so that the yield can fall to about 0% because it is too high above the inflation rate. Either way you win.

In the steady state, obligations generally gain in purchasing power, because interest rates always tend to be higher than the rate of inflation. For example, inflation might be 3% and interest rates might be 6%. In that case, you would be gaining 3% in purchasing power.

Capital

So what is capital? Anything that helps produce income. Stocks and real-estate are very similar to hard assets, but they are actually capital, because they help produce the goods in an economy. Also, both of these assets produce income. Stocks produce income through dividends or if the company's market cap expands. Real-estate produces income through rent. Real estate is very closely tied to stocks. If stocks do poorly, so does real estate, because as companies lose income, stocks fall, people lose jobs, and there is less money available for buying real estate.

Whether it's inflation or deflation, capital will lose purchasing power. In an inflationary period, income from stocks is weakened because input costs rise. The higher input costs are initially swallowed and not passed on to the consumer. The result is shrinking balance sheets. Real estate also suffers because people lose jobs, so there is less money for buying houses. In a deflation, it is a similar story. Deflation means that people prefer to save money rather than spend it. As a result, company balance sheets shrink (this time sales shrink, rather than input costs rising). The result is people lose jobs, less money for real estate, etc.

So what is a good time for capital? When neither inflation nor deflation are occurring. In other words, when the economy is in its normal steady state, capital tends to do very well.

Conclusion

So let's conclude by summarizing what the best investments are for each of three possibilities:

• Inflation
  100% Resources
  
  
• Deflation
  80% Obligations
  20% Resources
  
  
• Steady State
  50% Capital
  30% Obligations
  20% Resources
  

I used the 80-20 rule for things that gain in purchasing power versus things that only preserve purchasing power. Now let's suppose that over the next 50 years, there's a 60% chance of steady state, a 25% chance of inflation, and a 15% chance of deflation. What should your portfolio look like?

Final Portfolio

30% Capital
30% Obligations
40% Resources

Real-World Example (Canada)

30% S&P/TSX 60 Index (XIU)
30% DEX Bond Index (XBB)
40% Central Fund of Canada (CEF.A)

Real-World Example (US)

30% Vanguard Total Stock Market ETF (VTI)
30% 20+ Year Treasury Bonds (TLT)
40% PowerShares DB Commodity Tracking Fund (DBC)

I found two articles that confirm my view that the US is currently insolvent...

The United States is Insolvent (by Dr. Chris Martenson)

Is the United States Bankrupt? (Google cached version)

Sign of a Speculative Bubble?

It is very possible that the recent rise in oil prices (after Hurricane Katrina) be due entirely to speculation. In fact, it is very possible that oil is in a gigantic bubble right now, just about to burst.

To understand why, let's go back to 1998 and check out what prices were like back then...

Oil: $16/bbl
Gasoline: $1.10/gallon

Now return to the present (2008) and check out what the prices are...

Oil: $135/bbl
Gasoline: $4.11/gallon

Something looks odd...

Did you catch it?

Oil went up 744%. Gasoline went up only 274%.

Since gasoline is produced directly from oil, this doesn't add up. Either gasoline would be $9/gallon today or oil would be $60/bbl. The oil-gas ratio was about 15 in 1998. Today, it's 33.

In other words, gasoline today is ridiculously cheap given the rise in the oil price. None of the oil price has filtered through to the cost of gasoline. The oil price is inflated 120% over "normal" levels. Oil would need to return to a price of $61/bbl to be "in line" with the price of gas at the pump.

Historical Perspective

Let's see how this ratio has varied over the ages (all-time highs are in bold type)...

1973 - 18
1978 - 23
1979 - 41
1980 - 28
1983 - 25
1988 - 19
1990 - 24
1993 - 17
1998 - 15
2000 - 19
2003 - 18
2004 - 27
2005 - 30
2006 - 26
2007 - 30
2008 - 33

The only time when the ratio was higher than it is today was in 1979! And we all know what happened that year. That year the 1970s oil bubble peaked. Huge inventories were suddenly "discovered" in 1980 and released onto the market.

Conclusion

The numbers confirm my hypothesis that this is a speculative bubble, which has been in force since 2005 and really picked up steam in late 2007. This oil-gas ratio of 33 cannot be sustained for much longer. Either gasoline will have to go up in price substantially (i.e. up to $8 or $9 a gallon!) or oil is set for a spectacular crash (from $130 down to $65 a barrel!). If I were an investor right now, I'd go long gasoline. It is ridiculously cheap right now.

The emperor has no clothes! The emperor has no clothes!

The collapse of Freddie & Fannie is the admission of the insolvency of two companies together holding about $5 trillion...
$5 TRILLION
in mortgages.

$5 trillion amounts to about 35% of US GDP, and about 50% of the US public debt!

We're talking about 35% of the entire US possibly being insolvent!

Here's a revealing video of what could happen now...

We are about to enter the last inning of the biggest financial unwinding in the US since 1979. There must be a reason why the gold price surged this week to almost $990 per ounce, during a time of extreme seasonal weakness.

Here's some data that will shock you:

• IndyMac which failed last week was 3 times bigger than all the bank failures since 2000 combined!
  IndyMac had $32 billion in total assets.
• The bond market is finally turning south. We are talking US treasuries here. These have been in a bubble since late 2007.
• A collapse of US treasuries would force the Fed to raise interest rates. Watch out! The Fed may raise interest rates early, and fast! Rising interest rates are the final step in this paper-bearish gold-bullish cycle.
• Oil fell the most in 17 years today.

I urge everyone to read this article: "What if gold gave a party and everyone came?"

What is transpiring here is nothing short of a perfect storm for gold. There are no other assets to be long right now. Oil is weakening. Housing has lost favor. The dollar is certainly not bullish. All US stock indices are falling precipitously. And now the last safe haven, treasury bonds, is overbought and crashing.

Next steps:

• Fed will raise interest rates surprisingly high, surprisingly fast. They will be forced to.
• More US banks will fail. Main Street banks where your average American holds money.
• The words "depression" and "hyperinflation" will come to be used to describe the US financial situation.

Sit back and relax because the show has just begun!

In this segment, I give you my view of where certain stocks/indexes/commodities will go during the next week, based on my own research into technical trends. I also look at my previous week's calls to see what I got right and what I got wrong.

Let's begin...

But first, last week's score: 4.5 / 6 (okay)

1. US Dollar Index

Last Week's Prediction: LONG (Stop 72)... HALF RIGHT (got the stop right)

Right now, the US dollar is at 71.89. This is lower than last week but it's not an all-time low. For next week, a short rally is to be expected followed by more downside. I'd jump in short on the next rally.

My call: SHORT
Stop: 72.70

2. Dow Jones Industrial Average

Last Week's Prediction: SHORT (Stop 11,450)... RIGHT

The Dow took its embedded stochastic and fell some more. It's sitting at 11,100 now. If you went short on 11,290 you'd be about 1.7% up. Continue to be short but take 50% off the table. Move your stop in to 11,240. Enjoy.

