Economics Is Hard?

Market Ticker – Karl Denninger
View original article
June 28, 2010 07:09 AM

An amusing piece of mental masturbation from Richmond Fed Economist Kartik Athreya has been making the rounds….
In this essay, I argue that neither non-economist bloggers, nor economists who portray economics — especially macroeconomic policy — as a simple enterprise with clear conclusions, are likely to contibute(sic) any insight to discussion of economics and, as a result, should be ignored by an open-minded lay public.

Yes, he really got the spelling error past whatever review this paper received.  That would be none, right?

One wonders if the “or”, however, is what he intended.  After all, if you can’t spell, can you properly construct grammar to make your point clear?
In the wake of the recent financial crisis, bloggers seem unable to resist commentating routinely about economic events. It may always have been thus, but in recent times, the manifold dimensions of the financial crisis and associated recession have given fillip to something bigger than a cottage industry.

Really?  You mean as opposed to pieces like Bernanke’s “Making sure ‘it’ doesn’t happen here”?

Well, dear Mr. Athreya, it has happened here:

That’s credit contraction.  That’s the “it” Bernanke was talking about.

In terms of houses, we’ve suffered a fairly-severe deflation.  Of course there’s another way to look at it too, which is that under Greenspan and Bernanke we have spent more than 20 year in what amounts to a credit-led hyperinflation, fostered and intentionally caused by these two gentlemen, and thus we are “merely” deflating that which they inflated.

Nonetheless, Bernanke’s “Magnum Opus” argues that this outcome can be prevented, and many have rested comfortably believing him, in no small part, I’m sure due to the little three letters “PiledHigher and Deeper”, after his name.

It concerns me greatly that the author spends this digital ink blasting away yet didn’t read his own paper before he published it, for if he had, the light would have gone on.

Specifically:
The main problem is that economics, and certainly macroeconomics is not, by any reasonable measure, simple. Macroeconomics is most narrowly concerned with the tracing of individual actions into aggregate outcomes, and most fatally attractive to bloggers: vice versa. What makes macroeconomics very complicated is that economic actors… act. Firms think about how to make profits, households think about how to budget their resources. And both sets of actors forecast. They must. One has to take a view on one’s future income, health, and familial obligations to think about what to set aside for retirement, how much life insurance to buy, and so on. Of course, all parties may be terrible at forecasting, that’s certainly a possibility, but that’s not the issue. Even if one wanted to think of all economic actors as foolish and purposeless organisms making utterly random choices, one must accept that their decisions will still affect, and be affected by what others do. The finitude of resources ensures this “accounting” reality.

Well, well, well.

Read that last sentence again.  And again.  And again.

Bang yourself over the head with it until you “get it”, because that is the very point I’ve been trying to drill into your f$#king head for the last three years you jackasses at The Federal Reserve – and Congress!

It is indeed that fact that leads to my simple-sounding reply to such arguments about this or that in the context of economics: The math is never wrong.

Indeed, you can try to cheat, you can try to scam, you can try all sorts of games.  But in the end there is a totality of resource available – a totality of wealth production, or actual output, that can be distributed around the economy.

You would think that a degreed “economist” would look at the following graph and instantly “get it”:

There’s nothing complicated in that graph.  It points out in clear pictorial form that until the late 1970s as a nation we primarily used credit for purposes that ultimately boosted output – that is, GDP. 

We bought factories, milling machines, lathes, forges and similar instruments on credit.  We used it a means to finance things that provided more output over their useful life than their amortized cost.  That is, of the three types of credit use, the primary driving use was productive investment.

In the late 1970s this changed.  Credit became a means to consume a hamburger today and pay for it tomorrow – not buy a grill and charcoal with which to cook hamburgers for sale.  Worse, it turned into an instrument to leverage speculation, with no productive impact whatsoever in the economy, other than the ability to spend the winning bets.

But for each winning bet in such an endeavor there was a losing bet, and as such consumption of these “winnings” was not an actual addition to the economy at all.  That is, said consumption came at the expense of the loser.
Examples of this approach done right in the context of some of the topics mentioned above are recent papers by Robert Lucas of the University of Chicago, Jonathan Heathcote of the Minneapolis Fed, or Dirk Kreuger and his co-authors. Comparing, even momentarily, such careful work with its explicit, careful reasoning, its ever-mindful approach to the accounting for feedback effects, and its transparent reproducibility, with the sophomoric musings of auto-didact or non-didact bloggers or writers is instructive. For those who want to really know what the best that economics has to offer is, you must look here. And this will be hard.

Really?

How many of those papers (and yes, I’ve read a good number of them) account for the outrageously insane activity of The Fed and other actors in the regulatory and government sector in fostering and promulgating the current credit environment?

How many account for The finitude of resources ensures this “accounting” reality?

Zero, in my experience.

I have yet to see any of the “research papers” deal with the role of credit expansion for the purpose of consumption of speculation, and the corrosive effect that such an environment has on the macroeconomic welfare of a nation – or the world.  I have yet to see any of these authors opine that the monetary resources are in fact finite, and that playing Wimpy has a natural conclusion: bankruptcy.

It cannot be otherwise, incidentally, so long as credit is used for those purposes.  Credit used for consumption does nothing more than shift the time of said consumption (that is, it pulls forward demand) while credit used for speculation provides no economic benefit at all and is in fact corrosive to the economy because the “wealth” the winner accumulates comes at the direct expense of the loser. 

It cannot be otherwise as the actual resource is, as noted, finite.
Naifs write books, and sell many of them too.

Naifs?

It seems to me that the “naive and inexperienced” would be those who believe that the laws of thermodynamics and mathematics do not apply to macro economics, and refuse to validate their claimed works against those principles.

Indeed, the entire premise of much modern economic theory is nothing other than a claim of perpetual motion – an outright fraud that is well-recognized in the world of physical science.
So far, I’ve claimed something a bit obnoxious-sounding: that writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy.

Ah, now we get down to it.  Those who do not agree with the orthodoxy of so-called “economists” are unqualified because, well, they just are.

Yet as I’ve noted the primary problem with most “mainstream” economic thought these days, including at the doctorate level, is that they put forward very complicated nonsense that fails to honor the basic mathematical fact that both sides of an equation must balance and that all dynamic systems in the real world suffer loss – that is, whatever you put in you will receive less, in total, back out.

This is the premise of thermodynamics – that there is no such thing as a free lunch.  You cannot in fact break even, say much less win.  Yet mainstream economics continues to espouse that one can look at macro economics through a lens where credit expansion can continue forever at rates that exceed that of productive output, that mean reversion need never occur and that through manipulation of various aspects of the economy one can prevent or mitigate recession.

This is a mathematical impossibility.

As soon as you allow lending of capital at interest you have produced a dynamically unstable system.  This is trivially easy to prove, as nobody will intentionally lend at a loss.  That is, on balance all persons who lend capital will only do so at a rate of interest that exceeds the growth rate in the economy.

The fact that both growth and interest are compound functions means that it is inevitable that the service of that debt will outstrip the ability to pay for it via production. 

This is a fundamental mathematical fact that cannot be avoided.

Recessions serve an essential purpose in all such economies in that they bankrupt both lenders and borrowers.  In doing so they extinguish the excessive debt at the margins – that is, the weakest actors in the economy (both as creditors and debtors) go bankrupt.

That the macro economic environment is operating properly is evidenced by a reasonably-stable debt-to-gdp ratio.  We had that during the 1950s to late 1970s.  Recessions were frequent but allowed to occur.

It was the very idiocy of the so-called “economic elite” that led us down the path we now walk.  The belief that recessions could be “managed.”  The belief that credit expansion could continue indefinitely in violation of the laws of mathematics.  The belief that macro economic “policy” could be willfully shaped to violate what amounts to laws of physics.

This willful and intentional blindness has come from so-called “elite” economists with plenty of letters after their names.  I find it outrageous and indeed insulting that any so-called “professor” or “professional economist” can present an economic theory to the public, or any paper bearing thereupon, that fails to conform to the fundamental laws of mathematics – that is, the fact that two exponential functions, where one exponent is larger than the other, will always run away from each other.

Any such “theorem” is inherently a Ponzi Scheme.  It relies on geometrically increasing numbers of participants to continue, which is, in a finite world with finite land mass and resources, mathematically impossible.

It is true that there are “bloggers” and even “economists” (Krugman anyone?) who post bombastic piles of dog squeeze.  But then again, so do most so-called “articles” in the so-called “academic press”, when it comes to matters economic.

I propose a seminal test for all such papers: Those that fail to account for the fundamental principles of mathematics, including the law of exponents and the fundamental principles of thermodynamics as applied to the economic field – that is, that all process involves loss and there is no such thing as a free lunch or even managing to break even, must be discarded.

Under this standard Bernanke’s famous “printing press” speech, not to mention virtually all “modern” economic work I have seen, must be judged infirm and discarded.

US Jobs Aren’t Coming Back… Rand Paul’s Anti-Libertarian Fence

US Jobs Aren’t Coming Back

Saturday, June 26, 2010 by Staff Report

Joe Biden

Biden: We Can’t Recover All the Jobs Lost … Vice President Joe Biden (left) gave a stark assessment of the economy today, telling an audience of supporters, “there’s no possibility to restore 8 million jobs lost in the Great Recession.” Appearing at a fundraiser with Sen. Russ Feingold (D-Wisc.) in Milwaukee, the vice president remarked that by the time he and President Obama took office in 2008, the gross domestic product had shrunk and hundreds of thousands of jobs had been lost. “We inherited a godawful mess,” he said, adding there was “no way to regenerate $3 trillion that was lost. Not misplaced, lost.” AP

Dominant Social Theme: They may not be able to replace every single job but they’re trying.

Free-Market Analysis: One of the hoariest dominant social themes or sub themes promoted by the power elite is that government can create jobs. It is possibly a sub theme because the dominant theme is simply that “government can do it all.” In fact, the only things government can do with any modicum of efficiency are collect taxes, inflate currency and pass laws that usually have the opposite effect from what is intended. Of course this doesn’t stop government pols from claiming they can create jobs when the economy becomes troubled and needs help. Here’s some more from the article:

Claims for jobless benefits fell by the largest number in two months last week, but were still high enough to signal weak job growth. Meanwhile, the Senate on Thursday failed to pass an extension of unemployment benefits. Biden said today the economy is improving and noted that in the past four quarters, there has been 4 percent growth in the economy. Over the last five months, more than 500,000 private sector jobs were created. “We know that’s not enough,” the vice president said.

Last week the White House put out a Recovery and Reinvestment Act update claiming that between 2.2 million and 2.8 million jobs were either saved or created because of the stimulus as of March 2010. In signing the Recovery Act into law on Feb 17, 2009, Mr. Obama said the measure “will create or save 3- and-a-half million jobs over the next two years.”

Peer behind the numbers claimed by the Obama administration and the questions multiply, as was pointed out in a recent Wall Street Journal article, “The Media Fall for Phony Jobs Claims.” The article explained that one way the Obama administration had been able to make extravagant claims about jobs was by using the “saved or created.” The US president used this phrase recently in announcing that the administration, via certain stimulus spending, had saved or created 150,000 American jobs. Obama then claimed that further job-savings programs were in the works to save another 600,000 jobs, but these numbers still pale against promises to save up to four million jobs that were made previously.

Of course, using such vague language makes it impossible to do any substantive fact-checking of claims. And there are no government or even private bureaus that track such statistics apparently. How is it possible to know whether a job has been “saved” or not? The claims are gobbledygook but the administration gets away with it because it has the bully pulpit and the media repeat the claims. Here’s some more from the Journal:

If the “saved or created” formula looks brilliant, it’s only because Mr. Obama and his team are not being called on their claims. And don’t expect much to change. So long as the news continues to repeat the administration’s line that the stimulus has already “saved or created” 150,000 jobs over a time period when the U.S. economy suffered an overall job loss 10 times that number, the White House would be insane to give up a formula that allows them to spin job losses into jobs saved.

The real reason for the downturn and loss of jobs have little to do with the Bush administration or even with the current cyclical downturn. It has everything to do with the constant inflationary measures of the mercantilist Federal Reserve and the company-killing graduated income tax that has sent companies large and small away from American shores. The combination of endless asset inflation and punitive taxation has been hollowing out America for at least a century if not longer. Regulatory “free-trade” agreements that are nothing but “managed trade” don’t help either.

The American political regime of the past century has truly begun to bankrupt America. The country has lost vast amounts of manufacturing capability and even the chattering classes today speak of America’s “service” economy as if this in some sense can compensate for the loss of the vital entrepreneurialism that builds the wealth of nations and individuals. Meanwhile, America’s infrastructure degrades, its cities crumble, its vital middle class shrinks and companies that were founded there move offshore to grow.

Conclusion: The reasons for this ruin are clearly evident in the fiscal and monetary policies that the US has adopted over the past 100 years. To claim in any way that the Federal government is able to “save or create” jobs is truly a misleading statement given the policies that the US Federal government implemented in the 20th century. These policies in fact were supported by the larger Anglo-American power elite that has been trying to tear down the American republic since its inception in order to create a seamless US/European governmental authority. The idea that those who create fundamental policy for the US Federal government actually care about American workers, either blue collar or white collar, or want to see them succeed is a promotion, not a credible reality.

Rand Paul’s Anti-Libertarian Fence

Saturday, June 26, 2010 by Staff Report

Rand Paul

Rand Paul (left) Electric Border Fence Baffles Cornyn, Libertarians … Republican Senatorial candidate Rand Paul wants to build a fence along the U.S.-Mexico border. It’s a rather ho-hum proposition in the larger context of conservative ideas — except that Paul wants that fence to be electric and he wants it built underground. Among the variety of proposals to stem illegal immigration along the southern border, the construction of an underground electrical fence appears to stand alone on the extreme. There is little contemporary evidence of other Republican officials proposing such a project, even among the most conservative of the bunch. Indeed, when approached in the halls of Senate several weeks ago and asked about the idea (though not told who proposed it), National Republican Senate Committee Chair John Cornyn (R-Tex.) assumed it was a joke. “I have not heard that,” the Texas Republican said. “Underground? What would happen? How would that work?” Huffington Post

Dominant Social Theme: Keep track of those migrants any way you can.

Free-Market Analysis: We have written about Rand Paul in the past expressing some hesitation about the race he is running. We wondered if he would have done better to use his hard-fought platform as a bully pulpit to educate the public about free-market themes instead of apparently compromising and muddying his message. But Rand Paul is not a libertarian (he says) and as can be seen from the excerpt below (which we have quoted before), he positions himself as a Constitutional Conservative, whatever that is.

