In the world of central banking, the gloves are coming off. You can blame the Japanese.

At the G7 meeting, everyone smiled politely and said that they completely understood why the Japanese were printing unprecedented amounts of money and hammering the yen.

The main reason they gave Japan a free pass is because lots of other countries are hoping to get away with doing the same.

Central banks overseeing around a quarter of the world’s GDP have cut rates this month alone, notes Bloomberg.

The currency wars are just getting started…

The Bank of Israel Joins the Currency War

The Bank of Israel has become the latest central bank to cut interest rates. The bank cut the key interest rate by a quarter of a percentage point to 1.5%. That’s a three-year low.

What was unusual is that the rate cut came outside of an official bank meeting. That meant it surprised the market, which sent the shekel down and Israeli stocks higher.

So why did they do it? Bank governor Stanley Fischer threw out a variety of excuses.

He told Bloomberg that the move came ‘in light of the continued appreciation of the shekel, taking into account the start of natural gas production from the Tamar gas field, interest rate reductions by many central banks – notably the European Central Bank, the quantitative easing in major economies worldwide and the downward revision in global growth forecasts.’

But clearly it boils down to this: if everyone else is going to print money, slash rates, and hammer their currency, then we’ve got to join in.

As Bloomberg points out, the shekel has risen by nearly 9% over the past six months. It’s one of the best-performing currencies in the world, after the Mexican peso.

Trouble is, ‘exports make up about 40% of Israel’s economy.‘ That means the Israeli economy really won’t like a rising currency. It doesn’t help that sales of natural gas will turn the shekel into a form of ‘petrocurrency’.

So the central bank also plans to buy around $2.1bn in foreign currencies (selling the shekel to do so), to offset the impact of natural gas exports.

That all sounds quite sensible. But there’s a flipside to cutting interest rates.

You see, we’ve all become really quite blasé about rate cuts. There seem to be no consequences these days (well, beyond surging stock markets at least). Much of the world has been in such a deep hole that it was hard to see whether or not all that money-printing and rate-slashing was having an impact.

But in Israel, the trade-off is more visible. The country already has a very buoyant property market, with prices up by around a fifth since 2010. Back in November, the central bank set restrictions on the amount buyers could borrow to purchase a house. First time buyers need at least a 25% deposit.

It’s hardly ideal to have your central bank trying to control a bubble with one hand while stoking the fire with the other.

The Currency War Will Not Stop Anytime Soon

It also reveals just how much power central banks have. Politicians have virtually ceded responsibility for their economies to the central bankers.

The politicians may fiddle with the national balance sheets: tweaking a regulation here and there, diverting handouts from one special interest group to more politically-friendly ones. But overall, the burden of returning economies to growth is falling on central banks.

This is nice for politicians, in that they can blame central bank policy if things go wrong. But it does not sit well with the central banks’ role as the ‘guardian’ of a nation’s currency. After all, the only real lever they have to pull to boost growth is to cut interest rates.

And with Japan’s experiment apparently working so well – in that stocks have rocketed – the pressure on central banks to follow suit will only continue.

What does it mean for your money? Well, we’d expect the flood of money from central banks to continue.

As for the US, in a world where everyone is printing money, it’s going to be hard for Ben Bernanke to keep devaluing the dollar. Everyone is getting excited about the idea that the Federal Reserve might rein in quantitative easing (QE). That seems unlikely to us.

But even if QE is simply maintained at current levels, that’s not going to look that impressive if the rest of the world’s central banks are competing to do various ‘shock and awe’ currency debasement schemes. So we reckon the US dollar is the currency most likely to benefit from this ‘race to the bottom’ for now.

John Stepek
Contributing Editor, Money Morning

From the Archives…

Why Small-Cap Resource Stocks Beat Blue Chips Hands Down
10-05-2013 – Dr Alex Cowie

Can Australian Stocks Defy Gravity if The Australian Dollar Falls?
9-05-2013 – Murray Dawes

Build Wealth Fast through the Resource Sector
8-05-2013 – Dr Alex Cowie

36% Potential Upside for Australian Stocks Over the Next Two Years
7-05-2013 – Kris Sayce

The Key to Becoming a Successful Investor
6-05-2013 – Kris Sayce

After months of being under central bank-administered anaesthesia, many investors are pondering outside the repeated mantra of, ‘Money printing equals higher stocks.’

The question they’re asking now? How, exactly, swapping overvalued shares back and forth will create wealth for everybody — including those unfortunate enough to be buying late?

Masking symptoms of troubled economies with oceans of fresh money is not a good prescription for ‘wealth creation’.

But the Federal Reserve and other central banks have gone down that road, and there is no going back, even after the uglier symptoms of inflation emerge.

In the wake of the chaotic break in gold futures market, all gold mining stocks have been smashed. After two dreadful years, it looked like a final, cathartic purge. I haven’t seen sentiment and price moves like this since the depths of the 2008 crash.

Let’s examine the question of whether or not the gold bull market is over…

After spending much time re-examining gold’s fundamental drivers, my own assumptions and the views of a few dozen top analysts, I’ve come to the following conclusion: Ignore Wall Street’s clueless, half-baked opinions of the gold futures market.

Most of the banks’ opinions, including Goldman Sachs’ famous ‘short gold’ report, are based on an extremely speculative forecast: that the global economy can thrive after central banks stop printing. This cannot happen.

The only drivers of the US economy in recent years — rebounded stocks, housing and autos — owe their strength almost entirely to the Fed’s policy. Take away the policy, and all three would collapse. So the Fed simply cannot remove the policy. If it attempts to remove easy money, and the economy crashes, it will reinstate printing in a heartbeat.
 
The fundamental facts have not changed, so the underpinnings of gold’s bull market are intact.

The Number You Need to Know

The number you need to remember is zero.

Zero is where central banks will peg interest rates for several years into the future. Zero is also the number of times in recorded history that the “QE/ZIRP” policies in place worldwide have boosted any economy to ‘escape velocity’ (as economists say).

Such radical policies always result in destruction of the currency being printed. In other words, stagflation — not sustained economic recovery. Japan will discover that history rhymes once its financial market sugar high wears off. It offers a preview for the US.

As inflation expectations rise — the great hope of Bank of Japan governor Kuroda — Japanese investors will discover that money printing schemes are addictive, with no practical exit.

