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What’s that hissing sound? Sounds like the hot air of the stock market rally is hissing away! Quick! Get some fixaflat Mr’s. Geitner and Bernanke.

As I mentioned in yesterdays’ post, I hope you took some profits as I think this is your last chance at the 8000 level on the Dow. I also hope you took out a position in (Skf) too!

With the Fed and Geitner trying to pull every trick they can to fix the Banks and the Economy, they are only digging a deeper hole from which we will have to pull ourselves as a country out of. Looks like the can of FixAFlat is running out!

They tell us we have some signs, glimmers of recovery from around the country. They also are telling me there is no Inflation to speak of… By the way didn’t they just say that the CPI was lower last month? My question then- why am I averaging an extra $10-$20 on groceries, I mean have you gone shopping recently.

They say look the Banks are showing profits! Well if I had billions (actually trillions) thrown at me I would show a profit too. The problem is these are 1 time items what happens next quarter?

Our economy especially during the last 30 years , has been driven by consumers using their homes as ATMS figuring that home prices would keep going up and up. Now today we wake up with all sorts of toys and things we didn’t really need but are stuck having to pay for.

Even worse, we have watched our industries, manufacturing and production base moved overseas in the name of profits. Tell me how can we ever not run a deficit when it comes to imports and exports. Now that we and the rest of the world are having to tighten our belts just how many more “service” industries can we produce and export.

Even if we had the products, with the world economy being what it is; who is going to buy? Then our administration is laying more taxes on us and reducing the very deductions that help to produce new businesses and jobs.

Speaking of which (jobs) of course the employment figures seemed to have dropped, the people have simply run out of benefits! A good majority of those are still unemployed or at best having to work part-time jobs, in some cases 2 to 4 part time jobs just to barely survive.

Well I have always been told not to complain about problems unless you have some answers to them.

Okay, I have a couple, to begin with how about no more Income Tax! Let’s drop the Income Tax completely and have a flat rate National Sales tax instead of say 18-23% with no deductions or exemptions. This alone would bring in far more revenue for the Treasury than the current tax plan as it stands now.

Next how about some transparency? How about we demand a complete audit and accounting for the Fed and the Treasury. Where has all of our money gone and for what? Along those lines how much gold does America really have left? We need a full audit there too!

I have many more but I wll just mention one. How about an amendment to the US Constitution requiring that each of our elected represenatives have to read each and every bill the enact or try to pass and along that line , our elected represenatives are only allowed to pass 1 act at a time (where everything has to be related to the bill). In other words if you are passing a bill or law say on Federal Highway Improvements you can’t have a provision to get funding for abortions in foreign countries. Everything in the bill has to be related to Highway Improvements only, nothing else.

Okay, lets get back to the markets. First there is support at the 7800 level for the Dow with stronger support around 7500 that should be tested in the next few trading sessions.

Conversly for Gold the first test is $900 with $928 being the next level. If Gold breaks thes two then it will test $980, then $1000 again. This time it’s going to break thru and set new all time highs. I am still looking for minmum of $1250 – $1500 by the end of this year. It will be much higher prices if some of the things I have mentioned before occur. Then Gold Prices could easily top $2500 and higher.

Today’s articles are not meant to scare you (well maybe!), they are me screaming at you “wake up”! Have a Great Evening! – Good Investing! – jschulmansr

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Jefferey Christian: Gold and Dollar Safe Havens – Hard Assets Investor

Source: Hard Assets Investor

Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor/s, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investing decisions and/or investments. – jschulmansr

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Welcome back folks, to the second half of my interview with Jeffrey Christian, managing director of CPM Group. Jeffrey, the last interview was sort of a macro overview. I think you said that for the remainder, maybe stable prices, but then we’re looking longer term for a resumption of probably a powerful bull market again in commodities.

Let’s look at some specific commodities. I want to talk about gold. Gold has garnered a lot of attention, particularly now that we’ve seen aggressive action taken by the Fed and other central banks to support the economy – some people say a lot of money printing. What is your outlook for gold?


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Jeffrey Christian, managing director, CPM Group (Christian): Gold is somewhat different from other commodities: Gold is really a financial asset. So we think gold might do very well this year, possibly make a new record high late in March or in early April, then come off a little bit, we think, in the second and third quarters. The economic outlook may be that we’re sort of bottoming out, moving toward a recovery; and in that kind of situation, gold could come off to 8 or 850 and then probably move higher.

