Goldman Shorts Gold, the National Debt’s Biggest Threat, The Economist Cites Bill Bonner, Kevin Kerr’s ’08 Forecast, and More!

by Addison Wiggin & Ian Mathias

  • Goldman shorts gold, twists logic… See it for yourself
  • $1 million a minute… The biggest threat of all from the national debt
  • Economist
    magazine analyzes dollar, cites Bill Bonner, sees “worrying parallels”
  • Gold’s “new baseline”… Kevin Kerr’s 2008 forecast
  • The four-year plan… Chavez faces deadline for wrecking Venezuelan economy
  • HIV, economy cars, and information overload… Readers chime in

“Here is a good one.” We begin today with a short word of caution from a reader. “Goldman Sachs is now advocating that people sell their gold and buy U.S. dollars, instead. I had no idea investment bankers could have a sense of humor.”

“We would now use a short exposure in gold, expressed in U.S. dollars,” is the way Goldman Sachs put it.

Why? “To capitalize on a gradual relaxation of credit concerns in the financial sector over the coming months, and as an avenue to benefit from the prospect of a stabilization in the U.S. dollar.”

Goldman economists cited the Fed’s rate-cutting campaign as one of the primary drivers behind soon-to-be steady U.S. economic growth.

What a curious state of affairs… Where, the statement made us wonder, do the GS economists think the stabilization will derive? Apart from the credit crisis and a rapidly expanding trade imbalance… every time the Fed cuts rates, the dollar gets traded to all-new lows.

Oh, and there’s this small detail:

“National Debt Grows $1 Million a Minute,” reads a headline in the AP.

The article reads like a summary of our 5 Min. Forecasts. For the time being, we’ll spare you the laborious details: the war, S.S. and Medicare…. the debt owned by foreigners, particularly Asian central banks… the debt clock… and we’ll jump right to the crux of the matter:

“Not long ago,” the article concludes, “it actually looked like the national debt could be paid off — in full. In the late 1990s, the bipartisan Congressional Budget Office projected a surplus of a $5.6 trillion over 10 years — and calculated the debt would be paid off as early as 2006.

“Former Fed chairman Alan Greenspan recently wrote that he was ‘stunned’ and even troubled by such a prospect. Among other things, he worried about where the government would park its surplus if Treasury bonds went out of existence because they were no longer needed.

“Not to worry. That surplus quickly evaporated.”

The real threat to the dollar is the interest on that $1 million a minute pileup. Mark Zandi, chief economist at Moody’s
Economy.com,
the AP says, is “more concerned that interest on the national debt will become unsustainable than he is that foreign countries will dump their dollar holdings. ‘We’re going to have to shell out a lot of resources to make those interest payments. There’s a very strong argument as to why it’s vital that we address our budget issues before they get measurably worse,’ Zandi said.

“‘Of course, that’s not going to happen until after the next president is in the White House.’”

“The long-run value of all paper currencies is zero,” The Economist quotes our own Bill Bonner as saying this week, opening a series of articles seeking to answer the question “So why should the dollar be any different?”

“Mahmoud Ahmadinejad,” The Economist points out, “Iran’s president, seems to think the long run is now: two weeks ago, he decried the dollar as a ‘worthless piece of paper.’ And Jim Rogers, a famously shrewd investor, asks why anyone would buy dollars.

“America’s currency has been infected by the sense of crisis that bedevils its economy and financial markets. Speculative selling of the dollar is close to an all-time high, reckons Stephen Jen at Morgan Stanley. Many believe — and some, evidently, hope — that the greenback might be on its way out as an international currency. Worrying parallels are seen between the dollar’s recent fall and the decline of sterling as a reserve currency half a century ago.”

Until the U.S. corrects some fundamental deficits — trade, federal, savings, leadership — you can bet the dollar will be under pressure.

But in the end, that’s what makes a great market to trade. There’s a good chance you’ll see a strong contrarian rally in the dollar, given all its negative sentiment… and the fact that Bill is being used to kick off the series of essays in The Economist…
but in the long run, the fundamentals don’t support a strong rally in the dollar.

This stuff is so good… someone should make a movie about it. Heh. (For tickets to Sundance, see the special provisions and link below).

Over the weekend, gold staged a small rally… but continued to present you with a great buying opportunity. The yellow metal fell as low as $777 in London trading, and as we write has steadied above $780.

“As 2008 rolls in,” writes Kevin Kerr in Outstanding Investments,

“$800 gold is likely to be the new baseline for the yellow metal.”

Despite its recent pullback, gold has plenty of room to run, says Kevin, thanks in part to global mining output. “There are some places where gold production is rising. China, for example, will probably overtake the U.S. as the world’s second biggest gold producer this year.

“But for every success story,” continues Kevin, “there are more mines drying up. South Africa is the gold mining kingpin, but probably not for much longer. South Africa’s output is down to its lowest level since 1922.

 

“From the early ’80s until the early 2000s, the 20-year bear market in gold forced many marginal mines to close. And over the past 15 years, a wave of mergers has created a bunch of mega-sized gold miners. While the top five each produce between 3.5-7 million ounces out of the ground every year, they’re more likely to concentrate on working their existing mines and buying up other mines, and focus less on new exploration.”

“So a monthly close above $800 hasn’t happened,” writes James Turk. “It will soon, though, I expect. The dollar remains near record lows. The U.S. government debt continues to grow.

“The subprime mess continues to create a huge black hole on the balance sheet of banks and other financial institutions. As measured by M3, the quantity of dollars is growing by 15% per annum. And perhaps most important of all, inflation is worsening. This precious metal bull market still has a long way to run.”