“His [Rand Paul’s] success so far has the GOP establishment fighting back. In his ads, Grayson is attempting to paint Paul as a kook whose beliefs are outside the mainstream. Which may explain why on several issues, Paul is edging toward the center. Pure libertarians, he says, believe the market should dictate policy on nearly everything from the environment to health care. Paul has lately said he would not leave abortion to the states, he doesn’t believe in legalizing drugs like marijuana and cocaine, he’d support federal drug laws, he’d vote to support Kentucky’s coal interests and he’d be tough on national security. “They thought all along that they could call me a libertarian and hang that label around my neck like an albatross, but I’m not a libertarian,” Paul says between Lasik surgeries at his medical office, where his campaign is headquartered, with a few desks crammed between treatment rooms. “Frankly, I’d rather be coming from the right than from the left like Grayson, who not too long ago was a Democrat and Bill Clinton supporter.” (Grayson voted for Clinton in 1992 before switching parties and entering politics in the mid-1990s.) Time Magazine

Let’s see. Rand Paul is positive about the drug war and about “national security” which means in some sense he supports America’s many, serial overseas adventures. He believes the label libertarian is an “albatross” which presumably surprised his father who ran for US president on the libertarian ticket. Now, Rand Paul has come up with the idea of an electrified underground fence along the border between Mexico and the US and sending out helicopters to arrest migrants when they pass over the fence and trip the detectors.

While this may be seen as a bit of a loony idea to begin with (what happens when a coyote walks across the border?), the problem we have with it is the same one we had when we heard about Rand Paul’s other positions. They seem like variants on the larger Anglo-American imperium. From our point of view given what we understand of his father we expected Rand Paul to run a race that would be both competitive and educational. He has succeeded with the competitive part, but unlike his father we fear he is sacrificing the educational element.

Actually, Rand Paul’s positions lead us even to wonder exactly what is he in the race for. Does he really want or need to be in politics so badly that he is willing to stuff himself into a rhetorical, anti-libertarian straight-jacket. The positions he is taking, including this latest one having to do with an electrified, underground fence, seem to us to be less libertarian, less constitutional, and less conservative than they are NEO-conservative.

The late, great Austrian economist Murray Rothbard was a close friend of Rand Paul’s father, Congressman Ron Paul (R-Tex). Rothbard, like Paul, abhorred America’s myriad overseas adventures and was no fan of the “drug war.” We don’t think Ron Paul is much of a drug-war fan either, but we know for a fact that Ron Paul treated his presidential campaigns (both of them) as educational endeavors. He didn’t think he would win, but he hoped to bring some new ideas to the national table that he shared with Rothbard and other free-market thinkers.

One of the most extraordinary parts of Ron Paul’s Republican presidential campaign was the effective way he pointed out that America’s foreign ventures were not predetermined or necessary affairs. This had an extraordinary effect on the American psyche, not right away but as time passed Paul’s message percolated. Today, both the Iraq and Afghanistan wars are under attack in America as they rightly should be. They have contributed nothing to America’s fundamental security but have certainly raised additional enemies abroad and contributed to the erection of a police state domestically.

Ron Paul went on to build an influential national liberty community supported by donations of those who believe in his rhetoric and are willing to put time and money behind the free-market and libertarian causes that he espouses. If one wants to leave a safer and more orderly civil society for one’s children, this would seem to make sense to us. Ron Paul’s defeats at the ballot box only led to a bigger political program and more influence than he might ever have dreamed of.

But if one runs on a platform that is both pro-war and pro-drug war, it doesn’t seem to us that very much is left of a bully pulpit from a free-market standpoint (assuming that was what Rand Paul was originally after). Rand Paul is doing what he needs to do to win an election but in the process he may be switching off a vast constituency of quasi-libertarians types (growing all the time) who would have given him truly national support. Of course, it is entirely possible that Rand Paul believes in the various positions he espouses; in fact it would be cynical to impute anything else. But that makes his run all the odder as, given the nature of many of his positions, he sounds in a sense no different than a lot of other conservative Republicans.

The idea of running an electrified fence across the border between Mexico and the US may or may not be a kooky idea. But it is one more statist solution of the type we would expect to come from the right wing of the Republican party, not from a libertarian-oriented campaign or even a “constitutionalist-conservative” one. We would much rather have heard Rand Paul discuss how government welfare programs and government control of “public” lands encourages migrants to come to the US and abuse a system of generous public benefits. It is the welfare state itself and public ownership that facilitate illegal immigration. Not only that, but it is very obvious that brain-trusts within both the Republican and Democrat parties seek a closer merger with Mexico and surreptitiously encourage the very migrations they claim to oppose.

Rand Paul could have brought up all these issues. Presumably as a Constitutional Conservative he believes in some of them. Instead, he has made an issue of an electrified fence which sounds as if he means to electrocute Mexican people as they try to cross the border. Obviously Rand Paul was trying to present a “practical” solution to an intractable problem. But from our point of view, this is a good example of how politics as usual playing to win only debases the debate and further confuses political positions. Now, no doubt, many who oppose a libertarian or constitutional agenda will claim falsely that proponents of such agendas have suggested the forced electrocution of Mexicans.

Conclusion: We fear that it may be too late for Rand Paul to build directly on his father’s constituency. Many who support his father may by this point be less enthused about the son. In this sense, we write with a good deal of sorrow, that it may be a missed opportunity for both Pauls. Over the past two years, since losing his presidential run, Ron Paul has built a national freedom movement comprising thousands of committed individuals young and old that is gaining in influence and support every day. The son may win the election and lose a legacy.

Investor Alert – June 25, 2010

Index Summary

The major market indices were lower this week. The Dow Jones Industrial Index lost 2.94 percent. The S&P 500 Stock Index decreased 3.65 percent, while the Nasdaq Composite finished 3.74 percent lower.
Barra Growth underperformed Barra Value as Barra Value finished 3.62 percent lower while Barra Growth fell 3.67 percent. The Russell 2000 closed the week with a loss of 3.27 percent.
The Hang Seng Composite finished higher by 1.59 percent; Taiwan was down 0.25 percent and the Kospi gained 1.05 percent.
The 10-year Treasury bond yield closed at 3.11 percent, down 11 basis points for the week.
All American Equity Fund – GBTFX • Holmes Growth Fund – ACBGX • Global MegaTrends Fund – MEGAX

Domestic Equity Market

All 10 sectors of the S&P 500 index declined this week (chart below). The best-performing sector was financials, down 1.5 percent. Other better-performing sectors included health care and telecom services. The three worst-performing sectors were energy, consumer discretion and technology.
Within the financials sector, the best-performing stock was Moody’s Corp, up 4.3 percent. Other top performers in the sector were First Horizon National Corp., Discover Financial Services, Berkshire Hathaway Inc. and Capital One Financial Corp.

Strengths

The oil & gas refining & marketing group was the top-performing group for the week, up 4 percent. Government data this week showed a drop in gasoline inventories, and the travel group AAA forecast that U.S. auto travel over the July 4 holiday weekend will likely rise 18 percent. Both factors helped lift expectations that demand for gasoline will keep prices up.
The human resources & employment services group rose 2 percent. A major brokerage firm upgraded Robert Half International Inc. to “outperform” and raised its target price on the stock.
The biotechnology group gained 1 percent. Genzyme Corp. entered into an agreement to repurchase $1 billion of its common stock.
Weaknesses

The motorcycle manufacturing group was the worst performer, losing 9 percent, led down by its single member, Harley-Davidson Inc. A major brokerage firm reiterated its “sell” rating on the stock, saying its research showed that new bike demand appeared to have decelerated in May.
Seven of the 10 worst-performing groups were in the consumer discretion sector (motorcycle manufacturing, specialty stores, photographic products, department stores, home furnishings, education services and hotels). It appears that investors have become more concerned about a slowdown in the pace of economic growth and consumer spending.
The retail drug group underperformed, dropping 8 percent. Walgreen Corp. reported earnings below the consensus estimate, in part due to higher-than-expected expenses.
Opportunities

There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high, thereby providing the means to pursue acquisitions.
Threats

Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
As governments around the world begin to wind down the monetary and fiscal stimulus programs put in place during the economic crisis, a headwind for stocks will likely be created.
June 24, 2010

Steel Supports Recovery

June 23, 2010

Chart of the Week Chinese Wages

June 22, 2010

An Expert’s View on Yuan Appreciation

U.S. Government Securities Savings Fund – UGSXX • U.S. Treasury Securities Cash Fund – USTXX
Near-Term Tax Free Fund – NEARX • Tax Free Fund – USUTX

The Economy and Bond Market

Treasury bonds rallied this week, sending yields lower by about 10 basis points across much of the Treasury yield curve. Weak housing data and growing concerns over the global economic impact of austerity measures were the primary drivers. The Federal Reserve met this week and met expectations by signaling no change in monetary policy.

New homes sales dropped nearly 33 percent in May to 300,000 units, less than a quarter of their level in May 2005 and the lowest level since records began in 1963. Expiration of the homebuyer tax credit apparently pulled demand forward and the market is suffering without that support.

Strengths

China relaxed the yuan’s peg to the dollar, essentially allowing it to appreciate. While this is effectively a tightening step for China, it is viewed as a better alternative than raising interest rates. The timing was also favorable from a political standpoint, as the G-20 meeting of large economies is being held this weekend in Toronto. Many nations participating in the meeting have urged China to allow appreciation.
Global steel output rose 29 percent in May and now stands 10 percent higher than May 2007, before the global economic crisis.
The University of Michigan Consumer Confidence Index rose to the highest level since January 2008.
Weaknesses

May new home sales hit a record low and existing home sales also disappointed, falling 2.2 percent in the month. Housing is not providing any basis for the economic rebound.
Austerity measures are all the rage around the world, including the United Kingdom, Germany and Japan. The measures proposed are often aggressive cost cutting or tax increases that threaten the near-term economic recovery.
Durable goods in May declined 1.1 percent, better than expected but still down sharply.
Opportunities

Inflation is unlikely to be a problem for some time and this gives central bankers and other policymakers around the world room for expansive policies.
Threats

The risk of austerity measures going too far and significantly diminishing economic growth is real.
Concerns about a full-blown credit crisis have probably diminished, but still cannot be ruled out.
World Precious Minerals Fund – UNWPX • Gold and Precious Metals Fund – USERX

Gold Market

For the week, spot gold closed at $1,255.60 per ounce, down $1.20, or 0.10 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index, shed 0.27 percent. The U.S. Trade-Weighted Dollar Index fell 0.46 percent.

Strengths

After a rocky start for gold this week, due to China’s intention to let its currency appreciate, bullion came close to eclipsing its all-time high by Friday close. Spreads on Greek credit default swaps are now higher than before Europe announced its massive plan to restore credibility to the euro.
Saudi Arabia moved up to become the 16th largest country in terms of gold reserves with 322.9 metric tons. This amount held in Saudi Arabia’s central bank more than doubled previous estimates.
China’s largest gold producer, China National Gold (a private company), will purchase and process gold concentrates under a long-term contract from the Kensington Mine in Alaska. China offered payment for the gold within seven days of delivery versus the traditional three-month delay used by many smelters. This provides an innovative source for China to increase its gold holdings by not going out to the open market to directly acquire gold.
Weaknesses

Indian gold demand dipped by more than 50 percent from April to May as strong gold prices due to eurozone problems put some buyers on the sidelines.
Australia and China signed more than $8.8 billion worth of commercial and mining deals. This is a sign that Australia’s proposed mining tax has not deterred China, Australia’s largest export market.
What is bad for the major publicly listed mining companies is an opportunity for the Chinese government to establish more direct ties to the source of the minerals they need versus competing to buy them in the public markets.
Opportunities

Over the last 10 years, gold and gold-mining stocks have been a good investment. For the first five years of this period, the gold-mining equity indexes outperformed the gold price due to expanding profit margins. In the last five years, gold has outperformed the gold-mining indexes as margins were compressed by rising costs from fuel, steel, reagents and labor. With gold prices significantly above the all-in marginal cost of production, we are now likely to see the gold miners outperform bullion.
All but two U.S. states will have budget deficits this year, with the combined shortfall likely exceeding $300 billion. That would far surpass Greece’s expected 2010 budget shortfall of $28 billion. As financial problems persist, gold’s safe haven attributes look more attractive.
A recent Gluskin Sheff report by David Rosenberg, Chief Economist & Strategist, highlights the impact of bear markets over the past 125 years. Looking at the Dow Jones Industrial Average (and adjusting for inflation), the average bear market of 16 years pretty much wipes out gains from the previous bull market. Assuming 2 percent inflation and that the current bear market ends in 2016, Rosenberg says, the Dow could trough at 5,000. At that point, he predicts, gold would likely be $5000 per ounce. The last time gold had a major run (1970 to 1980), the S&P 500 delivered an average annual real return of 0.8 percent for the decade, while the Toronto Gold & Precious Minerals Index, in U.S. dollar terms, compounded at a real return 25.1 percent per year.
Threats

The Guatemalan government asked a large Canadian-based mining company to suspend operations temporarily while the government addresses accusations of human rights claims made by an activist group. The company has not complied with the request.
A gold miner in Mexico facing labor problems at one of its mines fired all 400 miners for going on an illegal strike. Management may find it difficult to re-establish good relations with the community.
Australia’s new prime minister, Julia Gillard, has not moved away from her predecessor’s plans to introduce a super profits mining tax. Gillard did, however, emphasize that she wants to make sure Australians get a fair share of the mineral wealth.

