Opportunities (Updated - 60 Minutes News Story)

Late last night I got together with some friends for a pre-Christmas coffee.

Invariably the conversation turned to the topics of Silver and Real Estate, triggering an update of sorts.

During the summer, 'S' had asked my opinion about real estate.

Aware of my strident stand on the issue from friends, he wanted to hear first hand my thoughts on becoming a first-time buyer with his girlfriend.

You know my answer.

And I laid out the full case: buying real estate now was a poor decision, interest rates had no where to go but up, and the looming spectres of QE2/US debt problems/and the PIIGS meant that there were far greater investment opportunities out there with which he could benefit from in the short term.

My advice: instead of buying real estate, invest any downpayment he had set aside and by the end of the year he would be way ahead of where he would have been if he bought a condo.

My recommended investment of choice?

Silver. I specifically recommended a silver mining stock known as First Majestic (FR), a stock I have referred to several times before on this blog.

[For the sake of disclosure - at the time I owned some of the stock, I have since sold all that stock and currently I do not own any of it.]

If you read this blog regularly, you know my position on this. I do not consider myself a Gold/Silver 'bug'. I am firmly of the belief that Gold & Silver is not money, nor is it a hedge against inflation (it performs that role very poorly).

Gold/Silver is a hedge, however, against the mismanagement of the state; which at this time and place is the United States with it's world's reserve currency status.

In the summer I told 'S' that it was almost a certainty that the United States would be forced to continue Quantitative Easing on a massive scale. Because of this, I opined, it seemed clear to me that a large segment of the world would be moving into the mediums of Gold & Silver on a scale that hasn't occurred in over 100 years.

At the time of our discussion, that silver mining stock (FR) hovered at the $5.80 mark.

'S' contrasted my viewpoint with the experience of a mutual friend/coworker. He had just sold his condo for $805,000 (bought 10 years ago for $300,000). With no outstanding mortgage, it was all bubblicious profit.

What did the coworker do? He bought half a Vancouver duplex for $920,000 (a property which still required $80,000 - $100,000 of renovations) confident that real estate was the best place for his funds.

I told him our co-worker was crazy. I believe he was throwing away the opportunity of a lifetime to invest that money, realize a massive return and rent in the interim.

Fast forward to the end of the year and we had a chance to review.

So what's happened since August?

Physical silver has gone up by almost 70% and the mining stock First Majestic has gone from $5.80 to a close last Friday of $13.21.

Had our mutual co-worker invested the $805,000 in that stock, he would be sitting on over $1,833,000 today; a profit of over $1 million in just four months!

I re-iterated my point.

Real Estate right now is a tremendously poor investment choice.

There are far greater opportunities for huge returns that completely dwarf real estate.

Even if real estate in Vancouver goes up the estimated 10% next year, it won't compare to what I believe you will see if you invest in Silver.

First time buyers? Same advice. Take you downpayment and invest it.

That was my advice in August and that's my advice now.

Gold & Silver still have a tremendous upside. I can see Silver easily moving to $35-$38 an ounce by spring, hitting at 10-30% correction, and then taking off again.

Why?

The economy is stalling. QE2 is not generating the desired results, Europe is in shambles with huge debt issues still to be addressed in Greece, Portugal and Spain. And looming in the background with it's own debt catastrophe is the U.K.

Meanwhile there is the United States.

The next looming crisis will be the mounting debts of the individual States in America.

Many State and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years with the problems starting to come to a head in 2011.

If you thought the Wall Street bailouts were massive, they are nothing compared to what is going to be needed for the individual US States. And the American government, along with the Federal Reserve, are not going to allow those States to go bankrupt.

QE 3, 4 and 5 are all but assured.

Canada?

Word is starting to spread that our nation's Real Estate Bubble is making our Banks look anything but sound.

Combine that with a looming credit downgrade for the Province of New Brunswick as well as for other provinces such as Ontario and Quebec and suddenly critics are saying our provincial balance sheets and economies bear a resemblance to the troubled states of Europe than a country that should be considered an oasis in the Western quagmire.

Gold & Silver are hedges against the mismanagement of the state. With what's going on in Europe, the USA, and our country, I can't envision any scenario that doesn't have massive amounts of money pouring into precious metals.

'S' was curious if my advice had changed since summer?

Not a chance.

[As always, please read disclaimer at bottom of this blog]

CBS 60 Minutes Update

Interestingly, the lead story on 60 Minutes tonight is State Budgets: Day of Reckoning. From the introduction...

• By now, just about everyone in the country is aware of the federal deficit problem, but you should know that there is another financial crisis looming involving state and local governments.
  
  It has gotten much less attention because each state has a slightly different story. But in the two years, since the "great recession" wrecked their economies and shriveled their income, the states have collectively spent nearly a half a trillion dollars more than they collected in taxes. There is also a trillion dollar hole in their public pension funds.
  
  The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about.

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Canadian Borrowing Gone Mad

I was working on a post compiling many of this week's debt warnings and rationalizations when I came upon this post by Mish Shedlock.

Mish says it better than what I had prepared, so check out his full post.

Also... adding to this week's round of debt warnings is this Carney piece in the Toronto Star where Carney warns that "the hard part of the recovery is just starting."

Intestingly, came across info that today on BBC Radio 4 (which is designed to serve as offshore radio and is part of the Royal Navy's system of Last Resort Letters - a system that in the event of a suspected catastrophic attack on the United Kingdom, submarine commanders check for a broadcast signal from Radio 4 to verify annihilation of the homeland) the Money Program panel had the consensus view that interest rates would go up substantially in the new year.

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What's the issue all about, Charlie Brown?

Oh my... mainstream media, the real estate industry AND the blogopshere are all a twitter about the comments this week from the Bank of Canada Governor, the Finance Minister and the Prime Minister.

And they should be.

But what to make of it all?

You have those who argue the powers to be should be taking away the stimulus punch bowl.

Along that line, even the Banks are saying they can't be expected to resolve the problem and that government needs to change the rules, ie. reducing the allowable amortization period.

According to CMHC’s own mortgage payment calculator, Canadians were able to spend 15% more for a house (using the same downpayment) by merely by moving to a 35-year amortization mortgage from the traditional 25-year version. When the government did this, Canadians did't take the chance the make their mortgages more manageable... they simply plowed forward buying the most house they could thus driving up debt and prices.

Banks can't stop them. So Banks are saying, change the rules.

The next salvo will come from the real estate industry. In fact, it already has. The pressure is already being applied urging officials not to get hysterical about the imminence of a debt crisis. The argument being that we're indebted, but because of the bubbly value of our real estate - we're also wealthy.

(Just like our American cousins were in 2006).

We can see this R/E driven media manipulation on a number of fronts.

Financial Insights breaks down the nonsense argument that we are sidestepping the US collapse.

And VREAA has transcribed a CBC interview that essentially argues that all of our debt is 'good debt'.

