WealthCycles

Feeding The Chinese Dragon

Michael Maloney and the WealthCycles Team — Thu, 17 May 2012 02:02:53 +0000

Even before the 2008 crisis, the United States and other debtor nations looked upon China as the Great Hope, as it cautiously introduced market reforms that promised, in time, to offer the debt-addicted world economy a brand-new marketplace, a trillion newly affluent consumers strong. As it seems to be turning out, China, which was after all indulging in many of the same fiscal and economic practices that sent the rest of the developed world crashing, was vulnerable to the same problems—an overheated real estate sector fed by too much cheap money, price inflation and, more recently, liquidity and credit shortages.

Through it all, China has continued quietly buying up gold. Its central bank became a large net purchaser of gold. China become the world’s largest producer of gold, and it keeps all that gold it mines at home. For a time it encouraged its citizens to buy and save their wealth in gold—although more recently it seems to have ended the outright avocation. Commercial Chinese bank accounts can hold multiple currencies, silver and gold.

Funds and Fed Minutes Impact Gold

Michael Maloney and the WealthCycles Team — Thu, 17 May 2012 02:02:41 +0000

It seems everybody with a printing press (i.e. Central Banks) is on hold, as we noted in our May 10 post Bank of England Defers to Fed on Future Printing.

However, there is pressing new information concerning the monetary outlook, starting with a May 16 announcement by St. Louis branch Fed President James Bullard:

“The FOMC is on pause in its aggressive easing campaign."

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The True Market Value Of Voluntary Exchange

Michael Maloney and the WealthCycles Team — Wed, 16 May 2012 23:47:03 +0000

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You’re in a group of 10 friends, who take a vote on whether or not you should beat up George to get him to pony up some dough for Oliver’s kids’ lessons. The vote is 6-4 to beat George up. Are you okay with it now?

As a prelude to the animated blockbuster we reviewed recently, Edgar the Exploiter, video-maker Tomasz Kaye brings us George Ought to Help, which offers a libertarian spin on mandatory taxation.

“Imagine you have a friend called George,” the blue cloud begins. Imagine you and old friend George are approached by a third mutual friend, Oliver. Oliver hits you and George up for money to pay his children’s school tuition. You reach for your wallet and shell out. George, on the other hand, is unsympathetic. You are shocked at George’s lack of generosity. You try to win him over, but he continues to resist. What should you do? Do you feel comfortable, the blue cloud wants to know, with threatening to beat George up for being a tight-fisted old meanie?

Facebook IPO – Billionaire Founder Renounces Citizenship

Michael Maloney and the WealthCycles Team — Tue, 15 May 2012 23:21:57 +0000

Eduardo Saverin moved from Brazil to Miami with his family in 1992; he was 13 years old. Saverin became a U.S. citizen in 1998, eventually attending Harvard where he met Zuckerberg. They worked together on Facebook in school, with Saverin earning ownership of 4% of the company.

Last year in September, Saverin, thinking ahead, renounces his U.S. citizenship knowing that Facebook will be offered for public ownership in 2012, in an IPO, an initial public offering. Saverin had the foresight to consider that the public may value Facebook shares higher than the private market value; by renouncing citizenship, he saved capital gains taxes on a possible rise in share price.

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Economic opportunity is where the money is, and today the creditor nations are in the East.

Safeguarding Your Precious Metals

Michael Maloney and the WealthCycles Team — Tue, 15 May 2012 00:02:54 +0000

With the recent Eurosis-driven bout of dollar strength, hopefully many of our readers are proud owners of hard money (gold and silver).

Many such folks save in quite creative places. Mattresses come to mind; caves have been in the media recently; and we see videos of wall safes with paintings hung to conceal hinges used for easy access to the obscured cache.

In his book, Guide to Investing in Gold and Silver, Mike Maloney says the need to find a safe place to store gold and silver is “a good problem to have, but there is no easy answer.” He warns against using bank safe deposit boxes for rent. One issue with that method is that, should the Fed and the government decide to extort citizens for more capital as they did in 1933, confiscation of your safe deposit box contents is almost guaranteed. As Huertas and Silverman tell it:

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Mike Maloney always says, “if you hold it, you own it,” and many gold and silver owners need to find a safe place of storage.

