Christian DeHaemer: Starting Jan 1 (2013) Gold Will Be a Risk-Free Asset

Christian DeHaemer's latest email reminds us that on Jan 1 2013, gold LEGALLY becomes a risk free asset in the eyes of the global banking system.

Here are the facts:

·         Most people do not know that gold is money much less that it and silver are the only constitutionally authorized money much less that the people who really know how money works have stated flatly that it is the only real money on the planet, ever.

·         Most people consider gold as an investment which is very risky instead of the truth which is that it is not an investment of any sort but rather the safest form of long term savings that ever was.

·         Most people whine about the fact that gold pays no returns.  They have been taught by their monetary masters that it is a valid role of money to make more money without doing more work.  They ignore the fact that in both real and in inflation adjusted terms, gold has far outpaced ALL global stock market indices for the past 40 years in aggregate.  They also ignore the fact that any “gains” made on paper investments are subject to government taxation at threat of imprisonment or worse if you don’t comply.  Ask Wesley Snipes about it when he gets out of jail in 2013.  Since gold pays no returns then nobody looks to tax it.  In fact, going after gold “gains” for taxation by the government is not done simply because so few people are involved and government doesn’t want to call attention to the huge paper gains (fake inflation gains) that people have been making in gold.  Such stories of beneficial ownership of gold detract from the propaganda that gold is a barbarous relic that doesn't pay gains, etc.  In truth, it does not pay gains nor should it because that is not a function of money.  It should simply hold its purchasing power and that is exactly all that gold has done for the past 40 years of "modern economics".

·         Most people don’t know that the main reason the economy did not care about gold was that banks held enough fraudulent but "high confidence" paper assets in reserve that they could easily run their fractional reserve lending racket on top of the fraudulent assets and nobody would be the wiser.  Most people do not understand that in order to keep the massive scam of fractional reserve banking going for a while longer that bankers need to shore up confidence in their reserves.  Most people don’t know that BASEL III has mandated that banks decrease their leverage by increasing the amount of tier 1 capital relative to outstanding loans.  Those which do not or cannot comply will eventually be taken over by the government.  Government has to do this in order to retain confidence in their collapsing debt Ponzi and in fact I have written many times in the past that I thought a return to gold backed economy was not only possible but in fact the most likely outcome for this very reason.

·         Most people don’t understand that the amount of debt out there is so huge that requiring even a few small percentage points of increase in reserves amounts to huge bucks.  Let’s say we are just talking about government debt which is 16 trillion.  Add the housing debt owned by Fannie and Freddie and you are well over 20 trillion.  Add to that the rough estimates of private debt and you are in the 50 trillion range.

    Tier 1 capital has to increase from pre Basel III levels of around 2% to post Basel III levels of around 8.5% - an increase of 6.5% or put another way, a tripling of the reserves.  Even just 6% of $50 trillion is $3 trillion folks.  Once gold is considered a tier 1 asset, why would any fool buy a government bond instead of gold in order to meet these new rules?   The current gold pile of the ENTIRE US is worth less than 500 billion at current gold prices.  Even if the banks owned all that gold, the price of gold would have to increase 6x in order to create an increase in reserve values mandated by Basel III.

·         And now here is the kicker: what’s the maximum price possible for gold should bankers decide to pile into it (to say nothing of hundreds of millions of people who finally wake up to the math of the debt Ponzi)?  As I detailed here before in my blog, prices of other “commodities” are limited by demand which is a function of ability to pay.  But after bankers build a stockpile of physical gold for themselves at today's depressed gold price, any subsequent increase in gold price simply helps bankers to meet the  new rules without having to actually buy any more reserve assets!  So it totally benefits them to buy what they need today and then pump the living crap out of it to a panicking population down the road.  Let’s say the ongoing remonification of gold drives the price up to $10,000 per oz.  Oil will want to follow in order to maintain historical relationships regarding how many barrels of oil one could purchase with an ounce of gold.  Wheat and corn will also want to go up.  Problem is, those things cannot keep up with gold prices unless salaries also go up and that is unlikely to happen given globalization and the deleveraging of the economy.  If their prices go too high then people will not be able to pay for them no matter how much they would be willing to.  Gold is not affected by this dynamic because gold is NOT a commodity as all the talking heads would have you believe.  Gold is money. 