My call: SHORT
Stop: 11,240

3. Gold

Last Week's Prediction: LONG (Stop $925)... HALF RIGHT

OK I'll admit it - I was wrong about my stop. Gold fell to $918 this week then rallied all the way to $970! If you held in there, good for you. Otherwise, you just missed a gigantic move to the upside. I'd continue long but narrow my stop over to $945. Don't put too much money on the table now because resistance at 1000 is a sure thing.

My call: LONG
Stop: $945

4. Silver

Last Week's Prediction: LONG (Stop $17.70)... RIGHT

Unlike gold, I got silver spot on! (Pun intended). The pullback happened exactly as I described and if you hung in there with your long position you'd be up about 3.8%!! Booya! What's next? A slight pullback to $18.20 then the moon! $21 is the next stop to the moon so put your stop at $18.20 and continue long and enjoy the ride.

My call: LONG
Stop: $18.20

5. Crude Oil

Last Week's Prediction: LONG (Stop $140)... HALF RIGHT

Oil plunged to $137 this week then recovered to above $142. Not bad but not good either. If you were stopped out great. Now's the time to load up again. Keep trying that $140 stop with your long position. Something's bound to happen.

My call: LONG
Stop: $140

6. Pick of the Week - Platinum

I think platinum is going to make a move next week. Usually platinum leads gold and silver in rallying but this time it was the other way around. In fact, platinum has been sitting idle for months now. Resistance at $2100 is futile. Go long, put a stop at $1950 and enjoy.

My call: LONG
Stop: $1950

Last Week's Pick:

Remember last week I picked NVIDIA. I told you to go long after the stock had crashed 30%! I told you to put your stop at $10 (to allow for a bit more downside). Now, generally stocks like NVIDIA are for the long-haul so what happens in a week is pretty meaningless. However, this week NVIDIA didn't fall much. It fell to $11.67 a share. I was DEAD ON ACCURATE!

In this segment, I give you my view of where certain stocks/indexes/commodities will go during the next week, based on my own research into technical trends. I also look at my previous week's calls to see what I got right and what I got wrong.

Let's begin...

But first, last week's score: 5 / 6 (excellent)

1. US Dollar Index

Last Week's Prediction: STAY AWAY... RIGHT

Right now, the US dollar is at 72.72. This is less than 0.5% higher than last week. There was no major change, so my call to stay away was right. Now, for next week, you should expect a rally in the dollar, to over 73 and maybe even over 74. Place your stop on 72.00 and enjoy.

My call: LONG
Stop: 72.00

2. Dow Jones Industrial Average

Last Week's Prediction: SHORT (Stop 11,700)... RIGHT

The Dow took its embedded stochastic and fell, but not by much. It's sitting at 11,290 now. If you went short on 11,350 you'd be about 0.54% up. Continue to be short. Move your stop in to 11,450. Enjoy.

My call: SHORT
Stop: 11,450

3. Gold

Last Week's Prediction: SHORT (Stop $930)... RIGHT

Last week I called gold SHORT. Well, gold called my bluff by crashing (up) through $930. If you placed your stop on $930 you would not have lost anything. The spike up to $950 was nothing, so you couldn't have gone long either. But now, gold's stochastics are starting to embed (on the BUY side). Gold is at $934 now. Go long with $925 as your stop.

My call: LONG
Stop: $925

4. Silver

Last Week's Prediction: SIT TIGHT... WRONG

If you followed my prediction and stayed out of the silver market, you would've not lost any money, but you would've stayed out of a very nice rally. My predicted pullback to $16.80 never materialized.

Silver now is sitting at $18.15. I could not be more bullish on silver right now. We may see a pullback to $17.70 but there's the very high chance that silver will challenge $19 next week and maybe even make it up to $20.

My call: LONG
Stop: $17.70

5. Crude Oil

Last Week's Prediction: LONG (Stop $140)... RIGHT

Oil struggled this week. Although it hit $146 at one point, it's back down to $144. If you went long last week you would've made about 2% on your investment. What should you do now? I'm waiting for a pullback to $140, but then we should see crude challenge the $150 area. However, if we fail to hold $140 next week, all my money will be on the short side at that point. In any case, reduce your long position.

My call: LONG (cautiously)
Stop: $140

6. Pick of the Week - NVIDIA

Everyone knows NVIDIA. They make excellent graphics cards. So why did they fall 31% today? Earnings forecasts weren't very good. However 31%? It seems like an over-reaction, and a great time to buy this amazing company at a discount.

My call: LONG
Stop: $10

Last Week's Pick:

Remember last week I picked the S&P/TSX Composite. I told you to go short. Well, I was RIGHT! It never touched 14,500 but it came close... my stop was DEAD ON accurate! Now it's down to 14,000 and you'd be foolish not to take a profit at this point. Hope you enjoyed the ride!

Last week, I did my first installment of my "Weekly Market Calls."
In this segment, I give you my view of where certain stocks/indexes/commodities will go during the next week, based on my own research into technical trends. I also look at my previous week's calls to see what I got right and what I got wrong.

Let's begin...

But first, last week's score: 2.5 / 6 (pathetic)

1. US Dollar Index

Last Week's Prediction: LONG (Stop 72.90)... HALF RIGHT

If you went long on 73.04 with stop on 72.90, you would have lost 0.19% (1.9% leveraged 10:1). Not a major loss, but I admit I got this one totally wrong. However, I did get the stop right.

Right now, the US dollar is at 72.37. This is not a bad time to cover your shorts (if you went short). Why? Because we are hitting the bottom of the Bollinger bands, so my prediction is the US dollar will rebound next week but it may fall further by the end of the week. There is too much uncertainty to go long though.

My call: STAY AWAY!

2. Dow Jones Industrial Average

Last Week's Prediction: LONG (Stop 11,800)... HALF RIGHT

Boy did I ever get this one epically wrong! However, with that tight stop in place you would've lost only 0.4%! I got the stop right, but I got the direction wrong.

The Dow took a beating late this week, or better said, it crashed like it was 1929. For the moment stochastics are getting embedded, which means SELL the next rally. This is a classic case of a downward spiral, and we may have a lot more downside room remaining. My feeling is we could see Dow 8,800 before we level off.

My call: SHORT
Stop: 11,700

3. Gold

Last Week's Prediction: LONG (Stop $890)... HALF RIGHT

Gold fell through $890 down to $880, so if you followed my stop you would've been stopped out. However, if you only followed my call, you would've been right (and up by 2.8%).

Gold is now extremely overbought. I'm looking for a (potentially sharp) pullback next week to perhaps as low as $876. I'd be willing to venture a short here with my stop on $930. If you went long, SELL SELL SELL...NOW (unless you can stand losing 5% next week).