Here’s why: Once consumers buy tomorrow’s products today (ahead of expected price rises), what will they buy when tomorrow arrives? When tomorrow arrives, the howls for another round of printing will be louder than ever! We keep bringing up this question because thus far, there is no indication that any policymakers know (or admit) that Japan’s new policy is addictive and irreversible.

The real world isn’t nearly so simple and easily modelled as the professors running central banks believe. Trying to ‘boost inflation expectations’ will only trap central banks into permanent cycles of easing — both in the US and Japan. And the bigger government debts get, the harder it will be for central banks to tighten policy.

Raising interest rates a few years from now would result in interest expenses consuming an unacceptable amount of government tax revenue; so higher short-term interest rates — which would really put the brakes on gold prices — will not happen.

Finally, zero happens to be the number of fiat currencies in history that held their value.
The [US] dollar’s value isn’t going to zero anytime soon, but debasement continues, and stopping the growth federal entitlement spending — the real driver of federal budget deficits — is politically impossible.

The guardians of the paper dollar’s sanctity, rather than preserving its value with positive real interest rates and balanced budgets, are aggressively pushing it toward its ultimate destination: zero.

I’m waiting to see a strong rebuttal from the defenders of the paper money system. Thus far, I haven’t seen any cases for a strong dollar — a case that proves central banks have not trapped themselves into permanent cycles of easy money.

The gold bull market lives on…

Dan Amoss
Contributing Writer, Money Morning

From the Archives…

Why Waste Your Time on Gold When You Can Invest in Dividend Stocks?
19-04-2013 – Kris Sayce

A Trader’s Eye View of Gold’s Frightening Collapse
18-04-2013 – Murray Dawes

Why You Should Buy ‘Dirty, Grimy’ Gold Stocks
17-04-2013 – Dr. Alex Cowie

Why this Historic Fall in the Gold Price Equates to a Historic Opportunity
16-04-2013 – Dr. Alex Cowie

Beware the ‘Safety Bubble’, But Don’t Sell Dividend Stocks Yet
15-04-2013 – Kris Sayce

If you’ve ever thought about buying gold, but never quite got round to it — in the space of a week, the market just gave you three huge reasons to ‘back up the truck’.

The incredibly bullish set up is at direct odds with the poor price performance, which saw gold dip as low as US$1540 last week.

This dip in the price is our friend: after all we’re meant to buy gold ‘on the dips’.

So when gold pulled back last week, I put my money where my mouth is…

Here’s part of the latest addition to the Cowie retirement fund:

And if it gets cheaper still, I’ll buy more.

Let me explain what I’m seeing that makes me think a turning point is getting close…

What to Do When Investment Banks Say Sell

Back in late 2008, institutional analysts were tripping over themselves to downgrade their forecasts on gold…right before gold started a 180% rally.

The fact is that consensus institutional forecasts on gold have been consistently wrong for the last ten years. You could trade gold perfectly by doing the exact opposite to what the big investment banks recommend.

In other words, when they say ‘sell’…you should buy.

So it’s exciting to see more and more big banks are calling gold a ‘sell’.

Last week, the gold forecast that got all the attention was from Societe Generale (SocGen), a French multinational banking company with a market cap of around $20 billion.

They called for gold to drop to $1375/ounce.

Frankly I’m surprised that the market paid so much attention to the SocGen report. But it popped up across the mainstream financial media, as well as financial blogs and other newsletters. It was emailed to me about twenty times.

Most commentators quoted it as though it was gospel! Yet no one seems to have checked out SocGen’s insanely bad track record on gold…

I’d like to share with you what I wrote about this in a snippet from the Diggers and Drillers weekly update from last Thursday:

‘The 27 page [SocGen] report was called ‘The end of the gold era’, making the case for gold to fall as far as $1375/ounce.

‘Everything about today’s gold market reminds me of late 2008: the fundamentals, the technicals, the bearishness, the institutional downgrades, and the market action.

‘And now we have Jesper Dannesboe, who co-authored this week’s Soc Gen report, who also got it tragically wrong back in 2008. I’ve dug into the archives for you to show you what he was saying back then.

SocGen sell to be a contrarian indicator to buy again?

‘Well…there were three years of rallies to sell into, which should have been plenty! This is what SocGen’s calls look like on the chart.

‘Then last year they called gold to soar to $8500, and it fell.

‘So, their latest call for gold to fall could well be the best reason to buy that we’ve had so far!’

In short — SocGen taking another swing against gold with the same weak argument that it had back in 2008 is a clear warning signal that a rally could be imminent.

Since I wrote the above, the guys at Sprott Asset Management took SocGen’s argument to pieces. Part of their rationale brings me to the second big reason to start buying gold now.

(NB: you can watch my recent interview with legendary investor, Eric Sprott, by taking out a subscription with any Port Phillip Publishing paid investment service. Check out our latest offer here… )

You see, last week we heard that the Bank of Japan will DOUBLE their balance sheet over the next few years.

Where This Goes, Gold Follows

This is quite simply a game changer for the entire market: everything from bonds to foreign exchange, commodities, and equities.

But it’s gold I want to focus on today. There is a tight relationship between gold and the collective size of central banks’ balance sheets.

As balance sheets swell, gold rallies. You can see how closely the two track each other below in the chart from the guys at Sprott Asset Management.

Gold Moves With Central Bank Balance Sheets

Right now the major central banks have $9 trillion on their books — and Japan wants to add $1.4 trillion to that number by the end of next year.

If the relationship holds true, this would convert to a 15% increase in the gold price.

But hang on…didn’t we use the same rationale about the US Fed last year? Wasn’t the growth of their balance sheet meant to push up gold?

Well, the Fed has bought $85 billion worth of US Treasuries and mortgage-backed securities a month, and gold has gone nowhere fast. But you’ll get your explanation if you look closely at the chart above. You’ll see that the total balance sheet has actually pulled back slightly in the last few months.

Surprisingly, it’s because the European Central Bank’s (ECB) balance sheet has in fact shrunk by 10% this year.

This would explain why gold has had a rough start to the year. The ECB’s contraction cancelled out the Fed’s expansion.

However, the ECB’s balance sheet has stabilised now, and with Slovenia and the Netherlands lining up to be the next Cyprus, it could be on the way back up very soon.

Even if it shrunk at the same pace again, it would be easily exceeded by the combined growth in the balance sheets of Japan ($75bn) and the US ($85bn) of $160 billion/month.

