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Extreme bear market coming, says Jim Rogers

Jim RogersWhen Jim Rogers talks, investors listen. One of the world’s most famous investors, Rogers is known for his no-nonsense style and investment wisdom. He is the author of several best-selling books, such as “Hot Commodities” and “Street Smarts: Adventures on the Road and in the Markets.” ETF.com recently spoke with Rogers about the latest financial market developments, including why he sees a big downturn taking shape in the next year or two.

 

ETF.com: You recently said you see the worst stock market correction of your lifetime coming next year. What’s going to cause that?

Jim Rogers: I can give you lots of possibilities. These things always start small and with nobody noticing.  For instance, in 2007, Iceland went bankrupt when most people didn’t know there was an Iceland, much less that it could go bankrupt. And then the next thing you knew, Bear Stearns collapsed; and then Lehman Brothers collapsed. Finally, everybody said, “Oh, there’s a problem.”

That happened slowly over a year. That’s probably what’s going to happen this time. It may have already started. There are companies going bankrupt in China. The whole banking system in Latvia collapsed recently.  Who knows what will cause it? I don’t. Rising interest rates, trade wars, real wars— many things could cause it. But it will be gradual. The worst collapse in my lifetime doesn’t happen in a day. It will evolve over a year or two.

ETF.com: Why do you think the next downturn will be so extreme?

Rogers: Historically, we’ve always had economic setbacks and bear markets. In 2008, we had a problem because of too much debt worldwide. Since then, the amount of debt has skyrocketed everywhere in the world. Why would people think the next collapse—whenever it comes—won’t be worse than the last one?  (NORM ‘n’ AL Note: Our emphasis here.)

ETF.com: How much confidence do you have in your forecast?

Rogers: I have enormous confidence. When the bear market comes, it has to be the worst in my lifetime, because the debt is much, much higher than it’s ever been in history.  Plus, there are dramatic changes taking place. Retail shops are liquidating all over the U.S.  Somebody is going to be left holding a very big bag eventually as those stores go out of business. Many pension plans are under water. The state of Illinois, Connecticut and several others are essentially bankrupt now. There are many things that are going to be very, very serious going forward.

ETF.com: How do you think investors should position themselves ahead of the downturn?

Rogers: You should only invest in things that you, yourself, know about. The worst mistake is being invested in something you don’t really know about, because when things start going wrong, you really get whipsawed and get hurt.
If you know a lot about investing, you might sell short, you might buy agriculture, or you might buy some countries that will not suffer so badly. There are ways to get through this.

ETF.com: What agricultural commodities and countries will best weather the storm?

Rogers: I would look at the ones that are the most depressed; something like sugar is probably going to come through OK just because it’s so beaten up. It’s down dramatically, more than 70% from its highs, so something like is probably going to do OK.  Russia will probably be fine, compared to most of the world, in the next bear market. Venezuela will probably do OK, only because it’s been a total disaster. Same thing with Colombia.

ETF.com: It sounds like you’re suggesting the cheapest and most depressed countries are the place to be.

Rogers: Didn’t your mother teach you to buy low and sell high? Yes, that’s what I’m saying.

ETF.com: How do you think traditional safe havens like Treasuries and gold will fare?

Rogers: The Treasury market bottomed in 1981 and has been going up ever since, until the last year or two. In other words, we had a 36-year bull market in Treasuries that’s coming to an end or may have already ended.  I wouldn’t want to put money in U.S. Treasuries, because in the past America has had multidecade bull markets and multidecade bear markets. I suspect we’re now in a multidecade bear market for Treasuries.

ETF.com: Won’t Treasuries rally if the economy and markets enter a big downturn?
Jim Rogers:
Maybe in the short term. I own a lot of U.S. dollars, but not because the U.S. dollar is sound—it’s one of the most flawed currencies in the world. But when times of turmoil come, people look for a safe haven, and many people think the U.S. dollar is a safe haven for historic and comparative reasons.  Nobody’s going to buy the euro or the pound sterling, so the U.S. dollar is probably a place to be for a while.

ETF.com: What about gold? A lot of people run into gold when the market sells off.

Rogers: I own gold, but I haven’t bought any in quite a while. If you look back at previous bear markets, usually gold gets swept up in the bear market. It has a big drop, and then it’s a great buy.  My plan—if I get it right—is when the U.S. dollar goes up and gets overpriced, gold will go down, so I’ll just switch my U.S. dollars into gold.

ETF.com: Do you own any ETFs?

Rogers: I own ETFs, including on China, Vietnam, Korea and Indonesia. ETFs are good for lazy people like me.

By the way, they’re going to make the next bear market worse because since we all own ETFs, we all own the same things—the same shares, bonds, commodities, etc. When we liquidate, the liquidation in those is going to be dramatic and painful.

