March 21, 2013
- Russia’s gold accumulation strategy: Ruble-cost averaging… while China “knows exactly what it’s doing” constructing its own Fort Knox
- Latest harebrained scheme from Cyprus: Even more instructive for Americans than the “haircut” on bank accounts
- Families struggle to stay afloat: The three stages of inflation… where we are right now… and where the Fed is taking us
- From a Network-style meltdown on national TV in 2011… to an organic farm in 2013
- Readers chime in on Cyprus… and The 5 gets unwittingly caught up in centuries-old ethnic hatreds
“The more gold a country has,” Evgeny Fedorov tells Bloomberg, “the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency.”
Mr. Fedorov has a title that can barely fit on his business card: “Chairman of the 4th State Duma Committee on economic policy, entrepreneur activity, and tourism.” For our purposes, all you really need to know is he has the ear of President Vladimir Putin.
And that his words are taken seriously. Yesterday, the Russian central bank issued its monthly report disclosing its gold reserves. They’re up to 31.4 million troy ounces.
It’s a picture of steady accumulation since 2006 – ruble-cost averaging, you might say…
“Despite Russia’s expanding gold hoard,” writes John Embry from Sprott Asset Management, “I strongly suspect that it pales in comparison with China’s — and by a big margin.
“China’s approach to gold is especially instructive. Just 20 years ago, that country wasn’t even on the radar screen.
“Yet China set out to build up its gold mining capacity — and succeeded to the extent that it’s now the world’s biggest gold producer. It has also gone to great lengths to ensure that none of the metal ever leaves the country itself.”
And it’s still not enough: China now rivals India as the world’s biggest gold importer. We chronicle China’s monthly imports through Hong Kong — which set a record in December.
“For all of 2012,” Embry goes on, “the country’s imports topped 500 tonnes — nearly double that for 2011. What’s more amazing is that this represents about 25% of the world’s total mine output outside Russia and China.
“Make no mistake: China, which operates on a much longer time frame than the West, knows exactly what it’s doing.”
“The last time China released an official public report of its gold reserves,” adds our own Byron King, “was in April 2009.” As longtime 5 readers know, that official number — 1,054 tonnes — hasn’t changed since.
But reports leak out from time to time. “Piecing together these quiet little paper trails paints a pretty clear — and startling — picture.” As Byron reveals in his latest presentation, China’s gold stash is now likely bigger than those of Switzerland, the U.K., Holland and Spain… combined.
And that’s just the accumulation to date. Then there are the occasional disclosures of how much gold China plans to acquire in the future. “News of how much gold China has been buying,” says Byron, “has the potential to drive the price as high as $2,600 an ounce all by itself.”
He presents the exhaustive proof… and a variety of new ways to ride that move for even bigger gains… in his expose on “China’s Fort Knox.”
Gold is struggling to break through resistance today at $1,615. Silver, meanwhile, has broken decisively above $29 — currently $29.26.
Don’t just stick the depositors — stick the pensioners too.
Or at least that seems to be the thinking in Cyprus today, where politicians are trying to figure out some other way to scrape together 5.8 billion euros for the government’s creditors by Monday.
The “stability levy” is a nonstarter — at least in its current form, applied to everyone who holds a bank account, no matter how small.
“The new plan,” the BBC reports, “may include nationalizing pension funds of semipublic companies and limiting the bank levy to deposits above 100,000 euros.”
Hmmm… If true, Cyprus really is an experiment worth watching. Last year in Apogee Advisory, we prepared a thorough briefing on a scheme that’s popularly known as “401(k) confiscation.” We said money held in 401(k)s and IRAs was safe — for now. We also cited two warning signals that would tell you when it was time to move toward the exits.
The proposed pension grab in Cyprus, if implemented here, would be one of those signals.
Our briefing is still as timely as ever. If you’re not an Apogee reader yet, you can become one right here. As soon as you sign up you’ll have instant access to the archives. Look for the May 2012 issue.
Major U.S. stock indexes have given up all of yesterday’s gains, and then some — traders evidently unimpressed the NFL has done away with the tuck rule.
The S&P 500 is back below 1,550. Small caps are faring better than the blue chips. Traders are processing a veritable data dump…
- Philly Fed survey: This monthly barometer of mid-Atlantic manufacturing has crept back into positive territory — barely. New orders are up, but work hours are down.
- First-time unemployment claims: Up slightly last week. The 4-week moving average sits at 339,750 — a post-2008 low
- Existing home sales: Up 0.8% last month, says the National Association of Realtors
- Leading economic indicators (LEIs): Up 0.5% in February, according to the Conference Board. Higher stock prices weren’t the only factors at work — so were more building permits and fewer jobless claims.
Tracking the LEIs, Fusion IQ chief and Vancouver favorite Barry Ritholtz shared this chart of the monthly change going back 25 years.
“To avoid whippy or false signals,” he says, “we use the four-month moving average of the LEI month-over-month percent change (see red line), watching for a drop below the 0.0-0.5% band (gray band). That tends to only occur during pre-recessionary periods.
“The series is not only above the danger zone, but it is trending upward — meaning that the odds of a recession are minimal.”
“Further market gains from here,” suggests Dan Amoss, “would depend heavily on the Fed continuing its risky policies indefinitely.”
After its latest every-six-weeks meeting yesterday, the Federal Open Market Committee gave every indication it would do just that.
