6 Great Investment Questions To Marc Faber

Jon

In the latest episode of Ask the Expert, by Sprott Money, Dr. Marc Faber was the invitee. Below are the answers from Marc Faber on 6 excellent questions from Sprott Money readers. Subscribe for future updates at SprottMoney.com.
With the slowing world economy that has led to a slowdown in oil demand, what do you think is the long-term future of oil? Likewise, if oil prices rise again, would you recommend buying Russian oil stocks?
Marc Faber: Well, my view is that there are many explanations for the weakness in oil, including some theories that Saudi Arabia wanted to weaken Russia or the shale oil production in the US or Iran, and so forth. But my view is that the decline and sharp decline in oil prices signals a weakening global economy.
Now, in the last few days, I received many reports by brokerage firms and banks, and so forth. They all think that next year the economy in the world will be stronger than in 2014. This would not be my view. Reason A, the low yields on government bonds, that would seem to suggest to me that there are still some growth issues in the global economy, and the sharp fall in the industrial commodity prices would also suggest to me that the economy will be weaker than expected.
And I live in Asia. I can say that we’re not in a recession or in a deep recession, but there’s very little growth at the present time. In fact, I would argue that there’s hardly any growth at all. And as far as Russian oil stocks are concerned, and I think the oil price can rebound here short-term, but you might as well buy some oil drillers in the United States or oil servicing firms or oil companies. Why take a huge risk in Russian oil companies?
Currently, is it better for amateur individual investors to have some exposure to equities and bonds, or should they stay away from those markets altogether?
Marc Faber: My view is very simple. I have no clue, although I’m an investment advisor, how the world will look like in five years time. Now, maybe some forecaster knows, but I haven’t met them yet, and I’d like to meet them yet. The fact is simply, we don’t know much about the future. We even know little about the present and the past. And my advice to anyone investing is diversification. You have to own some equities. You own some gold. You own some cash and bonds, and you own some real estate. That is what you should do, because we don’t know.

This post was published at GoldSilverWorlds on December 22, 2014.

Ukraine Central Bank Conned Into Swapping Its Gold For Lead Bricks

Jon

Just when one thought the story of Ukraine and its (now non-existant) gold could not get any more surreal, it did.
As a reminder, it was about a month ago when we learned courtesy of an interview on Ukraine TV with the country’s central bank head Valeriya Gontareva, that Ukraine’s gold was virtually all gone, when she made the stunning admission that “in the vaults of the central bank there is almost no gold left. There is a small amount of gold bullion left, but it’s just 1% of reserves.”


This post was published at Zero Hedge on 12/22/2014.

Whoops! Existing Home Sales Drop Well Below Forecast

Jon

Of course, this was not unexpected for anyone who reads my work…
The seasonally manipulated adjusted rate fell to 4.93 million – well below the expected rate of 5.2 million. Note: this is a statistically calculated annualized rate and bears no resemblance to the actual sales rate. As we know from an earlier post, SoCal home sales in November plunged 19%. Inventory is climbing quickly, which is consistent with all of the new ‘for sale’ and ‘for rent’ listings all over the metro-Denver area.
More later, but suffice it so say that my homebuilder short-sell reports are very ripe and ready: Homebuilder Reports.

This post was published at Investment Research Dynamics on December 22, 2014.

Don’t Tell Germany Draghi Is About To Monetize 90% Of Bond Issuance

Jon

The next time anyone is stupid enough to mention monetary policy “normalization”, either have them read this:
The Bank of Japan’s expansion of record stimulus today may see it buy every new bond the government issues. The BOJ said it plans to buy 8 trillion to 12 trillion yen ($108 billion) of Japanese government bonds per month under stepped-up stimulus it announced today. That gives Governor Haruhiko Kuroda leeway to soak up the 10 trillion yen in new bonds that the Ministry of Finance sells in the market each month.
Translated: the BOJ will monetize 100% of all Japanese debt issuance (source).
… And this:

This post was published at Zero Hedge on 12/22/2014.