My call: SHORT
Stop: $930

4. Silver

Last Week's Prediction: LONG (Stop $17.00)... HALF RIGHT

Well, this week silver fell well through my stop of $17.00, so on that part I was wrong. However, I was right about going long, because silver is up 1.8% on the week.

Next week, I see a pull-back to the $16.80 area, before the next rally. I certainly wouldn't go long at this point, nor would I go short. Just sit tight, and if you went long last week, reduce some of your position now.

My call: SIT TIGHT

5. Crude Oil

Last Week's Prediction: SHORT (Stop $140)... HALF RIGHT

Well, last week I told you crude was overbought and would probably break down. I was wrong on that part. Crude just burst through $140 today! However, my stop was DEAD ON ACCURATE.

Now that we've busted through the "psychological" $140 number, it's basically smooth sailing ahead (and up). This one is easy to call: Go long, set your stop at $140, and enjoy the ride!

My call: LONG
Stop: $140

6. Pick of the Week - S&P/TSX Composite

The Canadian version of the Dow has been doing quite well this year. However, has the tide turned? The chart looks ominously bearish. There's a triple top, followed by a break-down. However, for the medium term, we're looking at a potential rally back to the 50-day moving average at 14,500. So if you're going to go short, set your stop there. In any case, this is NOT a bull market.

My call: SHORT
Stop: 14,500

Last Week's Pick:

Remember last week I picked palladium. Well, as it turns out, palladium is down now but only by a bit. My call was wrong and my stop was wrong, so I got that one TOTALLY WRONG. Oh well...

Today, the Dow just crashed below the all-important 11,800 support level... and all hell broke loose. Here's a collection of MAINSTREAM articles that just came out showing the gravity of the situation:

CNN Money - "Buffett vs Bernanke: The Inflation Showdown"

New York Times - "Fuel Prices Shift Math for Life in Far Suburbs" (i.e. the end of suburbia!)

USA Today - "Hitting Home: New faces join ranks of the homeless"

The last one reminds me of a prophetic quote by Thomas Jefferson:

"If the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."

But on the plus side, gold is up today...by nearly 3%!

Remember how, before its collapse, Enron was driving up energy prices in California through unregulated futures trading?

Remember how traders at Enron cheered every time a transformer burned out or every time there were forest fires?

Well, try applying this idea to oil. How do you control the oil market? If you make a country politically unstable to shut off its oil supply, what happens to the oil price?

This is exactly what Iraq was about. It was NOT about gaining access to "highly valuable" oil supplies. It was NOT about finding those weapons of mass destruction. It was NOT about Iraqi freedom!

It was about DESTROYING oil supply in order to drive up oil prices!

Just like Enron, the cartel controlling oil which included Bush, Cheney, Haliburton, and the Carlyle Group, decided it was time to boost profits for their little share of the oil industry by creating events which would lead to a rise in oil prices.

Think about it: Bush & Cheney live off-grid, independent of oil. In fact, they're some of the "greenest" individuals in America! There's a good reason for this, and it has nothing to do with peak oil. It has everything to do with the fact that they knew that they would cause an oil price spike of gigantic proportions and they simply didn't want to be paying those high prices. I mean, what good is a rising investment if you then have to pay more for the things you need?

Right now, for example, the price of oil is significantly higher than all other commodities. It's out of sync. The gold-to-oil ratio which has traditionally stayed around 15, is now below 7! Oil is at a ridiculously high price even when priced in gold! That cannot be explained by inflation alone.

Even more puzzling is the fact that oil supplies have remained flat or declining since about 2003. Now, you could say peak oil has arrived, but I think far more likely is that supply has been deliberately kept at that level. Why? First of all, peak oil theory does not predict a flat line longer than about a year. The current flat-lining for 5+ years is HIGHLY atypical of peak oil. Second, look at Venezuela's internal oil prices. They are ridiculously low! This indicates Venezuela is not exporting as much oil as it could be. Look at China, which is subsidizing the cost of oil without a problem. There seems to be plenty of oil to go around, but somehow it does not reach the global market. The PRIME reason for the flat oil supply in the past 5 years is NOT peak oil! It is political instability! Iraq's oil supply has dropped significantly since the invasion. And Venezuela (since the arrival of Chavez) has had its supply fall off as well. By "supply" I mean the amount of oil reaching the global market. We have a situation which is much more like the oil shocks of the 1970s than a global peak in oil production.

So now, naturally, Bush & Cheney are talking about invading Iran. McCain is even singing about it! There's a good reason for this. Iran has a fairly large oil reserve that is coming to market rather undisturbed right now. If they could go in there and f**k things up (to use Cheney's language), oil would go through the roof!

So there you have it folks, a perfectly logical explanation for why oil prices are so high, and why America's increasingly getting bogged down in unnecessary wars. Much of America's military involvement in the world right now is related to cornering the oil market.

In the long run, though, this strategy will backfire for the oil industry. Why? Because when enough people stop consuming oil, the price will crash and the price will end up LOWER than where it started because demand has been destroyed. The massive stockpiles of oil will then be revealed and rapidly released into the market, driving prices even lower. So, they may be able to game the system for now, but sooner or later the system will be gaming THEM.

Aside: Have you noticed Alan Greenspan going to the Saudis telling them to de-peg their currency from the dollar? Why would he want to do that? Do you think he has ANY concern for the Saudis' financial well-being? I think he just wanted the Saudis to get into trouble with the US so that the Saudi oil supply would be disrupted, driving up oil prices even more. There seems to be a lot of sabotage going on if you look for it, where agents of the US government (like Alan Greenspan) are going around trying to deliberately get the US into trouble with other countries.

I'm starting a new segment on this blog known as the "Weekly Market Calls."
I'll be giving you my view of where certain stocks/indexes/commodities will go during the next week, based on my own research into technical trends. Every week (starting next week) I'll also be looking at my previous week's calls to see what I got right and what I got wrong.

Let's begin...

1. US Dollar Index

The US dollar is at a temporary low of 73.04 right now, just touching the 50-day moving average. I see the dollar moving higher next week, possibly taking out the 74 level decisively. This is on a purely technical basis. If you are short, definitely cover some of your position now.

My call: LONG
Stop: 72.90

2. Dow Jones Industrial Average

The Dow is at a very dangerous low right now of about 11,850. This may look bearish but my gut says this is a bear trap. The stochastics are dangerously oversold. I would NOT want to be a bear right now. I'm looking for the Dow to rally next week, but I'd be cautious about going long or short (short especially).

My call: LONG (with caution)
Stop: 11,800

3. Gold

Gold has rallied nicely and seems to be staying above $900. However, it is in a medium-term bear trend. In the stochastics, it is getting slightly overbought. I'm looking for a minor pull-back in gold next week but it's definitely nothing to trade on. There's a nice base of support at $890 so if you're bullish you might go long at this price.

