Brien Lundin, the editor of Gold Newsletter, President and CEO of Jefferson Financial, said recently at the New Orleans Investment Conference, which he is responsible for, that over the period of an eight-year term by a President, the Federal debt doubles.
Assuming that's how it plays out this time around, it means the current $20 trillion in debt will soar to $40 trillion in about seven years.
The reality is raising taxes and cutting government spending has no chance of dealing with these growing liabilities.
In the end, it means a significant depreciation of the U.S. dollar, which also means precious metals in general, and gold in particular, are guaranteed to increase, according to Lundin.
Hedge fund master Stanley Druckenmiller has had one of the strongest performances in stock market history, generating a return of about 30 percent over a 30-year period. That is in line with another legendary investor, Peter Lynch, who produced an annual return of 29 percent.
Interestingly, Druckenmiller and Lynch both quit because of the toll it took on them to maintain those type of returns. Sorry. If we want to live longer, we'll just have to settle for a piddly 20 percent annual return or so.
For some time Druckenmiller has blasted the Federal Reserve for keeping interest rates near zero, saying it has changed the behavior of companies, which instead of using cash to build the businesses, they are using it for leveraged buyouts, mergers and stock repurchase schemes.
Interpreting this as a negative, Druckenmiller has taken a huge stake in SPDR Gold Shares (GLD), investing $323,626,000, which comes to 2.8 million shares. That's more than double any of his other holdings at this time.
when asked about why he put such a large portion of his investment portfolio in GLD, Druckenmiller said when he sees something that gets him excited, he's willing to take that step.
Talking a lot about risk/reward ratio over the years, he obviously sees something in gold that has a lot of potential at this time. I agree with him.
When you consider the self-deception of the Federal Reserve, it's difficult to project whether or not it will raise interest rates in September.Even though global economic conditions are deteriorating, there has been no strong signal one way or the other on what Yellen is thinking.
Almost all of Asia is crashing. Countries with strong exposure to commodities, like Canada, Brazil, Russia and Australia are struggling, and Europe is weak as always. That leaves the U.S on its own. I don't see how it can maintain any semblance of growth in the near future.
One temporary answer would be for the government to increase spending like it did the last quarter to reinforce the illusion of a strong recovery. That never works over time though, which is good for gold.
As a matter of fact, if China and many other Asian countries work to strengthen their currencies by selling Treasuries en masse, even while they engage in a currency war, that would almost certainly halt the idea of raising interest rates, and some believe it may even initiate another round of quantitative easing. We all know what that would do to gold prices.
We must watch China in the weeks ahead, as it has already sold off over $100 billion in Treasuries over the last couple of weeks, and it's sure to continue to do so. Almost certainly other Asian nations will do the same, which has the potential to change the direction the Fed wants to go.
What's happening in Asia is countries are fighting to remain competitive with exports, which of course why they're devaluing their currencies. At the same time they don't want them to fall so much it wreaks havoc on imports and brings about higher inflation domestically, so they're selling Treasuries to support their respective currencies.That means Treasury yields are going to remain level or go up, which the Federal Reserve doesn't want to face when it comes time to make an interest rate decision.
It's amazing at times to see how quickly investors forget lessons in safety, and blindly believe the mainstream narrative on the state of the economy and stock market.
For that reason, along with the Fed's manipulation using its lack of commitment and visibility concerning interest rates, it is keeping investors paralyzed in regard to moving more of their capital to gold. Since they don't know what the Fed is going to do, they're seeking safety in cash or Treasuries instead.
With the world now plunging toward global recession, it's amazing the disconnect many investors have between the world and America, as if what happens everywhere else won't have an impact on the American economy.
It's going to take a harder landing to reveal the real weakness of the U.S. economy, and it will definitely come in the not-too-distant future. Smoke and mirrors can only do so much before it comes falling down.
At that time gold will be the go to place of safety, and it once again will soar in price.