The battle has begun.

The end of the CBC interview contains what is the central issue to the whole debate. Says CBC's Ian Hannomansing:

• “Of course the wild card is interest rates. At historically low levels now, the BOC Governor has pointed out there is no guarantee how long they’ll stay there.”

Ahhh, yes... there it is.

It's all about interest rates, Charlie Brown.

If they stay low - no problem.

If they go up to the historical norm of the last 20 years - huge problem.

And if, as many fear, they return to double digits as the bond market overwhelms both a debt ridden Europe and America... well then we are ground zero for a massive collapse.

It's all about interest rates. And there's a good reason Carney said,

• “The crisis is not over, but has merely entered a new phase... when interest rates begin to rise again, the repercussions may be swift, fierce and have the potential to catch many [Canadians] with debt loads they can no longer afford."

The debt to asset ratio is a red herring. So is the debate about amortization periods.

The issue is what's coming and the amount of debt everyone is carrying.

All government can do at this point is to try and prevent people from piling on more debt. But that won't diffuse the current debt dilemma.

Strip it all away and all that matters is you and your own personal situation.

Carney has told you what's coming. Are you ready?

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Lux Æterna: Cassandra's Nightmare

I recently read an analogy about the stock markets by Jawad Mian of Q Invest which could equally apply to our Canadian Real Estate markets.

In Greek mythology, Cassandra was a princess of the legendary city of Troy, and the most beautiful of King Priam’s daughters.

Cassandra was seduced by Apollo, who gave her the ability to predict the future. But when she refused herself to him, he cursed her by making people disbelieve her predictions.

So Cassandra went around knowing and predicting the future, telling people what was going to happen, but no one ever believed her. She foresaw the fall of Troy, but couldn’t prevent it.

Cassandra is a figure both of sagacity and of tragedy, where her combination of deep understanding and powerlessness exemplify the tragic condition of humankind.

I find the mythic origins of the Greek prophetess and the metaphorical application intriguing in so far as it relates to the Canadian Real Estate markets.

What Cassandra sees is something dark and painful that may not be apparent on the surface of things or that objective facts do not corroborate.

She may envision a negative or unexpected outcome; or a truth which others, especially authority figures, would not accept.

In her frightened, ego-less state, she may blurt out what she sees, perhaps with the unconscious hope that others might be able to make some sense of it. But to them, her words sound meaningless, disconnected and blown out of all proportion.

At the turn of the century, there were some who fretted that higher interest rates might soon return.

Dismissed as scaremongering Chicken Little's who thought the sky was falling, they were further vilified as Central Bankers in the Western World cut interest rates to stimulate the economy out of the dot com collapse.

"The Central Bankers are telling us interest rates will stay low," the housing bulls cried. "Now is the time to buy!"

And they were right.

As the American housing market imploded, and the 2008 Financial Crisis took hold, Central Bankers swore to cut interest rates drastically to resuscitate the economy.

"The Central Bankers are telling us interest rates will stay low," the housing bulls cried. "Housing in Canada will continue to rise!"

And they were right.

But over the last 12 months that has changed.

First it was Alan Greenspan, former chairman of the US Federal Reserve, who started sounding the warning bells.

Then Canada's Central Banker, Mark Carney, started with his warnings.

For most of this year Carney has intoned his cautionary tale: Interest rates will be going up - sharply. Make sure you are ready.

For years the housing bears have been dismissed because the signs coming from the Central Bankers undercut the primary reason the bulls said housing would collapse: interest rates.

Changing viewpoints is a gradual process. Flipping from bullish to bearish, and vice versa is difficult. We remember what most recently rewarded us, and internalize that.

Cassandra has become the archetype for many prophetic characters who are either ignored or cannot be comprehended until after an event has occurred.

Our catastrophic failure to heed caution has much to do with our preference to look at the surface rather than what underlies appearances.

Both Greenspan and Carney are issuing warnings about higher interest rates, mainstream media are regularly publishing stories about the existence of a housing bubble, about our extreme debt situation and the American Experience reflects back at us.

And still the warnings sound meaningless, disconnected and blown out of all proportion.

Sometimes illusions are far more comfortable than reality. That may explain the unchecked optimism many continue to have in regards to the Vancouver Real Estate market.

The housing market will soon start a steady erosion that will scar the life of anyone invested on the wrong side. That erosion will be caused by significantly higher interest rates.

The Greek philosopher Solon said: ‘Observing the numerous misfortunes that attend all conditions forbids us to grow insolent upon our present enjoyments. For the uncertain future has yet to come.’

Greenspan and Carney have made it clear now that the uncertain future is almost upon us.

• “The crisis is not over, but has merely entered a new phase... when interest rates begin to rise again, the repercussions may be swift, fierce and have the potential to catch many [Canadians] with debt loads they can no longer afford."

Soon the Central Banker safety net will be withdrawn, or the bond market will negate their interference.

Will it be a Requiem for the Canadian Housing Dream? More importantly... will you be forced to mourn your own personal circumstance out of insolence?

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Bonus Tuesday Post: More Carney Warnings on Debt

Bank of Canada Governor Mark Carney is speaking out again today on debt.

In an interview today with BNN, Carney issued yet another stern warning.

Clearly our central bank is highly concerned about the fact that Canadians' debt-to-income ratio is now higher than Americans'. This is the first time in 12 years we have put ourselves in this position.

Carney commented that Canadians’ borrowing has entered "uncharted territory" and the risks associated with the level of debt households are carrying is something that "we all have to take seriously."

(please... keep the gagging down out there, blogoshpere)

Said Carney:

• "We are in uncharted territory, household debt-to-income is higher than it’s ever been. The level of vulnerable households in Canada is high, and will be substantially higher if interest rates adjust, and that’s something that we all have to take seriously."

Once again the main concern is while interest rates aren't likely to rise until about mid-2011, Carney is worried that too many Canadians won't be able to handle higher payments when they do rise.

Of particular interest is Carney's assertion that the longer that rates stay low, the more abruptly they may need to rise to curb inflation when the economy improves.

More Carney:

• "The issue is the sustainability of the situation. "No country can grow debt faster than income persistently. Ultimately it’s a shifting in time of consumption."

Perhaps the most intriguing element of Carney's warnings the last couple of days has been his caution that the Bulls should not take comfort in statistics that show, on average, growth in Canadians’ assets are vastly outpacing their debts.

Carney pointed to other countries whose banks made the "classic mistake" of lending based more on borrowers’ assets than their liabilities.

• "The debt endures, the asset prices go up and down. People in Ireland, people in Iceland, people in the United States that took out big mortgages on assets that were worth a lot more for a long period of time, found out that the asset’s not worth very much but the debt’s worth exactly what it was when I took it out."

Ahh, yes... there can be a lot more 'HELL' in the acronym HELOC than people appreciate.

