Nothing can save Europe.

October 20, 2011 Leave a comment

There is no way that Europe can bail itself out. This guy makes the case with four facts:

FACT #1: Europe’s entire banking system is leveraged at 25 to 1.

This is nearly two times the US’s leverage levels. With this amount of leverage you only need a 4% drop in asset prices to wipe out ALL equity.These are literally borderline-Lehman levels of leverage (Lehman was 30 to 1).

Mind you, these leverage levels are based on asset values the banks claimare accurate. Real leverage levels are in fact likely much MUCH higher.

KA-BOOM.

FACT #2: European Financial Corporations are collectively sitting on debt equal to 148% of TOTAL EU GDP.

Yes, financial firms’ debt levels in Europe exceed Europe’s ENTIRE GDP. These are just the financial firms. We’re not even bothering to mention non-financial corporate debt, household debt, sovereign debt, etc.

Also remember, collectively, the EU is the largest economy in the world (north of $16 trillion). So we’re talking about over $23 TRILLION in debt sitting on European financials’ balance sheets.

Oh, I almost forgot, this data point only includes “on balance sheet” debt. We’re totally ignoring off-balance sheet debt, derivatives, etc. So REAL financial corporate debt is much MUCH higher.

KA-BOOM.

FACT #3: European banks need to roll over between 15% and 50% of their total debt by the end of 2012.

That’s correct, European banks will have to roll over HUGE quantities of their debt before the end of 2012. Mind you, we’re only talking aboutmaturing debt. We’re not even considering NEW debt or equity these banks will have to issue to raise capital.

Considering that even the “rock solid” German banks need to raise over $140 BILLION in new capital alone, we’re talking about a TON of debt issuance coming out of Europe’s banks in the next 14 months.

And this is happening in an environment prone to riots, bank runs, and failed bond auctions (Germany just had a failed bond auction yesterday).

KA-BOOM

FACT #4: In order to meet current unfunded liabilities (pensions, healthcare, etc) without defaulting or cutting benefits, the average EU nation would need to have OVER 400% of its current GDP sitting in a bank account collecting interest.

This last data point comes from Jagadeesh Gokhale, Senior Fellow at the Cato Institute, former consultant to the US Treasury, and former Senior Economic Advisor to the Federal Reserve Bank of Cleveland.

This is a guy who’s worked at a very high level on the inside studying sovereign finance, which makes this fact all the more disturbing. And he knew this as far back as January 2009!!!

Folks, the EFSF, the bailouts, China coming to the rescue… all of that stuff is 100% pointless in the grand scheme of things. Europe’s ENTIRE banking system (with few exceptions) is insolvent. Numerous entire European COUNTRIES are insolvent. Even the more “rock solid” countries such as Germany (who is supposed to save Europe apparently) have REAL Debt to GDP ratios of over 200% and STILL HAVEN’T RECAPITALIZED THEIR BANKS.

If Europe is to get out of this disaster, the answer is not bailouts. The mammoth debt must be liquidated. Big banks who made bad loans to profligate governments need to take their losses and go bankrupt. Anyone who is holding out, expecting some kind of economic voodoo miracle, needs to take their head out of the sand and recognize that solving the European debt crisis with bailouts is impossible.

— Read more at Phoenix Capital Research — 

Filed under Banking and Finance, CMR, Economics, Intervention Tagged with , , , , , ,

Guest Piece: Is gold mining coming back to the Yukon?

October 13, 2011 Leave a comment

Notes from the Field: Yukon
By Louis James

I’ve just returned from another trip to the Yukon. Details on the companies I saw I’ll have to keep for Casey International Speculator subscribers, but there is a broader observation I can share that I think is of value.

The Yukon has a long and famous history of exploration and mining – especially for gold – but currently there’s been little actual mining going on in recent years. Capstone Mining’s (T.CS) Minto mine was the first new hardrock mine built in the Yukon this millennium, with first concentrates shipped in 2007. Until Minto proved it could be done, the prevailing wisdom seemed to be that the Yukon was geologically interesting, but a remote and expensive place to work, as well as a difficult political environment that made the effort questionable. The success at Minto attracted a lot of exploration dollars, with Underworld Resources making a new discovery that was quickly snapped up by major gold miner Kinross Gold (KGC, T.K) in March of 2010. This really put the place high up on t he radar screen, and exploration dollars flooded in.

