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The Daily Reckoning....a Must Read!

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You can subscribe to their daily news letter here:

http://www.dailyreckoning.co.uk

They really seem to talk sense about the dollar, real estate, and economics in general.

Here's what I got off them today. Makes great reading over your morning coffee.

James.

_____________________________________________________________________

Bill Bonner, from London's South Bank:

This morning, a red, heart-shaped balloon, with a

message attached, breezed by our 7th storey office

window.

Who had lost it? Whose heart would be broken when they

didn’t get it? Or would it fall to earth in the arms of

some deserving princess...and delight her by accident?

Love is in the air. We love our friends. We love our

family. We love our dear readers.

And yes, we love our work.

We love it because it so easy...and so amusing.

What is our work, anyway? It is merely pointing a finger

at jackasses...and laughing... And today, we are spoiled

for choice. Everywhere we look, we see one.

Let us begin on the front page of the prestigious

International Herald Tribune. “Americans and Israelis

aim to undo Hamas vote,” reads a headline. Isn’t this

the same coalition that is pushing ‘democracy’ and

‘freedom’ throughout the world...at a cost of a trillion

dollars, not to mention thousands of dead people?

Weren’t we supposed to turn our faces up to the stars,

after hearing the US president’s State of the Union

address, and reflect on how big a favour we were doing

the rest of the planet...and how marvellously self-

sacrificing we are to bring the wonders of democracy to

woebegone outposts such as Afghanistan, Iraq, and

Washington DC?

Of course, it was just a bamboozle. Nobody with any

imagination or self-respect believes in mob rule...and

no one would willingly accept the will of the people –

unless it is on a matter of no consequence, such as the

colour of the flag or the selection of the national

bird. Murder is murder, theft is theft... even if every

member of the hit squad has a ballot in his hands. Too

bad the president didn’t say so in the first place.

But our beat is money, we remind ourselves. So we turn

our finger towards the world’s moneymen for a few more

chuckles. We find them lovable too.

And here is our own new Fed chairman, Ben Bernanke. What

will he do, the papers ask?

“I’m buying bonds,” said our hedge fund friend over

lunch yesterday. “Because the American economy is

definitely softening.”

Evidence for a softening US economy comes in the shape

of a downward curve. It is the yield curve, now inverted

which means that a borrower can score cheaper money in

the short term than the long term. This doesn’t happen

very often. Normally the farther out they lend, the more

money lenders want, for the obvious reason that risks

increase with time. The farther you go out in time, the

more likely something bad...something

unpredictable...will happen.

But if you believe today’s yield curve, a miracle has

happened. Time has started reducing risks! There may be

an earthquake or a tornado tomorrow – the yields suggest

– but certainly not over the next 30 years. We’re

laughing already and we may not stop any time soon.

And yet, there it is: you can borrow more cheaply for

the near term than you can for the intermediate

term...and more cheaply for the long term than for the

intermediate term. Something is clearly out of whack.

And normally when that happens, a slump follows.

"Fed policy is too restrictive," say analysts. There is

a "glut of savings," says Bernanke, frowning. All that

wanton saving is pushing down long rates at the very

moment when the Fed is virtuously trying to push up

short ones. Ergo, the upside down yield curve.

Meanwhile, the Financial Times gives us another hearty

little chuckle, when it explains that the Bush

administration – while trying to ‘undo’ democracy...is

also trying to undo China’s new currency peg. The

Chinese are edging up towards $1 trillion in foreign

reserves this year – money that comes largely from

America.

US officials blame the Chinese. Why, in China, one told

the FT, “saving is encouraged”! Oh, be still our beating

hearts...What savage thing will they be doing next...?

Encouraging chastity? Charity? Probity?

What amazes us is that there are so many jackasses...so

many public officials...so many politicians...so many

economists – all making our lives more

entertaining...and our work easier.

More news, from across the office:

---------------------

Adrian Ash, also reporting from London:

- What's going on? Is the Trade of the Decade taking a

breather...or has it quit the field?

