Current Thoughts for 11/30/2015

Gold had a nice pop today and the $1,050 resistance for gold and $14 for silver seems to be holding. The dollar is still struggling right at the 100 mark finishing up 10 cents at 100.18. Something has to give here soon and I think we continue higher with the metals but let the dollar below 100 be your key.

Today I am going to share with you a comment I made with someone that can give you insight into what I am writing over for my next book Illusions of Wealth.

In doing research for my next book I feel I am able to put the pieces of the puzzle together more than most. I work at it even harder after being shunned by Lew Rockwell who could not get behind the deflation side of the argument I was making, even though I used many who write for his site to support my deflation thesis (this was back in 2010). It exposed to me their bias of seeing things only one way. I am most proud of that chapter of my first book and the research and conclusions I made and it is the basis for the next book and what’s to come for the economy and investors.

I provide 8 of the indicators I use for predicting what’s next in this article;

8 Indicators That Tell Us Where Gold Might Go Next

http://bit.ly/1xuc5ic

One of the most important of these is money velocity which I further address in this article. In reading Bernanke’s 2002 speech about how deflation won’t happen here, because of the technology called a printing press, we have to assume that if the Fed does not win the battle through productivity and an improving economy and getting inflation to 2%, then they will continue what they have tried in the past. But they need the banks to begin to cooperate or cut them off and try something with a different name (this is part of the illusion by the way).

The other important issue is lack of fear. While we see bouts of fear in some of the things you mentioned, it is not relevant enough to shake the markets. Greece came close and if Greece can cause such havoc, imagine some larger countries to crack. I mention Europe just because they don’t have the tools necessary that other countries have or simply do not act quick enough. They relied on the IMF with Greece, but the IMF can’t step in too much more when being stressed themselves. Heck, they agreed to sell gold in 2010 just to keep their operations running.

Below is a synopsis of what Greece is in for with their creditors.

“Private investors hold 38.7 billion euros of Greek government bonds following a major write-down and debt swap in 2012 that reduced the Greek debt stock by 107 billion euros and the value of private holdings by an estimated 75 percent.

The Greek government has also issued 15 billion euros in short-term Treasury bills, mostly to Greek banks.

IMF – Greece was promised a total of 48.1 billion euros by the IMF, of which 16.3 billion was still to come by March 2016 if Athens successfully completed the second economic adjustment program.

Of the biggest euro zone members, Germany’s exposure for the two bailouts totals 57.23 billion euros, France’s is 42.98 billion, Italy’s is 37.76 billion and Spain’s 25.1 billion. That is in addition to their contributions to the IMF loans, commensurate with their respective quotas in the global lender.

Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.

Greece has asked for further debt relief from the Europeans, a move supported by the IMF. But euro zone governments have said they would only discuss that if Athens further tightens its budget.”

Read more at Reuters http://reut.rs/1XAPUAK

Also, check out the overdue obligations outstanding that are forthcoming for Greece;http://bit.ly/1XAPUQY

How is it everyone has forgotten about Greece? We’ll hear from them again in 2016.

You ask about where black swans can come from. Japan is my biggest black swan as they lead the world in Debt to GDP and have only buoyed this debt by having more exports than imports, owning their own debt (98%) and owning about a trillion of U.S. debt. There are still many issues with Japan today that I am writing about in my book. Japan is the second largest contributor to the IMF. Who will bail out Japan? Bottom line for Japan and other countries, including the U.S. is their ability to pay the interest on the debt. While rates are at historic lows, debt is manageable. Perhaps it is manageable longer than most think ala what Japan has been doing. But I remind you that the Yen has already depreciated around 37% versus the dollar in just 2 years since 2013.

What we have is a confidence game and when the behavior of the investor changes from one of acceptance of the norm to something else, it will virtually be an overnight phenomenon. It happened quickly to Mexico in 1994 where the peso fell 52%. It happened quickly in Russia where in 1998 inflation hit 84% and the ruble was devalued. It happened quickly in Greece where primarily this country was the main cause of the Euro falling 28% to the dollar. It happened quickly with the Asian financial crisis all within one year of Thailand setting it off. It happened rather quickly here in the U.S. during our last crisis. Everything can easily implode within a year and all the Central Bankers and IMF members won’t be able to put the Humpty Dumpty world monetary systems back together again.

Central banks and the IMF only step in after the fact. The IMF is already strained and cannot handle multiple issues at once moving forward. They have about 100 billion of gold to sell and some SDR assets, and that’s it.

Central Banks can meet collectively to help each other out but they can’t stop the fear of the asset holder who wants to sell. Who will these countries sell their falling assets to? The lender of last resort who has now become the buyer of last resort?

Don’t worry though. The U.S. will be viewed at first as the last bastion of safety. We actually do have a lot going for us versus most other countries, not the least of which is our military superiority. However, it is out Congress that is destroying what it took a century to build.

As much as I may be negative on gold short term, I can clearly make the case to have gold as insurance for the long term. It’s called “peace of mind” and anyone who thinks otherwise is living in utopia.

P.S. I am actually finishing a 3rd book that I have been working on the last 9 years (10 next year) called “We the Serfs!” that does offer solutions. I’m not a naysayer and you don’t see me write about hyperinflation and end of the world scenarios when I write about gold (unlike most other gold dealers). I do think the way forward is paved with some gold, but at the same time, we just need to reframe the thinking of government and we just might get out of this mess unscathed. However, I’m not going to give up my day job of selling gold and silver. Our government doesn’t just change overnight and another one of the illusions is that one party is better than the other and any change will actually come.