However, a couple of months later, Western Copper (WRN, T.WRN) was delivered a surprise setback when the final permit it needed for its Carmacks copper project was rejected by the Yukon Water Board. This decision is being appealed, but the company is also seeking to address the regulators’ concerns, hoping to finally get the project permitted one way or the other. This has not slowed exploration in the territory, but it does have people wondering if the Yukon is really such a great jurisdiction for mining after all.

One answer to this is that Alexco Mining (AXU, T.AXR) was able – post-Camracks – to permit its Bellekeno mine in the Keno Hills district of the Yukon; it just went into commercial production. Now, Bellekeno has a much smaller footprint, being a high-grade underground mine with ore milled in a plant, rather than Carmacks’ heap-leach operation that would be the size of a mountain (sprinkled with scary-sounding chemicals), so it was much easier to permit, but it still shows that the government is not opposed to mining.

Well, not opposed so far; there is an election coming up, and it seems too close to call.

However, while my plane was grounded in Whitehorse due to weather, I bumped into a consultant who has worked with both the regulators and the mining industry. We had, I believe, a very sincere conversation (on that day, I was there to see another company, not hers) and she explained to me that the permitting process actually changed during the efforts to permit Carmacks. She also told me that, unlike British Columbia, most of the First Nations land claims have been settled in the Yukon, so dealing with native populations is much simpler. That’s a great advantage that removes a lot of uncertainty. Also, the Yukon being a relatively small territory with the government concentrated in Whitehorse, the actual logistics of dealing with regulators are simpler, and there’s less turf conflict between regulators. There was and always is a lot of politics involved in such things, but her take is that the Yukon is definitely a place where miners can work.

This perception fits with information I’ve gathered over the years from other sources. Permitting is always a challenge everywhere, but I think the average Yukoner wants to see the territory benefit economically from responsible mining. And the rocks sure look good. I think we’ll see more discoveries coming from the Yukon soon and more mines being built. I’ll be looking for more opportunities to profit if I’m right… and I’m looking now, while prices are down.

[Louis circles the world, applying Doug Casey’s 8 Ps to promising companies so that only the best speculative plays are recommended in Casey International Speculator. You can put his expertise to work for you: a trial subscription is completely risk-free for ninety days.]

Filed under CMR, Commodities, Gold, Investments, Precious Metals Tagged with , , ,

The worst financial reporting of all time, courtesy CTV Calgary local news

September 29, 2011 2 Comments

Take a look at this. It’s hilariously stupid. It will only take a minute of your time (seriously, the video is that short).

 

 

So apparently the US dollar is a paper currency that is good because it is backed by the Federal Reserve. And the Federal Reserve backs the US dollar with… paper currency. I guess. I cannot follow the tortured logic here. I am embarrassed on this reporter’s behalf. The whole point of fiat currency is that it isn’t backed by anything and that you can just print it if you want!

Gold not being “backed” by anything is meaningless — after all, paper currencies used to be backed by gold!

When Greenspan says something like, “World currencies are down,” he is saying they are down against something. That something is gold.

Oh hell I don’t even need to criticize this further. It’s just so unbelievably dumb. It makes me laugh. It makes me cry. I think they snatched the reporter from a hair commercial or something, because she demonstrably knows nothing about money.

Filed under CMR, Gold, Mainstream Media, Precious Metals Tagged with , , , , , , ,

Market performances since September 11, 2001

September 9, 2011 Leave a comment

If someone were to ask you where the best place to put your money was the last 10 years, two particular items that might come to mind are oil and gold. While both have dramatically outperformed the stock markets, with returns of 568% and 225% respectively, it has in fact been silver which provided the best return as an asset.

From it’s September 10, 2001 price of a pitiful $4.16, at $41.57 it has produced a whopping 900% return.

Hopefully you didn’t buy and hold US Dollars while Greenspan and Bernanke have been cranking them out.

