GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES

* Golden Potpourri
* USDollar Wreckage Factors
* Crazy Stir of Inflation Effects
* Europe Braces for Default Shock
* Gold Fever Cannot Be Stopped
* Gold & Silver Prices Stabilize



HAT TRICK LETTER
Issue #87
Jim Willie CB, 
“the Golden Jackass”
19 June 2011

"The chances of Greece not defaulting are very small. It is so high that you almost have to say there is no way out, which could put pressure on some US banks. There is no momentum in the system, suggesting that we are about to go into a double-dip recession. The USGovt debt issue is becoming horrendously dangerous." ~ Sir Alan Greenspasm

"The debt level of the United States is disastrous. The real problem is that no one can explain well why the EuroZone is in the epicenter of a global financial challenge at a moment, at which the fundamental indicators of the EuroZone are substantially better than those of the US or Japanese economy." ~ Jean-Claude Juncker (EuroGroup President)

"Various bilateral trade agreements and Currency Swaps have already reduced global demand for dollars by an amount in excess of $1 trillion per year. The combination of grossly excessive supply and rapidly falling demand is enough by itself to put the US dollar (and US economy) on a collision course with hyper-inflation." ~ Bullion Bulls

"People are mistaking criminality for economics. They are also mistaking marketing for analysis. Bernanke makes Zimbabwe's central banker Gideon Gono look like a boy scout. We are seeing signs already that the rest of the world is rejecting or bypassing the USDollar, which will turn the tide in a huge way. When they begin to export inflation back to America, it will make the tsunami that hit Japan look small. One should not confuse Deliverance for a romantic movie. We are a long long way into uncharted waters." ~ Rob Kirby (analyst, colleague, friend)

"The distortions are simply incredible, with over $50,000 of bank liabilities and monetary base in the United States for every ounce of gold officially held by the USTreasury." ~ Alasdair Macleod (the USGovt has no gold in its possession, except Deep Storage Gold ruse)

"Well, I always chuckle when people at the Fed and the Treasury suggest there are no signs of inflation. There are NOTHING BUT signs of inflation, not withstanding the Fed suggesting the CPI is up one or two percent. We all know that for the average guy on the street, his food costs are skyrocketing, his energy costs are skyrocketing, his tax bill is skyrocketing, his insurance, everything is going up. They are basically getting modest to zero wage increases." ~ Eric Sprott

"The housing bubble of the early 2000s was unprecedented and the biggest in US history. [Hence home prices] are very hard to forecast, given the Double Dip recession underway. Housing might fall another 10% to 25% in the next few years.[Like forecasting weather,] I don't see how anyone can quantify a forecast because it is such an unusual event." ~ Robert Shiller

"President's Day is when President Obama steps out of the White House, and if he sees his shadow we have one more year of unemployment." ~ a smart 12-year girl

Editor Note Repeated: Starting with the July Hat Trick Letter, a new user database system is planned for installation. The product has been selected. It has some nicer features than the one used until April. Starting in July, no common username & password will be shared any longer. The past three months involved a temporary method that assured reliable access without interruption. For those subscribers who have been onboard for a longer time, like before April, you will go back to the old username & password formerly used. The key rule for seven years of the newsletter has been for somebody named John Goodfellow of 542 Evergreen Street to have (username = jgoodfellow) and (password = evergreen). They might anticipate their old passcodes correctly, if lost from fallen cookies. Some have entered post office boxes for the address. A typical example would be James Badfellow of POBox 3255 to have (username = jbadfellow) and (password = pobox3255). Returning subscribers would have a "2" or "3" at the end of their usernames in sequence to new orders. The newer subscribers since April have not been assigned a personal U&P passcodes yet. They might anticipate theirs correctly. A handy reminder system will enable a subscriber to enter the email address on the Members area signin authorization webpage and have the system send the valid U&P passcodes to that address as a reminder for usage. People can use the Reminder Box by themselves, without need of sending me an email. My hope and expectation is to install the new database system at the end of June, after most everybody has read the June reports, and well before the time when July reports are published. That will give all people time to validate their U&P passcodes before downloading the July reports.

GOLDEN POTPOURRI

◄$$$ ROUBINI HAS FINALLY PERCEIVED THE PERFECT STORM FOR GLOBAL ECONOMY. BETTER LATE THAN NEVER FOR THE COMPROMISED ECONOMIC ANALYST WHO ONCE HAD VISION. HIS PAST ENDORSEMENT OF RECOVERIES BECAME DRIVEL A YEAR AGO. $$$

Nouriel Roubini has finally begun to comprehend the enormity of the situation. In 2005 and 2006, the professor was brilliant. Then his Wall Street client base grew, and with it, he turned into a blind man spouting nonsensical optimism about growth and green shoots led by recoveries in moribund territories. Finally, Roubini senses a perfect storm that will slam the global economy by 2013, as powerful factors are aligned to render deep damage. He hedges by saying the nasty impact in two years has only a 35% chance of occurring. So he remains partially blind. The perfect storm perceived late by Roubini consists of four factors: 1) The basket case of a USEconomy with a bulging unfixable budget deficit, 2) a potential slowdown in China, 3) the impact of European debt restructuring complete with likely defaults, and 4) what he calls stagnation in Japan. He seems still blind to the US millstone of housing, and the acidic effect of the rising US cost structure. The most forceful argument Roubini makes, enough to regain a little credibility, pertains to Europe. He criticizes endless bailouts and government aid packages, which delay solutions and do not deal with underlying problems. He called hope a hallucination, and urged the EuroZone to break apart. He said, "There are already elements of fragility. Everybody is kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt. All these problems may come to a head by 2013 at the latest." He did not direct any attention to the fact that the bailouts are not of governments but of big banks which hold massive sovereign debt. His work is not worthy of respect. See the Yahoo Finanace article (CLICK HERE).

◄$$$ MICHAEL HUDSON PRODUCES GREAT ESSAYS WITH DEEP INSIGHT THAT HIT NERVES. THE GLOBAL FINANCIAL CRISIS HAS BEEN EXPLOITED BY THE BANKERS TO INCREASE POWER AND REDUCE RIGHTS. LIQUIDITY HAS BEEN ABUSED. INSOLVENCY IS THE COMMON THREAD. PENSIONS HAVE BEEN WRECKED. BANK POWER HAS RISEN. DEBT SERFDOM IS THE NEW PATHWAY. THE UNITED STATES IS FOLLOWING THE PATH OF THE ROMAN EMPIRE IN ITS FINAL CHAPTER. $$$

In a fine essay "The Financial Road to Serfdom" by Michael Hudson, the banker elite are described to have exploited the current grand debt crisis in a reversal of many progressive era initiatives. They do not let Global Financial Crisis go to waste. Witness a grand rollback of Modernism and Socialism. He calls it the road to neo-serfdom, otherwise known as debt slavery, where failed banks rule with as much brutality as they contain insolvency. Hudson provides excellent arguments against the common focus by banking and political officials on the need for greater liquidity, which essentially conceals the grotesque problem of insolvency. The many liquidity facilities direct oversized funnels into the big US banks for the purpose of redeeming huge swaths of toxic bonds. The ultimate national problem, seen in banks as well as households, is insolvency. The banks are busted broke and dead and can no longer serve the economies. He provides excellent arguments in the tradeoffs of two decades given high priority to the finance sector. In doing so, the priorities of democracy have been tossed aside. See the Global Research article by Hudson (CLICK HERE).

For another brief excellent essay with insight, check "All Roads Lead to Rome: The Collapse of the United States" by Gary Tooze. He identifies some strong parallels with ancient Rome before its collapse. The TARP and QE programs match the dilution of gold coins order by Rome in similar frauds. The choice of hyper-inflation has resulted in cost increases certain to force price controls, just like in Rome. One must wait to see if exile or death are doled out to violators. The USMilitary is a key device in assuring commodity supply, if not wealth exploit, just like Rome. Tooze describes the United States as having the trifecta of rampant inflation, higher unemployment, and increased taxes in its near future. Taxation may take many hidden forms. The best part of the brief essay is the parallel raised with Germany. The constant battles between Rome and Germania during the 4th Century defined the final Roman Empire chapter. That element has turned today into a secretive assault by the Eastern Alliance led by Germany, in a remarkable coincident fashion. Watch the New Nordic Euro currency long past the planning stage, soon to be in the implementation stage. Developments with the Saudis are crucial. See the Tooze essay (CLICK HERE).

◄$$$ HALF OF ALL BUSINESSES IN IRELAND ARE CONTRACTING OR STRUGGLING TO SURVIVE. THE DEATH OF THE IRISH ECONOMY WAS FULLY PREDICTABLE WHEN THE HOUSING BUST BEGAN. IT WAS ASSURED WITH BANK BAILOUTS INSTEAD OF PERMISSION OF CAPITALISM TO WORK. THE AUSTERITY MEASURES WERE DISGUISED POISON PILLS. IRELAND SERVES AS A MICROCOSM FOR THE UNITED STATES IN SYSTEMIC FAILURE. $$$

InterTradeIreland conducted a survey in the last quarter of 2010, focused upon small and medium enterprises. They interviewed 1000 business managers in Ireland. An estimated half of Irish companies are contracting or struggling to survive. They are dying on the vine, lacking cash, losing profits, and suffering from rising costs. Businesses reported that access to finance for daily cash flow is a dominant theme. Another is cost control, such as for overhead facilities and energy. The analyst from the research outfit Aidan Gough wrote, "The outlook is still in the balance with 50% of firms contracting or in survival mode. We are unlikely to see any significant increases in employment or growth in the short to medium term. However, the roadmap is very clear. We need more companies exporting and innovating."

The Irish consumer is especially weak, as 70% of all companies surveyed cited reduced consumer demand as a concern. The one third of businesses that moved to decrease prices over the last quarter must contend with a struggle to remain profitable. Only one is six companies currently describe themselves in growth or expansion mode. Such sectors in growth mode are manufacturing (23%), business services (23%), or other services (23%). See the Business Insider article (CLICK HERE). The IMF poison pill of austerity will continue to kill the nation. Extreme intimidation, if not bribery, resulted in the national leaders deciding to accept the European Central Bank solution that bailed out big banks, slashing budgets, and leaving table scraps for the people. In no way is the Irish Economy enjoying a stimulus. It instead is given a very heavy blanket that suffocates, while the entire cost structure rises. The monetary inflation card has been played in a big way, as their printing of money on a relative basis has been equal to the US excesses, blessed or not condemned by the European Central Bank. Costs rise in lockstep to smother the economy. In my view, Ireland provides a microcosm example of what comes to the United States after a housing bust and sham remedy to the insolvent banks. Ireland is on a fast track. The US benefits from dragging the process out with 0% rates held down with brute force.

◄$$$ THE CHINESE GOVT WILL ASSUME THE COST OF UP TO $460 BILLION IN LOCAL AND REGIONAL DEBT, FROM LOANS TIED TO A MASS OF CONSTRUCTION PROJECTS. HAVING A $3 TRILLION WAR CHEST ENABLES THE BEIJING LEADERS TO COVER A MULTITUDE OF PROBLEMS. MUCH MORE OTHER BAD DEBT FLOATS IN THE MIDDLE KINGDOM. THIS DOWN PAYMENT USAGE OF RESERVES INVITES SOME DEGREE OF PRICE INFLATION. $$$

China has a heap of bad debt strung through its entire financial system. But it also is in possession of over $3000 billion in reserves, a huge war chest. Last week, the Chinese central government announced it will assume responsibility for between 2 and 3 trillion Yuan (=US$308 to 463 billion) in risky loans extended by Chinese banks to local financial vehicles, known as Local Government Financing Vehicles (LGFV). The purpose is to cover soured loans that funded the construction of infrastructure and other projects as part of its economic stimulus over the last few years. The move provides enormous quick broad relief to numerous Chinese banks, which seem profitable but struggle to exit from under large losses. The scattered banks will be off the hook for losses. In essence, the Beijing leaders are distributing a large portion of the national reserves in a sort of aid to the provinces, like USGovt aid to the 50 US states. A portion of the massive reserves will be put to usage, an expectation of the Jackass for a long time. A ripe $3 trillion covers many deep blemishes, enough to buy a year of time. The LGFV loans are sort of like Fannie Mae loans, thought to be backed by the full force of the USGovt. Here these loans were thought always to be backed by the Chinese Govt. However in the current plan, up to $460 billion might be a down payment on such loans going bad, since many have no cashflow support, as in public service projects. The banking sector has other exposure to more risky types of loans, home mortgages, real estate development loans, emergency working capital loans for exporters, business loans diverted to stock and real estate speculation, business loans collateralized by land at inflated valuations, and bonds issued to finance the ambitious high-speed rail system. Perhaps another $500 to $1000 billion will later be devoted to aid the soft parts of this gaggle of loans that bind additional losses.

The LGFV loans targeted for aid will not be paid in full. Rather, the federal regulators will oversee their refinancing in the form of local, provincial, or central government bonds. A murky mess is involved in the bookkeeping. Much of the bad debts are buried deep off balance sheet, using unbacked securities due to be indefinitely rolled over, with the buried losses never being recognized. The banks might be stuck with some perpetually low yield bonds and loans on their balance sheet. We could be seeing a combination of both covering bad loans with actual wealth, but also repackaging still huge debt, as in kicking the can down the road in Western style. To be sure, local governments will enjoy a lighter debt burden. Beijing might be positioning them to accept more debt later. The entire bank reform movement could be enhanced or side-tracked, as yet unclear. A risk fills the room, since with fresh funds released in a massive stroke, the Chinese Economy might respond with price inflation. When pent-up funds are released upon an economy, this is the usual outcome. Reserves stuck in USTreasury Bonds, EuroBonds, and other financial securities like corporate bonds or stock index baskets are sterilized from the domestic economy. Suddenly almost half a $trillion is to enter the Chinese Economy. The impact will involve some degree of price inflation, when already it is rising. The CPI in China for the twelve months ending in May was recently measured at 5.5%. The Peoples Bank of China raised bank reserve ratios last week for the ninth time since last October in response to the CPI that creeps upward. See the Chovanec article (CLICK HERE). Bear in mind that the true US-based CPI is on the order of 9.0%, much higher.

◄$$$ RUSSIA & CHINA SLAMMED THE TABLE FOR LESS ANGLO INFLUENCE IN THE MIDDLE EAST & NORTH AFRICA. THE STAGE IS BEING SET FOR A NEW SAUDI-LED SECURITY PROTECTION PACT IN THE PERSIAN GULF. AT RISK IS THE PETRO-DOLLAR STANDARD THAT UNDERPINS THE USDOLLAR AS GLOBAL RESERVE. REMOVE THE SECURITY ELEMENT, AND NEXT THE EXCLUSIVE OIL SALES IN US$ TERMS. LIBYA AWAKENED THE EASTERN SUPERPOWERS. SYRIA IS THEIR LINE IN THE SAND. WATCH SAUDI ARABIA FOR THE NEXT IMPORTANT SIGNAL. $$$

Syria is proving to be a test for Anglo influence in the Arab world, where resistance is being pushed by Russia and China. The Anglos in the last several years have demonstrated a tendency to incite war, to install regimes, to lay claim to resources, and to redirect wealth through channels into London and New York banks. The elements of exploitation are quite evident. The last wall could be Syria, where violence has erupted, government brutality is obvious, but Western involvement might not happen. Leaders from Russia and China have warned the West against further Arab interference. The examples of Tunisia, Egypt, Bahrain, and Libya have fortified the resistance. Russia opposes the UN Security Council in any resolution adopted to take action against Syria. The Russian Military has an active seaport on the Syrian coast. Presidents Dmitry Medvedev and Hu Jintao conducted a meeting last week in the Kremlin. Their declaration stated, "The sides believe that the search for settling the situation in the countries of the Middle East and North Africa should take place in the legal field and through political means. Outside forces should not interfere in internal processes in the countries of the region. [Rather, the conflicts should be solved] by launching broad national dialogue about rebuilding stability and social order and the promotion of democratic and economic reforms." The Russian opposition to UN sanctions against Syria was reiterated by the Russian foreign minister. The two centers of attention are Libya and Syria both. See the Breitbart article (CLICK HERE) and the Daily Star article (CLICK HERE).

