Saturday, August 6, 2011

2011-08-07 U.S. Downgrade, Yen Strength, Euro Intervention; silver/gold

I just wanted to get a quick note off this Sunday before the world goes back to work Monday, I continue to suggest getting savings out of paper if you are in a position to.

In the U.S. an agreement was reached to raise the debt 'ceiling', adding more debt to a debt problem, & there has been quite a bit of volatility in the worlds markets, over $2 trillion wiped off the worlds markets and things could accelerate rapidly from here. A point barely talked about is who is going to buy that new $2 trillion U.S. debt, the Japanese are repatriating their holdings, the Euro countries are in no position, the Chinese are lowering their holdings and openly calling for less debt issuance, the Arab nations are paying a lot for social programs to keep a lid on dissent, it seems clearer than ever that the FED must come back and monetize or risk rising rates.

Euro zone national debt interest rates continue to rise & now threaten Spain & Italy. With investors fleeing the Euro nation debt markets and stocks plummeting last week, the U.S. Treasury debt issuance has been well received (coincidence? -maybe), and they issued a massive $238 billion the day after the debt 'ceiling' was raised. Then after Friday's trading closed news came that the U.S. has been downgraded by rating agency S&P (for the first time it's history) and put on negative watch. This after Tim Geithner (Treasury Secretary) said there was 'no risk' in being downgraded.

The ECB continues to believe the way forward is monetization of the debt and now they are openly discussing buying Spanish and Italian bonds, on top of the nations they are already propping up with the EFSF (the bankrupt supporting the worse bankrupt). -expect a backlash from voters in Germany, it's more dilution of the euro for the politically connected. If rates in the U.S. rise, look for more downgrades and negative spiral in the worlds economy.

The Bank of Japanese government wants to devalue the yen, and last week acted alone in the Forex market to devalue it, making it's largest intervention in history. Us living in Japan have been immune to much of the inflation and monetary debasement that the rest of the world has felt for these past years, but I'd say don't get too comfortable, Japan's economy is based on exports, the strong yen has lowered input costs for raw material, but that can only be a positive for a period of time and at certain rates, and then it turns negative, and we may have reached that critical juncture. --Savers in paper yen beware.

Gold has been making new all time highs as expected, silver has been rising (but lagging relative to gold), however all this headline news is precious metals positive, and as of all this continues to play out I believe silver will again lead. The debt problems of 2007/2008 were simply transferred from the private sector to the public sector, now the public sector has been over burdened. This debt must be paid back or defaulted on, there aren't any simple, painless ways around it, so it is inevitable that these 'debt problems' will return. The revaluation of the metals will happen (by government dictation or market forces) and reset & re-liquefy the worlds finances.

I'm going to be making an order today (Sunday night) before trading begins on Monday in Asia. If you want to join we have 1 oz Canadian Maples at 3650Y per oz (not including shipping). The Bank of Korea just bought 20 tons of gold, the first purchase in 13 years, and a customer of ours wants some Gold Canadian Maples brand new 2011's so if you want some gold we can add to any order;

Maples 1 oz at 141,750

Maples 1/2 oz at 75,000

Maples 1/4 oz at 39,500

Maples 1/10 oz at 16,500

Payment would need to be made first thing Monday morning, any amounts are OK.

Anyway, hope you are having a great weekend,