Very few people have any idea that Basel III is even happening or what it means.  That’s the way these things always work.  The insiders talk quietly amongst themselves, planning, scheming, plotting, preparing while the world is watching the riots in Europe, the property crash in China, the water canon wars between China and Japan about a stretch of barren rocks and other $hit that simply does not matter in big picture.  I urge all readers of my blog to begin dollar cost averaging into gold at a time when it is still being artificially depressed by government.  This value depression is the direct result of being ridiculously labeled a tier 3 banking reserve asset by the con men running the show when in fact history shows that gold has always been the ONLY viable tier 1 asset ever to have existed.

In short, keep buying gold on a measured pace once per month or once per quarter while ignoring the daily ups and downs.  Do it not as an investment that you hope to make money on but rather as a savings plan that you want to ensure you will not get screwed out of.  Do it just as you would save into your 401k and in fact do it INSTEAD of saving into a 401k.  Ensuring that you have something in the kitty for retirment is really just that simple.  All other paper based strategies are bound to fail because they are part and parcel of the massive global debt Ponzi.  Current valuations of paper based assets are FAR too high thus ensuring that they will collapse in dollar denominated terms when the boomers begin to divest of them in retirement just as the Nikkei 225 did to the Japanese over the past 20+ years.  Those that don't get out of the paper investment Ponzi before the leveraged players bail out will be left holding an empty paper bag.  The global financial markets are in large part a racket; a con job and no con ever ran forever.

Deflation is still running the show.

I can't count the ways that I see deflation settling in on the global economy; the signs are myriad and legion.  I'm of the view that the world is trying to remain calm but that there are just too many signs and signals for the herd to ignore.  You can't turn on the TV anymore without hearing about "the fiscal cliff".  The military is quietly receiving major budget cuts (called sequestration).  Banks are being forced to increase their tier 1 capital reserves to 7% and gold is being called up again to serve as the premier monetary asset that will back the fractional reserve Ponzi scheme.  China is rolling over, Australia's housing bust is in full swing, the Middle East is in crisis, the Eurozone is in a historically significant depression and Japan is a bug in search of a windshield. 

 

Finally, and most importantly, Bernanke is reaching the very end of what is possible for him to do in regards to Ponzi pumping.  His recent pledge to keep interest rates low until mid 2015 is broadly viewed as a "throw hands in the air and panic" move by the fed.  All of their learned pumping cannot re-ignite the Keynesian animal spirits.  The herd is retrenching, pulling back its horns.  It is not taking out more loans and in fact the new "cool" is to be seen as low impact on the planet with a tiny house, a tiny car and a tiny lifestyle.  These are cultural swings that Bernanke cannot fight over the long run and it will lead to not a lost decade but rather a lost generation.  These are the wages of the fractional reserve pump and dump Ponzi.

 

A few days ago I posted that I thought the S+P 500 was looking ripe for a major roll over.  The recent revelation of tech revenue collapse by the likes of AMD support this view.  And I'm looking at comments about the latest IPhone right now and they tell me that Apple is running out of steam.  I would not touch AAPL stock with a 10 foot pole right now.  With Steve Jobs gone, AAPL has most likely peaked.  When AAPL stock begins to decline it will further dampen the animal spirits of investors and I think the result has to be a massive rush for the exits.

 

In truth, the S+P 500 has been on a decline for many years if viewed in inflation adjusted terms:

In fact, it's even worse than it looks because while investors have been losing real buying power, their dollar denominated "profits" have gone up and that means the tax man gets a big windfall from fake, inflation generated profits.  Regardless of whether you look at the S+P performance in real or inflation adjusted terms, these charts are ugly to the point of being scary.  In both cases there is a significant setup for a head and shoulders collapse.  Worse yet, this is happening on the right hand side of a clear mania chart. 

 

The exponential left hand side is clear evidence that the growth of stock market profits was driven by massive amounts of leverage of the type that is only possible with a corrupt money supply based on fiat currency and fractional reserve banking.  I'm telling you once more and without even a hint of doubt that this mania chart will eventually collapse just like the Nikkei 225 chart did over the past 20 years.  It must collapse because the banks no longer want to lend money (or their books are too impaired to allow it) the way they did during the boom at the same time when the people don't want to borrow anymore and instead want to pay down debt and live more simply.  This is credit deflation 101 and it must mathematically reduce the quantity of currency rolling around in the economy.

 

What I'm looking at on the S+P right now is shown in the chart below.  In short, the right hand shoulder of a massive head and shoulders formation looks to have peaked in the form of an

ending diagonal.  This is not confirmed yet by the chart.

