|
Mom and Pop Can't Catch a Break |
by Bill Bonner
London, England
"I'm Brazilian. I have gold. And I've just arrived from Rio richer
anyone..."
Thus sang one of the characters in an operetta by Jacques Offenbach. But
that was in the mid-19th century.
But hey...what goes around...
Guess what happened last year? According to a study from Boston Consulting
Group, the only area of the world that got richer last year was
Latin America...led by Brazil!
The rest of the world got poorer by 11%, according to BCG. Down in the rum
and sun zone, on the other hand, they got 3% richer.
So maybe our investments in South and Central America will turn out all
right after all.
Meanwhile, back in the developed world...what's going on?
There are two main schools of thought. Ours. And theirs.
Who's right? You decide.
'They' say, 'The crisis is over.' We can thank our lucky stars - and the
feds.
Now, we're getting back to 'normal'...or maybe a 'new normal,' with lower
growth rates than before. Janet Yellen, San Francisco Fed governor, says
the recovery will be 'tepid.' Others say it will be weak...soft...drawn
out.
"The slowest recovery since 1945," says a Bloomberg
report.
It may be slow, they say, but it's sure. The stock market proves it.
Stocks are up 65% worldwide, with the United States a laggard...stocks in
the US are up barely 40%. The Dow rose 21 points yesterday - still a long
way to go to get to the 50% rebound mark, at 10,300.
Gold closed down, but still over $1,000. And the dollar continued falling
- reaching $1.46 per euro.
In our view, there is no recovery. None. All of the
improvement in the economy can be traced directly to bailouts. None of it
- not a single penny - is organic, natural or durable. When the subsidies
for new cars goes away, for example, so do auto sales.
We wrote a book,
Financial Reckoning Day with Addison Wiggin, in 2003. In it,
we predicted that the United States would follow Japan into a long slump.
We thought it would begin after the tech crash of 2000. We were wrong
about that. But it seems to be beginning now. And the government,
predictably, is doing the same things the Japanese government did -
despite Bernanke's assurances that he won't allow the country to fall into
the Japanese deflation trap.
One thing the Japanese did was to reduce interest
rates...practically giving away money to anyone who would borrow it.
But Japanese consumers didn't want to borrow; they wanted to save. They
had speculated on the bubble and lost money. Then, with retirement
approaching they wanted to replenish their savings and rebuild their
balance sheets.
So, the Japanese government put out money...and it was taken up by
speculators, not by the real economy. The speculators borrowed yen, at
very low interest rates, and then reinvested the money in go-go sectors
elsewhere - such as the US dotcom bubble. The yen became the world's
"financing currency." If you wanted to build a factory in China or
speculate on Argentine bonds, you could begin by borrowing cheap money
from Japan. Thus, Japan contributed to a huge boom all over the world. But
not in Japan. The land of the rising sun never seemed to get up in the
morning. Property investors lost 80% of their money. Stock market
investors lost as much. Even now, nearly 20 years later, they're still 75%
down.
And now, along comes the United States of America with super-low lending
rates. But who's borrowing? Not the moms and pops of Middle America. They
don't have anything to borrow against. And the banks won't lend to them.
The banks need money for themselves. Besides, everybody knows the average
household in America is losing income.
What's more, mom and pop don't want to borrow. They've
been through 10 years of losing money on Wall Street. Stocks are no higher
now than they were a decade ago. And their houses - on whose rising prices
they had counted for their retirements - have gone down 20-40%. And
they're still going down.
The poor moms and pops can't seem to get a break. They're now desperately
saving for retirement - at the worst possible moment, when jobs are scarce
and wages are falling. But what else can they do?
[Many of these soon-to-be retirees are turning to the 'Plan B Pension' to
supplement their income and make retiring early - or at least on time - a
possibility. Learn more about this 'little talked about' retirement secret
that could send a steady stream of work-free 'paychecks' you way.
Click here.]
More news from The 5 Min. Forecast:
"Amazing. A few weeks of 'Cash for Clunkers'...700,000 new cars off the
lot...et voila: Retail sales jumped in August by the most in three
years! Wee-hoo!" writes Addison Wiggin in today's issue of The 5.
"This morning's Commerce Department release of +2.7% places August
retail sales well ahead of the 1.9% 'expert' consensus.
|
 |
"Great. Now that they've 'pulled forward' car sales for the next 12
months...what's next? How about... Appliances!?
