The attack on Gold mimics May's attack on Silver

As events play out in Gold and Silver, the predictablity of what is occuring is almost comical.

With options expiring this week and Ben Bernanke giving the Federal Reserve's highly anticipated FOMC statements Friday from Jackson Hole, EVERYONE was expecting classic cartel action on both Silver and Gold in the days leading up to Thursday/Friday... and we were not disappointed.

Those who follow the metals have been wondering how long before the same sort of attacks on margins in Gold that Silver saw in May (when margins were hiked 5 times in 8 days to force a selloff).  Even on CNBC last week, Jim Cramer was touting the prospect of margin hikes.

Two weeks ago the CME hiked gold margins by 22%.

Two days ago the Shanghai Gold Exchange jacked their margins by 26%.

This morning Gold plunged by $100/oz, the most since December 2008. Some rationalized that the market was about 24 hours late in processing the news from the Shanghai Gold Exchange hiked gold margins, but in reality the selloff was insiders getting a jump on the next attack.

And that attack is now public after having been widely leaked this morning: the CME has boosted margins in Gold by an additional 27%.

Look for margins to ultimately be raised to 100% cash before things are done. This fast, deep correction is one of the signposts on the way to much, much higher prices for both Gold and Silver.

More importantly look for the blatant and heavy handed bear raids in the metals, although very much anticipated and a source of some profits, to continue.

Remember... nothing has changed in the fundamentals driving both Gold and Silver.

There has never been a time in history when debt problems globally have been this monstrous.  Harry Schultz, the retired but highly respected investor, summed up the calamity we face in his last market newsletter at the start of the year.  He said,  “Roughly speaking, the mess we are in is the worst since 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched & where the rot is by far the deepest.”

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Email: village_whisperer@live.ca
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Greenspan: "Time to let the markets power recovery"

Yesterday I made a post about former US Federal Reserve Chairman Alan Greenspan's speech to the Council on Foreign Relations in New York.

Greenspan made some interesting comments about Gold, but that wasn't the only point of interest.

Of particular note for real estate observers in the Village on the Edge of the Rainforest, were comments made about government stimulus.

The still influential Greenspan said fiscal stimulus efforts have fallen far short of expectations, and the government now needs to get out of the way and allow businesses and markets to power the recovery.

“We have to find a way to simmer down the extent of activism that is going on” with government stimulus spending “and allow the economy to heal” itself.

At this point, “we’d probably be better off doing less than more” because “you’d be far better off to allow the normal market forces to operate here," Greenspan said. That’s largely because stimulus spending is not proving as effective as many had hoped. “To the extent the evidence suggests very large deficits concurrently crowd out capital investment, there is a debit to the stimulus program that is somewhere between a third and a half of what the gross stimulus is,” he said.

Greenspan said that the U.S. needs to do something now to deal with budget deficits and it must do something very soon. He explained his anxiety is so high that “I’m coming out in the first time in my memory” in support of higher taxes in addition to reduced spending, including allowing the so-called Bush tax cuts to expire.

“Our choice is not between good and bad; it’s between terrible and worse,” Greenspan said. The nation has “a level of commitment... which I don’t think we can psychically meet,” absent huge changes in how the government finances itself.

These are, once again, stunning statements with potentially massive reprecussions for Vancouver.

The ONLY reason interest rates are so low is because of government intervention.

Given the current state of the worldwide economy and the capital demands of governments, if interest rates were let to float to market level the impact would be profound.

Rates would, at the very least, return to their historical norm over the last twenty years of 8.25%. Government has been manipulating those rates for the last 10 years and the time for that intervention is coming to an end.

When this all plays out, Vancouver real estate is going to implode on a level even the staunchest of bears cannot fathom.

Meanwhile in Victoria

Vancouver has had three consecutive months of dismal real estate sales and September is shaping up to make it four in a row with sales down about 40% from last year.

But that's nothing compared to Victoria where September is on track for a collapse in sales of 75%.

And finally, from the Hyperinflation Debate

Harry Schultz, author of the famous International Harry Schultz Letter [IHSL], has had a long and colourful financial career.

Much like Gonzalo Lira, he is fascinated by the possibility that hyperinflation might be triggered quickly, by a sort of global financial traffic accident. Back on June 10th, 2010 he wrote:

• "We (collectively) are poised at a heart-stopping moment in economic times. On the one extreme side, the world is on the edge of massive deflation and depression. At the other extreme ... hyperinflation. My view is: Both these extremes are possible. Certainly deflation is, on balance, in play today and gaining ground as money supply is actually declining! Hyperinflation seems impossible when there is not much inflation in most economies. But... hyperinflation is a monetary event, not an economic one, and will happen on an overnight basis, not via a general uptrend in inflation data."

At age 89, Schultz is winding up his businesses and will wind up his IHSL at the end of this year. In the latest letter he summarizing the account of how hyperinflation could happen by Gonzalo Lira and describes Lira's scenario as “a genuine risk” and comments:

• “Hyperinflation can be triggered in several other ways. Trustfailure (my new word) is the controlling element, which triggers Fearflation (another new word). E.g., a Comex gold delivery default or a major Too-Big-To-Fail bank failure or a self-propelling domino bank-run are all possible triggers. A bond market implosion will result from any of the above, even if it isn’t itself the trigger.”

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Email: village_whisperer@live.ca

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