How Long (Can This Keep Going On...)?

I was inspired to write this piece today by a thought I posted at Zero Hedge, namely that this whole unwinding process (evisceration of our economy) is tiresomely slow.  Since the dominoes started actually falling down in 2007 (the first obvious signs of imbalance and stress in our financial system), many of us who were watching were expecting things to move more dramatically downward...  We were right in 2008.  But, the federal government and the Federal Reserve stepped win with a huge series of huge bailouts that benefited mostly the large banks and even foreign banks.  And just last week we saw the Fed announce "ZIRP" (short term interest rates) until at least late 2014...  What does that say about our economy?

We went into a steep recession, and may be still be there (or in the "Double Dip") depending on whose numbers you believe.  And it *seems* like things are a little better, the State Run Media and our president say so...  But, there are still LOTS of homes in "Shadow Inventory", lots of people out of work (again, disputed figures, Shadowstats has us at 16% unemployment), green energy companies laying off people and going bankrupt, etc.

Further, I see little investment in manufacturing here in the USA.  I read recently that almost all of Apple's products are Made in China...  Virtually NOTHING in that iPhone or iPad is made here.  No one that I know of is building a bearing plant here...

It is NOT a guarantee that America is in decline, but sure does FEEL like it.  Many people I know are worse off than in 2007.  WE most certainly are worse off (lower income because of ZIRP)!  Savers are being penalized...  And people saving money is the SOURCE of capital for investment.


***

If we accept the premise of America in decline (or even just entertain this as another "Thought Experiment"), then a brief review of history is worthwhile.  The USA is often characterized as an empire, in that we are all over the world involved in other countries' business, what with wars and general brow-beating.  We certainly are The Superpower, even with a growing China (still poor!).  Europe (aka Yurp, thx DCFusor!) is in decline, as we watch to see if Greece defaults and Portugal likely close behind.

Let us then look at a couple of well known empires, how and why they declined and what the lessons may be for us.  The Roman Empire was a major power for over 500 years (and was a Superpower for perhaps 150 years almost on the scale of the USA, say, in the year 2000).

I cannot claim to be anything close to an expert on the ancient history of Rome, but many who know more than I do have said that Rome declined (and fell) due to a number of reasons.  One reason, probably important, was that Rome eventually turned into a "welfare state" (at least in the city) -- bread and circuses for the masses.  They didn't need to work!  Hmm...  Also, as an Empire, Rome became multicultural, though the role of multiculturalism in Rome's decline is definitely disputed.  We see here in America a quiet "La Reconquista" (the long hoped, by Mexico, Reconquest of the lands they lost in the war we had with them in the 1840s) going on, a vivid example of which is Victor Davis Hanson's piece I linked to a couple of weeks ago (about how the Valley of California is becoming a lawless region due to the Mexican gangs' power, click the link here (this should be required reading for any thinking American): http://victorhanson.com/articles/hanson122211.html).  Rome, through the centuries debased their coinage.  The USA took the gold from our money in 1933, our silver in 1965 and the copper & nickel in 2012 (a bill was JUST introduced to make the pennies and nickels out of cheaper metals).  Rome was invaded by powerful "barbarians" it is true, but the barbarians succeeded because of Roman weakness, not barbarian strength.  It still took a long time (centuries) for Rome to decline and fall, and more centuries for Byzantium to fall as well.  Heavy taxation also played a part, hmm...

I move on to the case of the British Empire (I claim no particular expertise here either).  England grew to become arguably the greatest empire the world has ever seen!  "The sun never set on the British Empire".  They grew so powerful because they understood the power of naval power and of relative free merchant trade.  Remember what they owned: big parts of North America, India, major parts of Africa, bits and pieces of Asia...