Global Resources Fund – PSPFX • Global MegaTrends Fund – MEGAX

Energy and Natural Resources Market

Strengths

Global crude steel output jumped 30 percent in the first five months of the year to 586 million metric tons, the World Steel Association said.
According to the World Gold Council, the Saudi Arabian central bank’s gold holdings climbed to 323 metric tons, more than double the 143 metric tons reported in March.
China increased coal imports by 17 percent year over year in May because of a rebound in the economy. Coal purchases rose to 11 million metric tons in May, according to data released by the General Administration of Customs. China paid an average $109 a ton for delivered coal in May, about 11 percent higher than in the previous month.
Weaknesses

Platts reports that hot-rolled coil steel prices in the U.S. declined by $12.50 per ton to $645 per ton, down 6.5 percent over the last month.
The Baltic Dry Index, a key indicator of future international trade activity and the U.S. economy, closed at 2,502 on Thursday, down 7 percent from the prior week and more than 40 percent since the end of May.
Spot hard coking coal prices in Australia fell $2.00 per metric ton to $203, according to Platts. Prices are down 6 percent over the last month and down 14 percent over the last two months.
Opportunities

Petrobras announced it will boost its five-year capital spending plans for oil and gas projects by 14 percent to $224 billion.
Physical ETFs may become increasingly important in to base metals, with an aluminum ETF likely to come to market this year.
According to a draft government document obtained by Chinese media, China aims to shut down as many as 7,000 small coal miners by 2015.
China’s natural gas consumption is expected to account for 8 percent of total energy consumption in the country during the 2010-15 period, compared with the current 4 percent, according to the National Energy Bureau.
Threats

The tropical wave over the western Caribbean Sea could develop into a tropical depression over the next couple of days as it moves toward the Gulf of Mexico, the U.S. National Hurricane Center and other weather forecasters predicted.
India’s food price index rose 17 percent in the year to June 12, while the fuel price index climbed 13 percent, according to government data.

China Region Opportunity Fund – USCOX • Eastern European Fund – EUROX
Global Emerging Markets Fund – GEMFX

Emerging Markets

Strengths

China unpegged its currency from the U.S. dollar one week ahead of the June 26-27 G-20 meeting in Toronto in order to reintroduce more flexibility to the exchange rate after a two-year moratorium. The yuan strengthened by more than 0.5 percent against the U.S. dollar this week.
Moody’s Investors Service raised the outlook on Indonesia’s local and foreign currency sovereign ratings to “positive” from “stable,” saying it expects the country to post sustained strong growth and further improvements in financial and debt position.
Taiwan’s unemployment rate declined to a 17-month low of 5.2 percent in May, better than market expectations and lower than April’s 5.4 percent. Technology manufacturers grew more confident of the economic outlook and increased hiring.
South Korea’s consumer confidence rose to 112 in June from 111 in May, a second month of advance, reflecting the strengthening economy and improving job market.
Singapore’s industrial production unexpectedly accelerated to 58.6 percent in terms of year-over-year growth from April’s 49.7 percent surge, driven by the electronics industry.
Weaknesses

China canceled export tax rebates for a long list of products of polluting and high energy-consuming industries, including steel, nonferrous metals and chemicals.
Taiwan’s central bank unexpectedly raised the benchmark interest rate by 12.5 basis points to 1.375 percent, after keeping it at the record low 1.25 percent for 15 months, in a pre-emptive move to bring the rate toward a neutral level.
Philippines’ budget deficit widened in May to 30.5 billion pesos from 11.38 billion pesos in May 2009. Cumulative government expenditure in the first five months increased 14.3 percent year over year while revenue rose only 9.6 percent.
Singapore’s consumer prices increased 3.2 percent year over year in May, more than market expected, as a result of higher prices for food, housing, and automobiles.
Opportunities

Indonesia remains one of the major beneficiaries of an appreciating Chinese currency, thanks to the commodity-heavy nature of its exports to China. Coal and palm oil are key categories. During the three years from mid-2005 to mid-2008, when the yuan was unpegged from the U.S. dollar and saw appreciation, Indonesian equities more than doubled in U.S. dollar terms, making them the second-best performer in Asia after Chinese equities. In addition, the government’s improving fiscal status highlights a prudent Indonesia where public sector debt declined to 31 percent of GDP in 2009 from 102 percent in 1999, a confidence booster in a world of apprehensions over sovereign indebtedness.

Threats

The lagging impact of weakening European demand and a potentially rising yuan on Chinese exports may combine with a considerable policy-induced slowdown in fixed asset investment to eclipse growth in private consumption in China in the second half of this year. Macroeconomic headwinds could continue to challenge investor sentiment towards China in the near term.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.
Weekly Performance Index Close Weekly
Change($) Weekly
Change(%) Oil Futures 79.13 +1.95 +2.53% Hang Seng Composite Index 2,888.84 +45.16 +1.59% Korean KOSPI Index 1,729.84 +17.89 +1.05% S&P/TSX Canadian Gold Index 387.73 +3.95 +1.03% Gold Futures 1,256.30 -2.00 -0.16% XAU 185.12 -0.50 -0.27% Natural Gas Futures 4.86 -0.14 -2.70% S&P Basic Materials 183.16 -5.15 -2.73% DJIA 10,143.81 -306.83 -2.94% Russell 2000 645.11 -21.81 -3.27% 10-Yr Treasury Bond 3.11 -0.11 -3.51% S&P BARRA Value 512.93 -19.27 -3.62% S&P 500 1,076.76 -40.75 -3.65% S&P BARRA Growth 555.89 -21.19 -3.67% Nasdaq 2,223.48 -86.32 -3.74% S&P Energy 392.50 -24.59 -5.90%
Monthly Performance Index Close Monthly
Change($) Monthly
Change(%) Natural Gas Futures 4.86 +0.71 +17.02% Oil Futures 79.13 +7.62 +10.66% Korean KOSPI Index 1,729.84 +147.72 +9.34% XAU 185.12 +14.38 +8.42% S&P/TSX Canadian Gold Index 387.73 +25.47 +7.03% Gold Futures 1,256.30 +41.00 +3.37% DJIA 10,143.81 +169.36 +1.70% S&P BARRA Growth 555.89 +8.47 +1.55% Nasdaq 2,223.48 +27.60 +1.26% S&P Energy 392.50 +4.40 +1.13% S&P 500 1,076.76 +8.81 +0.82% S&P Basic Materials 183.16 +1.42 +0.78% Russell 2000 645.11 +2.49 +0.39% S&P BARRA Value 512.93 +0.60 +0.12% 10-Yr Treasury Bond 3.11 -0.08 -2.57% Hang Seng Composite Index 2,888.84 -332.01 -14.83%
Quarterly Performance Index Close Quarterly
Change($) Quarterly
Change(%) S&P/TSX Canadian Gold Index 387.73 +82.16 +26.89% Natural Gas Futures 4.86 +0.88 +22.13% XAU 185.12 +26.81 +16.94% Gold Futures 1,256.30 +161.00 +14.70% Korean KOSPI Index 1,729.84 +41.45 +2.46% Oil Futures 79.13 -1.40 -1.74% Hang Seng Composite Index 2,888.84 -64.16 -2.17% Russell 2000 645.11 -33.99 -5.01% DJIA 10,143.81 -697.40 -6.43% S&P Energy 392.50 -27.95 -6.65% S&P BARRA Growth 555.89 -42.85 -7.16% Nasdaq 2,223.48 -173.93 -7.25% S&P 500 1,076.76 -88.97 -7.63% S&P BARRA Value 512.93 -45.21 -8.10% S&P Basic Materials 183.16 -18.70 -9.26% 10-Yr Treasury Bond 3.11 -0.77 -19.90%
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting Home – U.S. Global Investors or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.
The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.
Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.
Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.
Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.
Past performance does not guarantee future results.
These market comments were compiled using Bloomberg and Reuters financial news.

Holdings as a percentage of net assets as of 3/31/10:
Moody’s Corp: 0.00%
First Horizon National Corp: 0.00%
Discover Financial Services: 0.00%
Berkshire Hathaway Inc: Global MegaTrends Fund 2.62%
Capital One Financial Corp: 0.00%
AAA: 0.00%
Robert Half International Inc: 0.00%
Genzyme Corp: 0.00%
Harley-Davidson Inc: 0.00%
Walgreen Corp: 0.00%
Petrobras: 0.00%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
The Toronto Stock Exchange Gold and Precious Minerals Index is a capitalization-weighted index designed to measure the performance of the gold and precious minerals sector of the TSX 300 Index.
The Baltic Dry Freight Index is an economic indicator that portrays an assessed price of moving major raw materials by sea as compiled by the London-based Baltic Exchange.

Mathematical Proof that God Exists

(No math higher than pre-algebra required.)

Silver Stock Report
by Jason Hommel, June 24th, 2010

I first began to take the Bible seriously after a personal 6 month study of the topic of creation vs. evolution. I did this in the year 1998, about 2 years after I graduated from college. I started the study because I was feeling guilty about the way I was living my life, because of what I knew from the Bible. I felt I could cast off the guilt if the Bible were not true, and if man evolved. I actually wanted God to not be there. But after looking to see if he was there or not, I found Him.

After independent study, after going to a college that emphasized critical thinking skills, and with an adult brain, and actually looking into the matter, I could not deny the mathematical truth that God created the universe and man, and that man did not evolve as they taught in college. Basically, it boils down to two choices, not an infinite array; either the Creator made us, or not. The “not” category is the only one with an infinite array of wild choices, such as “we were made by evolution,” or even an infinite stack of turtles, or some other fantasy. The other choice is “the creator”, also known as “intelligent design”, or God exists.

I got A’s in Astronomy I and Astronomy II, in fact, I got the highest grade in my class on the final in Astronomy II, blowing the curve — yes I’m that guy, sorry. And I got the grade because I didn’t realize the final was open book, and I forgot to bring my book, so I studied “too hard”. Oops! Typical book geek smart. I mention this to quiet down the fools out there, who think I’m just a fool, or that I have not studied the issues or who falsely assume I’m merely a “believer” because I had the accident to be born in the USA, most of whom also believe in God. Note, the Astronomy I learned teaches evolution, the big bang theory and that God does not exist. This was not a Bible collage I went to, it was the University of Colorado at Boulder. But I later learned the discernment to think for myself, to determine if what the facts of what they had taught me was true, or not, and I was given the skills in philosophy classes to think logically about things. The final exam just was a test to see if I had memorized enough of the basic doctrine of what they taught. And yes, I got it. The highest grade. So I got all they taught, and then, I learned more, so now I know more than my former teachers in college do, about the implications of the basic information that they teach. I hope that does not sound too arrogant, but yes, that’s how it works, that’s how all knowledge of all mankind advances, and I hope to God that I’m advancing it.

So that leads me to be able to share with you, THE proof that ultimately convinced me, which is probably only one of the many irrefutable mathematical proofs that God created life, and that it was no accident of evolution.
Probabilities are rather easy to calculate, it’s simple math. If you need to roll nothing but 6 sixes on one roll of the dice, it’s 1/6th chance times 1/6th chance times, etc., 6 times, or 1/6th to the 6th power. That’s .0000214 of a chance, or, taking the inverse, you will roll it, on average, once in 46,656 attempts. It’s undeniable math.

Let’s say you have two chances to roll the dice? Well, then you have two chances in 46,656 on average that you will need, and to express that more simply, you simply divide the odds, which reduces it to 1 in 23,328. Note, to knock one digit off the odds, you need at least ten chances, which reduces the odds to one in 4,666 attempts, when the numbers are rounded off.

To get a cell of life to spontaneously form from a sea of amino acids, was, at one time, say, about 150 years ago, a matter of faith. Darwin put his faith into the idea that single cells were extraordinarily simple, and he said that if they were not, then his entire theory was wrong. Fools have believed this wrong idea, on faith, ever since.

Modern microscopes show that Darwin was wrong. Even modern evolutionists believe Darwin was wrong, since, in the mid 1990’s, they taught “punctuated equilibrium”, which is something like “fast evolutionary steps” rather than Darwin’s gradual processes, but that’s besides the point.

http://en.wikipedia.org/wiki/Punctuated_equilibrium

More and more, modern science shows how complex single cells are.
Do You Know How Complex a Single Cell Is?

Do You Know How Complex a Single Cell Is?

For a cell to spontaneously fit together from random pairings of all the amino acids in a “soup” would require them to be in a certain order, and would require some, but not all, amino acids joining together.

Now, here’s the kicker. All the possible combinations are larger than the time necessary to even contemplate them all on the fastest supercomputers. But the necessary exclusions are even larger, and give us a way to calculate the many possible combinations required for life.

Even the fastest supercomputers cannot compute all the possible chess moves in a single simple game of chess!

Given the number of amino acids required, and excluded, for even the most simple living cell, various math scholars have estimated the “chances” of life forming, at up to 1 in 10 to the 40,000th power. I remember finding the book that says that, in the library at the University of Colorado, in the days before there was an internet widely available.

Today, some say the chances are much, much higher.
Probability of Single Cell Evolution

http://www.literalgenesis.org/home/index.php?option=com_content&view=article&catid=3:biology&id=47:probability-of-single-cell-evolution-&Itemid=3

According to a Hoyle, it’s 1 in 10 to the 57,000th power, and that’s only for a theoretical cell much simpler than any that exist.

According to another author, the chance that a single cell could evolve by chance is 1 in 10 to the 340 millionth power.

Mathematical Probability Shows Evolution is Ridiculous

http://www.nodnc.com/modules.php?name=Content&pa=showpage&pid=291

But what I have not seen anyone calculate is how many chances the Universe gives us to see if that can happen. I’ve done that, to help put it into perspective.

Most people don’t understand big numbers. I do. In this silver stock report letter, I talk about big numbers all the time, but even these numbers are tiny compared to contemplating single cells, and the entire universe.

Astronomy teaches big numbers. Remember please, I got the top grade in the class, and I used to tutor people all the time in school, so please bear with me, I think I can explain this so anyone can understand it a bit more.

Evolution is based on the idea that with enough time, evolution can happen. But, that’s not true, as the numbers show. Here’s why it’s not true.

A single cell forming would be an event. Nobody can argue with that.

Every event requires both a time and a place. Nobody can argue with that. I once forgot the time of a final exam, and missed the event, but that’s besides the point.

The smallest event, at the least, requires the smallest length of measurable time, and at least two particles to create an interaction.

According to the science of Astronomy, we can calculate the rough time of the Universe.

According to the science of Astronomy, we can also calculate all the atoms in the Universe, giving us a maximum number of possible events that have ever happened, given all atoms, and given all time.

The total possible number of events gives us a maximum number of “lottery tickets,” so to speak, to see if enough time and enough galaxies could make the very low probability event of a single cell forming, possible, or not.

So, we simply need to determine the total number of atoms, times the total number of the smallest measurable unit of time.

And actually, since a single cell forming, would be a complex mix of many atoms, and many molecules and many amino acids, this would require many many simultaneous events to take place, so the chances are much smaller than my rough estimate, as follows.

And actually, most atoms in the universe are not capable of representing a chance at evolution, since the vast majority of the atoms of the universe are burning in the heart of stars, where evolution cannot happen, but let’s assume each atom is a chance anyway, just to humor the opposition.

