November 26, 2008 by david.pennington.

 by Michael M. Pennington

CITICORP AND JP MORGAN 

These two banks are in trouble. Over the years, along with Goldman Sachs, these banks have epitomized the greed, corruption and criminality that invaded Wall Street years ago. They have operated in the shadows without regulation or oversight. In bed with the FED, they manipulated markets, used insider information routinely, created derivatives and other illegal products and stripped their companies clean of illegal profits by paying huge bonuses to employees in exchange for their silence. They have been shorting silver and gold for many years at the request of the central bank profiting while playing in a rigged market. Can you imagine just three weeks ago, Citi was trying to buy Wachovia. Today they are so far underwater themselves that the FED doesn’t know how it will bail them out. It would take at least $5-10 Trillion dollars to save Citi. The question is whether the FED will order JP Morgan to takeover Citi this weekend. These two banks are the so-called pillars of the US financial sector. The Saudi Prince has billions invested in Citi.If they are in deep trouble our entire financial system is likewise in deep trouble. With the amount of derivatives on their books anything can happen and the market today told us they are aware of it. It seems the government should order all banks in the US should have slot machines installed in their lobbies, since they are operating as casinos and not banks.

GOLD OFFICIALLY GOES INTO BACKWARDATION

This morning, gold officially went into backwardation for the first time since the announcement of the Washington Agreement in 1999. This sent gold shorts scrambling to find physical metal as the world’s major central banks agreed to limit sales of gold going forward. This ended the one-way trade to the downside in gold that has been in place since n the late 1990s.Unlike other commodities, gold very rarely goes into backwardation. It only does so when 1) the market fears a collapse in the currency, and/or 2) the market is worried about counterparties making good on their promise to deliver gold (which was briefly the case in 1999, when the Washington Agreement was announced and shorts were squeezed).Translation: Gold is about to meltup, and the dollar is about to have an accident. Buckle up, gold bulls. Gold is set to blow its top soon in my humble opinion.NEW HOME CONSTRUCTION DROPS TO LOWEST LEVEL IN 50 YEARS

THOUGHTS ON THE AUTO BAILOUT

This subject dominated the news this week. Another case was being made by auto executives and union heads that if the government doesn’t bail them out, the nation will fall into another 1930’s style depression. They built their case on the fact this was nothing more than a short term cash flow problem. Does anybody really believe that argument? What if the recession deepens? They agreed $25-$50 billion would last 6 months at best. I’m against all bailouts including GM, Ford and Chrysler although they deserve the money as much or more than the banks who received $2 Trillion thus far and counting. There are other options. I haven’t heard anyone say that if they file bankruptcy today, fire all employees at $78 per hour (not including benefits) and hang out a sign they were hiring for $40 per hour, how long would it take to fill those jobs. My guess is not long. Maybe the company should sell all 12 of their private jets and have executives travel on commercial airlines. Why should taxpayers pay the bill for greedy executives who mismanage their companies and then pay themselves huge bonuses. The CEO of Toyota earned $1 million last year. The CEO of GM made $15 million (not including benefits). I say let them fail and new companies like Telsa will appear and find a way to do it better. There was a rumor today spreading that the Chinese Automakers SAIC and Dongfeng were interested in acquiring the GM and Ford.

THE NATIONAL DEBT AND THE BAILOUT

I think this whole bailout scenario is getting totally out of hand, and the execution of the whole mess really stinks. This is the most mismanaged and ill-fated fiasco I’ve ever seen. I’m really trying hard to hold back on the expletives, because this is my money they are spending. I hope you are mad, too, because they’re wasting your tax dollars. There is no measurable plan, no accountability and the direction seems to change almost every day.First we had the whole real estate and mortgage boondoggle, then the bank bailout, then all the insurance companies and investment banks become banks so they can slop at the trough and now the auto industry wants a piece of the pork pie.