◄$$$ AN OPERATION TWIST REDUX COULD BE ATTEMPTED. THE USFED MIGHT ATTEMPT TO PUT A YIELD CAP ON THE 10-YEAR USTREASURY YIELD, AS ROSENBERG EXPECTS. BUT BILL GROSS OF PIMCO FORESEES MORE CHALLENGE AHEAD. HE EXPECTS TO SEE THE USFED REACT TO A DIFFERENT EMERGENCY ON THE SHORT END. THE USFED MIGHT SEE THE DIRE NEED TO PUT A YIELD CAP ON THE 2-YEAR YIELD. THAT IS WHERE MOST OF THE NEW USGOVT DEBT AND ROLLED OVER USGOVT DEBT WILL BE SOLD. IT WILL BE FLOODED WITH SUPPLY. GROSS SEES DANGER. $$$


The experts are lining up with predictions. Competent (often quoted in Hat Trick Letter) David Rosenberg expects the USFed to make a major program in a redux of Operation Twist. It was an initiative in 1961 to stem the gold enthusiasm. Rosenberg expects the USFed will attempt to completely clear the 10-year bond in the market in order to contain inflation expectations. The USFed is about to embark on a grand doomed gamble, to control its wrecked ballooned balance sheet and to target long-term interest rates. No way in hell they can manage to succeed with both, no way!! He expects the USFed will exhaust itself in clearing the long-term USTreasurys, and do so at a targeted bond yield. Rosenberg expects the central bank will lose control of its balance sheet in the process. He calls the upcoming program Operation Twist 2, anticipating their revulsion to call it QE3 more accurately. The desperate hope is for this policy to blaze the trail for a turnaround in the housing sector and hence a durable recovery in the USEconomy. It is a long shot destined to fail. Everything they have done so far since the Lehman Brothers collapse and Fannie Mae nationalization has been a dismal failure, but without public acknowledgement. They will discourage all buyers, and leave a vacuum within the USTreasury market of longer maturities. Why buy if the USFed is buying all? The big inherent risk is for a ruined USFed balance sheet, that explodes upon uncontrolled expansion. Chairman Bernanke might have promised to make sure it does not happen here, at a speech to the National Economists Club in WashingtonDC in November 2002. That promise will be broken. The USFed balance sheet is over $1 trillion in the red. He also boasted that the monetary press can pay all the debts without cost, a lunatic comment bound in pure heresy. See the older Zero Hedge article that explains the entire program (CLICK HERE).

Enter Bill Gross of PIMCO pedigree, where excellence prevails, but with a dose of insider information to help it along. Gross expects a grand reaction. Look for a wrinkle to the old Operation Twist, stemming from the USGovt debts that must be covered. The great majority of auctions are on the short end, where the yield paid is much lower. They handle the new USGovt debt issuance and the rolled over maturing USGovt debt both. With $1.5 trillion in deficits to fund, and a handful of rollovers to fund, the goal to cap the 10-year USTreasury Note at the long end will fade, as a bonfire will burn on the short end that requires urgent attention. The USEconomy is in the process of grand deterioration from the cost squeeze that few analysts wish to discuss, well forecasted here in the Hat Trick Letter. As a consequence, the 10-year USTreasury yield might take care of itself. However, as price inflation rears its ugly head much more determinedly, and as foreign investors dump long-term USTreasurys wholesale, the 10-year might start acting erratically. After QE2 was announced a year ago, the 10-year jumped in yield, since investors (domestic & foreign) dumped their bonds ahead of time. My best forecast is the 10-year USTNote yield could rally to 2.5% without need of any capping, but when price inflation grows worse and foreign creditors abandon ship worse, its yield might start to rise in a manner totally undesired by the USFed or housing market.

Instead, the bonfire of USTreasurys will occur at the 1-year and the 2-year USTBills. Bill Gross has that inside information edge, from Lawrence Meyer, and has been tipped off. He gave it away in a Tweet message. He informed that the twisting will occur at the short end, in a disturbing scenario described. Gross expects the USFed to totally lose control of its balance sheet, a nice way of seeing it expands in size beyond any recognized manageable limits, and takes staggering losses on the mortgage side. The great change in the winds is the perception among bond experts that the USFed is about to lose control of the short end from a supply flood, perhaps price inflation also. It has never had much to worry about on the short end, so close to the controlled Fed Funds rate. An early hint of the Gross twist showed up last week. Not a single OTR 2-year bond was tendered to the USFed during a Permanent Open Market Operation. Gross summed it up by asking "Why sell today at 0.44% when you can wait a month and sell them back to Brian Sack at 0.00% [for a nice profit]?" See the Zero Hedge article (CLICK HERE).

USDOLLAR WRECKAGE FACTORS

◄$$$ THE KEYNESIAN PROJECT LED BY THE USFED, AGGRAVATED BY DEPENDENCE UPON ASSET BUBBLES FOR ECONOMIC GROWTH, COUPLED WITH A STRING OF WARS, HAS RESULTED IN A GRAND DEBASEMENT OF THE USDOLLAR. IT IS BEING DESTROYED. THE MONETARY BASE IS STILL RISING RAPIDLY. THE USTREASURY HAS LOST IS SAFE HAVEN STATUS, DUE TO THE HYPER MONETARY INFLATION (QE, QE2). THE USTREASURY BOND BUBBLE ACTS AS A BLACK HOLE. WITNESS THE END GAME. THE GLOBALIZATION MOVEMENT ASSURED A FINAL CHAPTER. $$$

The USEconomy itself is dying from systemic insolvency for banks, households, and government function, assured to continue by the lack of industry. The USDollar death process is from a thousand economic cuts, coupled with the unending flow of green acid in liquidity. It is death by absolute relentless debasement of the currency. It is death by global revolt against unilateral debt writedown from monetization of debt. It is also death by global isolation of a rogue nation bent on bond fraud, war confiscation, and narcotics monopoly. The big US banks depend heavily upon narcotics money laundering, the dirty secret. The debilitated Euro currency can offer brief periods of respite, but the ultimate killer is the unresolvable USGovt deficits. All domestic income could be confiscated, but the USGovt deficit would continue. All government function could be eliminated except Social Security and Medicare, but the USGovt deficit would continue. That guarantees the end outcome from a collapse. Current debt limit debate exposes the futility of the process. A USGovt debt default will come, all in time. The road is merely dressed up by gimmicks, debate, distractions, denials, isolation, anger, and fear. The United States is Greece on a much larger comprehensive scale. Ironically, when Greece defaults finally, the USGovt default will be regarded as inevitable with much more clarity.

A much bigger breakdown is in progress. The End Game for the modern era of fiat paper currencies is in progress, actually at a late stage. The USDollar is running out of reprieves, where the world hunkers down into USTreasurys, or money moves away from the broken Euro, or central banks attempt to weak their own currencies, or credit derivative payouts secretly lift the broken global reserve currency. A breakdown below 70 to 72 means the Death of the USDollar in a parade of abandonment. The ongoing debt monetization known as Quantitative Easing represents the final epitaph on the US$ tombstone, since hyper monetary inflation obstructs the movement of money into the USTreasury Bonds. They are the final asset bubble, with Gold acting as the very audible alarm bell. Unlike the housing bubble and its mortgage finance twin bubble, the USTreasury Bubble takes wealth away from domestic savers and discourages foreign creditors. Notice how stock equity loses to USGovt debt in the USTreasury Bond, which forms the Black Hole. It is joined by its sister black holes in Fannie Mae, AIG, and the Pentagon itself. The serial war costs have drained capital from the United States for five full decades, responsible for half of the $14 trillion national debt.

The USEconomy has become a Frankenstein creation by Wall Street and the Pentagon both. The US Federal Reserve is being exposed as a syndicate fortress steeped in corruption. Witness the End Game of the USDollar. Its kill switch in my view is the Petro-Dollar rejection, where crude oil no longer is exclusively sold in US$ terms. That event unravels the global banking system held hostage to the corrupt platforms that form its foundation. The 20-year chart is the billboard warning sign. Actually, the string that has pulled apart the global economic and financial fabric is Globalization itself. The baton of power, leadership, and prestige is being handed to the East, led by China.

◄$$$ THE $3 TRILLION CHINESE S.A.F.E. FUND MANAGERS WARNED THAT EXCESSIVE US$-BASED HOLDINGS CARRY HIGH RISK. GAMES ARE BEING PLAYED ON STAGE. THE GLOBAL SENTIMENT IS TURNING NEGATIVE TOWARD THE USDOLLAR, EVEN BY ALLIES. $$$

Despite a quick retraction, the damage was done when the Chinese SAFE sovereign wealth fund manager Guan Tao warned about their oversized USTreasury Bond holdings. He pointed to fiscal irresponsibility and monetary expansion behind the risk. The comment was retracted, as Tao explained his comments were his personal view only. Jeepers, as though his personal and official views differ! This was perhaps the 5th or 6th time the big fund managers have openly expressed their concern, if not disdain, for the oversized US$-based assets held in reserves. On the other side of the Pacific Ocean, closer to the US den was Bank of Canada head Mark Carney. Although of Goldman Sachs pedigree, Carney told a private circle that the entire United States is going to hell in a hand basket, in his words. In broad banking nests is the veiled disrespect, contempt, and even loathing of America financial hegemony. The norm is to maintain a proper facade, except in China.

◄$$$ SAUDI WEALTH FUNDS ARE AT GREAT RISK FROM THE US$-BASED FINANCIAL IMPLOSION. REGIONAL ECONOMISTS ARE WARNING THE SAUDI FUND MANAGERS OF THE HEIGHTENED RISK. THEY POINT TO HUGE USGOVT DEBT THAT CONTINUES TO MOUNT. SAUDI ECONOMISTS EXPECT A BASKET OF CURRENCIES TO SUPPLANT THE GLOBAL RESERVE CURRENCY. $$$

Arab economists are busy warning the Saudi investors that mounting USGovt debt threatens Saudi investments. They point to the weak USDollar. They question the legitimacy of the US securities as safe haven. Economists told Al-Eqtisadiah, a sister publication of Arab News, that the hegemony of the US dominance in the world economy would not last long, given the $trillions in US debt which grow without control. USTreasury Bonds make up 70% of Saudi investment in the United States overall. Financial expert Raja Al-Marzouki put emphasis on the declining USDollar and its negative impact. He predicts its decline would continue. He said, "As a result all investments and deposits would diminish, affecting Saudi income, purchasing power, and profitability. Saudi investors must be aware of the danger posed by investing in a single currency." He expects a basket of currencies to soon control the world economy in the future. He recommended diversification, the euphemism for leaving the high risk USDollar. Al-Marzouki believes that any basket of currencies to replace the global reserve currency should include those from developing countries, due to their increasing role within the world economy. Others made more severe comments. The basket concept is unworkable in my view. It would fashion a raft of equally faulty paper currencies. Only metal can replace paper. The Saudi economist might be aware, and only put forth the basket as a substitute to deceive US watchers, a straw man.

Abdul Rahman Al-Sanie, an economics professor at the College of Business Administration, advised Saudi investors to withdraw their investment from the United States as quickly as possible before it is too late. He said, "For the last 20 years, the US dollar has been in a falling mode as a result of the country's economic and political policies, such as the Gulf War, the war in Afghanistan and Iraq, and the US banking crisis, which resulted in increasing the country's public debts to $8 trillion. We have to review our investment in the dollar. About 30% of our foreign investment is in the United States. This is a huge amount with regard to the Saudi economy. We expect more industrialized countries to return to the previous policy of the gold standard." The enlightened professor believed that the dominance of the USDollar would not last more than five years. He expected that the G-20 nations would remove the USDollar as the basic currency of the World Bank and propose a basket of currencies and Gold reserves to strengthen the bank. The class clown economist in the group was Ihsan Bu-Hulaiga, a former member of the Shoura Council. He errantly called the USDollar still a good option for investment. He maintained the mistaken notion that investments in US commodities would not be affected by the falling USDollar. He must have been edumacated in US universities. See the UrukNet article (CLICK HERE).

◄$$$ THE US-TRADE GAP FOR APRIL CAME DOWN TO $43.7 BILLION. CRUDE OIL IMPORTS FELL, TO CONFIRM USECONOMIC RECESSION. THE BILATERAL TRADE DEFICIT WITH CHINA JUMPED NEARLY 20% IN APRIL TO $21.6 BILLION, STILL WAY AHEAD OF THE PACE FROM LAST YEAR'S RECORD OF $273 BILLION. $$$

Big cross-currents are obvious in the trade gap data. Most of the effects are negative. The factors are a jumbled mess. Crude oil imports fell by $2.42 billion as prices rose. The average price of crude oil rose to $103.18 per barrel, the highest since September 2008, showing a huge monthly jump. The volume of crude oil imports fell to 8.41 million barrels per day, pushing the overall US oil import bill lower in April. Regard this as an USEconomic decline indicator. The floods in the Central Plains and tornados in Alabama did reduce activity somewhat. A big piece was the huge 25% tumble in imports from Japan in the aftermath of its earthquake, tsunami, and nuclear incident. Regard this as a global economic decline indicator, with far reaching impact within the industrial supply chains. The $3 billion drop in imports from Japan from March to April was the largest on record. US car and parts imports from Japan and other suppliers fell $2.8 billion. Supply disruptions in Japan have cut vehicle production at US plants. Combine this cutback with Japanese exports to the US to make a staggering 300,000 to 400,000 unit decline in the second quarter. As a result, total US imports fell 0.4% to $219.2 billion, even as imports of foods, livestock feeds, and beverages set a record.

US exports were aided by a weaker USDollar. Exports rose slightly by 1.3% to a record $175.6 billion, led by higher shipments of industrial supplies, materials, and capital goods. The export side of the equation is so small, so late, and from a base so lacking. The exports must rise by over 20% to make a difference. The 1.3% sounds good, but is woefully inadequate, due to a depleted if not neglected industrial base. The de-industrialization of America requires a decade long initiative to reverse, given the utmost in national priority. In the last decade, a significant portion of the US base of factories was shipped to China. The US consumer grew more dependent upon a housing bubble for equity withdrawal, resulting in what has become a tragic march to systemic failure and foreign debt dominance. On the queer positive side, or apparent signal of benefit, the narrower than expected deficit will be positive for 2Q2011 US economic growth. The statistical inner workings provide for a lift on the domestic side when imports are reduced, even if from clear movement in reverse, as in USEconomic recession. Ironically, the most convincing data for economic recovery is a rising trade deficit, not falling deficit. See the Bloomberg article (CLICK HERE).

◄$$$ RETAIL SALES FALTERED AS THE USECONOMY ACCELERATES IN RECESSION. BLAME IT ON THE WEATHER, FLOODED PLAINS, BURNING GRASS, A FULL MOON, AND SUN IN THEIR EYES. THE DECLINE IS GAINING MOMENTUM. THE VIVID SLOWDOWN WILL BE REFLECTED IN A FALLING USDOLLAR FOR ECONOMIC GROWTH REASONS, APART FROM MONETARY INFLATION DEBASEMENT OF THE CURRENCY, A DOUBLE WHAMMY. $$$

US May retail sales posted the first drop in 11 months, a 0.2% decline. In the last 12 months, retail sales rose 7.7% through May. Retail sales last month were depressed by a big 2.9% drop in sales of motor vehicles, the largest decline since February 2010, attributed to parts shortages in Japan. Excluding cars, retail sales rose 0.3% last month, the smallest gain since July. The retail report was the latest in a spate of extremely weak data. The USEconomy started the year on a soft note beset by bad weather and rising gasoline prices at the pump. Receipts at gasoline stations rose 0.3% after increasing 1.4% in April. Excluding gasoline, retail sales fell 0.3% in May. Sales of food &  beverages fell by 0.5%, while sales at sporting goods, hobby, book, and music stores fell by 0.4%. Sales of electronics and appliances fell by 1.3%, the largest decline since March 2010. Regard electronics as a discretionary item and appliances as a necessity item. On the positive side, clothing sales rose 0.2% in May, while sales of building materials & garden equipment rose 1.2%.

