Golden Peacocking

by Addison Wiggin & Ian Mathias

  • The latest gold trend… Freud would be proud

  • The 5 digests two high-profile Op-Eds… Greenspan & Krugman never cease to amaze!

  • Frank Holmes with a nasty BP spill side effect… Byron King on how you can profit from it

  • Plus, your public servants at work: 8 congressmen under investigation for financial services fundraising

 

Today, we add a new phrase to our gold bubble lexicon: “Peacocking.”

How else would you explain this: Saudi Arabia “restated” its gold reserves yesterday, right as the spot price found an all-time high of $1,265. Last week, SAMA, the shady Saudi sovereign wealth fund, held 143 tons of gold. Today — 322 tons!

The Saudis gave little explanation other than a humble “adjustment of the SAMA’s gold accounts.” Heh, 100+%? That’s some adjustment.

China did the same thing roughly a year ago. Having not reported its gold holdings in years, the Chinese quietly announced they were holding over 1,000 tons of the metal, double what the world expected.

In a world dripping with debts and sovereign risk, it should come as no surprise to see governments strutting and letting unfurl their share of the world’s most sought-after “commodity.” It’s a game. Who’s got the biggest… umm… vault, so to speak.

The U.S. still claims to have the fullest rack, with 8,133 tons of gold buried somewhere in the national backyard, a pole position the U.S. has held since the end of the Second World War.

  Around the world, central bank purchases of gold reached 425 tons last year — the first stockpile expansion since 1988 and the largest since 1964.

The Russians led the way, increasing their gold holdings by 142 tons — a 29% boost — last year alone.

  You can expect that trend to continue. At a conference last week, Yin Zhongqing, vice chairman of the finance committee for the People’s Congress, suggested the Chinese government increase its holdings in oil and gold.

“The government should also cut overseas debt holdings and increase equity investments,” Yin advised. “China should adjust the asset structure of its foreign reserves and achieve the goals of making the investment safe, liquid, and preserving and adding value.”

Hmmn…

  And yet, gold has lost its mojo over the last 24 hours. It hit a new all-time high of $1,265 early yesterday. Traders have been taking profits ever since. The barbarous relic is down over $30 as we write.

  So it goes for most asset classes, this morning. After news the Chinese currency adjustment set in, euphoria evaporated. Major U.S. stock exchanges ended with losses yesterday, as did most commodities.

  You know… now might be a good time to start pondering our national debt, Alan Greenspan advised in The Wall Street Journal Friday.

Really.

“An urgency to rein in budget deficits seems to be gaining some traction among American lawmakers,” the bespectacled central banker wrote, “If so, it is none too soon.”

Oy.

“Perceptions of a large U.S. borrowing capacity are misleading,” he went on. “Beneath the calm, there are market signals that do not bode well for the future. For generations, there had been a large buffer between the borrowing capacity of the U.S. government and the level of its debt to the public.

“But in the aftermath of the Lehman Bros. collapse, that gap began to narrow rapidly. Federal debt to the public rose to 59% of GDP by mid-June 2010 from 38% in September 2008. How much borrowing leeway at current interest rates remains for U.S. Treasury financing is highly uncertain.”

  Meanwhile, in his own NYTimes Op-Ed, our favorite Nobel laureate Paul Krugman begged policymakers to follow his “solution” for the economy Greenspan helped wreck… er, reap.

“Now is not the time for fiscal austerity,” Krugman admonishes everyone. “How will we know when that time has come? The answer is that the budget deficit should become a priority when, and only when, the Federal Reserve has regained some traction over the economy, so that it can offset the negative effects of tax increases and spending cuts by reducing interest rates.

“Currently, the Fed can’t do that, because the interest rates it can control are near zero, and can’t go any lower. Eventually, however, as unemployment falls — probably when it goes below 7% or less — the Fed will want to raise rates to head off possible inflation. At that point, we can make a deal: the government starts cutting back, and the Fed holds off on rate hikes so that these cutbacks don’t tip the economy back into a slump.

“But the time for such a deal is a long way off — probably two years or more. The responsible thing, then, is to spend now, while planning to save later.”

Right… so low rates beget even lower rates and the economy will miraculously recover. Oy. Too bad we never get to the final part of his plan.

Last week, on the Mises.org site, we saw this described as Augustinian Economics: Saint Augustine begged God to give him the strength to be chaste and sober… just not yet.

  Oil has been keeping to a pretty tight range lately. At $78 a barrel, you might say its right about in its sweet spot… expensive enough that foreign producers won’t get jittery, cheap enough that consumer complaints are under wraps.

Too bad there are far fewer people out there to collect it for us, notes Frank Holmes:

  The longer the U.S. governments ban on offshore drilling lasts, “the more damage it will do to America’s energy sector,” explains Frank Holmes — another marquee speaker at our Investment Symposium next month.

“Each of the 33 deep-water rigs operating in the Gulf prior to the drilling ban employed roughly 1,500 people and generated $1 million a day in economic activity, according to estimates by energy analysts at Raymond James. If the moratorium lasts a full year, the result could be a $12 billion drop in GDP and a loss of 50,000 jobs.