My call: LONG
Stop: $890

4. Silver

Silver is making a turn-around toward bullish after being very oversold for several weeks and maintaining a solid bottom at about $16.50. I would be a bull right now simply because silver is sitting right on its key support (of several moving averages). Support is at $17.10. With respect to silver, I'm bullish as can be.

My call: LONG
Stop: $17.00

5. Crude Oil

Crude is overbought right now and it's making lower lows and lower highs. There is major psychological resistance at $140. This is not good and is an indicator of weakness. The stochastics have turned down and it could be that we'll finally see a major sell-off in crude next week. I would take my chances and go short crude next week. The downside target is a juicy $122. I'd put my stop right at the $140 resistance level and see how it goes.

My call: SHORT
Stop: $140

6. Pick of the Week - Palladium

Ah! My favourite precious metal! Palladium in case you haven't noticed is making higher highs. It has turned around after a major sell-off. It is however very high above all averages right now. Could it run higher? Sure. Could it pull back? Of course! I would definitely not be short right now (there's not much downside). So what else can I be but long?

My call: LONG
Stop: $420

A note about the Pick of the Week:

Every week I will choose one additional item to report about (different from the previous week). It'll be my way of keeping things interesting.

The era of cheap labour is ending. Here's how I came to that realization:

The average wage of Chinese workers in 2007 was around 25,000 yuan per year, according to this article. This was an increase of 19% over the previous year! Now, keep in mind the yuan is artificially pegged to the US dollar. China could at anytime choose to revalue its currency versus the US dollar. In fact, the RMB is rising right now, so the average wage increased by more than 19% in US dollars! Taking the USD-RMB exchange rate into account, the average wage in China actually increased about 27% in US dollars in 2007.

In India, the story is the same. In 2007 alone, the average wage of Indian workers rose by 14%! And if you look at the rupee, the exchange rate went from 44 INR to 1 USD in early 2007 to 39 INR to 1 USD in early 2008. In total, Indian wages rose 28.6% in US dollars in 2007!

What does it mean when wages in the traditionally-cheap countries are rising at about 28% per year in USD dollar terms? It means US companies will soon run out of places to exploit cheap labour. It means the average American will soon start paying more for manufactured goods but at the same time the average American worker will finally have some bargaining room in terms of wages. This all seems to point toward a nasty wage-price spiral coming soon in the US. Bernanke has repeatedly stated that US dollar devaluation will only cause the prices of imported goods to rise. Either he is an idiot, or he is deliberately lying, because I've just demonstrated how US dollar devaluation can cause US workers to receive higher wages, which in turn can fuel domestic inflation through the dreaded wage-price spiral. America, you have been warned.

M2 money supply in 1930s = $40 billion
Gold price in 1930s = $35/oz
Silver price in 1930s = $1.30/oz

M2 money supply today = $7.7 trillion
Expected Gold price today = $6,700/oz (7.5 times today's actual price!)
Expected Silver price today = $250/oz (15 times today's actual price!)

Conclusion:
As the legendary Mogambu Guru (Richard Daughty) would say, We're freakin' doomed!

You should be able to buy a very decent house with 60 oz of gold or 1500 oz of silver.

Instead, with today's prices, it takes over 400 oz of gold (over 22,000 oz of silver!).

Those who hold gold & silver will be greatly rewarded in the years to come.

Washington, DC, June 8, 2018 - Today, President Paul responded to some questions from the press about the US government's policies. Speaking at the White House, he responded to criticism that his energy policy was not doing enough to reduce America's dependence on foreign oil. He also addressed issues about the national debt and the economy. Here is a transcript of that meeting:

Reporter: Since the collapse of the airline industry in 2012, nothing has been done to improve the speed of railroad transportation between distant cities. Moreover, some of our railroads still run on diesel, which is now over $20 a gallon. A lot of folks are just stuck because they can't afford the high fares. It costs over $5000 to go from Atlanta to Miami! What are your plans for improving our railroads, Mr. President?

President Paul: As I stated many times, it is not within the federal government's mandate to improve the design of our railroads. All we can do is regulate railroad travel between states. It's up to the states and private corporations to decide how they will address this issue.

Reporter: But, Mr. President, wouldn't the government be able to provide subsidies or tax incentives to the railroad companies? Why do we still subsidize the two remaining oil companies, Exxon and Shell? Couldn't we shift those subsidies to the railroad industry?

President Paul: I am planning to remove the subsidies for the oil companies as soon as possible, but I need to speak with the directors of those companies first to reach a deal. Folks, I know it sounds tough, but we need to cut spending. Our national debt is $20 trillion! Do you want to leave this kind of debt to your children and grand-children to pay off? We have to rely on the free market as much as possible to solve our problems. Otherwise, we'll go bankrupt.

Reporter: Speaking of which, can you give us an update on your plans for reducing the national debt?

President Paul: Well, we've made a lot of progress already! When I started my presidency, we had a national debt of $27 trillion, thanks to the reckless deficit spending policies of the Democrats. So, we're making progress. If the Federal Reserve helps us and keeps its interest rates at 0% like it has for the past 5 years, I'm sure we can reduce our debt to about half of what it is now by the time my term in office is done.

Reporter: Mr. President, do you have anything planned for reducing the nation's unemployment? Currently we are at 11% unemployment and that's by the government's statistics, which tend to be a little optimistic. All of these people are living off food stamps right now, and you said you are planning to cut off all entitlements. Is this reasonable?

President Paul: I mentioned before that I wouldn't cut welfare entitlements until enough people were no longer dependent on them. So, my policy right now is to keep those programs intact for now. We have a serious economic problem because there hasn't been enough investment in the right sectors. Therefore, there aren't enough jobs for people. We need to create investment and stop the mal-investment.

To be continued...

This is a must-see video about fiat currency and why you should own gold and silver:

Back in January of 1980, aside from the fact that I was not yet alive, the price of gold reached a new all-time high of $875 an ounce. It was a brief high but it left its mark in history. This year, the price of gold, for the first time, broke out above the $875 price level and has been setting new all-time highs. Clearly, gold is in a bull market. (Check out my 2008 Summer Gold Price Outlook for a short-term prediction on where this market is going)

Gold was in a bull market all through the 1970s. It started out at a mere $35 an ounce and ended the decade above $800. The current bull market in gold, most experts agree, began in 2000, with Gordon Brown's sale of half of England's gold, for just over $250 an ounce. Since then, gold has climbed an ever steeper wall of worry, reaching $1000 back in March of this year. Clearly, gold's bull market has attracted the attention of investors world-wide. However, nobody quite knows the answer to the question: how much higher can it go?

There are many ways to "calculate" (or "guess") the price of gold at the end of this bull market. One way is to use past performance as an indicator of future performance. Exactly what they tell you NOT to do. Kids, don't try this at home.

Using Past Performance

Using the previous bull market as an example, gold should reach $6250 at the top of this bull market, since gold climbed by a factor of 25 in the 70s, so it must do the same this time. Or must it?

