Gold and the Debt Ceiling

Addison Wiggin – July 25, 2011

  • Debt ceiling drama inspires primal screams on Twitter… and a prominent spike in gold with stunning visual 3-D correlation…
  • Head-scratcher: Citi catches onto “blue gold” now?… Chris Mayer on where the next great water opportunity lies…
  • Commodities kingpin rubbed out by the mob… no, he’s booking your sports bets in Vegas!
  • Reader urges us to “call BS” on Social Security skeptics… coin dealer sets us straight on ID requirements… plus, your final chance for Vancouver CDs at the lowest price… and an extraordinary invitation you’ll want to review right away

   Twitter users adopted the hashtag : #f***youwashington over the weekend. We’ve cleaned up the actual tweet in deference to our national hosts for the week.

Greetings from Vancouver, B.C., where we’re just touched down in anticipation of our annual Agora Financial Investment Symposium.

Click to enlarge… Really, it’s that pretty

The 73 F degree breeze is a pleasant upgrade from the 100 F-plus sauna we were getting used to back east. And here, even well-armed border patrol are exceedingly nice, eh?

   Blogger, journalism professor and self-styled new media expert Jeff Jarvis was either angry about the debt-ceiling charade or wanted to see his own name in print.

Whatever his motive, he asked his readers to “start a Twitter chant: ‘F*** YOU, WASHINGTON!’” and pass it on. Thus, Jarvis unleashed a torrent of outrage blaming Washington for everything from bailouts to wars to the BP oil spill.

After a quick review, we couldn’t find a number indicating how much more of an online sensation Jarvis inspired than, say, Lindsay Lohan’s latest low-cut lace. We did, however, run across this estimate: 5% of Twitter users generate 75% of the Tweets.

Can’t wait for the IPO.

   When it comes to numbers that reflect the mood around the debt ceiling debate, we find this one more reliable: Gold popped up to a record $1,620 the moment the spot market reopened Sunday evening.

And for most of Monday, it held around $1,615. Silver’s back up to $40.33.

   It turns out that since 2000, there’s been a stunning relationship between the historical increases of the debt ceiling… and the rise in the gold price.

“Have we solved the record debt?” asks Sprott Asset Management strategist David Franklin, rhetorically. “Do we get to grips with the banking problems? Are the budget deficits resolved? Unless all these fires are processed, the precious metal prices continue to climb.”

Thanks to the new partnership between Sprott and our old friend Rick Rule, Mr. Franklin will be joining us here in Vancouver this week. If you won’t be with us, you can still hear both of them — and more than 20 other speakers — via the audio files we send to interested readers.

Today’s the last day to get them at the lowest available price. As soon as the conference opens tomorrow, it goes up. Seize the day.

   Owing to the vagaries of cross-continental travel and intermittent Internet connectivity… we’re late enough today to bring you the stock market closes: With no agreement in Washington, and Moody’s downgrading Greece again despite an agreement in Brussels, the Dow fell 88 to 12,593, while the S&P sank 8 to 1,337.

On the latter index, 1,350 is the key level that Jonas Elmerraji of our small-cap team is watching. “The S&P made its way up to 1,345 by Friday’s close, putting stocks just a hair’s breadth away from that resistance level.

“That’s a potentially major development for investors — if that positive stock sentiment can carry over into this week, we could get that meaningful push above 1,350. If it does happen, we can probably expect a number of our watch list trades to trigger — that could make for an exciting second half of 2011.”

   According to Citigroup, the next new big thing is… water.

“As urban areas increase in size and become more affluent,” writes Citi’s Michael Geraghty, “changing diets and sanitation requirements can cause the demand for water to increase fivefold beyond the ‘basic water requirement’ needed for drinking, cooking and personal hygiene.”

Ho-hum…

“There is one big reason why you should pay attention to the emerging water crisis,” said our own Chris Mayer five years ago: “You can make a boatload of money investing in the idea.”

Readers of Mayer’s Special Situations have already bagged “blue gold” gains of 100%… 122%… even 186%. [Late update: After a takeover announcement, Chris closed out another one today for 121%.] With this Citi analysis, Chris expects we may be ripe for another round.

   “For months, south and central China have been suffering from drought,” says Chris, looking for the next profitable angle.

“In the spring, Beijing sent deep well-drilling teams from all over the country to these parched provinces. The aquifers these regions relied on were dry. They needed to drill deeper. The problem is this is a short-term fix. Deep-underground aquifers can take hundreds of years to replenish.”

But in recent weeks, China’s had the opposite problem — torrential rains and floods.

“We may speculate why China’s weather has been more severe in recent years. But one thing is undeniable: China will need to buy more of its food abroad. By importing food, it essentially ups its water needs as well.”

Mr. Mayer’s forecast holds even if his concerns about a contraction in the Chinese economy pans out.

“Grain prices are vulnerable to recessions,” Chris adds, “just as are oil and copper. But volumes are fairly steady over time.” With droughts and floods, “China is having more and more problems producing the foodstuffs it needs at home.”

[Ed note. Chris has advanced several ideas to play this water/food trend in his premium advisory, Mayer’s Special Situations. After five years of publication and 90 recommendations, the average gain is 26% in a holding period of about 15 months. Not bad considering the broad market has gone nowhere.