Confirmation, if it occurs, will take place in the form of the S+P falling below the lower line that forms the ending diagonal. Further confirmation could be seen by a failed back test of that lower support-turned-resistance line from below.  If this occurs then it will constitute a trinity of technical terror IMO: 1) the collapse of the ending diagonal  2) breakdown from a declining double top (with the last peak in 2007) and 3) likely on the downward slope of the right shoulder of a massive, multiyear head and shoulders formation.  All of this is happening at a time when boomers are retiring and they are no longer contributing to their 401ks and instead drawing down money from them. 

 

I hope that everyone has the eyes to see and ears to hear this fundamental truth: there is not enough value in the stock market to cover all the claims and expectations of those who are invested.  PERIOD.  The high valuations are to a great degree the result not of honest investing but rather of massive leverage by elite moneymen/bankers/hedge funds who are very effectively gaming the corrupt money supply.  Do you REALLY think Mitt Romney earned the $200 million he is supposedly worth?  Of course not.  He gamed the system because he knows how the scam of fiat currency and fractional reserve banking work and he got on the right side of the trend at Bain capital and leveraged up to the hilt.  Every dime he extracted from the markets and from the economy like that was effectively stolen from working people.  PERIOD. 

 

Keep in mind, I'm not really blaming him.  He didn't create the Federal Reserve or its corrupt rules.  He just gamed the system like a pro.  But he knows what he did which means he is a man of low moral character IMO.  Of course Obama is the same crap, gaming the system for his own political purposes.  Ron Paul was the only honest guy out there, a fact which people will someday come to realize, but probably only after he is dead and gone.  For now, the people still think they are going to get rich in the something for nothing Ponzi even though most cannot win by pure mathematics.  People will only get it after the Ponzi-pumped stock market collapses and everyone finally sees it for what it really is: gambling with sharks.

 

While all of this is happening the dollar price of gold and I believe of silver as well can and will be volatile.  However, even if the dollar price of these metals goes down I am 100% confident that the buying power of them will be retained.  The global monetary system is so screwed up and corrupted today that the ONLY way to get it back under control is to back it with gold in a very significant way.  That means that big money houses will have to be buyers of gold and they will be competing with individuals for this ownership.  The Internet is taking away the first mover advantage from those in the know.  They no longer have unlimited amounts of time to play their games without everyone else catching on.  Too many people are already aware of the new Basel rules that are moving gold to tier 1 capital status while mandating an increase. 

 

We are not talking about short term ups and downs here, folks, but rather a measured move to reduce leverage over the next decade BY LAW:

"To meet the capital requirements effective in 2015 (4.5% for the common equity ratio, 6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on average by about 15 basis points. The capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points."

 

Yes, that's right, they are already planning to reduce leverage in the multitrillion dollar banking system by significant amounts over at least the next 7 years.  Now, imagine you are a banker and you see these rules.  You know you will have to maintain higher reserves lest the government come in and take your bank over.  Are you going to be increasing your reserves by buying government bonds which have been tier 1 capital for a long time knowing that everything is cyclical, or will you do it by buying gold which has not been a tier 1 asset but which is going to turn into one in 2013?  If you have any sense at all you will get behind the new trend, not continue with the old, tired trend.  If the US keeps going into more debt (and it WILL, for sure or there will be massive riots or worse) then someday someone is going to downgrade it to the point where it can no longer be used as tier 1 capital reserve.  Why would you want to risk that as you comply with the new reserve laws?  In short, the bankers might be greedy a$$holes but stupid they are most certainly NOT.  They will buy significant amounts of gold in order to meet their new reserve requirements and it will put a floor on how low the dollar price of gold can go.

 

As usual, I suggest that timing the gold market is for the most part a fool's game.  Save your retirement funds on a regular basis outside of the 401k system, outside of the dollar, outside of the paper money scam altogether buy trading your dollars in for real money on a measured and steady basis.  Do so as a savings vehicle, not for the purpose of "investing" or trying to make something from nothing.  Be happy with the ability to save your excess labor in a form that is beyond the greedy hands of governments and bankers.  The monetary status of gold is a gift to all honest working people all over the world.

JC Penny (and all of retail) is in big trouble

The busy looking chart below tells a grim story for JC Penny:

 

To recap, the shares plunged in the first wave of the collapse from $88 down to $14.   Then Bernanke stepped in and began throwing the economic kitchen sink at the global markets.  The result has been a significant multiyear rally and without much price inflation in the US.  JC Penny responded by doing a dead cat bounce to nearly exactly the 38.2% retracement while simultaneously tracing out a flag formation/rising wedge (both of which signify just a pause in the real trend which is still down). 