The National Debt is increasing at the rate of $3.87 Billion per day. We used to worry about the debt we were leaving for our grandchildren. Now we are increasing the debt load for every American living $14.87 per day. This is simply not sustainable.

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November 20, 2008 by david.pennington.

by Michael M. Pennington 

SUMMIT ON FINANCIAL MARKETS AND WORLD ECONOMY

 Do not expect any important announcements coming from the G20 meeting this weekend in Washington D.C. Instead of concentrating their efforts on how to fix the existing financial system, you can be sure they are working hard at designing a new system. They are more aware than anyone that the existing system will collapse soon. Consider this: The total outstanding notional amount of financial derivatives, according to the Bank for International Settlements, is $684 trillion (as of June 2008) — over 12 times the world’s nominal gross domestic product. Derivatives make it possible to place bets on future monetary policy or exchange-rate movements. More than 66% of those financial derivatives are interest-rate contracts: swaps, options or forward-rate agreements. Another 9% are foreign-exchange contracts.In other words, some three-quarters of the massive derivatives market, which has wreaked the most havoc across global financial markets, derives its investment allure from the capricious monetary policies of central banks and the chaotic movements of currencies. As a result, price signals in the global marketplace are hopelessly distorted. A logical thinking person can only include that the Central Banks wanted this collapse. They not only developed these derivatives, they approved their use, and in the person of Alan Greenspan, actually encouraged their widespread use. What we are experiencing now was orchestrated by our controllers.

THE END GAME

So the big question is what comes next. Some on the internet say it will be the Amero. Others say it will be a redefined dollar and others still say it will be a single currency used by the world. This much is true, no matter what it’s called and where it’s used, it will include gold. Gold has no nationality. It is universal and it has been recognized as an exchange of value for thousands of years. Fiat collapses are always followed by a gold based system. It is necessary to restore confidence among consumers. Confidence is what is lacking now with the dollar and the government is discovering you can’t legislate confidence. Once a new currency is established, existing dollars will no longer be accepted as a medium of exchange. Several scenarios are possible and none of them are good. It is possible they could establish an exchange ratio of some sort; for example, they could exchange ten existing dollars for every new dollar. Whatever the exchange ratio, you can trust it won’t be favorable to the public. Even worse, it is possible that there is no exchange at all. You heard that right. It’s possible that they declare all old dollars, in checking accounts, money market funds, stocks, bonds etc as no longer valid for any exchange. Everybody starts over at zero.  A third strategy would assume the controllers seek stability in world currencies and democratic, free markets in the future. Each investor must decide this on their own. But is this is desired, they could ease the burden of all debts by simultaneously devaluing all the world’s currencies and re-inflating all asset prices. Instead of confiscating gold this time, they would simple cease all sales going forward. The price of gold then would have to be re-valued to an amount that would allow them to monetize all of the world’s outstanding debt. I can’t tell you what gold price the G-20 would ultimately agree to. But here’s their choices …

• To monetize 100% of the outstanding public and private sector debt in the U.S., the official government price of gold would have to be raised to about $53,000 per ounce.
• To monetize 50%, the price of gold would have to be raised to around $26,500 an ounce.
• To monetize 20% would require a gold price a hair over $10,600 an ounce.
• To monetize just 10%, gold would have to be priced just over $5,300 an ounce.

I would not be surprised to see the G-20 monetize at least 20% of the U.S. debt markets. THAT MEANS …

• Gold would be priced at over $10,000 an ounce.
• Currencies would be devalued by a factor of at least 12 to 1, meaning it would take 12 new dollars or euros to equal 1 old dollar or euro.

Naturally, hoards of gold investors will cash in their gold. The central banks will pile it up. At the same time, other hoards of investors will not sell their gold, even at $10,000 an ounce. But the actual movement of the gold will not matter. It is the psychological impact and the devaluation of paper currencies that matters.Regardless, in any possible scenario, the only way an individual will be able to benefit is through the ownership of gold or silver. If a currency becomes gold-backed, it will most certainly command a price significantly higher than today’s. 