We’re looking at gold on a long-term perspective, and you have seen more investors buy more gold for a longer period of time in more parts of the world over the last eight years than ever before in history, and we’ve been doing a lot of thinking about it, and what you’re seeing is really a rehabilitation of gold as a financial asset.

So investors have looked at not just the most recent crisis but the fact that over the last eight years, we’ve had a series of financial, economic and political crises and problems, and they’ve simply said, I no longer want to have 0.2% of my assets in gold, I’d rather have 1%. So I think you’re seeing this long-term secular increase in investment demand, which is going to be around for a long time.

Norman: Let me ask you this, because in certain countries traditionally, historically – take India for example – silver; it’s a form of money, it always has been. But as their economy evolves and becomes more like ours – more modern – won’t they move to more of sort of a credit money-based system, whereas before, it was basically silver or gold considered money? And if they do, doesn’t that diminish the role of gold as money for these nations?

Christian: A couple points. First off, they are moving to a more diversified portfolio. If you go back to India 10 years ago, it was gold and silver, and that was your foremost savings. Today they’re reducing their exposure to gold and silver, they’re increasing their exposure to other assets; and what you find is it looks like it’s a diametric move compared to what you’re seeing in Europe and the United States, where people are moving away from financial assets to go over to gold and silver.

But in fact it’s the same impulse: I want to diversify portfolio. Whereas the Americans and the Europeans are saying, I want to diversify portfolio which includes some gold and silver, the Indians are saying, I want to diversify portfolio which includes some financial assets. That’s the longer-term issue.

On a short-term basis, the financial crisis of the last two years has driven home to a lot of Indians that they were right to focus on gold and silver all along, and they’ve been very happy that they didn’t take all of their gold and silver assets and move them into stocks and bonds.

Norman: I want to move on, but first I’ve got one quick question I want to ask you: the link between the dollar and gold. The dollar – since 2002 until probably the midpoint or late last year – was in a decline, but it’s been going up. Would that change your outlook if the dollar continued to rise?

Christian: It depends on how far it continues to rise. It’s a myth that gold trade against the dollar, and if you look at past financial crises – ’73, ’74, ’79, ’80 – gold and the dollar were rising together the same way they have been since the middle of 2008; and the fact of the matter is they’re both safe havens. So the fact that the dollar is rising … and I think it’s going to strengthen further over the next year or two …

Norman: You do?


Christian: …Yeah, I’m a dollar bull for the next year or two. I think it’s going to be very volatile but with an upward bias, because of a couple things. First off, investors like the Treasury. Investors have lost faith in the Treasury, but they still have more faith in the Treasury than they do in the ECB; that’s the bottom line. So I think that you can see the dollar rise simultaneous to gold the same way you saw it in 1979.

Norman: All right. A big story last year of course was oil: 150, all the way down almost to 30. We’re just back above 50 again, but we’ve got OPEC cutting back production significantly; you have the Russian factor in there; a tendency toward monopolistic forces in the oil market. Do we go back up again?

Christian: I think oil will probably get up around $60 yet this year. We were thinking that oil would get toward $60 late this year, but that was three weeks ago and the price was 45. It’s now 53, so it’s almost there already. It may overshoot that, but I think 60, 65 is a reasonable target for late this year, but then you go out two or three years from now and the oil and energy market in total is absolutely frightening.

Once we get into an economic recovery on a global basis – and I say that because I think that the world economy will be stronger and healthier than the U.S. economy on a long-term basis – but once we get into an economic recovery on a global basis, there is not enough energy to supply what is anticipated in terms of real GDP, and that means that oil prices go back over $100 in the three- to five-year time frame, and possibly a lot farther.

Norman: I was going to ask you what, if any, impact – it doesn’t seem like very much – all this push toward alternative energy … does that, even at the margin, diminish the demand for petroleum?

Christian: At the margin, it diminishes the demand for petroleum, but it will only be marginal. If you look at wind power, solar power and a lot of these things, they will not be significant. Nuclear power could be, but that’s something that’s going to take 10 or 20 years to really come into effect.

If you look at the International Energy Agency’s long-term energy outlook, it’s very scary from a long-term perspective, because, as I say, conventional oil and gas, nonconventional oil and gas, alternative energies – you put them all together, you come up with your best scenario for supply of those things, and it’s insufficient to meet the world’s demand for energy.

