May 16, 2011

1. Why is your financial risk greater now being out gold than it is... being in it? The answer is not because "gold is about to go vertical!". The answer is not because, "the US govt is about to default!". The answer is not because, "the comex hardly has any gold and silver, they're gonna blow up, they can't deliver!".

2. The answer is that the bond market is not the same now as it was in 2008. [From Feb/March 2008 to Oct/Nov 2008, gold and gold stocks followed the markets down. The dollar was the place to be.] In 2008, there was "institutional innocence". Institutional money managers didn't understand OTC derivatives. Once they got a handle on the situation, they surged into US dollars and bonds. They believed in their HEARTS that gold is a fundamentally riskier item than dollars and bonds.

3. That view has totally changed. Fund managers now have laid down ground rules for what they view as qe LIMITS. There's a growing and not-so-quiet institutional understanding that [plays on] gold, not the Gman's promises, are the lowest risk asset.

4. Ironically, this has occurred while the gold community has fallen, somewhat, into a fantasy view of qe to infinity as being realistic, while the institutional money managers believe QE has limits, and if exceeded, would cause them to begin a panic withdrawal from bonds and most/all paper currencies, in much the same way that they withdrew from gold, stocks, and commodities, in 2008.

5. Unlike 2008, the next panic is likely to be a panic IN to the stock market and commodities.

6. More and more mainstream managers are coming to the conclusion that the US govt debt is UNPAYABLE. If it is unpayable, what should you call the vastly larger OTC derivatives debts?

7. All debts are paid, either by the creditor or by the debtor. In a situation where debt is classified as unpayable, what normally happens is a restructuring of the debt, to MAKE it payable. Lowering rates is a form of debt restructuring.

8. What you are seeing now is a number of less-informed creditors and "creditor fans" making statements that rates need to be raised, because the level of interest rate paid to the creditors doesn't reflect the level of risk associated with the debt.

9. That is technically correct, and the level of interest paid to reflect the level of risk should probably be 15% or higher. The only problem with that scenario is that the US govt debt is already unpayable at 4% T-bond rates.

10. With OTC derivatives it is probably unpayable at negative rates.

11. When a debt is unpayable and restructuring has been maxed out, then devaluation of the currency becomes the next tool in play to make the debt PAYABLE. That is why I have continuously reminded you that after qe FAILED, gold revaluation would be the next tool to come out of the box, via central bank buy programs. QE is not OVER but it has FAILED, like all the tools before it.

12. Those who are running around holding the bankster's cue cards that say, "the crisis is over, we promise!" are making a very serious error. The crisis is accelerating [We are at the eye of the hurricane. We are at the entrance to the wormhole between 1) the 1971-2011(?) decades-long fiat IMF US Dollar based money system. and 2) The new monetary system: Possibly based on the EURO (since gold has a fundamentally different position than its 'just another commodity' position in the current system) Possibly a BIS-suppported (therefore a non-IMF-supported) monetary system. Possibly Freegold, whatever that is. Refer to this for more. -FNC] , and that is why gold revaluation is in play. Just as asset purchases FAILED, and rates to zero FAILED, so has QE FAILED.

13. Remember that the goal of these attempted solutions was to raise asset prices, and specifically HOUSING prices. Instead, the rest of the asset prices rose; everything BUT housing! The attempted solutions have put the consumer in a worse position (I would argue it is deliberate) than he/she was before the crisis began.

14. Raising the cost of a product has high odds of causing major problems over time. Raising the cost of SHELTER, FOOD, and ENERGY are a one-way ticket to destruction of the Western standard of living, and perhaps even way of life.

15. Steamin Lehman sent me an interesting piece on gold/silver by Bob Hoye's sidekick, Ross Clark. Ross is also technical analyst for CIBC, one of Canada's big five banks. Ross notes that silver could go lower, but could also surge straight thru $50 from here.

16. When the main theme of the markets is loss of confidence in the bond market, dollar devaluation, and debt that acknowledged as UNPAYABLE by the world's largest money managers, only an IDIOT INVESTOR makes their personal main theme... running to the dollar because gold/silver "might fall down". It's not "2008 again" for anything but the BOND and PAPER MONEY.

17. When you trade gold against silver (or other contra-dollar assets against each other), rather than against the dollar, you do NOT eliminate fear, but you DIRECT it. When you buy gold, and then silver starts rallying against your gold, you think, "ok, I'll buy more gold as it falls against silver, but I'm losing!" Those feelings are NOT going away.

18. You may even experience bouts of capitulation action, where you liquidate some of your gold for silver, as silver rallies. That failure is overridden by the fact that you are maintaining your contra-dollar overall positioning, and odds are HIGH that any capitulation is going to be modest.

19. If you are trading GDX for GDXJ, there may be times where you think, "oh no, GDXJ is rallying too much, I can't buy any more GDX". That is a VASTLY better mental position to be in than somebody who is only following either GDX or GDXJ against the dollar. You need to do what it takes to ENDURE. Maybe you build more overall shares of GDXJ by trading them against GDX than against the dollar, or maybe NOT. But odds are very higher that what you do NOT do, is blow them out and sit there with DOLLARS.

20. In time, the gold shares will blast higher as a group, both seniors and juniors. If you have allowed some timer or analysis to take you out of your stocks as the stocks begin to surge higher, you will then try to get back in, and find the market has insane volatility that blows you back into the dollar at MASSIVE LOSSES.

21. Trading contra-dollar assets against each other is a tool of ENDURANCE, and if we DO go lower against the dollar, say to $1400, $1300, $1200 or lower, do you REALLY want to be staring at the dollar value of your accounts non-stop?

22. Deutsche Bank says we're going to gold $2000 by year-end. What if we appear to be going to say, $1200, but instead price starts gapping higher and you are OUT? What if you blow out core positions because "I can't take a hit to $1200!", and then it APPEARS we are going to $1200, but then we gap up day after day to $2000? Then you rebuy at $1900 and price rises to $2200, you buy more, and then it falls to $1500 and you sell everything, AGAIN?

23. Investors need to build endurance, not predictions. Predictions are going to FAIL to build you any wealth, and already HAVE since we entered the time of gold revaluation.

24. The PGEN has already put you in a BETTER position than the head technical analyst for CIBC bank. If silver rallies, you have ALREADY bought into the EXACT lows. If silver tanks, you buy more. [Assuming your previous buying was appropriate to your risk capital so that you still have some for buying silver.] The analysts have to HOPE that price moves to their buy areas. You don't hope. You RESPOND.

Grid time! Respond time! I'm ringing, gold, silver, GDX cash registers as I send this off. I wish Mr. Clark, and all the other technical analysts, the very best, while you and I ring our cash registers!

Thankyou

Cheers