 THE PLUNGE PROTECTION TEAM

If you understand one thing about today’s markets, please know that these markets are being completely manipulated by The President’s Working Group on Financial Markets. This group was created by Executive Order 12631 signed in March 1988. Like many EO’s, it was created for a good purpose at the time, but eventually gets taken advantage of by those who cannot control their love of power. This Group, often referred to as the Plunge Protection Team, was designed to step in and prevent future market crashes like the one that occurred in 1987. It was used less than 5 times in its first ten years of existence. Then in the late 1990’s Robert Rubin began to use it more often to keep a lid on the price of gold and silver. This was a major part of their “strong dollar” policy. As long as the price of gold was kept low, interest rates could be kept low which created an environment of debt is good. The dot.com bubble was followed by the housing bubble. The normal business cycle was interrupted as economic downturns virtually didn’t exist until the end of the Clinton Administration. As the U.S. found itself involved in two wars following September 11, 2001, the Plunge Protection Team began intervening more in the U.S. stock market in addition to the gold and silver markets. They also found out that once you begin intervening, continued intervention is needed for the scam to work. Today, all markets are regularly manipulated by the Plunge Protection Team operating behind the Wizard of Oz curtain. Even our paid stooge TV pundits are often at a loss to explain why things happen anymore. On days of really bad news, the market will go up big and the reverse is also true. It’s all part of creating a perception that the government wants us to believe.

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November 8, 2008 by david.pennington.

by Michael M. Pennington

I expect things to worsen this week. As I said before we have not even started the really panic selling yet. That is still to come. I do expect sometime soonthe precious metals to start a new leg up.Goldman Sachs is now NET LONG gold on TOCOM after being heavily net short for the better part of 2 ½ years. If you follow Goldman Sachs you never go worng. They are the Fed’s broker.
All the traditional gold shorts on the TOCOM have reduced their net shorts to very low levels.
The FOMC meeting is Oct 28-29 when they will very likely drop FED funds rate by 0.5%. They will pull out all stops but it’s too little too late.
There is a massive build up of COMEX gold CALL options in the DEC contract that outnumber PUTS by 1.7 to 1. The option expiry is Nov 20.
There are rumors of such a high delivery demand in the DEC COMEX contract that there is a high risk of default.
There is a G8 summit in New York Nov 15 to discuss plans to reform the international financial/monetary system; references are even being made to having the discipline of Bretton Woods. What ever the outcome it is sure that the dollar will not retain its supremacy. That will mean a lot of countries are holding too many dollars! When they atrt to unload their dollars, much of it will flow into gold and silver.
It seems that all the stars are aligned! The coming 3 weeks are highly likely to see a top in the dollar and a strong rally in the precious metals which may well be faster and stronger than any we have seen so far.

I am attaching a Case Study to help explain the nature of the so-called premium that exists in the so called two tier pricing system. I’m not the greatest in explaing things but I do hope this helps. The bottom line is that if you’re waiting for the premiums to come down, you’ll just have to wait until prices come up. It’s close to a zero sum out of pocket experience, If you still have questions please feel free to email me anytime. I hope the explanation helps.

Regards, MIKE
 A CASE ILLUSTRATION OF SILVER  PRICE/PREMIUMS

Our example will consist of Silver but the concept is the same for all precious metals.