For the moment, it seems the Fed can do no wrong… because we’re in the first of Austrian School economist Murray Rothbard’s three stages of inflation. Dan boils down the process — described in Rothbard’s The Mystery of Banking — like this…
- Phase 1: The money supply grows at a faster pace than the overall price level. People cling to cash. Consumers hold off on purchases, waiting for prices to come down
- Phase 2: The public starts to expect consistently rising prices. Cash is no longer king. Consumers don’t wait for prices to come down — they buy now before prices go up further
- Phase 3: We see the public try to get rid of cash as fast as they receive it. Consumers buy stuff they don’t even need, because those goods will preserve their value better than cash that’s wasting away.
“We’ve been in Phase 1 since the 2008 crash,” Dan goes on. “The Fed is master of the universe, can fine-tune every asset market and is in the process of making us all wealthier. Unfortunately, like any addiction that gives positive feedback, the Fed will overdo it.
“Fed governors may say they can reverse policy anytime they wish. But that’s just theory. In reality, reversing course will be politically impossible. Interest groups in Congress could threaten to revoke the Fed’s charter. So easy money is here to stay — at least until we are well into Phase 2.”
Meanwhile, “more and more families are having a hard time keeping up with rising payroll taxes and health care, food, utility and gasoline bills. Whatever ‘wealth effect’ the Fed creates in the stock market is only temporary, and is more than offset by a higher cost of living.”
That higher cost of living is already hitting the bottom line of two companies Dan spotlights in today’s briefing for PRO-level readers.
For the record… there’s been a Dylan Ratigan sighting.
In August 2011, Mr. Ratigan was front and center in The 5 for an epic rant/meltdown: “We’ve got a real problem!… This is a mathematical fact! Tens of trillions of dollars are being extracted from the United States of America… An entire integrated system — financial system, trading system, taxing system — that was created by both parties over a period of two decades is at work on our entire country right now.”
We weren’t 100% certain what he meant, but we were vaguely sympathetic.
Fast-forward to last summer, when we saw he gave up his post. “I’m done with the fighting,” he said. “As long as we engage in a fight with the central government over who the king is going to be, then the status quo corrupt operational machine retains all the power.”
And then he dropped out of sight. Even stopped updating his webpage. Until yesterday.
“It was a three-tour Iraq combat Marine and his war-protester wife who pointed me in a new direction,” he writes. “They were guests on my show last June discussing how they were bootstrapping their way to operate a high-yield hydroponic organic farm that uses 90% less water and produces three times as much food. It was a business that promised to cure food deserts — areas where access to fresh and healthy food is limited – while having the potential to create jobs for thousands of combat veterans.”
He’s relocated to San Diego to work full-time with the business, called Archi’s Acres. “The process alone has restored meaning and purpose in my life, my health and spirit have taken on a renewed vitality…”
Hear, hear. Better than living out the Peter Finch character from Network in real life.
Yeah, here’s his mad-as-hell-and-not-going-to-take-it-anymore moment for old time’s sake (note the worried faces on the crew in the background!)…
“I wrote the note yesterday,” writes a reader from Greece by way of follow-up, “about why Cyprus isn’t demonstrating — and referred to a population of roughly 700,000.
“You changed this to 1.1 million, but this is inaccurate, as the latter reflects the entire population of Cyprus, which includes both the half under Turkish occupation as well as nonvoting immigrants and illegals, which are irrelevant to the issue… FYI. Maybe it’s closer to 750,000… not a big deal, but just for accuracy’s sake.”
The 5: Duly noted. We struggled to steer clear of the Greek-Turk ethnic divide in Cyprus, but we got sucked in anyway. To wit…
“The writer from Cyprus blaming Germany for their problems reminded me of Washington’s farewell address where he said…
“‘The great rule of conduct for us in regard to foreign nations is in extending our commercial relations, to have with them as little political connection as possible. So far as we have already formed engagements, let them be fulfilled with perfect good faith. Here let us stop. Europe has a set of primary interests, which to us have none, or a very remote relation. Hence, she must be engaged in frequent controversies, the causes of which are essentially foreign to our concerns. Hence, therefore, it must be unwise in us to implicate ourselves by artificial ties in the ordinary vicissitudes of her politics, or the ordinary combinations and collisions of her friendships or enmities.’
“And I’m not Washington, so I would add that Greek Cyprus is the one with the problem here, not Turkey. Ha!”
“My intention,” writes a misunderstood reader from Monday who asked if Cypriots were better off than Americans, “was to show the hidden tax our government levies on us is greater than the 7% tax proposed for the Cypriots. In the original, inflation was mentioned, which was a mistake. It redirected the intent of my comments.
“Simple example: Create two deposits, A & B with $100,000 each to start in 2008.
“Five years later, Deposit A, with a 0.25% APR, would have a total of $101,250, while Deposit B, with an interest rate of 2% APR would have $110,000.
“Subtracting the $7,000 tax from Deposit B leaves a total of $103,000 in the account.
“The government’s zero interest rate policy is a tax on Americans that no one seems to understand. This is not a free market interest rate, and it creates a loss for those who have saved. When someone suffers a loss, another one profits with a gain. Basic economics. Since the average American is taking the loss, who is benefiting from the gain? Anyone who has been invested in the mortgage REITs for the last five years understands how this zero interest rate can provide very large profits.”
“A Cyprus-type levy is completely possible here in the U.S.,” writes our final correspondent. “The U.S. government already seizes bank accounts, which are inactive for three-five years. Also, consider the attempt to nationalize our 401(k)s and IRAs a few years back, led by Nancy Pelosi.
“There is a bill written to proceed with that again. The only thing standing in their way is John Boehner and company. And recall that FDR outlawed gold back in the ’30s. And there is occasional talk of a wealth tax — not much difference.”
The 5: See above for our take on 401(k) confiscation in light of events in Cyprus. Again, the May 2012 Apogee Advisory lays out a plan of action. Access here.
Best regards,
Dave Gonigam
The 5 Min. Forecast
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