"Later this fall, Uncle Sam will being doling out up to $200 a pop (in
borrowed money) to anyone who wants to replace an old appliance. Yeah,
that'll keep retail and GDP stats humming along.
"Wholesales prices rose last month twice as much as forecast...thanks
largely to rising gasoline prices. The 1.7% jump in August followed a
0.9% decline in July.
"'Core' PPI excluding food and energy rose a more modest 0.2%. But that
was also double analysts' expectations. Turns out a good amount of that
was driven by higher prices for cars and trucks, too. Whaddya know...
'Cash for Clunkers' gave automakers an excuse to cut back on factory-
to-dealer incentives.
"Dealers don't experience a squeeze without passing the costs along to
customers. Which should make tomorrow's release of the consumer price
index (CPI), well, interesting too. The consensus says a 0.3% increase.
We'll see what tomorrow brings."
You can get The 5 in your inbox 5 days a week, free of charge.
It's one of the many perks that come along with being a subscriber to
Agora Financial's paid publications, such as Options Hotline.
This publication has been on an epic winning streak: no losing picks in
2009...2008...or 2007! Learn how you can multiply your options trading
portfolio at least TEN times this year - guaranteed, or your money back.
Get all the info here.
And back to Bill, with more thoughts:
So, the feds push money into the economy, but it's hot money. It's money
that speculators use to place bets on gold...or on Brazilian bonds...or on
oil exploration companies. The money never ends up in consumers' hands. It
never bids for consumer goods. It never pushes up consumer prices.
As in Japan during the '90s, America's hot money may go all over the
globe. It may turn the entire world into a casino. But it won't
bring about a real recovery...
.if cheap money from the government were all it took to bring prosperity,
Zimbabwe would be richer than Switzerland. Obviously, it doesn't work that
way.
But here's the shocker. While we know easy money policies don't create
prosperity, you may be surprised to learn that they don't necessarily
cause inflation either. In other words, government may be incompetent,
even at what it does best.
So, why is gold rising?
Ah...we were afraid you were going to ask. We've been doing a lot of
thinking about it. Partly because our Family Office partners are smart
people who ask smart questions. And partly because we're wondering what to
do with our own gold. Buy? Sell? Do nothing?
We spent half the night drinking and meditating on the subject. Finally,
we're not sure we had a clearer idea...but at least we were able to sleep.
We've already unveiled the idea to you. The feds can cause
speculation in gold; but they can't easily cause consumer price inflation.
As explained above, they can get cash into the hands of speculators, but
not into the hands of consumers. Not in the middle of a major consumer
retrenchment.
The Roosevelt Administration was faced with the same problem. But back
then, gold and the dollar were linked. Roosevelt could devalue the dollar
by edict. The Japanese couldn't do that. Nor can the Obama Administration.
In a deflationary credit cycle, you may only be able to cause
consumer price inflation by resorting to extraordinary Zimbabwe-style
money printing. You can drop money from helicopters, as Ben
Benanke promised. But as Zimbabwe demonstrated, that cure is far worse
than the disease it is mean to heal.
All of that said...gold can rise...partly because people are betting on it
as an antidote to inflation (not realizing that consumer price inflation
may be a long way off)...and partly for other reasons.
Lately, one of those other reasons may be heavy buying by the
Chinese. The Middle Kingdom wants to diversify out of the dollar.
It also has a central bank with very little in gold reserves. What better
to do than to diversify out of the dollar by adding gold to its central
bank reserves? Word on the street is that it is buying steadily.
The Chinese have made a number of announcements on the subject. We don't
really know who's in charge there, so we don't know whose comments to
weight most heavily. One Chinese official has said that the government is
buying gold and intends to buy more. Another says they will buy "when
people don't expect it." Another says the Chinese expect gold to go to
$3,000 an ounce.
The Chinese have the money and the motive. They alone could move the price
of gold to $3,000 if they wanted to. And maybe they do.
Until tomorrow,
Bill Bonner
The Daily Reckoning
P.S. Even if it doesn't go to $3,000, our intrepid
correspondent Byron King thinks that it will still go at least to $2,000.
Read his full report to learn how you can pad your portfolio with this
yellow metal.
See here. (And keep reading for more from him in today's guest essay,
below...)
--------------------- Special Offer ---------------------------
Quadruple Your Money with a 231 Year-Old Discovery
Every country in the developing world needs this 231-year-old discovery,
but...
Only 10 companies in the world have it...