Core retail sales reflect the mainstream, apart from transportation and construction, corresponding most closely with the consumer spending component of the USGovt gross domestic product report. Core sales rose 0.2% in May after advancing 0.3% in April. In the continued grotesque imbalance, consumer spending accounts for more than two thirds of USEconomic activity. Americans persist in consuming capital rather than investing capital in new businesses as part of the capital formation process. Economists are blind to this basic concept. Consumer spending grew at a 2.2% annual pace in the first quarter, but subject to goofy adjustments to paint a better picture. See the Yahoo Finance article (CLICK HERE). Notice the spate of poor economic data in the Money War Report this month. Yet another dreadful data point was entered last week, as the Empire State index came in at minus 7.79, from last month's 11.88 reading. The Philly Fed confirmed on the dreadful side, with a minus 7.7 June reading after the 3.9 in May. the USEconomy is moving into reverse fast.

◄$$$ THE GAP BETWEEN BRENT OIL VERSUS WEST TEXAS OIL PRICE IS GROWING HUGE. WALL STREET FIGHTS TO PREVENT EVEN WORSE COST INFLATION. THE GREAT ENERGY COST SQUEEZE CONTINUES BUT WITH A WRINKLE. THE EUROPEAN OIL PRICE MOVED MORE THAN $20 HIGHER THAN THE NORTH AMERICAN OIL PRICE. NUMEROUS FACTORS ARE AT PLAY. THE CUSHING FACTOR IS EXAGGERATED GREATLY, EVIDENCE OF DECEPTION. $$$

The spread between the Brent crude oil price and the West Texas crude oil price first attracted broad attention last January, when record spreads were set. Many explanations were offered, few more than mere propaganda to cover reality. Back then, the Wall Street gamers were busy plying their trade, selling down the US crude oil contracts, helping to fortify the USDollar, attacking hedge funds by forcing their liquidated positions, and much more. They fight feverishly to prevent a powerful cost inflation event. Even the Saudis over a year ago dimissed the US price, by ordering their own OPEC contracts no longer to honor the West Texas Intermediate Crude oil price. They largely use the Brent price out of Europe. That was a very important split, a veritable schism between the Saudis and their American handlers. A JPMorgan report submitted in January warned that the spread was likely to persist and even widen. They went contrary to Goldman Sachs, whose research issued a forecast of the West Texas price actually surpassing Brent in time. Then again, GSax routinely trades off their duped clients to ruin them and to enrich themselves. As backdrop, note that all major oilfields are in deep decline, from Cantarell in Mexico, to Ghawar in Saudi Arabia, to Burgan in Kuwait, to Samotlor in Russia, to the North Sea generally. See a comprehensive list of major oil fields across the world (CLICK HERE). Canada has no major oilfields except the Athabasca tar sands region, and output continues merrily along.

The crude oil spread had widened to over $23 per barrel early last week, enough to cause greater attention and the quest for further explanations. The differential has since relaxed to $19, still very large. The spread made a sharp $7 jump in just the past few days, to reach the largest spread in recent history. While the US price had hovered near 100, the Brent price had been steady at 120. The Jackass has several thoughts, nothing definitive. They focus on factors to push the Brent price higher, and factors to push the US price lower. The many factors do battle regularly with an ebb & flow. Begin with the Brent factors to keep the oil price high. Start with the most significant factor. The Libyan war has caused up to 500 thousand barrels of oil production to go offline. It is surprising that the Italian Economy has not suffered more disruption, since they import more oil from Libya than any other nation. More supply interruption is evident among the Middle East & North African region, lately called MENA. The Suez Canal is back to normal flow of traffic, whose kinks were blamed for higher Brent prices when Egypt had their protests and regime change in March. The crude oil price shown as European Brent lies outside the heavy-handed control by Wall Street bankers. To be sure, the London bankers can ply their trade, but with North Sea participation from both England and Norway, they seem to suppress the price less. The Saudis have much less oil in reserves or in production than they admit, a national dirty secret. As reported here, the Ghawar water cut is at least 95%, meaning under 5% of what they pump out of the field is actually crude oil. To be sure, the emerging nation economies are growing, while the US, England, and Western Europe are contracting. Demand from emerging economies like China and India grows relentlessly.

Next touch on the West Texas factors to keep the oil price low. The Wall Street hoodlums run rampant over the entire commodity market. They push down the paper contract prices for gold, silver, crude oil, natural gas, and soon perhaps copper. JPMorgan has a new significant position in copper, possibly to enable its rise which would finance its disastrous short silver position losses. Routinely, Wall Street firms target their own hedge fund clients who stand in opposition. They observe the size of positions and the critical price points that would force liquidation. A closer look at the Raj Rajaratnam positions held on the Galleon Group would possibly show a contrary stance against Wall Street surviving giants. Lehman Brothers, like Bear Stearns, often held large positions in opposition to the larger Wall Street banks. Then consider that Goldman Sachs bought significant New Jersey oil tank storage facilities in 2009. Only one reason would motivate such a major investment, to hold huge crude oil supplies off the grid, away from the official exchange data for monitoring inventory. GSax can hold huge crude oil supply off the market, push the price down with futures contract devices, then later permit the price to rise and realize gigantic profits. Such legal maneuvers complement well their illegal activity like frontrunning observed order flow on the NYSE, bond misrepresentation and counterfeit, as well as sovereign debt concealment with currency swaps.

The US crude oil market is caught in a down phase this spring. To be sure, less energy is consumed in the flooded Central Plains, after a month of incessant rain. The Mississippi River barge traffic interruption reduced oil refinery demand of crude oil. The Cushing Oklahoma storage complex is flush full with crude oil, actually at capacity across the complex. It serves as the delivery point for West Texas crude. Perhaps the biggest factor in my view for lower US crude oil price is the accelerating USEconomic recession. The impact, well forecasted from the cost squeeze on businesses and households, has begun to take a major toll. The effect is seen on a broad basis. The great cost squeeze continues. The USEconomy is gathering lightning speed on the downside with reduced oil demand, evident in the trade gap data. A final point is that the oversupply of crude oil in North America gave motive for the USGovt to shut down the Gulf of Mexico offshore drilling operations. Prying eyes to detect sabotage on the BP Deepwater Horizon platform, or to monitor the San Madrid fault erosion, or to see widespread ecosystem ruin, or to detect the third major oil spill, would all be embarrassing. The USGovt does not require a valid reason for edicts.

Below is offered the vapid shallow valueless analysis by David Greely of Goldman Sachs. This brilliant firm permits drivel to be released from time to time, to cover its tracks and to plead mediocrity, but only occasionally. He attempts to explain the unprecedented divergence, but he earns a "C" grade to go with his half $million salary. He wrote, "After trading in a range between minus $10/bbl and minus $15/bbl for the past 3 months, the WTI-Brent spread collapsed at the beginning of June, to a record low close of minus $21.80/bbl on Monday. The recent collapse of the WTI-Brent spread raises something of a puzzle in that the usual suspects, the logistical issues surrounding the WTI delivery point in Cushing Oklahoma, are not to blame. It is true that the logistical issues surrounding Cushing are responsible to a large extent for the wide discount of WTI to Brent this year. In particular, the WTI-Brent spread set its prior record low in February of this year, when the opening of the Keystone pipeline into Cushing and a string of unplanned refinery outages in the US midcontinent led to the dislocation of the US midcontinent crude oil market from the rest of the world crude oil market. Further, the logistical issues surrounding Cushing also seem to bear responsibility for the WTI-Brent spread remaining wider than we anticipated from March through May. However, the recent June decline of $7.77/bbl in the WTI-Brent spread has been primarily driven by the weakening of the US Gulf Coast light sweet crude oil prices relative to Brent crude oil prices, not a Cushing bottleneck." The preoccupation with Cushing is glaring. Notice he actually says the spread is driven by falling West Texas oil price, without any discussion of why. Falling price is driven by falling price! It is largely due to the USEconomy and reduced demand, as in recession. This analyst has no idea what is going on in the crude oil market, apart from Wall Street suppression in usual tactics. See the Zero H edge article (CLICK HERE) or the Seeking Alpha article (CLICK HERE) and the chart below. A footnote, West Texas crude has fewer impurities, and thus typically had a higher price than Brent which contains far more contaminants, until 2008 when Wall Street and the US banking system went bust.

CRAZY STIR OF INFLATION EFFECTS

◄$$$ MEXICO MIKE WENT ON A FIELD TRIP ACROSS THE MIDWEST UNITED STATES. HUGE FOOD PRICE HIKES SHOULD BE EXPECTED AT HARVEST SEASON, SINCE NOT MUCH CROPS WILL BE HARVESTED IN THE LOWER 48 STATES. THE FLOOD DAMAGE HAS ELIMINATED THE ENTIRE GROWING SEASON FOR A LARGE SWATH OF AMERICAN FARMLAND. PREPARE FOR HIGHER FOOD PRICES LATER THIS YEAR. $$$

Mexico Mike has been followed here for five years, a reliable bright fellow with solid information and insight, usually within the gold mining sector. He offered a field trip report. He wrote, "I just returned home from a long road trip through the Midwest. I have been seeing the images of flooding in the South on the news and it looks pretty bad. I am not hearing a lot about what is going on in the North and the Midwest. After seeing it for myself, I am very concerned. I drove through hundreds of miles of flooded farmland, hour after hour of seeing huge lakes in the middle of fields that would have had nice crops growing by now in a normal year. I also frequently saw farm equipment awash in the waters, along with tractors and rolling stock. I would assume some or all of this flooded equipment is destroyed or severely damaged, making the next year of operations more difficult for these farms. The landscape is not flat. There were plenty of dry areas on the high ground that cannot be farmed efficiently because everything around is underwater. It was raining when I was outbound, and it was raining like hell on the way home. The locals tell me it has been this way all spring. Some farmers think it will be late summer before the land is dry enough to farm, which means an entire growing season is lost. So this probably takes a huge chunk of the total crop yield for the country off the table. Now combine that with the effects of droughts or flooding in other major farming districts of the world, and you have the potential for a serious problem. Canada and the United States are major agricultural nations that produce more than we eat. However, the rest of the world needs to eat too. The price for food commodities will be bid up to the point where domestic prices continue to skyrocket. The core inflation numbers will not show this increase and the talking heads may try to pretend that things are good, but the average person on the street is not going to be able to ignore the impact on their wallets as this latest problem works through the system." Wow! The supply side of the equation dictates higher food prices, at a time when the USDollar effect also sends the entire cost structure upward also. Prepare for much higher food prices this autumn, when the harvest disappoints.

◄$$$ FOOD PRICE INCREASES CONTINUE, WITH NO REST. THE FORECAST IS FOR HIGHER MEAT PRICES LATER THIS YEAR. FOOD MAKERS CAN NO LONGER RESTRAIN PRICE HIKES OVER CONCERN TO MAINTAIN MARKET SHARE. $$$

Food prices climbed further at grocery stores in the last month. The financial markets matter little to the real world where a powerful cost shock is underway. Shoppers paid 4% more for a basket of 16 food items at the supermarket in May compared to February, the American Farm Bureau Federation reported in its latest informal survey. They conduct a quarterly poll based on 72 shoppers in 30 US states. Their economist John Anderson said, "Further retail price increases are likely to be the new normal as we move through 2011, especially for meats." The total average cost of 16 items used to prepare one or more meals was $51.17, up $2.10 from the previous survey, with sirlion tip roast, russet potatoes, sliced deli ham, and bacon increasing the most in price. Whole milk was up 16 cents to $3.62 a gallon, while toasted oat cereal cost was up 12 cents to $3.17 per box. Smuckers, maker of Folgers coffee and Hungry Jack pancake mix, announced a price hike of 25% over the next 12 months. Just two of the 16 items surveyed dropped in price. Boneless chicken breasts dropped 23 cents to $3.09 per pound, and shredded cheese dropped 7 cents to $4.56 per pound. The producer price hikes work in delayed fashion, since they attempt to hold the line until they cannot tolerate more pain. They surrender to internal pressures, despite concern to maintain market share. US food conglomerate firms, such as Kraft Foods, Kellogg, and Sara Lee, have been raising prices to defend against a sustained surge in costs to buy corn, coffee, oats, and other staple food ingredients. Skyrocketing fuel costs provide another slam factor, adding to the cost food makers pay for freight and storage. Based on first quarter reports, Kraft appeared to be the only major food company that was able to raise its prices enough to cover its commodities tab.

◄$$$ IMPORT PRICE INFLATION SHOULD ARRIVE THIS SUMMER. WATCH WAL-MART FOR THE INDICATION, SINCE A DEVOTED CHINESE SUBSIDIARY MORPH. THE ASIAN PRODUCERS WILL EXPORT INFLATION TO THE UNITED STATES, IN A MEGA-TREND REVERSAL. $$$

US import prices rose for the 8th straight month. The pattern is only beginning, whereby Asian producers of finished products raise their prices for exports to the USEconomy. The grand reversal is beginning, where the US imports inflation in a big way. US import prices rose in May despite a drop in fuel costs. Petroleum import prices fell 0.4%, the first decline since September 2010, a temporary condition and benefit from Wall Street intervention. The year-on-year increase reached its highest level in nearly three years. In the twelve months to May, import prices have surged 12.5%, the largest gain since September 2008. The USDept Labor reported that import prices climbed 0.2% last month, confounding hack US economists who forecasted a 0.7% decline. The US import prices in April were revised upward to show a 2.1% jump. The clueless cast of US economists must not be aware that the lower USDollar has caused significant cost increases to the Asian producers. They are passing along higher costs finally to their American customers. The May consumer price inflation index rose by 3.6%, in a steady climb over the last twelve months. The index is kept low by effective praiseworthy methods, like substitution of dog food for human food, like conversion to home prices instead of rents, like hedonic adjustments that give credit for quality improvements, so that as a result it reflects little from reality. All components for the CPI are rising faster than the overall CPI index. Hmm!

◄$$$ THE TRUCKING INDUSTRY FIGHTS OFF BANKRUPTCY. THEIR CHALLENGE TYPIFIES THE STRUGGLE FOR THE USECONOMY TO AVOID DISTRIBUTION PROBLEMS AND EMPTY STORE SHELVES. $$$

Trucking firm profits are facing major headwinds on the road to survival this year. Higher gasoline and diesel prices have cut into profits drastically. Truckers have responded by raising prices and adding fuel charges to delivery customers. The American Trucking Assn advanced statistic on For-Hire Truck Tonnage Index decreased 0.7% in April after gaining a revised 1.9% in March 2011. See the Yahoo Finance article (CLICK HERE). The massive struggles presented to truckers will result in fewer trucks on the road, fewer truckers in business, and more refusals by customers at shipment destinations to make orders. Expect by yearend that many retail shelves will be partly empty. Again, watch Wal-Mart for the best indication. However, their logistics is perhaps the finest and most efficient and high tech in the world. So if they fail to maintain inventory on the shelves, the rest of the pack will be in worse condition. If they raise their prices, other retail firms will raise prices more.

◄$$$ AN IMPORTANT THIRD FACTOR DETERMINES PRICE. IT IS NOT DEMAND, AS MOST DEFLATIONIST KNUCKLEHEADS CLAIM. IT IS NOT SUPPLY, AS THE MORONIC FOLLOWERS OF LAFFER CURVE ADVOCATES INSIST. INSTEAD, IT IS THE FALLING USDOLLAR SINCE ALL COMMODITIES ARE PRICED IN USDOLLAR TERMS. LOWER DEMAND WILL NOT RESULT IN LOWER COMMODITY PRICES, SINCE THE MONETARY EFFECT TRUMPS ALL. AN INFLATIONARY RECESSION IS DEEPLY ROOTED IN PROGRESS, WITH A DEPRESSION NEXT TO OCCUR. $$$

What follows is my analysis of the erroneous path taken by the myopic Deflationist fools. The entire table of commodity prices is rising. Since the advent of QE and QE2, the full price structure has been rising much more quickly and noticeably. As the USDollar declines in value, the price of any commodity priced in US$ terms rises. The USDollar is not the constant, as they believe. Gold is, and the USDollar is falling versus Gold. This is basic science, but something that demand side Deflatinionist fools miss, and something that supply side Laffer fools miss. It is best to offer some solid evidence to these people with dull mental capacity, and move on. Sadly, is over their heads. Gold is the constant, as the USDollar moves within its stable golden sphere. The commodities therefore all change in US$ terms as a result. They miss utterly basic principles, spout nonsense repeatedly, remain steadfastly ignorant of their errors, learn nothing in the process, sound arrogant while on the wrong path, and continue to litter the landscape with their drivel and mental excrement. They are an annoyance, even inside the gold community.