If we consider a few sectors in the S&P 500, we see that energy and materials performed the best. Consumer staples and consumer discretionary are next in the list. Utilities and healthcare have been essential flat, making them losers. Telecoms and especially financials are the worst performers of the last decade.

What was the best stock pick of the decade? Well, if you bought Apple on September 10, 2001, just a couple of months before they released the first iPod, you made a KILLING. A 4300% killing. Which is pretty good, but not as good as if you’d invested in soda and juice.

Because soda and juice maker Hansen’s Natural (HANS) made an earth-shattering 17,300% return, going from $0.49 to about $85 in 10 years. Honestly, I don’t even know anyone who’s ever heard of this company, but I would like to try their soda.

Filed under CMR, Energy, Investments, Precious Metals Tagged with

JP Morgan: Gold to hit $2500 by end of year.

August 8, 2011 Leave a comment

Taken from TD Waterhouse:

 

JP Morgan says gold may jump to $2,500/oz by yr-end39 minutes ago by Thomson Reuters

BANGALORE, Aug 8 (Reuters) – JP Morgan said it now expects spot gold prices to climb to as much as $2,500 an ounce by year-end on very high volatility, following the downgrade of the U.S. debt.

“Before the downgrade, our view was that cash gold could average $1,800 per oz by year end. This view will likely now prove to be too conservative,” analysts Colin Fenton and Jonah Waxman said in a note to clients.

The analysts recommended investors own commodities geared toward Asia, investment and inflation, and underweight those anchored to the United States or consumption. (Reporting by Antonita Madonna Devotta)

 

This is just after yesterday’s revised target from Goldman – $1830 from $1735. JPM’s is is much more bullish. Other predictions will be no doubt be adjusted upwards as well. But here at CMR we have always been predicting a huge gold price — even at $1700/oz.

The question should not be, “How high can gold rise?” Instead, it should be, “How low can paper currencies fall?”

Filed under CMR, Gold Tagged with

When you are watching gold prices, remember this chart.

August 8, 2011 Leave a comment

A little while back Casey Research provided this chart:

Why do you care?

Maybe you don’t, because you don’t own gold and you think it’s a barbarous relic like that Roubini, so you would never want to buy it.

But if you aren’t like Roubini (and most other people), you should care.

Basically, this chart shows that during the last two years of gold fever in the 70s, there were seven corrections that averaged 10%. You have to remember that at this time, gold interest was really intense. At present, gold interest is still very low.

The important point is that although we are in a significant bull market for gold, volatility is not abnormal. I wouldn’t necessarily be alarmed if gold fell 15-20% — in fact, such a situation would present a great buying opportunity.

This doesn’t mean you should sit and wait for such a correction — it might not happen to that extent. The biggest correction we’ve seen in 2011 was 6.2% in January. Instead, the main point of this chart is that while we are in troubling economic times, there will be moments where weaker players are nervous and eager to sell their gold. Just don’t sell yours.

Filed under CMR, Gold, Investments Tagged with , , , ,

Ezra Levant’s “Ethical oil” is a bad joke.

August 8, 2011 Leave a comment

I understand that a lot of people have problems buying so-called “conflict oil” from some Arab countries where they do crazy stuff like kill people for being gay or stone women to death for adultery.

EthicalOil.org has created a series of ads that juxtapose images to emphasize why Canadian oil is preferable.

 

The implication is that these countries’ governments take money for oil and use it for terrible things, so buying that terrorist oil is bad.

But Ezra Levant’s whole “ethical oil” campaign rubs me the wrong way. The concept is intuitive enough — Arab oil helps terrorists, and Canadian oil helps peace-keeping.

There is no way one can uphold the distinction with any seriousness when you actually stop to consider it. Why? It’s blatantly hypocritical!

Here in Canada, we sell a export a lot of oil. And what do we do with that money? Well, a lot of it goes to the Canadian government through taxation. The Canadian government funds the Canadian Armed Forces with taxation, which contributes to the occupation of Afghanistan through our NATO membership. “Hey, that’s peace-keeping, isn’t it?” you ask.

Well you know what? The government we are defending in Afghanistan, the government whose army we are helping to train and equip with weapons, thinks favorably of raping little boys and raping wives.

