Saturday, 19 March 2016

Weekend Update 19/03/2016 – Gold, Real Money.

Brexit Countdown Clock.

Brexit Quote of the Day.
Cameron, suppose you were an idiot; and suppose you were a member of the Commons; but I repeat myself.

With apologies to Mark Twain.

With ZIRP increasingly turning into NIRP, and a new war on cash developing, as our central banksters run out of ideas to prop up the failing Great Nixonian Error of fiat money, communist money, gold and silver are increasingly transferring from the developed west to the rising east. A process only likely to continue for the rest of our still relatively new century. With a fiat money crisis in our future when the next Lehman hits, this weekend we focus on gold, and why investors ignore gold at their peril. When the Great Nixonian Error of fiat money collapses, as it inevitably will, rebuilding the new financial order will favour those investors and nations holding gold and silver.

Up first an ignored  lesson from history.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Ludwig von Mises.

The Two Worlds Of Precious Metals: East And West

For five thousand years, gold and silver have been humanity’s premier form of money; real money, not the faux-money manufactured by our central banks. During that same period of time, these metals have been our premier instruments of wealth preservation and therefore our “safe havens.”

There is nothing accidental about this phenomenon. Gold and silver have obvious aesthetic appeal. Indeed, silver is actually the more brilliant of the two metals. It is their aesthetic appeal that makes these metals “precious.” But more than simply their aesthetic appeal, they are also (relatively) rare.

If diamonds were as common as pebbles, it would be impossible to impress one’s potential bride-to-be with such stones, even in a setting of gold. Diamonds have their value, both real and sentimental, not only because of their aesthetic qualities but also because of their perceived scarcity.

The situation is the same for gold and silver. If gold and silver were as common as iron, zinc, or even copper, they would not be coveted as greatly, regardless of their aesthetic appeal, because of their abundance. It is the qualities of being “rare” and “precious” which are essential in order for any commodity to be considered a suitable currency. It is these properties that make a commodity a source of value. There will always be demand for these metals; therefore, they will always have value. For these reasons, gold and silver preserve and protect wealth.

Gold and silver are both precious and rare, but they are more than that. As metals, they also exhibit uniformity. Once refined, any gold or silver coin is indistinguishable from any other. Conversely, diamonds lack uniformity, therefore they are not a good candidate to be used as “money.” Venders would complain that a particular buyer was using “low-grade” diamonds for payment. On the opposite side of the ledger, purchasers with stones of superior size or quality would seek to negotiate premiums on their “money.” It would wreak havoc for commerce.

Gold and silver are perfect money, but they are also more than that. They are forms of money that are available at what must be termed near-optimal quantities and fulfill two separate but equally important functions. Silver is rare enough to be valued for its scarcity yet plentiful enough to be the ideal Peoples’ Money. It can be the wages of the workers; the payment used in basic commerce.

Gold is more scarce than silver. Because of its greater degree of scarcity it derives greater value, yet it is still plentiful enough to be a tool of commerce. However, gold is not the Peoples’ Money. Rather, it is the money of nations or, alternatively, the wealthy. It is the money of investment and industry. This additional level of prestige makes gold ideal as a “standard” for a national or global monetary system.

A White Paper previously released on this topic explained how and why “a gold standard” was the optimal basis for a monetary system in our modern economy. That same paper then provided extensive empirical evidence documenting the horrific economic carnage that resulted from the loss of our gold standard in the early 1970s.

When our nations had gold as the money of governments and silver as the money of the people, we enjoyed a level of prosperity and economic stability that we have not seen either before or since that era. In the four and a half decades since these metals have lost their official monetary status, our economies have been destroyed, our governments have been bankrupted, and the currency in our wallets is fundamentally worthless.

Decades of relentless brainwashing in the West have convinced the vast majority of our populations that there is no longer a place or role in our modern economy for Perfect Money. Consequently, the masses in the West generally shun gold and silver by storing and protecting only a tiny percentage of their wealth with these metals, in comparison with any other era in our society’s history.

This is how gold and silver stand today from a Western perspective. What is continually forgotten beneath the veneer of our cultural arrogance is that the rest of the world, and the vast majority of humanity’s population, have a fundamentally opposite perspective regarding the world’s only Perfect Money.

Unexposed to the decades of monetary brainwashing directed at Western populations, Eastern populations have never forgotten the important role of precious metals in our societies and economies. Even the most humble peasant understands why we store our wealth in gold and silver money – not the diluted and debauched paper currencies of bankers.

