Tag: money

Gold, Silver, Copper, Nickel and the Slow Death of Money

Gold, Silver, Copper, Nickel and the Slow Death of Money

A huge opportunity to hedge against both inflation and deflation is lying out there in the open. There are no transaction costs and right now there’s even a built-in discount. But most people will never realize any of this. In 1933 President Franklin Delano Roosevelt signed Executive Order 6102, which made it illegal for U.S. citizens to hold gold bullion. Prior to that, the $20 bill was essentially a warehouse receipt for a one-ounce gold coin. Prior to the Federal Reserve Act of 1914, the $20 bill actually told you this. After Executive Order 6102, $20 notes weren’t allowed to be exchanged for gold anymore. Americans couldn’t legally own or trade gold as money and savings, only as jewelry or collectible coins. A year after making monetary gold ownership illegal, FDR revalued gold from $20.67 per ounce to $35 an ounce with the Gold Reserve Act. The Act also required all gold and gold certificates to be turned over to the Treasury. The dollar was debased. A chunk of the gold it used to be good for was legally removed. Instead of  “containing” 1/20 an ounce of gold, each dollar now only contained (or represented) 1/35 an ounce. And of course you couldn’t actually own the gold itself. In 1971 Nixon severed the last official ties between gold and the dollar. The dollar quickly sunk to its real value, which had been debased by years of money supply inflation. By 1975 Americans were allowed to own bullion gold again, but during the roughly 40 years bullion gold ownership had been illegal, the dollar had been drastically debased. At its former lowest point in the summer of 1980, the dollar …

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Inflation in (Mostly) the Wrong Places

It is often claimed that inflation is a benign, even positive, force. People assume that prices, wages, and assets will all rise together… In the real world, inflationary episodes don’t play out that way. Wages don’t keep up, and bubbles form in unexpected (and unwanted) places. In America, compensation is clearly stagnant. And the outlook for future pay raises is not good, as this chart from David Rosenberg shows: Contrast that with this next chart, which shows the percentage of companies planning to raise prices: Combine stagnant wages and slow growth with high unemployment and rising prices, and you get a recipe for stagflation. This scenario is being played out around the world. In the UK, consumer prices rose 4% in 2010. As noted by the Financial Times , wages aren’t keeping up: The prices of everyday goods and services are rising about twice as rapidly as average wages, Tuesday’s inflation figures confirmed — which means that the standard of living of many Britons is already falling. According to the Bank of England, average pay at the end of this year will be able to buy no more than it could in 2005. It is the first time that the purchasing power of earnings has fallen so far since the 1920s. I expect this trend to continue as long as the Fed’s mad experiment is ongoing. The thing about Central Bank “easing” is you never know where inflation will pop up… Easy money will always fuel speculators, who have little skin in the game, to find another bubble to “invest” in. Silver, gold, oil With printing presses switched “on” for the foreseeable future, we remain bullish on precious metals. Silver is holding above $30 today and could hit $37.50 on the next leg up. Coal, oil, and natural gas investments should continue to do well. And as my colleague Nick Hodge of Energy and Capital says, “Buy it if it burns.” If you’re not yet convinced that Fed printing is directly related to rising commodity prices, examine the following chart. (The solid blue line represents the Austrian Money Supply (AMS), and the solid teal line represents commodity prices ( IMF Commodity Index )): Note: The version of money supply shown

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How Savings and Investment Increase an Economy’s Output

Filed in BP, Debt, deflation, economy, interest-rates, Lear, o, silver, Spot Gold, target, US Dollar by on February 14, 2011 0 Comments

Everyone who has held a job and a bank account understands the potential benefit of postponing consumption today in order to enjoy greater consumption in the future. However, many people — if pressed — would explain this increase in saver’s income by an offsetting reduction in the income of a borrower in the economy. This is certainly a possibility. For example, if Bill (the borrower) forgets his lunch money on Monday, he might ask his coworker Sally (the saver), “Can you lend me $10 and I’ll pay you back $11 tomorrow?”  If Sally agrees, then it is clear that her $1 in interest on the personal loan was paid out of Bill’s reduced income for that month. In other words, if Bill’s take-home pay that month were $5,000, then he would actually only have $4,999 to work with, because of his $1 expenditure in “buying a loan” from Sally. At the same time, if Sally’s normal paycheck were also $5,000, then this particular month she would actually have $5,001 to work with, after earning $1 in providing “lending services” to Bill. In the scenario above, what basically happened is that Bill financed his consumption with an “advance” made by Sally. On the Monday morning is question, …

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Market Wrap-Up for Feb.10 (ALL, PEP, PRU, WFMI, WMT, T, more)