Carney is telling us Real Estate doesn't always go up. He sees a downturn coming. As in the United States, a slight downturn is what started toppling the dominoes.

Ultimately this will be our undoing as well.

"Sell now or lose out on that equity forever."

To watch the BNN interview:

Click here for Part One

Click here for Part Two

Click here for Part Three

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Silver-Gate Intensifies

Faithful readers will recall my earlier posts on Silver-Gate here, here and here.

Basically the Commodity Futures Trading Commission (CFTC) has alleged that JP Morgan and HSBC have engaged in "fraudulent efforts to persuade and deviously control the price of silver."

In addition over six separate lawsuit have been filed alleging breaches of the Racketeering Influenced and Corrupt Organizations (RICO) Act by these two banks.

Now... the practice of naked short selling has long been a serious issue on Wall Street.

But of what we know about the scope and intent of JP Morgan and HSBC's actions in this particular short-selling scheme... well, it dwarfs any other similar attempt to manipulate a commodities market.

Intense scrutiny and attention has been brought to bear on JP Morgan in the last few months as a result of these investigations. This has severly restricted their ability to fully carry out their actions.

Silver, as a result, has shot up over 65% since August.

Many believe without JP Morgan's manipulation, silver will return to it's historic 1:16 ratio with gold. That would put silver at almost $100/oz instead of the current $29.58.

Critics, of course, say there is no manipulation and that nothing will come of this.

As reported last night on Zero Hedge, JP Morgan has come out and admitted it's massive short position and intends to dramatically reduce it.

If the topic interests you, read the Zero Hedge post.

At the moment, many believe the pledge to reduce it's holdings hasn't occurred yet and any claims that it has reduced it's position are just P/R to reduce negative media attention.

The saga still has a ways to play out. However... I suspect the almost 70% rise in the value of silver since August is nothing compared to what lies ahead.

Overnight, silver has surged another $0.30 when I wrote this (about 10:30pm last night). Action in silver is very high.

With that in mind, here is an analysis from the daily report of a silver trader I follow:

• The total silver comex open interest fell by 935 contracts to 129,712 from Friday's reading of 130,647. The front delivery month OI registered today at 483 dropping 46 contracts from Friday reflecting the 50 notices sent down for servicing. The estimated volume today on the comex was an astoundingly high 111,854. The banking cartel threw everything at the longs trying to keep the price from escalating. The confirmed volume on Friday, ie. the day of the raid was also very high at 63,196. So if I feel that 63,196 is high you can just imagine what traders are wondering when they see an estimated volume at 111,854. By the way, that represents 555 million oz of silver or about 1 years production. Makes sense to me!! It looks like the bankers will try another raid tomorrow as the volume supplied today was just too much. The bankers are trapped and they will do just about anything trying to extricate themselves from their massive short positions in both silver and gold.

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Bonus Monday Post

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Another significant warning about interest rates...

Time after time I have said that when it comes to the Real Estate Bubble in our little hamlet on the Edge of the Rainforest, the issue is all about interest rates.

When they go up dramatically, the bubble will burst in spectacular fashion.

Until they do, the bubble bears will have to withstand the taunts and barbs of the bulls.

And while bears have uttered the warning for several years now, rates have been artificially suppressed by stimulus initiatives and the bulls have chortled about it every chance they get.

Bears have also had to endure the criticisms from friends and family who chide them because the collapse has not come.

For those of us who can see what is coming, the taunts are insignificant.

Unless property has been bought to be flipped, the time frame is irrelevant. Buying five years ago or buying yesterday is immaterial... interest rates will destroy you because the amount of your mortgage is so massive that the amount still owing cannot withstand the level of interest rates we are about to be saddled with.

And the fact of the matter is most have not bought their real estate to flip.

What we see coming is the day the manipulation of interest rates end - either because governments have decided to withdraw stimulus or because governments can no longer effectively manipulate them (ie. the bond market forces interest rates higher).

And judging by the warnings from those who matter, that will be sooner rather than later.

Bank of Canada Governor Mark Carney has come out with his sternest warning yet of what lies ahead.

In a speech to the Economic Club of Canada today in Toronto, Carney said efforts by various governments to stimulate the economic recovery are keeping borrowing rates low. But...

• "the crisis is not over, but has merely entered a new phase... when interest rates begin to rise again, the repercussions may be swift, fierce and have the potential to catch many with debt loads they can no longer afford... The Bank of Canada will set interest rates based on inflation, not on whether a large swath of Canadians have taken on too much debt. The bank may also raise interest rates even in a low-inflation environment to discourage risky borrowing."

Honestly... short of pounding you over the head with a shovel, how plainer can the looming future be made for you?

Canadians, of course, will respond with the same fairy tale denial that is almost a mantra now... "the government would never allow interest rates to go very high because it would hurt Canadians too much".

Okey-Dokey... Joe six-pack, allow me to introduce you to Stephen Harper, Prime Minister of Canada:

• "The [current] situation is the result of individuals' choices, and the government can't control how they spend."

If you didn't catch it, that was your Prime Minister officially hanging you out to dry.

For years the refrain has been "buy now or be priced out forever."

For those who can read the writing on the wall, the refrain has become, "sell now or lose out on those capital gains forever!"

Problem is, too many Canadians are illiterate.

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Cartoon on Vancouver Real Estate and Hyperinflation

Above is the latest in the cartoon fad, this one on Vancouver Real Estate.

You always have to love those who make bold predictions.

Recently we've had those who say real estate will keep going up, up, up come out with their comments that boldly proclaim there is no bubble.

As always, it's great to chronicle their positions for future reference.

The blog Financial Insights does a great job of recording a couple such items in their Sunday post with 2 references from Toronto and 1 from the article in the Edmonton Sun.

Speaking of stating their position on controversial subjects, let's turn our attention to John Williams. I have told you before about the author of the excellent website Shadow Stats. Williams is very straightforward in his views about inflation and hyperinflation. His predictions about Hyperinflation are intensifying.

A number of you have emailed me with items about the recent changes in the bond market as a precursor to the start of the tide turning on the American dollar.

Williams, I am sure, would agree with you.

Not only is he convinced significant dumping of US dollars will begin in the next 6-9 months, but he is convinced we will see high inflation in that period too. The youtube video title shrieks "hyperinflation will start in the next few months", but Williams doesn't exactly say that in the interview.

Point of interest: he is calling for ultimate hyperinflation in the United States, but stresses he doesn't see hyperinflation in Canada.

At the end Williams suggests you watch for a massive dumping of US dollars as a trigger sign. It brings to mind another youtube clip that outlines a hypothetical playing out a US dollar collapse in simulated news events. I don't agree with all of it, but I thought I would post it for you to check out.

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Carney a hero?

Courtesy of our friends over at VREAA, our attention was drawn to BMO’s 10 fun economic, financial facts for 2010 to impress friends at parties.