There are about 10 to the 80th power number of atoms in the entire universe.
Ah, you don’t need to rely on my education. The web confirms:

http://en.wikipedia.org/wiki/Observable_universe#Matter_content

Two approximate calculations give the number of atoms in the observable universe to be a minimum of 10 to the 80th power.

The reason they can nail it down so precisely is that there is a problem of “dark matter”, which, if counted, would only add 1 to the exponent, so it would be 10 to the 81st power, but they might have already done that. When I was in college, the number I remember was about one in 10 to the 79th, power, but there are multiple confirming ways to get about that number.

Let each particle then, stand for a place.

To have an event take place, such as a cell being created from amino acids, you need both a place and time, and, again, both are limited.

From the same Astronomy class, there are only a certain number of seconds since the universe was created, from 15 to 20 billion years ago, and only a certain number of parts you can divide a second into, to create a maximum number of times.

The current best evolutionary based theory is that the maximum age of the Universe is 13.7 billion years, so let’s go with that. (I actually believe the Universe could have been, and was more likely formed, in 6 literal 24 hour days, about 6000 years ago, but that’s also besides the point, and not required to get into for the purposes of our discussion here.)

Age of the universe
http://en.wikipedia.org/wiki/Age_of_the_universe

Wikipedia also tells us how many seconds per year.
http://en.wikipedia.org/wiki/Year

In the Unified Code for Units of Measure, the symbol a (without subscript) always refers to the Julian year aj of exactly 31,557,600 seconds.

The smallest fraction of time is actually determined by the smallest wavelength vibration, by which particles can be measured, which is a fraction of a second.

Quantised time
http://en.wikipedia.org/wiki/Time#Quantised_time

Planck time (~ 5.4 × 10 to the -44 seconds power) is the unit of time in the system of natural units known as Planck units. Current established physical theories are believed to fail at this time scale, and many physicists expect that the Planck time might be the smallest unit of time that could ever be measured, even in principle.

So, now we simply multiply:
13.7 billion years = 13,700,000,000 years.
31,557,600 seconds per year
x Planck time.

In scientific notion:

Years = 1.37 x 10 to the 10th power
Seconds = 3.1 x 10 to the 7th power
Planck time = 5.4 x 10 to the 44th power number of parts of a second.
To multiply, you simply multiply the first numbers, and add the exponents.
1.37 x 3.1 x 5.4 = 22.9
10 + 7 + 44 = 61

So, we get 22.9 x 10 to the 61st power number of times in the entire age of the universe, or:

2.3 x 10 to the 62nd power number of times in the age of the universe.
Now, we multiply that, by the total number of atoms, which is 10 to the 80th power.

Simple, add the exponents: 62 plus 80 = 142. Nobody can argue with that.
Surely, nobody can have difficulty following such simple math, so I assume everyone is with me then?

2.3 x 10 to the 142nd power represents the maximum number of “atom level” events that can take place in the entire universe, over 13.7 billion years.

An event that would require hundreds of thousands of molecules made up of atoms and thousands of amino acids made up of molecules would mean that you would have thousands and thousands of times fewer chances, of course, so the number of chances for life forming from molecular amino acids would be far less, perhaps a million times less, or perhaps only by 10 to the 7th or 9th power, but we can work with the higher figure.

Again, a low minimum number of chances needed for life forming at random are about 1 in 10 to the 40,000th power.

And a high maximum number of chances in the universe is only 1 in 10 to the 142nd power.

To get the actual odds then, we merely subtract the exponents.
40,000 minus 142 = 39,858.

In other words, the total number of chances available in the entire universe didn’t help increase the possibility of evolution in the slightest bit!

We actually need to use standard scientific notation rounding standards to take that number and round it right back up to 40,000 again, because the original number, 40,000 is accurate to only one digit, so the final number must be rounded back to one digit.

See “significant figures”.
http://www.chem.tamu.edu/class/fyp/mathrev/mr-sigfg.html

And if we use the larger figure of the chances needed for a cell forming of 1 in 10 to the 340,000,000th power, and subtract 142, we can really see how ridiculous it is, as:

340,000,000 – 142 = 339,999,858.

In other words, there is no discernible difference, no increase to the chances that life happened by chance, given all the billions of years and all the billions of galaxies available, particularly since a billion is not some hugely unimaginable figure, but rather, is a simple and small and unintimidating number described as only 10 to the 9th power.

Here is another way to express all of this math.

Anyone who doubts that God made the simplest form of life, the simplest virus or bacterium like cell, by design, requires 10 to the 40,000th power or 10 to the 340 millionth power more blind faith and gullibility than the Christian who believes that “God created life”.

Now, there are fools out there who will say, “Well life didn’t have to evolve on earth, it could have evolved elsewhere, and then those other life forms created life on earth”. And that is the popular lore of the “Star Trek” fantasy. Well, as we know, fools don’t pay attention. See, according to the calculations, the other forms of life could not be organically based, because I already included all other places in the universe.

So, according to the calculations, those other life forms who created life could not be organic based; they would have to exist in another dimension, or be entirely spiritually based, and we would have to use other words to describe them, such as “4th or 5th dimensional imps,” “angels,” “demons,” “fairies,” or “God”.

Let me translate that again, and discuss.

Modern science and basic math has improved to the point that we can prove that other dimensional, or spiritual, and intelligent beings created life on earth! For a while, I thought that was just too vague to make conclusions about, but bear with me some more.

The one who created life, by definition, is called “the creator”. That helps a bit. This creator would have to have the ability to pre exist, outside our current 3D universe or space time continuum, and furthermore, he would have to have the ability to interact and “reach into” our current 3D world to change and manipulate matter on the atomic and molecular level, with either His hands, mind, thoughts, or words, just to put things together in the right order to create life. This means that the creator would have to have miraculous powers to totally suspend the laws of physics to do and effect absolutely anything he wants to in our dimension, therefore every miracle in the Bible is easily seen as possible. Furthermore, if the creator can violate the laws of physics, he might have also created the laws of physics, which hints at the creator actually sustaining the laws of physics, and also sustaining the existence of all atoms and even all wavelengths of light and energy that were also created.
The creator clearly was, and is, intelligent, and He created willfully, purposefully.

Astronomy was looking for a “unified field theory” that explains everything. I see nothing wrong with using the words “The creator”, or “God” since “The Creator” is what God is called in the Bible. I see nothing wrong with using those words to describe the process of life, and the existence of the Universe, to explain as the answer, since that’s what those words mean, and we are supposed to use the right words to describe the right concepts if we are to understand, and be understood by others.

Said another way, “God exists”. Wait, there’s more.

I think that God is going to grow a bit more upset as time goes on at the fools who refuse to believe that he created us. If I were God, I would be a bit more angry at the fools who say “God does not exist”, given that humanity now has enough knowledge to prove, by simple math, that God created life.

Therefore, I will no longer tolerate fools who berate me for believing the Bible is the word of God. And I will no longer tolerate them if they claim the Bible is a fantasy story, becaus, clearly, they believe that on far less grounded faith than my mathematically based reason. From now on, I will refer them to this page:

www.silverstockreport.com/2010/god.html

See, the math proves you have to start by assuming that God created all life. Whether the Bible is the word of God or not, is another issue, yes. But there is no other written record that explains who God is in such extensive detail; there is no other book like the Bible that exists, including the book of Mormon and the Koran; they are just not the same.

Since God does exist, a God who was smart enough to create life, to overcome the odds, you have to also belive that God created life on purpose, for a purpose, and that God must also have communicated that purpose to mankind in a clear enough way for most of mankind to have gotten the message.

Well, the Bible is the most popular book in the world, with no other book even coming remotely close, so that qualifies it as THE message from God, since that’s also what the book itself says it is.

The world has printed from 2.5 to 6 billion copies of the Bible, enough for nearly every person on earth.

http://en.wikipedia.org/wiki/List_of_best-selling_books#More_than_1_billion_copies

The purpose of life, as I understand it, since I have read the Bible, is to glorify God, and to enjoy the life he gave us, and that we will enjoy it more, when we follow his instructions for us, and the Bible is His instructions for mankind.
God actually wants us all to live forever, in peace.

To start on the path to becoming a Christian to hopefully obtain that eternal life is easy. You can start by reading the Bible.

You will discover Jesus, who died for all of our sins, so that you and me, we don’t have to die, since Jesus paid the price for our sin, by dying in our place. By one man, Adam, (who is described in the first part of the Bible, the part that’s really easy to find), sin entered the world, and by one man, Jesus, we can all be reconciled to God.

Suprisingly, God actually wants you to testify about your faith, to other people, and in this way, Jesus testifies to God that He knows you, and that you are His.

Rom 5:8 But God commendeth his love toward us, in that, while we were yet sinners, Christ died for us.

1John 1:8 If we say that we have no sin, we deceive ourselves, and the truth is not in us.

1John 1:9 If we confess our sins, he is faithful and just to forgive us our sins, and to cleanse us from all unrighteousness.

Rom 10:9 That if thou shalt confess with thy mouth the Lord Jesus, and shalt believe in thine heart that God hath raised him from the dead, thou shalt be saved.

Rom 10:10 For with the heart man believeth unto righteousness; and with the mouth confession is made unto salvation.

Mat 10:32 Whosoever therefore shall confess me before men, him will I confess also before my Father which is in heaven.

Some people ask, “What about people who never heard about Jesus?” Well, what about them? I’m sure they will get their chance in the resurrection, when God will resurrect everyone, both the just and the unjust.

Acts 24:15 And have hope toward God, which they themselves also allow, that there shall be a resurrection of the dead, both of the just and unjust.

But now the discussion is moving towards the study of the last things, and that is another subject for another time. I discuss these things further, at my other website, www.bibleprophesy.org.

In the meantime, let me conclude with this. If the numbers can prove that God exists, don’t you think the numbers that I’ve shared with you over the years about the tiny size of the silver market show that you will have no choice but to make a fortuney by investing in, buying, and taking home, real silver? To me, it’s almost as irrefutable, and just about as certain.

=========

I strongly advise you to get real gold and silver, at anywhere near today’s prices, while you still can .
Price Board:
http://jhmint.com/cgi-bin/ssrbidask

Our Coin Shops are open 10AM to 5PM Pacific, Monday to Friday
100 oz. silver minimum, USA shipping, wire transfer only!
Janelle (530) 913 0553 silver_support1@vzw.blackberry.net

JH MINT & Coin Shop, Grass Valley, CA
(530) 273-8175
http://www.jhmint.com/

Rocklin Coin Shop, CA, 15 min north of Sacramento
http://rocklincoinshop.com/

Or visit www.momsilvershop.com
(Mom will ship in lots of more or less than 100 ounces of silver, and overseas, and take credit cards or pay pal.)
Sincerely,
Jason Hommel

The gold standard: generator and protector of jobs

Hugo Salinas Price

The abandonment of the gold standard in 1971 is closely tied to the massive unemployment the industrialized world has suffered in recent years; Mexico, even with a lower level of industrialization than the developed countries, has also lost jobs due to the closing of industries; in recent years, the creation of new jobs in productive activities has been anemic at best.

The world’s financial press, in which leading economists and analysts publish their work, never examines the relationship between the abandonment of the gold standard and unemployment, de-industrialization, and the huge chronic export deficits of the Western world powers. Might it be due to ignorance? We are reluctant to think so, given that the articles appearing in the world’s leading financial publications are written by quite intelligent analysts. Rather, in our opinion, it is an act of self-censorship to avoid incurring the displeasure of the important financial and geopolitical interests that are behind the financial press.
In this article we discuss the relationship between loss of the gold standard and the present financial chaos, which is accompanied by severe “structural imbalances” between the historically dominant industrial powers and their new rivals in Asia.

World trade before 1971

From the end of World War II through the 1960s, all well-governed nations in the world sought to maintain a constant balance between their exports and imports. They all wanted to maintain a situation where they exported more than they imported, so that they could accumulate growing Treasury reserves of gold, or in its defect dollars, which, under the terms of the United States (US) promise in the Bretton Woods Agreements of 1944, could be redeemed by any Central Bank that requested gold in exchange for its dollars.

To be precise, we cannot fail to mention one exception. The exception to the rule was none other than the US. All well-governed countries sought to export more than they imported, except the US.

The US was not overly concerned with maintaining a balance between exports and imports, because according to Bretton Woods the US could pay its export deficits by the simple expedient of sending more dollars to pay its creditors. As the sole source of dollars, the US had a clear advantage over the rest of the world; they could pay their debts in (redeemable) dollars that they themselves printed.

Economists of the day warned of the danger of this practice, which resulted in a constant loss of American gold. From over 20,000 tons at the end of World War II, US gold reserves dropped year by year as certain countries, notably France, insisted on redeeming their dollars for gold at a rate of 35 dollars per ounce of gold. France incurred intense displeasure in Washington and New York due to its demands for gold in exchange for dollars; some analysts attribute the unrest in France in the spring of 1968 to covert operations by the US intelligence services, in a show of America’s disapproval of the behavior of France, led at the time by General Charles de Gaulle.

The US did nothing to slow the loss of gold. In the early months of 1971, Henry Hazlitt, a solid classical economist, predicted that the dollar would have to be devalued; he said it would be necessary to increase the number of dollars that would be needed to obtain an ounce of gold from the United States Treasury. Only months after his warning, the dam burst, and in August 1971 the US was forced to devalue its currency, because the amount of gold in its reserves had fallen to a dangerous level. (Today, many doubt that the US has the 8,000 tons of gold it claims to have in its vaults at Fort Knox and the US Military Academy at West Point, N.Y.)

What Henry Hazlitt never imagined was that instead of devaluing the currency the recommendation of Paul Samuelson, Nobel Prize Winner in Economics, published the week before August 15, 1971 President Nixon took the advice of Milton Friedman and declared that from that time forward the US would no longer redeem dollars held by the world’s central banks at any price. The US unilaterally violated the terms of Bretton Woods. In effect, it was actually financial bankruptcy.

Since then, all world trade or most of it, as the euro, the pound sterling, and to a lesser extent the yen all compete with the dollar is conducted using dollars that are nothing more than fiat money, fake money. Because all the world’s other currencies were bound to gold through the dollar, the immediate consequence was that simultaneously they also became fiat money, fake money with no backing.

