THE CONFIDENCE GAME is at end.
At this moment, I cannot give a precise time-line as to how long the FED and the global central banks can prolong the confidence game, spinning the public and sovereign creditors that all is well.
When confidence in banks evaporates for reasons I mentioned on my earlier to blog posts, the consequences will be ugly and there will be massive social upheavals across the globe.
The first indication that the game is up is when US treasuries are increasingly purchased by the FED to make up for the shortfalls by foreign creditors and to finance the ballooning US deficits.
All of a sudden, some entities (china) may start to get real nervous and unload the treasuries, and the FED steps in to shore up treasuries. Then, the tipping point is reached and Hell breaks loose!!
But, contrary to IMF and other renowned economists who are betting on China’s and Asia’s so-called economic strengths, I take the view that when US treasuries collapse, faith in all fiat monies will likewise evaporate and there will be massive capital flight to commodities, especially gold, silver and oil.
When confidence in dollar assets vaporises, China will be caught right in the middle. The third and final phase of the Global Financial Tsunami will devastate Asian economies and with it, the greatest depression in history will ensue.
THE PROBLEM
The major global banks are all under-capitalised and this was all too apparent when Lehman Bros. collapsed. Banks were borrowing so much and so recklessly to play at the global casino that when the bets went sour, they were staring at a black-hole in the $trillions. In fact the banks are all insolvent.
The problem was compounded when the central bankers (all are corrupt without exception) and regulators turned a blind eye to how bankers defined what constituted “capital” so as to circumvent the need to maintain the capital ratio.
from the image above, you can see that next year, fifteen major developed-country governments, including the U.S., Japan, the UK, Spain and Greece, will have to raise some $10.2 trillion to repay maturing bonds and finance their budget deficits, according to estimates from the IMF That's up 7% from this year, and equals 27% of their combined annual economic output.
So "major-developed"countries will have to borrow more than a quarter of GDP just to survive another 12 months.
What has not received much global media attention is that the US Government has been steadily reducing the maturity of its treasury portfolio to keep fiscal deficits down. Whether interest rates rise or it becomes a problem for the US Treasury to re-fund the ever expanding roll-over pools, both suggest a Maturity Wall is dead ahead. It will occur no later than 2012, but will likely be triggered with the next financial default scare.
This would drive interest expense to $780 billion by September 2011.
Note that if historical averages hold, Treasury would take in roughly $1.2 trillion in personal income taxes. Interest expense would rise to consume approximately 2/3rds of that amount. Let's further consider that interest expense would be about 80% of the entire budget deficit of fiscal 2012.”
LAST WARNING! THREE-PRONGED COLLAPSE ... STOCKS, BONDS AND REAL ESTATE
Prong #1: The Stock Market Will Plunge Like there's No Tomorrow
The stock market has a bit more upside in it, and that when the crisis hits, stocks will be viewed as — believe it or not — a safe place to be invested.
The Dow Jones might even go as high as 13,000. But listen carefully: If stocks rally any further, as history dictates, it will be the biggest trap since the Dow peaked in 1999
Keep in mind, markets makers love to trap the majority of investors, and it always happens when least expected. New highs in the Dow will get most investors thinking stocks are headed to the moon,
Plus, a falling U.S. dollar is devaluing asset prices for foreign investors ( Chinese with massive dollar holdings) heavily invested in dollar-denominated assets like U.S. stocks. Stocks in the U.S will not ignore these fundamental forces forever. So while the broad markets may rally one more time, even reaching as high as 13,000 on the Dow, I urge you not to get trapped. Because How much lower could the Dow fall? Virtually no level below 6000 would shock me other than below 3000.
Prong #2: U.S. Government Bond Markets Will Fall
U.S. government bonds are poised for a major slide. There's no other choice here. Why? Because a slowing U.S. economy will make the dollar even weaker than it already is. Washington is the most indebted government on the face of the planet, with over $44 trillion in outstanding IOUs. That alone has been sending the value of the U.S. dollar into the gutter. Slowing economic growth will only make it worse.