Modern Miners Still Engaged in Risky Business

Michael Maloney and the WealthCycles Team — Sat, 12 May 2012 01:21:56 +0000

Mining is a risky and expensive business, as Michael Maloney has often said. The difficulty and high start-up costs of extracting precious metals contribute to supply pressure that has factored into rising prices. With gold and silver prices artificially suppressed, once the “easy pickin‘s” were extracted from a mine, it often was not profitable enough to remain in operation. The expense and risk of developing new finds was prohibitive. But the gold and silver bull markets of the past couple of decades have paved the way for larger profits, and miners are once again feeling “gold fever.” Even in environmentally vigilant and regulation-burdened California, a new wave of modern prospectors has returned to the gold fields.

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The gold and silver bull markets of the past couple of decades have paved the way for larger profits, and miners are once again feeling “gold fever.”

Bank of England Defers to Fed on Future Printing

Michael Maloney and the WealthCycles Team — Fri, 11 May 2012 01:13:41 +0000

One week ago, on May 3, we wrote ECB Holds Line on Interest Rates, More Printing regarding the coordinated status of central bank policy. We said:

“The Bank of England will decide next Thursday, May 10, if it will continue printing beyond the now completed $525 billion program total, and join the Bank of Japan, or if it will bolster the (knowingly temporary) ECB and Fed positions that the world will return to a gentle growth after all unconventional accommodation (printing) is removed.”

We detailed here the Bank of Japan April 27 announcement to print another $120 billion worth of yen. With no change in the flow of asset purchases, this extends the printing program by roughly six months.

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The Bank of England (BOE) did not join the Bank of Japan; instead, maintained the total increase in the currency stock at $525 billion worth.

Mine! How Nationalization Of Resources May Affect Gold Price

Michael Maloney and the WealthCycles Team — Thu, 10 May 2012 01:34:02 +0000

The populist trend of Latin American governments to repatriate and nationalize their resources continues, most recently with Argentina’s nationalization of the country’s largest oil company and, on May Day, Bolivia’s nationalization of its largest electricity producer. Even as foreign-owned miners and resource developers gird their loins for more takeovers, threatening to take their heavy equipment and go home, the reality is this: Nationalization and increased risk lead to inefficiencies and create shortages; shortages push prices up; and when the price goes high enough, the foreign investors will return. What is not going to happen is that demand for energy, fuel, minerals or metals diminishes. For those holding commodities themselves, as opposed to commodity producers that may be targets for nationalization, long-term prospects are positive.

Shanghai Exchange Begins Physical Silver Delivery

Michael Maloney and the WealthCycles Team — Thu, 10 May 2012 01:33:50 +0000

Worries about Europe’s sovereign debt crisis sparked a wave of paper silver and gold exchanges at lower prices on JP Morgan’s COMEX after Europe’s credit markets opened for the first time this week on Tuesday.

For institutions, cash is seen as a more flexible asset than precious metals futures as the stock and credit markets sell off. Cash can be used to buy perceived opportunities or to pay off their creditors who are looking for an exit. Institutions short on dollars have not been this desperate for cash since the European Central Bank (ECB) was prompted to begin its assets-for-cash operation (named Long Term Refinancing Option, or LTRO). Europe’s desperation for cash is illustrated best by looking at favored alternative currencies with liquidity and stability, such as gold, and the dollar. The 3-month Euro-dollar swap chart below shows European banks’ willingness to pay for dollars, notably the rate-of-change (bottom pane) showing acceleration to a degree similar to times of previous crisis.

Smart Money Says COMEX Can’t Back Its Gold Contracts

Michael Maloney and the WealthCycles Team — Thu, 10 May 2012 00:20:44 +0000

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Kyle to COMEX: “What if 4% of the people want delivery?” COMEX:” That never happens…” And if it does? “Price will solve everything.”

Hedge fund founder and former Bear Sterns boy wonder Kyle Bass in this video interview comments on asking the COMEX, one of the world’s largest commodities exchanges owned by the CME, if they have enough physical gold in its vaults to redeem all its outstanding contracts. The reply?—Not by a long shot.

It’s not news that exchanges and electronically traded funds (ETFs) don’t really hold all the physical commodities they trade. Michael Maloney has written for years about the dangers inherent in holding “paper” gold or silver versus owning physical metals in segregated storage. Most recently, the WealthCycles team wrote about the sad case of MF Global and the rehypothecation of purportedly allocated, independently owned assets - now in bankruptcy proceedings.