Wall Street’s Worst Call In 20 Years, The Sucker Trade & Gold

On the heels of continued volatile trading in key global markets, today one of the top economists in the world warned King World News about Wall Street’s worst call in 20 years, the sucker trade and also spoke to KWN about gold. Here is what Michael Pento, founder of Pento Portfolio Strategies, had to say in his powerful interview.

Pento: “The entire Wall Street community is absolutely convinced that not only is the U.S. economy healed, but they also believe the U.S. dollar is going to have a massive surge from current levels. They also believe the end of QE is right around the corner, and that higher interest rates will not put a damper on the housing market or GDP growth.

That trade is so overcrowded, especially when it comes to how those factors affect gold….

“Investors would be very misguided not to take the other side of that trade. If you look at the U.S. dollar and how it relates to gold, that is one of the most overcrowded trades in my 20 years of experience on Wall Street. So it’s long the dollar, short gold, the United States healing, and the end of QE.

But I believe that trade is completely wrong. If you look at what’s happening with the 10-Year note hitting 2.75%, and you look at how it’s already negatively affected mortgage refinancing and initial purchases, people all over America are canceling their contracts because they cannot afford the new rates.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/10_Wall_Streets_Worst_Call_In_20_Years,_The_Sucker_Trade_%26_Gold.html

$10,000 Gold

I interviewed Nick Barisheff, who is calling for $10,000 gold. Normally, I shy away from these “sky-high” predictions but after seeing him interviewed more than once, I felt he presented a realistic and legitimate case.

Nick Barisheff is President and CEO of Bullion Management Group Inc., a bullion investment company that provides investors with a secure, cost-effective and transparent way to purchase and store individual Good Delivery gold, silver and platinum bullion bars. Recognized worldwide as a bullion expert, Barisheff is the author of $10,000 Gold: Why Gold’s Inevitable Rise is the Investor’s Safe Haven. He is a speaker and financial commentator on bullion and current market trends.

Here’s the interview:

Is the gold bull over or, as you contend in your new book, is it headed to $10,000 an ounce?

The first thing people have to realize is that no fiat currency, ever, has resulted in anything except decline followed by default, while gold has always maintained its value in mankind’s history of money exchange. Today we have a coordinated, and in terms of fiat currency creation epic, decline orchestrated by the world’s largest central banks. Debt-fueled fiat currency creation is among several long-term irreversible trends I spell out in $10,000 Gold. All of these trends have been in place since the late 1990s, when gold was trading below $300 an ounce.

2. What evidence can you put forward to support the case for gold in light of recent events?

There is no question gold is going to resume its bull market trend after blatant market interference in April and Fed jawboning in June about tapering bond purchases.

If you examine the April gold price decline, sales estimates for the COMEX on Friday April 12 and Monday April 15 were between 125 and 400 tonnes. It was, purely and simply, a deliberate paper gold attack as indicated by the size and speed of the sales that then triggered sell stops and margin calls. There are only a few large global institutions that could have flooded the market in that manner.

In June, this price raid on gold was reinforced by the idea that the U.S. Fed Chairman, Ben Bernanke, is somehow going to end his crescendo of computer-generated currency creation based on a mending economy. From German car sales being at a 20-year low to the slowdown in China’s GDP growth to Japan’s failing stock market to the U.S. record in food stamp usage, there is dominant evidence that the global economy is coming undone.

What people seem to have overlooked is the Fed Chairman’s admission that, should the economy worsen, he will expand, not taper or discontinue, quantitative easing. Observers such as John Williams at ShadowStats point to U.S. household income that’s flatlined since 2009. Williams has also stated that any talk of tapering is pure propaganda to placate global markets on the U.S. dollar while trying to suppress gold. [1]

3. If one supports the fact that the paper market has been manipulated and/or jawboned into temporary submission, what is the physical market signaling?

In India, one of the world’s most robust markets for physical gold, the government has tried to curb gold imports through a series of warnings, and now actual restrictions.  Yet India’s national body of jewellers, the All India Gems & Jewellery Trade Federation, says reports of gold smuggling at different airports in India rose by 2,200 percent last year. The GJF also stated that despite an increase in the import duty from 1 percent to 8 percent in January last year, gold consumption has gone up, not down. [2]

In the United States, even after the April gold price shock, the following month we noted that the 40 percent premium U.S. consumers were willing to pay for one-tenth ounce coins from the U.S. Mint priced gold at $1,932 an ounce, a physical price that is higher than the $1,900 an ounce record for paper gold set in 2011.

In China, the premium that gold buyers paid to take immediate delivery of bullion jumped four-fold in the six weeks following the gold price “crash.”[3]

If this were truly a natural correction or actual bear market, then physical gold market participants would be panic selling, not panic buying. Over the long term, these artificial declines in the price of paper gold are good for gold, because they allow a lot of big, smart, long-term investors to enter the markets. Allowing for what often is a slow summer season, I would not be surprised to see gold hit new highs before year end.
4. Let’s talk about more of the long-term irreversible trends in $10,000 Gold. What is the link that oil, population growth and the aging population have with the price of gold?