Kazakhstan Prepares For $40 Oil, Gary Schilling Says “Oil Going To $20″

Jon

“People should not be worried,” explained Kazakhstan President Nursultan Nazarbayev in a TV address over the weekend,“we have a plan in place if oil prices are $40 per barrel.” Kazakhstan, the second largest ex-Soviet oil producer after Russia, explains “there are reserves which could support people, preventing living conditions from worsening.” However, if A. Gary Schilling’s reality check of $20 oil being possible comes to fruition, as he explains, what matters are marginal costs – the expense of retrieving oil once the holes have been drilled and pipelines laid. That number is more like $10 to $20 a barrel in the Persian Gulf… We wonder who has a plan for that?
The Kazakh President says “don’t worry”, as Reuters reports…

This post was published at Zero Hedge on 12/22/2014.

NatGas Crashes Most In 10 Months As Polar Vortex Arrival Delayed

Jon

Natural Gas prices are down over 11.5% in the last 2 days, falling to their lowest price since January 2013, as a familiar tale of excess production in the face of ebbing demand looms large. As WSJ reports, BNP Paribas’ Teri Viswanath notes“the delayed return of cold weather has simply curbed all buying interest,” and this was exaggerated by technical selling as the market broke previous support around 3.50. Ironically, given its detrimental impact on GDP, Macquarie points out, “it isincreasingly apparent to us that weather will need to bail the market out again this winter – otherwise prices could see material downside during the spring and summer months.”

This post was published at Zero Hedge on 12/22/2014.

This Is For You Steve Liesman… Welcome To Economics

Jon

I stumbled onto one of Peter Schiff’s radio shows and it was the one where he discusses CNBC chief economic correspondent, Steve Liesman’s call that the American economy needs more consumer debt, which is right in line with the Keynesian theory of spending our way to prosperity. I expect most non-liberal arts degree carrying economists would agree that Steve, once again, out did himself to put economic analysis through a meat grinder and serve it up as a David Burke’s Primehouse 40-day-bone-in ribeye. I’m going to prove that such a theory is simply impossible, and show how it has become that basis of American economics. This is going to get a bit heavy so grab a coffee.
Steve says consumer debt is the bridge between working hard and playing hard. America was built on consumer debt he argues. He claims that debt levels are very low in America which he claims is a sign of a bad economy. Now he also seems to have a hint of understanding that too much debt can cause bubbles and he uses student loans as an example, yet he says that a bit trepidatiously despite the fact that we’re still trying to crawl out of one of the worst credit induced recessions in history. However, despite his caution with student debt he claims the over leverage from the mid 2000’s ‘has been unwound’ and that we are now at the ‘bottom of the credit cycle’. And that is why, he claims, the American economy needs more consumer debt.

This post was published at Zero Hedge on 12/22/2014.

Switzerland ends neutrality, joins the War on Deflation

Jon

I want you to imagine this nightmare scenario for a moment.
You walk into the grocery store and head down the aisles, family in tow, procuring your normal ration of foodstuffs for the fortnight.
Something doesn’t make sense.
Aisle after aisle you wander, the same sneaking suspicion tugging away at your consciousness, until the horrific realization finally cold-cocks you: prices are CHEAPER than they were a month ago.
You stand aghast at this sinister new reality in which prices dropped a big fat whopping 0.4%.
You can barely bring yourself to contemplate how the economy could possibly withstand such a gruesome price swing.
But there’s no time to waste.
Trying not to panic, you grab your children and race home, speeding through every red light on the way, and then immediately hunker down to wait for the coming zombie apocalypse.
Deflation has arrived. And as terrifying as it sounds to have to suffer from prices that have fallen ever-so-slightly, that’s exactly what the unfortunate people of Sweden had to deal with earlier this year.

This post was published at Sovereign Man on December 22, 2014.