 

[From an article published by ETF.com]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

 

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Does anybody remember what happened the last time commodity prices crashed like this?

All eyes on the US economy...It isn’t just the price of oil that is collapsing.  The last time commodity prices were this low was during the immediate aftermath of the last financial crisis.  The Bloomberg Commodity Index fell to 110.4571 on Monday – the lowest that it has been since April 2009.  Just like junk bonds, industrial commodities are a very reliable leading indicator.  In other words, prices for industrial commodities usually start to move in a particular direction before the overall economy does.  We witnessed this in the summer of 2008 when a crash in commodity prices preceded the financial crisis in the fall by a couple of months.  And right now, we are witnessing what may be another major collapse in commodity prices.  In recent weeks, the price of copper has declined substantially.  So has the price of iron ore.  So has the price of nickel.  So has the price of aluminum.  You get the idea.  So this isn’t just about oil.  This is a broad-based commodity decline, and if it continues it is really bad news for the U.S. economy.

Of course most Americans would much rather read news stories about Kim Kardashian, but what is happening to the prices of these industrial metals at the moment is actually far more important to their daily lives.  For example, when the price of iron ore goes down that is a strong indication that economic activity is slowing down.  And that is why it is so troubling that the price of iron ore has almost sunk to a five year low.  The following comes from an Australian news source

The price of iron ore has held below $US70 a tonne in overnight trade, leaving its five-year low within reach.

At the end of the latest offshore session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US69.40 a tonne, down 0.4 per cent from its previous close of $US69.70 a tonne and only 2 per cent above the five-year low of $US68 reached a fortnight ago.

This week’s dip back under $US70 a tonne has followed revised forecasts from JPMorgan that suggest the commodity will average just $US67 a tonne next year, about $US20 below the investment bank’s previous expectation.

Copper is probably an even better economic indicator than iron ore is.  Economists commonly refer to it as “Dr. Copper”, and there is a really good reason for that.  Looking back over history, the price of copper often makes a significant move in one direction or the other before the economy does.  And now that the price of copper just hit the lowest level that we have seen since the last financial crash, alarm bells are going off.  The following comes from an article by CNBC contributor Ron Insana

Copper prices are now below $3 a pound and there’s an expression that “the economy is topped with a copper roof.” More simply put, copper tends to top out in price, before it becomes obvious that, in this case, the global economy is about to weaken.

So is the global economy heading for rough waters?

Could 2015 be a very rough year economically?

According to Insana, the signs are all around us…

We already have evidence that the commodity crash has ominous portents for the rest of the world:

* Japan’s recession is deeper than previously thought.

* China’s demand for basic materials, amid a glut of uneconomic construction projects, appears to be plummeting.

* Russia’s ruble has collapsed and the country is on the brink, if not already in, a recession.

* India’s economic recovery is beginning to look shaky.

* Europe’s growth rate and inflation rate, for the next two years, were just revised downward by the European Central Bank, suggesting that Europe’s economic crisis is far from over. In fact, at least one former European leader with whom I recently spoke, believes the crisis in Europe may just be in its early stages.

* Brazil and other emerging market nations are struggling with a variety of issues, from recessions at home, to the rising value of the dollar, which is complicating how emerging markets conduct economic policies at home, given how closely their currencies are tied to the greenback.

In addition, the Baltic Dry Index is now at the lowest point that we have seen at this time of the year since 2008

Simply put, with collapsing commodity prices (iron ore for instance) and massive fleets of credit-driven mal-investment-based vessels, it should surprise no one that the shipping index just plunged back below 1000, now at its lowest for this time of year since 2008. Furthermore, the seasonal bounce always seen in Q3 was among the weakest ever.

What does all of this mean? It is commonly said that those that do not learn from history are doomed to repeat it. So many of the exact same patterns that we witnessed leading up to the financial crash of 2008 are happening again. Unfortunately, very few people saw the last crash coming, and this next crash will take most Americans by surprise as well.

I have written more than 1,200 articles about the economy on my website since 2009, and right now our financial system is more primed for a crash than at any other time since I started The Economic Collapse Blog.

Hopefully we have at least a couple more months of relative stability, but without a doubt 2015 is shaping up to be the most “interesting” year that we have seen in the financial world in a very long time.

All of the signs are there.  But most people choose to believe that everything is going to be okay somehow.  When the next crash comes, those people are going to be absolutely blindsided by it.

When you see storm clouds on the horizon, the logical thing to do is to prepare.  And the number one thing that most people should be working on is an emergency fund.  So don’t be frittering your money away on frivolous things.  In the early stages of this next crisis, you are going to need money to pay the mortgage, to put food on the table and to take care of your family.

Just remember what happened back in 2008.  A lot of middle class families were living on the financial edge every month, and because they didn’t have any cushion to fall back on, millions of those families ended up losing their homes when their jobs disappeared.