I was reading more of the major Harris Poll that was released a few days back and a startling revelation that just floored me was 41% of young people between ages 18 and 33 say their personal savings is mostly in bank savings accounts and CDs. This is not a smart move, period! The media did a great job of scaring many out of the markets 18-24 months ago, and the impact on the younger generation could be quite dangerous if they continue to just “break even” with low yield investments. This ultra-conservative nature is not just going to take a toll on younger investors, but older investors as well. look at the latest annuity sales, which jumped 24% in January 2011 from the previous year. What many investors don’t realize is that now is simply a terrible time to buy annuities, because their returns are severely limited in today’s low interest rate environment. Annuities are fixed income investments offered by life insurance companies. In short, you give the insurer your money, and they make monthly payments to you over a specified period of time. There’s nothing wrong with annuities per se, but the timing for buying annuities is extremely important. In general, as …

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Millionaires More Likely to Strategic Default

Filed in BP, CBS, Gold, GOld juniors, Gold Market, housing-market, Lear, o by on February 8, 2011 0 Comments
Millionaires More Likely to Strategic Default

Not surprisingly, the bursting of the housing bubble has moved up to the final rung on the ladder. Far from the days of the subprime debacle, now even the “good” people are getting squeezed. The difference is the rich are smart enough to walk away from it all. In fact, homeowners with loans of more than $1 million default at a much higher rate than “the little people” do. From CBS News entitled: Even More Millionaires Defaulting on Mortgage “ For Darren Thomas that ocean view was quickly losing its value. He says, “I bought it for [$1.385 million]. It is worth less than [$800,000], maybe less.” Thomas bought his townhome in 2006 but after seeing its value drop steadily he stopped paying. “I haven’t made a payment in two years,” he says. “It was business decision. It was an easy decision. I have a property worth six or 700,000 less than when I bought it. I was making payments of 10,000 a month.” Thomas has gone into strategic default. He could make payments but is refusing to put more money into a home that is worth less than his mortgage. Among luxury homeowners he is not alone. One in seven homeowners with loans over $1 million are seriously delinquent compared to one in 12 with mortgages below $1 million. The more you owe, it seems, the better off you may be. Darren Thomas continues to live in his home because banks are often slower to foreclose on million-dollar homes. For those who have stopped paying their million-dollar mortgages it’s just an investment that didn’t work out. “As negative equity took place and drove the value down it became an investment not worth holding onto,” says Corelogic’s Mark Flemming. “Not much different than a regular stock you would sell.” “People like myself, business people, are going it is silly to throw good money after bad,” says Thomas “The loss is not mine. The loss is the banks.” When it comes to real estate, the rich are different. They can be just as ruthless as the bankers.” I guess Nick Carraway was wrong after all. In some ways the rich really are just like the rest of us….suckers for a good bubble. The difference is they understand the money/business part of the game better than most. For them its just a business decision. By the way, according to CoreLogic, home price have fallen for the fifth straight month. Overall, house prices delined 1.8% for the month of December. Related Articles: Case-Shiller Index Shows Renewed Home Price Declines 2011 Housing Market Forecast Case-Shiller Index Screams Housing Double Dip Meredith Whitney Predicts a Housing Double-Dip Zandi: Expect 8% Home Price Declines To learn more about Wealth Daily click here Millionaires More Likely to Strategic Default originally appeared in Wealth Daily . Wealth Daily is a free daily newsletter featuring contrarian investment insights and commentary.

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Carlos Slim Catches Gold Fever