Assuming no change from the ECB, and that the Fed and the Bank of Japan keep going at the current pace for another two years, this would equate to a balance sheet expansion of $3.8 trillion. This would add over 40% to the current global balance sheet of $9 trillion. As gold moves so closely with this, you could expect a roughly 40% rise in gold.

It’s dangerous to look exclusively at fundamental drivers, and ignore the positioning in the futures market.

And this is where we get the third major reason to buy gold today.

The Commitment of Traders Report

This report analyses the positioning in the futures market, which — right or wrong — determines the price, at least in the short-term.

And there is a keg of dynamite under the price here right now: there are a near record number of traders (‘managed money’) trying to short gold.

Just like journalists, these guys basically get it wrong every time. You can use them as a good contrarian indicator.

To show you their near perfect record of getting it wrong, I’ve highlighted (in red circles) the times they have stacked on the biggest short positions in the last five years. Then I’ve highlighted the corresponding periods on the gold chart (green circles on pink line). You can see that each spike in shorts has signalled a rally in gold.

Traders Shorting Gold — So Get Ready for a Rally

Take another quick look at the chart. The two big spikes in shorts back in 2008 preceded the three year rally in gold. And you can see that today’s short position is at far higher levels than back in 2008. It’s at record levels, and has been for a few weeks now. This is a highly explosive situation.

I suspect we’ll see volatility both ways at first as they defend their trade, but almost certainly this ends in a big move up.

Because there is a real chance these guys are going to have to ‘cover their positions’ if gold rallies just a little bit. Each trader doing this will raise the price, and cause another trader to follow suit. They are like a large group of mountaineers all tied together with the same rope. When one falls, the rest will follow in spectacular style. It would be enough to cause a massive move in gold.

Watching the gold price trending calmly down, you’d never imagine a war was waging below the surface of the market.

But a war it has been — and one that gold bulls are about to win.

Dr Alex Cowie
Editor, Diggers & Drillers

From the Port Phillip Publishing Library

Special Report: TORRENT SIGNAL 3

Daily Reckoning: Our Largest Asian Trading Partners Are in Trouble: China and Japan

Money Morning: A Better Inflation Bet Than Gold…Stock Market Investing

Pursuit of Happiness: Why the NBN is Dead Before it’s Begun

Diggers and Drillers:
Why You Should Invest in Junior Mining Stocks

You need to know the truth about banks.

Why? Because they rob you.

Why? Because they can.

It’s the Willie Sutton bank robber quote in reverse. Willie was asked, ‘Why do you rob banks?’

He famously answered, while in handcuffs, ‘Because that’s where the money is.’

But, banks can’t keep robbing the public if they keep shooting themselves in their feet. That’s where central banks come in.

They are the real kingpins keeping their robber minions in pinstripes — instead of prison stripes.

Estimates now are that US banks — the too big to fail ones — will end up paying more than $100 billion in fines, settlement costs, to buy back bad mortgages, to right some of the past wrongs related to the mortgage crisis they caused.

It could end up being more. But they’re all still in business. They’re able to digest these ‘costs of doing business’, and get bigger. And the banks are making enough profits to want to ‘reward shareholders’ by raising their dividend payouts and buying back their stock.

‘The Cost of Doing Business’

Then there’s the LIBOR mess. Banks colluded to manipulate the London Interbank Offered Rate. LIBOR is referred to by the British Bankers’ Association (an outfit populated by bankers as a kind of trade group that oversees LIBOR dissemination), as ‘the world’s most important number’.

There have been some settlements already. Three giant European banks — Royal Bank of Scotland, UBS, and Barclays — have ponied up almost $3 billion to settle matters regarding their involvement.

How much will the big American banks have to pay to settle their end of the scheming manipulation?

Nobody knows. But estimates I’ve seen range from $7.8 billion (I have no idea how the analyst came up with that figure… Thin air?) to more than $125 billion.

The point is that no one knows how much it will cost banks because it’s impossible to calculate how so many people, businesses, municipal governments, and anybody who paid interest based on LIBOR, was adversely affected.

The banks will pay whatever they have to in order to get these matters settled. They’ll all still be in business and able to digest these ‘costs of doing business’. They’ll get bigger, and make enough profits to want to ‘reward shareholders’ by raising their dividend payouts and buying back their stock.

But the hits keep coming folks.

Now the banks are being investigated for collusion, price fixing, restraint of trade, and just flat out being the criminal enterprises that they are. And for all their hard work in keeping credit default swap (CDS) trading off exchanges — where prices would be transparent and honest.

Then again, who cares about that little corner of the market for that little product? It’s only estimated to be in the tens of trillions of dollars. They are weapons of financial mass destruction in the shaky hands of speculating shysters.

Okay, that’s a hyperbole. There is a place for CDS, it’s just not where it is now — which is everywhere.

How much will it cost banks? $1 billion? $10 billion? $100 million billion?

Who cares?

The banks will pay whatever they have to. They’ll all still be in business. They’re able to digest these ‘costs of doing business’. They’ll get bigger, and make enough profits to want to ‘reward shareholders’ by raising their dividend payouts and buying back their stock.

Get the Picture?

Banks have become protected criminal enterprises.

They couldn’t do what they do without two things…

Make that one thing, because the one thing really encompasses the two things. I was going to say with they operate under the auspices of their cronies in government — and the Federal Reserve or central banks everywhere. But forget the government stooges. They are beholden to the Federal Reserve and central, which they long ago sold their souls to.

Without central banks to bail out the banks they would fail. And they should. But they can’t because they are too big to fail — and too big to jail.

Now that’s a business model!

Oh, and why are governments around the world (case in point: the United States) able to run mega-deficits?

That would be because they’re in bed with their cuddly central banker colluders, so they can print money to buy their never-ending, always-spewing bills, notes, and bonds that finance political pandering to the voters to stay in power.

They couldn’t do it without central banks.

Shah Gilani
Contributing Editor, Money Morning

From the Archives…

Why Dividend Stocks May Not Stay This Cheap for Long
29-03-2013 – Kris Sayce

Respect the Market Trend, but Don’t Expect it to Last
28-03-2013 – Murray Dawes

Silver ‘$100 Within Two Years’
27-03-2013 – Dr. Alex Cowie

11 Billion Reasons to Expect a 200% Move in Gold Stocks Within Months
26-03-2013 – Dr. Alex Cowie

You Want Proof the Stock Market’s Heading Up? Try This…
25-03-2013 – Kris Sayce

Once the public furore and shrill media coverage have died down, it will become clear that events in Cyprus did not mark the death of democracy or the end of the euro, but potentially the beginning of the end of deposit ‘insurance’.