You’re welcome to check out Mayer’s Special Situations here… but today, we want you to think bigger.

Until midnight tonight, you can access all of our stock-picking services — Chris Mayer’s Special Situations, Jonas Elmerraji’s momentum moves, Patrick Cox and Ray Blanco’s tech breakthroughs and Jim Nelson’s lifetime income sources — all in one low-cost bundle.

To that auspicious list, you can add the resource wisdom of Byron King. On the flight in, we looked over the new issue of Byron’s premium advisory, Energy & Scarcity Investor. In a single issue, he recommended two gold miners. One is run by the same guy whose UNX Energy delivered Byron’s readers a 615% gain. The other by a guy whose previous venture tripled production, quadrupled reserves and cut costs in half.

Both of Byron’s plays, we believe, are destined for good returns. Both are included in the one-time fee you’ll pay for the Equity Financial Reserve — an extraordinary suite of services. Membership is yours for less than you’d pay for a year’s subscription to each publication individually… in one payment… good for life.

And… to sweeten the pot… through midnight tonight, we’re making it even more worth your while to join. Review this one-time-only added benefit, right here, right now.

   After more than three decades, the famous disappearance of a “player” in the Chicago commodities scene has been solved.

When he vanished in 1979, Arthur Jones was 40, married for 17 years, with three kids.. A few months earlier, he’d gotten so desperate for scratch to settle gambling debts, he sold his seat on the Chicago Board of Trade. Police labeled his disappearance “suspicious.” In 1986, Jones was declared legally dead.

Turns out Jones was alive and well. Or at least alive. Over the years, he managed to…

…get arrested for petty larceny in Florida under the name Richard Lage

…picked up for several misdemeanors as Richard Sanders in California

…work the last 10 years as a bookie in Vegas under the name Joseph Sandelli

During this last gig, he was using the Social Security number of a Veterans Administration employee in Phoenix.

Arthur Jones’ Nevada driver’s license photo… as Joseph Sandelli

Apparently, in 2008, he tried to renew his Nevada driver’s license. The hinky Social Security number raised eyebrows. The SS Administration finally got around to looking into the imposter this year.

Now, 22 years after he disappeared, Jones is facing charges of ID theft and fraud in Nevada.

“It sounds like a very interesting story,” Jones’ lawyer Stephen Stein told the Las Vegas Review-Journal. “But I can’t comment until I know what the hell the story is about.”

Heh.

   “C’mon,” a reader writes. “You need to call BS when your writers misrepresent what’s going on with Social Security.

“You know and I know that SS is completely funded and is good to around 2035, but has been heavily borrowed against and now the right doesn’t want to pay it back. When you make statements like this, your ideology is showing through. I count on you guys to be impeccable in your analysis’, not political, and I need to be able to trust you.

“Please stop the right-wing rhetoric.”

The 5: Uhh, from what funding source should the “borrowed money” be paid back? Just get the “filthy rich” to pay their “fair share”? How comforting it must be to have the confidence you do in your “red” and “blue” world. Pardon us, if we don’t share it.

   “I manage a well-established rare coin business in Ohio,” writes a dealer, weighing in on the identification thread of last week. “A good part of my time is spent buying and selling gold and silver bullion. As such, I try to stay current on existing and pending legislation that may affect my business.

“My understanding of it is that I am required to report all cash sales of $10,000 or more. If my customers write me a personal check, this flies under the radar. I require identification only to verify that the name and address on the check are current, much the same as with any vendor. I don’t keep any record of the identification.

“I do require identification when I buy from any member of the public with whom I have not previously done business. I do write down those sellers’ names, addresses and telephone numbers. This is done primarily in case of later reports of stolen items. I keep hard copies of these purchase orders in my personal files and dispose of them after six months.

“For insurance purposes and from a loss prevention perspective, I keep only a few silver bars and very little in the way of gold bullion coins or bars on premises. When I have a customer for these items, I lock in a price and take a 50% deposit with the balance due on delivery: usually two-three days, but occasionally longer, largely contingent on the availability of silver bars. The only record of these transactions are the dollar amounts in our daily sales reports.

“I usually keep a good amount of 90% (junk) silver U.S. coins on hand, as well as collectible gold and silver coins and silver American Eagles and sell same with a register receipt.

“The policies we have in place have worked well for us and seem to work well for our clients. We are able to meet the bullion needs of our customers — buying or selling — in a professional and discrete manner.”

The 5: And there it is… from the other side of the counter.

Thanks,

Addison Wiggin
Agora Financial’s 5 Min. Forecast

P.S.Fair warning: Over the next week, you’ll be hearing loads of comments from the more than 27 speakers we’ve invited to address this year’s Agora Financial Investment Symposium topic: “Fight or Flight: Your Capital at Risk.”

Alas, that also makes this our final opportunity to remind you: High-quality audio recordings of every speaker in the main hall here in Vancouver — as well as the essential written summary of each investment tip covered in the “breakout” sessions — are still available at pre-symposium discount… but the offer ends as soon as we step to the podium tomorrow.

P.P.S. Likewise, the oak-paneled doors to the Equity Reserve close tonight at midnight. For carte-blanche lifetime access to the full range of stock advisories you rely on here in The 5 — all for a low one-time fee — review the following. Remember, we’ve added an additional incentive for you if you act between now and midnight.

rspertzel

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