The principal reason cited for their decline is "imperial overstretch", that is, not enough Englishmen to properly control and manage their huge holdings, who all wanted to be independent anyway...  England also had/has their own problems with multiculturalism (again disputed).  We here in the USA now have between ONE and SIX wars going on (again, depending on who's counting and what the meaning of "war" is).  These wars have been HORRIFICALLY expensive, and the costs will continue (medical care for wounded veterans) far into the future, even if we left right now.  We have up to 700 military bases, of one sort or another, scattered around the globe.  In many ways we irritate other countries with silly demands (eg, that China cut back on CO2 emissiions)...

But, it took a long time for England to lose her empire too.  And there were other reasons (WWII for example).  DEBTS played a part, so did high taxes...

***

But, there are some differences between Ancient Rome and the British Empire.  We have three things that the other two did not:

• fast transportation (airplanes and vehicles)
• fast moving and sensitive financial markets
• the internet, computers and television

These three differences all involve speed.  This opens up the possibility of events here in the USA, or even elsewhere, even obscure places (Greece) causing tremors within our country.  I believe that our entire system is more precarious than what we hear from "the men behind the curtain."  One little "push", and that could be the start of a crash...

So, anything bad, really BAD, could happen fast, or maybe not.  Perhaps our system can be saved, perhaps not.  My prediction record of future events (short-term anyway) is notoriously bad -- ask any of my friends!

"The Powers That Be" (TPTB) have shown a great adeptness at "kicking the can down the road", the historically most common choice, rather than allowing the bad parts of the country to fail, and then rebuild with the capital from the savers (yes, mostly the prudent rich and upper middle class).  Kicking the can via bailouts, huge deficit spending and consequent huge debts has sort-of worked to date (again, in dispute).

UPDATE!  

pmbug (owner of pmbug.com, a great precious metals forum with a nice non-junky atmosphere) just informed  (by comment below) that it was John Maynard Keynes not Galbraith as I earlier wrote...

I believe it was John (see Update above) who wrote words to the effect that the markets can stay irrational longer than you can stay solvent...  Meaning that you may be right, but lose your money anyway (the timing thing).  In an email to me, FOFOA himself said that he had NO IDEA when "Freegold" could happen, it could be tomorrow or it could still be years away...

So, all of this just grinds on and on.  And who knows for how long.  Although aggravating, this gives us all more time to prepare for anything bad.  And I am a big believer in being prepared.  You should too!

http://youtu.be/eBhwfMdxCPI

3:24

Ace - How Long Has Then Been Going On?

How Long (1975) AM Gold I know that Ace isn't Ace Frehley, but I used to think they were the same thing in elementary school. So the pic stays.

by mikedeviant | 3 years ago | 216,710 views

Review of Barron's, Dated 30 January

Another Saturday, another Italian class (No. 3), another set of errands to run, and another review of the weekend's Barron's.  Once again I was "locked into" buying this issue because I wanted to cover the last of the Roundtable meeting (split into three weeks), so I had no choice but to buy it...

I will get to the Cover Story ("Don't Lose My Money!") below, today I will just go straight through the paper reviewing what I choose (remember, Barron's is BIG and DENSELY PACKED with information).

Alan Abelson kicks off (hey, it's Super Bowl Weekend, OK?) his column by noting that it is not the "La Niña" weather phenomenon that is responsible for the mild winter that the US is having but really more due to all of the hot air coming from the President, the Fed Chairman's latest spiel, Congress being back in business and, last but certainly not least all the hot air from the Republican debates about who should be the next President.

Abelson notes that President Obama blamed it all on the last administration (just like last year and the year before that) in the State of the Union address.

Republicans Newt and Mitt are going at it hammer and tong, here in Florida I am hearing remarkably savage ads attacking each other.

Abelson then turns his attention to the latest Fed comments, reducing its characterization of our economy's growth from a "moderate" rate to a "modest" rate.  Mmm.  Doesn't sound good, does it?  The Fed then goes on to say that ZIRP will stay with us until late 2014!!!  Wow, zero interest rates as far as the eye can see...  Abelson then goes on to say that another round of QE "looks like a sure thing comfortably before Nov. 6."