- Gold dipped yet again on Monday. It closed the day

down 0.6% at $544 per ounce, more than 5% off its top of

last month. Oil also dropped, back below $60 per barrel

of Brent.

- On the other side of the trade, however, stock markets

rose...the dollar held steady...and interest rates – as

implied by bond yields – stayed pretty much where they

began the year.

- Time to sell oil explorers and gold mining shares?

Investors of a nervous disposition should look away now.

If you want to hang in there - and bag the really big

profits when today's hottest bull market shoots higher

again – you're going to need a strong stomach.

- "In their effort to explain these sharp drops," writes

Justice Litle in a note to Outstanding Investment

subscribers, "the press is calling out the usual

suspects – seasonal crude oil demand, jitters in the

face of rising inventory reports, and 'will-they-won't-

they' fatigue over UN talks and Iran..."

- "For gold, it's rumours of a very large seller in the

$570 area," says Justice, "plus an overextended

technical picture and a growing consensus that Ben

Bernanke and the Board will be leaning to the hawkish

side. But I wonder if this type of volatility is mainly

just fallout from living in speculative times. It is

noteworthy that the Russell 2000 and Russell Growth

iShares [i.e. US penny stocks] were both hit hard on the

same day too."

- The underlying link? "Along with gold and energy,

small cap stocks in general have become a favoured

stomping ground for hedge funds," says Justice. And

nowhere is this truer than in London's own AIM market,

the home of tiddly penny-share mining speculations.

- "New mining listings on AIM attracted a total of £500m

in 2005," the FT notes today, "underlining the strong

investor appetite. Prices from coal to gold are strong,

and analysts predict the cycle has not yet peaked."

- But there could be trouble ahead for AIM's newest

penny share mining stocks. "Even if prices stay high,"

the Pink 'Un goes on, "2006 will be testing...Fund

managers are becoming more discerning about which

companies to back. There may be plenty of cash about,

but access to it is far from equal."

- First up, the sheer number of small, speculative

mining shares. AIM now lists more than 2,100 companies

in all, nearly twice as many as the main London Stock

Exchange. Of 319 new floats coming to AIM last year, 66

were mining shares. Another 38 work in the Oil & Gas

business. So investment fund managers looking to buy

into today's commodity bull market now have plenty to

choose from. And that makes it tougher for any

particular mining share to push higher.

- "There is a lot of competition out there," notes

Charles Keynot, mining analyst at Seymour Pierce stock

brokers. "These [AIM] companies are not particularly

covered by analysts. Now there is a lot more choice,

investors do not have to buy into every [new share]

issue coming out."

- Even so, two new mining shares came to AIM in January,

and they had no trouble bagging more than £10m in

funding between them. But 46 existing miners also went

back to the market last month for more money. And they

scraped together barely £1m a piece. Last year, by

contrast, further issues in the AIM mining sector netted

£1.4m on average.

- Second, there's the weight of cash sitting in penny-

share gold mining stocks. It's now making them

vulnerable to shake-outs in other markets.

- Witness last May, for example, when we reported how

bad news at Regal Petroleum had whacked not only its

share price...but also its stockbroker's share

price...and the share price of two software groups who

just happened to sit in the same hedge fund portfolios

as the unfortunate oil stock! Now the risk of catching a

cold has grown sharply.

- "Imagine you are a money manager with the bulk of your

assts in four areas of the market," says Justice Litle:

"metals, energy, transports, and various small caps.

They're all good places to be, which explains why many

of your fellow managers are doing the same. The tricky

part comes when everyone decides to 'take some off the

table' at once – this creates a magnified sell off,

which then leads to more negative attention and more

selling pressure..."

- "Chain reactions kick in," says Justice. "A manager

thinks, 'Uh oh, if energy is rolling over, metals could

roll over soon too (or vice versa). In fact the whole

market is looking sketchy, and I've got some substantial

profits to protect here. Maybe I'd better reduce

exposure across the board'..."