According to one of the 'fun' facts, the deputy chief economist at BMO Nesbitt Burns tells us that:

• "Vancouver posted the fastest increase in house prices among major Canadian cities this year, averaging 15%. Tougher mortgage insurance rules, a 13% slide in sales in the city, a 13% rise in new listings this year, the new HST, a feature story in Business Week about how Vancouver was the last housing bubble in the world, a website comparing million-dollar homes in the city to crack houses... none of it mattered when stacked up against shrewd investors from China."

Shrewd?

We'll see in five years.

I can't help but recall the comments of a friend's Dad made about 12 years ago in Richmond.

He is a realtor, and Canadian born of Asian descent. Commenting on a new Chinese restaurant that was lined up out the door he said, "Of course there's a line-up. It's new. And Asians flock in packs to the latest fad. We are such lemmings."

Such self-depreciating humour was not out of the ordinary, but it was the first time I had heard him (or his son) make the 'herd mentality' comment. When I asked about it he stressed - with seriousness and sincerely - that it was a common trait of the community.

I wonder how much of that is a factor now.

More importantly, I wonder why more on the west side of Vancouver don't seize on the opportunity.

Carney has move heaven and earth to stave off a collapse of our real estate market in 2009 and successfully re-inflated it. He also spent the last year warning Canadians about taking on so much debt.

Many have been saying, WTF... you facilitated the massive debt orgy. Raise interest rates to stop it!

Carney, for his part, has stressed over and over that the emergency level interest rates are to aid businesses... that homeowners must show prudence in their decisions.

But has Carney actually been doing current homeowners a favour?

The real estate bubble is going to collapse. He knows it, you know it.

What Carney did was give you the precious gift of time.

With the real estate bubble collapsing world-wide, Carney resuscitated your fundamental asset and bought you time.

In Vancouver all that the mainstream media (and R/E media) have been able to gush about for the past 12 months is how wealthy Asians have been coming in to buy up our overpriced real estate.

(Remember, China has pumped more stimulus on a per captia basis into their economy than has America. This money has found it's way into their stock markets and is credited with fueling both domestic and foreign real estate purchases)

For 12 months Carney has warned, cajoled and scolded us about debt.

Short of hitting you over the head with a stick, he has told you to get out of massive debt NOW before it is too late.

What an opportunity!

With the real estate market resuscitated, Vancouver homeowners can realize once-in-a-lifetime capital gains from the real estate bubble at a time the rest of the world have had theirs disappear, never to be seen again.

Should we vilify Carney or praise him?

Ultimately we are all responsible for our own actions, our own decisions.

Carney has given current homeowners a chance to save their equity, pull it out, and put it in places it will grow exponentially in the next phase of the crisis.

And served up for us is this supposed steady stream of stimulus imbued Asians who will buy with cash.

I am less inclined to blame Carney for facilitating those Canadians who have tanked up even further of massive amounts of debt since the crisis began, than I am inclined to be highly critical of those who should be properly counseling us to make prudent decisions.

From where I sit, the real villain's are the R/E shills who exploit the situation and the media who have abdicated their responsibility to inform in favour of catering to their main advertising base.

The latest shining example of this condition comes from the blog Alberta Real Estate Watch who brings us this December 4th, 2010 missive from the Edmonton Sun (click image to enlarge):

Basically the article tells you that"investing in real estate is the proven way to become a millionaire," and it will give you "an asset pool that appreciates every year"

Submitted by Erica LePan of The Mortgage Group Alberta, it is nothing more than manipulative advertising sans the typical investment warnings that 'past performance is not indicative of future returns'.

Worse, courtesy of the Edmonton Sun, it carries the aura and appearance of legitimate news.

Critics say Carney is an enabler with his low interest rate policy.

Perhaps. But at least Carney is warning Canadians about the consequences of their actions and he has given Canadian homeowners an opportunity that virtually every foreclosed-upon and distressed American homeowner would give their eye teeth to have right now.

The likes of LePan and the Edmonton Sun bear far more responsibility, IMHO.

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A significant day of reckoning is coming.

If you ever have any doubts about what looms on the horizon in the months ahead for Vancouver Real Estate (in general) and the North America economy (in particular), bookmark today's post and refer back to it.

Last week, after the U.S. debt panel failed to agree on measures to create more than $4 trillion in budget cuts over the next 10 years, BNN spoke to David Stockman, the former Director of the U.S. Office of Management and Budget under President Ronald Reagan.

If there ever was a proponent of the current measures to repair the American economy, you would figure an architect of Reagan's trickle down economics would be it.

You'd be dead wrong.

Stockman spoke about the American situation and where America goes from here. He has a stark analysis of his country's situation.

You will not find a more succinct and insightful analysis of the current economic situation in 12 minutes anywhere. Click here to see the interview, and I highly encourage you to watch the full clip before it cycles off BNN's archive list.

You will have no doubt, after watching this, about the direction that the economy will ultimately follow.

A couple of quickly transcribed excerpts:

• "It's just a further confirmation that we have a total paralysis/stalemate in our fiscal governance process, the whole process is in denial... What is actually happening is that Washington will be ADDING $350 Billion to next year's deficit (instead of cutting). They will extend the Bush tax cuts, they are going to extend the so called external tax patch - that's $60 Billion - they're going to extend a lot of the tax credits - that's 10's of Billions of dollars - what's more they're going to extend unemployment insurance for another year - that's another $60 Billion... and it gets worse from there.
  
  We're really rolling the dice thinking that somehow we can borrow another $5-6 Trillion - that's really what's baked in the cake - and that somebody's going to buy all these bonds. The fact is the only buyer on margin all of these bonds, hundreds of billions a month, is the Federal Reserve, in this so-called QE2. But it's just out and out money printing, monetization, and when they stop I think there is going to be a real day of reckoning in the global bond and currency markets because there is no indication anyone in Washington recognizes the gravity of the situation."

Stockman goes on the suggest both the Democrats and Republicans are completely unable to grapple with the breadth and depth of cuts that are needed combined with the massive amount of taxes that have to be increased. As a result America is...

• "... drifting towards the wall waiting for the bond market system to wake up and take action. I don't know when that is going to happen, it may be in the next months, it may be in the next years, it may take longer but sooner or later there is going to be a day of reckoning."

Stockman then discounts those who believe the Reagan era of 'trickle down economics' is a solution to the current problem.

• "I think the Fed went off the deep end in the 90s and especially in the last 4 or 5 years with very easy monetary policy of low, low interest rates that were inappropriate and encouraged businesses and the household sector to massively leverage up, that led to the crisis in 2008 and we're still only begining to dig our way out of that... We're going to have a significant day of reckoning here, there is no recovery."

The most chilling part is Stockman's assertion that the bond market is going to force America's hand before long.

As I said yesterday, this is EXACTLY the fear expressed by former US Federal Reserve Chairman Alan Greenspan.

