October 25, 2008 by david.pennington.

by Michael M. Pennington 

WEEKLY COMMENTARY 

This is not an easy time or even a normal time for anyone less much those who have purchased gold or silver in the last month. It’s especially hard to stay unemotional during periods of high stress and especially when there is so much disinformation bombarding us from every media outlet that crosses our path. It is difficult to know what is real and what is not anywhere. It’s especially hard to determine the value of the US dollar. How much is our house really worth? 

Like it or not, it’s time we call a spade a spade. Our entire bailout, sub-prime loan problem, stock market crash and plummeting commodity prices is being well planned and orchestrated by a group of socialists intent on ruining America. We are the proverbial frog in the boiling pot. There is no one in government looking out for your welfare. NOT ONE. There are not words that can describe the low life criminals stealing the middle class right out of our country. Centuries of hard working, god-fearing, patriots are seeing everything they stood for evaporate in a few short years. During a recession we used to let the incompetent businesses fail and turn their assets over to the competent. Now we reward the incompetent businesses with bailouts and turn the assets of the competent over to the incompetent in a “redistribution of wealth”. We’ve got it backwards and the economy is no longer able to flush out the incompetents. But we can’t feel sorry for ourselves. We need to develop a strategy that will enable us to survive and hopefully prosper once the world comes back to its senses. 

Let’s take a look at several issues: 

GOLD & SILVER 

The shortages of physical precious metal we are currently experiencing are reflective of a well documented fraud. The rigging of prices largely through the thoroughly corrupt COMEX futures exchange in N.Y. has been going on for more than a decade. No one believed me then. I was called a conspiracy nut. Demand for physical precious metal however is continuing to grow exponentially. Buyers are willing to pay significant and growing premiums for physical metal. This is smart money migrating into the tangible space before it is widely understood by the general investing public the true extent of mismanagement and malfeasance at the highest levels of our existing monetary order.  No media will report this real story. In recent days, anecdotal accounts are beginning to surface that “major off-market transactions” are occurring at much, much higher prices.  One such account rumored earlier this week was that a major trade in the physical market occurred between two non-U.S. players at a price equivalent of $ 1,075 per ounce.  Perhaps more interestingly, the deal apparently was settled in EURO’s not DOLLARS. It is a fact that a great deal of what ails our global economic sense of being is our current “un-backed” fiat monetary system which has been ABUSED by Central Bankers through unbridled credit creation and money printing.  In light of what has occurred – precious metals in general and GOLD in particular is now reasserting its historic role as a “go to” wealth preservative.   To counter act and remedy their own largess; it is Central Banks and their proxies that have ruthlessly ENGINEERED the harsh credit crunch we are currently experiencing and merciless, coordinated price-take-downs in strategic commodities, including gold, utilizing futures markets - in vain hopes of re-instilling confidence in their now failing paper money system.  For anyone who suggests that these claims are false on the basis that gold is not money; just ask them why it is that EVERY Central Bank on the planet lists gold bullion on their balance sheet as an “OFFICIAL RESERVE ASSET”? STOCK MARKET 

All this week, the financial media have tried to convince investors “that the bottom is in”. I remain one of the few voices denouncing that as a myth. The really frightening thing is we haven’t yet begun to witness the financial wrath that is coming in our direction. All the signs are there but no one wants to believe them. Our monetary system as we know it is broken beyond fixing. This means our bankers have a plan for our future that does NOT include the US Dollar. It is toast, so plan accordingly. I certainly hope by now everyone has exited whatever burns. In the coming conflagration, nothing will be spared. Great companies, great mutual funds, great retirement plans etc. all will be gone. Most Stocks and bonds will be wallpaper material. Do not be sucked back into their game. At the present time there is no such thing as a FREE Market. All prices are being controlled and set to influence people to behave in a manner consistent with implementing what they want to happen. 

INFLATION OR DEFLATION                       Since we’ve already established that things are NOT going back to normal in 2009 or 2010, and that the system now is destined to fail in about 3-6 months, do we expect devastating deflation or hyperinflation. Many talk about a coming depression, but in my opinion, we will see hyperinflation like this country has never experienced. The FED Chairman will never choose deflation when he can drop money out of helicopters. He’s already on record saying this will be his approach. Right now we see the Fed not the lender of last resort, but the lender of first resort. Everything is being bailed out and the auto industry is currently at the trough. If a Socialist government is elected in November, trillions more will be earmarked for expanding entitlements. Weimar is on its way. The following list is from Jim Sinclair, and is included in an article he wrote today entitled “Insurance On Sale”: 

INSURANCE ON SALE

Gold is the only viable insurance. The US dollar is not viable insurance because there is simply too much of it and that amount is growing every day. That makes the US dollar untrustworthy.