Norman: All right. Let’s talk now about maybe copper, some base metals, and particularly in light of infrastructure, infrastructure now here as part of the fiscal stimulus in the United States and also in China. Is that what you need to be focused on?

Christian: I like the base metals: aluminum, copper, because of the infrastructure bill; molybdenum, because it goes into the steel which is used in gas and oil transmission pipelines and deep sea drilling. I think there are a lot of these things that will do very well because of the infrastructure bill. You have to be careful; I think the markets have gotten a little overly enthusiastic.

Because you do have this buildup in inventories, you are still running supply/demand surpluses this year. If you look back at the 1980s, the markets moved into deficits around 1983, but the prices didn’t respond until ’87 because you had these large inventories. It probably won’t take that long this time, but you will have a lag because of the damage done to the market.

Norman: All right. Well, there you have it folks: Jeff Christian, managing director of CPM Group. Jeff, thanks very much for coming by. Stop by this Web site often where you have our interview series continuing as always. This is Mike Norman for now. Take care, bye bye.

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Will New Fed “Tools” Avert Hyperinflation? – Daily Reckoning

By: Robert Murphy of Free Advice

04/22/09 Nashville, Tennessee People often accuse me of making “irresponsible” forecasts of massive price inflation. Even though they know that history is replete with examples of central banks ruining their currencies, these critics are sure that “it can’t happen here.” So in the present article I’d like to make the brief case for why we should all be very alarmed about the prospects for the U.S. dollar.

First, let’s look at what those penny pinchers in the federal government are up to. The Congressional Budget Office (CBO) recently released its analysis of the Obama Administration’s ten-year budget proposal. The projected deficit for (fiscal year) 2009 is a whopping $1.8 trillion. Now the president has said, in effect, that you need to spend money to save money, but the CBO projects deficits once again exceeding $1 trillion by 2018. In fact, over the whole CBO forecast from 2009-2019, the lowest the deficit ever goes is $658 billion.

This should be rather surprising to anyone who actually took Obama at his word when he promised to restore fiscal discipline to Washington. In fact, the CBO projects that the outstanding federal debt held by the public will increase from 40.8% of GDP in 2008 to 82.4% in 2019. In other words, the CBO predicts a doubling of the national debt in a mere decade.

One last thing to give you chills (and not the good kind): The CBO is not exactly a doom-and-gloom forecasting service. They’re run by the government, for crying out loud. This is the same CBO that projected at the start of the Bush Administration ten years of an accumulated $5.6 trillion in budget surpluses.

I would caution readers not to dismiss all CBO numbers as obviously meaningless. On the contrary, I think we will see the same pattern play out under Obama as under Bush: Because the CBO in both cases is grossly overstating future tax receipts, its projections for the Obama proposal are going to turn out just as rosy as they did back in 2001. Besides anemic tax receipts, if mortgage defaults continue to increase, the CBO projections on losses from the Treasury’s numerous “rescue” measures will also be far too optimistic.

In short, I think we should view the doubling of the national debt (as a share of the overall economy) over the next decade as a naïve best-case scenario.

If fiscal policy is a disaster, monetary policy is even worse. Unfortunately, the issues here get very complicated, and so it’s difficult for the layman to know whom to trust. Not only do left-wingers like Paul Krugman say that we need more inflation, but even (alleged) right-wingers like Greg Mankiw are saying the exact same thing. With all due respect, those guys are crazy.

Normally, I do my best unshaved-guy-wearing-a-sandwich-board routine by showing the scary Fed chart of the monetary base. But every time I do that, some wise guy argues that I don’t understand how our banking system works, and that because of “deleveraging” we are actually experiencing a shrinking money supply.

No, we aren’t. It’s true that there are forces tending to shrink the money supply, but Bernanke has more than overwhelmed them. All of the standard measures of the money stock went way up during 2008, even though prices (as measured by the CPI) fell in some months. For example, the monetary aggregate M1 consists of very liquid items such as actual currency held by the public, and checking account deposits. It does not include the monetary base (which we know has exploded through the roof). Even so, look at the annual percentage graph of M1 recently; it’s grown at almost a record rate:

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Now the reason prices haven’t exploded is that the demand to hold U.S. dollars has also increased dramatically. (That’s also what happened in the 1980s: the Reagan tax cuts and Volcker’s squelching of severe price inflation made it much more attractive to hold dollars, and so the Fed got away with printing a bunch even though the CPI didn’t increase wildly.)