Let us begin with a date of June 1, 2008. On this day, the price of silver was $20 per oz, the dealer premium (DP) was $2 per oz so the price of a Monster Box of Silver Eagles (SE) sold for $11,000 ($20 + $2 x 500 = $11,000). We must also assume that the dealer was receiving a steady supply of product and sales were likewise steady. Also, please recognize that dealers are constantly buying product (supply) from their customers and from public sellers as well as from the mint itself.  Now let’s assume what happened earlier this year; i.e. the price of silver starts to drop (as banks start to viciously short the metal). Instead of scaring the public away from silver, the opposite happens. People recognize that precious metals are needed as the economy becomes very unstable and everyone starts buying up the supply. Let’s assume that silver drops to $16 over the next 3-4 weeks, and the supply of metal becomes scarce. The law of supply and demand says that the price of silver should then be rising as the product becomes more difficult to buy. People who own silver and might normally consider selling now refuse to sell at the lower price. Dealers are faced with two problems: the problem of finding new metal and the problem of owning metal purchased at a higher price – perhaps $19. Dealers will not sell product bought at $19 for $16. But what they do find is people still willing to buy the metal at $19 per oz. As a result the Premium just went to $3 ($19-$16 = $3). Now let’s assume the price continues to drop in an environment where it should be increasing. Everyone wants to buy at lower prices and the scarce metal becomes even harder to find. In addition, let’s assume the US Mint now says they are not making any more SE (because they don’t want the public taking money out of their banks and stocks brokerages). Now the price drops to $12. The dealers have even less product to sell. Now 80% of all US dealers are out of the product but Buyers still want to buy. Owners who refused to sell at $16 certainly won’t sell now at $12. But the dealers discover that people will still buy at $17 because the demand is still high. Now the Premium is $5. Those who expect to buy at a spot price of $12 are sadly disappointed when they discover the actual price is $17. One has to recognize that the metal the dealer had to pay to acquire was perhaps $16.50 which they are now selling for $17. Etc., etc., etc.,

There are many who are now waiting for premiums to go down before buying more metal. THE ONLY WAY FOR THE PREMIUM TO GO DOWN IS FOR THE PRICE OF THE METAL TO GO UP. As a result, the total out of pocket price will usually be the same. The risk is that many who are waiting on the sidelines might lose the opportunity to acquire what metal is still available.A PERSONAL CASE STUDY

In 1996 I left an employer where I had a nice 401K amount that needed to be rolled over into an IRA. I was fortunate then to find a custodian who accepted precious metals in the IRA. I split my purchase between 50% silver eagles and 50% gold eagles. It ended up being pure blind luck that the 1996 silver eagles became the most sought after and the highest valued of all eagles. I was a naïve goldbug back then and I remember being told by an “expert” that I paid too much. He suggested I buy a gold miner stock that has long been bankrupted. I paid $3.60 for each coin and was told that I overpaid by about $.40 per coin. I suffered from buyers remorse for just a couple of days and then decided not to pay attention to it. I sold many of these coins out of a need I had in 2006 for $78 per coin. My averaged gain for the 10 years was 160% per year. I’m sure the person who sold me those in 1996 felt great about his extra $.40 profit but I’m sure he would rather have just one of those boxes today which sells for over $40,000. The point is don’t sweat the short term…don’t sweat the $.40 when there is thousands to be made. If I had listened to the so-called expert back in 1996, I would have suffered a considerable setback. Stay focused on the forest. If you’ve done things for the right reason stay with it and don’t worry about the $.40.

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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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September 29, 2008 by david.pennington.

by Michael M. Pennington 

The Federal Reserve was created in the US in 1913 in secret meetings and since that time they have slowly turned the United States into the greatest debtor nation the world has ever seen. History is littered with the graveyards of fiat currencies, i.e. money backed only by the worthless promises of someone else willingness to assume their debt. Every dollar ever created has a corresponding liability. The only exception is gold. It is the only asset that has no liability. The government’s answer to all economic problems, is to inflate, inflate, inflate until the problem goes away, or is replaced with a bigger one. I have had several people ask me about my references to the Weimar Republic of Germany following WWI. It is a classic example of hyperinflation and the terrible consequences it has on the effected society. The chart below gives you an illustration of what it was like during these times in Germany and what could be ahead for all of us.