Gold is the only viable insurance. Clearly equities are not.

Gold is the only viable insurance. US Treasury bills are not because the yelling at all the rating agencies in Washington today just might get US credit downgraded.

General commodities have been viable, but by nature they are too wild and from now on will be selective until Pakistan implodes and Weimar appears.

Banks cannot offer insurance as they are in the main bankrupt.

Insurance companies cannot offer you sound insurance.

Money market funds are not insurance, making gold the only viable insurance.

Retirement programs are no longer insurance.

Jobs are no longer insurance as companies are run by lawyers and accountants.

Equity in your home is not insurance because it simply does not exist.

Your family is no longer insurance because they have the same problems you do.

The assumption your kids will take care of you in your old age is not viable insurance no matter what you think.

Gold has no liability attached to it and is therefore the only viable insurance.

Gold is universally exchangeable, making it the only viable insurance.

Gold has historically performed perfectly in maintaining buying power, making it the only viable insurance.

Gold is the only viable insurance because it is Honest Money.

Since gold is the only viable insurance and because everyone needs it, gold will trade at levels of at least $1200 and $1650.

I could go on but gold is all there is that will protect you from the White Wash being applied by the Fed and Treasury on a structure that is in fact in a free fall.

I am not the least concerned about gold and believe you should not be either as long as you have no margin and understand what gold really is: a currency and an insurance policy. There is no other viable insurance in this most unusual situation. 

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October 19, 2008 by david.pennington.

by Michael M. Pennington 

AIG AT THE TROUGH AGAIN

After being bailed out for $85 billion in taxpayer funds, AIG had to come back for $39 Billion more the following week. Now, after two weeks, the company is still broke and they have now asked for permission to borrow from the FED window as if they were a bank. Recently, I included a video about AIG and how they are responsible for money laundering, the drug trade etc. The reason for the huge bailout is to keep investigators out and to cover the trail of those involved. It must stop somewhere!

THE GOLD SHORTAGE

Mints around the globe have all stopped producing gold coins. They claim it’s because they can’t keep up with demand, but the real truth is that governments do not want gold in the hands of their citizens. They have created so many types of “Paper gold” that the demand for real gold has been contained – for now. It will fail once the financial system collapses. They know this. COMEX is a fraud paper game run by US investment banks…and look how they turned out!

IT’S TIME FOR THE FED TO BE ABOLISHED

The FED is working so hard to prop up the stock market and suppress commodities. Manipulation is rampant – in every market but especially in commodities. They have been controlled so long that they are already in short supply. This will only add to the shortages that will come in the future. It is very similar to how things worked in the old Soviet Union – prices were low, but people couldn’t find any to buy. It is time the USG shuts down the FED and assumes what the founding fathers fought so hard for – they gave Congress the authority to print its own money. John F. Kennedy recognized this and was going to do something about it. Why do we sit back and allow a private institution, owned by private individuals, create money out of thin air which we the citizens have to pay interest on. It doesn’t make any logical sense and so it’s time the people see that they are being fleeced by this private institution.

WHAT COMES AFTER THE DOLLAR

It is possible, even simple, for the USG to build a sound currency that rewards discipline.  The problem is   everything I have ever seen tells me any system they implement will be predicated on the continuing greed and rapaciousness of both the political and monetary systems. If they were to institute a monetary system with a commodity standard at its root, they might have a chance of doing something useful for the world. Realistically, they cannot operate without having the ability to screw anyone on demand. It’s their hubris and arrogance. It’s a given. All countries will want that ability for themselves and therein lies their collective achilles heel. Greed trumps all with these vermin. Baskets of strong currencies are possible and would work fine, but that won’t fill the needs of the greedy. They do it because they can and get away with it without repercussion. Within 2 quarters after inception, they’d be back selling each other new and improved derivative instruments once again.

WEIMAR IS COMING

It looks like the FED is on pace to create 10 to 30 trillion out of thin air. That means 30 trillion is about $300,000 for every worker in the USA.

