Nobel Laureate suggests Ponzi Scheme?

What would you think about this?

You are the US government.
You need money to pay for the obligations you have to fullfill.
You are the government of the most powerfull country of the world.

And still, some idiots (Senate and Congress) would impose limits on the debt you can raise.
Some other idiots (historical ones) passed idiotic rules (debt limits) that would not allow you to spend money without limitations.

By law, you are even not allowed to print money. Why not? What idiotic rule ... why not just print your way out of any cash limitations?

But - oh my boy - you got nobel laureate Paul Krugman on your side.

Why not - as you are not allowed to PRINT - why not MINT your way out of the debt problems? Why not 'produce' a ONE TRILLION PLATIN COIN? Out of thin air ... well almost out of thin air. You still would need an ounze of platin. And the production costs ... 2.000 USD? One Trillion with costs of 2.000? Why not only produce one of them? Why not ten?

Whom do you really think you can fool?

I strongly recommend that the nobel laureates should not be allowed to run Ponzi schemes!

http://www.bloomberg.com/news/print/2013-01-08/debt-limit-showdown-spurs-debate-on-trillion-dollar-coin.html

http://www.bloomberg.com/news/2013-01-08/debt-limit-showdown-spurs-debate-on-trillion-dollar-coin.html

China Buying Gold ...

Well, it is not China alone:

China Gold Buying 35 Times that of US

When I see the graph, I would trust economic policy the more the further left (only on the chart!) the country ranks.

When you read on, it looks like the Chinese policy seems valid and gives good advice to its people. Alternatively, you can also google: china gold attack usd
What you get is the same facts: China buys gold. Just with a different spin. Evil communist China attempts to devalue the US-Dollar by bying gold (instead of US-T-Bills).

Well, maybe China is dumping US-D. Can you blame them?
Seems like the US-treasury does not any more!

But where did we start? Ah, I forgot: China is buying Gold ... massively!

Side Efects of Taxageddon

Back in May of this year, I wrote about Taxageddon or what is now in the headlines every day: the financial cliff. With the suggestions of the Democratic Party and President Obama, its more a tax cliff by now, as the left wing has almost no spending cuts in its program, but a lot of higher taxes. But I want to focus on just two side effects of the ongoing discussion about reversing tax cuts: Why it might come to a year-end sell-off and what currently happens to dividend policies of US companies.

Without an agreement in the next weeks - I would say latest by 24th of December - capital gains tax will raise. At the moment you pay 0 to 15 % capital gains tax. This will go up to a minimum rate of 10 % and as high as 20 %. While this is still comfortably low compared to most European countries, it will certainly make a lot of folks think about their year-end-action. Imagine you bought your stocks back in 2009, after the financial crises and they are up now by 100 %. It will certainly make a difference for you whether you have to give away 15 or 20 % of those gains. Just by selling now, and buying back later next week, you can cut the tax burden on this sale by 25 %. And if you worry about the market conditions at them moment, you should for sure sell now and not on January the 3rd.

To me, it remains unclear whether or not we already see some of those sales. You could interpret the sell-off after the announcement of Obama's victory as induced just by this fact. But it is mere speculation. You could also argue, that the outperformance of the European, especially the German market has something to do with this taxation issue.

Second tax cliff issue, that already led to tax evasive measurements announced publicly is the dividends tax. Taxation on dividends will move from 15 % to personal income tax rate - so to a maximum just short of 40 % federal tax (+ state tax). Companies noticed, that they and especially their large share holders will be worse of receiving dividends next year. Some of them took evasive action - and this is especially if you have huge shareholders (like a family, or part of the management. (Also do not forget, the dividends paid out are from the profits of the companies - they have already been taxed by roughly 30 % before they get paid to their owners!)

COSTCO will pay a special dividend of 7 USD/share while the normal payment rate is 0.275 USD per share per quarter. To do so, COSTCO raise 3.5 USD bn of additional debt. Share price did rise over 100 USD after the announcement. 

And COSTCO is not alone. On 27th of November, Financial Times counted 37 companies that had announced special dividends from October to early November and 66 that did so since the US election. The whole dividend issue might have pushed the indices up, as such announcements would put upward pressure on stock prices immediately (see the price hike in COSTCO).