Abelson then goes on to write that neither Stephanie Pomboy (MacroMavens) nor Kevin Logan (HSBC) are not enthused about stocks.  How about gold to $2000?  [ed. note: it is very possible that I will write a piece soon on gold's NICE spike post-Fed blather...]

He finishes by writing that trying to call the bottom in real estate might be dangerous.  Uh, yes.  I will not be buying any for a long time...

***

David Rosenberg (famed bear from Gluskin Sheff) is quoted on Page 14 (my edition) as saying that Treasuries of longer duration will bring much lower yields than the already very low ones we see now.

[ed. note: My readers might care to note that famed gold analyst Antal Fekete has said that an environment where interest rates are going DOWN means that capital is being destroyed (as the value of previous investment goes down).  Our lousy economy since I read this (maybe 2 - 3 years ago) would lend evidence to Fekete's views, what with NOBODY doing any serious capital investment (plant and equipment) in this country for YEARS now.  If you want to know more, Google Professor Antal Fekete's works.]

On Page 15 is a column about how various analysts are forecasting a possible decline in global trade this year (ruh roh for bearing companies bringing in product from Asia...).

***

The Cover Story by Kopin Tan chronicles that even with the recent run-up in stocks that investors are concerned about not wanting to be hit with big losses (like in 2008).  Many are asking their money managers if they should sell their winning stocks rather than risk getting hit again...  Author Kopin Tan writes:

"Can you blame them?  The markets are in the throes of Europe's solvency crisis, and gripped by policy paralysis following the bursting of Earth's debt bubble.  The messy demise of MF Global -- with billions of client money still missing -- coming so soon after the Bernie Madoff scandal further reinforces the suspicion that our fragile financial system is a house of cards."


[I could not have written that better myself, even if I had a month to do it]

He goes on to write that A LOT of surveys are finding that investors are putting less into stocks and putting more into Treasuries, even with such abysmally low yields.  Investors are heading towards lower volatility and dividend payers.  And young "Generation Y" investors are among the most alarmed.  Citigroup's London-based economist Michael Saunders even expects more credit downgrades of the US, Japan, France and other countries over the next two - three years.

The author does not offer many solutions (nor have I for that matter, I am thinking through how to write an article on INCOME), but he does show JP Morgan's and U.S. Trust's portfolio recommendations (allocation of financial assets).  JPM suggests 4% in commodities while U.S. Trust suggests 6% in tangible assets.  Gold would be a subset of both of those.  Neither suggests how much to hold in gold.

So, I will: you should hold 5% - 10% of your financial assets in gold.

***

Miriam Gottfried writes a positive piece Cliffs Natural Resources (ticker CLF), which is the big US iron ore miner, they also mine iron ore in Australia and Brazil.  They also have some coal mines.  Ahhh, ah, I dunno.  If you like mining (dangerous with a slowing China), I might look elsewhere...

Bill Alpert writes an article on the sleazy Chinese reverse-merger stocks.  There have been a number of scandals, yet there are bulls on many of these companies.  There are also bears who are shorting them.  My suggestion: screw 'em, don't touch them either way, long or short!

***

Coverage of the Roundtable meet-fest finishes with this issue.  New member Brian Rogers offers up his picks and gives his reasons:

Emerson Electric (EMR, a good company IMO)
Ingersoll-Rand (IR, they used to own Torrington bearing before selling it to Timken)
JP Morgan Chase (JPM)  [see my Note 1 below]
Thermos Fisher Scientific (TMO)
Microsoft (MSFT)  [see my Note 2 below]
Juniper Networks (JNPR)

Abby Cohen (of Goldman Sachs) sees risks in the global economy (Europe and China), but all in all a decent global economic growth of 3.2% (lowered from 3.5%).  Her picks:

Edwards Lifeeciences (EW)
Boeing (BA)
Embraer (ERJ) <--- they make smaller passenger jets in Brazil
ExxonMobil (XOM) <--- some would say the best managed of the majors oils
JP Morgan Chase [see my Note 1 below]
American Express (AXP)
 (I left out her pick of Domino's Pizza UK & Ireland, shares might be hard to buy)

Scott Black offers lower growth numbers than Abby did.  His picks:

Apache (APA) he says it's real cheap because investor concern over holdings in Egypt
CBS (CBS)
FedEx (FDX)
Deere & Co. (DE)  <--- could be a big winner as food production goes up...
BioMed Realty Trust (BMR)
Digital Realty Trust (DLR)

His last two kind of rub me wrong, they are (specialized) real estate plays...

