Survive The Squall of 2008? Get Ready for the Coming Storm

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Survive The Squall of 2008? Get Ready for the Coming Storm

April 2, 2009 by cosilverado

from http://www.larrymylesreports.com/Survive_Squall.htm
April, 2009

In the Eye of the Storm – Weather-proofing your Future
There is a plan and it is a sound plan…

Many of us will look back at 2008 as the year of “The Great Financial … Squall”. A sudden disturbance that has left many of us (some for the first time) experiencing the uncertainties of financial vulnerability.

Moving into the second quarter of 2009 we continue to be threatened by inclement financial weather. But realize this – we are in the eye of the storm. That hard rain in our face is only a precursor of what lies in our path. That is the reality of the situation.

Much has already been written about the US Federal Reserves “surprise move” to buy up longer-term US Treasury securities for their own portfolio. The only thing that surprised me was the muted response when the Fed went on to say it would also expand its purchases of mortgage-backed bonds to $1.25 trillion from the previously announced $500 billion.

Buying up your own debt is one of the last resort strategies, the equivalent of a Hail Mary pass…or in the words of one of my more colourful readers: Buying your own debt is like eating your own vomit.

There are other initiatives the US could have attempted (meaningful across the board tax cuts, stimulus money used only to rejuvenate business-related infrastructure, relaxing restrictions on mineral and energy exploration, etc.) But I think we all knew ahead of time that suggestions such as these would have fallen on completely deaf ears. Instead the plan remains to simply print more money.

Some of the analysts who still cling to the once popular Keynesian economic theory like to harken back to the Great Depression and remind me that America borrowed its way out of that mess. No argument there. But dare I be so rude as to point out that in the 1930’s the US was a creditor nation. Today, the US is the largest debtor nation on the planet. So borrowing on the future by printing obscene amounts of money today has absolutely no chance of working. More to the point, in the 1930’s the US dollar was still fully backed by gold, whereas today it is backed by nothing other than some cool looking dude standing at a podium mumbling promises as he fumbles about looking for his missing teleprompter.

So what is the answer…and why the urgency?

To understand the question and to be aware of the urgency, one must fully understand the situation. To truly grasp the situation, one must look beyond last week’s not so surprising announcement by the Fed. Before we do that, we must swap out Federal Reserve, Treasury Department, etc. The correct word: Washington. Reason: Because of the gravity of the situation, last week’s radical decision to buy their own debt could only have been sanctioned by the highest office and the most powerful elected official in the land.

For those who have suggested that I stay away from mixing economics with politics – no can do! And that is because not a day goes by when the US government does not stick its nose into the affairs of the market. And when they do, the market tilts. Two quick examples:
Obama goes on national television to make a speech on the economy in an attempt to calm the nerves of the American people and his foreign debt holders. Watching Obama’s performance on the TV while monitoring the value of the US dollar on my computer, it did not take long to see that the Asian markets were not pleased. The value of the dollar went down during Obama’s speech. And then went down some more the next day.

Less than twenty four hours later, United States Secretary of the Treasury, Tim Geithner tosses out his now infamous comment that he is ‘open’ to the idea of a new world currency – thereby putting into jeopardy the US dollar’s role of being the ‘reserve currency’. Duh! A direct result of this rash and quite frankly stupid comment was the price of gold spiked.

In other words, to understand the current markets, investors MUST keep one eye on Washington on a daily basis before any rational investment strategy can be implemented or maintained. Investing in the American markets for the long term? At your own risk.

Due in part to the US dollar’s status as the world’s reserve currency, America has been allowed to live far beyond its means. For years the US has been exporting its debt. To be unfairly simplistic – the world produces whilst America consumes.

With eyes wide open, many countries have become willing partners with America in this scheme. The most conspicuous being China, holding almost a trillion dollars of US debt. So Washington – rather than bite the bullet and freeze spending, cut taxes and work on rejuvenating their business related infrastructure – comes up with a plan of last resort; print and spend incredible amounts of money. In other words, the US has turned its back on the dollar. Washington has debased their currency. Sorry, what is the approved double-speak term for currency debasement? Oh yes, “quantitative easing”.

But let us go deeper. The reality of last week’s T-bill purchase was a clear signal by Washington – demanding their partners become complicit in bearing a share of the burden in bailing out the US economy. And how would they do this? By knowingly, absorbing guaranteed future inflation as the purchasing power of the US dollar declines. The result: America’s once willing accomplices have quickly turned into unwilling (and hostile) hostages.

Based on breaking news over the last few days, it appears that China may be more unwilling than most. China has now called for the creation of a new currency that would replace the dollar as the world’s reserve currency. China proposed an entire overhaul of global finance, putting to voice the growing concerns being felt by developing nations’ and their unhappiness with the US role in the world economy. John Lipsky, the IMF’s deputy managing director, said the Chinese proposal should be treated seriously. “It reflects officials’ concerns about improving the stability of the financial system,” he said.

In response, senior Obama administration officials scrambled to quickly reassure Beijing that the current US spending spree is a short-term effort to restart the stalled American economy, not evidence of long-term U.S. profligacy. Unfortunately, Washington’s actions speak much louder than mere words. No matter how artfully the double-speak is written – and perfectly placed on the teleprompter…or how robustly the words are delivered – Washington refuses to do the right thing by simply reaching over and throwing the ‘off switch’ on the money-printing machine.