Adding up the capital gains issue and dividend issue, the 'tax optimized investor' would have:

- sold all his non-dividend paying stocks with gains since he bought them by now

- bought shares of stocks who would announce a special dividend prior to such announcement (the hardest part - without insider knowledge you could have speculated during the last weeks who would do so, though)

- and will again sell all his dividend paying shares once he qualified for the dividend by mid December

- and then he will buy them back later in December or early next year for a discount.

Taking the discussion a step further, the ones expecting such behaviour would be short by now ... which leads us to the interesting question: is short interest in general higher at them moment than normally? A field for your input and my research ....

Trustable Gold?

Today I found an interesting web-page - Trustable Gold.

After the Munich International Precious Metals & Commodities Show I tried to collect more information regarding investment (and storage) in precious and strategic metals. 

Two evening invitations turned out not really convincing.

Schweizerische Metallhandels AG made a nice presentation in a convincing surrounding. Only trouble here is you invest in metals not traded on an open market. And as there is no market price you have no idea wether you are treated fair. But even done so: the margins are quite high. Still it looks like an option. I just do not feel really good about it so far.

Mida Trading AG was even less convincing. Their presentation was crowded, taking place in the rooms of a Volkshochschule. Who ever want to attract people investing money should find better places. The speaker was quite amusing, but the company was not really in the focus of the whole speech. This was more about investing, inflation, Gold, ... in general. 

Quite clear was, how seriously this company keeps track of who brought contacts and visitors. From my point of view, the percentages to be gained by selling are very much of importance here. Plus: the offer is for sure not cheap, even with the special discounts they offer you after 5 minutes of discussion.

All that brought me to a little more research on the Internet - and two companies I know since a long time popped up: GoldMoney and proaurum. Both offer storage options, but with very different concepts. I will not go into details here for the time being.

What TrustableGold offers is just an evaluation of the offerings of different companies who allow you to store  Gold. GoldMoney and proaurum are rated. It was really nice to see, that GoldMoney got a top rating; proaurum did not.  

Still, I guess I will try to get more information on both concepts (and share them with you).

Und wenn Du glaubst es geht nicht mehr ...

.... kommt von irgendwo ein Lichtlein her!

Or so goes a German saying. Gosh.
Not sure what happened today ... markets looked awful - and just from nowhere all markets are in GREEN mode. I know, I know - lame duck president avoids fiscal cliff over the weekend - blah, blah, blah ... but hey - that is the news event driving the market?

Guess in the next days we will learn where that bucks (and EUROs) did come from.

Post-Election Action

While the USA might not be the strongest country any more, might not have the best infra-structure, or producing economy --- it for sure is still the epicenter of the financial markets.

With the elections behind us and some uncertainty lifted, what are the take-aways?

1) 16 of the DOW30 stocks trade below 200-day-moving-average; 15 of them look like a sell  following my chart patterns. The markets dropped significantly with the DOW30 below 13.000, the S&P below 1.400 and the NASDAQ below 2.650.

My read: After the decisive outcome of the election we saw a short rally as this was better than a stalemate with weeks of discussion. But it seems, the market expected a Republican win and now hads lower. Also the focus has shifted from the elections to he fiscal cliff approaching in seven-league boots.

2)  German market also look unhealthy, but at least still holds the 7.000 level. The MDAX is still within its upwards trend, but on the lower end. Germany clearly looks stonger than its European fellows - FTSE, CAC showing signs of late weakness. Only the ATX and SMI look as stable as Germany for the moment: same language, same thinking, same stock trend.

3) The EUR gained strength compared to the USD - or the USD lost ground ... My read is that here we see the same shift in focus than with regard to US stocks. Fiscal Cliff and discussion about the debt/deficit limits in the US are on the horizon. Last time Democrats and Republicans could kick the can down the road at the last moment - and it hurt the USD very much. 

4) Gold/Silver was hammered last week - and I tried to get some but placed my limit a few bucks to low. With Obama in office, its back well above 1.700 USD - same chart for silver despite worries of a weakening economy. Gold in EUR is close to its all-time-high and approaching 1.400-levels now. Here I guess the market was anticipating a (chance of) more prudent fiscal and monetary policy from Romney/Rian. With that out of discussion - and Bernanke likely to stay - an upward trend from gold seems to develop.