We are seeing the effects of what happens when the bond market does this. Just look at Ireland, Iceland, Spain, Portugal and Greece.

Are you ready for double digit interest rates yet? They're coming.

Of course naysayers will simply dismiss this as yet another post from a disgruntled bear blogger fearmongering about interest rates.

Hey... speaking of fearmongering about interest rates, Bank of Canada Governor Mark Carney sent out another warning to Canadians yesterday.

In the December issue of its Financial System Review, the Bank of Canada warned Thursday that the risk of another global economic shock is rising and Canadians may not be prepared for it.

And in a veiled hint that the Bank of Canada won't shield Canadians they way they did after the 2008 crisis, the Bank said "Canadians won't be spared another shock because during the current period of tough economic times, they have continued to take on debt."

How can that be, Mr. Carney? How could be possibly suffer? I mean... you will slash interest rates to dirt so the impact won't be felt, right?

Apparently not.

• "Developments since (June) suggest that the vulnerability of the Canadian household sector has increased."
  
  "The probability of an adverse labour market shock materializing is judged to have edged higher in recent months, owing to the downward revision... to the outlook for the global and Canadian economies."

Sal Guatieri, senior economist with BMO Capital Markets, said in a commentary the review suggests the bank won't resume increasing rates until the global economy picks up and Europe's credit crisis ebbs.

• "However the bank is also cognizant of the risk to household finances (and the economy) of keeping rates too low for too long. This suggests it has every intention of guiding rates back toward more normal levels at the earliest opportunity, which in our view, is likely in May."

Hiking interest rates come May? Is this why Carney issues another direct warning to Canadians by saying:

• “Households bear ultimate responsibility for ensuring that they will be able to service that debt in the future.”

Umm... why do you say that Mark? Are you getting ready to hand us debt serfs out to dry?

What about our 'sound Canadian banks', if I can't pay my debts, won't that hurt them?

Well it seems the BOC goes to great lengths to warn that the potential for harm to our 'sound banks' this time around might be severe.

Carney suggests that high household debt this time around is going to get kicked by high interest rates. This will affect Canada's banks 'as borrowers lose their ability to make debt payments.'

Now why would Carney hike interest rates this time around when he didn't in the last crisis?

The source of the problems all stem from from other countries, the bank said.

(Ahhh... time to start connecting the dots... see Stockman's comments above re: bond vigilantes wrath being unleashed on the United States)

The BOC forsee's the very real possiblity of a global trade war. It also foresee's the looming threat of much higher interest rates.

Carney see's them coming. He's warned you time after time and given you almost a year's advance warning.

The good news?

Re/Max was far more effective in manipulating the P/R machine two days ago and got far more coverage in the press to convinced you that Real Estate everywhere in Canada can only go up, up up (at least 10% next year) and that interest rates are going to stay low for a while.

Thus, if you are smart, it should be easy to dump your massively leveraged real estate on some simpleton or wealthy Asian and prepare for what's coming.

Speaking of what's coming, did you catch this Globe and Mail article profiling the musings of Stephen Jarislowsky, billionaire investor and CEO of Montreal-based Jarislowsky Fraser Ltd?

Jarislowsky offered his thoughts on the next lurking financial disaster.

• "In Canada the hardship still lies ahead. Our houses are still 20 to 30 per cent above normal levels, salaries are shrinking and a lot of Canadians are heavily indebted. There’s a lurking disaster, to the extent that you have reduction of purchasing power and we are just not saving hardly anything as a nation. That’s pretty bearish. I think things are going to get a hell of a lot worse. We still have a trade deficit today despite the fact that commodity prices are incredibly high. I hope I’m wrong but I think Canada is on the edge of a lot of trouble."

What drivel, eh?

You can either connect the dots or you can dismiss Stockman, Carney and Jarislowsky et al as wanker renters who live in their parents basements while hiding behind their computers to dump on real estate investors.

If you do dismiss them, tho, don't say you weren't warned.

And remember... buy now or be priced out forever!

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Ben Bernanke meet Jon Stewart

In case you didn't see it, Jon Stewart offered his observations on US Federal Reserve Chairman Ben Bernanke's Sunday interview with 60 Minutes.

I can't embed the clip, but you can watch by clicking here.

Bernanke said on Sunday that "one myth that is out there is that we are doing is printing money. We're not printing money."

Bernanke made this statement in response to the Fed's actions of creating money out of thin air and buying government bonds.

Stewart juxtaposes Ben's latest 60 Minutes interview against another 60 Minutes interview the Chairman gave just 21 months ago when he was justifying buying corporate assets from the banks.

• Bernanke: "To lend to a bank we simply use the computer to mark up the size of the account that they have with the Fed, so it's much more akin, although not exactly the same, it's much more akin to printing money than it is to borrowing."
  
  Interviewer: "You've been printing money then?"
  
  Bernanke: "Well... effectively and we need to do that"

So, as Stewart notes, the difference was that then the Fed was creating money out of thin air to buy corporate assets and now it's buying government bonds.

How is it that you were printing money then, but now you're not?

Stewart observes, "I guess Bernanke was looking at the average age of the 60 Minutes viewer and betting that anyone who saw him last year is dead now."

While humorous, it does expose something that many critics are sharply focusing on: Bernanke came on national TV and lied to the American people.

In fact, as Michael Pento of Euro Pacific Captial writes, Bernanke came out and told 2 big lies.

• Lie #1 - The Fed isn’t printing money. Bernanke stated: “The amount of currency in circulation is not changing…the money supply is not changing in any significant way. What we’re doing is lowering interest rates by buying Treasury securities.” Given that it is the Treasury Department’s Bureau of Engraving and Printing, not the Fed, that actually prints paper money, his statement is technically correct while substantively false. However, Bernanke is buying bank assets with Fed credit. With such an arrangement, printing becomes unnecessary.
  
  According to gentle Ben, credit created to buy something should not be considered money and has no affect on asset prices? But if that’s true, why is he concentrating his buying in the middle of the Treasury yield curve. His stated purpose is to boost bond prices and lower yields in order to stimulate borrowing and aggregate demand. So pushing up bond prices is an act of inflation. Bernanke similarly contradicts himself by saying that he isn’t creating inflation, while at the same time claiming that his easing campaign is designed to boost asset prices to combat the phantom of deflation.
  
  And by the way, the Fed is causing money supply to increase significantly. The compounded annual growth rate of M2 is over 7% in the last quarter. Apparently in the eyes of the Chairman, a 7% annualized increase in the broad money supply isn’t considered significant.
  
  Lie #2- Bernanke is “100 % confident” that, when necessary, the Fed can control inflation and reverse its accommodative monetary policy. He stated, “We’ve been very, very clear that we will not allow inflation to rise above 2 percent. We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.” He failed to mention that the Fed doesn’t have the will to drain money from the system, without which all tools are useless. The Fed has consistently demonstrated its unwillingness to take the appropriate actions when necessary. In claiming he is 100% confident in his ability to control inflation, Mr. Bernanke ignores the record that during his tenure he has misdiagnosed the economy.
  