Path Of The Gold Price Is In China’s Hands

Jon

The predictable ‘No’ vote in the Swiss gold referendum did indeed prompt a quick knee-jerk downwards reaction in the gold price, this was exceedingly short-lived, the result having been already assumed by the markets, and an immediate bounce back took the gold price back above the $1200 level and the price has stayed within range of this figure for nearly a month now, although there has been some intra-day volatility, perhaps due to short covering coupled with the big money players in the market seeming loath to allow any significant upwards breakout.
We said at the time on Mineweb that we could be in for a volatile few days, although we felt that we were perhaps beginning to see some positive momentum in gold, after its dip down to around $1160 in the referendum aftermath. After its rapid recovery from this level we have been seeing $20-30 price moves up and down, but in general these have seen gold return to a trading range a few dollars above or below the $1200 level.
The question now though could gold fall yet further by the year-end or in early 2015? Views are very mixed on this possibility among the major bank analysts. What should be worrying for the gold bulls is that some of those predicting further falls, back perhaps to the $1000 level, are also analysts for entities with very deep pockets who could perhaps make this happen if they are so inclined to do. And they are not the only ones suggesting there could be a further big fall in price. Will we perhaps get down to WaveTrack International’s predicted $1,100 level (although this also sees a rapid very strong gold price increase following on), or perhaps Goldman Sachs’ $1,050 or lower – an entity with the financial clout to make this happen.

This post was published at Gold-Eagle on December 22, 2014.

The Lawless Manipulation of Bullion Markets by Public Authorities – Paul Craig Roberts and Dave Kranzler

Jon

The Federal Reserve and its bullion bank agents are actively using uncovered futures contracts to illegally manipulate the prices of precious metals in order to keep interest rates below the market rate. The purpose of manipulation is to support the U. S. dollar’s reserve status at a time when the dollar should be in decline from the over-supply created by QE and from trade and budget deficits. Historically, the role of gold and silver has been to function as a means of exchange and a store of wealth during periods of economic and political turmoil. Since the bullion bull market began in late 2000, It rose almost non-stop until March 2008, ahead of the Great Financial Crisis, which started with the collapse of Bear Stearns. When Bear Stearns collapsed, gold was taken down over the course of the next 7 months from $1035 to $680, or 34%; silver from $21 to $8, or 62%. The most violent takedown occurred as Lehman collapsed and Goldman Sachs was about to collapse. This takedown occurred during a period of time when gold should have been going parabolic in price. The price of gold finally took off in late October 2008 from $680 to $1900 while the Government and the Fed were busy printing money to bail out the banks. While the price of gold rose nearly 300% from late 2008 to September 2011, the U. S. dollar lost over 17% of its value, falling from 89 on the dollar index to 73.50. The current takedown of gold from $1900 to $1200 has occurred during a period of time when financial and political fraud and corruption becomes worse and more blatant by the day. Along with this, the intensity and openness with which the metals are systematically beat down seems to grow by the day.

This post was published at Paul Craig Roberts on December 22, 2014.

Demographics – Why The Great Recession Started (And Won’t End Anytime Soon)

Jon

WWII is still reshaping our economic reality. The massive global loss of life in WWII and its birth dearth during the war created a demographic hole (unusually high death / unusually low births over a 5 to 10 year period). The subsequent baby booms in the US and globally in Japan, Europe, and so many more locations which were affected by the war created a ‘pig in the python’ moment. This unusually large wave of population growth from ’45-’55 was ‘pent up demand’ from the war. Those of family rearing age who waited, those who remarried, and those who fretted…they rushed to make up for lost time over the decade after the wars conclusion. But the subsequent generations were in no such rush and in fact began an ongoing process of slowing the creation of families and children.
But society and its leaders assumed this baby boom anomaly to be the new reality. They built an entire economic system on the one decade anomaly. But that wasn’t enough. They had to layer the anomaly with the unsustainable and the previously immoral levels of usury (renamed and rebranded as leverage, credit) and economic policies only effective as the passing of the pig was imminent. The baby boom group or entity spanning 10 years will in 2015 turn a collective 60-70yrs old. The ‘pig is passing’ from the American and global workforce into retirement and now the wreckage and folly of such basic misnomers has come home to roost…and will get far worse. Central bank and government actions to create the problems and subsequent responses should be seen for what they are…entirely self-serving and ineffective.
A global multi-variate tipping point was reached in 2007 – too many older boomers leaving the system and too few to replace them. This all put too many requests on that system…too many boomers continuing to work for low, part time wages rather than making way for the following generations. Too many unsustainable layers with inadequate support collapsing in on the system below. In 2007 the total population of 25-54 year olds and total employed within the 25-54 year olds peaked. The total US population of 25-54 year olds has fallen 1 million since, 25-54 year old employees have fallen nearly 4 million, while the 55 cadre has ramped by almost 8 million.
The impact is likely even stronger in Japan, Europe, and other locals upon which the war was waged. The loss of life higher, the birth dearth higher, the subsequent baby boom larger…and the current adjustments even more difficult.
Nearly 70 years later and WWII’s primary participant nations are now aging rapidly and have taken on great debt to serve the aging populations. And these only show the formal on the books debt to GDP but nations like the US have up to 5x’s the formally recognized debt…which from a growth perspective is akin to trying to perform an open water swim with an anchor around your neck…of course the young, unindebted nations like Saudi Arabia or Indonesia with 5% of its population 65 and above and a modest debt to GDP are far likelier to grow rapidly.