Turd Ferguson pitched in with a comment that sets the tone. He said, "Remember Econ 101. Increasing the supply of an item decreases its value. More dollars equals a less valuable dollar. A declining dollar causes all things denominated in dollars (gold, oil, corn) to rise. The dollar is going to be declining farther with the advent of QE3. So the way must be prepared by smashing commodities first, so that they start their next upleg from a lower point. Thus, the fundamentals are overridden." Neither the demand siders nor supply siders can observe that the USDollar itself is subject to Supply & Demand dynamics, with the commodity prices as victims. The bad science artisans focus only upon Supply & Demand for the commodity, steeped in myopia. Note tragically that wages have not risen during the hyper-inflation episode that began with Quantitative Easing.

Turn to my colleague and friend Rob Kirby, who always has deep insight. The Jackass yields to Kirby as a smarter expert on monetary and bond matters. He said, "If those Deflationist guys had any sense at all, any economics knowledge at all, they would realize that if deflation were in progress, the interest rates would be much higher. Instead, the cost of money is near 0%, which goes hand in hand with hyper monetary inflation. If cash money was dear, then the price of money would not be free. It would instead be higher than say 8% or 10%, since it would be valuable. Today, money has been trashed in a grand debasement process, where money no longer has value. This is utterly basic."  My response was thanks, but such basic points are way over the heads of Deflationist Knuckleheads who are focused only on the wrecked housing market and falling final demand generally within the USEconomy.

The Jackass has an old friend and fellow investor from 1999-2000, during the tech telecomm bubble & bust era. TomV has remained a friend, and will be served up as example of a typical misguided soul. He is constantly caught in the deflation nonsense coupled with bizarre notions of USDollar strength through USMilitay power and the lack of alternatives at the global level. So he compounds his ignorance, blind to the global revolt against the USDollar in the form of diversification, bilateral currency swap facilities, and broad energy & resource projects. TomV is a successful fellow who managed to garner a couple $million in profits from Apple stock and option transactions in the last two years. That does not make him intelligent, only shrewd and wealthy. Besides, he has a near 300-yard straight drive off the tee on golf courses. He is a great guy, still a friend. But our conversations have turned vacant and without substance on the other side of the wall. When confronted about wrong forecasts related to the USDollar or gold or crude oil, he repeats simply that "You will see. Like I have said, all countries will be forced to choose deflation." But my forecasts are 80% to 90% correct in the last three years, while his have been the opposite and lack value. He never offers any analysis of a wrong forecast, which have been many consistently. This is typical of the misguided clan. What the Jackass sees is another Deflationist Knucklehead incapable of debate, unable to comprehend the basic arguments of monetary matters and their effect on either the USEconomy or its financial markets. He sees falling values of homes, falling values of stocks, and falling prices of liquidated items at stores. TomV he does not comprehend the rising cost structure of commodities generally from the USDollar effect in impact, or broadly as all currencies decline. He sadly believes the USFed and its promise to tighten on rates, bank reserves, and drain of liquidity. He does not expect a QE3, even disguised. My belief is TomV could not detect it in disguise. He does not see the bluff.

My response has been steady over the last several months. The Jackass argues, "The key part is the second half that you constantly ignore, miss, and are blind to. QE3 will be rolled out strong firm and powerful. Gold will tell you, as it calls the USFed's bluff. It knows how to properly interpret such news. Gold is smarter than the Deflationists, and contradicts them. The gold price has risen a few hundred $$$ while Deflation Knuckleheads like you continue to have your heads lodged firmly up a nether orifice. Gold expects a brisk QE3 soon to be announced that you cannot see. When Bill Gross of PIMCO says QE3 is unlikely, he is goading the USFed. He has shown tremendous disrespect for the entire USTreasury complex recently. When QE3 starts, or better described as Global QE begins, Gross will probably not join the USTBonds again, but rather the Gold train. All nations have chosen hyper-inflation, will continue to choose hyper-inflation, or else the Elite will go broke. This is a truly dumb clueless comment. The Q3 program will not end, only its public billboards will be taken down, since they cause bad publicity. They will inflate but much more in secrecy, and try to suppress the rising prices with controls, but they will fail badly. They will blame the speculators and try to limit their attempts to protect against the falling USDollar. They will try to control the financial markets more, but fail with that also. You have shown a consistent lack of comprehension for much of anything regarding the monetary effects of the QE programs. All you see are the asset crunches in housing and products caught in liquidation. You are half blind. The Deflationist Knuckleheads are focused on housing and mortgage bond assets, plus the cost of labor, which are all distractions to the hyper monetary inflation. You do not read the creditors well. Foreigners are feeling a nightmare on US-based assets, and try to flee from them."

My favorite line with friend TomV points to how Deflation and Inflation will both continue, create a nightmare of a storm in the economy and financial sector, and continue to confuse most people. Instead of demonstrating comprehension, he constantly repeats his errant mantra and another wrong forecast after a skein of wrong forecasts. Thus the lack of intellectual acumen typical to his misguided clan. No, his crude oil forecast of $50 did not come to pass. No, his strong USDollar rally in the last six months did not come to pass. No, his gold forecasts of a 20% retreat did not come to pass. My refusal to follow his advice and sell all the gold & silver in accounts in December during the consolidation has been a good decision. Instead of awakening, he goes deeper into the wrong chamber of perceptions. He does not understand the entire price structure dynamics in US$ terms, and its separation from the Supply & Demand dynamics that move away from the product (like silver or wheat or cotton) and move toward its USDollar pricing. The blindness, stubbornness, and inability to dissect past errors makes the Deflationist clan a laughingstock. If the Deflation Knuckleheads were correct about demand serving as the key influence on price, then gasoline would not have doubled in price in the last 3 or 4 years. Gasoline demand has fallen, a contradiction gone unnoticed. It is about the USDollar which the USFed has debased. The QE and QE2 initiatives have flooded the system with increasingly debased money. One might even conclude that despite $3 trillion in fresh phony USDollars printed, they did not even notice, or gave it no importance. TomV is half blind like the others of that misguided clan. He even called the precious metals investors Gold Knuckleheads. My response was simple, that such a comment is stupid, since gold has risen from $800 to $1530 per ounce since the early months of 2009, when he began his vacant vapid empty Deflation commentary. A knucklehead by definition does not realize a near 100% profit in two years. A knucklehead misses the opportunity, and shows defiance.

TomV offered a rebuttal that lacks logic or insight. He responded to the Kirby argument about 0% cost money that contradicted the Cash is King principle implicit to the Deflationist clan. TomV recently wrote, "This is exactly what I am talking about. Again you and your cohorts are precisely correct on your theory, but your psychological brightness is leaving a lot to be desired. Expensive money is not just dictated by interest rates, which really indicates a lack of borrowing desire but most important the willingness by the bankers to lend." My response was direct and firm and quick. The Jackass replied, "Wrong again, Tom. The cost of money is always a reflection of the value of money. Banks are not lending because they are insolvent. Geez, I hope you noticed that great event as their stocks descended over 80% across the board in 2008. Geez, I hope you noticed the FASB accounting rules changes that permitted the banks to hide their insolvency. Geez, I hope you noticed the continuing load of seized homes in their foreclosure inventory (REO), which suffocate their balance sheets. Geez, I hope you noticed the new wave of Option ARMs that are resetting much higher to harm their borrowers, again. Maybe you did not notice these important things. Maybe you never read the Hat Trick Letter that you claim. Maybe you do not understand the articles and analysis. Maybe you dismiss the evidence. The Gold price confirms the 0% rate, which is far below the prevailing price inflation rate. The Gold price reflects the bank insolvency. The reluctance by bankers to lend reflects their insolvency. The inability to float corporate bonds by bank clients reflects their insolvency also. This seems to be something you choose to ignore, either from stubbornness or ignorance. You should stick with searching for the next Apple trade and seize it, and leave monetary analysis to the experts. It is a smart man who knows his limitations."

Last August 2010, TomV and the Jackass made a gentleman's bet, with full accounting to be made at the end of last year. He pounded the table with three forecasts nine months ago. 1) Crude oil would go to $100 per barrel. We agreed, but in doing so, he contradicted his silly Deflationist stance, without even realizing it, as most of their clan do. 2) The Euro would move to 100 parity. We disagreed, as the Jackass said 130 might be the lowest it goes, a couple months into the bet. A good call since 129 was the low, as the Euro went nowhere near 100 parity. He did not understand my point how the many national EuroBond yields enabled differentiation, thus taking pressure off the Euro currency. He did not respond to my point that the USFed would be last in hiking interest rates worldwide. 3) Lastly, Iran would be attacked. We disagreed, as the Jackass called this event absurd in the summer of 2005, the summer of 2006, the summer of 2007, the summer of 2008, the summer of 2009, and the summer of 2010. Israel has never been keen on suicide, and besides, as the Jackass pointed out in the autumn months, the US & Israel have a nifty Stuxnet tool for jamming the Iranian Bushehr nuclear facility. So TomV got 1/3 correct, and the Jackass 3/3 correct. He owes me a shiny pre-1964 dime, my booty.

My admiration over TomV's Apple stock and option call continues to this day, a gain worth over $1 million in a brilliant investment. He has some other past big profitable trades that have sustained his wealth and comfortable retirement. The Jackass reminds him that he never attempts a big bet on his lunatic USDollar or crude oil forecasts. TomV is one shrewd guy, but not in monetary matters, just like Mike Shedlock, who has earned the Village Idiot label among Deflationists, just like Rick Ackerman, who has earned the King Deflationist label. The housing market demonstrates the systemic failure with staggering momentum in my view. The Deflationists incorrectly believe housing and a weak USEconomy will send all commodity prices down in unison, a short-sighted thoughtless call. Their position is lunatic since they do not notice its steady error. Housing will remain a chief factor for justifying more Quantitative Easing and more USGovt stimulus. The effect to force a declining USDollar exchange rate will continue to lift all costs. The Deflationist Knuckleheads (DK) are experts at focusing on the wrong things, and then making the wrong conclusion with a poor knowledge base of most important factors. So crude oil will go past $120 on the West Texas product, not back to $80 as TomV expects. It looks like oil could fall close to $90 though, as it views the gap from 90 to 95. The DK were talking three weeks ago about crude oil going down to 80. It returned over 100, precisely as the Jackass forecasted in rebuttal two weeks ago, and will climb again. The main error the DK nitwits make is to expect low demand to result in lower prices. No way!! Low demand will accompany inability to handle higher costs and deeper insolvency. Thus the result will be systemic breakdown during the hyper-inflation price process. Prices will not come down across the board in order to enable people to afford them. Rather, the entire cost structure will rise because the USDollar is being debased badly. The DK crowd seems totally blind to the monetary effect on the rising cost structure.

This week, yet another vacant clueless message came from TomV. After the miniscule drop in the gold price, despite crude oil remaining within spitting distance of the $100 mark, he continues his display of mediocrity. He said, "Gold is saying fear of deflation, not inflation." There is no end to Deflationist blindness nor lack of intellectual potency. Give them credit for consistency and persistence, even if wrong all along the way. My response, having lost patience, followed, "What another nitwit comment. Gold is taking the head fake of no continued QE, but not coming down much at all. Geez, a real crater from 1570 to 1530, a mere pittance. Gold will rise hard and fast when QE reappears in whatever form, possibly even Global QE. Please define deflation in view of $3 trillion in USFed monetary expansion. You seem a tiresome empty gong. The part you fail to comprehend is that Gold does not move hand in hand with home prices. Assets bound by debt instruments are cratering, as in DEFLATION. Assets not encumbered by debt and counter-party risk are rising, as in INFLATION. Your clan never sees both forces, and certainly not the harmful effect on commodity prices from the weak USDollar. Your commentary for the last two years is truly lacking in depth. Perhaps it is because you take a view from the third floor of the building. At higher floors more can be seen, like monetary effects."

EUROPE BRACES FOR DEFAULT SHOCK

◄$$$ THE BANKER WARS CONTINUE. ANOTHER COSMETIC BAILOUT IS PLANNED FOR GREECE. IT WILL NOT LAST A MONTH BEFORE FALLING APART. HOWEVER, BIG EUROPEAN AND LONDON AND AMERICAN BANKS ARE HIGHLY VULNERABLE TO A EUROPEAN DEBT DEFAULT BY ANY NATION. THEIR EXPOSURE IS HUGE, ENOUGH TO CAUSE POTENTIAL BANK FAILURES. $$$

It is reported as a done deal to rescue Greece debt with yet another bailout. This is the latest fix to bring about a solution, none effective. They are all designed to relieve pressure on large European banks at the first line, but also large London and US banks as the second line. They are exposed directly to the ripple effects. So a new Greek 3-year Adjustment Plan is in the works, complete with new definitions of rescheduled loan repayment that avoid the technical default so dreaded. Any debt restructure, rescheduled stretch in payments, debt forgiveness, or basic non-payment would constitute a default, and trigger the Credit Default Swap payouts. Regard such an event as a financial nuclear explosion. Roger Weigand pitched in with a brief comment in an email conversation. He wrote, "Stealth QE3 comes next month. Bigger news today in how Trichet wants the Eurobank to have total dictatorial financial control over all of Europe." The more disturbing note came from a deep European banker source with strong connections to global banks. He responded to the Jackass comment that the Greek bailout would not stand the test of one month's time, that the big European bankers are badly exposed, and a Greek debt default would send grand ripples both to London and New York City. He wrote, "Spot on. Citigroup has a tremendous exposure in Europe. Once Greece blows, then things will get very ugly. The Greek Govt default is the event that will ripple across all of Europe, even London, and force some important bank failures. Trichet was just awarded the Karls Prize in Aachen Germany. This is a very prestigious prize that Vaclav Havel received. Trichet delivered his acceptance speech in German. Take it as a clear sign that he, as a Frenchman, has accepted how the music is made in Berlin. The new axis is Berlin-Moscow-Beijing, and the new money will be commodity backed. It is a done deal." He was referring again to the New Nordic Euro currency, to contain a gold component. Its launch is very soon, no more definitive timing.

Along the lines of CDSwap payout as motive, colleague Craig McC said, "I would agree with JimW that any Greek fix is just a temporary bandage. Given the asymmetrical position of US versus European banks on the PIIGS debt, I am wondering when JPM, Citi, BoA, and others will want to reap some Credit Default Swap and Interest Rate Swap profits by triggering defaults. It seems to me that we will be evolving from beggar they neighbor to beggar they neighbor's bank." My Jackass comment was the following, which started the response chain. "The Greek bailout will require another fix after it corrodes on their laps in 3 or 4 months. Any defaults triggered on PIIGS sovereign debt will have enormous implications. Not only will big EuroZone banks die, but credit derivatives will likely explode. The fallout not only could extend to London banks, but could result in massive exposure of a general credit derivative fraud that affects the US too. If London big banks are hit hard, then Wall Street big banks will also feel a ripple effect. I truly believe that PIIGS debt default has been avoided due to fear of credit derivatives. Once they explode anywhere on the planet, it goes nuclear." Expect bailouts to continue for the Southern European sovereign debt until the popular uprisings in Athens, Lisbon, and Madrid turn violent and highly disruptive. Actually the Athens protests, more like riots, have turned to violence.