The more I watch what has happened with the price of gold recently, which while having some strength, hasn't jumped in the way it should have under these market and economic conditions.
It's obvious investors have been holding back on plowing into gold for safety because of the manipulative comments from the Fed that is may or may not be raising interest rates in the near future.
The lack of clarity, which now has to be considered a planned move, is what has been holding the price of gold down because investors don't know whether or not there is a rate increase coming soon.
This pushes capital into bonds, which is what the government and the Fed prefer. That may last for a little while, but once the Fed makes it clear what its next move is, there will no longer be any doubt. Almost certainly the next move will be to do nothing.
Once that happens, there will be an accompanying comment that will once again darken visibility in attempts to keep money from being placed in gold.
The reason why the Fed hates that is it contradicts its cheerleaders, and brings back the narrative of the consequences throwing fiat money into the financial system has.
My belief is the Fed won't be taking any steps in regard to interest rates, as the global markets aren't through getting hammered, and with China, Japan and Asia in general struggling, along with Canada and Australia, there is little in the way of positive catalysts to signify ongoing growth.
The slow growth projections of the U.S. economy confirm this.
With a lot of cash on the sidelines as well, I believe it's getting ready to be invested in gold once the central bank signals where it's taking interest rates.
By making investors wait, it's further generating pent-up demand, which when released, may even be stronger than believed at this time.
If it goes the other way and interest rates are increased, I see that as a temporary pause. The global economy is grinding to a halt, and there is no way the U.S. economy can maintain the slow growth way it's now enduring, with consumer spending.
One way or the other gold prices are going to rise, and I don't think it's going to be a long time into the future, whether the Fed raises interest rates or not.
With economies around the world slowing down, currencies plummeting, and the commodity sector beaten down, there is more to the stock market correction, then, well, being a correction. That's good news for those that have been waiting for gold prices to gain some momentum.
There of course is also the tough decision ahead for the Federal Reserve, which until recently, was almost sure to raise interest rates. That's more than in question at this time, as global markets take a big hit.
Even if the Fed decides to boost interest rates, gold is still looking good, as there are just too many negative catalysts out there to make that the determining factor in the price of gold.
Not only that, but there is a growing number of people that believe not only won't the Fed raise interest rates, but the global and domestic U.S. economy may be far worse than it is, which points to the possibility of another round of quantitative easing. And we all know how gold prices would jump in case of that event. If the Fed decides to hold off for now, that is also positive for gold. So whatever way you look at it, gold prices will start to rise, and will continue to do so over the next year at least; possibly further out as well.
Safety is going to be a dominating part of the investment landscape, and gold will be one of the leading assets investors seek to protect their capital.
Institutional investors, including hedge funds, have reversed their aversion to gold, as they are now betting on the precious metal to move up again, according to the Commodity Futures Trading Commission.
On August 18 they surpassed gold futures and options contracts betting against gold by 18,454, said the CFTC. A week before bears had 2,794 futures and options contracts than gold bulls.
Much of this came from the stock market crash in China, and was heightened further by Chinese exports plunging by 8 percent, pointing toward the country probably being in the early stages of a recession. It also generated questions as to how healthy China's economy has really been, and whether or not the data reported was even less accurate than had been believed.
Japan has also been struggling, along with the rest of Asia. Countries more heavily reliant on natural resources, such as Canada and Australia have also been suffering a reversal in fortunes, as commodity demand has been falling.
All of this is happening in the midst of a currency war, as many nations with significant export markets fight to weaken their currencies in order to boost exports.
Recent numbers from media also show that sector is under strain, with ESPN losing a moderate number of subscribers.
Taken together this has increased the probability the Fed will hold off on raising interest rates. That's likely to play out that way, and if things get worse, we may not even see a bump up in the interest rates.
Combined with a strong U.S. dollar, which is starting to put pressure on U.S. exports, as data from the New York Fed recently stated that region of the country failed to meet expectations, it would be very surprising to see a change in interest rates by the Fed.