If so, then three cheers to that. It may herald a return to honesty, transparency, and responsibility in banking.

Let us start by looking at some of the facts of deposit banking: When you deposit money in a bank, you forfeit ownership of money and gain ownership of a claim against the bank — a claim for instant repayment of money, but a claim nonetheless. In 1848, the House of Lords stated it thusly:

‘Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him, when he is asked for it…

‘The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in hazardous speculation; he is not bound to keep it or deal with it as the property of his principal, but he is, of course, answerable for the amount, because he has contracted.’

This is not legal pedantry or just a matter of opinion, but logical necessity. It follows inescapably from how deposit banking has developed, how it was practiced in 1848, and how it is still practiced today.

Deposit Banking Has Been the Same for 300 Years

If ownership of the money had not passed from depositor to banker, then the banker could not lend the money to a third party against interest. He could not then pay interest to the depositor. If the depositor had retained full ownership of the deposited money, the banker would only be allowed to store it safely and to probably charge the depositor for the safekeeping of his property.

Money stored in a bank’s vault earns as little interest as money kept under a mattress. It is evidently not what bank depositors contract for. If interest is being paid or ‘free’ banking services are being provided, then the depositor must have at least implicitly agreed that the banker can ‘invest’ the money, i.e., put it at risk.

For more than 300 years, banks have been in the business of funding loans that are risky and illiquid with deposits that are supposed to be safe and instantly redeemable.

When banks fail, depositors lose money, although in former times, no rational person claimed that the depositors were unfairly ‘bailed in’ (a bail-in is an agreement by creditors to roll over their short-term claims or to engage in a formal debt restructuring with a troubled country) or were the victims of ‘theft’.

Although the mechanics of fractional-reserve banking have not changed in 300 years, the public’s expectations have greatly changed. Today, banks are expected to lend more generously than ever while depositors are supposed to not incur any risk of loss at all. This means squaring the circle, but it has not stopped politicians from promising such a feat.

Enter deposit insurance.

The Bogus ‘Insurance’

State deposit ‘insurance’ is not insurance at all. Insurance companies calculate and calibrate risks, charge the insured party, and set aside capital for when the insured event occurs. A state deposit ‘guarantee’, by contrast, is simply another unfunded government promise extended in the hope that things won’t get that bad.

Eventually, the state does what it always does, i.e., take from Peter to pay Paul. Cyprus is a case in point. Private insurance companies would have pulled the plug on a ballooning banking sector long ago. The Cypriot state, still the local monopolist of bank licensing and bank regulation, simply looked on as the banks amassed deposits of four times GDP.

In the end, Cyprus’ government ran out of ‘Peters’ to stick the bill to — and ‘Hans’ in Germany refused to get ‘bailed in’ completely (although he is still providing the lion’s share of the bailout).

Cyprus is just an extreme example of what the institutionalised obfuscation of risk and accountability that comes with state-protected banking can lead to. Deposit ‘insurance’ masks the risks and socialises the costs of fractional-reserve banking. Unlimited state paper money and central banks that assume the role of ‘lenders of last resort’ have the same effect.

If the original idea behind these innovations was to make banking safer, it has not worked, as banks have become bigger and riskier than ever before, although I suspect that the real purpose of these ‘safety nets’ has always been to provide cover for more generous bank credit expansion.

Under present arrangements, there is little incentive for banks to position themselves in the marketplace as particularly conservative. Depositors have been largely desensitized to the risks inherent in banking.

They no longer reward prudent banks with inflows, nor do they punish overtly risky banks with the withdrawal of funds. And even if they do, the banks can now obtain almost unlimited funds from the central bank, at least as long as they have any asset that the central bank is willing to ‘monetise’.

This is a low hurdle, indeed, as banks have become conduits for the never-ending policy of ‘stimulus’ and are thus being fattened further for the sake of more growth. Once a bank has ‘ticked the boxes’ and meets the minimum criteria of regulatory supervision, any additional probity would only subtract from potential shareholder returns.

Our modern financial infrastructure has created an illusion of safety coupled with an illusion of prosperity, thanks to artificially cheapened credit. The risk of the occasional run on an individual bank has now been replaced with the acute and rising risk of a run on the entire system.

This would change radically if we reintroduced free market principles into banking. Bankers would again be answerable to all their lenders, including small depositors, who would no longer be lulled into a false sense of security. Rather, in their proper role as creditors to the banks, they would become ‘deposit vigilantes’ and would help keep the banks in check.

In order to gain and maintain the public’s trust, the banks would again have to communicate balance sheet strategy and risk management to the wider public, not just to a handful of highly specialized bureaucrats at the central bank or the state’s bank regulator. Banking would become less complex, more transparent, and less leveraged. Conservative banking would again be a viable business model.

The wider public would begin to appreciate how dangerous the populist policies of cheap credit and naive demands for ‘getting banks lending again’ ultimately are. The depositors would finally realize that they’re underwriting these policies and that they carry the lion’s share of the risks.

Detlev Schlichter

Contributing Writer, Money Morning 

Publisher’s Note: This article first appeared here.

From the Archives…

Why Dividend Stocks May Not Stay This Cheap for Long

29-03-2013 – Kris Sayce

Respect the Market Trend, but Don’t Expect it to Last

28-03-2013 – Murray Dawes

Silver ‘$100 Within Two Years’

27-03-2013 – Dr. Alex Cowie

11 Billion Reasons to Expect a 200% Move in Gold Stocks Within Months

26-03-2013 – Dr. Alex Cowie

You Want Proof the Stock Market’s Heading Up? Try This…

25-03-2013 – Kris Sayce

When journalists start bagging out gold, you know it’s time to think about buying some.

Because they have an uncanny knack of getting gold’s next move 100% wrong.

When they are cheering gold on, you can bet your nugget that the price is topping out. And conversely when they are giving gold a tough time — like now — you can be sure the gold price is bottoming out.

Because let’s face it: if they could make accurate trading calls on gold, they wouldn’t be making their living writing newspapers…

So I was pleased as punch over the Easter weekend to see the Sunday Age lead its finance section with a story called, ‘Has gold had its time in the sun?’