This post was published at Zero Hedge on 12/22/2014.

Could an Energy Bust Trigger QE4?

Jon

In a normal economic times falling energy costs would be considered unadulterated good news. The facts are simple. No one buys a barrel of oil to display above the mantle. No one derives happiness from a lump of coal. Energy is simply a means to do or get the things that we want. We use it to stay warm, to move from Point A to Point B, to transport our goods, to cook our food, and to power our homes, factories, theaters, offices, and stadiums. If we could do all these things without energy, we would happily never drill a well or build a windmill. The lower the cost of energy, the cheaper and more abundant all the things we want become.
This is not economics, it is basic common sense. But these are not normal economic times, and the mathematics, at least for the United States, have become more complicated.
Most economists agree that the bright spot for the U. S. over the past few years has been the surge in energy production, which some have even called the “American Energy Revolution”. The stunning improvements in drilling and recovery technologies has led to a dramatic 45% increase in U. S. energy production since 2007, according to the International Energy Agency (IEA). And while some suggest that the change was motivated by our lingering frustration over foreign energy dependence, it really comes down to dollars and cents. The dramatic increase in the price of oil over the last seven or eight years, completely changed the investment dynamics of the domestic industry and made profitable many types of formerly unappealing drilling sites, thereby increasing job creation in the industry. What’s more, the jobs created by the boom were generally high paying and full time, thereby bucking the broader employment trend of low paying part time work.
The big question that most investors and drillers should have been asking, but never really did, was why oil rocketed up from $20 a barrel in 2001 to more than $150 barrel in 2007, before stabilizing at around $100 a barrel for much of the past five years. Was oil five times more needed in 2012 than it was in 2002? See my commentary last week on this subject.
Despite the analysts’ recent discovery of a largely mythical supply/demand imbalance, the numbers do not explain the rapid and dramatic decrease in price. Yes, supply is up, but so is demand. And these trends have been ongoing for quite some time, so why the sudden sell off now? Instead, I believe that oil prices over the last decade has been driven by the same monetary dynamics that pushed up the prices of other commodities, like gold, or of financial assets, such as stocks, bonds, and real estate. I believe that oil headed higher because the Fed was printing money, and everyone thought that the Fed would keep printing. But now we have reached a point where the majority of analysts believe that the era of easy money is coming to an end. And while I do not believe that we are about to turn that monetary page, my view is decidedly in the minority. Could it be a coincidence that oil started falling when the mass of analysts came to believe the Fed would finally tighten?

This post was published at Europac on December 22, 2014.

Jim Rickards: ‘Like a Virus With No Cure’

Jon

‘Hyperinflation,’ our own Jim Rickards writes, ‘acts like a virus with no cure.
‘It may be contained for long periods of time, but once it breaks out into a general population, there may be no stopping it without enormous losses.’
Since 2008, as you may well know, many worthy and intelligent U. S, market examiners have been pounding the table for hyperinflation.
‘Perhaps you’ve been following their advice and wondering why the scenario hasn’t materialized yet,’ says Jim.
Well, as Rickards reveals today, there’s a clear reason it hasn’t happened yet. And it has everything to do with the Fed. But it’s not what the Fed is doing: Actually, contrary to popular thought, it’s what they’re not doing that’s keeping hyperinflation at bay.
Before we get too ahead of ourselves. Here’s a quick rundown of what you’ll find in today’s episode…
In a moment, you’ll read a first-hand account of what really happens when hyperinflation hits a country.
At the age of 15, Martin Malchev lived through Bulgaria’s bout of hyperinflation in 1996-97. We’ve decided to share his story with you, courtesy of the Kung Fu Finance blog.
And after that, Rickards will take the mic to explain why… despite all the well-informed prognosticators beating the hyperinflation drums for years… hyperinflation hasn’t happened yet in the U. S.
And, more importantly, why it’s still more than possible (possibly even inevitable)… and how to prepare.
First, Malchev’s story illustrates perfectly just how rapidly a steady stream of low inflation can accelerate into a gusher of hyperinflation.
Case in point:
‘If in 1989,’ Malchev wrote, ‘somebody had said to a Bulgarian banker that he would be an eyewitness of a hyperinflation – that somebody would probably have been laughed at.
‘Alas, most people were doing the opposite of laughing seven years later.’
In 1989, Malchev explains, the Bulgarian lev could’ve been exchanged one-for-one with the dollar.
By March 1997, 3,000 levs were exchanged for every dollar.
‘But what was more shocking was that in December 1996,’ says Malchev, ‘the exchange rate was $1 equals around 300 levs. The jump from 300-3,000 happened in less than three months.’