Once people get over the shock of the financial crisis, the new money Bernanke has pumped into the system will begin pushing up prices. Others have used this analogy before me, but it’s still apt: The U.S. economy right now is like Wile E. Coyote right after he runs off a cliff but hasn’t yet looked down. Once the spell of a “deflationary spiral” is broken by a full quarter of significant price hikes, there will be an avalanche as people come to their senses.

Some analysts concede that the traditional Fed policies have indeed left the dollar vulnerable to serious devaluation, but they think the central bank wizards can save the day by acquiring new “tools.” For example, San Francisco Fed president Janet Yellen has been arguing that the Fed should be able to issue its own debt, to give the Fed more flexibility. The idea is that when the time comes for the Fed to sop up the excess reserves it has pumped into the banking system, it would be devastating to the incipient economic recovery if the Fed has to dump a bunch of mortgage-backed securities, or Treasury bonds, back onto the market. This would ruin the banks with MBS on their balance sheets, and/or it would push up interest rates for the government. Thus, the Fed would have painted itself into a corner, and it would have to choose between massive CPI hikes or a renewed recession. To avoid that nasty tradeoff, Yellen argues that if the Fed could sell its own debt, then it could drain reserves out of the banking system without unloading its own balance sheet.

For a different idea, economists Woodward and Hall think the Fed just needs the ability to charge banks for holding reserves. The Fed already (recently) obtained the right to pay interest on reserves, and so Woodward and Hall think the Fed should also have the ability to do the opposite, i.e. to be able to pay a negative interest rate on reserves that banks hold on deposit with the Fed.

How does this avert the threat of hyperinflation? Simple, according to Woodward and Hall. If banks ever start loaning out too much of their (now massive) excess reserves, and thereby start causing large price inflation, then the Fed can simply raise the interest rate it pays on reserves. Banks would then find it more profitable to lend to the Fed, as it were, rather than lending reserves out to homebuyers and other borrowers in the private sector. Voila! Problem solved.

Obviously these tricks can’t avoid the consequences of Bernanke’s mad money printing spree. At best, they would merely push back the day of reckoning, while ensuring that it grows exponentially (quite literally).

A quick numerical example: Let’s say the Fed wants to drain $100 billion in reserves out of the banking system, in order to cool off rising prices. But it doesn’t want to sell off some of its assets on its balance sheet (like “toxic” mortgage-backed securities), so instead the Fed sells $100 billion worth of the brand new “Fed bonds,” as Yellen hopes.

In the beginning, this will indeed solve the problem. When people in the private sector buy the Fed-issued bonds, they write checks on their banks and ultimately those banks see their reserves go down at the Fed. There is less money held by the public, and so prices don’t rise as quickly.

But what happens when the Fed bonds mature? For example, if the Fed sold a 12-month bond paying 1% interest, then after the year has passed our private sector buyers will hand over the securities and now their checking accounts will be credited with $101 billion. At that point, the economy would be in the same position as before, only worse: there would be an extra billion in newly created reserves (because of interest on the Fed debt).

The financial gurus running our financial system and advising our political leaders aren’t even thinking two steps ahead when making their cockamamie recommendations. For those readers who share my skepticism, the solution seems clear: You need to transfer your wealth out of assets denominated in fixed streams of U.S. dollars, and switch to something that responds to large price inflation. In short, sell your corporate and government bonds, and start stocking up on precious metals.

Regards,

Robert Murphy
for The Daily Reckoning

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Claim a gram of FREE GOLD today, plus a special 18-page PDF report;

Exposed! Five Myths of the Gold Market and find out:

· Who’s been driving this record bull-run in gold?

· What Happens When Inflation Kicks In?

· Why most investors are WRONG about gold…

· When and How to buy gold — at low cost with no hassle!

Get this in-depth report now, plus a gram of free gold, at BullionVault

====================================================

Nothing in today’s post should be considered as an offer to buy or sell any securities or other investments; it is presented for informational purposes only. As a good investor, consult your Investment Advisor/s, Do Your Due Diligence, Read All Prospectus/s and related information carefully before you make any investing decisions and/or investments. – jschulmansr