Bring it on. More of that bearishness please!

The writer did, in fairness, include some quality research from our own Greg Canavan of Sound Money Sound Investments.

Then countering Greg’s argument he used some negative views from AMP Capital Investors Chief Economist, Shane Oliver.

To quote the story: ‘[Oliver] says the risk of a global meltdown or collapse has receded and the appetite for gold is less than it was…He cannot see much upside in the gold price from here, though that could change quickly if there is another major financial crisis or inflation spikes.’

Now I’m sure Shane’s a lovely guy, but he’s clearly not very good at gold.

Then again, which institutional economist is? While they may be able to talk about dividend payout ratios, and franking credits until dawn; gold (and gold stocks) make up just 1% of global assets, so doesn’t tend to preoccupy their thinking at 3am on a very regular basis.

The main problem here is Shane’s assuming gold can only rise if the world is going to pot.

Some Urban Myths About Gold

This is perhaps the most popular of gold’s urban myths. And I’m happy to say that it’s total nonsense.

Gold actually gained far more in the five ‘go-go’ years prior to the GFC than it has gained in the five crisis-riddled years since.

For example, between the start of 2003 and end of 2007, the average global GDP rate was a chunky 4.78%.

No ‘global meltdown or collapse’. And in this period gold gained a respectable 149%.

From the start of 2008 to the end of 2012, the global economy has been an ever-evolving ‘global meltdown’. The average global GDP rate has been just 2.86%, mostly thanks to China.

And gold gained less in this period — with a 95% rise.

So contrary to Oliver’s argument, gold can do just as well or even better during the good times than the bad.

The misconception is so common, I even hear it from smart analysts saying things like this: ‘I’d love to see gold at $2000, but I’d hate to live in a world that creates such a high price.’

So I ask them if a five-fold rise in the gold price since 2002 has translated into a world that’s five times worse (discounting the rise over that period of reality TV, drivers who text, and of course Justin Bieber).

The fact is that the state of the global economy is not a direct driver of the gold price.

Other factors, for example global money supply growth, are far more important.

And here’s the other two biggest of these golden fairy tales.

Firstly: that rising interest rates will stop gold from rising.

The idea is that investors will sell their gold when bonds start paying more yield. For example, if the US ten year bond starts paying 3–4% again, then gold will lose its appeal.

There may be a few gold owners that think that way, but they are in a tiny minority. But the real issue here is that history disagrees with the argument.

From 2003 to 2008, yields on a ten year US bond were around that 4% mark. And factoring in inflation, the real yield was around the 2% mark most of this time.

Did that slow the gold price down? Not exactly. It gained 149%.

Yields have a Long Way to Go Before They Stand a Chance of Denting Gold

So it has been amusing to hear people argue gold was going to fall because rates were creeping back up again. Because gold soared despite five years of real rates as high as 2%.

With today’s rates in negative territory, I’d say gold owners are pretty safe from this particular bogey-man.

The third bogey-man is the theory that mass sales from ETF’s could kill the gold price.

Back in February, the media was frothing at the bit that gold would crash because investors had liquidated 100 tonnes of gold (from a total of 2500) from ETFs during the month.

But let’s step back and put that in context.

Last year China imported 834 tonnes, with 114 tonnes in December alone.

India imported 860 tonnes in 2012, with another 100 in January.

As a whole, central banks purchased 534 tonnes in 2012.

These three buyers alone account for 2228 tonnes between them in 2012. In other words, they bought 100 tonnes every 16 days.

So I wouldn’t sweat it that ETF’s sold 100 tonnes in February. It wouldn’t even touch the sides of Asian demand.

In fact, global gold ETF holders could dump their entire remaining position of 2400 tonnes, and it still wouldn’t be enough to feed China, India and the central banks for thirteen months.

The Real Driver Behind Gold

Gold is an Asian story now. Western investors, and famous traders and hedge fund managers for that matter, need to wake up and smell the coffee if they still think that their trading is relevant to the big picture for gold.

I wrote to you yesterday with the transcript from my recent conversation with Eric Sprott about gold. I asked what he thought about the People’s Bank of China suggesting that they hadn’t increased their holding over the last three years, from 1,054 tons. Eric said:

It was a good chat we had. And if you haven’t seen it yet, I’d recommend a quick read, as Eric made some very interesting observations.

That’s the thing. Just as you should be selective about the food you consume, you should be careful about the ideas you consume.

It’s your choice. Will those ideas come from a fund manager that runs $11 billion in the precious metals space — or will you prefer to gobble up a journalist’s musings instead?

Dr Alex Cowie
Editor, Diggers & Drillers

From the Port Phillip Publishing Library

Special Report: Australia’s Energy Stock BLOWOUT

Daily Reckoning: Why a PlayStation and Mining Technology Have More In Common Than You Think

Money Morning: On Gold — Billionaire Investor Eric Sprott Says : ‘I’m in Alex Cowie’s Camp’

Pursuit of Happiness: Three Scams and One Opportunity to Escape Your Mortgage

Australian Small-Cap Investigator:
How to Make Money From Small-Cap Stocks

Last week I spent two days speaking to senior government officials and business leaders in Bermuda, which is one of the world’s leading international insurance and reinsurance hubs. The men and women in the room are responsible for hundreds of millions in assets worldwide.

I spoke for over an hour on the implications and opportunities of the financial crisis.

As I was finishing up, I received one of the most provocative questions I’ve gotten in a long time from the darkness beyond the stage lights: ‘Does any nation really need a ‘Fed’?’ asked one of the directors.

The answer is, unequivocally, no. Especially if it’s modelled after the United States Federal Reserve.

The individual depositors who were the protected class when the Fed was originally formed are little more than cannon fodder today. Instead, the banks the Federal Reserve supports have become the protected few.

To be honest, I didn’t always think this way. For much of my career, I took the Federal Reserve for granted, believing like millions of Americans that it was acting in our country’s best interest.

Then I sat down with legendary investor Jim Rogers in Singapore a few years back at the onset of the current financial crisis. During our discussion, he pointed out several things that really made me think about the Fed and its role in not only creating this crisis, but making it worse.

A 100 Year-Old Affront to Freedom

The American Federal Reserve as it operates today is an insult to anybody who believes in economic and political freedom. In an era of globally-linked finance, the very concept of a Fed is an abomination.

I realize that this may not sit well with you if this is the first time you’ve thought about the issue.