The reasoning behind this is simple: Anyone who wants to lend money to the U.S. will demand higher rates of return to compensate for the risks. That's only natural. After all, would you buy bonds (lend money) to a company that's hugely indebted and whose sales are slumping? If you did, you'd want 10%, 11%, even 15% on your money.
It won't be long before investors in U.S. government bonds want the same. (except for the FED, who just print the money they need to purchase the bonds) And the only way the normal market investors can get what they want is from a collapsing bond market, with prices falling and interest rates soaring.
Prong #3: U.S. and European Real Estate Markets Will Take One Final Nosedive before Rebounding
Property prices in the U.S and top European countries are still overvalued. So another nosedive in real estate is definite, especially with stocks and bonds also collapsing. But mark my words: Sometime after 2013, after the dust settles, real estate will be one heck of a buy if you have the capital reserves, a mortgage at that time will be expensive, high interest rates in double figures, with a large deposit, Why? Because there are three things that most analysts don't understand about real estate
Land is in limited supply. And good locations are in even more limited supply. Waterfront property is the best example.
Construction and replacement costs are rising rapidly. Six years ago, If you built a new home $50 per square foot of air-conditioned living space. Today, the exact same construction would cost nearly twice that because of rising prices for everything from concrete to paint.
Overseas investors with money are ready, willing, and able to buy property in the U.S. As the dollar continues to fall, these investors will switch from stocks to gold and real estate.
In short, in 2/3 year time, I expect foreign investors with a long term view to start pushing up U.S. real estate prices, especially in areas like Florida, Arizona, Las Vegas, New York, and California. And in the UK, places like London riverside properties and other prime areas in the UK and Europe
A big part of the capital flooding into real estate will come from Asia. Remember how the Japanese rushed into the U.S. real estate rush in the late 1980s? Well, this time, get ready for a huge influx of money from China and India.
IN THE MEAN TIME ...
During the Three-Pronged Collapse, You Will Want To Be Invested in Gold!
Gold is already starting to soar. When the crisis hits, and the three prongs collapse, gold will soar like a rocket. I expect it to go well above $2000-3000 an ounce, and then, even higher (when JP Morgan and its friends goes bust, and manipulations of gold and silver prices ends) . Remember, unlike stocks or bonds, gold has no debts, no earnings, no board of directors, no funny accounting statements, and no obligations to anyone but itself. Gold is the purest investment in the world. While paper money can be printed or devalued at will, the same cannot be said for gold. Gold is the only real money.
Ponzinomics = the Fed and The Treasury special relationship, The Treasury prints bonds which it exchanges for the "money" the Fed prints.As long as everybody believes in the illusion that it will work; it will. though, there hasn’t been in the entire history of finance a successful example where a nation printed its way out of debt.
The UK is in deep trouble and might even have to declare bankruptcy before this depression ends. Eastern Europe is in even worse shape. Meanwhile, the IMF won’t be able to help much without some type of re-capitalization, probably from the USA. That means all of Europe is in trouble. But we cannot forget Russia either. As bad as things are in America, as long as the dollar remains the universal currency, things won’t get as bad as in Europe. I still believe the dollar has not made its lows yet, but it won’t face the kind of butchering as the Euro and Pound.
What’s the future of the Euro. I’m sure many of you will disagree, but I have always felt it won’t last due to the problems with destruction of individual sovereignty of each member. The global depression has magnified these effects. I would be surprised if the Euro was still around with all current members after 2020. If either Germany or France defects, it won’t last
TIME LINE FOR THE NEXT FINANCIAL TSUNAMI
There will be a financial tsunami (round two) the likes of which the world has never
seen, (double dip/depression) will most likely take place sometime IN 3RD QUARTER OF 2011 AT THE EARLIEST, AND AT THE LATEST, 2012, there will be massive bank runs. Like the Northern Rock case in UK. I expect that the FED and Bank of England along with other central banks will pre-empt such a run by undertaking some methods, below are a list of possibilities, so look out for it.
1) Disallow cash withdrawals from banks beyond a certain amount, say £500 per day;
2) Disallow cash transactions up to a certain amount, say £5,000 for certain transactions;
3) Transactions (investments) for metals (gold and silver) will be restricted;
4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II.