5) Obamas victory speech  was a first step towards the Republicans. I guess 50 % of his speech Romney could also have made ...

'... you hear the deep patriotism in the voice of the military spouses, working their phones late at night, to make sure that no one who fights for this country ever has to fight for a job or a roof over his head when they come home ...' 

Obama or Romney?

So what are the takeaways:

- I expect US stocks and the USD to be somewhat depressed for the next weeks, unless Obama can put on a deal on fiscal cliff issues fast

- focus of US markets will be the US - so Europe is ganted some more time to move ahead

- whilst the elections might have had an impact on short term outlook of Gold, mid and long-term the USA, Europa and Japan can only try to inflate away their debt; the opportunity to buy precious metals lower is gone with Obama still in place

- Bernanke will not run for a 2nd term; I guess the rumors about him not doing so have been linked with the fear that a Republican president might not see him as first choice

- I would say there is a 75 % chance, that the fiscal cliff will be a fiscal hill - it would be unwise from both parties to stand by their left- or right-wing extremists and let the US run into very hard times. Instead they will fight for a compromise, kick the can down the road, both presenting themselves as victorious. They will strike a deal, where maybe taxes on the rich go up, but not the tax rates (by reducing exemptions). Where spending will be cut - but with room to point on the cuts the other side hurts more.

- Once the cliff is behind us and we cruise down the hill, big money will have accomplished something else: invested heavily in bonds they already have a guarantee to make an exit here with central banks buying up those papers (see QE3, Draghi comments in Europe, BoJ policy). Guaranteed sell at all-time-high prices. Instead of shifting to stocks now, those guys just have to wait for lower prices on stocks; so several weeks of discussions on the US debt, the fiscal policy - all with southwards impact on the equity-markets - will only second their goal.

Those are not markets any more. Maybe we should be worried about real output, production volumes, spending and saving - if we would have a market society any longer. Instead we have to analyze what fits into the strategy of the big players. What do European, Chinese and finally US politicians want to achieve? What game are the central banks playing? What is big money doing? You really think all the Wall Street guys out there do not know that bonds have never in history - never in history - been as much over-valued as they are today?

My tactical plan for the next weeks til year-end:

- lighten up on stocks when individual charts start to look ugly - rather not invest into new ideas until the fiscal cliff is hopefully eroded to a fiscal hill

- shift 30 % of my monthly equity-funds-purchasing programm into an alternative where I buy gold or silver

- play the USD/EUR FX rate

Have a good night and stay flexible!

IPM&CS Munich - Part V - The Speeches

Int. Precious Metals & Commodities Show Munich  -  PART V
Int. Edelmetall- & Rohstoffmesse München  - Teil 5

 Here comes the fifth and final part of my report from the Munich Edelmetall- & Rohstoffmesse. I will have at least one follow-up, as I visited a speech of Schweizerische Metallhandelsgesellschaft yesterday.

The speeches came in two kinds. Type I was 20 minutes speeches from companies, mostly miners and explorers. This had little value to me, as I was quite unprepared and I am not the kind of technical guy, who can make an evaluation on drill hole results and the kind. Still I watched several of those, as otherwise it would have been impossible to get a seating on the Type II speeches.

One that made some impression was BacTech Einvironmental Corp. The company is using the tailings of mines and uses bacteria to recover metals left behind.

 

Type II speeches were more of general, macro type.  I will give you several links here of the guys I watched and will address the major points they made.

Major points:

- there was no 'deflationist' - not a single one I listened to. Everyone was quite sure, that inflation will happen (or: not happen, but be the choice politicians will make). Well, you could argue, that is no surprise given the surrounding of the Precious Metals & Commodities Show. But Gold was always marketed as an asset, you could - also - invest in during deflation. So seeing no deflationist was a surprise to me.

- people are really willing to listen to a very theoretical presentation about Mises, Hayek, and the Theory of Money today. Well, not the average teenager on the street, but at least 300 to 400 folks. I really like to see, that Austrian economists are on vogue again.