- Justice Litle: "The more leverage that's involved, the

more impact these types of group decisions have - and

hedge funds are known to be leverage junkies. The

takeaway is that, in a significantly leveraged world,

volatility doesn't always count for as much as it used

to."

- In short, today's pattern of a strong upward trend

broken by sharp jagged down swings is what we should

expect. And it's just what commodity investors are

getting...most especially in the speculative small-cap

mining shares where the greatest opportunities may lie.

---------------------

And more views from Bill Bonner by the window:

*** “Aren’t you afraid of holding US dollar bonds while

the dollar is so vulnerable?” we asked our luncheon

companion.

“Well, I wouldn’t hold them for the long term. But we’re

probably looking at a cycle of a strengthening dollar

over the next 6 to 9 months....while interest rates fall

and yields rise. Bernanke will probably continue to

tighten in order to give himself as much room as

possible on the downside for when the slide begins...

"Then, when he realises he is in trouble, that’s when

we’ll have a real boom in commodities and precious

metals.”

*** Ben Bernanke is obsessed with the ‘zero bound’

problem. Central banks stimulate economies by making

money cheaper...or dearer...to borrow. But when rates go

to zero, they have no power left. Who would buy a bond

that paid a negative rate of interest? He might as well

just hold cash instead...

Avoiding the ‘zero bound’ means keeping inflation above

zero – preferably at about 2 or 3 percent per year. This

encourages people to spend, rather than save; spending,

Bernanke believes, is the fountainhead of the modern

economy.

It doesn’t bother him that inflation only works through

a combination of legerdemain and larceny. People delude

themselves that inflated asset prices equal more real

wealth, so they spend more. But what they are spending

is unreal money.....ersatz wealth stealthily sneaks real

money away from savers...and makes consumers get rid of

cash rather than save it for a rainy day. Meanwhile,

inflation also lowers the real prices for goods and

services so that merchants have to raise nominal prices

just to stay even...which makes consumers spend even

more. Until finally, no one anywhere is saving....

But the trouble with a programme of theft and fraud is

that people eventually catch on. They begin to take

inflation for granted. Then, the central bank’s

deceptions stop deceiving. And then what?

But Ben Bernanke is on the case. He has already proposed

a number of ‘unconventional measures’ designed to keep

the flimflam going. We suspect we’ll get a chance to see

how they work in the years ahead.

Buy gold on dips, dear reader.

*** Speaking of gold...the correction continues.

Yesterday, April contracts dropped almost to $540. This

is the right direction, but we would like to see more

distance. Most commentators believe this is the bottom

of the correction. Few expected to see the price much

below $550. But it’s a weak bull market that doesn’t

have strong corrections. We looked at the chart the

other day. It looked to us that we should expect a

correction back to $500. That would be enough to shake

off the casual speculators.

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---------------------

The Daily Reckoning PRESENTS: In our debt-driven, E-Z

money economy, where can smart investors turn? The

Mighty Mogambo has the answer. Read on...

A GOLDEN IMAGINATION

by The Mogambo Guru

The thing that really makes my eyes bug out in disbelief

is the bond market, and that people are still buying

U.S. Treasury debt.

Unbelievably, debt is yielding as low as the Fed funds

rate or lower! The funds are lower than the discount

rate, which is the rate that the banks themselves have

to pay to borrow money from the Fed!

Why are they doing this insane act, especially when they

are being told, point-blank, by the Federal Reserve that

they intend to keep raising interest rates? The Fed will

probably raise the rates at least two more times. Don't

these bond-buying morons comprehend that when interest

rates rise, bond prices fall? And when bond prices fall,

these bondholders are going to lose money? What are they

thinking?

None of these bond-buying halfwits work for me, because

if anybody dared to come into my office and suggest that

I stop embezzling the employee retirement fund and

instead, put that money into bonds, the last thing they

would hear before I leapt over my desk, grabbed them by

the neck and threw them out of the window is the Mogambo

Laugh Of Scorn And Derision (MLOSAD) ringing in their

presumptuous ears.