5) Imposition of capital controls etc.;
6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards;
7) Legislations to make it a criminal offence for any contraventions of the above.
SOLUTION: FOR THE INDIVIDUAL
Maintain a bank balance sufficient to enable you to comply with the above potential impositions.
Start diversifying your assets away from dollar/pound/assets. Have foreign currencies in sufficient quantities in those jurisdictions where the above anticipated impositions are least likely to be implemented.
Gold is the purest investment in the world. While paper money can be printed or devalued at will, the same cannot be said for gold. Gold is the only real money .
With that in mind, here are three steps to consider ...
First , minimize your exposure to the stock market. With the exceptions of the gold and natural resource stocks recommended in my Real Wealth Report , get out of all other stocks now. Don't even try to make it to next year to defer taxes on profits you might have. It's not worth the risk. I figure it's better to pay Uncle Sam his take than risk losing hard-earned gains.
Second, continue to keep the bulk of your money in safe, liquid, short-term investments such as money markets. You can get 5% a year ... even a tad higher in some cases.
But by all means, stay out of long-term bonds, whether issued by the U.S. government, or private corporations.
Third, if you don't own any gold, I think you're making a huge mistake!!!
The best way to own large amounts of gold with little capital is, in my opinion through ETFs and Options,
Exchange traded funds (ETFs) and Exchange traded notes (ETNs). i believe one of the best ways to prepare for hyperinflation is by investing into ETFs and ETNs. ETFs and ETNs trade like stocks on a stock exchange but are used to track the price of a single commodity, a basket of commodities, or an index of stocks. The difference between an ETF and an ETN is: an ETF represents ownership in underlying assets; whereas an ETN is a debt note issued by a bank.
An ETN is more risky than an ETF because of counterparty risks. If the financial firm issuing the ETN goes bankrupt, they may not be able to pay out the money they owe you. When investing in an ETN, it would be a good idea to keep an eye on the bank that issued it. If the bank runs into any trouble, you might want to immediately sell. With an ETF, the biggest risk is their accounting is wrong and they don't own the amount of a commodity they are supposed to own. We consider this to be a very small risk and believe it is safer to own an ETF than to attempt to store a commodity on your own.
Now let's go over the ETFs and ETNs we feel everybody should consider in order to diversify your portfolio with hedges against inflation and potentially make a fortune. Two gold ETFs example
The first ETF example is SPDR Gold Shares (GLD) i feel to be the safest investment with the least amount of risk. GLD is an ETF seeking performance corresponding to the price of gold bullion. Simply put, it follows the price of gold. We believe gold prices are going higher as the dollar collapses, and the best way to play gold is by buying GLD. Investing into GLD means you are investing into gold. (Gold tends to rise as the dollar falls and purchasing a gold ETF may help you hedge).
The second gold ETF example Market Vectors Gold Miners (GDX). GDX seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally invests in all of the securities which comprise the AMEX Gold Miners index in proportion to their weighting in the index. The index is comprised of publicly traded companies involved primarily in mining for gold and silver.
Here are some other ETFs that i feel will prosper in an inflationary environment:
iShares Silver Trust (SLV)
United States Oil (USO)
Market Vectors Agribusiness (MOO)
UltraShort 20+ Year Treasury ProShares (TBT)
UltraShort Real Estate Proshares (SRS)
As a recap, GLD, SLV, are the safest investments to capitalize on the upcoming hyperinflationary crisis. If you believe strongly like me and many others around the world that gold prices will rise substantially higher and you are a more aggressive and risk tolerant investor.
please note that i am not investment/financial advisor and I am not giving you investment advise. I am simply making suggestions to be used as a starting point for you to do your own research and make your own investment decisions.
OPTIONS/FUTURES
Instead of being required to put up huge minimums, you can harness the power of the world’s six largest currencies and commodities for as little as $100!