As I state in my book, the world’s rising population, aging population and outsourcing all create the need for more government debt to compensate for slowing growth, and increased government debt equals more currency, lower purchasing power and a higher gold price.

When natural economic growth does not come through productivity, or the manufacturing and production of natural resources, then the government must fuel growth through debt creation. In 2012, it cost the U.S. government $2.47 to grow its GDP by $1.00.

Despite the claims of energy independence because of shale oil in the United States, the world’s growth has been fueled by cheap land-based oil, located mainly in the Middle East. Oil sands and shale oil are extremely expensive to produce by comparison, and are therefore inflationary. Apart from currency printing creating inflation, the rising price of oil will also be inflationary because it is used for virtually everything.

These irreversible trends all impact growth negatively, reduce taxation revenues, cause inflation and require ever greater government expenditure, which lead to ever-increasing government debt. Therefore, the world’s citizens will suffer through increasing waves of currency debasement, which naturally causes the value of gold to appear stronger against currencies.
5. Is $10,000 gold a price limit in your mind?

We are in uncharted financial territory. If you look back over the history of fiat currencies it’s actually extraordinary. Several reputable analysts are calling for $10,000 gold, such as Société Générale’s Edward Alberts. Jim Sinclair, the man Barron’s labeled “Mr. Gold” because of his proven understanding of the gold market, has stated he expects gold to eventually trade at $50,000 an ounce.

Given systematic global currency debasement, people need to understand that it is not necessarily gold that will rise in value, but currencies that will lose value against gold. Yet due to the temporary manipulation of the paper gold price, I would suggest that those with foresight have a historic opportunity to acquire uncompromised physical gold.

$300 Trillion In Derivatives Losses To Lead Gold’s Rebound

Today Egon von Greyerz warned King World News that the global derivatives market has already suffered a staggering $300 trillion of losses.  These massive derivatives losses, which are being hidden from the public, will help lead the rebound in gold as it begins the next leg of its bull market.  Below is what Greyerz, who is founder of Matterhorn Asset Management out of Switzerland, had to say in this powerful interview.

Greyerz:  “A few years ago when the problems in Greece started, it was found that the Goldman Sachs had helped them to hide the real truth of their economy by a major derivatives positions.

 

Now we’ve found out that Italy has done exactly the same thing.  They took out derivatives in order to meet euro criteria back in the late 1990s.  They had a total of $31 billion of derivatives and now they are finding that at least $8 billion of that is worthless.  That’s about 30% of the entire position….

 

“This just illustrates what I’ve been saying time and time again, that a major part of the over one quadrillion dollars of derivatives currently held in the financial world is worthless.  Here you have a typical position that a government is taking, $31 billion of derivatives, and 30% is worthless.

 

If you then overlay that loss into the total amount of global derivatives, the loss would be a staggering $300 trillion.  It would not surprise me if $300 trillion is in fact very close to the total losses on global derivatives.  If that is the case it means that no counterparty can cover those type of losses, so in reality the entire financial system is bankrupt.

 

This is why the world will witness money printing on an unprecedented scale going forward, despite misinformation and propaganda about “tapering of QE.”  So central planners are just hiding the truth and lying to the public.

 

If we continue to look at Italy, 160 corporations are in “special crisis administration.”  That’s 160 major companies in Italy alone are in serious financial trouble.  But Italy has a stunning debt to GDP ratio of 238%.  In reality it’s probably a lot higher than 238% because of the derivatives losses which have been used to conceal the truth about what is really taking place.

 

But what this means is we can’t trust any government figures.  This is why Draghi recently said, “There is still downside risk.”  Of course there is downside risk, and that risk is massive.  If we look at the European banking system, it’s terminal.  People can never repay their debts to those banks, and of course the banks have continued to borrow money from the ECB since 2008.  Of all of the bad debts these banks have, remember that nothing has been written off or even written down so far.

 

And of course the central banks have bought worthless debts directly from the banks in Europe.  The ECB over the last 11 years has grown its balance sheet over 200%.  The Fed’s balance sheet has grown 400%.  The Chinese central bank has grown its balance sheet 660%, and the Bank of England 800%.  England’s balance sheet has gone from $2 trillion to $9 trillion, and of course that debt can never be repaid.

 

Not only are the central banks highly leveraged, but so are the commercial banks.  France is also in a mess.  French bank Credit Agricole has a remarkable 46 times leverage!  So if there is 2% bad debt, the capital of that bank is wiped out.  Another French bank is using 40 times leverage.  Credit Suisse, if you use Basel III rules, also has 40 times leverage.  Deutsche Bank has 30 times leverage.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/6/28_$300_Trillion_In_Derivatives_Losses_To_Lead_Golds_Rebound.html