  In June of 2006, Bernanke culminated his inflation fighting efforts by raising the Fed Funds target rate to 5.25%, after CPI inflation reached 4.2%. But that interest rate was enough to help burst the housing bubble and to spark an international credit crisis. Bernanke was completely unaware that the Fed actions had created an economy that had become completely addicted to artificially-produced low interest rates and inflation.
  
  Shortly after the collapse of the real estate market and the ensuing truncated deflationary-depression, Bernanke took interest rates to near zero percent. But if the Fed was ever really serious about unwinding excessive leverage, the time had clearly arrived. Instead, the U.S. economy has become more addicted to free money than at any other time in our history.
  
  Commodity prices are soaring once again and the real estate market, banking sector, and the overall economy cling precariously on the arm of government induced bailouts and low interest rates. Even worse, our government has massively increased its level of debt, which now stands at just below $14 trillion. Once the rate of inflation eclipses the Fed’s 2% target rate, which appears likely, how then will the Fed raise rates to contain it? Could the economy then withstand an increase in the cost of home ownership? Most importantly, when will Mr. Bernanke find it politically tenable to dramatically increase debt service payments for the Federal government? In truth, there is never a convenient time to have a severe recession or a depression. Unfortunately, reality can be extremely inconvenient.
  
  Bernanke was accurate in saying that the economy is not expanding at a sustainable pace. Of course, his prescription was the same as it always is; print more money in the misguided belief that inflation will lead to growth. As such, he indicated that it’s possible that the Fed may actually expand bond purchases beyond the $600 billion announced last month. (Remember that the $600 billion comes after the $1.7 trillion that has already been printed, which failed to produce anything much beyond a weaker dollar). Therefore, the country can look forward to yet more inflation, continued anemic GDP growth, a poorer citizenry, and a vastly lower standard of living.

All of this is followed by news that US Treasuries have suffered their biggest sell off since the collapse of Lehman Bros (see reprint of Financial Times story on this blog).

Thus when QE is supposed to be lowering interest rates, they are rising.

This dynamic is the one which all the R/E shills in the Village on the Edge of the Rainforest remain oblivious/ignorant to.

Bernanke can say he will keep interest rates low for years to come. But the market vigilantes have the ultimate say.

I've posted on this blog numerous times the fears stated by former Federal Reserve Chairman Greenspan that this could happen.

Dramatically higher interest rates are coming. It's only a matter of time.

And when they come, as Bank of Canada Governor Mark Carney has been warning for months now, you don't want to be holding debt of any significance that you can't service at interest rates at the historic norm (8.25% or higher).

People mock the Bears because the collapse has not come yet and anyone who has bought in the last 7 years is way ahead than if they had listened to the Bears.

But unless they cash in on that equity now, hardly any of those buyers will survive what is coming.

Which is why two and a half years ago I became a staunch real estate bear and highly advocate liquidating debt, eschewing debt accumulation and investing to prepare for what is coming.

Regrettably few will appreciate the advice until it is too late.

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To infinity and beyond... Vancouver Style

So yesterday Re/Max came out with another one of those upbeat assessments that real estate would go up in every market across the country.

Garth Turner had a succinct analysis, saying:

• "Yes the fabricators at Re/Max struck again, issuing a 2011 forecast based on, well, nothing, and predicting still-higher housing prices. In every single city. As outrageous as this seems, at a time when the economy is so fragile that we still have emergency interest rates, exports are plunging, unemployment is going structural and families have never owed as much, the media reaction was even more cookie-hurling. After reading 18 versions of the story in as many markets, I could not find a single one that expressed a contrarian sentiment. So Canadians were once again deprived of a balanced view of the world."
  

In Vancouver the Re/Max spokesperson gushed about the presence of Hot Asian Money and how, like it or not, it will send the Vancouver westside market higher by 10%. This based on "someone" from CMHC telling him that upwards of 40,000 Asians 'may' immigrate to Vancouver next year. Guess we better buy now or be priced out forever...

Meanwhile Westside Realtor Larry Yatkowsky also had an Asian themed post yesterday, 'Chineseness’ = Gold in Your Pocket.

As I have written before, China - on a per capita basis - has pumped more stimulus money into their economy than have the Americans. A vast amount of that money is working it's way into the Asian stock markets and into foreign property purchases.

I personally believe the China Economic Miracle is, in reality, a paper tiger waiting to be shredded.

With that in mind, I took particular interest in a MarketWatch article by Paul Farrell. Farrell is predicting another major stock market crash and notes that the preceding condition that triggers that crash is collapse in China.

Citing an interview that Fortune’s Bill Powell did with hedge-fund kingpin Jim Chanos of Kynikos Associates, Farrell notes that Chanos is “betting that China’s economy is about to implode in a spectacular real estate bust.”

From the article:

• China is “an economy on steroids.” In a Charlie Rose interview, Chanos said “China’s on an economic treadmill to hell.” If so, then all of Wall Street’s highly promoted emerging markets are also sucker bets.
  
  Another hedge-fund player warned: Chanos “is shorting the entire country,” including a company “Goldman Sachs recommended as a buy … the listing for the Hong Kong Stock Exchange … China’s Merchants Bank, one of Beijing’s largest.”
  
  Back in the 1980s, Japan “grew largely on the back of capital investment” and then turned into “a capital-destruction machine, and that’s what China is now. You have an economy that’s 60% fixed-asset investment, and not even in the developing world is that sustainable.”
  
  Chanos won’t pinpoint the timing or the trigger: “He just believes it’s coming,” and he is betting on it. Reminds us of Henry Paulson shorting Goldman Sachs’ crooked deals before the 2008 crash.

As everyone gushes about how the stagnating North American economy and wages are irrelevant to our increasingly unsupportable real estate market because of the Asian factor, one thing is for certain.

If China suffers a 1990s style economic collapse, not only will our real estate implosion be spectacular... it will be on a scale that surpasses even my predictions.

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To infinity and beyond...

In a move that comes as a surprise to some, President Obama announced a tentative deal with Congressional Republicans on Monday to extend the Bush-era tax cuts at all income levels for two years as part of a package that would also keep benefits flowing to the long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.

This extension will cost $900 Billion - equal to QE2. In essence we have just seen QE3. But how does cutting back on government revenue deal with the massive looming debt problem the United States faces?

It doesn't of course.

And as people like Jim Sinclair have been saying for years, the political realities both in taxation and quantitative easing make prediction here all too easy.

America (and Europe) have no practical way out of the debt problem – none.

They are going to inflate and spend continuously as the problem is kicked further down the road.

QE4, 5 and 6 are all but assured.

Which is why I believe you will see a rush into Gold and Silver in the foreseeable future. And faithful readers know I favour silver over gold.