Your risk is strictly limited: You always know — to the penny — the maximum risk you’re taking with each trade:
When you buy Currency/ commodities Options, it is guaranteed that you can never lose more than the small premium and brokerage commission you paid for the right to buy or sell the currency/commodities! You get leverage of up to 200-to-1 — Enough to multiply your money many times over on every trade: You pay a small premium to control a vast amount of a currency/commodities, example some currency options that are trading for as little as $100 or $200, that will you have the potential to control;
Ten thousand Swiss francs worth about $8,400
Ten thousand Canadian dollars worth about $9,500
Ten thousand Australian dollars worth about $8,600
One million Japanese yen worth about $8,500, or
Ten thousand British pounds worth about $20,500!
And lastly to buy physical gold and silver, one way to get your hands on cheap gold and silver is to buy unwanted gold and silver jewellery from people, from the likes of Ebay and Amazon.
Also it might be a good time to go green and become a self sustaining eco warrior, because when commodities prices rocket, it will be very helpful to have your own land, producing vegetables and fruits that can sustain you and your family, city dwellers might want to start a cooperative with other city dwellers in starting micro farms and allotments on the outskirts of the city to grow basic food products which will hopefully act as a protection during any hyper-inflations that might be on the way.
SOLUTION: FOR THE STATE
When the big financial institutions in Europe and USA such as Lehman Brothers, Bear Sterns, Fannie Mae and Freddie Mac, Icelandic banks, Northern Rock, RBS were rescued (bought) by tax payers of the given country, those institutions now need become state investment banks, investing and providing credit/monies back to the real people who bailed them out, the tax payers/citizens. It would truly become a philosopher's stone in Banking reviving history if that happened.
Using the UK as an example, The bailed out banks in the UK, the likes of Northern Rock and RBS, have a huge portfolio of properties on their books that are now owned by the tax payers, the government should take advantage of this to meet national needs, where new housing developments have ceased and population is still growing, the government (major share holder) should reintroduce those houses as ‘council houses’ and those who receive housing benefit, which millions do receive in the UK, is only allowed to be used to pay for these houses and not private rentals, so the money and the stock of houses on their books will in theory go back to the people of the nation, as the bailed out banks are now state owned banks, and all portfolio of properties on their books that they have now become ‘Council Houses’. When citizens basic needs are covered, like food, shelter, warmth as described by Abraham Maslow in his hierarchy of needs, most often displayed as a pyramid.(see image below) Populations can be managed, the luck of basic needs for populace will create social uprisings like in the Middle East today. The government role should be to provide each and very citizen of its country the basic needs, The private sector can take care of rest of the levels in the hierarchy of needs,
The bailed out banks like Northern Rock and RBS, should become a national investment bank that only lends to UK house holds, UK companies with British directors residing in the UK.
UK gets rid's of the current credit score systems and lends on merit and plans and individuals aptitude and skills of delivering the projects, acting like a business angel rather then a shylock.
loans can have many types of stipulations on it, i.e any hiring of staff must go though the job centre etc, ensuring jobs go to British unemployed, that way its less strain on the benefit system/ tax payer.
loans made available at grass roots at every neighbourhood. so the public views of the handling of the crisis can be seen that not only did the government bail out that banks that were to big to fail and not having anything to show for it but huge cuts in services to the tax payers, the new loans its issues can be seen taking effect by the tax payers/citizens, new loans helping the people at all levels, will bring improvement to their neighbourhoods through spending the monies directly within the community. Most people take out loans with a long term view unlike the providers of the credit, who are always looking at short term profits, these new state banks will give a new dynamics to the banking system, a scenario where the provider and taker of credit have some common grounds, which they are in it for the long term and their goal is one of national improvement and facilitation of national citizens.
The governments of the world is so ordered that each soul gets every chance for its full development, and reap the fruits of all its activities.
Economist Dude.
Total equity at the five banks is $737 billion. So if you assume that only 1% of derivatives are “at risk” (odds are it’s more) and 10% of that at risk money is lost, you’ve wiped out nearly 1/3 of the banks’ equity.
To see Goldman now betting AGAINST AIG after receiving $13 billion in tax payer money to insure the former didn’t go under along with the latter is outrageous (if not infuriating) to say the least