◄$$$ THE GREEK GOVT DEBT INSURANCE RATE HAS RISEN TO THE POINT OF SETTING OFF MAJOR ALARMS. IT SERVES AS A STRONG RELIABLE INDICATOR OF IMMINENT DEFAULT. A GREAT CONFLICT HAS ERUPTED BETWEEN THE TROIKA OF EUROPEAN FEDERAL BANKERS AND THE GERMANS. AT ISSUE IS DEBT EXTENSIONS IN TIME, BOND LOSSES, AND COLLATERAL DEMANDS TIED TO LOANS. A GREEK DEBT DEFAULT COULD BE IMMINENT. $$$

Recall the Credit Default Swap contract insures against debt default. It served well as a reliable alarm for Lehman Brothers in September 2008 before its failure. The Greek CDS rate has been flirting with failure warnings for some time. It just hit an all-time record, after the supposed next Greek bailout hit snags, from more critical major obstacles. The house of cards appears to be finally on the verge of breakdown. See the CMA pricing of the Greek Govt 5-year bond default insurance, called CDSwaps. Its price closed the week at 19.3% as of Friday, having reached 22.3% on Thursday (CLICK HERE). Prepare for contagion across all of Europe, especially the South. Debt default is as unavoidable as it is denied by bankers. They lie because more public awareness means bigger bond losses immediately. They lie because a few big prominent European banks will fail, causing gigantic ripple effects across the entire Western banking system. The great unravel is about to begin, like pulling a cord on a sweater that completely falls apart.

The Greek Govt debt bailout, the latest in a series of inadequate patch jobs, has hit a big obstacle with the Troika of the European Commission, the Euro Central Bank, and the Intl Monetary Fund. The proposed extension on Greek debt repayment by the German Finance Minister Wolfgang Schaeuble to seven years has triggered the debate. Schaeuble demanded that Greece be allowed to exchange its outstanding bonds for new ones, extending their maturity. A great divide has become clear between Berlin and the European Central Bank over involving private creditors in any new bailout package. The federal Troika insists firmly that the Greek Parliament pass significant new deficit cutting measures as a condition for new funds. That task appears impossible, given the rapidly growing domestic political and social resistance in Athens. The Troika wants to cut thousands more public sector jobs, to raise taxes further, to sell off at least 50 billion Euros in state assets over the next four years, even to collateralize some loans. Such demands carry destructive consequences that seem nuclear. The plan on the table is for the EU and IMF to pay Greece a 12 billion Euro loan tranche around July 8th, a down payment from the current 110 billion Euro bailout package and commit in principle to further aid that includes participation of the private sector. The down payment is designed to keep Greece going financially for at least a few more months. Germany revealed it wants the deadline for a second Greek rescue package to be pushed back to September, reflecting the problems Europe is having forging the details. The conflict with the EuroCB is intractible.

The high level impass highlights the sometimes hostile open dispute between Germany and the EuroCB over private creditor participation in a new bailout. The conflict extends from the central bank acquiescence to purchase Greek Govt bonds last year under great pressure from the various European national political members. Those bonds have suffered great losses. The central bank itself is the largest holder of Greek bonds, cited as worth 45 billon Euros on its balance sheet, a certain exaggeration. Talk of possible debt writedowns has enraged the EuroCB, at risk of catastrophic losses. In the background are the howling wolves in the agencies Standard & Poors, Moodys, and Fitch. The debt rating agencies have each declared that the extension of time in restructure of debt would be considered a defacto debt default. The bond market expects Greece to default sooner or later. The European bankers are eyeing Greek collateral for seizure, such as real estate and other state owned assets. The EuroCB has been consistent in its declarations that Greek real estate should be a driving force behind the reduction of the debt. The impasse is so grand that Prime Minisiter Georges Papandreou forced out his finance minister. His coalition is crumbling aside the street riots. See the Zero Hedge article (CLICK HERE).

◄$$$ GREEK DEFAULT WOULD LEAD TO ENORMOUS CONSEQUENCES. THE ENTIRE GREEK ECONOMY WOULD REQUIRE LIFE SUPPORT AND FULL FINANCIAL AID. THEY WOULD EXIT THE EURO CURRENCY, REVERT TO THE DRACHMA, AND DEVALUE IT QUICKLY AND SEVERELY. $$$

Some reality simmers beneath the political surface in Europe. Despite two bailouts, the Greek Govt bond yield has surged again to the highest level seen during the entire crisis that exploded on the scene 16 months ago. They fixed nothing, just like in the United States. Duplicity came from Mario Draghi, the man of Goldman Sachs pedigree. He might be dubbed the next ECB president. Draghi opposes any steps toward solution that are not purely voluntary. A debt restructure is never voluntary, usually done at the point of a financial gun or a view of the abyss below. Draghi said, "The cost of a default would exceed the benefits. Default would not address the root causes of the crisis." The exact opposite is true. The benefits would come from big bank liquidations, the root of the problem. He obviously speaks for the bankers, since default is part of the capitalism process, to plow under and start anew, never seemingly permitted when bankers face catastrophic losses and certain bank failures. The actors carefully avoid the topic of imminent likely debt default. Nobody at the EuroCB, the Intl Monetary Fund, not even the IMF front runner Christine Lagarde, the French finance minister, seem to admit the reality of Greek Govt debt default. Athens cannot pay the loans, surely not the interest. Their economy is moving quickly in reverse. In fact, the nation has hit a veritable standstill. People in the streets are not at work.

 

The bond yield on Greek Govt debt went to 18% last week on their ruined 10-year benchmark, a record high level in the 17-nation European Union history. All options are being considered. Big rifts exist between the EuroCB and the German banks. The most vocal and reasonable voice was from the EuroCB Governor Christian Noyer. He gave plain talk, but real talk. He warned that, "Default would mean financing the entire Greek Economy. Our position is extremely simple. If there is a solution that avoids a risk of default, it seems suitable. If you cannot find it, it is better to avoid touching the debt. If despite everything you try to reduce the debt and you provoke a risk of default, you will have to finance the entire Greek economy." No other sovereign nation is graded CCC by Standard & Poors on its debt. That is the current rating after four downgrades. Moodys matched in stride when it cut its rating on Greece to Caa1 on June 1st. The point that glares is that a debt default would slam big European and London banks, enable the nation to exit the straightjacket of the Euro currency, wipe the slate for Athens clean, permit Greece to start anew, offer the real potential for stimulus in a devalued currency, and invite sunlight on the nation. To be sure, any devaluation would open the door wide for more price inflation. Each bailout helps the banks and shoves the nation deeper into economic despair. It can never pay its debt. The creditors must next lose, but they want to seize the crown jewels of the beleaguered nation. See the Bloomberg article (CLICK HERE). By the way, Greece is the microcosm for the greater United States debt abscess.

◄$$$ THE EUROPEAN UNION HAS CHANGED POLICY TO ACCEPT GOLD IN PAYMENTS. SOME BELIEVE THE STEP IS A PRELUDE TO CONFISCATION OF GOLD BY THE BANKERS OF P.I.I.G.S. NATIONAL GOLD HELD IN CENTRAL BANKS. THE OTHER SIDE OF THE BAILOUTS COULD BE GREASED BY GOLDEN SKIDS. THE LOANS INVOLVE GOLD AS COLLATERAL. IT WILL EVENTUALY BE TAKEN. BANKRUPTCY AND INSOLVENCY HAVE THEIR COSTS, EVEN AT A NATIONAL LEVEL. $$$

It could be that the big powerful European banks want to extend loans to the PIIGS nations, want to double them even, so that the gold placed as collateral will be confiscated. The Chinese might also be behind the maneuver. They are actively purchasing property in Southern Europe, like factories, commercial buildings, and shopping malls. The European gold confiscation scheme is unnfolding. For now, the EU leaders are pressing hard for Greece to collateralize its pre-petition loans on a Debtor in Possession basis. The European Parliament recently approved the usage of gold bullion as collateral for sovereign debt bailout loans. Note that the big European banks own the loans, and have claims to the central bank gold bullion lying ready for seizure in Portugal, Italy, Ireland, Greece, and Spain. To some degree, they will lose their gold when the dust clears after debt defaults. The EU Parliament official statement read, "The Economic & Monetary Affairs Committee of the European Parliament has approved gold to be used as collateral, confirming its status as a high quality liquid asset. Yesterday's unanimous agreement by the European Parliament Committee on Economic & Monetary Affairs (ECON) to allow central counter-parties to accept gold as collateral, under the European Market Infrastructure Regulation (EMIR), is further recognition of gold's growing relevance as a high quality liquid asset. This vote reinforces market demand for a greater choice of assets that can be used as collateral to meet margin liabilities."

Natalie Dempster is Director of Government Affairs at the World Gold Council. She said, "It is very significant that the European Parliament is putting its weight behind the argument that the unique characteristics of gold make it an ideal form of high quality liquid collateral. We now look forward to the European Parliament and Council of the European Union upholding the inclusion of gold in the next stage of negotiations around EMIR which will now take place after the July plenary vote. The ratification would mark a significant step forward in redefining what constitutes a highly liquid asset under the Capital Requirements IV Directive, due in the coming month, from the European Commission. As regulators from G-20 countries demand that more OTC trading is cleared on exchanges and with the ongoing world economic difficulties further eroding the creditworthiness of other forms of collateral, we expect to see increasing demand by clearinghouses, exchanges, and investment banks to use gold as collateral."

Usage of gold as collateral has been on the increase. In late 2010 the ICE Clear Europe, a leading European derivatives clearinghouse, became the first in Europe to accept gold as collateral. In February 2011, the vile JPMorgan became the first bank to accept gold bullion as collateral via its collateral management arm, thus relieving the firm of some short obligations. Exchanges across the world, such as Chicago Mercantile Exchange, accept gold as collateral for certain trades. The London-based clearinghouse LCH Clearnet plans to start accepting gold as collateral later this year, subject to regulatory approval. See the Zero Hedge article (CLICK HERE). It is pathetically humorous that the propaganda belittles and denigrates gold, yet the leading institutinos for transactions elevate it.

Fine, but strategies are at work. One must wonder if the Chinese have ordered the gold collateralization of sovereign debt as a prelude to confiscation upon debt default. It must have been an early requirement put forth by the Beijing bankers from the strart. The official recognition and usage of gold bullion is a precursor to European confiscation of gold held in central banks across the deeply distressed Southern European nations. Other observers wonder if confiscation of gold might someday extend to public bank safety boxes. The Jackass actually hopes that governments across the Western Hemisphere attempt such a gold confiscation. Their clumsy maneuvers would fail, and in the process they would expose the extremely high value of gold. The gold price would rise in strong fashion afterwards.

◄$$$ THE COMMON EURO CURRENCY IS KILLING THE SOUTHERN EUROPEAN NATIONS. IT REMOVES ALL LATITUDE IN POLICY TO REACT TO THE EXTREME CRISIS THAT EXTENDS FROM THE FINANCIAL SECTOR TO THEIR ECONOMIES. PRESSURE IS ENORMOUS TO REVERT TO OLDER DOMESTIC CURRENCIES. HOWEVER, THE BIG BANKS WANT FULL REDEMPTION, IN ORDER TO AVOID FAILURES. THE EURO CENTRAL BANK IS THE BAGHOLDER, JUST LIKE THE USFED. THE ENTIRE SOUTHERN EUROPEAN RIM HAS SEEN ITS BUSINESSES SLAUGHTERED BY GLOBALIZATION, WITH A PRICE INFLATION CHASER ON THE STREET. $$$

The large European banks are running out of time on bond redemption from the Euro Central Bank. The EuroCB is set to become a massive bagholder of toxic bonds that they overpaid for badly. Later on, the Greek debt securities and other PIIGS debt could be cut in half. The debt default will soon trigger the Credit Default Swap payouts. Any alteration to the debt contract represents a default, such as extension of time in relaxing payment terms, and surely partial debt forgiveness in restructure. The European bankers are going to great lengths to avoid debt default, even redefining a default. The ratings agencies are a thorn in their side, reminding of the definition with frequency and publicly. Since the Southern European nations are so slow to leave the European Monetary Union, where the Euro is the common currency, the Germans might just exit the Euro themselves and introduce a launch of the Nordic Euro currency, an extremely disruptive plan that would cause extreme disorder. Ironically, the pressure not to exit the Euro altogether for the Greeks and Portuguese et al is coming from the big European bankers. The Greek people want a debt default. The Greek leaders are under great pressure to continue the bailout loans. The recent wrinkle is for the big European banks to demand collateralization of the huge loans. That means rather than default, the big players want to seize national assets like large corporate stakes, factories, ports, telecom networks, and so on. The advantages to Greece for a debt default are great, and do not serve the big banks well.

The reversion to the Drachma currency by Greece would come with a certain 30% to 50% Drachma devaluation. So the big banks in Europe would suffer a sudden significant loss. When the Athens leaders go back to the Drachma (from the Euro) and devalue by up to 50%, the losses to the banks holding the Greek Govt debt will be painfully compounded. Eastern European mortgages serve as a fine example of the compounded losses, in that case to the Swiss banks. Clearly a collateral grab behooves the bankers. They continue on the debt collateral pursuit path, probably bribing the local leaders as long as open revolt in the streets does not occur. The revolt last week signals crunch time for a deal or default. The sellout by Western leaders is a grand story for the ages, so far an easy topple for the banker power structure. Only Iceland has resisted and forced bank losses, which earned a quick economic revival turnaround, the lesson for which is lost on the entire financial press. On the other hand, a reversion to the Drachma currency for Greece permits much more latitude. For example, a big Drachma devaluation would stimulate Greek exports, but at the cost of higher import prices such as crude oil and finished German or Chinese products. If Italy and Spain revert on currencies and devalue also, then Greeks can import without much price impact. Right now, all Southern Europe nations are being KILLED by the common Euro currency. The game is on to default on debt before handing over the prized national assets. Even if Athens avoids a collateral seizure by the big foreign banks and boldly hunkers down in the Drachma currency, pounds their chests in nationalist pride, encourages public demonstrations to defy the predatory bankers, the Greeks will be exposed later on to carpet baggers seeking factories, commercial buildings, entire corporations in buyouts at discount prices dictated and enabled by the Drachma devaluation.

Just a final set of comments, offered by a friend visiting Spain and Italy. He wrote, "It seems all prices are double what they were in September 2008 when we were here in EU last time. It is not the exchange rate, just a very strong price inflation. All prices seemed to have doubled. My wife bought a single cookie. They said in Italian that will be 2 Euros please. Are you kidding me? Three bucks for a simple cookie? It is like that all over the place. A BigMac, coke, and french fries combo cost 6.75 Euros, equal to almost $10. The same combo in Costa Rica costs under $5 in sunny rainy Costa Rica, but a little more in the US. The Euro is trash already, but one would not know it by looking at the FOREX exchange rates. Inflation is already out of control. There do seem to be lots of people walking around and everything seems fine on the surface, but the prices are going up fast and the wages are not, from what we are told. Almost all of the manufacturing plants and factories were lost several years ago. We were speaking to a business woman in Barcelona whom we have known since the 1970's. She says in the old days she would come to Barcelona to buy things for her shops in Marbella, but now she has to buy it all from China or India. She says an entire generation of middle class business people got slaughtered. Now the only ones who survive are the ones who can capture the import side of the equation, with deals struck with Chinese and Indian suppliers. Distribution contains less profit than making products. It is a mess over here in the EU, where it seems like the bomb already hit. Just walking areound in the street, it all seems fine. When one starts noticing things like the price of a cookie or a bottle of water, it is easy to conclude something is wrong."

◄$$$ THE EURO CENTRAL BANK IS BADLY INSOLVENT, JUST LIKE THE USFED. THEIR P.I.I.G.S. SOVEREIGN DEBT BURDEN HAS VALUE AT LEAST 25% TO 30% LESS THAN HELD ON THE BALANCE SHEET. SUCH IS A MIRROR IMAGE OF THE USMORTGAGE BOND RUIN FOR THE USFED. $$$

Bank assets are generally huge across Europe and Great Britain. Much is debt gone bad. The oversized financial sectors are weighing down nations as insolvency crushes their entire systems. Bank assets are at 820% in Switzerland, at 461% of GDP in the UK, and at 178% in Germany, all calculations versus economic size (GDP). A new study by Open Europe has found that at the heart of the insolvency is the European Central Bank. Its insolvency is worse than the USFed. As Greece is pushed into a second bailout to avoid bankruptcy, thus rendering great harm to big European banks, Open Europe has exposed the path of the EuroZone crisis that they claim could drive the European Central Bank itself into insolvency. By propping up struggling EU governments, and gobbling up toxic bonds from distressed markets, the EuroCB has put billions worth of risky assets on its books. Most are worth at least 35% less than the price paid as buyer of last resort. The report estimated the EuroCB has exposure to the Southern European broken nations of 444 billion Euros. Of this amount, 190 billion Euros is exposure to the Greek Govt and Greek banks.