Eric Sprott sees it too. The Toronto-based money manager whose Sprott Hedge Fund returned about 496% in the past nine years, outlines his thoughts in an article in the Globe and Mail:

• Why did you become bearish just before the Nasdaq stock market imploded in 2000?
  
  We had an 18-year bull market from 1982 to 2000. This is about the average length. You could tell from the almost insanity of the market at the time that it had to be over … We were valuing stocks at 100 times sales in the Internet boom. It was ridiculous.
  
  How long do you expect a bear market will last?
  
  I have always thought it would be a long bear market – about 15 to 18 years. It started in 2000, but it might even be longer this time because the powers-that-be keep manipulating the financial market. Having a zero interest rate policy is manipulation. Having quantitative easing is manipulation of what the market would otherwise do. …They are delaying the liquidation phase of a bear market. Almost all governments keep bailing out their financial systems.
  
  You have been a bull on gold from the get-go. Is its price over $1,350 (U.S.) unfolding as you expected?
  
  It’s been the investment of the decade. When I bought gold, I was buying gold to hold [as a long-term investment]. As it turned out, it quintupled. I didn’t think it would go that far because no none would have imagined that the central banks and governments would get themselves in a position where they are printing money.
  
  The printing of money makes gold more valuable. You don’t have to be a genius to figure this out. The Johnny-come-latelies – the Paulsons, Einhorns and Soros – all figured out, when [the Fed announced the first round of quantitative easing], that they should own gold. It becomes more obvious every day as you see these financial challenges that we have in Europe.
  
  How high will gold go?
  
  I think gold is the reserve currency today. There is not a currency in the world that it hasn’t appreciated against by at least 300 per cent. And it has beaten every stock market. You can’t even rent a safety deposit box in Germany because they are all full of gold and silver … I am pretty convinced that gold will go a lot higher because it is under-owned as only 1 per cent of people’s money is in it. It could go to $2,000 an ounce. I could imagine it at $5,000. I am not giving a time frame on that, but I could certainly see that happening. But the real story now is silver.
  
  Why are you more bullish on that metal?
  
  Gold has traded at a ratio of 16-to-1 to silver in terms of price, but today it trades in the range of 50 to 1. I think the gold-to-silver ratio is going to go back to 16 to 1 given the passage of time, say three to five years. And I bet you that silver overshoots. The gold-to-silver ratio may even get down to 10 to 1. I believe that the price of silver has been suppressed.
  
  How much of your wealth outside of Sprott Inc. shares are in bullion and precious metals stocks?
  
  I only own funds and gold and silver. I am probably 90 per cent in precious metals personally. And I don’t lose sleep over it.

As I have been saying for almost 2 years now, a huge opportunity lies ahead.

Seize it.

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The Price Cuts are Coming

One of the Vancouver City Councillors talks about a looming 20% price reduction in the Olympic Village condos dying on the vine in False Creek (hat tip to L.M.).

It's a far cry from the days of this October, 2007 Vancouver Courier article, isn't it? Check out some of the priceless Bob Rennie quotes as he gushes about the ease with which the Olympic Village is selling out.

• Olympic village condos selling like hotcakes Prices range from $450,000 to $3.4 million
  
  More than 80 per cent of the first wave of Olympic athlete's village market condos sold over two days last week, and almost all the buyers were local.
  
  More than 80 per cent of the first wave of Olympic athlete's village market condos sold over two days last week, and almost all the buyers were local.
  
  The condos, part of the Millennium Water development along False Creek, will become market housing the summer following the 2010 winter Games.
  
  About 255 of the 302 units available in the first phase were sold, according to Bob Rennie of Rennie Marketing Systems. A second phase of 400 is expected to go on sale in February.
  
  Some buyers and realtors stood in line for five days before sales started last Thursday.
  
  Most units were priced at between $600,000 - for a 725 to 759-square-foot suite with marginal view - and $3.4 million, although a few were available in the $450,000 to $600,000 range.
  
  There are still about 10 available on either side of $500,000.
  
  The cheapest still on the market is $489,000, which gets the owner 574 square feet overlooking the plaza and Salt heritage building. The $3.4 million unit was purchased, but some $3-million suites are available.
  
  Rennie estimated there were only about five out-of-town buyers.
  
  "There's a lot of interest from West Side addresses--from buyers who live on the West Side that don't necessarily want to be downtown," Rennie said. "And there's a huge amount of interest from buyers who see it as one of the last new communities -it's on the water and there's the legacy project [aspect], that it will be the home of the 2010 [Games]."
  
  He's never seen prospective buyers line up for five days before and was taken aback by how much interest was shown in the project. The marketing company anticipated it would sell about half the units during the opening days.
  
  "A lot of people that came in, they wanted a certain view or a certain size and said, 'You know what, for the big ones we want to wait until the next phases,'" Rennie said. "For the next phase all bets are off for how much activity there's going to be there and how we're going to handle it. Maybe we should do similar to Woodward's where everybody phoned in for a wrist band. But there's no one system you can put in place that doesn't offend somebody."
  
  Rennie suspects the buying frenzy was sparked by three factors: the "green" aspect of the project as a sustainable community, the Olympic connection and the views of False Creek, the city and the mountains.
  
  "We keep switching around over which one we think is the driving force in buying," he said.

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Ready to launch?

Yesterday I posted this Cartoon Bear explanation of the JP Morgan Silver Manipulation saga...

The video, as you discover at the end of the cartoon, was put together by the website Silvergoldsilver. Viewers are invited to visit the website to make purchases of physical silver if they found the video persuasive.

Well... the video has gone viral and caught the imagination of a lot of people.

And many of those people seem to have been converted. So much so that as of yesterday the company is not taking any orders and is sold out of all products. The company will not be accepting any new orders until December 6 (see their website).

This is only part of the intense interest building for the opening of markets on Monday.

November saw the start of an intense Internet campaign by Mike Krieger and Max Keiser to attack and destroy JP Morgan (the design you see posted at the top of this post is the logo for their campaign). The central component of the campaign is: if every person buys an ounce of silver JP Morgan and its massive synthetic silver short position will have no choice but to cover and face unprecedented margin calls. This could possibly lead to an end for JP Morgan.

By no coincidence, during the month of November the US mint sold a record amount of silver American Eagle coins.

Last Thursday the Krieger/Keiser campaign went mainstream with this article in the Guardian newspaper.

Silver is up 50% since August and as of Friday was once again flirting with the all important $30 dollar level.

This level is significant as outlined in Paul Brodsky’s presentation and comments delivered to the BCA Fall Investment Conference in New York on October 25, 2010.

Brodsky, and his partner Lee Quaintance, spent over twenty years as bond traders, running government and credit trading desks for one of the world’s largest banks and on the buy-side running fixed income investment funds prior to opening a macro fund.

Brodsky speculates that silver will hit resistance levels of $30, then $64 before going onto $140 an ounce in the very near future.