Using M2 Money Supply

Let's look at the money supply versus the price of gold. The last time (before the Bretton Woods agreement) when the public was allowed to own gold was in the roaring 20s, at a price of $20 an ounce, so we'll start from there. I'm using M2 money supply here since there was no M3 back in the 1920s.

In 1928, at the height of that economic boom, the M2 money supply stood at $47 billion. By 1980, it had grown to $1.6 trillion. That is a 34-fold growth, leading to a 1980 calculated gold price of $680 based on the inflation of the money supply from 1928 until 1980. That is roughly what the average price of gold was in 1980. Therefore, it can be said that 1980 was the last time gold was correctly valued, with respect to the M2 money supply.

Today, the M2 money supply is $7.7 trillion. The M2 money supply has grown 4.8 times since 1980. As a result, the price of gold today should be about $3260. But let's not forget that, because of speculation, the gold price in early 1980 actually reached $875. Multiplying that by 4.8, we get $4200.

Using Purchasing Power

Perhaps the most accurate way to find out how much gold is worth today is to look at its purchasing power historically. That is, how much could once ounce of gold buy at a particular point in time?

Using house prices from the 1920s, a bungalow cost $2200. Today, such a bungalow would cost about $180,000, keeping in mind that Oakland, CA was rather rural back in 1921. That's an 82-fold price increase. Using that, and the fact that gold was $20 an ounce back then, gold should be at $1640 an ounce today.

Looking at prices from the 1930s, when gold was at $35 an ounce, a gallon of gas was $0.10. Granted, there was not much demand for gasoline back then, but assuming that supply was in balance with demand (as is the case today), and knowing that gas is now $4 a gallon, that results in a gold price of $1400 an ounce.

In 1980, the median US home price was $74,000. Today, it's around $260,000. The gold price averaged $680 in 1980, so today the price of gold would have to be $2390 to have the same purchasing power.

The average salary in 1980 was $10,000. Now, it is $31,000. A gold price of $2100 today would represent the same fraction of your salary as the $680 price did in 1980.

Averaging all these things up, we end up with a gold price of $1880 for gold to keep up its historical purchasing power.

Averaging It All Up

Let's create a weighted average gold price that best represents the accuracy of the above 3 methods.

The formula would be something like this:
10% x Past Performance + 20% x M2 Money Supply + 70% x Purchasing Power

For past performance, we'll use $6250. For money supply, we'll use $4200. For purchasing power, we'll use $1880.

And the result is...

$2780

This is what the gold price should be by the end of this bull market, with a range of $1400 - $6250. Even the low end of this range is higher than the current price of gold, which means my current outlook for gold is extremely bullish.

For those who believe that inflation leads to higher commodity prices, and deflation leads to a lower commodity prices, historical data would prove otherwise.

First, let's define the terms inflation and deflation. When I talk about inflation, I am referring to an increase in the total supply of money and credit. The opposite - a decrease in the total supply of money and credit - would be called deflation.

The M3 monetary aggregate (a.k.a. M3 money supply) is a value released by the Federal Reserve indicating the total number of US dollars in circulation, either as paper or as electronic credit. This value has been provided by the Fed up until 2005 when they mysteriously ended the M3 data series. However, M3 money supply is still tracked by Shadow Government Statistics, at http://www.shadowstats.com/

Currently, M3 is about $14 trillion. Back in 1980, M3 was just under $2 trillion.

When the M3 money supply expanded by 70% from 1975 to 1979, the average annual gold price rose more than 340% (4.4 times) in that period. The price of oil rose 240% in that same period. If M3 and commodity prices were perfectly correlated, then gold & oil prices would have risen by around 70%. Clearly, other factors must account for the rest of the increase.

In a more recent example, between 2003 and 2007, the M3 money supply expanded only 40% yet the average annual gold price rose 64% while the oil price rose nearly 200%. Again, something else must account for that increase.

From the above examples, I don't see any correlation between the rate of growth of the M3 money supply and the rate of commodity price inflation. The only "correlation" exists in the fact that the M3 money supply is growing along with commodity prices. However, M3 is always growing, even when commodity prices are falling.

In the next article, I will address why it is that commodity prices are rising currently, and why they generally stayed flat (or fell) during the '90s. Stay tuned.

Using my magic handwaving charting skills, my solid knowledge of fundamentals, and my intimate knowledge of stochastics, I've come up with a chart showing the price of gold from now until mid-August. The good news: gold is going to the moon! The bad news, it's not going to happen in the next few months. Patience is key.

If you are looking to buy into this bull market, the best time to buy will be in early June, at around $875 to $925. Note: I'm not guaranteeing anything, so DYODD, don't try this at home, etc.

I'll revisit this forecast in August to see how I did, so stay tuned! :)

So, without further adieu, I give you my 2008 summer gold outlook:

It has come to my attention that all the major financial institutions of the modern world are lending money that has been literally created from nothing, at interest.

This counterfeiting activity is aided by "national" governments that have long given up the idea of national sovereignty in favor of the policy of a supra-national elite. These governments have legalized counterfeiting monopolies (i.e. central banks) into existence. These monopolies are privately owned. They are allowed to create credit (and thus money) from nothing, and lend it out at interest.

Fiat money, issued by decree (i.e. by entering some numbers on a computer), can expand infinitely based on how much is needed (based on the size of the economy). All fiat money should be interest-free, because there is no upper limit on the supply of money in such a system. Therefore, supply always meets or exceeds demand. When there is unlimited supply of something, the price is almost zero. Interest (the price of money) only makes sense when the money supply is limited.

Read that again carefully. The amount of interest you should be charged for your mortgage or on your credit card is zero. Nada. Zilch. Zip.

Here's the credit system in a nutshell:

Go to your bank and ask for a mortgage. They will be more than happy to conjure up any amount you desire. Why do they do this? As soon as you take out a mortgage, the bank literally creates the money they lend to you. If you took out $300,000, the bank literally becomes $300,000 richer by you signing that contract. Immediately. They can use that money immediately, while YOU can only "use" it after 25 or 50 years when you finally paid off your debt. Think that's fair?

Next time you go to a bank and ask for a mortgage (or any kind of loan), ask them this question:
What do you stand to lose from this transaction, if I default?

The correct answer is nothing. Take Bear Stearns, for example. They were gracefully bailed out by JP Morgan! Banks can't die. Again, banks can't die. Their profits are privatized, and their losses are socialized. They cannot lose anything because they simply created the money in the first place. If they stand to lose nothing from your defaulting on the loan, then they ought to charge zero interest on your loan. Period.

Anybody who tries to make a profit on fiat money makes a profit only if they can arbitrarily restrict the supply of money. Therefore, a monopoly on who can create money must be legislated so that the money supply can be
restricted and profits earned. This is how the current interest-based fiat money scam works. As long as no one else is printing the money (other than the central bank), its supply can be restricted via arbitrary interest rates.