Things are falling apart so quickly, it's hard to see how gold prices can be suppressed going forward. Instead of an interest rate hike, we may be seeing talks of another round of quantitative easing instead.
There has been some confusion among those interested in the U.S. monetary policy and why the U.S. dollar has remained strong even as the Federal Reserve created enormous amounts of money out of thin air. Under normal conditions that would have put downward pressure on the value of the greenback.
read more on U.S. dollar
I'll have to say I wasn't disappointed in the talk given by Federal Reserve Chairwoman Janet Yellen, as my expectations were appropriately low, and I wasn't surprised by the lack of anything new and some of the weasel words used to provide cover in case economic conditions in the second half are such that the Fed doesn't raise interest rates as Yellen has been leaning towards and most others expect.
Here's the wording she used to cover her actions if they end up different than she has signaled to the market:
read more...
There are a number of reason Asian currencies have been falling recently, with the most obvious being expectations the Federal Reserve will raise interest rates in the latter part of 2015.
Other factors attributed to weaker Asian currencies include pressure from local businesses, demand for electronics gadgets fell, MERS, funds pulling money from emerging markets, Japanese yen, and a potential Greek default. I'll break down how these are having an effect country-by-country in a moment.
What's important is with the backdrop of rising interest rates in the U.S., Asia has several other factors to look at to get a view of the macro and micro elements causing the drop in currency value.
read more ...
In what was undoubtedly a plant in the latest notes from the Fed meeting, along with the so-called big beat in jobs creation, it makes you wonder why the price of gold, and silver for that matter, shrugged off the news and not only held steady, but moved up a little.
The obvious reason is investors know that this is a bunch of nonsense. The Federal Reserve isn't going to stop printing money, and the jobs number were so fudged it's almost a certainty that they will be downwardly revised; probably in a big way.
Concerning the Fed notes, that was an attempt to keep investors in gold and silver at bay while the central bank kept its loose money policy in play. While those in the know understand the ploy, the mainstream financial media are now using the comments in the notes as talking points, repeating the mantra of the possibility of the Fed stopping its stimulus strategy. This is all orchestrated, again, for the purpose of planting uncertainty in the minds of investors, whom the Fed and government want to have believe the economy is growing at a strong pace.
Part of this is for the reason of manipulating commodity prices so inflation doesn't overwhelm the country in an obvious way, in which even the uninitiated could be confused as to whether or not it was economic weakness and the consequences of the failing Keynesian monetary policy implemented by the central bank.
So hopefully most of you reading this won't believe for a moment that the Fed is going to stop stimulating. It's not going to happen any time soon, and that can be absolutely counted on, no matter what tactics are used and what the mainstream media reports. Neither can be trusted in these matters.
As for the jobless numbers, they're somewhat laughable.
Dave Lutz, the head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, and one of a number of experts who put the numbers in perspective, said, "Today’s report showed the so-called participation rate, or the percentage of working-age people in the labor force, slipped to 63.5 percent, the lowest since 1981."
Another say this:
According to the household survey (on which the unemployment rate is based) the economy added a healthy 170,000 jobs. However, a whopping 446,000 of those jobs were part-time jobs. Simply put, the economy shed 276,000 full-time jobs.
The BLS labeled those 446,000 part-time jobs as "voluntary". I am not so sure.
A Gallup Survey yesterday on Jobs show the percentage of workers working part time but wanting full-time work was 10.1% in February, an increase from 9.6% in January, and the highest rate measured since January 2012.
Gallup notes "Although fewer people are unemployed now than a year ago, they are not migrating to full-time jobs for an employer. In fact, fewer Americans are working full-time for an employer than were doing so a year ago, and more Americans are working part time. Although part-time work is clearly better than no work at all, these are not the types of good jobs that millions of Americans are still searching for."
Arizona state senators voted to allow gold and silver to be used as legal tender in the state.