“These are well-paying jobs, especially for the region. The typical support and lower-level workers earn up to $4,000 a month, and specialized positions pay well more than double that amount, according to The New York Times. In all, the idled rigs represent at least $165 million in monthly wages.

“These workers, not Big Oil, are the ones bearing the brunt of the drilling ban and the politicking in Washington… There’s no doubt that the U.S. has to make sure the proper safeguards and government oversight are in place to prevent future environmental disasters. But a moratorium that strangles an industry that supports an entire region of the country would just create a second disaster.”

  Buy when there is “blood in the streets,” the old-timers say. “It’s more like there’s oil on the water — BP’s oil,” Byron King explains. “And we have a chance to profit from it. Just so you understand, I’m truly sorry about the Gulf of Mexico oil disaster. But it’s giving us a chance to profit.

“Yes, fate has offered us an offshore energy opportunity. Of course, BP has made a mess of its deep-water well. In turn, President Obama has banned new deep-water drilling in the Gulf of Mexico for six months (yeah, right, try indefinitely). Plus, we’ll surely see tighter regulations over drilling in shallow waters.

“Point is the Gulf of Mexico has now picked up the reputation as a problematic locale for future offshore energy development.

“So what are we going to do?

“We’re going to invest in a beaten-down natural gas driller in the SHALLOW waters of the Gulf of Mexico. The shallow water drilling will come back soon, I believe, and it offers some incredible investment potential.

“Let’s take advantage of a recent tumble in the share prices in this sector, including one of the most innovative, creative offshore exploration companies in the Gulf of Mexico. Indeed, let’s look at an astonishing company that recently drilled one of the deepest wells ever poked down into the Gulf. Along the way, it found a stupendous new natural gas resource.”

This company is the latest addition to Byron’s Energy & Scarcity portfolio… learn more about it by subscribing, here.

  Eight members of the House of Representatives are under investigation for accepting bribes from financial services companies. Here’s the list:

Jeb Hensarling

Melvin Watt (we’ve written about this clown before)

Tom Price

Earl Pomeroy

Chris Lee

John Campbell

Joe Crowley

Frank Lucas

All but one of these “public servants” held campaign fundraisers within 48 hours of voting for the super-sized financial reform bill, which the House passed Dec. 11, 2009. The Washington Post reports:

“Rep. Tom Price (R-Ga.) held a "Finance Services luncheon" at the Capitol Hill Club on Dec. 10. On the same day, a lobby firm with financial clients, Davis & Harman, hosted a fundraising breakfast for Rep. Earl Pomeroy (D-N.D.) at its Pennsylvania Avenue offices… [Rep. Melvin] Watt (D-N.C.) held a Dec. 9 fundraiser and soon after withdrew a proposal he had introduced to subject auto dealers to tougher regulations…”

Of course, this isn’t a new low for Washington… just typical bribery of atypical size — at mind-numbing speed.

  Last today, something close to home. While on our shoot yesterday in the hallowed halls of Harvard Business School, we got word from our producer in L.A. that the Commodity Futures Trading Commission approved a new tradable commodity last week: Movie futures.

No kidding, movies… soon you might be able to hedge your exposure on Tom Cruise. The contracts will be tied to total box office receipts and will be traded on Trend Exchange.

Of course, there has to be one stick in the mud. Like a good bureaucrat, CFTC commissioner Bart Chilton complained that this a handout to Hollywood movie houses, the exchange and banks, who will have a new venue to aimlessly transfer wealth to and fro.

“Popcorn Prediction Markets,” Chilton whined, “would serve no national public interest, nor do they satisfy the fundamental federal statutory requirements relating to the definition of a ‘commodity’… there is no demonstrated need nor necessity, or even a fabricated chorus call for them.”

Wah.

If we could wager that our documentaries would fail to make money… oh yeah, that would be a good bet.

  “You might want to warn your expats,” a reader writes climbing on a soapbox, “that renouncing citizenship for the purpose of avoiding the payment of taxes is prohibited by the code and/or regs and may result in the assessment of back taxes and penalties.

“Especially those who announce their motives in public.”

  “Are four-fifths of your readers all xenophobic walnut brains?” a reader asks, referring to all the chatter we’ve been publishing over Warren Buffett’s charitable donations.

“Most of them are not fit to shine the shoes of Gates or Buffett. They've been listening to Limbaugh or watching the Tea Party fools for too long. They really think the U.S. has a monopoly on wisdom, lifestyle, and all-around God Blessedness. Most of them haven't ever traveled anywhere but the U.S. and have no concept of the global economy. We are all very connected in every way now. Digging your head in the sand will only get you whacked in the behind.

“I guess De Tocqueville said it best in the l800s when he intoned: ‘Before America's roots of civilization set in, I believe it will have decayed.’”

The 5: Heh. Our good friend the late Dr. Richebacher would have agreed with you. He use to lament the fact that the U.S. had failed to civilize itself in over 200 years as a republic. Rather, it remained as barbaric as the day most of its citizens meted out existence on the frontier.

Maybe he was right.

Addison Wiggin

The 5 Min. Forecast

P.S. By the way, we have a screamin’ deal available this week — six free months of our most expensive research service. This is as about as fast-moving and high-end as it gets, and it’s a very rare opportunity to gain access at such a hefty discount. The deal’s off by Friday, so don’t miss out… details here.

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