Consequences of abandoning the gold standard

The consequences of that fateful day have overthrown all order and harmony in economic relations among the nations of the world, while facilitating and expediting the global expansion of credit because part of the dollars exported by the US ended up in the reserves of Central Banks around the world.
Countries began to accumulate dollars as the expansion of credit in the US advanced inexorably, now free of the restraint formerly imposed by Bretton Woods. The rest of the world was forced to accumulate dollars in reserves, because having insufficient dollar reserves, or having reserves that did not grow, or worse, having falling reserves, was a clear sign for monetary speculators to attack a country’s currency and destroy it with devaluation.

As the loss of gold ceased to be a limiting factor, the last restrictions on the expansion of credit were stripped away. A heavy flow of dollars to all parts of the world spurred the expansion of global credit, which did not stop until 2007. The international banking elite always strive to obtain greater profits and to that end always seek to expand credit. Starting in 1971, freed of the restraint of being required to pay international accounts in gold, or with dollars redeemable for gold, the constant unfettered creation of credit and still more credit ensued. It was boom time in the US.

The US, which paid the rest of the world with its own irredeemable dollars of no intrinsic value, lauded the adoption of “free trade” and “globalization”. The US could buy whatever it wanted, anywhere in the world, in any quantity, and at any price. Starting in the 1990s, its export deficits became alarming, but nothing was done to reduce them; on the contrary, they grew year by year.

Mexico, following the US example, joined NAFTA the North American Free Trade Association. Down with import tariffs! Free trade with the world! The new vision offered the enthralling, seductive picture of a globalized world without borders, where everyone could buy and sell where they liked, with no limits. The 90’s were years of unbridled optimism for globalization!

Free Trade is unquestionably beneficial for humanity at large. It is good to be able to buy goods where they are cheapest; some countries enjoy conditions that favor them in production of certain things; each country should produce those things in which it has an advantage over other countries. Thus, the whole world can benefit from the good things each country has to offer. It is an appealing and sound doctrine, but… there is a crucial catch: the doctrine of Free Trade was conceived for a world where the sole means of payment was gold. When the doctrines of “Free Trade” and the “Comparative Advantages of Nations” were developed, the economists of the day could not imagine a world that did not use gold, but instead relied on a fiat money that could be created at will by a single country.

The “globalization” of the 1980s and 1990s and to date is based on the ideas of “Free Trade”. However, in the absence of the gold standard that existed when the doctrine was conceived, “globalization” had completely destructive results, which have caused the de-industrialization of the West and the rise to power of Asia.

In the decades prior to 2007 a massive fleet of cargo ships was created, which sailed for the US and Europe the West in general, Mexico included bearing all kinds of inexpensive, quality products made in Asia. The flood was so great that local factories in the Western World were forced to move to Asia, to employ cheaper labor and continue to sell their products in the West.

My readers will know how many industries, large and small, have ceased to exist in the US and the West in general, because Chinese competition killed them. They will know as well how hard it is to find a product that can be produced at a profit in the developed countries. It is very difficult to find a niche for any product to be manufactured locally. The flight of factories to Asia to take advantage of lower wages caused unemployment where local factories were closed. For the same reason job creation is slow or non-existent.

A taxi driver in Barcelona told us: “Spain is a service economy. Industry is no longer our foundation. If tourists stop coming, we’ll die.” By the same token, it has been said of Greece: “It produces olive oil and tourism, and nothing more.” The US, industrial colossus of the post-war world, has been de-industrialized. Now, what are developed countries to do to create jobs?

Diagnosis of the evils of de-industrialization and unemployment

These evils appeared because gold was eliminated as a) a constraint on the expansion of credit and the creation of money, and b) the only form of payment of international debt.

Under the gold standard all players in international trade knew that it was only possible to sell to a country that sold something else in turn. It was not possible to buy from a country that did not buy in turn. Trade was naturally balanced by this restriction. The “structural imbalances” so commonplace today were unheard of.

For example, in 1900, Mexico could export coffee to Germany because Germany, in turn, exported machinery to Mexico. Germany could buy coffee from Mexico because Mexico, in turn, bought machinery from Germany. Each transaction was denominated in gold, and as a result there was a balance based on an economic reality. Because there was balance in world commercial relationships, a relatively small amount of gold sufficed to adjust the international balance. The world financial center which acted as a “Global Clearing House” was London. A few hundred tons of gold were sufficient to meet the needs of that Clearing House. For further reading on the function of London as a clearing centre for world commerce, see “Real Bills” and associated articles by Antal E. Fekete at Professor Antal E. Fekete

Another example: In 1930, the US could sell very little to China, because the Chinese were poor and lacked purchasing power. Because the US sold very little to China, at the same time it could buy very little from China. Although prices of Chinese products were very low, the US could not buy much from China, because China did not buy from the US China was poor and could not afford American products. Thus, trade between China and the US was balanced by the need to pay the balance of their transactions in gold. Balance was imperative. There was no chance of “structural imbalance”.

Under Free Trade with the gold standard, the great majority of transactions did not require movement of gold to complete the exchange. The goods exchanged paid for each other. Only small remainders had to be paid in gold. Consequently, international trade was limited by the volume of mutual purchases between parties; for example, Chinese silk paid for imports of American machinery, and vice-versa.

The gold standard imposed order and harmony. If President Nixon had not “closed the gold window” in 1971, the world would be radically different today. China would have taken a century or more to reach its present level. China could not buy much from the US, because it was poor; therefore, China could not sell much to the US.

All this changed radically with the abolition of the gold standard.

Everything changed because the United States, having removed gold from the world monetary system, could “pay” everything in dollars, and without the gold standard as a limiting institution, it could print dollars ad libitum – without limit. Thus, in the 1970s the United States started to buy huge amounts of high quality products from Japan, while the Japanese boasted: “Japan sells; Japan does not buy.” A situation that was impossible under the gold standard became perfectly possible under the fiat dollar standard. The Japanese became gigantic producers, their country an island transformed into a factory. Japan accumulated vast reserves of dollars sent from the US in exchange for Japanese products. This in turn triggered the de-industrialization of the US.

Take for example the US manufacturers of T.V. Some of the famous US factories that built TV receivers by the millions were “Philco”, “Admiral”, “Zenith”, and “Motorola”. The Japanese had better and cheaper products, and since the abandonment of the gold standard allowed Japan to sell without buying in turn, and allowed the US to buy without selling in turn, the result was that all the huge factories producing these TV’s in the US were closed down. That’s how “going off gold” closed down US industry.

Unlimited purchases from Japan flowed to the US and the world, because they were paid in dollars, which could be created in unlimited quantities. The balance the gold standard had imposed disappeared and imbalance took its place.
After 1971, the US embarked on a protracted, large-scale expansion of credit.
As the nation was de-industrialized and high-paying jobs in industry disappeared, a lack of disposable income for the population was replaced with easy and cheap credit, to conceal the stagnation in per capita income.
Consumer credit drove imports from Asia and furthered de-industrialization even more. The great expansion of American credit was made possible because the gold standard, which restrained the expansion of credit by the banking system, had been abandoned. It is no coincidence that some analysts have observed that in real terms, American workers have had no real increase in their income since 1970.

All mainstream economists consider the elimination of the gold standard perfectly acceptable. They still do not see, or do not want to see, that the “Law of Unforeseen Consequences” is at work: the enormous advantage the US gained by being able to pay unlimited amounts in irredeemable dollars has become the fatal cause of the industrial destruction of the US and of the West in general. A Mexican saying applies: en el pecado llevas la penitencia “sin brings with it its own punishment”.

The current malaise: financial crisis, industrial crisis, crisis of unemployment

Today the situation is far worse. China, with a population of 1.3 billion, has become a formidable power. No one can compete with China in price. China sells vast quantities of goods to the rest of the world, without the rest of the world having any chance of selling similar quantities to China, and China can do so, because today trade deficits are “paid” not in gold, but in dollars or euros or pounds sterling or yen, which will never be scarce: they are created at will by the USA, the European Central Bank, the Bank of England, or the Bank of Japan.

A fearful monster has been created as a consequence of the elimination of the gold standard, which imposed a limit: “You can only sell to those who sell to you; you can only buy from those who buy from you.” This limit no longer applies; everything is disarray, inequality, imbalance; “structural imbalance” prevails because we no longer have the gold standard.

The credit expansion boom has ended, and in its place we have a global financial crisis. Today the problem of “structural imbalance” and the de-industrialization and unemployment it has produced in formerly industrialized countries acquires greater relevance with every passing day. What is to be done with the masses of jobless men and women? No one knows the answer, because the answer is not acceptable to the thinkers of today: the correction of “structural imbalances” and re-industrialization, in other words the creation of new jobs, lies in restoring the gold standard worldwide.

The “globalization” so highly praised by the financial press in recent years, has become the worst imaginable nightmare. It is no longer possible to support the unemployed with government handouts. The Sovereign State is close to bankruptcy. Thus, nature takes its revenge on those who dared violate its laws by seeking to impose false money on the world.

Richard Nixon’s elimination of the gold standard has proven to be the US’s best possible strategic gift to China and the rest of Asia. Today, China has a colossal industrial base that might have taken centuries to build, while the US is to a great extent devoid of factories and incapable of reclaiming its former glory. How tragic a fate for the US!

International and National Commerce

The word “commerce” is defined in the Concise Oxford English Dictionary as “Exchange of merchandise or services, esp. on a large scale [ French or from Latin COM(mercium from merx mercis merchandise)]

Note that the “exchange of merchandise or services” cannot include as a complement to that exchange a fictitious payment with fiat money, which is neither merchandise nor a service, but rather a paper note or digital entry denoting a debt payable in nothing. In the case of the dollar, the debt is a debt of the Federal Reserve and registered accordingly on its balance sheet. A debt cannot be settled by tendering a debt instrument (which is payable in nothing in any case) and in effect, Balance of Payments debts have not, by any means, been settled in international commerce since 1971.

The non-settlement of international balance of payments debts has produced the accumulation of huge fictitious dollar reserves on the part of exporting countries, since 1971. The same holds for fictitious payments of export deficit debts with euros, pounds, yen or any other present-day currency. See the following graph:

Gold, up until the Bretton Woods Agreements of 1944, figured as the complement to the international exchange of merchandise or services and did settle outstanding balance of payments deficits, because it was a merchandise or commodity used as money.

According to the Bretton Woods Agreements, the fiduciary dollar was accepted as being as good as gold, with trust on the part of Central Banks upon the ability to redeem the dollar into gold. From 1944 up until 1971 then, these fiduciary dollars were held in Central Bank reserves as a credit call upon US gold; the final payment had not been effected and was delayed as a credit granted to the US until the dollars held in reserves were to be cashed in for gold at some future date.

As it turned out, the “fiducia” or “trust” was misplaced, for in 1971 the US reneged on the Bretton Woods Agreements of 1944, “closed the gold window” and stiffed the creditor countries. No final settlement of international commerce debts took place in 1971, nor has any taken place since then; the truth of this statement is obscured by the mistaken idea that tendering a fiat currency in payment of an international debt constitutes settlement of that debt.

Once that false idea that fiat money can settle a debt – is accepted as valid, then the problem of the enormous “imbalances” in world trade becomes an insoluble enigma. The best and brightest of today’s accredited economists attempt in vain to find a solution to a problem that cannot be solved except by the renewed use of gold as the international medium of commerce.

Regarding national commerce, the same reasoning applies. In reality, no one engaging in commerce in any country in the world today is actually paying for purchases, that is to say, there is no any actual settlement of any debt. All individuals, corporations and government entities are merely shuffling debts (payable in nothing) between themselves, in the form of either paper bills or digital banking money, whether in dollars or any other currency in the world.

For internal national commerce the smaller value of the silver coin was convenient for day-to-day transactions at the popular level and did constitute settlement of debt when tendered in payment, for silver is a merchandise or commodity which, like gold, can participate in commercial exchange.

Today, China and the other great Asian exporters have belatedly realized that the dollars they received as “payment” for their mass exports are nothing more than digits in American computers. If the Chinese do not cooperate, the bankers in New York can erase those digits in half an hour, and leave China with no reserves. For this reason, the Chinese and Asians in general are buying gold, and will continue to buy it indefinitely: computers cannot erase gold reserves.

The awful truth about China is that the Chinese acquired their formidable industrial power in the short span of thirty years at a tremendous cost: for thirty years they worked for nothing. China has $2.5 Trillion of reserves; China does not have any use for these reserves, they have no intrinsic value and China does not know how to get rid of them in exchange for something tangible of value; these reserves are nothing more than digits in computers in the Western world. Net, net, net: China worked for thirty years to provide the world with a vast quantity of merchandise, in return for: nothing! Thirty years of slavery, to build an industrial empire!

Mexico: forced to use the protectionist “Band-Aid”

Mexico has its oil, perhaps more than we are told. Let’s hope so! Our economy is less complex, less sophisticated, than the US’s. According to a Mexican Treasury study carried out in 2007, 85% of Mexicans have no bank accounts a good sign that they can get by on paper money and are not getting into trouble with credit card debt. The Mexican economy, as we see it, is like a broad, low pyramid. It is more stable than the American “skyscraper” economy, a highly complex economy. Mexico is better equipped to survive the present crisis than the USA.

In today’s great world financial crisis of false money, we are likely to see countries around the world resort to protectionism: the leaders will be the same countries that so recently sang the praises of “globalization”. In this probable case, Mexico will have to do the same. It is a far from ideal scenario, but it is imperative for lack of the gold standard. Protectionism limits productive efficiency in any country because it limits the market for its protected products to its own national market. A limited market hampers efficiency. The supply of goods available to the population will be more limited and probably of lower quality at higher prices. (Protectionism will have similar effects in the US.)

Mexico will have to restrict imports in the near future. Otherwise, we will suffer serial currency devaluations. Protectionism is not the best policy, but Mexico will probably be forced to resort to it, for lack of the gold standard, which would be the best means of creating jobs in the US, in the rest of the “developed” world and here.

The effective cure

If Mexico aspires to anything more, we shall have to wait for the restoration of the gold standard worldwide. In the meantime, neither demagogy nor Socialism will solve our problems. Only the gold standard can do that.

For our industrial capacity to gain access to international markets and for Mexicans to gain access to products from international markets it will be necessary to restore the gold standard. Bilateral trade agreements are not optimum. The optimum is to have the world as a market, where payment for exports is balanced by imports and residual balances are paid in gold. Payment in gold of export deficits and collection in gold of export surpluses is sine qua non. Under the gold standard, Mexico would achieve sustainable prosperity and full employment for our admirable workforce.