Fred Hickey (long time follower of technology and Editor of The High-Tech Strategist) starts off great with the below comment:

"I remain overweight gold.  The secular bull market in gold isn't over.  A negative interest-rate environment is bullish for gold, and rates keep getting more negative as central banks keep cutting rates that aren't yet zero-bound.  Where interest rates are close to zero, as in the U.S., the U.K. and Japan, they engage in quantitative easing."


He is just starting to warm up to technology (he has been bearish for years), he thinks opportunities may soon come.  Here are his picks:

iShares Gold Trust (IAU), aw, c'mon Fred, just buy PHYSICAL GOLD!
Mkt Vectors Gold Miners ETF (GDX)
BMC Software (BMC, complex software for systems, also now in the "Cloud")
Marvell Technology Group (MRVL)
Microsoft (MFST)  [see my Note 2 below]

Notes:

1)  JP Morgan Chase was picked by two investment pros @ $35.36, we'll be watching
2)  Microsoft was also picked by two investment pros @$28.11, we'll be watching too.

***

CEO Spotlight features the life of Yum! Brands (KFC, Pizza Hut and Taco Bell) boss David Novak.  In my own personal reading, I am not into biographies, but I have noted that CEO Spotlight has been much more interesting than I would have earlier guessed.  David Novak has done a great job of leading Yum! since being at the helm, especially growing the business in China.

Note that each time I go to Peru, I walk to the local Pizza Hut once per visit there in Lima.

***

Jim McTague ("D.C. Current") writes of the struggle in Washington to bring US corporate money now stashed overseas (legally) back to the US.  The problem is that companies do not want to do that because of high taxes they would pay.  This complex issue is now in deadlock.

Jim writes near the end of his column that the president wants to try and pick winners & losers, again.  Looks like he has not learned his lesson from Solyndra...

***

"ETF Focus" author Murray Coleman writes about commercial realty plays there in ETF land.

Permit me a moment to offer a comment on ETFs.  ETFs offer what Bill Bonner (of Agora, the financial publishing group), I believe, called "Precision Guided Investments".  That is, there are so many ETFs that cover so many even very small sectors, that you can even invest in obscure sectors now and yet minimize single company risk.  There is a rare earth metals ETF now, for example.

He writes about the great variety of commercial realty ETFs out there now, and what this guy says about this ETF.  I am not going to venture to say what sub-space of commercial realty might work out the best.  In fact, I don't I even like any commercial real estate.

But, I will say this: a good book needs to be written on the ETF universe that is accessible to general readers, say, who are financially literate, even if only barely.  There may be such a book out there, but I have not seen one.

***

"Technology Week" author Tiernan Ray writes about Apple (AAPL), their BIG WEEK and prospects (like for a dividend, etc.).  AAPL is now worth more than ExxonMobil...

He also writes about the upcoming IPO of Facebook, which could fetch up to close to $100 BILLION.  Facebook now has 700,000,000 users (not just 600,000,000 here), that is 10% of the planet's population...

ALL of Ameru Trading del Peru S.A.'s employees are on Facebook.  And that is NOT a requirement...

He finishes with this nice flourish:

"Google famously vowed not to be "evil."  Facebook, perhaps, can vow not to be creepy as Google, while making a mint."


[Google has just changed (for the better or worse???) their privacy policy...]

***

I do not have much to say about Jonathan Buck's article on Davos, because the participants really did not have much to say, other than blather and blather.  George Soros blathered there too.  People are worried, some not so much.  What to do...  Blather...

***

"Other Voices" author Eric Grover writes about what happens when our government gets involved in making choices, picking winners and losers.