And don’t forget our wonderful contribution to NATO’s insane war on Libya, where civilians are routinely killed in bombings for absolutely no good reason at all.

Is this an “ethical” use for wealth produced by selling Canadian oil? Dear god, I hope not.

If Arab oil is “conflict oil,” then Canadian oil is “conflict oil” also. In both cases, oil is sold, money enters government coffers, and the government does terrible things with that money. There is only a difference is degree, but not in kind.

Filed under CMR, Ethics, Oil Tagged with

Geithner is an idiot, but he is right about at least ONE thing…

August 8, 2011 Leave a comment

Geithner says:

“[S&P has] shown a stunning lack of knowledge about basic U.S. fiscal budget math.”

No kidding, Tim. If they really understood the US Treasury’s economics, they’d have downgraded it to junk in 2008. But I don’t think that’s what you mean…

Filed under CMR, Economics, Intervention Tagged with

WARNING – inverted yield curve appearing in emerging markets.

August 8, 2011 Leave a comment

The inverted yield curve has appeared in various emerging nations’ economies recently. Examples: Brazil, India, China.

Read this, although keep in mind this guy’s economic understanding is demonstrably poor.

The yield curve is the most reliable predictor of recession. It’s not perfect — nothing is — but you could have used the yield curve to predict our last two recessions quite easily.

(In depth economic analysis on this can be found here at the Mises Institute. And note also that you cannot just watch yield curves and predict every recession like magic, as there are some exceptions as explained in this report — but you could have predicted each recession in the last 30 years. Not bad.)

Basically, when short-term rates are higher than long-term rates, it means businessmen see a slowdown in the rate of monetary growth — so they are desperate to borrow now at higher rates to complete ongoing capital projects.

Now is a good time to get out of emerging markets’ equities, if you have not already. I predicted last year that China would be entering recession this year. After the crash, buy foreign equities for cheap. But if you are smart, you don’t own any right now. Too risky.

Filed under CMR, Economics, Investments Tagged with

Oil down, stocks down, gold up!

August 8, 2011 Leave a comment

The TSX got hammered pretty hard last week, and given how oil is trading right now I think we can expect another rough day when trading begins on Monday morning. The most amusing thing about the big sell-off on Thursday was how gold corrected by about 0.5% only and there were various “experts” on CNBC and Bloomberg talking how this was some kind of notable event and gold was set to reverse.

These people have been wrong on gold from the beginning. You should not listen to anyone like this, because they are not paying any attention. They seem to ignore that central banks are buying gold like crazy. South Korea’s central bank bought gold for the first time in 13 years.  Russia, Mexico, Thailand… their central banks want gold. Chinese and Indian people with their rising incomes want gold.

Here is a one-year chart on the gold price.

 

 

When it was $1000 an ounce, people said it was a bubble. In 2010, it just wasn’t the right time to buy gold (what the hell, Mr Ferguson?).  It’s a “barbarous relic,” they say (is Nouriel Roubini an idiot or what?), or “it doesn’t do anything,” say others (Buffet is an amazing investor who completely fails at economics). Even people who were generally favorable to the concept of investing in gold timidly said, “Well, it’s gone up so much, it’s too expensive right now, maybe I’ll buy it on the dips, neuhrg...” All of this was completely wrong. And it is still completely wrong.

When something rises so quickly, one would normally be wise to be skeptical. Yet gold’s price in the modern era does not represent a “normal” situation. Currency crisis is coming. Europe is basically going straight to the ninth circle of economic hell. The ECB has pledged to buy all the bad debt in Europe. QE3 through 13 is coming from the Fed. You can count on it.

This is all positive for gold. What is bad for gold’s price? Deflation — but we don’t face deflation, at least not until the final phase of the crisis, when the Federal Reserve and other central banks finally say, “No.” We still have a ways to go, I promise. This is Bernanke and like folk we’re talking about, after all.

Instead, what we face now is systematic, global currency depreciation. That will ensure gold will continue to rise for a long time to come. Buy yours now — start with a single coin or two. Work your way up to $10,000 in coins by the end of 2011. I strongly anticipate gold to reach $2000 by year’s end, and even then it will have a lot of assured upside.

Filed under Energy, Gold, Investments Tagged with ,

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