Products from China and Asia in general, which today undermine our industrial capacity and create unemployment because we cannot compete with the extremely low wages of the Asian countries, would cease to be a problem under the gold standard; if the Asian countries, which today invade our markets, do not buy similar quantities of Mexican products which today they do not they would not be able to export their products to Mexico. The gold standard would fairly balance exports with imports; it would prevent the strategic destruction of our industry and protect us naturally, without the need for protectionist barriers.

The same therapy Mexico needs the restoration of the gold standard is what the world requires to regain economic health and sustainable prosperity.
Under a restored gold standard, Americans will not be able to purchase goods from China, unless China purchases American goods with a similar value. If the Chinese find nothing of value to purchase in the US, then Americans will be unable to purchase Chinese goods. It’s as simple as that! To continue selling to the West, China will have to open wide its doors to imports!

If Americans find they simply cannot purchase Chinese goods, Americans will manufacture those goods themselves. Industries and new jobs will spring up like mushrooms immediately, to satisfy American demand. International balance will be restored, unemployment will disappear.

Protectionism is not a cure, it is a Band-Aid. Mexico will not achieve the prosperity of which it is capable through protectionism nor by resorting to Socialist measures that crush the creative spirit of the individual. Nor can we succumb to renouncing our nationality and accepting absorption by the US, imitating all the (very costly) measures the current US administration imposes on its citizens. The ideal combination for Mexico includes a moderate dose of nationalism, a government that does not incur deficits, the institution of a monetized one-ounce silver coin, the “Libertad”, to stimulate and protect savings, and eventual participation in a new global gold standard, in which our nation can find the opportunity to fulfill its destiny.

“The gold standard is the generator and protector of jobs.”
e-mail: plata@plata.com.mx

We Just Got a Buy Signal from My Favorite Oil Indicator

By Jeff Clark, editor, Advanced Income Saturday, June 12, 2010

It’s time to lean over and pick up the cash… again.

The last time this happened, I gave my Advanced Income readers three trades. We earned 25%, 27%, and 30% in just one week.

It was March 16, 2009. Stocks were suffering from a vicious selloff. Every sector was getting hammered. And the oil stocks were especially weak.

Investors were stampeding away from the market. They were leaving a trail of crumpled value stocks in their wake. And they were willing to pay huge premiums to gain any sort of protection from further downside risk.

Profiting from selling options at that time was as easy as leaning over and picking up a pile of cash. So that’s what we did.

We took advantage of the fear in the market and a “buy signal” from one of my favorite technical indicators. We sold expensive options on three stocks in the oil sector, immediately generating high income. And we closed out the trades one week later for large gains.

Get ready for these same kinds of gains today.

Stocks are getting crushed right now. Investors are stampeding away from the market. Option premiums are enormous. And we just got a buy signal from my favorite oil-sector trading indicator.

A bullish percent index (BPI) measures the percentage of stocks in a sector trading with bullish patterns. It works best to define overbought and oversold conditions, and to indicate when a sector is vulnerable to a reversal.

For example, in the oil sector, the bullish percent index is overbought when it rallies above 80 (meaning 80% of the stocks in the sector are in a bullish formation). The sector is oversold when the BPI drops below 30 (meaning only 30% of the stocks in the sector are in a bullish formation). Take a look at the chart…

Sell signals, highlighted by the red circles, occur when the energy sector’s BPI rallies above 80 and then turns down and crosses below its eight-day exponential moving average (the “EMA” is the blue line on the chart above). Buy signals (green circles) occur when the BPI drops below 30 and then turns up and crosses over the eight-day EMA.

Now here’s a chart of the AMEX Oil Index (XOI) with circles indicating the timing of the BPI trading signals…

Not a bad track record. Selling or shorting oil stocks on the red circles and buying them on the green circles was profitable for each of the past five signals.

The oil sector BPI just flashed another buy signal. It’s time to buy some oil stocks.

I know what you’re thinking… The stock market looks horrible. Europe is on the verge of an economic collapse. Oil is spewing into the Gulf of Mexico. And everybody else is telling you to run for cover.

That’s not too different than what we were facing in March 2009. Back then, we took advantage of the situation by putting on a few trades in the oil sector. All of them generated big profits, fast.

There’s nothing like a quick market decline to turn a speculative stock into a value play. Stocks that were too expensive and too risky to recommend a couple months ago are downright cheap today. And the premiums we can get from selling covered calls are large enough to offset most, if not all, of any remaining downside risk.

Even though the market is in turmoil and it feels like the risk is high, buying beaten-down oil stocks and selling covered calls against them today is far safer than it has been for most of the past year.

These setups don’t come along every day. Take advantage of this one while you can. All you have to do is lean over and pick up the cash.

Good investing,

Jeff Clark

CHART OF THE WEEK: GOLD IS SKYROCKETING!

This week’s chart is an update on our “take the global view” stance on valuing assets.

Longtime readers know we encourage folks to look at the world’s assets through several different lenses. This exposes you to more knowledge, more perspectives, and thus, more opportunities.

One “lens” we’re fond of is the price of gold as seen by a European. In U.S. dollar terms, gold is enjoying a modest uptrend. But in the eyes (and pocketbook) of a European, the price of gold is absolutely soaring in response to the deteriorating value of his paper money.

This is the market telling him “there’s no such thing as a free lunch”… that the problem with massive nanny state socialism is, sooner or later, you run out of other people’s money. Real wealth, as represented by gold, rises in response.

Gold is skyrocketing in Europe

4.72% Interest rate on 30-year fixed-rate mortgages, according to government mortgage agency Freddie Mac… just above the record low of 4.71% set in December 2009.

Investor Alert – June 05, 2010

Index Summary

The major market indices were down this week. The Dow Jones Industrial Index fell 2.02 percent. The S&P 500 Stock Index lost 2.25 percent, while the Nasdaq Composite finished 1.68 percent lower.
Barra Growth outperformed Barra Value as Barra Value finished 2.66 percent lower while Barra Growth declined 1.84 percent. The Russell 2000 closed the week with a loss of 4.18 percent.
The Hang Seng Composite finished higher by 0.02 percent; Taiwan was up 0.68 percent and the Kospi gained 2.55 percent.
The 10-year Treasury bond yield closed at 3.20 percent, down 11 basis points for the week.
All American Equity Fund – GBTFX • Holmes Growth Fund – ACBGX • Global MegaTrends Fund – MEGAX

Domestic Equity Market

Miserable May bodes well for June-July

At U.S. Global Investors, Inc we like to use probability and statistics as an aid in our efforts to provide returns to our mutual fund shareholders. In that regard, a U.S. equity strategy report from J.P. Morgan cites some interesting statistics and probabilities with potentially positive implications for the equity market over the next couple of months. Their report shows the 7.9 percent decline in the Dow Jones Industrial Average in May was the 6th worst May decline in history. The 10 worst May declines were followed by an average 9.4 percent gain from June 1 to July 31st. Their report also shows that, on average for those 10 occasions, stocks historically troughed 8 days into June. In summary, the “Miserable May bodes well for June-July.”

The figure below shows the performance of each sector in the S&P 500 index for the week. All ten sectors declined. The best-performing sector was technology, down 0.9 percent. Other better-performing sectors included telecom services and consumer staples. The three worst-performing sectors were materials, industrials, and financials.

Within the technology sector the best-performing stock was Netapp Inc, up 0.6 percent. Other top-five performers in the sector were Hewlett-Packard Co, Apple Inc, Qualcomm Inc and Dell Inc.

Strengths

The managed healthcare group was the best-performing group, up 4 percent for the week. It may be that after weakness in the stocks of the healthcare insurers following healthcare reform, some investors began to seek out bargains.
The internet software & services group outperformed, gaining 2 percent. Google Inc, the largest member of the group, rose 3 percent. Two major brokerage firms reiterated their Buy / Overweight ratings on the stock. A smaller member of the group, Akamai Technologies Inc, gained 7.5 percent. A major brokerage firm raised its target price on the stock, citing a more benign competitive environment in the internet content delivery space.
The brewers group outperformed, rising 1 percent on the strength of its single member, Molson Coors Brewing Co. In the prior week, the Chairman of the company indicated interest in bidding for Foster’s Group Ltd according to press reports. Several other companies have also been cited as being interested in Foster’s after the Australian brewer announced in the prior week that it would split off its struggling wine business in 2011.
Weaknesses

The healthcare facilities group was the worst performer, down 14 percent, led by its single member, Tenet Healthcare Corp. A major brokerage firm downgraded the hospital operator following confirmation the company was in preliminary discussions to acquire an Australian hospital operator.
The homebuilding group underperformed, losing 10 percent. On Wednesday homebuilder Hovnanian Enterprises Inc reported that new home contracts in the February-April quarter declined 17 percent from the prior-year period, citing weakness due to the expiration of the homebuyer tax credit in April.
The diversified metals & mining group lost 10 percent, led down by its largest member, Freeport-McMoran Copper & Gold Inc. The price of copper declined during the week.
Opportunities

There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high, thereby providing the means to pursue acquisitions.
Threats

Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
As governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.
U.S. Government Securities Savings Fund – UGSXX • U.S. Treasury Securities Cash Fund – USTXX
Near-Term Tax Free Fund – NEARX • Tax Free Fund – USUTX

The Economy and Bond Market

Treasury bond yields continued their move higher this week as market participants begin to embrace riskier assets once again. However, on Friday the yields dropped on the weak payroll report, resulting in a net drop in yield on the 10-year Treasury of 8 basis points for the week, ending the week at 3.21 percent.

The graph shows the month-over-month change in U.S. nonfarm payrolls in thousands. The recent May report showed an increase of 431,000, but it was much weaker than the 536,000 expected. In addition, the prior two months had a net downward revision of 22,000. Also, private employment grew just 41,000, well below the consensus of 180,000.

Strengths

Employment unexpectedly increased in Spain. The unemployment rate fell by 1.8 percent, which was the largest drop in five years.
The ISM manufacturing index fell slightly in May but remains at a high level indicating continued economic expansion.
The May unemployment rate edged down to 9.7 percent from 9.9 percent in April, slightly besting the May consensus forecast of 9.8 percent.
Weaknesses

As explained above, the May payroll report was much weaker than expected.
Canada raised rates by 25 basis points in a first step to normalize monetary policy.
China’s May purchasing managers’ index was weaker than expected and increased concerns of a broad based economic slow down.
Opportunities

The current environment appears similar to 2008 in many ways but also crucial differences are evident. The economy is recovering and global economic growth still looks like the most likely outcome. In addition, while some fear/risk indicators are elevated they are nowhere near the panic levels seen during the past crisis.
Threats

Until the European situation is resolved with some degree of certainty the market will be at the whims of macro risk factors.
Concerns of a full blown credit crisis have probably diminished some but can not be ruled out.
June 4, 2010

Urbanization a Key to Consumption

June 3, 2010

Is the Dollar a Zombie?

June 2, 2010

Chart of the Week SWFs and Oil Prices

World Precious Minerals Fund – UNWPX • Gold and Precious Metals Fund – USERX Gold Market

For the week, spot gold closed at $1,219.90 per ounce up $5.52 or 0.45 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index fell 2.80 percent. The U.S. Trade-Weighted Dollar Index continued its upward march rising 2.03 percent.

Strengths

U.S. Mint May gold coin sales hit their highest level since 1999. Silver coins sales also were halted until more silver blanks could be acquired. Rand Refinery noted sales of Krugerrand gold coins soared by 50 percent due to investor demand over the euro crises.
In an interview with The Gold Report, when asked what hedge is most favorable against a collapse of the euro, CD Capital founder Carmel Daniele stated, “The safest bet is gold. It’s the safest currency. It’s become a currency.”
In the prior week, the German five-year bond auction failed for the first time since September 2008. Dealers were left holding 22 percent of the issue, which was priced to yield only 1.47 percent. In contrast, Portugal sold bonds yielding 3.70 percent. Seems that investors figured, why buy German debt when I can buy higher yielding Portuguese debt, guaranteed by the German government?
Weaknesses

South Africa’s first quarter gold production fell 15 percent quarter-on-quarter, continuing their decrease in output.
Kevin Rudd, Australia’s Prime Minister, said the government has no plans of reforming the resource super profits tax. KPMG, one of the top accounting firms, noted that $69 billion worth of resource projects had been placed on hold in Australia due to uncertainty over the tax.
Gold prices slipped almost $17 on Thursday and commentators cited the current strength in equities and decreased risk aversion was unfavorable for gold investors and could subdue gold prices in the short term. The sudden drop could also have been due to the International Monetary Fund (IMF) asking for a bid on some of the gold they currently have in the pipeline to sell. Latest estimates place the IMF with about 153 tonnes left to sell. Interestingly, one of the gold ETF’s inventory rose by 21.3 tonnes on the same day.
Opportunities

The second largest pension fund in the U.S., California State Teachers’ Retirement System, will vote soon on whether to invest in commodities as a hedge against the risk of increased inflation
Michael Jalonen, of BofA Merrill Lynch Global Research, highlighted that for 20 of the last 22 years, bullion has enjoyed late summer/early fall gains averaging 13 percent on the back of renewed jewelry demand. A rally in bullion has also tended to support some spectacular rallies in the gold mining stocks. Jalonen notes bullion could rise to $1,300 per ounce by October 2010.
While there may be days where gold could see a quick sell off, these are likely going to be opportunities to accumulate gold and gold equities as governments policies are out of step with economic reality. A recent report by Eric Sprott and David Franklin outline “A Busted Formula” and it is an excellent overview of economic problems our nation faces. When the U.S. government spends $117,933 to create a job that won’t pay anywhere near that amount of income, or takes on $2.5 trillion in debt to get GDP to rise by $200 billion, it is like running a business where you buy dimes for dollars.
Threats

Indications of a double dip in Europe have been becoming more visible as restrictive policies and an assortment of troublesome data, such as weakening consumer spending and manufacturing reports are becoming more consistent, according to a recent ISI Group report. What is distressing is the lack of realization that the odds of such an outcome in the U.S. are just as strong.
Corporate debt markets continue to struggle. Global new issues declined to $70 billion in May, less than half of what was issued in April and the lowest since August 2003. Investment bankers are hesitant to bring new deals that may not go well.
Warren Buffett, recently subpoenaed to testify before Congress, predicts a negative outcome for municipal debt in the U.S. In fact, New York, recently has stopped paying contractors of private construction companies and told them to continue work or they will sue them for breach of contract.
Global Resources Fund – PSPFX • Global MegaTrends Fund – MEGAX