The events of the last month are culminating this week in what many observers expect will be a very wild week for both silver and gold.

I know I will be watching with keen interest.

Let's see what happens.

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What we need is Wikileaks for the Federal Reserve

And the JP Morgan Silver Manipulation explained by Cartoon Bears...

And, if you haven't heard it yet, on Sunday US Federal Reserve Chairman Ben Bernanke will be on CBS's 60 Minutes telling America that QE2 will be expanded... quelle surprise!

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Massive Crisis Coming

Yesterday while surfing the TV channels I came across an interview on CNBC with David Cote, Honeywell CEO and a member of America's National Commission on Fiscal Responsibility and Reform.

His comments caught my ear and I rewound the PVR to write down what he said.

If you have any doubt about my post yesterday about Quantitative Easing and even more money printing in our immediate future, consider Cote's comments.

• "I consider myself a fiscally conversant CEO and the thing that surprised me is that I had no idea of the magnitude of the problem coming in the next 10 years.
  
  I was disturbed by where we are, I had no idea what was going to happen over the next 10 years, largely because my generation, the baby boomers, are going to be retiring, going though social security, medicare and medicade.
  
  And when that happens we are crushing the system, it can't handle it. We go from $9 Trillion in public debt today to $20 Trillion 10 years from now, even if GDP grows at 4.6% per year.
  
  That's astonishing.
  
  I told the commission that if you spent $1 million dollars a day, every day, since Jesus Christ was born you still would not have spent a Trillion dollars. And by 2021 that will be our annual interest bill alone.
  
  Serving on the debt commission has been eye opening. We need to deal with this before we are forced to deal with it like they are being forced to in Europe.
  
  This is going to be a crisis on a scale we have never seen before."

Cote went on to say that the reforms the commission are proposing will allow America to achieve a BALANCED budget in a few years.

It does NOTHING to address paying down the debt, it just stops adding to it.

And that's if the commission is successful in getting it's reforms implemented. I can guarantee you that this commission, just like all before it, will fail to get Congress to achieve a balanced budget.

The contagion you are seeing in Europe is only a preview to what is coming to North America.

Cote said it best. "This is going to be a crisis on a scale we have never seen before."

Massive QE and ultimately massive interest rate hikes as the bond market forces discipline on goverment (just as is happening now in Europe).

Anyone who sits down and does the math can see it coming. Can you?

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Crank it up

Faithful readers know I continually refer to the 2008 finanicial crisis as an earthquake whose depth and breadth we still do not fully understand nor appreciate.

What is happening in Europe with the PIIGS (Portugal, Ireland, Italy, Greece and Spain) is not a 2010 issue. It's a continuation of the 2008 financial crisis.

And this week as the contagion spreads from Ireland to Italy, the main story is how the EU-IMF rescue plan for Ireland has failed to restore to confidence in the eurozone debt markets, leading instead to a dramatic surge in bond yields across half the currency bloc.

Spreads on Italian and Belgian bonds jumped to a post-EMU high as the sell-off moved beyond the battered trio of Ireland, Portugal, and Spain, raising concerns that the crisis could start to turn systemic. It was the worst single day in Mediterranean markets since the launch of monetary union.

"The crisis is intensifying and worsening," said Nick Matthews, a credit expert at RBS. "Bond purchases by the European Central Bank are the only anti-contagion weapon left. It needs to act much more aggressively."

And by 'bond Purchases' he means Quantative Easing, aka printing money.

So this crisis continues to unfold despite Herculean rescues by the European Union, the International Monetary Fund and the U.S. Federal Reserve.

So now Europe is printing money, America is printing money, and you have China which has - on a per capita basis - pumped more emergency money into their economy than have the Americans.

Which is why, after a savage attack at options experation time last week, gold and silver have started their march upward again.

Clearly the debt crisis is accelerating and the bailouts aren't working.

And this issue is only going to intensify.

For 2011, the Bank for International Settlements estimates that Portugal’s and Spain’s government debts will be 99% and 78% of GDP, respectively.

But for the same year, U.S. government debts will be 91% of GDP.

By this measure America’s debt burden is similar to Portugal’s and bigger than Spain’s.

Of course the main difference is that the US dollar is the world’s reserve currency and that gives Washington the ability to print money with impunity … press other rich countries to accept its debts … and borrow huge amounts abroad to finance its deficits.

The flight to gold and silver is only going to intensify as both Europe and America massively increase the money supply to battle this crisis.

Can you see the opportunities?

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Renting losing it's stigma?

Interesting article on CNBC on Friday titled "Rich Americans Ditch Home Ownership For Renting"

Apparently many affluent homeowners are switching to becoming home renters this year, not because they can't keep up with payments or they have lost their jobs, but because they are nervous about the state of the housing market.

The article quotes Patrick Lee, a managing director at a major bank, who says “I wanted to protect ourselves from prices going down. I didn’t want to be an owner anymore.”

Apparently demand for luxury rental units has increased as wealthier individuals who can afford to buy are deciding not to, according to brokers and real estate analysts in affluent areas of the country such as New York City, Chicago and San Francisco.

“More affluent Americans are opting to rent as oppose to buy,” says Jack McCabe, an independent real estate analyst and CEO of McCabe Research and Consulting in Deerfield Beach, Fla. “Within the last year, so many people have seen their family and friends get burned in real estate. They don’t see it as being a risk free investment as they used to.”

All across the US it appears there is a general attitude where potential buyers are in a huge 'wait and see' mode to assess if property values will continue to fall.

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Speaking of vultures...

Speaking of vultures, we've all heard about how the City of Vancouver has forced Millennium Development into receivership in order to recoup its $740 million loan to the developers for the Olympic Village in False Creek.

As part of that deal, Millennium’s owners agreed to hand over other assets to the city to sell if the City can’t cover the loan through sales of the high-end condo' in the Olympic Village.

One of those other assets is the Evelyn development in West Vancouver.

Last week represetatives insisted Evelyn was on track.

But now a lawsuit has been filed against Millennium saying they haven’t been making payments on their loans of more than $75 million.

Backers of the project, Peoples Trust Company, bcIMC Construction Fund Corporation and bcIMC Specialty Fund Corporation, filed petitions in B.C. Supreme Court Wednesday against Millennium Evelyn Properties Ltd., Millennium Development Corporation and Shahram Malekyazadi — one of the brothers who own Millennium — seeking a declaration that the developers have defaulted on their mortgage.

There is more than $71 million owed to two of the backers, with interest adding up at a rate of $12,000 a day.

More than $4 million is owed to another mortgage holder.

In the lawsuit, the backers ask the court to appoint a receiver and grant an order giving the backers power to sell the property to recoup their loans.

The City of Vancouver has also registered a charge against the Evelyn properties as part of the Olympic Village process.

Looks like wealthy Asians have a lot of buying to do.

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