Only 3 of them are pure plays...
Only ONE can actually deliver...
Turning every one of your dollars into four by this time next year!
Keep reading for the story...
|
The Daily Reckoning
Presents: |
As Bill mentioned, above, China is one on the
key-driving forces in the gold market right now. Now that we know China
is buying the yellow metal, how do you position yourself to profit?
Byron King explores, below...
A Floor Beneath the Gold Price
by Byron W. King
Pittsburgh, Pennsylvania
The UK Telegraph recently quoted at length Cheng Siwei, former
vice chairman of the Standing Committee of the Chinese Communist Party.
He explained how Beijing is dismayed by the "credit easing" coming out
of the Federal Reserve.
"If they [the Fed] keep printing money to buy bonds," said Mr. Cheng,
"it will lead to inflation, and after a year or two, the dollar will
fall hard. Most of our [Chinese] foreign reserves are in US bonds and
this is very difficult to change, so we will diversify incremental
reserves into euros, yen and other currencies." Mr. Cheng was referring
to over $2 trillion of Chinese foreign reserves, the world's largest
holding.
"Gold is definitely an alternative," said Mr. Cheng,
"but when we buy, the price goes up. We have to do it carefully so as
not to stimulate the market."
From Mr. Cheng's lips to God's ears - and now to ours. We have direct
testimony from a high-level cadre that China, while cautious, is a key
driving force in the gold market. China is buying.
We already knew that the Chinese are buying gold - and hoarding
it. For example, China is the world's largest gold-mining
nation. China mines more gold each year than the US or South Africa. Yet
what are the net gold exports from China? Umm...zero. That is, China
doesn't export gold (unless you buy a Panda coin or something.) Overall,
in fact, China is a net importer of gold.
|
"The implication from Mr. Cheng is that
the Chinese will not overbuy gold, which may be why the yellow
metal has hovered just below the $1,000 mark per ounce in recent
weeks." |
|
Sure, the Chinese use gold in industry, such as for electronics, jewelry
and the like. But much of the rest of Chinese gold purchases go into state
coffers, or into "off-books" storage. I'll bet that there's a lot of gold
in "industrial stockpiles" in China, which are really just strategic
monetary reserves for China's Central Bank.
The implication from Mr. Cheng is that the Chinese will not overbuy gold,
which may be why the yellow metal has hovered just below the $1,000 mark
per ounce in recent weeks. At the same time, it's more than likely that
China will buy gold whenever there's a price dip.
The significance is that the Chinese seem to be prepared to
establish a floor under any correction in gold prices. This
limits the downside for well-positioned gold miners such as we hold in the
Energy & Scarcity Investor portfolio.
Is there an upper limit to gold prices? Well, I expect to see the gold
price rise, but slowly and in a long series of plateaus. I also expect to
see pullbacks, usually based on world monetary and political events.
So we'll surely have some roller-coaster rides with the prices for the
mining shares. How it all unfolds for us as investors will depend on when,
and to what degree, monetary-driven inflation begins to bite into the
economy. When it becomes totally obvious, it'll probably be too
late to protect and preserve your wealth and purchasing power.
The problem for us in the West is that most of the politicians and major
media just DO NOT GET IT. Or at least, the ones that do "get it" generally
don't report things honestly to the citizens. They're probably afraid of
what might happen when the citizens really figure out how much the
political classes have screwed up the world.
So you see these rosy-sounding headlines about how the economy is
"improving" and things are "getting better." Huh? What planet are these
guys on?
The tide of inflation is rolling in. It'll lift the boats of the
gold miners.
Regards,
Byron W. King
for The Daily Reckoning
Editor's Note: Byron King currently serves as an attorney
in Pittsburgh, Pennsylvania. He received his Juris Doctor from the
University of Pittsburgh School of Law in 1981 and is a cum laude graduate
of Harvard University. Byron is also editor of Outstanding Investments
and Energy & Scarcity Investor.
The above essay was taken from the latest issue of Energy & Scarcity
Investor. To read more, and to learn what 'well positioned gold
miners' he has in the ESI portfolio,
see here.
--------------------- Special Offer ---------------------------
1000% Gains - Or You Pay Nothing
How can we make an offer like this? Simple.
A three-year winning streak...a proven 10-year track record...and
a pile of reader testimonials.
No matter what the market does, you can make consistent, triple-digit
gains.
Get in on this winning streak by clicking here.
|