You need to have an emergency fund that can cover at least six months of expenses.  You don’t want a job loss or a major emergency to put you into a situation where your family could be put out into the street.

And for those that still have lots of money invested in the stock market – I really hope that you know what you are doing.

The market giveth, and the market taketh away.  And when the market taketh away, the consequences can often be exceedingly cruel.

[by Michael Snyder, writing for The Economic Collapse Blog]

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

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Free-for-all Friday…

One year of global gold production...

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

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You would think the Fed would be smart enough not to sell off America’s gold reserves…

That’s what most of us would think. But we would all be wrong.

Apparently the Fed has no interest in gold. On July 18, 2013, Fed Chairman Ben Bernanke testified to Congress that “nobody really understands gold prices, and I don’t pretend to understand them either.” And when former congressman Ron Paul asked Bernanke why, then, the Fed holds gold, he said it did so only because of “tradition.”

For the Fed, giving away our gold is no big deal.

But we think that’s a mistake of historical proportions.

Throughout history gold has always flown to where wealth was being created… from Athens to Rome to the Byzantine Empire.

Our huge gold holdings in the US after World War II were a clear reflection of our unique economic power.

Just look at what happened to Britain when it started selling off its gold…

The country was on the gold standard for nearly 200 years, from 1717 until 1914. That was a prosperous period for British Empire.

During that time, the country gave birth to the industrial revolution and ruled one fourth of the earth and its people.

The British pound was the reserve currency of the world…and this looked like it would last forever.

But Britain abandoned the gold standard in 1914 to start printing money. And it sold 30% of its gold from 1928 to 1931. That was the beginning of the end for the British pound as the world’s reserve currency.

Pretty soon the country was flat broke.

At one point in 1967 the British currency lost 14% of its value overnight. Inflation got out of control, reaching 27% a few years later.

There were endless strikes in nearly every sector, including grave diggers, trash collectors, and hospital workers. Things got so bad at one point mothers giving birth had to bring their own linens to the hospital.

In short, Britain’s whole economic system and society collapsed.

And now we’re on the cusp of reliving a similar history. We’re about to learn – the hard way – what the British discovered:

Empires Don’t Last Forever

If the U.S. still was a manufacturing superpower… if we still had one of the fastest growing economies… if we still had a thriving middle class, we’d be fine.

If our country was in great financial shape, having no gold reserves wouldn’t be a problem.

But we all know that’s not the case today.

Back in 1980, the U.S. national debt was less than $1 trillion. Today, it’s more than $17 trillion, which is the greatest debt in the history of the world.

And this doesn’t even account for our unfunded liabilities, which our government keeps off the federal balance sheet. But Laurence Kotlikoff, a well-known Boston University economist, has estimated our total debt. Here’s what he told me recently: “I estimate the US fiscal gap at US$200 trillion. The US is arguably in worse fiscal shape than any other developed country. Six decades of “take as you go” has led us to a cliff. This is effectively a nuclear economic bomb. Our country is broke. It’s not broke in 50 years or 30 years or 10 years. It’s broke today.”

Even a report from the nonpartisan Congressional Budget Office has used such language as “unsustainable” and “train wreck” to describe the future of America’s finances.

So our country is not exactly a fortress of financial health. Far from it. For all practical purposes, the country’s only true collateral is its gold reserves.

But most of that is now gone.

And once the world discovers the truth about the Fort Knox fairytale…once it realizes our gold is gone and all we have to show for are trillions of debt that can never be repaid…

Trust in U.S. bonds and the dollar will be shattered in an instant, catching millions of Americans unprepared.

After that, our American psyche will never be the same again. Our nation will no longer be the world’s financial and economic powerhouse.

Because, whether you realize it or not, the “the full faith and credit” of our government is really the only thing backing the dollars in your wallet. Without trust, the dollar is worthless.

Most Americans don’t know this, but our paper dollars used to be freely convertible into gold coins. Take a look at this $20 dollar bill from 1905:

Its inscription reads: “This certifies that there have been deposited in the Treasury of The United States of America twenty dollars in gold coin payable to the bearer on demand.”

In and of itself, the paper money had no more value than any other piece of paper. It was the fact that this piece of paper could be converted directly into gold coins that gave confidence to our paper currency.

Of course, that’s no longer the case.

Pull any dollar bill from your wallet and take a closer look at it. Today’s Federal Reserve Notes are not backed by any real asset, and they omit any promise that they’re redeemable for anything.

Before 1971, at least the dollar was backed by gold. But since then, our entire monetary system has been based on nothing but trust.

The bottom line is this: If the “full faith and credit” of the US government is not to be trusted, then our currency will not be trusted, either. Not by other countries, and not by US citizens.