 

After the “e” rail of the flag was hit, the stock collapsed below the lower support (in 5 small waves - wave 1 of C) and then rebounded to back test the new resistance from the bottom.  That backtest was a 2nd wave.  I believe this has to put the shares into a 3^rd wave and it will be a 3^rd of a C wave so it should have some bad downward gaps in it (AKA "cliff diving").  As a bellwether for retail I think the JCP chart is telling us here that Bernanke is about out of gas to stimulate without causing inflation (otherwise known as “sterilized” stimulus whereby the stimulus stays within the banks for the most part and thus does not make it into the economy where it can cause prices to go up).

 Rapid price increases in which wages do not keep up has always been bad for retail as is deflation whereby the value of assets goes down dramatically.  In either case the consumer is left with less buying power and thus consumption is reduced.  I would be surprised if JCP makes it through the coming depression.  Bernanke has fixed nothing.  He only succeeded providing golden parachutes for some of his banking buddies while making the coming collapse that much worse for everyone else.  I wish people could understand that there is no free wealth, only the perception of it (a basic concept which is at the heart of any Ponzi scheme).  So if someone is making out the back door with lots of wealth then you can rest assured that there is less left in the game for everyone else that does not have the special privilege of being a well-connected moneyman. 

All this talk about a US depression still sounds a bit crazy for now, I’m sure.  Still, with literally thousands of hours of research and study into the matter I remain convinced that someday, and likely much sooner than anyone thinks is possible, the troubles caused all over the world by the US driven scam of fiat currency and fractional reserve lending will certainly come home to roost. 

 

It would not surprise me to find that Bernanke has been putting the federal reserve at more risk than he wants to in the short term for the express purpose of keeping the economy from collapsing until he can help get Obama re-elected.  Romney is on record saying he will fire Bernanke (a damned foolish thing for him to have said IMO even if he really did mean it).  Once Obama is re-elected, Bernanke is more likely to let the pain fall through to the American people than to hold as much of it on the shoulders of the federal reserve (through the process of “sterilized” stimulus).  After Obama gets elected, the sterilization will be less important to Ben and so he won’t worry about it so much.  In fact, the fed is sending secret signals out about this right now according to Michael Pento.

Disclaimer: Lest anyone think I am picking on Obama, my position should be crystal clear: I think both GOP and Democratic parties are corrupt to the core and that both have the same basic value proposition of promising more to their constituents than they can deliver but to deliver at least part of their promises using endless debt.  I think both will resort to causing war if the economy gets too bad because they believe in creative destruction (a Keynesian scam) and thus in the concept that war is effectively economic stimulus (they don't care who gets turned into hamburger on the battlefield as a result because their children are always exempt).

In short, Obama=Romney=Bush=Clinton, all of whom are scumbag lying fronts for the miltary industrial complex that is really running the USA as well as the world.

The world is slowly rolling over.