The report concluded that if the ECB suffered a mere 4.25% loss on assets, its entire capital base would be wiped out. Such is a gross minimization of the actual risk. My rough estimate is that at least 25% to 30% loss is likely, and 50% is possible by the time the dust clears. In crafting the capital requirements for European and North American banks, the Basel I authorities allowed the ECB to slide without scrutiny. They were given a free pass. Any form of voluntary or coerced phase transition that requires the ECB to mark down assets on its books held at par and worth far less, such an event would result in the immediate insolvency of the European bank backstop, the buyer of last resort of toxic sludge. It would unravel the Eurozone. See the Zero Hedge article (CLICK HERE). My belief is that private banks will begin to fail in a sequence of dominos falling, long before the Euro Central Bank does anything remotely like accurate accounting and asset reckoning. It is debatable which central bank, the ECB or the USFed, is more insolvent. The USFed appears more solvent from its USTreasury securities, but their bubbly asset prices are very deceiving. The ECB might have a larger vat of red ink on its balance sheet, but each central bank suffers from grotesquely lower true valuations of their assets than what appear on their books.

◄$$$ THE SITUATION INSIDE GREECE HAS TURNED INTO CHAOS. THE NEXT GREEK BAILOUT IS DEAD BEFORE ARRIVAL, AS ALL SIDES ARE FAR APART. INTERNAL GREEK DISSENSION IS ON THE VERGE OF TURNING INTO A POPULAR REVOLT. THE BANKERS PLAN TO COLLATERALIZE DEBT WITH HARD ASSETS HAS ENRAGED THE PUBLIC. AT THE LEAST, GREECE IS DESTINED TO EXIT THE EURO MONETARY UNION. THE SECOND GREEK BAILOUT ON TAP WILL EXCEED 100 BILLION EUROS. IT WILL LIKELY NOT OCCUR, SINCE VIOLENCE HAS BEGUN, WHICH USUALLY PRECEDES DEBT DEFAULT. $$$

Greek depositors have raided their banks. Household bank deposits fell by $3.5 billion in April, to reach 196.8 billion Euros (=US$288.2 billion). In 2010, they contracted by 29.1 billion Euros or 12.2% to cause liquidity problems. Even the Central Government withdrew 3.1 billion Euros in April, taking the total down to 11.3 billion Euros. The distress seen in bank liquidity has extended to the biggest French bank, La Banque Postal. The bank cut ATM card access to half the cash for withdrawals. People have reacted with shock and anger. The proposed bailout next on tap for the Greek Govt debt is probably never going to happen, since violence has finally erupted on a constant widespread scale. A growing farce is underway that mocks a classic Greek tragedy. Worse, legal approval from Athens is nowhere likely. Hedge funds have called the Euro Central Bank's bluff and will win in my view. The so-called Vienna initiative involves voluntary actions by the bond investors (like hedge funds) and collective action clauses by the Greek workers. Neither is remotely likely to come to pass. The German bond investors want to attach crown jewel property in Greece as collateral, subject to seizure upon debt default. In Greek law, bonds have no Collective Action Clauses which means that voluntary restructurings require 100% of investors to accept the new terms in order to avoid triggering a default, an almost impossible hurdle. The main question seems to be what technically constitutes a debt default sufficient to force Credit Default Swap payouts. If paid in US$ terms, then Wall Street might be forcing the breakdown in their own inimitable style. At risk is 327 billion Euros of outstanding Greek Govt bond debt, of which $23 billion is held by Germany and $15 billion by France. An asterisk is needed on France, since Credit Agricole owns a sizeable stake in Greek banks.

Chaos has hit Greece in a full blown case of national disorder and protest. While the leaders tread lightly for fear of their safety, the military is firmly on the side of the people. My thoughts all along have been that banker bailouts would continue, even with some collateral grabs, until the people turned violent. The crowds have turned violent in open clear display. They object to sales and collateral attachments of property, like the one where the Turks might obtain a Greek island. Secret deals are being made, as carpetbagging is underway, just like after the US Civil War. A patriotic resistance movement is well along within the embattled insolvent busted sun-soaked nation. Each day throngs of people gather in Athens to surround the Vouli, the national Parliament located in Syntagma Square. What two weeks ago was 150 thousand per day in protesting crowds has become 250 thousand per day.

The expulsion of Greece from the Euro Monetary Union (common currency) will come as a direct response to threats of violent popular revolt. The people are awakening to the prospect and extreme sour taste to debt slavery. Greek protesters even seized the national finance ministry building. The people's interests are not being served, but rather the foreign bankers. The new bailout plan will mean harsher austerity measures, so as to reduce the 2011 budget deficit by 6.5 billion Euros. The plan must be approved by EU finance ministers on June 20th. As part of the plan, the Athens government will commence a 50 billion Euro privatization program, selling off public assets. The 110 billion Euro bailout loan last year arranged by the EU & IMF solved nothing, aided some big banks, and sent the nation into a tailspin. The German publication Der Spiegel has reported that the second Greek bailout will exceed 100 billion Euros. The amount is ratcheting upward, even while the half portion derived from privatization initatives (asset sales) continues. The more problematic issue is that even more Greek assets must be pledged to facilitate the ongoing colonization of Greece by its anxious aggressive Eurozone brethren. Imagine hotels with new Chinese owners on the sea chock full of vacationers from Shanghai, Beijing, and Hong Kong.

GOLD FEVER CANNOT BE STOPPED

◄$$$ RICKARDS EXPLAINS THAT INFLATION IS SHOWING UP AROUND THE WORLD, AS FOREIGN NATIONS ATTEMPT TO OFFSET THE HEAVY LOAD OF USDOLLARS RECEIVED AS PAYMENT IN TRADE. HE REJECTS THE CLAIM THAT THE GOLD TRADE IS A BUBBLE. TO BE AN ASSET BUBBLE, IT REQUIRES BROAD PARTICIPATION. ONLY THE SMART PEOPLE OWN GOLD, WHILE THE MULTITUDE OF SHEEP & COMMON FOLK DO NOT. ALSO, THE TOTAL GOLD STOCK VALUATION IS ONLY 17% OF THE US$ MONEY SUPPLY IN AGGREGATE. GOLD CAN SAFELY BE UP TO SIX TIMES HIGHER IN PRICE WITHOUT RISK FROM INADEQUATE POTENTIAL FOR REDEMPTION OR CONVERSION. $$$

Jim Rickards of Omnis continues to share solid insight. He opens with a direct contradiction of the mad professor sitting as Chairman of the USFed. He said, "Is there a link between monetary policies and higher inflation prices? I think the answer is absolutely yes. We have seen this many times in the past." Rickards explains why the foreign economies are suffering from price inflation worse than the United States. This is a phenomenon that caught the Jackass on the wrong foot. My belief has been that the USEconomy would feel commodity cost rise first and therefore price inflation first. Rickards makes a great rebuttal that is convincing. The Jackass yields. However, price inflation is near 10% in the United States, as Rickards might believe it is much less. Regardless, price inflation is severe elsewhere. He said, "The world is on a defacto dollar standard. Dollars make up 60% of global reserves and an even higher percentage in global trade. Of course, the price of oil and other global commodities are set in dollars. When you have money printing, what is happening is that inflation is showing up, but it is not showing up in the United States at first. It is showing up all over the world, in China, Malaysia, South Korea, Thailand, Brazil, and many other countries. That is because of the exchange rate mechanism. These countries are trying to keep their currencies low relative to the dollar, which means they have to buy dollars by printing their local currencies in their local markets. The result of that is they are creating a flood of other currencies. That is why the inflation is showing up around the world and not in the United States. Little by little that is changing. We are at a point where a lot of those countries are starting to revalue their currencies upward. This will limit the inflationary pressure in their own countries, but it means that the inflationary pressure will now come back to the United States in the form of higher import prices when we buy foreign goods. This process will take some time to play out, but it will ultimately force the inflation back into the United States. With that all said, there is no doubt that the easy monetary policy of the Fed is responsible for higher commodity prices around the globe." The nation of Brazil is a great example of what Rickards describes. Several months ago, they stopped offsetting the accumulated USDollars piling into reserves from trade. They let their Real currency rise. Doing so sent the price inflation back to the US buyers, but made the Brazilian exported products higher in price.

Rickards believes a battle royal is underway. The Competing Currency War has to date pitted the major currencies in competition with each other. Each nation desires a lower valued currency to encourage and support export trade. Eventually, the Currency War will be directed at all paper fiat currencies against Gold. Better put, it will direct the USDollar against Gold. That is the end game in Rickards view, agreed fully by the Jackass. The devaluation process of the paper currencies against each other ends up in widespread systemic failure. Each nation engaged in that strategy opens the door to a cost inflation that undercuts the entire nation's corporate profitability and depletes discretionary income from households. The systemic round robin of currency debasement and destruction reduces the value of all paper money, thus they fall versus Gold. The key is excess labor capacity from both population growth coupled with reliance upon machinery, automation, and computers. Therefore the wages do not keep pace with the rising cost structure. The currency war results in a grand backfire that kills all economies involved. The winner is Gold and its investors, who stand aside from the highly destructive process inflicted upon assets, to business, and to capital itself. The Competing Currency War kills capital.

Rickards is amused to hear the propaganda that Gold is an asset bubble. He believes those who make such an absurd claim are not really familiar with the gold market. He said, "It is funny how there are a certain number of people whom I would consider as true gold experts. But most people on Wall Street, for example, may have some analytical skills, but they are not real experts in gold. They seem to go from trend to trend. One month we see them talking about tech stocks. The next month they are talking about corn or ethanol. And the month after that they are talking about gold. Those people tend to flip from topic and topic. They use analytical techniques but are not really prepared to understand that much about gold. Gold is definitely not in a bubble. Here is why. First, the trade is very uncrowded. I talk to large institutional investors all the time. They have zero allocation in gold or very small, maybe 1% or 1.5%. You look at these portfolios and they have 50% stocks, 40% bonds, the rest hedge funds. To me Gold is the most under-allocated asset in the world. If gold would simply go up from 1% to 2% in portfolios, there is not enough gold in the world anywhere near current market prices to support that shift. There is an enormous potential to go up just on a extremely modest allocation in the direction of gold."

Rickards makes a second point that disputes that Gold is in no way caught in an asset bubble. It is a great monetary point, not a high falluting point. He suggested a measurement procedure. Take the official gold supply numbers, multiply that total supply by the market price and compare that number with the money supply. The exercise is revealing. In the USDollar world, the comparison results in the gold stock value comprising a mere 17% of the national monetary aggregate (money supply). However, in 1980 the same calculation exercise revealed that the gold stock value comprised over 100% of the monetary aggregate at the time. One might conclude that it a 1980 event were repeated on a gold stock versus money supply basis, then the Gold price would have to be six times higher, like over $9000 per ounce. Whatever one thinks about Rickards, being a player in both camps, with past experience as a consultant to LongTerm Capital Mgmt hiding the dead financial bodies in 1998, he knows his stuff. Investors can learn from him, but do so with a dose of mistrust on his commentary in denial of gold conspiracies. He actually says Fort Knox contains a huge gold supply. Total lie!! He knows it is empty.

◄$$$ THE STRONG GOLD SEASON IS COMING. IN THE LAST TWO YEARS, A CONSOLIDATION TOOK PLACE IN JUNE & JULY THAT PAVED THE WAY FOR A SIGNIFICANT GOLD PRICE RISE. THE SILVER PRICE FOLLOWED WITH TRIPLE THE GAINS OF GOLD. THE NEXT SEVERAL MONTHS SHOULD BE NO DIFFERENT FROM THE LAST TWO YEARS. NOTHING IS FIXED, WHILE MONEY CONTINUES TO BE RUINED IN GRAND STYLE. ALL FUNDAMENTALS REMAIN FIRMLY IN PLACE FOR A MORE SUBSTANTIAL RISE IN THE GOLD & SILVER PRICE. $$$

The last five years have seen different sequences play out on the seasonality. The typical gains after the June and July months have averaged 11.25% in gold price rise, equal to 27% annualized. The exceptional year was 2008, when the system broke and the US banking system went through a death experience, never to be revived. The post-summer trend has remained surprisingly consistent and  strong in the other four years. The achieved gold price gains have a certain stability similar to the first five years of the bull market, despite the negative swoon in 2008. If truth be known, the Elite sector had scores of huge buyers at the lower prices offered in early 2009 when the engineered ambushes were orchestrated, and well done. Over the full period of this past decade, gold has registered an average of 17.4% in annual gains. After the annual June/July swoon, the average gain has been hefty by any standard. Hence, over two-thirds of each annual gain have occurred after July in recent years. Prepare for yet another such sequence, as the Gold & Silver prices will rise like spring jonquils and daffodils following the summer rains.

The current impetus will come from several powerful sides. The escalating sovereign debt crisis in Europe, the likely rollout of the next USFed Quantitative Easing initiative, the certain lift to the USGovt debt ceiling, the early warning signs of price inflation, and ongoing geopolitical instability promise to make the second half of 2011 extremely strong for the gold market. The key ringer event is a Greek Govt debt default, which will set off a major chain of events. As usual, taking advantage of the summer doldrums and ignoring the deceptive mainstream messages can be highly profitable. After June & July, we scream higher. Some dumkopfs in the gold community still think Silver is just an industrial commodity. They miss the signposts and should be ignored. Tell the Indians, Mexicans, and Chinese, who have turned to silver in a big way as a hedge to inflation and a secondary reserve asset for accumulation. Other dull analysts expect Gold to outperform Silver for the rest of the year, citing the tired hackneyed basic blockheaded rectally inverted Deflation reasons.

 

The Gold price is busy in consolidation after achieving an all-time high at $1572 per ounce this May. Its price is firming above the $1500 level. The paradox is that the gold train attempts to toss overboard as many investors as possible. When no more can be discarded, the price rises, since the big buyers lust for the precious asset, and no more amateurs are left to be kicked off the train. The propaganda machine from the lapdog US press & media actually has been proclaiming the end to the gold bull market. They will be forced to backtrack, deceive, and lie double time later this year, even during the autumn months. They cite numerous flimsy reasons, but overlook the dozens of strong factors behind the gold bull rush, many of which are cited in the Hat Trick Letter. None has gone away, and no weak plank for the USDollar, USTreasury Bond, or USGovt finances has turned even remotely positive. Nothing has been fixed. The catalysts that contributed to the great rise in the Gold price over the past ten years have not subsided. Rather, they have intensified. The hedge fund billionaire John Paulson remains steadfast and unshakable in his gold devotion. He explained, "The United States and the United Kingdom have flooded their respective economies with money in order to fuel a more obust economic recovery. That rush of money will apply inflationary pressures on those economies, making gold poised to the hit the $4000 mark in a few years." See the USA Gold article (CLICK HERE).

For the Silver market seasonality, be encouraged also, since June is typically a wretched month in the slow summer month as mining firms must fund their summer projects. Also, the school sessions end in North America and Europe. The two months of August and September have shown strength in the past, and this is where to see the onset of a powerful upward move in 2011. The final form of QE3 or Global QE to halt the USeconomic implosion will be fully realized by the summer months.