Therefore, the so-called "reserve" banks or central "banks" in the world today are nothing more than legislated monopolies on the creation of money, so that they can earn some profits on the creation of this money.

Is it any wonder financial institutions today are so rich? Bottom line is, if you create money from nothing, you should not charge interest on it. If you rely on money which is restricted naturally by market forces, like gold or silver, then it makes sense to charge interest because the supply is limited. Nowadays banks are trying to have it both ways. They are charging interest on money that can be created infinitely with almost zero effort.

So what's all this "commodity bubble" stuff I keep hearing about? Well, I looked it up on Google News, and was surprised to find just how many articles on the bursting of the commodity bubble have appeared nearly overnight in the mainstream media. Surely they must be right. Right? Here's a brief subset of the articles that have appeared recently:

1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15... Shall I go on?

Wow! They really nailed the top of this market, didn't they?

I wish there was this much coverage on the day the housing bubble burst. Well, while the real estate market today is filled with bottom pickers, the commodity market seems to be filled with top pickers. There's way too much wishful thinking going on.

My advice to the media: Leave the bottom picking and top picking to psychics and historians, okay? Kthxbye.

The last domino has fallen! Or will fall, very soon.

The outcry caused by the $1.50 Euro is too much to bear for the Eurozone. Look for a rally in the US dollar index and gold as a result.

As the Telegraph puts it, in this article,

"
The euro has surged to an all-time high of $1.51 against the dollar, prompting bitter complaints from European industry and setting off a sharp sell-off in sovereign bonds from southern states deemed least able to withstand a super-strong currency.

Germany's car-maker BMW said it was slashing 5,600 jobs and warned of more drastic action if there was a "sustained rise" in the euro above $1.50.

Charles Edelstenne, head of France's Dassault Aviation, told Le Monde that the euro's rise was reaching asphyxiation level. "We can't cope with a such an exchange gap by producing and sourcing in the eurozone.

Airbus has also drawn a line in the sand at $1.50, warning that it will have to turn its industrial structure inside out if it is to meet aircraft delivery contracts priced in dollars.

A top aide to French President Nicolas Sarkozy fired a shot across the bows of the ECB yesterday, demanding that "monetary policy must remain within reasonable bounds". The comments are a clear hint that Paris may try to force a change of tack by invoking Maastricht Article 109, which gives EU politicians the power to dictate exchange policy. France has lacked allies for use of this so-called "nuclear option", but this may change now that a number of eurozone countries are in trouble.

Spreads between 10-year German government bonds and the equivalent debt across the eurozone's Latin bloc have jumped to the highest level since the launch of EMU, reaching 45 basis points for Greece, 43 for Italy, 36 for Greece. The spreads on Spanish bonds have ballooned to 28 from 4 last May, reflecting an abrupt change in perceptions as the property boom deflates and investors take a closer look at Spain's current account deficit, now a 10pc of GDP.

"The widening spreads are telling us that these countries are going to be hit harder than core Europe in a downturn," said Simon Derrick, head of currency research at Bank of New York Mellon.

Hans Redeker, currrency chief at BNP Paribas, said foreigner investors had largely stopped buying euro-zone bonds, suggesting that the euro rally is now on its last legs. The inflow is mostly "hot money" speculation.

Mr Redeker said there may soon come a point when the ECB's ultra-hawkish turns negative for the euro, causing traders to look beyond instant yield and focus on the risk that monetary overkill could tip the bloc into a deep downturn.
"

Remember the 70s? Well, I certainly don't. I wasn't around back then, but I do have some impressions based on That 70s Show. I also have lots of songs from the 70s. A lot of Led Zeppelin songs. A lot of Pink Floyd. Those were great times. The war between Rock and Disco. The Vietnam War. The pet rock. The bitter cold, snowy winters (if you lived in North America). I almost feel like I was there. But let's dig deeper... Ah yes! Stagflation!

Many Americans probably remember the long lines at the gas stations, where gas was not only expensive but extremely scarce. They probably remember cutting back on heating to save electricity. They probably remember the push toward more fuel-efficient vehicles and alternative energy during the Jimmy Carter days. But yet they fail to see how eerily similar today's economic climate is to the 1970s!

Let's see. Interest rates were unusually low yet the stock market was going nowhere. However, everything else was going through the roof! Gold prices started at just $35 in 1971 when Nixon abolished the pseudo-gold-standard of the Bretton Woods agreement. By January of 1980, gold reached $850. As chairman of the Fed, Volcker had to raise interest rates up to 20% to stop the inflation. At that point, everybody was panic-selling entire family heirlooms of gold and silver in order to get shiny new risk-free CDs yielding 20% a year! But by then, the 70s were over, and the period of the greatest inflation in the history of the US finally ended.

Today's economic climate is much the same. Gold has climbed from $250 in 2000 to $950 today. Everybody is talking about how the US dollar is losing its value. Bernanke is cutting rates yet the markets are going nowhere. There's a general feeling of "malaise" (a term coined by Jimmy Carter) in the credit markets. Meanwhile, wheat prices have reached $12, up 400% from where they started in 2000. And what's Bernanke doing? Cutting rates even more!

Today, the US dollar index fell through the key support level of 75. Why? Because the Euro and Canadian dollar strengthened. But Carney (Canada's version of Bernanke) is threatening to cut rates again. Now if only "tricky" Trichet (ECB's governor) would finally cave in and cut rates too, then the US dollar would stop sliding for a brief while. And if the Bank of England cuts rates too, it will be green light for Bernanke to cut rates again. And the cycle will repeat. Meanwhile, gold will go all the way up to $1400 and the markets will stay flat just like the dollar index. Despite the talk of IMF selling gold (another reminder of the 70s), gold is positioned to break through $1000 within the next few weeks. Nothing can stop this bull market except 20% interest rates on US T-bills. Might as well wait until pigs fly.

Thinking of buying the Dow? Is it overvalued or undervalued? Let's find out...

Let's analyze the top 5 stocks (by weight) in the Dow Jones Industrial Average.

I'll be using the Warren Buffett method of security analysis which focuses on net earnings relative to the total value of shares issued (i.e. Yield(%) = 100% * Earnings Per Share / Share Price + Dividend Yield). The source of data is Google Finance.

For calculating the "right" share price, I'll use the RFRR (Risk-Free Rate of Return) which is equal to the YOY % increase in the M3 money supply, currently at 15%.

1. IBM
EPS = 7.22
Share Price = $103.27
Yield = 8.54%
Right Share Price = $52.32
Grade: B+
Not bad. Better than holding bonds. IBM also had a 9.8% increase in net earnings from 2006 to 2007. If they can keep it up, it's a pretty good investment.

2. XOM (Exxon Mobil)
EPS = 7.29
Share Price = $81.71
Yield = 10.6%
Right Share Price = $54.81
Grade: B+
Pretty good. Big Oil has big earnings. However, if you look at earnings growth, it was only 2.8% from 2006 to 2007. Looks like good oil fields are harder to come by. Over the long term, Big Oil is a dead investment.