This post was published at Laissez Faire on Dec 22, 2014.

S&P 500 Surges To Record High As Black & Yellow Gold Battered

Jon

Who was buying today? Were they feeling lucky?
Stocks went up – again – with the Dow extending to almost 900 points in 4 days and pressing towards record highs…and S&P 500 hitting new record highs. At the same as bonds rallied back close to unchanged, USD was bid, and commodities collapsed led by Silver and Crude.
S&P closed at record highs but missed out on intraday highs by 1 point…

This post was published at Zero Hedge on 12/22/2014.

Ruble Anti-Panic

Jon

Going the Other Way Even while newspaper headlines are still full about the ruble’s panic sell-off last week, the ruble has actuallyrisen by 39% from last week’s intra-day lows near 80 to the dollar over the past five trading days (1 ruble was 0.0125 dollars at one point on December 16, while at the time of writing early on Monday, 1 ruble was 0.0174 dollars. That is an increase in the currency’s value of more than 39%). In the traditional notation USDRUB it’s a decline from 80 to 57.48. In early trading on Monday, the ruble has moved back to the level it inhabited on December 5. Anyone shorting the ruble between December 5 and December 16 or selling his rubles for foreign currency during this time period is now deeply underwater:

This post was published at Acting-Man on December 22, 2014.

Gold prices after the end of QE

Jon

The performance of gold obviously depends on the U. S. economic condition and the Fed’s future actions. In the short run, the end of QE3 will most likely not change anything and gold will most likely decline on a dollar rally. It is likely to last as long the U. S. central bank credibility is at all-time heights. This is because gold can be seen as the reciprocal of central bank credibility. Thus, when central bank credibility is at a peak, gold is in the dumps. The end of QE3 could even strengthen the belief about the strength of the U. S. economy. After all, Fed would not halt the quantitative easing if the economy was not strong, right? Just look at the economic numbers, say the pundits. Unemployment went down, while GDP grew faster than expected in the third quarter, and oil is historically cheap, which will additionally boost the U. S. economy.
Moreover, in contrast to the Fed, the Bank of Japan announced on October 31, 2014 a new round of QE in Japan. It implies more quantitative and qualitative easing, because the BoJ will purchase not only bonds, but also real estate investment trusts and exchange-traded trust tracking the Japanese stock market. The European central bank also stated that it will start to purchase asset-backed securities to increase its balance sheet to 1 trillion euro by 2016. Therefore, despite still expansionary monetary policy, the U. S. dollar will likely be gaining compared to other main currencies, depressing the gold price (in terms of the USD).
However, the end of QE3 could mean a market bust. Most likely not today, nor tomorrow. The effects of changes in monetary policy come with a significant delay. Perhaps, the money supply is not yet decelerating at a rate comparable to the rates we saw in the latter stages of the previous two boom-bust cycles, but today’s economy is much more fragile than earlier.

This post was published at GoldSeek on 22 December 2014.