THE CORPSE IS ALREADY DEAD

We know that the $700bn bail out was a fake, which by the way has now turned into $2.3 TRILLION pieces of worthless paper being passed off as “dollars” with no end in sight. The mission by those who own Congress wanted the complete take over of our financial system and institutions as they work it into a global nightmare. The fait accompli is almost completed. What has been done the past ten days is so horrific, most of us have been stunned at the hubris and outright commandeering of America’s private lending institutions, the outright stealing from the American people to reward incompetence and likely criminal behavior. There is no money to pay for all these “rescues.” Paper the country with confetti or cut up newspapers because that’s the “worth” of what’s being handed out like candy at Halloween.

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October 13, 2008 by david.pennington.

by Michael M. Pennington 

Sorry folks, I don’t mean the Stock Market. I’m referring to the biggest market in the world – the bond market. The US Bond market is on the brink of collapse and with it will come the collapse of our currency.All the bailouts and “recapitalization” plans of the Treasury and the FED are highly inflationary and require issuing massive amounts of Treasury debt. The bond vigilantes are waking up. They are going to dump bonds like they have gone out of style. Bond prices will drop like a stone and general equities will drop more and the dollar will nose dive. This highly inflationary scenario will make money rush into the tiny precious metals market and explode their prices due to paltry supply we’ve often talked about. The lack of supply of the metals will mean that money will have to spill into anything silver or gold.  Money will also flow back into commodities because the money leaving the bond market and the equities markets will be just too large to be accommodated anywhere else.On Friday October 10 the 10 Year bond prices dropped like a rock. This indicates that bond holders were waking up to the certain hyperinflation coming as a consequence of the government’s massive rescue plans.Many analysts are incorrectly talking of deflation. Falling stock markets or falling housing markets do not contract the money supply. The government’s bailouts and “liquidity” injections on the other hand increase it.  We know that the money supply is expanding annually at 14% and when the government guarantees all bank deposits and probably all interbank lending I can’t imagine what it will be! Because the Cartel hit gold and silver in the middle of the night on Thursday October 9 many started invoking deflation theories. This is nonsensical and the bond market is about to confirm it. We have seen the mega-shorts in Asia reduce their shorts in gold and silver to next to zero. They know what is going to happen to the prices of precious metals!Many investors are starting to think that after this stock market rout and with a G7 package things will begin to improve. That is not the way things work! 20 years of excesses with even more monetary excesses about to be heaped upon us as a “rescue package” do not get unwound in 5 days. This is just the beginning. The bond market is the biggest market in the world (if we ignore the ridiculous, unregulated casino peddling OTC derivatives!). When the bond market heads south the money that has to find a safe haven somewhere else is in the trillions. Just a small percentage of this capital will blow the precious metals to unimaginable levels.Clarity will come when the metals reach new highs and at that point a child of six will be able to say where to invest. Of course, that is the greatest incentive for the Gold cartel to prevent new highs being achieved! But new highs are already being achieved in the retail market and on e-bay.  

GOLD CARRY TRADE AND GOLD LEASE RATES

The FED has been using the “Gold Carry Trade” for several years to suppress the price of gold. Here is how this works: Let’s assume the FED approaches Germany and says “Your gold is sitting there earning you zero. We will borrow your gold and pay you .25% per month for leasing. Germany agrees because the loan is guaranteed by the FED as the FED uses US gold holdings as collateral for the lease. (This gold is still carried on the US balance sheet as an asset in spite of the gold being used as collateral for a loan. It is labeled as gold in “Deep Storage”. The FED then sells the gold (thru Goldman Sachs or Morgan Stanley or JP Morgan) on the COMEX driving the price of gold lower. When they sell short they accumulate dollars. They then create a derivative providing them with an option in case gold goes higher. Of course if gold goes lower, which it does when they continue to sell borrowed gold into the market, they can always buy the gold back at a lower price and make a nice profit. With the funds left over from the short sale they purchase Treasuries, which helps to monetize the US debt and provides the funds necessary to pay the Germans their interest on the gold lease. This is called the gold carry trade and the US has been doing this regularly with many, many nations.