 -  I did see the worst presentation I ever - ever - saw. And this one was paid for! It was the presentation of Prof. Dr. Han-Jürgen Bocker. The worst slides I have ever seen! Jokes that are politically non-correct - very much so. Really disgusting trash-talk, treating woman as inferior objects. And the guy was even proud of being able to go on with this s..t for hours. But: the room was full, the listeners yelled, even the quite educated visitors of the show did fall for him.
He was spitting out everything he knoww, all at once. Not that the facts would be false. But dropping them on your listeners all at once, with no structure, no idea how to make it a logical story, not picking them up where they stand and leading them some steps upwards ... you just drown folks, overlaod them with facts, overnews them.

 - Uwe Bergold - one of the speakers sponsored by proaurum.de was one of the long-term orientated speakers. He pretty much demonstrated to me, how hard it is for me to trust somebody talking with a local slang (Bavarian in this case). But it was a nice presentation, with good facts. Not really new to me, citing sources like Shadowstats.com I follow since years.
Very important statement he made: Every market booms and busts. So you have to think about your exit strategy in advance. The gains of years and decades can vanish in a few months when a market crashes. So make sure, you are in a position to exit when it is time to do so.
But for the moment, Bergold still is bearish on paper money ... and therefore suggest to buy precious metals.

- Best presentation I ever saw life was Gerald Celente. His name was not totally new to me, as Jim Puplava interview him several times at FinancialSense. But what he delivered - in a huge room totally overcrowded - did surprise me. I was expecting a speaker with hundreds of presentations behind him --- but he looked to me as pushing for impact very much. Someone very dedicated to make an impact, to change the picture, to influence the developmet.

The presentation was so much different to Bocker. Hardly any text. Almost no charts. A Picture presentation.

 

A clear structure. A red line you  could follow - had to follow - while the speech was given. An Italian SIGNORE making jokes on the Italian way of living.

And somebody ending with a mixed picture ... Celente thinks its likely we will end up in a very nasty century with lots of wars, big wars, close to world wars. On the other hand-side he motivates to become better, to excel and reach out for the best you can reach. An those raise the bar for our so-called leaders. 

 

Very motivating speaker at the end of the show: Mister Dax Dirk Müller.

Four points to take-away from his speech:

- the US and China does not like to see a strong Europe. Europe does not have to fail. We can make a difference - USofA is just afraid of an western power as strong or even stronger then them. We can overcome the European troubles. Do not let US-bankers tell us we cannot.

- bond holders - the huge ones with political influence - made sure they can dump the bonds they hold on central banks. Central banks will buy at the absolute high ... and GS, Pimco and similar guys will sell at the peak. So far, that is just a fact. Interesting question to ask yourself: will current bond holders have enough influence to force stock marekts to break down ... so that they cannot only exit at the peak, but also enter at the (stock market) bottom?

-  any credit is a debit. Nice thing is: you pay interest on you own debt (for sure. Be it consumer debt or debt on your mortgage ... that's the way it should be). But then you pay interest on state debt ... as the government will just raise taxes high enough to pay the interest on 'its' debt. And then you pay interest on the debt of all the companies out there. And you do so by paying the price of the goods you need - and this price is full production cost + cost of capital including interest on debt + a margin for the company.

The whole system is stable, as long as debts do not exceed a certain level. Once they do, the 'average guy' (the one with a job, good paying, not in debt, not living on social benefits) will just collapse ... he cannot bear it any longer.
So the share you pay for interest in the system will grow - until you cannot longer stand it. And once you cannot stand it any more, wealth has to be redistributed from the ones 'having' to the ones 'producing'

- and this redistribution can be done two ways: quick or ... slowly / dirty .. .whatever you want to call it. Quick is: Default - Taking wealth from the 'rich' (= middle class) and give it to the others - Expropriation. Slow and dirty is: Inflation.

And we should all hope for the slow and dirty way, as this is the way you (being a guy with wealth, net worth, some assets) can take actions and outsmart the others, protecting at least some of the stuff you did earn and safe, put aside. 

Immediate actions of theft you can hardly avoid. 

So lets be a (THE) friend of inflation!!!
Let us elect socialist governments!!!
Hail to Obaman!!!

(Sorry - getting sarcastic here.)

Prof. Dr. Max Otte

Thorsten Polleit 

 Prof. Dr. Hans J. Bocker

Uwe Bergold 

Gerald Celente   

Dirk Mueller