Russian Roulette: Taxpayers Could Be on the Hook for Trillions in Oil Derivatives Ellen Brown

Jon

The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia. The result could be trillions of dollars in oil derivative losses; and the FDIC could be liable, following repeal of key portions of the Dodd-Frank Act last weekend.
Senator Elizabeth Warren charged Citigroup last week with “holding government funding hostage to ram through its government bailout provision.” At issue was a section in the omnibus budget bill repealing the Lincoln Amendment to the Dodd-Frank Act, which protected depositor funds by requiring the largest banks to push out a portion of their derivatives business into non-FDIC-insured subsidiaries.
Warren and Representative Maxine Waters came close to killing the spending bill because of this provision. But the tide turned, according to Waters, when not only Jamie Dimon, CEO of JPMorgan Chase, but President Obama himself lobbied lawmakers to vote for the bill.
It was not only a notable about-face for the president but represented an apparent shift in position for the banks. Before Jamie Dimon intervened, it had been reported that the bailout provision was not a big deal for the banks and that they were not lobbying heavily for it, because it covered only a small portion of their derivatives. As explained in Time:
The best argument for not freaking out about the repeal of the Lincoln Amendment is that it wasn’t nearly as strong as its drafters intended it to be. . . . [W]hile the Lincoln Amendment was intended to lasso all risky instruments, by the time all was said and done, it really only applied to about 5% of the derivatives activity of banks like Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, according to a 2012 Fitch report.
Quibbling over a mere 5% of the derivatives business sounds like much ado about nothing, but Jamie Dimon and the president evidently didn’t think so. Why?

This post was published at Silver Bear Cafe on December 22, 2014.

22/12/2014: Economic crisis in Russia is a lose-lose game for all

Jon

Less than a month ago, Russian economic data posted surprisingly positive results. Growth was running at 0.7 percent year on year in Q3 2014, more than doubling the consensus forecasts, and only a notch down from 0.8 percent expansion recorded in the second quarter. The exchange rate for the Ruble stood at 56.58 vis-a-vis the Euro and 45.58 vis-a-vis the dollar. Growth outlook for 2015 was a rosy 1.2 percent expansion in GDP.
Visiting Moscow in late November-early December, I was struck by the calm of the city that is known for its chaotic and fast moving business and social life. There were no queues at currency exchanges, no mad dashes for the banks and most certainly no signs of anyone stocking up on goods in fear of a runaway inflation. Business was hurting and economy was slowing down, but there was no panic about it.
Today, after a classic run on its currency experienced on Monday and Tuesday, Russia is amidst a full-blown crisis that is threatening to plunge the economy into a 4.5-4.7 percent contraction in 2015.
On Tuesday, Ruble reached the lows of 79.17 against the dollar and 99.56 against the euro. Two days of subsequent emergency interventions by the Central Bank of Russia and the Finance Ministry, the markets are calmer. Still, through Thursday, Russian currency was down 22.4 percent in value against the Euro and 24.0% against the Dollar compared to Monday open.

This post was published at True Economics on December 22, 2014.

Bloomberg’s Commodity Index Drops To Lowest Since 2009: What Does It Mean?

Jon

Moments ago we learned that for all talk of a commodity “bottom”, the “energetic” dead cat has resumed its inverse bounce. To wit:
BLOOMBERG COMMODITY INDEX EXTENDS DROP TO LOWEST SINCE 2009 So what does that mean? The answer: it all depends on whose narrative one chooses to believe and/or which narrative the US Ministry of truth is promoting on any given day in order to boost confidence.
The main plotline now is simple: plunging commodity prices (just don’t call them deflation, “negative inflation” is much better) are a huge tax cut on the US consumer the pundits will have you know. And why not: so simple a Jonahtan Gruber could have come up with it.
The only problem is that you learn all this from the same pundits who told you just a few months ago, thatsoaring commodity prices are great for the economy, for jobs, and, drumroll, for the consumer. Behold CNBC from March 2014:
Booming US energy sector feeds manufacturing, may overtake it
Could the booming U. S. energy sector assume the mantle that Detroit’s big automakers once held in the economy? Although it’s still too early to tell, recent trends suggest soaring energy production may replace automobile manufacturing as an economic powerhouse. Even as the U. S. recovery falters, manufacturing and energy are in the midst of a broad expansion that is helping to generate growth.
….
In a study released in early February, The Boston Consulting Group said shale gas “will have a greater impact on U. S. manufacturing over the next several years than is commonly assumed,” as cheap gas makes manufacturing more competitive – and becomes a major source of jobs and growth in its own right.

This post was published at Zero Hedge on 12/22/2014.