So let’s walk you through a few things that will challenge your thinking…

The Federal Reserve was established in 1913. It’s only 100 years old. And it’s anything but an original part of America’s economic machine.

Its original purpose was simple: To prevent banking failures.

At the time, the United States had just gone through the vicious bank panic of 1907. That crisis was significant because it saw the failure of Knickerbocker Trust, which sought – but failed – to receive financial support from its peers. Unable to obtain liquidity from any source, Knickerbocker Trust collapsed.

This affected public psychology deeply because Knickerbocker’s peers not only chose not to rescue Knickerbocker, but also suspended payments to each other.

This boomeranged through the system and came to roost at the retail level when the public figured out that they didn’t have access to their money, especially in ‘specie’, meaning in gold. Bank runs and closures became the norm.

The New York Stock Exchange fell 50% before financier J.P. Morgan famously locked banking executives in his personal library and formulated a liquidity injection that ultimately calmed everything down.

Loath to waste a good crisis, legislators stepped up to the plate by agitating for centralized banking as a means of restoring public confidence while providing the banking system with a source of liquidity that would prevent their wholesale collapse.

And they got it a few years later…in spades.

What’s really interesting to me looking back using today’s lens is how sophisticated the machinery of the time was. Powerful public and private figures worked together, often in great secrecy like they did at Jekyll Island, Georgia, to build the framework for the Fed. The Wall Street Journal published a 14-part series highlighting the need for a central bank. Citizen groups and trade organizations piled on.

And voilà…the Fed was born under the guise of a politically independent institution that would stabilize the financial system, protect the monetary supply against inflation, and maintain credit as needed by injecting stimulus when the economy flagged and withdrawing it when things were overheated.

In the terminology of the day, this was viewed as giving elasticity to the dollar which would, in turn, establish more effective control over the banking system.

None other than the Comptroller of the Currency observed that the Fed would supply a circulating medium that is ‘absolutely safe’. What irony.

Fast forward to today.

Every 1913 dollar is now worth US$0.04 cents. Goods and services that cost a buck back then now will set you back $21. Where’s the stability in that?

If that’s not practical enough, consider wages.

According to the US Census Bureau, the median income of male workers in 2010 was $32,137 while the median income of male workers in 1968 was $5,980. On the surface this isn’t too shabby. It’s a 437.4% increase over 42 years – or an average income gain of 10.41% a year, over the same time period.

However, if you run the numbers the other way, using 2010 dollars, a very different picture emerges. You quickly see that median earning male workers actually have less purchasing power today than they did 42 years ago ($32,844 vs. $32,137).

That’s your Federal Reserve at work. It’s robbing America by gradually sucking the life out of the financial system. Over time, it will cause the system to collapse – just ask anybody in the former Soviet Union. They had a ‘Fed’ and no Soviet bank ever failed per se. However, the state eventually took so much wealth from the people that the entire system broke.

Taxation Courtesy of the Printing Press

Legions of spend-it-while-you-can politicians and economists don’t see it this way. And neither, perhaps more importantly, does sitting Federal Reserve Chairman Dr. Ben Bernanke.

He said explicitly on November 21st, 2002, in remarks to the National Economists Club that, ‘by increasing the number of dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of the dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.’

In other words, he believes he can create economic value merely by printing money. It’s no wonder that he continues to print money today (euphemistically calling it ‘quantitative easing’) knowing full well that he is eviscerating the dollar. He believes that doing so is the same thing as raising prices by managing inflation.

In fact, inflation is actually defined as the artificial increase in the supply of money and credit. It’s a tax by any other name. So what Bernanke is really doing is artificially taxing the American public by debasing its currency. It’s no wonder that more people have less. But here’s where it really hits home for me.

When the Federal Reserve was created, it was envisioned as a source of liquidity for the banking system. The presumption was that any specific failure in the banking system subject to the Fed’s oversight would be offset by the available cash from the government because it had centralised the credit risks associated with their lending portfolios.

In today’s environment, credit is diffused globally far beyond the Fed’s reach. What’s more, there’s too much of it and the banking system is now so big that the risks it holds dwarf the Fed’s liquidity capacity.

For example, there are an estimated $600 trillion to $1.5 quadrillion in derivatives products worldwide at the moment. Global gross world product is approximately $79 trillion by comparison.

Contrary to what Bernanke and others who are so tightly involved in the system believe, this crisis was not caused by a lack of liquidity. Rather, it was caused by too much money sloshing around in some sort of unregulated mosh pit with inadequate supervision and inadequate regulatory oversight.

The real villain here is that excess liquidity is leveraged. This lets big banks buy derivatives for pennies on the dollar yet exposes them to hundreds of billions in market risk.

The sad reality is that Bernanke and his central banking buddies in ‘Feds’ around the world could print money until the end of time and they still wouldn’t be able to print enough to guarantee liquidity. Yet they will continue to try because that’s the only way they keep the illusion going.

It’s also the only way they keep a handle on their version of risk…to the system. And that brings us full circle.

Success by its very definition includes failure. People forget that the discipline of failure is integral to capitalism. When the Fed creates money out of thin air, the risk of failure does not exist. Without the risk of failure, the big banks know they can place one way bets and not worry about losses because they are literally ‘too big to fail’.

In fact, management and traders are paid to do exactly this. If the monstrous one-way bets pay off, they get up to 50% of the profits. If the bets go bad, the stockholders, the Federal Reserve, and now the public eat the losses.

So they have every incentive to act in their own interests while reinforcing incompetent management, improper risk taking and inefficient operations. Politicians and regulators are incentivized the same way, since the Fed also makes it possible for them to skirt the issue of responsibility.

The Fallacy of Free Money

Which brings me to the last sacred cow I want to barbeque today: interest rates.

The Fed spends a good deal of its time and our money promoting and maintaining low interest rates. It’s doing so on the assumption that low rates prompt everyone to put money to work by making savings less appealing. But ask Japan how much demand there was when money was free – the answer is next to none.

The trillion-dollar problem is that this economic assumption presumes the savings are there in the first place. In reality, America and other ‘Fed’ nations are flat broke. There is no savings pool to draw upon, which means the foregone assumption is a bust.

At some point, people who do not have cash cannot pay for the goods and services they need – no matter how much liquidity is in the system.