Carlos Slim Catches Gold Fever

Carlos Slim beat both Warren Buffett and Bill Gates in stock market performance last year. The reason: a hell-bent plan to start a brand-new gold and silver mining company in Mexico. Slim’s publicly disclosed holdings jumped 37% to $70 billion in 2010, according to data compiled by Bloomberg . Meanwhile, Buffett helped return a 22% gain for Berkshire Hathaway last year, and Gates’ Microsoft fell, hurting his overall annual returns even as he spread his investments into other sectors… The World’s Richest Man catches gold fever Slim — who made his fortune by building one of the world’s biggest telecommunication empires — has recently been making significant investments in gold and silver, particularly with a focus on precious metal mining in Mexico. Carlos Slim became the world’s richest man in 2010 with an estimated net worth of $55 billion. And a new spin-off mining company may help him widen his lead atop the global wealth list… Back in August, Slim’s holding company, Grupo Carso, S.A.B. de C.V., announced it would spin off a new precious metal mining company that would be focused on gold and silver mining in Mexico. The news added billions to Slim’s already ridiculous fortune as the plan to spin off the new company sent shares of Grupo Carso soaring in 2010, making it his best-performing asset last year. The new company (called Minera Frisco) produced nearly 200,000 ounces of gold and 5.5 million ounces of silver from its Mexican projects in 2010. Frisco recently reported plans to spend nearly $750 million this year to ramp up gold and silver production. The company estimates production from new mines in Mexico will more than double the company’s gold production to 440,000 ounces and nearly quadruple its silver production to 19.1 million ounces in 2011. Shares of Minera Frisco began trading Mexican Stock Exchange at the beginning of this year. But Slim and his family received nearly 80% of the new shares of Minera Frisco, and the stock is very thinly traded. Most analysts and investors will most likely avoid covering or owning this stock… However, there are many suitable alternative companies with a focus on gold and silver mining in Mexico. The largest of Minera Frisco’s publicly-traded competitors is the London-based silver major Fresnillo plc (LON: FRES) . Fresnillo plc Exchange: Symbol London: FRES P/E 39.76 Share Price 1,450 GBX Divided 5.90 GBX Market Cap 10.41 Billion GBP Yield 1.12% Fresnillo is the …

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Recovery Chronicles: Tales From the Modern Food Line

Filed in BP, frontline, Gold, GOld juniors, inflation, Lear, o, Quantitative Easing by on February 4, 2011 0 Comments
Recovery Chronicles: Tales From the Modern Food Line

Here’s one from the recovery chronicles: food stamp usage is up 14% from last year. Today, the Supplemental Nutrition Assistance Program (SNAP) serves about one in seven Americans. Of these, about half are children USDA officials say. From the Wall Street Journal by Sara Murray entitled: Some 43 Million Use Food Stamps “Nearly a year and a half into the economic recovery, some 43.6 million Americans continued to rely on food stamps in November. More than 14% of the population drew food stamps in November to purchase groceries as high unemployment and muted wage growth crimped budgets. The number of recipients was up 0.9% from October, according to the new report by the U.S. Department of Agriculture. Compared to a year ago, the number of people receiving food stamps was up 14.2%. In both Washington, D.C. and Mississippi more than a fifth of residents received food stamps — the highest recipiency rates of any state. But demand has grown stronger in the past year in a handful of other states that recorded significant increases on a per capita basis. In New Mexico, 19.4% of the population tapped into food stamps. That’s up 3.2 percentage points from the same month a year ago, the largest increase for any state. Idaho reported a similar jump: 14% of residents received food stamps, up 3.1 points from a year ago. Washington, D.C., Florida, Delaware and Texas all experienced similar year over year increases.” For comparison sakes here’s how the food stamp roles have grown

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Rare Earth Update

Filed in BP, Gold, o, silver by on February 3, 2011 0 Comments

A few days ago we blogged about rare earth being more valuable than gold. If you missed that blog posting on January 27th, you can read it here if you wish. The stock mentioned in this blog posting was a stock trading on the NYSE named MOLYCORP, symbol MCP. Since that posting, MOLYCORP has moved

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Do I See Lipstick On A Pig? Or Is The Stock Market and Gold Still Going Up?

Filed in AIG, BP, Debt, Gold Investing, inflation, o, silver by on February 3, 2011 0 Comments

As most sophisticated investors and traders are aware, the U.S. Federal government has run up significant deficits and the long term debt burden is becoming a drain on Gross Domestic Product. That being said, most economists are discussing the possibility of a major decline in the value of the U.S. Dollar going forward as inflationary

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Darden Optimistic on 2011 – Analyst Blog

Filed in AIG, BP, earnings, Gold Investing, Guidance, o by on February 2, 2011 0 Comments

Darden raised its earnings guidance for fiscal 2011 and initiated third quarter earnings outlook.

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Anticipating a Budget Deficit

Filed in AIG, AT T, BP, Debt, o, Quantitative Easing, silver by on February 2, 2011 0 Comments

I am constantly amazed at the number of people who think that a budget deficit is the same thing as the total federal deficit, which it ain’t. Actually, I remember one time early in my career where I was so desperate to cover up the results of my own incompetence that I tried to exploit Anticipating a Budget Deficit originally appeared in the Daily Reckoning . Recent articles featured in The Daily Reckoning include the impact of quantitative easing and US debt .

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Cummins Growth from Across Border – Analyst Blog

Filed in AIG, BP, Gold Investing, Gold Prices, o, silver by on February 2, 2011 0 Comments

Cummins Inc. posted a 34% increase in profit to $362 million or $1.84 per share in the fourth quarter of 2010 from $270 million or $1.36 per share

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