Real money is a store of wealth. Mere paper currency is only a tool of commerce. As a store of value, these currencies are the equivalent of a “leaky bucket.” Over a period of thousands of years, gold has perfectly preserved the wealth of its holders. In the mere century in which the Federal Reserve was entrusted with “protecting” the dollar, it has lost 99% of its value and the wealth contained.

Now that is a big leak. And it’s getting worse. Thanks to the ever-increasing rate of Fed money printing, and thus U.S. dollar dilution, 75% of that loss in value has occurred over just the last quarter-century of Federal Reserve fraud and mismanagement.

Below, an interesting gold mining company that came to my attention recently. While I don’t make recommendations, all investors need to do their own due diligence, and evaluate their own appropriate investment level of risk, this gold mining company is in the right country, right state, and has the prospect to really benefit from the collapse of the Great Nixonian Error of fiat money.

Chesapeake Gold Corp.

Chesapeake is focused on the exploration and development of precious metals projects in North America. Chesapeake's major project is its 100% owned Metates gold deposit located in Durango state, Mexico. Metates is one of the largest undeveloped gold and silver projects in the world.

Independent Mining Consultants of Tucson, Arizona reported NI 43-101 proven and probable reserves of 18.5 million ounces of gold, 526 million ounces of silver and 4.2 billion pounds of zinc. The metal prices assumed for the reserves are $1,350 per ounce gold and $25 for silver per ounce at a cut off grade of 0.35 g/t gold equivalent.

M3 Engineering & Technology of Tucson, Arizona completed a positive Pre-Feasibility Study ("PFS") on Metates. The PFS indicates a large 120,000 tpd open pit operation with a 25 year mine life. Average annual production during the first six years of full production is 845,000 ounces of gold, 25 million ounces of silver and 190 million pounds of zinc at a gold equivalent cash cost of $355 per ounce, net of zinc credits.

More. Interesting  video at the website.

We close with the reality of the week just passed. Despite all the optimism spun out by mainstream media that the worst is over, my take is that the global economy is still declining, and our central banksters are powerless to do anything about it.

Janet Yellen Dithers, Evades, Hedges And Prevaricates——-She’s Toast

by MN Gordon • 
---- Money, policy, economics.  You name it.  There’s an abundance of nonsense out there for each of these subjects.  Moreover, it’s exhausting to negate.

But nowhere else does money, policy, and economics mix with such special vigor than in the dishonorable world of central banking.  Fiat money. Legal tender.  ZIRP.  NIRP.  Operation twist.  Quantitative easing.  Can you think of another profession out there that so dangerously operates upon a foundation of pure BS?
Janet Yellen, no doubt, is in the business of spewing nonsense.  It’s a cornerstone job function of central bankers.  But, alas, she isn’t very good at it.

For drivel to be effective it must be carried forward with unequivocal confidence.  It can be incoherent.  It can be contradictory.  It can be complete gibberish.  It can be all of these things, and more.  But it can’t be hesitant.

Yet everything that comes out of Yellen’s mouth is tentative and unsure.  She hedges.  She prevaricates.  She dithers.  She evades.  What’s more, she does so with the confidence of silly putty.  Nonetheless, we won’t give her a pass.

As noted above, at Wednesday’s press conference Yellen remarked that “The Philips Curve is alive.”  This, indeed, is utter BS…driveled out in just five words.  Now, as established by Brandolini’s Law, we must expend 10-times the energy – or more – to refute it.

Why Janet Yellen is Toast

The Phillips curve, if you didn’t know, says there’s an inverse relationship between inflation and unemployment.  When unemployment goes down, inflation goes up.  Conversely, when unemployment goes up, inflation goes down.

The curve was produced by economist William Phillips using data for wage rates and unemployment in the United Kingdom in the years 1913 to 1948.  Like any economic theory derived from empirical data, the practitioners always miss one very important insight.  Namely, that the economy isn’t stagnant; it’s dynamic.  Its inputs change overtime.

Perhaps, the Phillips curve provides a snapshot of what reality was like during a certain time and place.  But that certain time and place was prior to globalization, involved an on again off again pseudo gold exchange standard, and encompassed the Great Depression and two World Wars.   Extrapolating that reality into the present and attempting to fabricate new data to support it is an application of absurdity.

Since Phillips first derived the Phillips Curve there have been lengthy episodes that are inconsistent with his original findings.  Particularly, the late 1970s – when inflation and unemployment went vertical in tandem.