Privately minted gold and silver will now be given the same authority and status as paper money in Arizona. That means the residents of Arizona will be able to pay their bills within the state boundaries using the two precious metals.
Along with Arizona, other states have already implemented or are looking into similar proposals. While the constitution doesn't allow states to create their own currencies, there is nothing to suggest a state can't allow coins minted by private companies to be used as legal tender.
There was some additional drama in the process of confirming the bill, which came of course from a Democrat, this one being someone named Sen. Steve Farley from Tucson,
I will hand him this, he got it right on when he attacked the approval of the proposal, seeing how it makes the failing U.S. dollar look. Farley said, "I believe the bill itself ridicules our financial system." Right you are Steve. It does all of that for sure.
What he's of course referring to is the implementation of an alternative underscores the disastrous and monstrous policies of the Federal Reserve and Ben Bernanke, where they work together to debase the currency in the name of saving the economy.
The inclusion of gold and silver as a currency, every day points to these failed policies and teaches those willing to listen that Keynesianism is dead, and printing or digitizing endless amounts of dollars to prop up an economic system that should be allowed to flush itself out so it can be really healed, is what people like this Farley oppose.
In order to work out the details of the initiative, the effective date to implement gold and silver as legal tender in Arizona was pushed out till after the 2014 legislative session.
After a couple of days of gold futures surging, investors decided to take some profits off of the table, as gold for April delivery dropped $19.80, or 1.2 percent, to close at $1,595.70 an ounce on the Comex division of the New York Mercantile Exchange.
Some media outlets suggested it was positive macroeconomic data out of the U.S. and Europe that resulted in the downturn, but that's doubtful after Federal Reserve Chairman Ben Bernanke stated he has no intention of stopping stimulus measures, which of course confirms the extreme fragile global and American economy.
Another thing is any investor that believes in any way that Europe has anything positive economically to base an investing decision upon, is setting themselves up for failure, as Europe is and will continue to be an economic basket case no matter what positive spin the financial media attempt to put on it.
For example, some news reports said gold futures fell because Italian political parties are starting to work on the possibility of forming a government. So what? Italy is working on forming a government. That's meaningless. Italy is going to have a government no matter what the news reports say. So the idea is put forward that they are working on it is considered news and a reason for gold investors to sell. That would mean gold investors bought gold because there were concerns over whether or not Italy would form a government. It's irrelevant of course.
Britain also continues to be an economically challenged area, where its economy contracted by 0.3 percent from the last quarter.
The only positive economic news in the United States continues to be the housing sector, where pending home sales in January were up a little more than expected. Other than that, most of the economic news in America is dismal.
Durable goods orders were reported as having fallen in January, a nod towards extremely weak manufacturing sector. Durable goods orders in the U.S. plunged 5.2 percent last month, where economists were looking for a drop of about 4.0 percent.
As for currencies, the euro U.S. dollar rose to $1.3101. The dollar index, which measures the U.S. dollar against a basket of currencies, was also down on the day.
SPDR Gold Trust (GLD) reported it experienced its biggest gold outflow of gold for one day since August 2011. Gold bullion held by the ETF fell by 20.77 tons on Wednesday when the market made a big correction.
Much of this was the result of the orchestrated move by the Federal Reserve to allow the appearance some of its members are questioning whether it should continue with its quantitative easing policy even if it doesn't reach its unemployment target.
A hedge fund rumor floated throughout the day that one had to sell a lot of gold to cover itself. That proved to be unfounded, although combined with the Fed minutes and uncertain economic outlook made for the perfect storm to drive the market and price of gold down.
After the outflow of gold, SPDR currently holds about 1,300 tons of gold. The highest amount it has held as in the last month of 2012, when the total reached 1,353 tons.
Most of this is benign, but it did plant the concern in some investor's heads that the bull gold run may be nearing an end; undoubtedly one of the reasons the Fed released the minutes.
SPDR Gold Shares closed Thursday at $152.62, gaining $1.18, or 0.78 percent.
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