Energy and Natural Resources Market

Strengths

Natural gas futures climbed 12 percent to $4.85 per mmbtu this week on potential supply disruptions in the Gulf of Mexico and forecasts of warmer weather.
The U.S. Mint sold 190,000 ounces of American Eagle gold bullion coins last month, the most since sales of 231,500 ounces in December, according to data on its website.
Weaknesses

ArcelorMittal is to idle three of its European blast furnaces in the third quarter, Steel Business Briefing reported, citing Antoine Van Schoolen, the company’s Chief Marketing Officer. He did not reveal which furnaces will be affected, but said one would be idled in July and two in August.
According to the China Automotive Technology & Research Center, China’s auto production in May was down 14.36 percent month-over-month, while inventories increased by 12 percent month-over-month. A source from Maanshan Iron & Steel told Steel Business Briefing that auto sheet orders were down by about 20 percent in May. The source noted that the slower summer sales season is approaching and demand for auto sheet could pick up in September at the earliest.
Taiwan, which imports all of its coal needs, reduced purchases for the first time in five months as power producers cut shipments. Coal imports fell 9.3 percent from a year earlier to 4.73 million metric tons in April, the Bureau of Energy in Taipei said.
According to the ministry of finance, Japan’s refined copper exports fell 28 percent in April from a year earlier to 47,645 tonnes.
Opportunities

Kazakh mining companies will invest $16 billion in the next five years, Deputy Industry and New Technologies Minister Derik Kamaliev said at a conference in Almaty. 85 percent of the investment will come from private companies, including Kazakhmys Plc and Eurasian Natural Resources Corp, Kamaliev said.
China announced a 24.9 percent rise in natural gas prices on Monday in a reform to spur supply of the cleaner-burning fuel, use of which is growing fast as the country gives more weight to the environment.
Threats

Xstrata Plc shelved spending on projects worth $5.6 billion in Australia, intensifying pressure on the government to wind back its proposed tax on mine profits.
China’s coking coal import growth rate may slow in the second half of the year compared with the first half, according to Huang Jingan, General Director at the China Coking Industry Association as government measures to curb speculation in the property market may impact demand for steel.
According to Russian news agencies, the country may restore an export tariff on copper and adjust a 5 percent export tariff on nickel this year after lifting tariffs in February last year.

China Region Opportunity Fund – USCOX • Eastern European Fund – EUROX
Global Emerging Markets Fund – GEMFX

Emerging Markets

Strengths

South Korea’s exports climbed 41.9 percent year-over-year in May, better than expected thanks to still robust demand from China and the U.S. The Bank of Korea revised up first quarter GDP growth to 2.1 percent quarter-over-quarter from its April estimate of 1.8 percent.
Macau’s casino revenue almost doubled in May to $2.1 billion from a year earlier, representing a 22 percent rise month-over-month, driven by surging VIP gaming.
ASUR traffic in May increased by 86 percent year-over-year, mainly thanks to a low base effect in May 2009 due to the flu scare. Compared to May 2008, the traffic declined by 8.5 percent.
Mexico consumer confidence index in May rose to 84.6 from 82.3 in April.
Russia’s economy expanded last month at the fastest pace since November 2008 as companies continued hiring and domestic demand accelerated, according to VTB Capital GDP rose an annual 2 percent, after 1.2 percent growth in April.
The Russian jobless rate in April fell to 8.2 percent from 8.6 percent a month earlier, while retail sales rose for a fourth month, jumping 4.2 percent after growing 2.9 percent in March.
Turkey’s exports in May increased an annual 25 percent to USD 9.07 billion, despite the plunge of the euro value of its exports. Cumulatively, Turkey’s exports reached USD 44.15 billion in the first five months of the year.
Meanwhile, Turkish May manufacturing PMI rose to 56.5 from 56.0 in April. The index recorded the highest value since the survey began in June, extending its growth run to a thirteenth consecutive month. The rise in the PMI is largely due to increasing domestic demand.
Some 9.4 million passengers travelled through airports in Turkey in May, up 25 percent from last year, according to state airports authority. Istanbul Ataturk airport saw twice the increase of international passengers (+14 percent), compared to domestic travelers (+7 percent).
Weaknesses

The official and private China Manufacturing Purchasing Managers’ Index declined to 53.9 and 52.7, respectively, in May from 55.7 and 55.2, respectively, in April. This partly reflects ongoing uncertainty in Europe and weakened outlook for China’s property market, which resulted in lower new orders.
China registered 885,800 in passenger car sales in May, representing a continued slowdown in year over year growth to 25 percent from April’s 34 percent, due to diminishing wealth effect from a slumping domestic stock market.
Domestic car sales in Brazil in May declined by 10 percent month-over-month, which was attributable to the end of a tax incentive in March.
Bank Credit Analyst research highlights that Hungary has been in a classic debt deflation, as its nominal GDP has been contracting while government borrowing costs have held above 6 percent. Hungary’s domestic demand has been contracting for three years and the current government is planning to reflate via massive interest rate cuts, fiscal spending, and a weaker currency.

Opportunities

Recent wage increases in some Chinese cities following media reports of worker suicides and strikes are congruent with the central government’s commitment to promote consumption, especially when exports to Europe might fade and a difficult real estate market could discourage investment. Soon after rolling over auto subsidies, China extended the existing “old-for-new” home appliance subsidy program to December 31, 2011, and expanded program coverage to include 19 additional provinces, mostly inland regions where rapid urbanization is occurring, to reach 85 percent of total population.

Telefonica of Spain raised its offer for Portugal Telecom’s (PT) stake in Vivo to EUR 6.5 billion from EUR 5.7 billion. Unlike the previous offers that had been rejected outright, the board of PT will vote on the latest offer, which, if accepted, would resolve a long lasting dispute between PT and Telefonica about the future strategy of Vivo.
In light of recent production issues with BP’s well in the Gulf of Mexico, followed by the U.S. government’s ban on deepwater exploration drilling, the relative cost advantages of Russian onshore producers will become more evident, according to Renaissance Capital, and the valuation gap to the global peer group should start to close.

The IMF recently revised its 2010 GDP forecast for Turkey to 6.25 percent from 5.2 percent, and the Organisation for Economic Co-operation and Development (OECD) is expecting Turkey’s economy to grow 6.8 percent.
Threats

The latest reduction of steel product prices by China’s largest steelmaker can be an initial sign of the ripple effect of tightening policies in the country’s real estate sector. Activities related to property construction and sales are at the risk of slowdown given no official backtrack in restraining the property market.
GAP airport group in Mexico was suspended both on the NYSE and Mexican Bolsa after reports that its chairman and independent directors were removed. Apparently the company installed 7 temporary directors and is working with the exchanges to resolve the situation “expeditiously.”

Current rosy projections for demand growth for both electricity and gas in Russia and Poland are unrealistic, argues Troika Dialog. Simple economics would imply that when prices for very cheap goods like gas and electricity rise, then demand will fall as consumers economize.

Leaders and Laggards

The tables show the performance of major equity and commodity market benchmarks of our family of funds.
Weekly Performance Index Close Weekly
Change($) Weekly
Change(%) Natural Gas Futures 4.80 +0.45 +10.46% Oil Futures 71.09 -2.88 -3.89% XAU 169.06 -4.87 -2.80% S&P/TSX Canadian Gold Index 359.41 -2.76 -0.76% Gold Futures 1,221.20 +6.20 +0.51% Hang Seng Composite Index 2,768.22 -0.53 -0.02% Russell 2000 633.97 -27.64 -4.18% 10-Yr Treasury Bond 3.20 -0.11 -3.24% Korean KOSPI Index 1,664.13 +41.35 +2.55% Nasdaq 2,219.17 -37.87 -1.68% S&P Basic Materials 175.96 -9.68 -5.21% S&P BARRA Growth 548.40 -10.26 -1.84% S&P 500 1,064.88 -24.53 -2.25% S&P BARRA Value 508.51 -13.88 -2.66% S&P Energy 386.22 -10.09 -2.55% DJIA 9,931.97 -204.66 -2.02%
Monthly Performance Index Close Monthly
Change($) Monthly
Change(%) S&P/TSX Canadian Gold Index 359.41 +7.52 +2.14% Gold Futures 1,221.20 +44.80 +3.81% Natural Gas Futures 4.80 +0.80 +20.15% XAU 169.06 -3.80 -2.20% Korean KOSPI Index 1,664.13
% DJIA 9,931.97 -936.15 -8.61% S&P BARRA Value 508.51 -51.76 -9.24% Russell 2000 633.97 -64.60 -9.25% S&P 500 1,064.88 -101.02 -8.66% Nasdaq 2,219.17 -183.12 -7.62% S&P BARRA Growth 548.40 -48.18 -8.08% S&P Basic Materials 175.96 -20.57 -10.47% Oil Futures 71.09 -8.88 -11.10% 10-Yr Treasury Bond 3.20 -0.35 -9.86% S&P Energy 386.22 -49.08 -11.27% Hang Seng Composite Index 2,768.22 -332.01 -14.83%
Quarterly Performance Index Close Quarterly
Change($) Quarterly
Change(%) S&P/TSX Canadian Gold Index 359.41 +30.57 +9.30% Gold Futures 1,221.20 +85.70 +7.55% XAU 169.06 +1.03 +0.61% Russell 2000 633.97 -18.50 -2.84% Korean KOSPI Index 1,664.13 +45.93 +2.84% Nasdaq 2,219.17 -73.14 -3.19% S&P BARRA Value 508.51 -25.79 -4.83% S&P 500 1,064.88 -58.09 -5.17% DJIA 9,931.97 -512.17 -4.90% S&P BARRA Growth 548.40 -32.06 -5.52% S&P Basic Materials 175.96 -21.62 -10.94% Hang Seng Composite Index 2,768.22 -132.95 -4.58% S&P Energy 386.22 -38.55 -9.08% Oil Futures 71.09 -9.12 -11.37% Natural Gas Futures 4.80 +0.22 +4.81% 10-Yr Treasury Bond 3.20 -0.41 -11.26%
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting Home – U.S. Global Investors or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Eastern European Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors. Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.
Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer. Past performance does not guarantee future results.
These market comments were compiled using Bloomberg and Reuters financial news.
Holdings as a percentage of net assets as of 3/31/10:
Netapp Inc.: 0.0%
Hewlett-Packard Co.: 0.0%
Apple Inc.: All American Equity Fund 4.17%, Holmes Growth Fund 3.67%
Qualcomm Inc.:0.0%
Dell Inc.: 0.0%
Google Inc.: 0.0%
Akamai Technologies Inc.: All American Equity Fund 1.12%
Molson Coors Brewing Co.: 0.0%
Foster’s Group Ltd.: 0.0%
Tenet Healthcare Corp.: 0.0%
Hovnanian Enterprises Inc.: 0.0%
Freeport-McMoRan Copper & Gold Inc.: Gold and Precious Metals Fund 0.73%, World Precious Minerals Fund 0.37%, Global Resources Fund 1.53%. All American Equity Fund 1.73%, Holmes Growth Fund 1.96%, Global MegaTrends Fund 2.09%, Global Emerging Markets Fund 1.99%
ArcelorMittal: 0.0%
Maanshan Iron & Steel: 0.0%
Kazakhmys Plc: 0.0%
Eurasian Natural Resources Corp.: 0.0%
Xstrata Plc: Global Resources Fund 2.21%
Bank of Korea: 0.0%
Telefonica: 0.0%
Portugual Telecom: 0.0%
Vivo Participacoes SA: Global MegaTrends Fund 2.06%, Global Emerging Markets Fund 2.45%
BP Plc: 0.0%
Grupo Aeroportuario del Pacifico SAB de CV: 0.0%
TNK-BP Holding: Eastern European Fund 0.23%
Exxon Mobil Corp.: All American Equity Fund 0.99%
Royal Dutch Shell: 0.0%
Chevron Corp.: Global Resources Fund 3.89%
Total SA: 0.0%
PetroChina Co Ltd.: Global Emerging Markets Fund 0.90%
Petroleo Brasileiro SA: 0.0%
Sinopec: 0.0%
CNOOC Ltd.: China Region Fund 0.91%
Tatneft: Eastern European Fund 0.47%
Rosneft Oil Co.: Eastern European Fund 5.97%, Global Emerging Markets Fund 1.72%
Gazprom OAO: Eastern European Fund 5.62%, Global Emerging Markets Fund 0.85%
Lukoil OAO: Eastern European Fund 5.99%, Global Emerging Markets Fund 1.23%
SPDR Gold Trust: Gold and Precious Metals Fund 1.57%, World Precious Minerals Fund 1.29%, China Region Fund 0.30%
*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.
The China Purchasing Managers’ Index, a gauge of nationwide manufacturing activity, is issued by the China Federation of Logistics & Purchasing and co-compiled by the National Bureau of Statistics.
The Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

Into the Abyss: The Cycle of Debt Deflation

By Ron HeraJune 2, 2010
©2010 Hera Research, LLC

One of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.” In fact, the US economy is in a downward spiral of debt deflation despite the bold actions of the federal government and of the US Federal Reserve taken in response to the financial crisis that began in 2008 and the associated recession. Although thevicious circle of debt deflation is not widely recognized, precisely what von Mises described is happening before our eyes.

A variety of positive economic data has been reported in recent months. Retail sales rose 0.4% in April 2010 as consumer spending rose and the US gross domestic product (GDP) grew at a rate of 3%. In May 2010, home sales rose to a five-month high and consumer confidence rose 17% (from 57.7 to 63.3).Industrial production rose 0.8% and durable goods orders rose 2.9%, more than had been forecast. However, the modest gains reported represent the continuing adaptation of economic activity at dramatically lower levels compared to the pre-recession period and most of the reported gains have been substantially manufactured by massive government deficit spending.

Despite the widely reported green shoots, in May, the unemployment rate rose to 9.9% while paychecks in the private sector shrank to historic lows as a percentage of personal income, and personal bankruptcies rose. Roughly 14% of US mortgages are delinquent or in foreclosure, credit card defaults are rising andconsumer spending hit 7 month lows . To make matters worse, the reported increase in consumer credit, in fact, points to a further deterioration because consumers appear to be borrowing to service existing debt. Outside of the federal government, which is borrowing at record levels and expanding as a percentage of GDP, and outside of the bailed out financial sector, debt deflation has continued unabated since 2008.