◄$$$ SCOTIA MOCATTA REVEALED EVIDENCE OF PHANTOM SILVER DURING A RECLASSIFICATION OF THEIR SILVER INVENTORY. BY MOVING SOME METAL INTO THE ELIGIBLE CATEGORY (WHICH HAS NO INVENTORY RECEIPT), THEY ESSENTIALLY ADMITTED THE METAL DOES NOT EXIST. THIS WAS AN ADMISSION OF PHANTOM SILVER. WITNESS THE BEGINNING OF RATS JUMPING SHIP. SOME DEALS ARE BEING CUT WITH LEGAL AUTHORITIES. THE BIG US & SWISS BANKS MIGHT BE VERY EXPOSED SOON. $$$

They call it Reclassification. It is more like unmasking the inventory fraud. The bullion banks have nowhere near the physical metal they claim, and much of their supposed inventory is committed elsewhere. Like putting lovely dresses in the storefront, but they cannot be bought, since borrowed from some rich lady who lent it to the store so they could look good. Scotia Mocatta lost 60% of its physical Silver inventory in just one month, in a reclassification exercise. The total COMEX registered Silver stands at under 30 million ounces. Over a month ago, the exercise was repeated, with the same Scotia Mocatta losing 25% of its registered (committed elsewhere) silver after the vault encountered a different reclassification. The bullion bank operates as a COMEX registry. They saw 5,287,142 ounces of silver moved from Registered to Eligible status, dropping the vault's true holdings from 11.8 million ounces to 6.5 moz. It seems the actual owners removed metal from the storefront window. In one overnight vanishing act, yet another 1,456,488 ounces in warehouse silver were adjusted from Registered to Eligible at Scotia Mocatta. Metal is just flying out the window, exposing reality. The total Scotia physical silver stands at a massive 60% below the total captured in data on April 20th. Not alone, comparable reclassifications took place at both HSBC and Delaware. The key is realizing that Eligible as a ledger item means the metal has no warehouse receipt issued against it. The total amount of silver available for delivery has just fallen to a fresh all time low. Luckily, the COMEX is a big beneficiary of margin calls that drive involuntary liquidations. It is a source of metal production for Wall Street that for some months rivals actual mining industry silver output. See the Zero Hedge article (CLICK HERE).

Much more is going on behind the scenes, behind closed doors, where deals are struck. When the story broke, a comment came from a gold trader with solid deep reliable connections. He referred to the Scotia Mocatta revelation, with which he has had some past experience. He wrote, "The Scotia Mocatta event was well engineered by a handful of insiders, who have cut a deal with international prosecutors to gain immunity in exchange for what they know. Whoever jumps boat first gets a deal. All the others will be rounded up and processed." The game is entering a late stage, but not the final stage. My query was directed at which banks will be the first victim from what Scotia Mocatta reveals in the high level deals cut. The crooked big banks are going to be exposed during the process. He responded that they would be banks in the United States and Switzerland, namely JPMorgan Chase, Union Bank of Switzerland (UBS), and Credit Suisse. My next query was what jurisdiction the international prosecutors might have. He responded that a global reach was at work, since they use Interpol protocol. He mentioned local Interpol offices with local authorities would serve arrest warrants, whereby the locals would be obliged to cooperate. He claims they normally do without delay. Lastly, my query focused on the venue for charges to be heard, as in the Intl Court of Hague. His response might have been serious or not. He said, "I reckon that quite a few will die in transit like livestock at sea from Australia to the Middle East."

◄$$$ THE COMEX SILVER INVENTORY IS SHROUDED IN A MIST OF CONFUSION. ACCOUNTING GAMES OCCUR. BASELINE INVENTORY IS A FICTION. FUTURES CONTRACTS ARE SATISFIED WITH G.L.D. SHARES AND S.L.V. SHARES ROUTINELY AND ILLICITLY. PREMIUM OVER PAPER PRICES PAID FOR PHYSICAL IS RISING. REGARDLESS, THE SILVER INVENTORY IS CAREENING DOWNWARD. THAT MAKES A GIGANTIC PROBLEM FOR JPMORGAN. $$$

For the first time ever, the total COMEX silver in inventory has fallen below 100 million ounces. The bigger problem is that silver available for physical delivery is under 28 moz, raising a major danger flag. The physical market sets the true price of gold and silver. A corrupted paper price has resulted in premiums between paper prices (futures contracts) and physical gold and silver prices (bullion) to widen sharply. They are at near record levels in recent months, a result of a powerful rise early this year on the physical side, coupled with a strong ambush on the paper side in recent weeks. The key is the volume of unencumbered physical gold and silver, unavailable and untouchable by the gold cartel. The GLD & SLV exchange traded funds have far less metal than advertised, and eventually will have none. They are being abused illicitly to satisfy futures contracts and demand for delivery. If only investors knew. Heck, even block-headed Adam Hamilton does not know.

The COMEX silver inventory has been declining for several years. On a broad definition, it fell below 100 million ounces one week ago for the first time in many years. Furthermore, a mere 27.9 million ounces are held in the Registered category, which theoretically means it is owned by bullion dealers, available to meet delivery demands. The majority 70.9 million ounces is in the Eligible category, owned by COMEX customers, held for security, and not available for delivery. Consider that the Registered silver is valued at $1 billion, not much to defend against hungry global investors seeking protection from a crumbling monetary system, insolvent banks, grotesque bond fraud, rampant price inflation, skyrocketing USGovt debt, a USEconomy in terminal recession, and endless wars over narcotics and oil. See the Zero Hedge article (CLICK HERE). At the present rate of decline from the clear downtrend, the COMEX will have zero silver sometime in 2013.

The great silver default event has already occurred, since every COMEX contract is now settled with cash, or else in fraudulent fashion using GLD and SLV shares from the controversial ETFunds. What futures contracts are not forcibly settled in cash are done so in exchange for physical swaps, otherwise known as ETFund shares. JSKim from Thailand discussed the COMEX settlements with Max Keiser recently. He alerted the world that almost 99% of all gold contracts and silver contracts are paper settled, which includes cash. The data is alarming from the last four months. Only 0.27% of gold contract settlements end with physical metal handed over. Only 0.93% of silver contract settlements end with physical metal handed over. This explains the bizarre events behind silver and gold. It explains why no gold and no silver enters as deposit to COMEX. It explains why the Open Interest is falling without delivery notice additions. In other words, the COMEX is one big massive corrupted marketplace where almost everything is paper settled with another fraudulent vehicle in SLV and GLD. That is what they were designed for, to settle futures contracts in the final chapter.

◄$$$ ROGERS & GROSS ARE PATIENT TO CAPTURE THE LOWEST POSSIBLE DISCOUNT OFFERED BY THE WRECKED COMEX SHELL GAME. THE TWO MEN WANT TO PURCHASE GOLD & SILVER FOR THEIR FUNDS, BUT REALIZE THE PAPER PRICE AMBUSH WILL OFFER A GREAT PHYSICAL PRICE OPPORTUNITY. THESE TWO PLAYERS HIGHLIGHT THE BROKEN MARKET, WHERE ELASTIC MEETS INELASTIC, WHERE PAPER MEETS METAL, WHERE THE RUINED ANGLOS HAND THE KEYS TO THE GLOBAL FINANCIAL HELM TO THE NEW CHINESE CAPTAINS. THE ACCELERATED DESTRUCTION OF THE COMEX MARKET IS OCCURRING IN HIDDEN VIEW. IT IS A WISE SMALL INVESTOR WHO FOLLOWS THE GREAT SUCCESSFUL INVESTORS. $$$

Both Jim Rogers, the legendary independent investor, and Bill Gross, the head of PIMCO, the world's largest bond fund, have expressed their intentions to continue to purchase Gold & Silver. However, both Rogers and Gross are waiting to see how low the precious metals go between June and August before committing large funds for asset purchases. They both see major trouble on the horizon for the USEconomy. According the Rogers, the actual debt of the USGovt is a staggering $100 trillion dollars when one adds in the cost of unfunded liabilities, such as Medicare, Medicaid, Social Security, and other newer entitlement programs. It is much greater than the currently publicized $14.4 trillion amount. The US financial condition is an order of magnitude worse than Greece or any other PIIGS nation. Rogers emphasizes there is no way out for the United States. Its stagnant economy requires draconian spending cuts and significant tax cuts to assist small businesses, the vital sector of growth. According to Gross, his flagship bond fund is not holding any US Equities. He has a vast portfolio committed to Chinese stocks, commodities, and currency. He makes a distinction within Europe, seeing Germany as the safe location to invest, due to its stellar export driven economy and the longstanding austerity that never went stupid like in the US, England, and Southern Europe. Mary Holloway highlighted how successful investors like Rogers and Gross are buying Gold & Silver, or soon will, and in large magnitude, while the lemmings in our society sell as they listen to the mainstream media for which Wall Street and major funds are the advertisers. Holloway pointed out that when the British Pound Sterling lost its reserve currency status, it lost an enormous amount of value overnight. So will the USDollar. See the Examiner article (CLICK HERE).

◄$$$ FORT KNOX IS EMPTY OF GOLD. ALMOST ON A DARE, THE CNBC CREW DID A STORY ON THE TOPIC. THE USMINT BOLDLY DECLARED THAT FORT KNOX IS CLOSED, NOT HAVING A CONGRESSIONAL INSPECTION SINCE 1974. THE PROPAGANDA APPARATUS IN CNBC HAS SHINED A LIGHT ON THE SYNDICATE WITHOUT INTENDING TO DO SO. $$$

A USMint official has declared to CNBC, "Fort Knox is a closed facility" which has caused embarrassment. The fully compromised economics reporter Steve Liesman of CNBC decided to do a story on the topic, the motivation being bizarre. Perhaps on a dare, perhaps hoping to silence Ron Paul. The financial network requested a tour of Fort Knox to obtain actual video footage as evidence of gold bullion held in volume. A USMint official responded by saying that no one from the USCongress has toured Fort Knox since 1974, and that it has been a closed facility for decades. Actually, my source informs that it warehouses nerve gas, a deep irony. See the Silver Doc tors article (CLICK HERE). The USTreasury recently estimated the estimated cost at $15 million to conduct an audit. The event would be short and might cost under $100, like to cut the padlock and flip the lights on, then promptly leave. A crack team could pull it off over a lunch break.

GOLD & SILVER PRICES STABILIZE

◄$$$ A GOLD BREAKOUT IS UNDERWAY IN EUROPE. IT IS READY TO MAKE A STRONG UPWARD STRIDE. THE UNITED STATES IS NOT PULLING THE GOLD WAGON ON THE GLOBAL ROAD AT THE MOMENT. EUROPE PULLS IT, AS THE UNION FRACTURES. THE GOLD PRICE HAS REACHED RECORD HIGHS IN ENGLAND, WHERE STRONG INFLATION HAS MET STERN RECESSION AMIDST BANK INSOLVENCY. MEMBER CENTRAL BANKS IN EUROPE ARE ACCUMULATING GOLD, JOINING THE PUBLIC IN FERVENT DEMAND. $$$

As the European Monetary Union enters a middle stage of fracture due to Greece, the nations on the continent are preparing for an absolute banking firestorm of ruin. Some bank failures are assured. It is my forecast that as the Euro currency is abandoned by at least one nation, like Greece first, and then Portugal or Spain likely next, the European Union will disintegrate and disband soon afterwards. Clearly, monetary and banking matters more in this world, rather than parliaments where men speak to listen to themselves. The EuroZone central banks have been net buyers of gold in 2011, an event never having occurred since the Euro currency was hatched. The member central banks across Europe have purchased 129 metric tons from January through April, far in excess of the 90 tons last year over the same four months, a hefty 43% increase in demand. Expect the trend to continue, as the financial system of Europe and England fractures with force in the next 12 to 18 months. The gold bullion accumulation is motivated by the sheer scale of public debt, the breadth of sovereign debt breakdown, the economic damage from austerity measures, the impasse on bank aid that betrays the people, and the resulting riots and protests. Central banks are protecting themselves against the cancerous global reserve currency, the USDollar. See the Zero Hedge article (CLICK HERE).

 

The Gold price breakout has occurred in British Pound currency terms, although without gusto and without much attention. The Gold price breakout in Euro terms is imminent, a flirt over the last two weeks. The next breakout in USDollar terms will be last, when the next round of Quantitative Easing is defined. The USDollar management team is feeling far too much glee watching Europe and Japan fall apart, seen a benefit to the USDollar in the bizarre Competing Currency War underway.

◄$$$ STANDARD CHARTERED POINTS TO THREE FACTORS TO LIFT GOLD TO $5000 PER OUNCE. RECALL THEY HAVE CHINESE ROOTS AND OPERATE OUT OF HONG KONG. THEY FAVOR MINING FIRM STOCKS WHOSE PROJECTS ARE ONE TO TWO YEARS FROM PRODUCTION. THEY CITE EVIDENCE OF GROSS UNDER-PERFORMANCE OF LARGE MINING FIRM STOCKS. THEY MAKE THE CASE FOR GOLD BULLION. $$$

Standard Chartered is a major bank from Hong Kong, along with HSBC. They are a principal buyer of gold bullion for the Chinese billionaires. The bank's research staff has released a report which looks at actual gold breakeven prices, production bottlenecks, central bank interest, and Chinese & Indian buying. They came to the conclusion that $5000 gold is the price target in a matter of time. As preface, the report cites the reversal of central banks from net sellers to net buyers. In particular, they called China way behind the curve, since their central bank only devotes 1.8% of Chinese foreign exchange reserves to gold bullion. A shift to the global average of 11% would require them to buy 6000 more tons of gold, equivalent to two years of global gold production. Standard Chartered cited three factors that can potentially drive the gold price to US$5000 per ounce. They are 1) limited gold production, 2) buying by central banks, and 3) increasing demand from China & India. They recommend to clients buying physical gold (less risk) or investing in junior gold miners (more risk), but only if one to two years away from production.

The research report provided some details of relevance, on mine supply. After a comprehensive study of 375 gold projects, the current supply suggests a very limited production growth profile for the next five years. In fact, a 10-year bull market in gold has done little to drive gold production. In other words, Gold Supply is inelastic, a great aspect for gold investors. The Jackass has been making this point for five years. Not only are projects more difficult (deeper ore), yields smaller, and jurisdictions more ready to confiscate, but big mining firms have devoted a ton of cash to cover wreckless hedge books laden for forward sales. The mining firms cite a lack of funding from equity markets and a shortage of large gold mines, as creating huge challenges for the industry to compensate for the depletion caused by aging mines and falling grades. The report is cautious about the major gold firms, for projected output growth of 4% only. To prove their poor outlook, the share price index constructed for the gold majors under-performed the Gold price by 147% over the timespan of 1995 to 2011. The Jackass is cautious to negative about the gold juniors, so vulnerable to sponsored naked shorting and well-funded spread trades that work like a giant wet blanket. See the Zero Hedge article (CLICK HERE).

◄$$$ THE JACKASS HAS NOT FAVORED MINING STOCKS FOR THREE FULL YEARS. THE CORRUPT NAKED SHORTING AND PERNICIOUS SPREAD TRADES DO THEM GREAT DAMAGE REGULARLY. THE LAST FEW MONTHS HIGHLIGHT THEIR RISK. THEY SUFFER FROM LIQUIDITY SHORTAGES AND FINANCIAL MARKET SWOONS. THE PURSUIT OF SAFE HAVEN BENEFITS GOLD & SILVER METAL. $$$

◄$$$ THE JOHN EMBRY PERSPECTIVE IS LADEN WITH DOSES OF REALITY. EXPECT HYPER-INFLATION OR DEPRESSION, EITHER EXTREME. CLEARLY THE BANKERS WILL CHOOSE INFLATION. A GREAT TRANSFER OF WEALTH IS IN PROGRESS. HE DESCRIBED THE MAY PRECIOUS METALS AMBUSH AS AN ACT OF JPMORGAN DESPERATION. HE EXPECTS THE GOLD & SILVER PRICES TO ROCKET HIGHER STARTING IN THE SUMMER MONTHS, MAKING NEW HIGHS EASILY. $$$

John Embry is chief investment strategist at Sprott Asset Management. He shared his insights on the current monetary and currency situation, where central banks are fast losing control. "My honest opinion is that we have gone so far down the road, that there is only two outcomes now. You can continue QE to infinity as Jim Sinclair says, and that will lead to some form of hyper-inflation. Or you can sort of go cold turkey [on debt extension and debt monetization] and that will lead to a depression that will make the 1930's look like a picnic." He painted a scenario for massive austerity and cutbacks on debt by the USGovt generally. The outcome would cause tremendous problems and incite civil unrest. People would lack money to spend for necessities. Tax revenues would fall even further. The seeds of revolution would be planted. He urges the people to protect their assets, since subject to grand losses. He went on to describe a concept that has been fresh on my mind for a few years. Embry said, "This is going to be the biggest transfer of wealth in the history of mankind. This is going to be a seismic event. The action of the policy makers, the way they are conducting themselves right now, suggests to me that they are on the edge of panic. One must give the manipulators on the other side credit. They somehow have a good percentage of the populace worried about this bubble aspect which is completely false. Gold and silver are the furthest thing from a bubble. What is in a bubble is US bonds."

