Economy

It’s time to face a few facts. The recovery, such as it is, was bought at a very high price, too high, really, and it is both false and unsustainable.

Politicians are essentially and effectively clueless at this juncture, posturing over the wrong issues and proposing the wrong sorts of responses. For example, even if one did not know anything about Peak Oil, promoting the highway bill as a legitimate means of promoting economic growth when oil is near $100 per barrel is perhaps not the best use of a couple hundred billion dollars.

Central banks are no better punishing savers and the prudent with zero and/or negative interest rates as they attempt to bail out the reckless banks and get credit flowing again like it once did.

The debt problems of the United States and Europe are almost exactly the same. Both regions drank the Greenspan Kool-Aid offered up in the 1990’s and 2000’s, and both are now saddled with too much debt and promises that are too large to keep.

Three simple words are all we need to understand the economic malaise: Too much debt.

That’s the fundamental problem here, not a failure to tax enough, or tweak a few policies, or print some more thin-air money, or even to get credit flowing again (read: growing again).

That’s the long and the short of it. Anybody with a calculator and a modicum of common sense could tell you that such a state of affairs was not sustainable, nothing can grow forever yet, and believe it or not, that was the plan.

How to Play the Greatest Gold and Silver Bull Market of Our Lifetime

Wednesday, June 29, 2011

Executive Summary

• The extent and impact of price manipulation on current bullion prices
• How to build or increase your allocation to gold and silver (how much is right?)
• The best vehicles and storage options for owning precious metals
• Exit strategies: what indicators to watch to know when it’s time to start selling
• How high are gold and silver prices likely to climb by the end of the current bull market?

Part I – The Screaming Fundamentals For Owning Gold and Silver

I’ve so far resisted really wading into the whole debt-ceiling charade because I am about as certain as can be that it will simply be lifted once again before any real damage is done to the US Treasury markets.

Sure, there will be a lot of posturing and huffing and puffing, and maybe even some last-minute tensions, but it will all be resolved as it always has been: with a hike in the debt ceiling that will last until after the next election.

But what if this is not true? What if this time an impasse occurs and the debt ceiling is not raised in time? Then what?

As expected, the “dance of the big, round number” is underway, with the Dow flirting with 12,000 all week, plunging under it, bounding over it, bouncing off of it, and then landing on it to end the week. My view is that a stock market rebound is likely over the next couple of weeks, but this view is based on charts and momentum and liquidity, not economic fundamentals, which are deteriorating.

The macro view here is that much of the value to be found and prices to be seen in various credit markets and the stock market is really just a reflection of the belief that the system will be bailed out. “Too big to fail” is now an operating maxim applied equally to the next Lehman wanna-be and Greece. All of the big players took appropriate notice of the actions of the monetary and fiscal authorities to prevent big institutions from suffering the fate of their poor risk management practices and investment decisions.

The faith that nobody (of any substance) will be allowed to fail is now a pronounced feature of our markets and partially explains the elevated prices we are currently seeing in nearly everything. Another major component of these elevated prices is the excessive liquidity that the Fed, ECB, BOE, and Japanese central bank continue add to the markets

However, we are now less than two weeks away from the end of the second round of quantitative easing (QE II), and everyone should be concerned with the impact that the loss of this liquidity will have on various markets. I think the early warning signs are already in place.

First, the fundamentals.