However, as you can imagine this is a time bomb because they are leasing physical gold to a paper gold market. At some point in time paper gold will not trade the same way as physical gold. The demand for physical gold is the highest it has been for years, and this is the problem.  Without the paper gold carry trade, you could argue that gold would be a few thousand dollars higher right now. All is not well in the paper gold market.  And this is a sign of an impending big rally in gold.  Lease rates have been skyrocketing over the past month.  For the past six years, the 1 Month Gold Forward Lease Rate has chopped about at levels below 0.25 percent.  Higher volatility over the past year has seen the rate move as high as 0.5 percent, but only in recent weeks have we seen rates greater than 2.5 percent. On a global scale, the gold market is unregulated and opaque. No one really knows the size of the worldwide short position in gold, but it exists and it is large (at least 10,000 tonnes).  Unlike financial markets, there are few rules and regulations on selling gold short.  For years, a dark pool of short sales is believed to have been suppressing the natural ascent of gold prices. A lower gold price indicates that everything in the economy is working fine.The current spike in gold lease rates indicates that demand for physical gold is extremely high and growing quickly. We may well be witnessing the first seeds of the gold price breaking free from the short sellers and the end (death) of the gold carry trade, which so many bullion banks made such large profits on in the 1990’s.The lease rates (available on TheBullionDesk.com) will be the key indicator to watch. If the short sellers in the gold market cannot afford to roll over their positions, they will be forced to close out their trades by buying gold. This could be one potential catalyst (there are many others) that sparks a major gold rally in the months ahead.

 THE DISCONNECT BETWEEN SPOT AND PHYSICAL PRICES

There are no better hard assets than the two most popular precious metals, gold and silver.  Both have been relied upon as a store of value for at least four millennia.  Neither can be printed by fiat. Unfortunately, at present there is not enough of the real metal to spread among all the individuals that want to own it.  How do we know that?  Because of all the “out of stock” notices on even the largest bullion outlets in the U.S., the U.K. and in Europe.  We know it because of the historic, extremely high premiums over the current spot pricing which all bullion items command right now whenever a bullion dealer does manage to obtain some inventory.  While the margin masters, liquidating Friday’s major traders in the paper-futures markets and opportunistic short sellers have temporarily managed to skew the benchmark spot prices for both gold and silver to unreasonably low levels (relative to the actual intense demand in physical bullion markets), large and small holders of precious metals apparently sense that the spot prices are artificially low.  They aren’t selling.  At least they aren’t selling in large enough volume to lower the currently sky-high premiums for gold and silver or to put real metal into the inventories of bullion dealers. What spectacular irony.  At the very time when investors want to buy physical gold and silver the most, the paper-contract markets (which affect the spot or cash market benchmarks) are being sold down to such ridiculously low levels that few want to sell any real physical metal unless they just have to or are forced to.  Meanwhile, the divergence in pricing between the physical bullion markets and what is still called “spot” grows even wider. Soon this silly divergence will have to close and it will close by the spot price moving up to and beyond today’s physical price. 

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October 6, 2008 by david.pennington.

by Michael M. Pennington 

This month we have over $54 Billion in credit derivatives that must be settled by the Treasury Department. The first of these are the Fannie Mae and Freddie Mac derivatives which come due on Tuesday. Later in the week, it’s Lehman Brothers. No one knows yet how this will work, but one thing is clear this might be the last straw, so be prepared for the worst – this week. Many insurance companies and banks hold this worthless paper so it is possible there are more casualties that could be announced later this week. We are in full crisis mode.

In total, there is more than $600 trillion in notional derivatives to be resolved. Clearly, the bankers and greedy Wall Street CEO’s and hedge fund managers  have gone beyond the scope of fiat currencies. The worthless dollar will soon be bust. These derivatives are risky bets based on the prices of real estate and commodities. Since both asset classes have been falling dramatically and the OTC paper is leveraged 100 to 1, when oil falls $1 per barrel the corresponding derivative loss is $100.Simply put, no entity could even begin to absorb losses of $100-$200 Trillion.

We are now at the terminal stage of the crisis. The contagion has spread through the global financial system. Our hotshot derivative salesmen, making millions in the process, sold this worthless paper to banks around the world. In turn, these financial institutions have hidden their derivative exposure off the balance sheets. Its no wonder almost no one understands derivatives. It’s been their dirty little secret for years. And now it is a crisis effecting us all.  It has gone from a crisis of liquidity to a crisis of solvency and now to a crisis of confidence. Regardless of what our politicians might think – you can’t legislate confidence. Everyone wants their money out because they no longer trust the banks.

HOW TO SOLVE THE BANKS PROBLEMS

Here’s a novel idea for all the money hungry bankers. Go back to accumulating checking and savings accounts from average hard working people. Fire all the traders and accountants who have been busy buying and selling risky derivatives – didn’t Enron teach these people

LET’S RENAME “PONZI SCHEME” TO “PAULSON SCHEME”

People need to wake up and understand that this is not a political party problem. THERE AREN’T TWO PARTIES IN THE US. The Republicans and Democrats in Washington are married to each other and exist for the benefit of the other. They are controlled by others outside of Washington D.C. Therefore, it’s impossible to throw the bums out because there’s only more bums to take their place. The only true factions in this nation right now are those who believe in the Constitution and democracy and those who don’t. Unfortunately, the secular socialists have the upper hand right now. We as citizens have to find a way to reverse this and restore America and its founding fathers ideals. Clinton, Bush, Gore, Cheney, Paulson, Frank, Bernanke and Greenspan and others should all be arrested and held for high crimes against the American people.