3. BA (Boeing)
EPS = 5.28
Share Price = $79.33
Yield = 8.67%
Right Share Price = $39.70
Grade: B
Not a bad investment, but not too good either. The war in Iraq has definitely helped Boeing's earnings grow 83% between 2006 and 2007, but that's not sustainable. A good short-term bet.

4. MMM (3M)
EPS = 5.59
Share Price = $78.56
Yield = 9.56%
Right Share Price = $44.51
Grade: A
A good investment. Technology will remain strong and with earnings growth of 6.4% between 2006 and 2007, 3M is a pretty strong performer.

5. MO (Altria Group)
EPS = 1.03
Share Price = $73.09
Yield = 5.5%
Right Share Price = $9.45
Grade: D
As you dig deeper, you discover something like this. MO is very overvalued. Earnings shrank from 2006 to 2007. The current valuation is not justified at all. This is a good investment if you want to throw away your money. You gotta admit though, it has a pretty attractive dividend yield. But even so, the share price has too much room to fall.

Conclusion
So, having analyzed these 5 stocks which together make up 28% of the DJIA, we can see that for the most part the DJIA is a good buy. Is it undervalued? No. Is it overvalued? Slightly. It's somewhere around the right value.  It could fall a bit more. In fact, 8000 would be a more reasonable value for the DJIA. Could it go up to 15,000 or 20,000 as some pundits are calling? If you accept 5 to 6% return on your investment, sure. In a low-inflation environment, 20,000 is pretty doable. However, with the monetary inflation that's going on today (15% annualized growth in M3), you ought to find a better investment and wait for the Dow to come back to 8000.

Then again, why would you ever own the Dow? Why let one bad apple spoil the bunch? Just buy individual stocks in good companies. Think of owning shares in a company as owning the entire company. If a company is bad, you shouldn't own a single share of it. Take advice from successful investors, not from Wall Street shills.

Too much stuff to do these days so I'll be brief:

Read these articles:

The Road To Hyperinflation, Part 2 - A failure of central banking

and

The Sixty-Year Storm, by George Soros

Looks like the skeletons are finally coming out of the closet!

Palladium has escaped the attention of precious metals investors for far too long. Bet you've never heard of it. Look it up, it's certainly on the periodic table, or on Wikipedia. But it's more than that. Right now, palladium is calling your name. Why? Because it's about to embark on the bull run of a lifetime. True, it has been in oversupply in recent years due to Russia selling off its finite stockpile. But the key word here is "finite." Once the stockpile runs out, the price of palladium is set to rise astronomically.

While nobody knows exactly how much palladium there is out there, a ballpark estimate is that it is about as rare as platinum. And while platinum, the diesel industry's favorite metal, has been getting all the attention lately, with record-breaking highs every other week, new uses for palladium are coming up as well.

There are several indicators that palladium is drastically undervalued right now. First, the platinum-palladium ratio is very high. Never before has there been such a high spread between the price of platinum and the price of palladium. From a technical standpoint, we have had a huge long-term bullish consolidation after the last rally. It is basically one long symmetrical triangle pattern. This indicates that the momentum will be to the upside when it finally breaks out.


(Image courtesy of kitco.com)

As you can see, palladium is now finishing the consolidation of a long-term rally, in order to begin a new one.

While I can't say with 100% certainty when and where the price will go, I'm quite confident that it won't stay under $400 for much longer.

As long as palladium is under $400, you should be buying every last ounce you can get. Then, hang on for the ride of a lifetime. Up she goes. Where she stops, nobody knows.

NOTE: I do not advocate any investment position via this article. Do your own due diligence. Don't take my word for it.

You can't argue with John Maynard Keynes when it comes to economics. His theory of aggregate demand as a primary driver of the economy is largely correct. If a business has more customers, it will have more profits, and more employees. Aggregate demand, whether created artificially by government or naturally by the middle class, is what drives the economy toward expansion. More people buying more goods leads to more businesses to supply those goods. Recession, on the other hand, occurs when aggregate demand falls. This happens when people can no longer afford certain goods or services, because they are earning less income. The global recession today was not caused by bad mortgages or risky lending. Those are merely symptoms. The primary cause of the current recession, if you look at the bigger picture, is falling wages.

The US recession started in 2000 with the dot-com crash. Although the economy has been "stimulated" again and again by the special interests in Washington, there was only a brief recovery from 2005 to 2006. That was largely caused by the speculative housing bubble. So what is behind this persistent US recession? A stunning fact is that middle-class wages have consistently fallen since 2000. Quite simply, consumer demand has slowed because there's no more discretionary income.

"But wages have gone up!" I hear you say. That is true. In nominal terms, wages have risen since 2000. However, when adjusted for inflation, wages have fallen rather dramatically. Take for instance the average US house, which cost only $200,000 back in 2000. Now it costs $300,000. According to this site, median wages grew about 14% from 2000 to 2005. If we suppose another 3% rise until now, we get a measly 17% over the last 7 years. Meanwhile, house prices rose by 50% during the same time. No wonder there's less demand now for houses. Back in 2000, a gallon of gas cost about $1.50. Now, it costs $3. That's a 100% rise in price. No wonder people are driving less and buying fuel-efficient Japanese cars. These facts, and others, indicate a 6% annualized inflation at best, or maybe as high as 10%, while the government says inflation is only 3% per year.

I have further anecdotal evidence that indicates inflation has eroded discretionary income even here in Canada. The typical salary for an entry-level IT professional in 2000 was around $50,000 a year. Today, it's around $60,000 a year. Meanwhile, the cost of a typical house has gone up from $250,000 to $350,000. Gasoline is around $1.05 a litre. It was $0.59 back in 2000. Bread was around $1.50 back in 2000. Today, a loaf of bread costs $2.39. You do the math.

The bottom line is that these high prices reduce demand. With reduced demand come reduced profits for businesses. With reduced profits come fewer job opportunities. That, in turn, leads to lower wages, which leads to even less demand, and the cycle repeats.

To make matters worse, consumer debt is now at astronomical levels. All the discretionary income that went into consumer goods now goes towards servicing debt. Whether it is in the form of credit card debt, car loans, student loans, or mortgages, the level of personal debt now is largely unprecedented in history. Not only that, but interest rates are now rising as mortgages are resetting, making the problem even worse. You can easily see why nobody wants to buy new computers or TVs. Everybody's busy paying off the mortgage.

So what can be done to stop the recession? I know it sounds crazy, but, middle income people deserve a raise. If you're an entrepreneur you might be tempted to think, "If I can hire cheaper workers I'll make more profits." In the short term, that may be true. In the long term, however, you're destroying the income of the very people who were your customers. Without income, your customers slowly disappear, and your profits shrink until you're finally forced into bankruptcy.