International capital markets actually exacerbate the problem because other governments and major trading firms purchase that very same excess liquidity which they, in turn, then begin using as collateral for their own expansion.

Congressman Ron Paul, a staunch Fed opponent, summed it up much more eloquently than I ever could in his book, End the Fed, noting that ‘those who suffer [rarely] see the connection between Federal Reserve monetary policy and the suffering that comes as a consequence of financing big government and big banking.’

Under the circumstances, is it any wonder that almost every currency in recorded history that is controlled by a central bank has failed or is failing?

The Federal Reserve

No. We do not need a Fed because dissolving it would:

• Force any government that has one to live within its means;
• Restore the appropriate level of risk to the global financial community; and,
• Nullify the risks involuntarily forced upon the public in the name of political priorities.

As for how we dissolve this mess, that’s a subject for another time and another email.

Keith Fitz-Gerald
Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in Money Morning (USA)

From the Archives…

Why You Should Buy This Falling Stock Market
22-03-2013 – Kris Sayce

Stock Market Warning: Part II
21-03-2013 – Murray Dawes

New Developments on Whether You Can Get Your Mortgage Cancelled
20-03-2013 – Nick Hubble

Your Retirement or Your Mortgage?
19-03-2013 – Nick Hubble

Get Used to This Stock Market Action, It’s Set to Last…
18-03-2013 – Kris Sayce

In May last year, I made the point that gold miners looked cheap. Today I want to catch up on that market, and I’ll tell you how I see the market today.

As you can see from the following chart…for a while, I was right. I was very right!

Miners whizzed up some 20% in next to no time. But since, they have been well and truly crushed. The question is why?

For sure, the gold price itself hasn’t performed well. But the mine stocks have been in an underclass all of their own.

The following chart shows the GDM index (white line) relative to the gold price over the last year. The gold spot price (orange line) is certainly at the bottom of its range. Year-to-date, it’s off about 3%. But then look at that white line – the miners…down more than six times the fall in gold!

In fact, if you were to plot the two-year chart, you’d see that gold is actually up 10%, but the mining stocks are down a massive 40%.

What’s going on?

Five Things Holding the Miners Down

• Geared to the gold price. When the gold price is on the up, the miners do incredibly well. If gold goes up 15%, miners’ profits may go up 50% – perhaps more…production costs can be quickly dwarfed by a rise in the gold price, and so increased revenues from the high gold price feed straight through to the bottom line.
• Problem is, the converse is also true. If the gold price falls, the miners may fall harder. And seeing as many in the market see the gold price falling from here, they sell off the miners in anticipation.
• Mining costs aren’t fixed. Gold production costs have escalated quite significantly – inflation in energy prices and other commodities have been a thorn in the side of the producers. On top of that, it’s becoming increasingly difficult to find decent grades to mine. The ‘low-hanging fruit’ has been picked – it’s now very hard work to refine each ounce of the precious yellow metal. Many gold miners would hate gold to slip below $1,500…and we’re pretty close to that figure right now!
• Central banks want gold – not miners. One of the reasons gold has held up relatively well is because there’s large demand coming out of the emerging market central banks. The likes of China and Russia are filling their boots – other smaller nations are dipping in too. Wisely these guys want to diversify foreign reserves. And gold is the ultimate reserve currency. Not the gold miners!
• Nationalisation fears. There’s an irony at the heart of gold investing. Gold is often bought as an insurance policy to guard against turmoil and panic in the markets. And during periods of turmoil, governments can do strange things. With so much trouble at the heart of the Western financial system, many fear a blow up. If gold is in some way the solution to this fiscal mess, then many fear that miners will suffer windfall taxes, or even forced nationalisation. Many are starting to wonder whether it isn’t safer to tuck away some gold coins than hold shares.
• Sentiment. Many investors are just plain fed up with how badly run many of these miners seem to be. A while back, many stockholders found that management had sold future gold production at what were increasingly looking like very low prices. As the gold price escalated, many stockholders didn’t benefit.

Today some miners have found other ways of messing things up. A fundamental lack of control on the cost side of things, and a poor pipeline of new resources seem to be the main (gold) bugbears.

So management is the biggest problem in the industry. Encouraged by a rising gold price, lots of miners have mined for more costly, inaccessible gold.

In effect they’ve made big bets on the gold price. That explains the ‘gearing’ I discussed above. So you need disciplined management that watches costs just as carefully as the gold price. And you need companies that operate in safe jurisdictions. But to find those stocks, you need expertise…

Gold Miners: Where Do We Go From Here?

So you’d have to be mad to invest in miners… right?

Well, no. There’s absolutely no doubt that, for the reasons mentioned, sentiment on these stocks is bouncing about at the bottom. That’s usually a good sign!

If gold finds its way back to the much safer level towards the mid-$1,700s, then I’d expect sentiment toward the stocks to change very quickly. Just look at the chart at around September and October last year to see how gold miners respond to the gold price. So there’s surely a great opportunity there if you time it right…and if you’re pointed towards the right kind of mining stocks.

And as for the great gold hoarders in the East, we’ve already seen some moves toward buying gold production, as well as gold. Although China’s plans to take control of African Barrick Gold fell through, there’s no doubt they’re sniffing around other deals.

With the miners so deeply out of fashion, it’s likely to stir more interest from the East. And if gold gets back to nearer the top of its recent trading range, I wouldn’t be surprised to see a sharp 20% mark-up in the miners.

So, hey, if you back the fundamentals for gold this could be a great buying opportunity. All you need next are some well-managed mining stocks.

But the key recovery won’t come until gold re-asserts itself in bull territory. That’s when the miners will see some serious attention. That’s the play I’m waiting for.

They say that patience is a virtue. Sit on your hands for the moment is my advice.

Bengt Saelensminde
Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in MoneyWeek

From the Archives…

Can This Indicator Predict The Dow Jones Next Move?
16-03-2013 – Kris Sayce

Seven Situations to Watch in the Pacific Currency War
15-03-2013 – Dan Denning

Stock Market Warning: Next Week Could be a Blood Bath
14-03-2013 – Murray Dawes

REVEALED: One Opportunity to Escape Your Mortgage
13-03-2013 – Nick Hubble

UK Property: How You Can Buy a House For Less Than 250 Grand
12-03-2013 – Dr. Alex Cowie

Central bankers around the world are enthralled by quantitative easing, says Bill Gross. That should make investors very nervous, says the co-founder of PIMCO, the world’s biggest bond fund.