July 1914            4.2 marks to the dollar
January 1919      8.9
July 1919            14.0
January 1920      64.8
July 1920             39.5
January 1921       64.9
July 1921              76.7
January 1922       1,919.8
July 1922              493.2
January 1923        17,972
July 1923               353,412
August 1923          4,620,455
September 1923    98,860,000
October 1923         25,260,208,000
November 1923     4,200,000,000,000 (yes, trillion. )

[Source: Gordon Craig, “Germany 1866-1945″]

By late 1923, the German government required 1,783 printing presses, running around the clock, to print money. Germans wheeled shopping carts filled with literally trillions of marks to pay for a single loaf of bread. Employees asked to be paid their wages each morning so that they could shop at noon before merchants could post higher prices.In 1919 they were tipping the bellboys with a gold piece and in 1923 the same gold piece would have bought the hotel.Today in the US we see Crude oil is $132. Corn is $6.The cost of everything is rising. Inflation is worsening, and it’s not hard to understand why. M3, the total quantity of dollars, is now growing by 17% per annum. Weimar inflation has arrived in America.The Federal Reserve is following the footsteps of the central bank in Weimar Germany. It is the same path taken by many central banks that have issued countless fiat currencies based on nothing but government promises. It is the path to the fiat currency graveyard, and the once almighty US dollar – which long ago used to be “as good as gold”, just like the Reichsmark once held that same exalted title – is knocking at the graveyard’s gate.

For those who scoff at the notion that this type of hyperinflation occurred many years ago and couldn’t happen today, you only have to look at what is happening right now in Zimbabwe. Weary Zimbabweans each day face a new wave of price increases that many basic goods and services out of their reach. A loaf of bread now costs what 12 new cars did a decade ago. Monthly inflation recently rose to 1,063,572 % according to a Reuters report. Economic analysts say unless the rate of inflation is slowed annual inflation will likely reach 5,000,000% by October.

Throughout history, it’s been proven that the basic laws of economics can be violated by governments for a short time, but in the long run, intervention and manipulation does not work in a free society.more stories like this According to FED records, they have loaned banks $188,000,000,000.00 per day over the past 3 weeks. This is nothing compared to the $1,000,000,000,000.00 that Paulson is now asking for. But there are many other “checks” being written as the printing presses work overtime, including:

* Treasury buying mortgage-related assets: $700,000,000,000.00*

Potential supplementary stimulus package favored by Democrats: $100,000,000,000.00*

 Insuring money market funds: $72,500,000,000.00*

Treasury fortifying the Fed’s balance sheet: $100,000,000,000.00*

Expansion of temporary swap lines with central banks: $180,000,000,000.00.*

 Loan to AIG: $85,000,000,000.00*

Fed purchase of agency discount notes and ABCP: amount not specified.*

Fed loans through the Primary Dealer Credit Facility: $20,000,000,000.00 through Sept. 17.*

Fed’s discount window: $33,000,000,000.00 balance.*

Treasury purchase of GSE MBS this month: $10,000,000,000.00*

Potential cost of Fannie/Freddie bailout: $500,000,000,000.00.*

Treasury Secretary Paulson’s Bailout Plan  700,000,000,000.00

Financing the current account deficit: priceless.

Investment implications: Sell the U.S. dollar.

“The fiscal cost to the US is likely to be enormous. Speculation will intensify on a possible US government paper downgrade. US policy-making and credibility have been put into question. The safety of US assets has been put into question. We remain concerned with the repercussions that this crisis will have on the financial flows into the United States against the context of a still large current account deficit

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September 22, 2008 by david.pennington.