   During the first wave of the melt down of the global debt Ponzi, Warren Buffet famously said "when the tide goes out we will see who was skinny dipping".  Another way of thinking about this is that the marginal players are always hit the first and the worst.  Another word for margin is "leverage" which can of course take many forms.
   Today we are seeing that France and Iran are pretty much in the same boat: both marginal players in their own special ways.  They are just at different points in their journeys (as are the rest of the countries in this global debt Ponzi).  In the case of France, the EU is in depression with France being a big exporter.  I predicted many months ago that France would hit the skids eventually because its customers are hitting the skids.  At the time everyone was pointing to the PIIGS as deadbeats with France and Germany the powerful overlords.  I knew this was not going to last because France and Germany are in the same sinking ship as the rest of Euroland and in fact as the rest of the world. Germany is keeping a stiff upper lip for now but I assure you, there is great panic in Merkel's insane attempts to bail out Germany's bankrupt, deadbeat debt slaves.  Of course, everyone now understands that she is really trying to allow her own banks to appear solvent when the math says they are already bankrupt.
   In the case of France, the government is attempting to fleece its most productive citizens with ridiculous levels of taxation.  Government doesn't care who worked or how hard they worked.  It only cares about staying in power and it knows that those who didn't work very hard will still know how to protest hard and riot hard.  In fact the poor will always be more disruptive to social order during times like these because they literally feel that they have nothing to lose.  They don't understand a thing about how money works but they do know that they are getting screwed and so they will riot and burn and plunder.  History shows that in extreme cases they will even drag the government and its families into the streets and hang them.  Government is terribly afraid of this and so it is attempting to "spread the money around a bit" in order to quiet the rabble.
   Unfortunately for the French con men leadership, the smart people of France are quick to call bull$hit and they are quickly organizing against the so called "pigeon tax" (pigeon is French slang for "sucker").  How long should anyone expect them to put up with it before coming up with a defensive response?  Not long folks.  It will not take long.  The free market, aided by knowledge and technology, is an unstoppable force and these pigeons know they are getting screwed.  They will quickly figure out a multitude of avoidance strategies that the bureaucrats will not be able to deal with.  As Princess Lea told Governer Tarkin in Star Wars, "The more you tighten your grip, Tarkin, the more star systems will slip through your fingers. ".   Government's attempts to steal will be thwarted and they will have to make the next big decision: treat people as free entities who rightfully deserve to keep what they themselves earn or consider them slaves and use some new form of force, coercion or government terrorism to get them to comply with government theft.  I can tell you right now that any attempt to enslave the French elite will not work for very long.
   As for Iran, well, if you've bought into the US government propaganda then you probably think they are evil, hate Americans, blah blah blah.  Of course it has nothing to do with us trying to control them and of course nothing to do with stealing from them with our global money scam.  An honest person will admit that if some Iranians become terrorists it is because they feel they have nothing to lose.  It is because they don't know how money works or how to keep the fruits of their labor.  Instead, they buy into the scam of fiat currency even when their government isn't running the show.  Their lives are wasted and they see the future of their children to be a dead end that they believe was not of their own doing.
   Here's the deal.  The wages of ignorance are being paid to the people of Iran who are now suffering from the most recent case of hyperinflation.  They allowed their money to be backed by nothing.  They bought into a scam whereby they have been trading their oil for paper money that was printed up by someone who doesn't respect them.  Had they one Rial of sense, they would have demanded payment for their oil in gold all along and their internal economy would have been gold based all this time.  Now hear this: YOU CAN'T HAVE HYPERINFLATION IF YOUR MONEY IS GOLD OR SILVER.  It cannot happen folks.  So, as hyperinflation hits more places around the world there can be nobody to blame except for the people who allowed their money to have no backing.  In essence, hyperinflation is an ignorance tax.  Do you think those enlightened people of Iran who chose to put their life savings into gold bullion coins are crying right now??  Of course not!  Gold is not hyperinflating, only the fake money can do that.  In fact, anyone with debt denominated in fake money is seeing that fake debt evaporate as long as they have a significant amount of savings in real golden money.  What used to cost a handful of gold coins to pay off will soon be repaid with a fraction of 1 gold coin over there.
   For now, the really bad stuff is hitting others in the world.  The cost of living in the US has risen a bit because of Bernanke's printing press but we are still exporting our inflation to the world because we own the world's money supply.  For now the scam is still working and for now inflation remains tame in the US.  But Bernanke is starting to panic as well with open ended buying of government debt and promises to continue manipulating interest rates low until mid 2015.
   I'll make a bold prediction right now.  It is bold because nobody believes it is possible but that's simply because they mindlessly extrapolate past events into the future without considering that history sometimes changes direction on a dime.  I hereby predict that Bernanke will not be able to control US interest rates through 2015.  Today he seems nearly omnipotent on the global stage but I know he is just a con man running a con and that he is getting nervous and desperate.  I also know that he needs other nations to buy our debt in order to keep rates low.  He can't just buy it all up or people will start to lose confidence. 
   Unfortunately for Ben, other countries are losing their wealth.  And with diminished wealth they will have diminished need to store it in US treasuries.  This fact alone is reducing demand for them which is why Bernanke has been buying 75% of them or more over the past few years.  But government needs to sell more debt every year as this is the nature of a debt Ponzi.  I don't know what the trigger will be but at some point prior to 2015, Ben Bernanke will lose control of his global scam and it will begin to go sideways in a way that nobody will see coming.  The world will lose confidence in the con.  It will have a rapid onset as these things generally do lest many of the patsies escape.  And it will finally hit home in the US.  At that time, most Americans will begin to receive the wages of ignorance.  The defense is and always was to store your long term wealth in gold and to do so in a steady fashion BEFORE the panic begins.