The best "stimulus" package, aside from doing nothing, is to mandate a 25% across-the-board wage increase even if it puts companies into the red. Why 25%? Because that's what it would take to correct the drop in real wages that we've seen since 2000. Also, an easy way to facilitate wage increases is to enforce the laws against hiring illegal aliens. Another way is to impose tariffs on trade with China and other foreign countries. That would reduce the incentive for the global wage arbitrage (a.k.a. outsourcing) that is going on now. Reducing taxes on incomes below $100,000 is another great way to put more money back into people's pockets. Tax brackets are notorious for creeping down as time goes on due to inflation, in a phenomenon known as bracket creep. Simply raising tax brackets would have a very positive effect on the economy.

To reduce the debt burden, all adjustable-rate mortgages should be moved to longer term fixed-rate mortgages. All credit card interest rates should have a fixed upper limit. To prevent further growth of consumer debt, strict lending guidelines must be implemented requiring very high incomes for new loans. Basically, we need to do everything possible to facilitate "trickle-up" economics as an alternative to "trickle-down" economics. Higher wages earned downstream will translate to business profits upstream.

The last thing we need is more government spending, though it may be tempting. At a time like this, any government spending would by necessity be deficit spending. That would raise the national debt even more and lead to higher taxes down the road. Nor should we resort to printing money, lest we see another repeat of the Weimar hyperinflation of the 1920s. Instead, government spending should be reduced so that the surplus can pay off the debt and lead to tax reductions. Even if increased government spending is financed "legitimately" by higher taxes, the result would be less after-tax income for consumers, leading to lower aggregate demand, exacerbating the recession. It will be painful, but the only way out is to reduce government spending.

If you're an American, please vote (and donate to) Ron Paul. He's the only candidate who is willing to cut government spending, cut taxes, and put more money in YOUR pockets.

I've come across a lot of "lazy portfolio" ideas lately. These are portfolios that need minimal maintenance and produce high gains with low volatility. A lot of the lazy portfolios I've seen are based on the idea of diversification using bonds. That is, in order to reduce the risk of owning stocks, some bonds are recommended. While this may sound like a perfectly sound idea, it turns out that bonds are actually correlated much more to stocks than is generally believed. That is, when stocks go down, bonds go up. When bonds go down, stocks go up. While this may seem like a perfectly desirable thing, it is not. A negative correlation is just as bad as a positive one.

So here was my idea. What if you replace bonds with gold? What kind of returns would you get?

Here's a chart showing the performance of various assets (starting with $900 invested in 1971) until now:



Note, the portfolio adjustment is done yearly, using plain old dollar cost averaging in order to maintain 50% dollars in one asset and 50% dollars in another.

It can't get much easier than this folks. The 50-50 Dow-Gold portfolio not only outperforms the 50-50 Dow-Bond portfolio, but does it with low volatility! For instance, the Dow-Gold portfolio would've survived the 2001-2002 recession far better than the Dow-Bond portfolio.

So there you have it folks, diversification can be as easy as 50-50, if you choose the right uncorrelated assets having similar risk profiles.

The best lazy portfolio turns out to be 50-50 Dow-Gold.

Now, this is just my own humble research so DYODD. There is a risk that Dow and Gold become correlated, at which point this diversification scheme would be pretty useless. That's what happened in the case of LTCM, causing the whole fund to go bankrupt.

Author: Dan Tohatan

Heads up! Is what I'd say to the stock market investors out there about now.

The word "carnage" is probably the best word to describe what happened in the stock markets today. This day shall remain in my memory as "Red Monday." All the stock market indices were in the red. Thankfully, I don't own any stocks.

But let's put this into perspective for a second. Anyone remember the "Black Monday" crash of 1987? On that single day, the Dow Jones Industrial Average lost 508 points, which amounted to 22.6% of its value. Compared to that, the current correction is nothing.

Back then, the stock market was in a secular bull market. Interest rates had been above 10% for a very long time and were finally easing. Greenspan had just come to the Federal Reserve, and was ready to put his "financial innovation" into practice.

Today, we're at the top. There's no doubt about it. And the ride down looks quite scary. We've had the biggest credit expansion since the 1920s. Interest rates are near all-time lows. Who wants to buy bonds when they yield only 4%, while the dollar is losing 10% a year in purchasing power? It would mean a guaranteed loss. Who wants to buy the Dow, when the Dow-to-Gold ratio is at a whopping 14? The times when the ratio was higher than 14 are few and far between, and were always followed by a major plunge in the Dow relative to gold. Ultimately the Dow-to-Gold ratio must return to 1 by the time we hit bottom. Since the Dow can't return to $850, gold will have to rise massively.

So what are good investments in this climate? Well, if we use the past as a guide, during times when bonds had ridiculously low yields and stocks were flat or declining, gold and commodities did extremely well by comparison. Not only would an investment in commodities maintain its value during such times, it would actually gain in value as more and more investors got word of the opportunity. Eventually, a speculative parabolic curve would result, leading to a huge crash, and a final price much higher than the starting point of the curve, but also much lower than the top.

So my #1 preference in this market climate is commodities, for maintaining purchasing power. Precious metals are a special type of commodity, because the majority of demand comes from investment demand. They're more similar to currencies.

My #2 preference is bonds, due to their traditional safe-haven demand during bear markets in stocks. However, don't put all your money in bonds or you'll lose purchasing power through inflation. And don't think TIPS (inflation-protected bonds) will protect you. They're not inflation-protected at all. They use only the artificially-low CPI as a measure of inflation.

My recommendation right now would be a portfolio allocation of 60% precious metals, 40% bonds and other guaranteed investments. If you take this approach, you reduce some of the risk in precious metals while protecting your bond investments against inflation and negative yields. I would avoid stocks like the plague right now. As real bond yields rise, I would shift my allocation to be heavier on bonds and lighter on precious metals. As for the precious metals, I would be overweight on gold due to its monetary nature. The other metals might fall in price due to weaker demand. Gold, on the other hand, is likely to keep its value due to high safe-haven investment demand. Of course, when I'm talking about metals, I'm talking about physical metals, not ETFs or stocks. Those funds are not likely to remain solvent should a parabolic spike in gold prices occur.

Interestingly enough, there isn't that much risk in precious metals. Suppose you bought gold at the $850 top in 1980 (equivalent to $2200 today). It turns out your investment would only have fallen to about half value by 1988. On the other hand, if you bought gold in 1975, you would've tripled your investment by 1988. And there would've been plenty of warning signs before the $850 top, such as double-digit interest rates on bonds, or the fact that you could buy more than one Dow with 1 oz of gold.



The key investment objective now is preservation of capital. Since you can't have 100% trust in fiat currency, given its history of devaluation (a house was $29,000 in 1971), you have to put some (if not most) of your money in wealth-preserving precious metals, which can't be inflated by runaway printing presses.