Moody’s announced this morning that it will review an additional $130 billion in debt adversely affected by the rising foreclosure rate in subprime mortgages. The total is rapidly heading for the trillion-dollar range…

The second Fed governor in as many weeks announced misgivings about prospects for the U.S. economy in 2008-09. This time it was Eric Rosengren from the Fed Bank of Boston who implied the U.S. economy’s recovery from the “foreclosure crisis” will be “well below” its long-term pace well into next year. He suggested also that foreclosures were likely to continue rising.

“The problem for the Fed remains,” said John Williams from Shadowstats.com, “the underlying difficulties have not changed, and any central easing will do little to spur business activity, while intensifying dollar dumping.

“There are enough concerned Fed governors to provide significant dissension at an FOMC meeting aimed at lowering rates, and Bernanke knows it. He waffled with his comments this week, and he may waffle further, as renewed heavy dollar selling — which will come — will seriously impair domestic liquidity at a time that the system is reeling from issues of solvency among a number of large U.S. financial institutions.”

“When banks and financial institutions take losses on silly loans they made in brighter times,” writes our Chris Mayer, fresh back from the front lines at the Value Investing Congress in NYC last week, “suddenly, credit tightens. It’s not so easy getting a mortgage anymore. It’s also not so easy for companies to get financing. People have to tighten their belts and patch up those old sweaters, instead of getting new ones.

“Lots of things have changed since the August mini-meltdown.”

Chris provided his readers with a fresh list of stocks you should definitely NOT buy until this mess is over. If you’re not currently a Capital & Crisis
reader, you can find the list by signing up here. You’ve been warned. You shouldn’t buy a single mainstream stock until you’ve bounced it off this list first.

Perhaps what you really need right now is a good home-based income opportunity. A friend of ours recently opened shop online retailing, among other hot items, this stun gun:

 


The perfect vanity item: a stun gun with your name on it?

Maybe we should ask to have these in hot pink and emblazoned with the Agora Financial logo and give them away free as a door prize in Vancouver next July.

If you’re in need of some personal safety devices yourself, please be sure to visit: http://safelyprotect.com/index.php. This beautiful stun gun is the featured product of the week. But you can also find your own crossbow, handcuffs… a blowgun, huh? Take your pick.

Poor Hugo Chavez. He may not be needing these safety devices much longer himself. Venezuelan voters collectively vetoed Hugo’s proposed reforms over the weekend, handing Chavez his first loss since his 1999 election. Among other elements, the denied referendum put the kibosh on Hugo’s desire to be “president” for life… Chavez will have to leave office in 2013.

 


Aww… it’s OK; you still have four years to ruin Venezuela’s economy…

Chavez claimed the voting results were a hairsplittingly close 51% to 49%, which can be trusted as much as any other statistic released by his office. An estimated 50% of Venezuela’s 16 million registered voters cast their vote, a surprisingly low turnout.

“As much as I love your daily 5,” writes a reader, setting the tone for today’s reader mail, “you guys should learn more about the nonfinancial subjects you occasionally comment on.

“You seem utterly clueless that the HIV virus is about 400 times smaller than the pores of a latex condom. Condoms are no good for protecting from AIDS. In fact, due to the blow back from the population imperialism practiced by the wealthy West against the Third World in the 1970s and early ‘80s, the population controllers jumped onto the AIDS bandwagon as a way to promote contraception to the underdeveloped.

“The problem is most of these symptoms are common to African diseases, such as malaria and various jungle fevers. But no matter, the purpose isn’t to accurately diagnose, just scare these people into adopting condom use and to stop reproducing. Only problem is condoms can’t prevent transmission of HIV. Those pesky latex pores are way too big.”

“I’m shocked and disappointed in your disparaging lumping of Daihatsu with the Yugo,” writes another, equally upset about remarks we made about a car. “You display supreme ignorance of international auto manufacturers with very misplaced sarcasm and hubris, as evidenced by your oh-so-cute statement, ‘They still make ugly cars.’”

“What? What’s that got to do with the price of tea in China? Your jabs at design are irrelevant.

“You opened the Pandora’s box of useless and snide commentary on auto designs because you, obviously, couldn’t muster any better arguments. So in childish desperation, you played the asinine game of irrelevant, brainless one-upmanship with a truly cheap and stupid retort. Frankly, I expect better from you.”

“Just how much information do you think I can meaningfully cope with?” asks another. “This is nothing more than information overload… I do not spend my entire life trading. Now, slow down or I’ll CANCEL!”

“Bye,” writes a final reader, this one apparently content to keep their head in the sand. “Your comments on Chavez indicate that you’re not truthful.”

The 5:
You gotta love Mondays. Hope yours was better than ours.

Thanks for reading,

Addison Wiggin
The 5 Min. Forecast

P.S.: After much debate, review and internal posturing, we’re decided to open our Agora Financial Reserve up for membership this month… if you’re not familiar with the Reserve, it is perhaps the best membership offer in the financial industry.

Apart from a one-time payment for all our best newsletters and stock and option trading services, you also get a number benefits the “little people” never learn about. Membership campaigns are always an exciting time for us. We’ll be throwing the doors open wide this Friday, Dec. 7, 2007… Pearl Harbor Day… watch for details…

P.P.S.: If you’re planning to catch the world premiere of our documentary I.O.U.S.A. at the Sundance Film Festival, Jan. 17-27, let me tell you fill in on the quirky method they use for selling tickets.

Demand for all movies is so high you must first register for the tickets at this link: http://www.sundance.org/festival/boxoffice/individual_tickets.asp.

Then the good folks at Sundance will e-mail you an assigned time on Jan. 11, 2008, during which you will be able to access the Web site and purchase a limited number of tickets. The dates and times of all the moving showings with be published this week sometime. You’d be surprised how many people have written in saying they’d like to come… if you’re interested, you should sign up to get in line, right away.

rspertzel

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