The reason why all of this excessive creation of money

and credit (monetary inflation) is so bad is because it

has to (and always does) lead to price inflation. For

example: the price of oil.

With that, we seamlessly segue to Doug Casey, of The

Casey Energy Speculator, who, considering the price of

oil, says, "Few analysts have noted that expensive crude

might not be a function of supply and demand, but rather

a simple function of inflation.

"Since the younger Bush took office, the United States

has been frantically printing money to stave off

recession and keep the bloated American economy from

collapsing. With the modern equivalent of printing

presses going flat-out, the world supply of money has

almost doubled since 2000, from less than $2.5 trillion

to just below $4.5 trillion."

I am busy scribbling notes, figuring that this will be

on the final exam, so I almost missed the important

part. He went on to produce a chart showing that, since

1945, money growth and the price of oil have moved

together. Since the central banks of the world are

intent on destroying our money by constantly growing the

money supply, what does one do? Mr. Casey suggests, "The

only intelligent thing to do is to rig for stormy

weather by laying in a portfolio full of high-quality

precious metals and energy stocks."

Well, OK then, let's look at gold. From the

GoldForecaster.com we learn that Exchange Traded Funds

(ETFs) are "Still growing in leaps and bounds. January

saw another 90 tonnes of gold added to the E.T.F.s, with

17 tonnes alone going into them last Friday. Tuesday

this week saw another 6 tonnes of buying. All of this is

new demand. Place that buying next to the 1.7 tonnes

sold in the first three weeks of January and one can see

the demand is heavy, sitting on top of the normal demand

and supply factors."

Then, they go into a lot of other things, like gold,

money, oil, currencies and politics, and you end up with

the impression that we are really, really, really in

trouble. They finally finish by reminding us that what

is happening - and the many more ugly things that will

happen - is because some idiot central banker (hint:

Alan Greenspan) created all the money necessary to

burden everyone with crushing levels of debt, all of

which was done to drive prices up. But then, they got so

high that now they have to fall.

This is insane! It's so insane (audience shouts out "How

insane, Mogambo?), that I am shooting an AK-47 assault

rifle out the window, expending magazine after magazine,

going blam, blam, blam, desperately trying, trying,

trying to get people to pay attention to the

inflationary/deflationary horror that is looming!

And yet, when the police come roaring up in response,

like they should, all they want to talk about is how I

should come out with my hands up, like it is me that is

dangerous, or something! But before I grudgingly

surrender, I always make them promise to arrest Alan

Greenspan and charge him with the murder of the dollar

and the American economy. They always promise that they

will arrest him, but they never do.

The Gold Forecaster newsletter takes a rather more wimpy

approach, and merely says, poetically, "Greenspan and

the governments of the last 20 years sowed the wind and

Mr. Bernanke will have to cope with the whirlwind." If I

was writing that, I would change the word ‘whirlwind’ to

"huge tornado that is going to rip you, your house, your

family and your entire financial world into tiny, itty-

bitty, teensy-weensy pieces, and scatter them for 10

miles around the empty, gaping hole in the ground that

is left," which adds that Subtle Mogambo Touch Of

Piquancy (SMTOP).

In this same, very enlightening vein, we have Paul

Hornig (thanks, Richard P!), writing at The Daily

Resource, who has run a few numbers concerning the

Exchange Traded Funds that are buying all this gold, and

determined, “A year ago the ETF's owned an aggregate of

170 tonnes, which would have ranked them as the 25th

largest official holder at that time.

As of the end of last week, the ETF's held 414 tonnes of

bullion, which ranks them as the world's 13th largest

official holder, and puts them within striking distance

of Mainland China, currently ranked 10th with a reported

600 tonnes."