by Michael M. Pennington 

If you want warm and cozy thoughts on how the government saved Americans from a Great Depression, all you need to do is to listen to the media. But if you want a “what-really-happened” report from a goldbug’s perspective, then read on. The old Resolution Trust Corp that was created in 1990 to deal with the Savings & Loan crisis was resurrected once again. Originally, it cost every taxpayer about $4,000. Today’s new RTC will require $1,000,000,000,000 or more and was approved by a handful of politicians with little planning, no debate and no real understanding of the consequences. In all my years of experience, no one makes really good decisions when under short term duress. How soon we forget. The S&L crisis was followed by politicians calling for more regulation and oversight so such corruption will never happen again. Bad lending practices, cooked books etc. have happened all over again in less than twenty years now with the banking crisis. As the new RTC is established, all the “bad paper” in commercial banks, investment banks, insurance companies, mutual funds, money market funds and S&L companies once again will be transferred into the new “Trust”. Under the old RTC, there actually existed assets, which were the mortgages on the properties assumed. Today, the new RTC will own zero. The paper being assumed is worth zero. This is why the financial institutions were going under. Therefore, the real truth here is that the taxpayer is “gifting” all of this bad paper and they are gifting it to the very criminals responsible for the problem in the first place. Another way of saying this is that the American taxpayer was not asked, but was assigned by the government, the task of bailing out private corporations who were going bankrupt due to gross mismanagement and internal criminal activity. Since most of those responsible are friends of Greenspan, Paulson and many others, they were in fact “pardoned” for their criminal activity. We will hear in the days ahead about all the steps taken to assure this happens never again, but as long as the criminals are rewarded with abundant riches and then pardoned for their crimes, I suggest they will do it all over again. Why not?

CONSEQUENCES OF THE NEW RESCUE PLAN AND ITS AFFECT ON GOLD AND SILVER

While most people were celebrating the huge rally in stocks, mostly unnoticed was the significant increase in commodity prices.  Normally, when the stock market moves up, commodity prices move down, especially energy and gold/silver prices. Not today. Today’s reported potential infinite bailout of all and any financial losses is the largest increase in dollars outstanding since Noah’s Ark.It closely models actions undertaken during the production of currency liquidity as seen in the “Weimar Republic.”   More than $150 Billion was flooded into the system this past week by the FED to increase liquidity. Then $85 Billion went for the Lehman bailout and another $100 Billion is set aside for the AGI bailout. The new RTC Rescue will create at least $1 Trillion dollars and we’re nowhere near the end in sight yet. Can anyone spell  I N F L A T I O N. The only conclusion is that when the smoke clears and the advertised actions have been adopted, nothing more dollar negative than this has ever occurred in the US due to the potential expansion of T bills and therefore dollar supply explosion.  Silver and Gold are the only protection. After today, I see Gold increasing to over $2,000 oz and Silver increasing to over $100 per oz.2. Everyone on Wall Street admits to the government intervention in the stock market this week. This raises the question of how anyone can trust in the future the prices quoted on what used to be a free market.3. It was reported that home prices in the future will remain over market-clearing levels which will closely assimilate government price controls. This eventually will discourage new home buyers as price appreciation in the future will be hard to come by.4. For sure the Options and Futures exchanges will be dysfunctional for some time. Short sellers are required to balance positions.5. Knowing that any future bailout will wipeout common shareholders, the overall value of the stock will be lower to account for this additional risk.WASHINGTON MUTUALIn spite of everything, Washington Mutual has not been able to find a buyer. At least maybe now, customers will stop withdrawing their funds. Their black hole may be the deepest one out there yet. Perhaps they will end up putting the company for sale on Ebay!It will take awhile to digest the unbelievable occurrences of this week. Seven days ago, venerable US companies like Lehman Bros and Merrill Lynch were proud self-standing firms, AIG, who was the largest insurer in the USA, was not a ward of the state, and Money Market Funds were still trusted. One month ago, Freddie Mac and Fannie Mae were in operation and owned by most mutual funds and banks. Six months ago, Bear Stearns was still independent. That was then, Now is Now. It takes awhile to recognize that your country has been conquered. It’s a new world we are living in and every American needs to admit that our new bosses are not the same as our old bosses. 

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