Turns Out a 'Lie' Lurked Beneath the Bookends of the BRICS

March 18, 2016 — 10:42 AM GMT
They were the darlings of the Davos set, the bookends of the BRICS. Simultaneous booms raised millions out of poverty and generated billions for a lucky few.

But now, Brazil and South Africa are united by political scandals and economic misfortune. Gloom has descended as the presidents of each country fight off corruption allegations that threaten to end their political careers. For the leaders, Dilma Rousseff and Jacob Zuma, it’s a stunning fall from grace, a humiliation made worse by markets rallying on the prospects of their demise.

“What many thought would be locomotives of growth have become risks,” said Mario Blejer, Argentina’s former central bank governor and a vice-chairman at Banco Hipotecario SA. “They gave the appearance that lots of progress was taking place. Suddenly we saw it was really just a lie.”

Their rise always had an aspect of illusion. Their emergence was launched as part of an investment thesis promoted by Goldman Sachs Group Inc. In 2001, the firm’s Jim O’Neill christened the BRIC countries, Brazil, Russia, India and China, as the engines of global growth; they were later joined by South Africa to become the BRICS.

The challenge now is whether South Africa and Brazil -- which only became fully fledged democracies over the past 30 years -- can prove they have the ability to clean house as their economies sputter. Failure to do so threatens to undo the gains of the past decade and send markets into a tailspin. It could also fuel social unrest.

---- Both nations have been battered by the global slump in commodity prices. In Brazil, that’s led to the longest and deepest recession in at least a century. In Africa’s most-industrialized country, the government has struggled to keep the lights on, cutting into growth -- a key concern of credit-rating companies, such as Standard & Poor’s, as they threaten to downgrade debt to junk.

Meantime, Rousseff is facing massive protests and an implacable judicial system in a sprawling investigation into wrongdoing at the state oil company. For Zuma, the ruling African National Congress is questioning undue influence among wealthy friends.

“Now that they’ve been hurt badly by the commodity bust, their weaknesses become more clearly revealed,” said Alfredo Saad Filho, a professor of political economy at SOAS University of London. “All the limitations, contradictions, and lack of governance problems emerge.”

Their heydey with investors has long passed. Goldman Sachs closed its BRIC fund last year after it lost 88 percent of its assets since the 2010 peak. South African bonds are the worst performers across emerging markets over the past six months, with the yield on 10-year notes rising to 9.18 percent. Brazil’s real is down 12 percent in the past year despite a rally this year fueled by traders’ optimism that Rousseff will soon be gone.

Of the 40 million people who climbed into Brazil’s middle class during the boom years, almost one in 10 has already slid back down. Across the Atlantic, South Africa’s jobless rate of 24.5 percent is even worse than it was at the start of Zuma’s term and the highest among the 85 countries tracked by Bloomberg.

Caterpillar’s Global Sales Plunge 21% In February—-Biggest Monthly Drop In 5 Years

by ZeroHedge • 
It has been over half a year since we first downgraded the industrial recession to an all-out global depression by using Caterpillar retail sales data, which have been so counterintuitive to what the company’s earnings have been reporting that last September we had to ask “What On Earth Is Going On With Caterpillar Sales?.”

Today, we must admit that something simply does not compute.

On one hand, CAT stock has soared by over 30% from its 2016 lows….
despite warning just yesterday that the pain will continue after the company guided even lower to already depressed expectations.

But what makes no sense at all is that according to the just released CAT retail sales data, the industrial recession since downgraded to a depression, just fell out of the bottom, when the heavy industrial equipment company reported that February world sales crashed by 21%, after falling “only” 15% in January, led by double digit drops in every single market:
  • US down 11% after sliding 7% in January
  • China and Asia/PAC down 26% after being down 22%
  • EAME down 23% after sliding 14% the month before
  • Latin Marica imploding by 45% after a 36% drop one month ago, and one of the worst monthly drops on record.
And what is more confusing is that CAT has not only not had a positive monthly increase in retail sales in a record 39 months, or more than double the length of the Financial Crisis’ 19 months and the longest in history, but the February drop was the biggest one month decline in 5 years!

“But it [the boom] could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system.”

Ludwig von Mises.

Brexit Thought of the Week.

Cameron: Some men are born mediocre, some men achieve mediocrity, and some men have mediocrity thrust upon them. Cameron hit the jackpot.

With apologies to Joseph Heller.

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