Sadly, that’s exactly what is about to happen.

Once that trust is lost, we will have nothing to fall back on. Demand for the U.S. dollar will fall off a cliff, driving the value of our currency much lower.

Remember, over the last three decades we’ve printed and exported a lot of dollars. It’s estimated that $3.7 trillion are held outside the U.S.

As trust in the dollar disappears around the globe, all the currency we’ve exported will race back into the country. The increased supply of money will bid up prices seemingly overnight.

Everything we consume will get much more expensive… all the gadgets, shoes and shirts we import from China… all the beer, wine and furniture we import from Europe…. and all the coffee, fruits and vegetables we buy from South America.

We can say goodbye to “everyday low prices.” We will no longer be able to find cheap electronics, toys and food in the shelves of Wal-Mart or any other retailer.

Oil will shoot toward $300 a barrel, pushing the price of gasoline towards $9.50 per gallon…things like corn, wheat, milk will skyrocket.

The standard of living of millions of people will collapse almost overnight… pension funds will be devalued, ruining the retirement plans of millions of Americans…global markets will plunge, as investors bail out of stocks.

Interest rates across the board will rise dramatically. Mortgage rates will climb up to 10%, killing the recovery in the housing market.

Higher borrowing costs will also kill consumer demand, sending our economy into a deep recession, much worse than the “great recession” of 2008.

With consumers spending less, businesses will be forced to initiate a cycle of massive layoffs. The unemployment rate will double- or worse.

Because of higher borrowing costs, our government will have to print even more money just to meet its obligations. This will only accelerate the run on the dollar.

And when all is said and done, when the shakeout finally settles, the global financial system will no longer be centered on the United States.

That change is happening now. Trust in the U.S. is waning fast.

Many nations have already started to abandon U.S. bonds. Take a look…

This past June, our two biggest creditors, China and Japan, dumped nearly $41 billion of their Treasury holdings. That was the largest net foreign decline on record.

They’re losing trust in America’s ability to manage its finances. For them, U.S. bonds are no longer risk-free assets.

In recent years, even companies such as Berkshire Hathaway, Proctor and Gamble and Johnson & Johnson have been able to borrow money at a lower interest rate than the U.S. government.

In other words, investors feel more confident lending money to certain companies than to our government. That has never happened before…. never.

Lenders have also started demanding a higher interest rate on American debt. This is another indication that our creditors are losing faith in our government. Take a look at this chart. Our borrowing costs have skyrocketed in recent months.

The yield on the U.S. Treasury benchmark bond – the 10-year note – went from 1.65% to almost 3%,one of the largest jumps in the history of our nation.

A few months ago investors were willing to lend money to our government for almost nothing.

But today nobody is willing to lend us money at such a low interest rate. Now our creditors are demanding a rate of almost 3%.

The recent debt ceiling debate, meanwhile, has tarnished our credibility even more. Following that debacle, a leading Chinese rating agency downgraded our debt, saying:

“The U.S. government maintains its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal government’s solvency. Hence the government is still approaching the verge of default crisis.”

Besides dumping U.S. bonds, other nations are also actively reducing their exposure to the U.S. dollar in other ways.

Many countries have made agreements that allow them to settle their trades in their own currencies, cutting the dollar out of the transaction completely. China, for example, has signed international currency agreements with 22 countries worldwide.

Because of these agreements, 17% of global trade in 2012 was completed using the Chinese currency, instead of the dollar.

Over the past couple of years, numerous global leaders have publicly criticized our currency. Chinese central bank governor Zhou Xiaochuan, for example, said the world needs “a sweeping overhaul of global finance to replace the dollar as the world’s standard.” And during our recent debt ceiling debate, China’s state-run news agency issued perhaps its most dire warning to date on the subject:

“As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.”

Russian leader Putin, meanwhile, has said that “the world has gotten itself into trouble with its heavy reliance on the dollar.” While members of OPEC have repeatedly raised the idea that “maybe we can price oil in euros.”

The UK’s newspaper The Telegraph recently published the following article: (SHOW Headline and highlighted sections) “The Sun is Setting on Dollar Supremacy, and with it, American Power”

The article pointedly concludes that:

“Rarely before has international dissatisfaction with the dollar’s role as reserve currency to the world been as great as it is now. A steady erosion of trust which began with the financial crisis five years ago has reached apparent breaking point. The search for long-term alternatives to the dollar is on as never before.”

As you can see, confidence in America’s fiscal state and the dollar is already eroding very quickly. It wouldn’t take much to flush the “full faith and credit” of the U.S. down the toilet.

And that’s exactly what the Fed’s big gold cover up will do.

NORM ‘n’ AL Note: This article makes the point that we will likely see the “big flush” begin in this month of April, 2014.

[From an article published by THE SOVEREIGN SOCIETY]

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

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