One only has to look at the differences in how China and the US are trying to work their way out of the current recession. China has gone on record to say they will be encouraging mining companies to increase the amount of gold produced in that country. Remember: gold and silver are now the most sought after metals on the planet. They represent true wealth, and with the 38 year old experiment in fiat currency in crises, gold and silver may soon become the only trusted measure of security.

The US, on the other hand is once again mulling over HR 699 – a draconian piece of anti-mining legislation that will pretty well spell the end of mining in the US. Furthermore when it comes to energy, the EPA recently announced it was putting hundreds of mountaintop coal-mining permits on hold. Whereas in China the prevalence of coal-fired power generation continues to increase due to rapid energy demand. China is aggressively developing domestic coal and continues to lead the world in coal imports. While Detroit’s automobile industry is on artificial life support, the sale of cars in China has exploded, showing a sales increase of over 25% over the previous year.

The US Environmental Protection Agency put hundreds of mountaintop coal-mining permits on hold Tuesday to evaluate the projects’ impact on streams and wetlands.

Mountaintop mines in West Virginia, Virginia, Kentucky and Tennessee produce nearly 130 million tons of coal annually – about 14% of the nation’s power-producing coal - which in turn generates electricity for 24.7 million U.S. customers, according to industry estimates.

So where does the investor fit in….gold and energy is a good place to start
I suspect we are just around the corner from being inundated by a plethora of publicly traded companies that are in the ‘green’ business. And that is fine. I wish them well as they craft the foundations for the next deadly bubble. For me, I’m all about offering my readers suggestions on how to prosper by first accumulating real wealth (bullion) and then looking at the best ways to intelligently leverage their opportunities into creating additional gains. I think many of us have gained both comfort and confidence due to the appreciation of the gold and silver prices.
Speaking about hard gold investments, my hat is off to the folks – the people who were smart enough to see the storm coming and recognizing it for what it was, got out of the rain by taking early positions in bullion.
Relying on basic common sense legions of small investors ignored

the snickering comments of the formula-driven, lock-step, neo-modern investment advisors…’gold is a barbarous relic of past monetary systems, irrelevant in today’s fast-moving computerized markets.‘ Or, when it became crystal clear that the squall of 2008 was only the beginning, ignored the bleating of self-serving politicians…’investing in gold is downright unpatriotic’. You guy are great. You figured it out and quietly went about the business of placing your hard earned money into ultimate safe haven assets – gold and silver.

The demand for bullion became so great the Royal Canadian Mint has recently quadrupled its production capacity. The Rand Refinery in South Africa has expanded production from 10,000 coins a week to 20,000 and continues to explore ways in how to further production. Mints in Austria and Switzerland are working triple shifts in a vain attempt to remain at least within spitting distance of galloping demand.

A sobering note – while mints around the world are expanding, the US Mint has officially announced the suspension of another slate of gold and silver products. “Production of United States Mint American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand for American Eagle Gold Bullion Coins. Currently, all available 22-karat gold blanks are being allocated to the American Eagle Gold Bullion Coin Program, as the United States Mint is required by Public Law 99-185 to produce these coins “in quantities sufficient to meet public demand . . . .”

The United States Mint will resume the American Eagle Gold Proof and Uncirculated Coin Programs once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products. Additionally, as a result of the recent numismatic product portfolio analysis, fractional sizes of American Eagle Gold Uncirculated Coins will no longer be produced.

Look at what the experts are now saying. “Owning gold is compared to storm proofing your home – hammering plywood over your garage doors, installing impact-proof windows, checking the roof for loose tile, and moving your patio furniture indoors.” But while some investors are safely sitting in their securely shuttered living rooms, check-listing their inventory of candles and bottled water – there are still people outside, apparently oblivious to the coming storm.
My old mother used to say good riddance to those who were either too drunk or too stupid to come out of the rain. Unfortunately (for us), many of these people are our political leaders – and what is really unfortunate, a few of hese rain dappled dopes are extremely well known leaders.

Intelligent leveraging of opportunities simply means adjusting your focus to (once again) visit the world of junior mining. Rather than get into lengthy reasons why this is a great idea, suffice it to say that many analysts have advanced several theories of the relationship of gold stocks to gold price ratio. But cutting through the theories and the rhetoric, the simple explanation is that gold equities are dirt cheap relative to the price of bullion. Thus, they should be bought now.

For those readers who have been following my recent reports, you may recall my March report card on a few gold companies I selected in November, 2008.

Interesting times in November, as I was pilloried and mauled by many readers for daring to utter the words that we were in a historic gold bull market.
http://www.larrymylesreports.com/Production_Supply_Demand.htm

Be that as it may, I am happy to report that my original due diligence criteria remains valid and continue to show positive results:

Moto Goldmines (MGL) moving from 0.80 to $3.09 now – $2.77
Novagold (NG) moving from 0.60 to $3.35 (a no-brainer) now – $3.15
Azteca Gold (AZG) moving from 0.02 to 0.15 now – 0.12
Central Sun Mining (CSM) moving from 0.12 to 0.65 now – 0.75
La Mancha Resources (LMA) moving from 0.06 to 0.45 now – 0.40

I will continue to seek out junior gold companies in safe and mining friendly environments, while at the same time keeping my eye on the bullion spot price. Accumulating gold and silver during weakness is a solid strategy as there is no doubt this bull market will be of historic proportion. Again…remember when buying bullion – buy on the dips! (continued at http://www.larrymylesreports.com/Survive_Squall.htm)