And how popular are these Exchange Traded Funds in gold

around the world? I have no idea, but Mr. Hornig jumps

up to say that he is not too ignorant, too stupid, or

too lazy to find out - which, I figure, is his oh-so-

clever way of telling me he is siding with my wife about

these very points - and says, "ETF's now trade in the

U.S., Australia, South Africa, London, and France. SEBI

in India has announced enabling rules that will allow

gold ETF's, and there is also a rumour of a Hong Kong

listing. Bottom line: These significant increases are

taking gold out of the system and will clearly counter

further official sector sales.”

Quickly grabbing the microphone away from this

backstabber, I rhetorically ask, "And what is this

'system' that is having its gold taken out? The supply

and demand system! And what happens when demand rises?

The price goes up!"

It is not just ETFs that are popular, as alert reader

Darin G sent news that "Vanguard Group closed two of its

most-popular mutual funds today without any advance

warning. The company shuttered Vanguard Explorer, a

small-cap growth fund, and Vanguard Precious Metals and

Mining. Both had experienced huge cash inflows in

January."

They had gigantic cash inflows into gold and precious

metals? They had so much money that that they are

swamped with all that cash? Wow! Remember what I said

about what happens to the price when demand goes up?

"But," I can hear you thinking, "what about supply? If

supply increases enough to match demand, then the price

won't go up! Did you ever think about that, jerk?"

I am gritting my teeth as I fixate on the particular

emphasis you put on the word ‘jerk,’ and so, I will

coldly answer you by throwing in your face the weighty

56-page report by Cheuvreux (the equity brokerage house

of the French bank Credit Agricole) entitled

"Remonetization of Gold: Start Hoarding," and published

in Metals And Mining. The report was written by Paul

Mylchreest, who is Cheuvreux's mining sector analyst in

London, and he says, "Covert selling (via central bank

lending) of gold has artificially depressed the price

for about a decade, but Bank for International

Settlements' data on gold derivatives suggests its

impact is on the wane."

The report, by the way, clearly supports the charges

made by the Gold Anti-Trust Action Committee people, who

go by the acronym GATA. They have been yelling loud and

long about this very thing, for which we owe them a debt

of thanks.

So, how much gold have the central banks leased/sold?

The report estimates that while the central banks claim

that they have 31,000 tonnes, actually "Central banks

have 10-15k tonnes of gold less than their officially

reported reserves." Wow! Off by about half!

The discrepancy is caused by the International Monetary

Fund (another loathsome bastion of

fascist/socialist/communist idiots who think that they

can command the global economy), which issued a rule

that lets central banks lease out their gold to

speculators (who subsequently sold it), but still show

it on the books of the banks as still being in the

basement, all safe and sound! Hahahaha!

Hugo Salinas Price, who is the president of the

Asociación Cívica Mexicana Pro Plata, writes, "Today,

there is not enough gold offered for sale to satisfy

demand for gold at $550 dollars an ounce. Gigantic

quantities of paper money and magnetic money all over

the world are seeking a safe haven in all sorts of

tangible and valuable goods, a place where the

purchasing power of this money will be protected against

the depreciation of fiat.

"The public and big investors in the Western World are

hardly aware of what is going on in the gold market.

When a handful of investors with a few billions of

dollars in spendable funds take notice - which may

happen any day now - then gold will have to rise to

prices we can hardly imagine today. The scam of fiat

money we have lived in since the 30's will soon be clear

for all to see. In terms of fiat money, any number for a

price of gold is imaginable."

In case you want to test your imagination, Sprott Asset

Management says that they can easily imagine $80,000 per

ounce. And now, I am imagining it and having pleasant

little daydreams about it, too.

Until next we meet,

The Mogambo Guru

for The Daily Reckoning

Mogambo Sez: Any dramatic drop in the price of precious

metals and oil is Lady Fate being very, very nice to

you, and offering you a chance to load up at bargain

prices. Lucky you!

Editor's Note: Richard Daughty is general partner and

COO for Smith Consultant Group, serving the financial

and medical communities, and the editor of The Mogambo

Guru economic newsletter, and a vocational exercise to

heap disrespect on those who desperately deserve it.

--------------------------------------------------------

Want more? Go to our website now:

http://www.dailyreckoning.co.uk

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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