ANOTHER FOX – ANOTHER HENHOUSE

A Goldman Sachs Group alumnus in charge of the nation’s economic rescue? How unusual. Except, of course, it isn’t. Hank Paulson is promoting Neel Kashkari, the Treasury’s assistant secretary for international affairs, to be the point man overseeing the $700 billion financial bailout as the interim head of Paulson’s Office of Financial StabilityPaulson’s inner circle already includes former Goldmanites Dan Jester, a financial institutions banker, and retired banker Steve Shafran, who focused on corporate restructuring at Goldman. It also included Robert Steel, who has since left Treasury to become CEO of Wachovia. Kashkari’s appointment is another example of how deep those Goldman Sachs ties go. In fact, Paulson himself was recruited by a former Goldman Sachs banker: former White House Chief of Staff Josh Bolten. Bolten. Let’s see if I understand this. Secretary Paulsen is responsible for the $700 billion bailout fund and he appointed the guy immediately underneath him to make sure the Treasury Secretary is completely ethical. Huh???  

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October 4, 2008 by david.pennington.

by Michael M. Pennington

I realize many of you may disagree with me on this but I am pleased that the Bailout Law was defeated in its present form. At least for awhile longer our nation voted against a massive socialistic power grab. This entire crisis was planned by the government. If you remember Chairman Greenspan actually encouraged new home buyers and refinancers to use ARM’s and he likewise went on record saying that these derivative swaps were a good thing that they helped balance the economy. Even Warren Buffett answered him by calling these securities a “ticking time bomb“. The SEC Chairman Cox passed several rule changes that accelerated the demise including doing away with the uptick rule on short sales. Again the Government passed laws pushing people who couldn’t afford homes into mortgages that they couldn’t pay. Then they forced banks to buy this bad paper or face PC racist repercussions. But the bailout law included just about everything - foreign banks, money
market funds, FDIC, Wall Street etc. etc. FED money  has lost its value and we will see a continued movement toward gold ownership because gold is the only honest currency. This morning the FED added $2 TRILLION in liquidity to the economy and so did several other central banks. The FED also said it would add several more TRILLIONS if need be. Those in the know also said the $700 BILLION bailout was just an initial amount and that $700 BILLION was renewable and could end up in the TRILLIONS. The friends of those controlling this country are all well taken care. Goldman Sachs was going to lose $20 BILLION due to the collapse of AIG. After the government bailout, they lost zero. The taxpayer picked up the tab of $85 BILLION to make sure Goldman had no losses. Even if this Bailout Law had passed, the crash was only going to be delayed. There are over $415 TRILLION in notional derivative paper in the market that is worthless. This problem hasn’t even been
addressed yet. The question might be do we experience a harsh downturn and turn over TRILLIONS of dollars to the Secretary, or do we experience a harsh downturn without giving the “BOYZ” TRILLIONS of our dollars.
GOLD - Instead of soaring  up $100, as it should have, you can bet the government is doing everything they can to keep a lid on gold and silver. How much longer they can do this is anybody’s guess. It should be noted that the Euro collapse today which normally would drive gold lower.It looks like gold is beginning to trade as the ultimate currency - one with no agendas and no obligations. Physical demand is soaring now so it seems like gold and silver will eventually have to go up substantially. It is disturbing to me personally when commentators asked for the market to go down more so the regulators will realize they made a mistake and pass the law.So while the government is intervening in what used to be free markets you can bet they will keep the pressure on stocks and bonds. It’s how they get their way. What is pathetic is that the same politicians who passed all these lousy laws are the very ones now clamoring for the government to fix what they
helped create in the first place. Regarding gold stocks, remember what I said about paper burning. The price of Gold is up 6% while the gold stock index is down over 5%. When you buy gold and silver, buy the physical! For weeks now I have been warning about SELLING ALL STOCKS. I really hope everyone took precautions in this regard.There will be a time to get back in, but now is definitely NOT the time. Things will change rapidly with each day. Let us all hope that God blesses us with peace and serneity during these troubled times. MIKE

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