In his January newsletter, he notes that ‘the world’s six largest central banks have collectively issued six trillion dollars’ worth of checks since the beginning of 2009 in order to stem private sector deleveraging.’

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The world’s powerful central banks are playing a very dangerous game. Trying to manage inflation expectations while pursuing downright inflationary policies has caused, and is set to cause, a great deal of volatility in the market this year.

But as I said on Monday, there’s good money to be made for those who can stay a couple of steps ahead of the central planners.

Today I want to show you how central banks will try to pull the wool over your eyes this year. And what you can do to make sure you stay ahead of them.

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How are we to invest our money in 2013? Well, we can start with recognising a simple fact – we can no longer rely on the old rules of investing.

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We were greeted in the office this morning by Dan Denning telling us that the best performing commodity in 2012 was…wait for it…lead. That’s right, good old lead. And the best performing equity index last year? Venezuela.

Have a think about that when you read all the expert investment predictions for 2013 over the next few weeks.

The truth is no one has any clue or special insight into which investment class will make money this year. That’s especially true in a global environment characterised by constant central bank intervention and the resultant currency wars.

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Dear Reader,

It’s not very often Money Morning editor Kris Sayce has time for a chat. Luckily for us, he kindly agreed to sit down and reflect on the year that’s been and the one that’s coming.

If you’ve read Money Morning for a while, you’ll know Kris doesn’t hold back.

So if you’d like to hear what your editor has to say about the state of play in the Aussie market, exciting opportunities in 2013 and even a few words for some old foes – take a look below…

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Bernanke said that to remedy the unemployment problem he will continue the Fed’s program of asset purchases. Specifically, the Fed will continue to buy and hold mortgage-backed securities (yes, they are still sloshing around the banking system) and US Treasury securities – $40 billion-plus per month. Plus, he will keep the federal funds rates at near zero.

The great change, he said, is the intense focus on the policy objective of unemployment. The committee sees no inflation threat, so it might as well turn its attention to the labor markets. The Fed loves the unemployed, you see, and wants to help them.

But here’s the disconnect. What the devil does buying bad debt from zombie banks have to do with getting people jobs? The relationship between assets purchases and policy goals is murky at best.

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The Federal Reserve System is a government-sanctioned private enterprise that functions as a socialist tool.

It was conceived in 1910 and constructed for the benefit of the private bankers who control it. Congress blessed the scheme in 1913 with passage of the Federal Reserve Act.

These days the Fed doesn’t just backstop America’s too-big-to-fail banks. It has expanded its doctrine of socializing banking losses globally.

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There’s a revolution going on in the central banking world.

When the cult of independent central bankers took hold, their main enemy was inflation. They all had to keep inflation rising at a gentle pace of around 2% a year.

They didn’t care about asset price inflation. The price of a house could rocket as much as it liked. And they were quite relaxed about the soaring price of energy as long as this was offset by a drop in the price of music players, for example.

All in all, they managed to stick to the inflation target pretty well. Meanwhile the economy still overheated massively, then collapsed in on itself under the weight of all the debt everyone had taken on.

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This morning the Financial Times reports:

‘The Fed also beefed up its third round of quantitative easing to $85bn a month – adding $45bn of Treasury purchases to its commitment to buy $40bn of mortgage-backed securities each month – and said it will keep buying until there is a substantial improvements in the labour market.’

There was a time when an announcement about central bank money-printing would have sent the market cock-a-hoop.

Stocks would have taken off.

But the market met this latest round of money-printing by the US Federal Reserve with little more than a pfffffffftttttt. The S&P 500 gained a total of 0.04%.

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There’s one book that every central banker should read. It’s not by Friedrich Hayek or John Maynard Keynes.

It’s Mary Shelley’s Frankenstein.

In it, Dr Frankenstein has the hubris to believe he can use science to short-circuit nature, and re-animate something that should be dead. The creature he creates goes on to destroy him.

The parallels are striking. Central bankers thought that their audacious experiments in monetary policy could revive dying economic models.

Now Britain is being eaten alive by the monsters they have created.

Unfortunately, we suspect that – rather like Frankenstein – this story won’t have a happy ending…

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Yesterday we left you with a cliffhanger.

Although if you subscribe to one of our paid investment services, and you get the free weekly digest that comes with them, Scoops Lane, you may already know what we were on about.

After 40 years of expanding credit like nobody’s business, and four years of printing money and bailing out zombie banks like it was going out of fashion, the US Federal Reserve has worked out why it’s plan to boost the economy isn’t working.

It’s not because its ideas are bad.

It’s not because it needs more time.

No. The Fed has done its homework. The Fed knows exactly why things aren’t going to plan.

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The bankers have created a whole new language in recent years…

Troubled Asset Relief Program (TARP). Term Asset-Backed Securities Loan Facility. Commercial Paper Funding Facility.

Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility.

Money Market Investor Funding Facility.

Quantitative Easing (QE). Operation Twist. Debt Ceiling.

PIIGS (Portugal, Italy, Ireland, Greece, and Spain).

European Financial Stability Fund (EFSF). European Financial Stabilisation Mechanism (EFSM). European Stability Mechanism (ESM). Outright Monetary Transactions (OMT).

And now you’ve got a new one: Fiscal Cliff.

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Although it happened more than 40 years ago, many Americans still rue the day back in 1971 when U.S. President Richard M. Nixon effectively took this country off the so-called ‘gold standard’.

Under a true gold standard, paper notes are ‘convertible’ into pre-determined, fixed quantities of the ‘yellow metal’.

What actually happened back in 1971 was that President Nixon – facing huge budget and trade deficits, and a plunging dollar – enacted a series of economic moves, including the unilateral cancellation of the direct convertibility of the U.S. dollar into gold.

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Central bank money-printing ‘will destroy the world’.

Contrarian investment expert Dr Marc Faber, who writes the Gloom, Boom and Doom Report newsletter, came out with that one in a recent interview with Bloomberg.

It sounds extreme. But he might just be right.

Here’s why – and what you should hold onto to protect yourself in the meantime… Continue Reading

You may recall that several weeks ago investment firm Goldman Sachs said buying the euro and short-selling the Aussie dollar was one of the best long-term trades out there.

The Wall Street Journal even reported at the time that someone at Goldman Sachs tagged it ‘the trade of the century‘.

Well, on the other side of the trade they might find the team from Citigroup.

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