Money Supply vs. Debt Service

A contraction of the broad money supply is taking place because the influx of money into the US economy, i.e., lending to consumers and non financial businesses, has fallen below the rate at which money is flowing out of general circulation as a function of debt service (interest and principle payments on existing debt), thus a net drain of money from the broad US economy is taking place. As a result, additional borrowing, as consumer spending falls, appears to be servicing existing debt in a pattern that is clearly unsustainable and that signals a further rise in debt defaults in coming months.

Chart courtesy of Shadow Government Statistics
The estimate of the broad money supply (the Federal Reserve’s M3 monetary aggregate) is crashing and the Federal Reserve’s M1 Money Multiplier, a measure of how much new money is created through lending activity, fell off of a cliff in 2008, and remains practically flat-lined.

Chart courtesy of the Federal Reserve Bank of St. Louis
The contraction of the broad money supply points to a potential slowing of economic activity and indicates that consumers and non financial businesses will be less able to service existing debt.Despite easing somewhat in March 2010, credit card losses are expected to remain near 10% over the next year and mortgage delinquencies, are currently at a record highs, and these dismal predictions implicitly assume a stable or growing money supply.

A tsunami of eventual mortgage defaults seems to be building and loan modifications have been a failure thus far. There have been only a small number of permanent loan modifications (295,348) under the Home Affordable Modification Program (HAMP) in 2009, out of 3.3 million eligible (60 days delinquent) loans and more than half of modified loans default.

Chart courtesy of Calculated Risk
Although it has been reported that American consumers are saving at a rate of 3.4%, the contraction of the broad money supply suggests savings liquidation. Given a contracting money supply, ongoing debt defaults and declining consumer spending, the increase in non-mortgage consumer loans indicates that consumers are borrowing where possible to consolidate debts, cover debt service, or borrowing to continue operating financially as their total debt grows, thus as they approach insolvency.

Chart courtesy of the Federal Reserve Bank of St. Louis
The increase in non-mortgage consumer loans has not prevented an overall decline in total household debt attributed to ongoing deleveraging by consumers. While deleveraging (paying down debt) has been interpreted as caution on the part of consumers, or as low consumer confidence, the decline in outstanding credit reflects a reduced ability to borrow, i.e., to service additional debt. This suggests that the recovery of the US economy may be illusory and that the economy is likely to contract further in coming months.

Chart courtesy of the Federal Reserve Bank of St. Louis
Commercial borrowing has declined more sharply than household debt suggesting that the nominal return to growth estimated at 3% has not been matched by debt financed expansion in the private sector.

Chart courtesy of the Federal Reserve Bank of St. Louis
The broad US money supply is no longer being maintained or expanded by normal lending activity. If federal government deficit spending ($1.5 trillion annually), debt monetization and emergency actions by the Federal Reserve (totaling an estimated $1.5 trillion since 2008) to recapitalize banks are considered separately, there remains a net drain effect on the broad money supply. The scarcity of money hampers economic activity, i.e., money is less available for investment, and directly exacerbates debt defaults as consumers and businesses experience cash shortfalls, while at the same time being less able to borrow.Since unemployment is a key indicator of recession, then if the US economy were contracting, it would be evident in unemployment statistics.

Structural Unemployment

Unemployment and labor force data suggest that the US labor market is in a structural decline, i.e., millions of jobs have been and are being permanently eliminated, perhaps as a long term consequence of offshoring, outsourcing to other countries and the ongoing deindustrialization of the United States. However, the immediate meaning of the term “structural” has to with the fact that jobs created or sustained during the unprecedented expansion of debt leading to the financial crisis that began in 2008, e.g., a substantial portion of service sector jobs created in the past two decades now appear not to be viable outside of a credit expansion.

Officially, the US unemployment rate rose to 9.9% in April 2010, which represents the percentage of workers claiming unemployment benefits. However, the total number of unemployed or underemployed persons, including so-called “discouraged workers” (Bureau of Labor Statistics U-6), rose to 17.1%. Using the same methods that the BLS had used prior to the Clinton administration, U-6 would be approximately 22%, rather than the official 17.1% statistic.

Chart courtesy of Shadow Government Statistics
With official U-6 unemployment of 17.1% and a workforce of 154.1 million there are roughly 26,197,000 people officially out of work. Using the pre-Clinton U-6 unemployment calculation of approximately 22%, there would be 33.9 million unemployed. If the average US household consists of 2.6 persons and if 33% of the unemployed are sole wage earners, then 55.5 million US citizens currently have no means of financial support (17.9% of the population).

Chart courtesy of Calculated Risk
While it has been reported that the labor force is shrinking, the characterization of workers permanently exiting the workforce by choice may be inaccurate. While a shrinking workforce could reflect demographic changes, the rate of change suggests that tens of millions of Americans are simply unemployed.

Chart courtesy of the Federal Reserve Bank of St. Louis
Setting aside the question of whether or not those “not in the workforce” are, in fact, permanently unemployed, the workforce, as a percentage of the total US population, is currently at 1970s levels. Since many more households today depend on two incomes to meet their obligations, compared to the 1970s, a marked drop in the percentage of the population in the workforce points to a decline in the labor market more significant than official unemployment statistics suggest.What is more important, however, is that structural unemployment suggests structural government deficits, e.g., unemployment benefits, welfare, food stamps, etc.Since more than 2/3 of US GDP (roughly 70%) consists of consumer spending, a sustainable recovery from recession seems improbable if unemployment is worsening or if the labor force is in a structural decline, since that would imply unsustainable government deficits, whether or not they are masked by nominal GDP gains thanks to economic stimulus measures.

Government and GDP Growth

The US federal government is a growing portion of GDP, thus reported GDP growth is largely a byproduct of government deficit spending and stimulus measures, i.e., reported GDP growth is unsustainable. Total government spending at the local, state and federal levels accounts for as much as 45% of GDP, thus nominal gains would be expected when government deficit spending increases. According to some measures, reported gains in GDP are a byproduct of relatively new statistical methods and, using earlier methods of calculation, GDP remains negative.

Chart courtesy of Shadow Government Statistics
Government borrowing and spending may have offset declines in the private sector but only to a degree and only temporarily. The resulting growth in US public debt has an eventual mathematical limit: insolvency.Of course, the actual limit to US borrowing remains unknown. The continuing solvency of the US depends on the ability and willingness of governments, banks and investors around the world to lend to the US, which in turn depends on the tolerance of lenders for the US government’s profligacy and money printing by the Federal Reserve, e.g., quantitative easing and exchanging new cash for worthless bank assets. US Treasury bond auctions will fail if lenders conclude that a sufficiently large portion of their investment will be diluted into oblivion by proverbial money printing. In that event, the US dollar will surely plummet, despite deflationarypressures within the domestic US economy, and the cost of foreign goods, e.g., oil, will rise causing high inflation or triggering hyperinflation.

Chart courtesy of the Federal Reserve Bank of St. Louis
According to the Bank for International Settlements (BIS), the federal budget deficit increased from 3.1% of GDP in 2007 to 9.2% in 2010. Rather than being the result of one-time expenses, such as temporary stimulus measures, much of the deficit represents permanent increases in government spending, e.g., due to the growing number of federal employees.If increased government spending is removed, GDP appears to be declining significantly.

Chart courtesy of Karl Denninger
Of course, sustainability has more to do with total debt than with deficit spending because a deficit assumes that there is an underlying capacity to service additional debt.

Unsustainable Debt

While asset prices have declined, e.g., real estate and equities, debt levels have remained high due to the federal government’s policy of preserving bank balance sheets, which had ballooned prior to the financial crisis to the point that overall debt in the US economy reached unsustainable levels.

Chart courtesy of Karl Denninger
The absolute debt to GDP ratio of the US economy peaked in 2007 when debt levels exceeded the ability of the economy to service debt from income based on production, even at low interest rates. Although US GDP began to decline prior to the advent of the global financial crisis, debt coverage had been in decline approximately since the 1970s, coincidentally, around the time that the US dollar was decoupled from gold.

Chart courtesy of Karl Denninger
Government deficit spending cannot correct the situation because, for every dollar of new borrowing, the gain in GDP is negligible and some have argued that the US economy has passed the point of “debt saturation.”

Chart courtesy of Nathan A. Martin
In a growing economy, additional debt can result in a net gain in GDP because the money supply grows and economic activity is stimulated by transactions that flow through the economy as a result. The debt saturation hypothesis is that, as debt levels rise, additional debt has less impact on GDP until a point is reached where new debt causes GDP to decline, i.e., the capacity of the economy to service debt has been exceeded and, not only is it impossible for the economy to grow at a rate sufficient to service existing debt (since interest compounds), but economic activity actually declines further as a function of additional debt.

A Downward Spiral

The process of debt deflation is straightforward. New lending at levels that would maintain or expand the broad money supply is impossible for two reasons: (1) asset values and incomes have fallen and millions remain unemployed; and (2) debt levels remain excessive compared to GDP, i.e., real economic activity (outside of the government and financial services industry) cannot service additional debt. The inability to lend, actually the result of prior excess lending, results in a net drain of money from the economy. The drain effect, in turn, leads to further defaults as cash strapped consumers and businesses fail to service existing debt, and as debt defaults impact bank balance sheets, putting a damper on new lending and completing the cycle of debt deflation.

Keynesian economic policies, i.e., government deficit spending, are irrelevant vis-à-vis excessive debt levels in the economy and bailing out banks is not a solution since it cannot stop the deterioration of their balance sheets. The process is self-perpetuating and cannot be stopped by any government or monetary policy because it is not a matter of policy, but rather one of mathematics.

Since the presence of excess debt (beyond what can be supported by a stable GDP, or by sustainable GDP growth) impacts the broad money supply, efforts to preserve bank balance sheets, i.e., to keep otherwise bad loans on the books of banks at full value, will ultimately cause bank balance sheets to deteriorate more than they would have otherwise. The fact that US banks issued trillions in bad loans cannot be corrected by changing accounting rules, nor can the consequences be avoided by government deficit spending or by unlimited bailouts, and the problem cannot be papered over by dropping freshly printed money from helicopters flying over Wall Street. The major problems facing the US economy today—a tsunami or debt defaults, structural unemployment, massive government budget deficits, a contraction of the broad money supply outside of the federal government and the financial system, and a lack of sustainable growth—cannot be addressed as long as excess debt levels are maintained. As von Mises clearly understood, sound economic conditions cannot be restored unless and until the excess debt, which resulted from a boom brought about by credit expansion, is purged from the system. The alternative, and the current policy of the United States, is a downward spiral into a bottomless economic abyss.

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LGMR: Gold “Well Positioned” as New Risks Whack the Euro, Stocks, Silver and PGM

London Gold Market Report
from Adrian Ash
BullionVault
08:50 ET, Tues 1 June

Gold “Well Positioned” as New Risks Whack the Euro, Stocks, Silver and PGM

THE PRICE OF GOLD in wholesale dealing rose against all major currencies early Tuesday, hitting two-week highs against the Dollar above $1224 an ounce as world stock markets slumped almost 2%.

The Euro dropped nearly 2¢, hitting a new four-year low on the currency markets, after the European Central Bank warned that Eurozone banks face €195 billion in bad debts.

Gold priced in Euros rose within 0.4% of mid-May’s all-time record highs, trading back above €32000 per kilo.

“Gold’s uptrend still look intact despite being over-bought short-term,” reckons one Hong Kong dealer in a note.

“The fear factor is still in the marketplace…which makes gold investment a reasonable alternative to equities,” says a Swiss commodity analyst, speaking to Bloomberg.

“Gold remains well positioned to benefit from risk aversion,” agrees Walter de Wet at South Africa’s Standard Bank.

“Speculative length [in Gold Futures] remains at acceptable levels despite gold’s rally of the past two weeks. As expected, platinum has seen a very large liquidation of non-commercial long positions.”

New data, released after Friday’s close, showed speculative traders in US gold futures and options reducing their bullish exposure in the week-ending last Tuesday.

The “net long” position of bullish minus bearish contracts held by non-gold-industry players shrank 9% to a four-week low equivalent to 921 tonnes of gold.

As London’s precious metals market re-opened after the Whitsun Bank Holiday on Tuesday, platinum and palladium prices fell a further 0.7%, extending May’s 10.5% drop.

Silver prices dipped with base metals and the platinum-group metals.

Crude oil fell hard, down to $72 per barrel as base metals also dropped.

“Safe haven” government bond prices rose, in contrast, pushing yields back down towards last week’s multi-month lows.

The British Pound also leapt to near a 3-week high, after the Prudential insurance group’s bid for AIG’s Asian unit was rebuffed, delaying if not killing the need for a $30 billion Sterling exchange.

Gold priced in Sterling reversed an earlier gain to trade unchanged from last week’s record-high monthly finish of £840 an ounce.

“We on [Credit Suisse’s] global strategy team remain overweight of gold,” says a new report from Andrew Garthwaite’s team in London, “and see…that the gold price could rise another 10% to 20%.”

Supporting the current bull-run in gold, Credit Suisse’s equity strategy team believe, are low real rates of interest; an “80% chance” that quantitative easing or the threat of a sovereign government default will continue; low gold allocations both at Asian central banks and global investment funds; the lack of “bubble behavior” in the gold price; sharply higher gold mining costs between now and 2015; plus the “shortage of a reserve currency” for investors to hold worldwide.

“There are no safe big-cap currencies,” says the Credit Suisse report, recommending investors buy what it calls “cheap” gold mining shares such as Newmont.

“German investors have not been put off the slightest by the high gold prices,” says Wolfgang Wrzesniok-Rossbach at refinery group Heraeus in Hanau.

“Increased [investment] demand was met by limited supply, so much so that despite increased production of bars (and certainly gold coins too) in the past two weeks, the waiting period for delivery went up considerably.”

Meantime in the government debt market today – where the European Central Bank said yesterday that it’s raised its purchases of Eurozone bonds – “By buying up Greek debt, the ECB keeps the prices of the bonds artificially high,” notes Germany’s Der Spiegel magazine online.

“French banks, in particular, benefit from this policy,” the magazine says, because French institutions now hold €80 billion in Greek government bonds. German banks, in contrast, have agreed with the Berlin finance minister not to sell their Greek bonds at all until May 2013.

“Thus, in a roundabout way, the [German] Bundesbank, by spending €7 billion to purchase the Greek securities, has already made a substantial contribution to bailing out banks in neighboring France,” says Der Spiegel.

Adrian Ash
BullionVault

Gold price chart, no delay | Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.