Embry added his dissent to the notion of a gold bubble, and then provided his perspective on the May precious metals ambush. Finally he shared his outlook on the gold and silver price. "As far as being widespread participation, nothing could be further from the truth. It is still a very narrow party. That is why it is easy to project massive moves in gold and silver. Because there will be a point when the populace panics on the paper currencies. When that happens, you are not going to believe the prices for gold and silver. The demand for gold on a worldwide basis is tremendous. I am getting some of this from a person who deals with a lot of clients internationally. She is extremely bullish because of what she sees on the demand side and where it is coming from. This correction that has been going on since the end of April is strictly a paper manipulated event. It is going to end the same way they all do, with the price rocketing out to new highs. If gold is going to $1800, silver is going a lot higher than $50. [The recent downdraft in the metals prices] just smacks of desperation. There is no reason silver should drop over a dollar in the access market [on May 4th]. It is just JPMorgan trying to protect their ass as far as I am concerned. So this will run its course. It is just all noise here. Silver is just rebuilding its base for the next move. The next move is going to be huge in both silver and gold. Silver will easily take out $50 and gold will probably hit Sinclair's long awaited $1650 and go right through it like a hot knife through butter. Without question [a big summer and autumn are coming for gold.] The fundamentals are obvious, which are screaming that people should be buying gold and silver. The other aspect is the remarkably negative sentiment [toward gold]. It is shocking actually, considering what is going on." See the King World News interview (CLICK HERE).

◄$$$ THE SILVER PRICE HAS WITHSTOOD A MAJOR ASSAULT ON COMMODITY PRICES. THE IMPACT ON CRUDE OIL IS MUCH WORSE. SILVER IS PROVING IT IS NOT JUST AN INDUSTRIAL METAL, BUT A RESERVE METAL, A MONETARY METAL. THE BUILT BASE FOR A PRICE RALLY IS ALMOST FINISHED. THE SECOND HALF OF 2011 WILL BE MARKED BY A STRING OF NEW HIGHS. A FALL TO THE 30 LEVEL IS THE WORST CASE OUTLOOK, BUT IT WOULD CHANGE NOTHING. $$$

◄$$$ RICK RULE OFFERS SOME EXCELLENT PERSPECTIVE ON THE SILVER MARKET. HE EXPECTS A COMEX SILVER MARKET DEFAULT DUE TO THE RAPID ONGOING OFFTAKE OF PHYSICAL METAL. HE MAKES THE FINE POINT THAT THE SILVER SUPPLY DYNAMICS FOLLOW THE INDUSTRIAL METALS, SINCE SILVER IS OFTEN A BYPRODUCT IN MINING OPERATIONS. THEREFORE, SILVER SUPPLY WILL FOLLOW THE INDUSTRIAL MODEL, AND RESULT IN VAST SHORTAGES WHILE SILVER DEMAND ON THE INVESTMENT MODEL RISES SIGNIFICANTLY. THE RESULT IS A POTENTIAL HYPERBOLIC UPWARD PRICE MOVE IN SILVER. $$$

King World News interviewed an important investor and venture capitalist in the resource sector, Rick Rule. He is founder of Global Resource Investor, now part of the $9 billion Sprott Asset Mgmt. He discussed the Silver market. "Eric Sprott in our organization is the best at [judging whether Silver will be hyperbolic.] I certainly remember the silver market going absolutely hyperbolic in the 70's. We were close to a hyperbolic market earlier this year. We had a situation where the commodities exchanges increased very dramatically the margin costs in the futures market, but what they are not able to do really is to control the physical market. You see a continued Silver drawdown of warehouse stocks as a consequence of physical demand. I think that there is an ongoing risk of a physical failure, meaning that there could be a failure to deliver futures on a going forward basis. There has been extraordinarily strong off-take, physical off-take from investors. Eric Sprott points out that about as much Silver trades every day in paper form as is mined every year in physical form. The chances that sort of disparity between paper trade and physical supply could yield price shocks seems very real to me."

Rick Rule offered some intriguing and excellent additional points about the Silver market. Silver is mostly produced as a byproduct like of zinc, lead, or copper. Silver is often not the targeted metal in mining operations. In that sense, it acts like an industrial metal on the supply side. But the global trend is tilting more toward Silver invested as a monetary metal on the investment side, the consequence of which is vast shortage. Thus anticipate a explosive upside price potential from lack of mine output. Also, investment volume is equal. The dollar volume of Silver demand is equal to the dollar volume of Gold demand, which indicates a move down toward 20:1 ratio in my view. Rule responded to James Turk's call for a bottom in silver at the $33-34 level. He regards the current Silver market to be considerably different now from what it was in the 1970 decade. The current demand is much broader and much stronger and more global.

"James Turk has an interesting point of view, because he sees Supply & Demand for silver on a real-time basis. So of course I would defer to him on whether or not we are at a bottom. The interesting thing about Silver is that it does not respond to fundamentals very well in the sense that most silver that is produced, is produced as an adjunct to mining other metals.  What you are seeing is a slight increase in pure silver supplies as a consequence of the high price bringing production in place. At the same time you are seeing capital constraints in the base metals industry, constraining the byproduct supply of silver. Investment demand for silver has been extraordinarily robust. Both James Turk and Sprott Money have indicated that on a dollar for dollar basis, demand for silver bullion is outpacing demand for gold bullion. It suggests that the silver demand relative to gold demand is extraordinary. And ironically as a consequence of fabrication, silver supplies are lower than gold supplies with demand much higher. That would seem to be supportive of a higher silver price to me." By fabrication, he must refer to both coin mintage and industrial usage. Many factors remain aligned for a spectacular rise in the silver price.

◄$$$ HATHAWAY BRINGS ATTENTION TO THE REAL RATE OF INTEREST, THE COST OF MONEY RELATIVE TO THE ACTUAL PRICE INFLATION. A MOVE AWAY FROM NEGATIVE REAL INTEREST RATES WOULD RESULT IN ANOTHER $1 TRILLION TO THE ANNUAL DEFICIT. INSTEAD OF DECLARING BANKRUPTCY, THE ACCOMMODATIVE MONEY WILL CONTINUE. HE IMPLIES THAT A RETURN TO THE GOLD STANDARD REQUIRES A GOLD PRICE MUCH HIGHER THAN $3000. HE STANDS IN AGREEMENT WITH SINCLAIR THAT OFFSETTING FOREIGN CLAIMS ON USGOVT DEBT, THE GOLD PRICE MUST BE ABOVE $12,500. $$$

Veteran John Hathaway of the Tocqueville Gold Fund shared some thoughts on the gold market. He is always filled with great insights. "There is no foundation whatsoever for solid robust economic growth, and that is the realization the markets are coming to. We are past the point of no return. The vast majority of investors think that somehow we can restore fiscal sanity to the federal budgeting process, that it can be done democratically, but I kind of doubt that. We have negative interest rates today, negative real rates of around 2.0%, or 2.5%. If we did have a Volcker moment to restore integrity to the currency, we would have to raise real rates to something like 3% to make it easy. So negative 3% to positive 3% means 6% nominal times $14 trillion in debt, which is $700 or $800 billion on top of the federal deficit that is already $1.6 trillion. Those are the numbers that tell you that we[as a nation] are basically bankrupt. That is why  we are past the point of no return. [To return to the Gold Standard,] the Gold price would have to be much higher. You have to make paper preferable to gold. In this climate that means in a way [the banking officials] would have to bid for all of the gold, and get people to trade in their gold for paper. The market says they cannot get it at $1500. Maybe they will try $2000 or $3000. The reality is unless that bid for gold is backed by credible measures to restore integrity to government finances, the real number is going to be what we talked about earlier, something in the five digits." Hathaway agreed with Jim Sinclair, that the Gold price would need to clear $12,500 to balance the foreign debt of the United States. The topics mentioned pertain to the End Game, the end of the currency system that prevails, as we know it.

◄$$$ JIM SINCLAIR BRINGS FOCUS TO CONFIDENCE, STANDARD OF LIVING, SERFDOM, AND THE ABSENCE OF SOLUTIONS. HE EXPECTS GOLD TO SURPASS THE $5000 MARK, EVEN WITH A MAJOR STOCK MARKET SWOON. HE BELIEVES PEOPLE SELLING GOLD ARE OUT OF THEIR MINDS. $$$

The independent gold bull Jim Sinclair shared his thoughts on gold. He foresees a blossom of financial crisis gripping the world. He points to the important linchpin for fiat paper currency being confidence, so fragile as it is slipping away badly. He sees the common folk as disregarding the importance of the threat to their standard of living and life savings. He believes that QE3 is a certainty, perhaps by another name. He anticipates any failure to install QE3 would result in a much greater stock market decline. Either with QE3 or without it, he expects the Gold price will surpass the $5000 mark, but using different winds. He warned anybody who sells Gold here is crazy.

"The gold market today is acting extraordinarily well being on the positive side, when every other asset that people can find is being thrown out the window, especially in the equity markets. Where gold is concerned, you are dealing with the condition of the international banks, with the balance sheets of the financial entities of the world. So the potential right now, right here, right at this point for an error in judgment that would set off a loss of confidence is present, clear and in all probability something that we are going to be facing well into the summer months. The problem is so serious, the problem is so present time, the problem is so real that it has inherent in it the probability that the economy is not going to have a significant recovery for more than a decade. And the standard of living in the United States, the standard of many who are reading this now, especially those who have taken no measures whatsoever to protect themselves, who simply look at it as reading something of interest but not really acting on it, is going to be so significantly impacted as to make the middle class or upper middle class join the serf class. This is as serious as it gets. This has gone so far that there is no solution that can be applied. The only practical method is to continue to expand the Fed's monetary aggregates [print money for bond purchases] to continue to hold down interest rates. And hopefully kicking the can down the road until somebody else is in charge. That is exactly what they are doing.

Let's just assume for a moment that QE is in fact limited to June 30th. And let's assume for a moment that the central bank of the United States would take a conservative restrictive approach towards monetary policy. I would suggest to you that the stock market would peel off 4000 points so fast you would get wind burns. I suggest that if anything like that happened exposing the balance sheets of the financial institutions, that you would have to return to QE with a vengeance, unparalleled, unprecedented in history. [The stock market decline] is giving them a little bit of a preview of what would happen if in fact they curtail QE and do not enter into a QE3 by whatever name they choose to call it. We are in a situation right now where if confidence is to be lost, be it by the equity market taking an outrageous header, then the price of Gold will not only go to $1650, $3000, $5000, but has the possibility of gong into five figures based on just what we have here and now. That is what you need to understand. That is why if you let go of any of your quality gold shares, if you let go of your gold, if you let go of your coins, you are out of your mind." Sinclair paints a scenario similar to the Jackass, whereby QE in some form is required to avoid a sudden collapse. It is needed to control the pace of the collapse, like a controlled demolition.

◄$$$ THE AGNICO EAGLE CEO SEAN BOYD EXPECTS A HOT SUMMER FOR PRECIOUS METALS PRICES, ATYPICAL FOR ITS USUAL SEASON. HE EXPECTS $1800 GOLD THIS YEAR, AND AT LEAST $50 SILVER. HE SEES ASIA DRIVING THE PROCESS. $$$

King World News interviewed Sean Boyd of Agnico Eagle, the mining firm with a market cap of $11 billion. Boyd offered his perspective on gold, when it had rebounded in price back to almost the $1550 level two weeks ago. "The conventional wisdom here is that the summer should be quiet like it is typically been. I think this summer will be different because people are viewing it under the old parameters, where you would have a quiet period from a North American perspective because it is summer. But the real buyers of gold are not in North America, and they do not view the market the way people used to view it five, ten, twenty years ago. That is coming out of the Far East. Here we are. Gold was supposed to be weak a few weeks ago, as it only pulled back to $1475. Now we are here at $1550. I think this summer we are going through $1600. It is not going to be a quiet summer at all. We are going to set a new record. As we move into the fall, we are going to see $1800 because the buying is coming out of the Far East. You could get to the point where China and India consume two thirds to three quarters of the annual mined output, since the demand has been so strong over there. Look at how the Chinese have played it. They established the Shanghai Gold Exchange and that was the start of them setting up the conditions for not only the citizens of China to own more gold, but also the authorities and the central banks. Indian demand has been strong as well. We have also had more buying recently coming out of central banks. Here we have deliberate buying coming out of several central banks and you have central banks like China who are vastly underweight gold. They will continue to be buyers on weakness.

The last time I was interviewed I said Silver would get up to $50, and I was even surprised at how quickly it happened. It did get ahead of itself, but there is no reason to believe it cannot get back to the $50 level when gold is at $1800 and both of those things are going to happen. You look at the valuation [of gold mining stocks], at the multiple to underlying net asset value, they are at the low end of the historical range. What is going to happen is that is going to correct itself. Here we are in the low 1's (net asset value) for the quality stocks. It is not too far of a stretch to see them back up in the 1.5 to 2 times range as gold moves up from the $1500 into the $1800 range. Gold stocks will outperform the bullion. From a mining company perspective, when we go out and talk to investors, we are still generally talking to the same people we have been talking to for years. The vast majority of money is still not [invested]. Although if you listen to the media. you would think everybody was here [already invested]. The reality is they are not [invested in the precious metals mining stocks]."

Bear in mind that Boyd is biased to mining stocks. The Jackass believes mining stocks will continue to disappoint, from permitted massive naked shorting and from approved hedge fund spread trades. But Boyd is spot on with the Gold & Silver price prospect. He focuses more on the Gold price leading the breakout, and might be correct. Silver will shoot through the opening that Gold creates on the flimsy paper wall, sure to make much higher gains.

◄$$$ THE GOLD/OIL RATIO REVEALS THE EPIC BATTLE UNDERWAY. THE CRUDE OIL PRICE SEEMS AT THIS MOMENT TO FOLLOW THE DEFLATION PERSPECTIVE FROM REDUCED ECONOMIC DEMAND. THE GOLD PRICE SEEMS TO FOLLOW THE INFLATION PERSPECTIVE FROM INCREASED SAFE HAVEN. DEMAND IS DRIVEN BY INVESTMENT AGAINST A BROKEN MONETARY SYSTEM AND THE ADVENT OF STRONG PRICE INFLATION. A STORM IS IN FULL FORCE WHERE LOW PRESSURE (ECONOMIC) MEETS HIGH PRESSURE (MONETARY) TO PRODUCE A HURRICANE. IT WILL BECOME WORSE. $$$

Economies in recession and deterioration reduce energy demand and take down crude oil price. The crumbling monetary system lifts gold & silver demand and drives up their price, while the investment community seeks to protect itself from the harsh effects of price inflation. At the same time, some crude oil demand will continue to come from hedging against the USDollar. Deflationists see the crude oil price drop and and boast when the Gold/Oil ratio rises, but in ignorance. They do not see that the Gold price holds its ground very well. That is because gold benefits from the fast retreat and pursuit of cash, since Gold is money. We the Enlightened see both sides of a Gigantic Hurricane where high pressure meets low pressure, whose wreckage will be the entire economic system in the Western world from destroyed profit margins. High pressure comes from the monetary spew of easy money to cover debt, stimulate a broken system, aid the banker elite, and more. Low pressure comes from the housing bust, the mortgage finance debacle, business liquidation, and more. The USEconomy will be inflated again, as QE3 or Global QE programs are initiated and blessed. The crude oil will rise as the programs kick in. That will take the Gold/Oil ratio back down, perhaps to the 13 level again. See the ebb & flow in the ratio chart. A high ratio comes when the slower economic demand pushes down the crude oil price, but nowhere as much the gold price. Gold holds up extremely well during Deflation scares, something their Knucklehead clan fail ever to observe or comprehend. The low ratio comes when the USEconomy struggles under rapid inflation and both the gold price and crude oil price rise together. Wall Street firms make money since they help the movement. They hate static boring markets.

Thanks to the following for charts StockCharts,  Financial Times,  UK Independent,  Wall Street Journal,  Zero Hedge,  Business Insider,  Calculated Risk,  Shadow Govt Statistics,  Market Watch.