When Uncle Sam offers a helping hand to people a bit too poor to buy a home, what happens?  Yes, failed Fannie and Freddie and busted foreclosures...

When Uncle Sam offers a helping hand to get more people into and through college, what happens?  Yes, tuition goes up as does student debt.

When Uncle Sam offers "green energy" (a really bogus term I am starting to hate...), what happens?  Yes, Solyndras happen.

I believe Eric Grover and I would suggest that the government just stay out of these kinds of politico/financial adventures.  Let the private sector take the wins and losses rather than "privatizing the wins and socializing the losses."

***

Just like what happened last week, my comments re the main section ran long, so they will be short re the Market Week section this week.

Stocks were slightly down.

"Asian Trader" author Assif Shameen says that iron ore for China (etc.) will boost Rio Tinto, well, we'll see.

"Commodities Corner" author Marshall Eckblad says that Asian buying of US beef is on the rise, and so prices are heading up.  (No mention about gold...)

Randall W. Forsyth ("Current Yield") titles his piece "Fed Pulls Back the Curtain" re the announcement of QE to 2014, and how that dragged down yields of five and 10-year Treasuries.

Facebook is not mentioned in the normal IPO section of "Market Laboratory", but Facebook's IPO could happen next week...

Money stuff:

-- Total Fed balance sheet essentially unchanged.
-- M1, M2 and Monetary Base all down the tiniest amounts, essentially unchanged

And, most importantly, yes, the Peruvian Sol was UP yet again vs. the dollar (just a bit, some 0.3%).  I also read at Zero Hedge that Peru is one of the countries that is MOST able to come to the rescue of Europe (with the ability to spend more without much distortion)!  It may be that Peru might have to join with Saudi Arabia, Indonesia, Chile and a few others to save the world...  PLEASE take note that you read that here at my blog!

***

Verdict:  You should probably buy this weekend's edition, even if your faithful fringe blogger did not finish his review until 2:00 AM Sunday...  (next up, my absinthe and berry flavored vodka cocktail to guide me into a smooth glide path to bedtime...)

Calling Russia! And The Rest Of The World!

My new widget, the ClustrMaps above, does not show ANYBODY having visited my blog from Russia!  Yet Google (Blogger's statistics) says this blog has had 60 visits from Russia in the past week and 19 just today!  This widget has been up since January 6.  NEITHER Google nor the widget show who you are, just what country you are in.

Since my blog began (May 2011), Russia holds position number 7 among countries in total views ("hits") here.

I am "out of my mind curious" about some of you visiting from Russia, and I would very much like to hear from one or more of you there, and tell me what you like here or what is on your mind...  I will not mention any names of course.

"Guest Post Opportunities Available" if anyone there would like to write something on Russia that fits in with my blog's general material.  Here in the USA we do not hear much news from Russia, particularly of a financial nature.

***

Same goes for any of you who I already know!  I "know" (virtual friends) people in England, Belgium, Bahrain (he essentially wrote a Guest Post), Japan, and a few other places.

I would like to have Guest Posts from time-to-time.  Especially an article about silver, but really anything interesting that fits would be welcome.

"Think Things Are Bad In America?  How About Here In (insert country here)?"

"The Oil Business Here In My Country"

"Why Do You Not Buy Bearings From My Country?"

Etc.

Robert A. Mix
dochenrollingbearing@gmail.com

v---  Or better yet, leave a comment below!


***


UPDATE!


Thanks to pmbug (who has a great forum at pmbug.com) who knows a lot about computers, he noted (comment below) that my visitors from Russia are likely to all be "spiders" and/or "bots".

I had 17 more bots and spiders visit just today!  C'mon, guys!  If you bots and spiders come here, leave us a comment, sheesh!

Pictures From A Sailing Cruise!

My wife and I are deeply indebted to a couple (Linda and Tom) who we are becoming good friends with.  They invited us to go sailing on Sunday on their boat! Their sailboat is very nice...  The excuse to go out was to celebrate the Chinese New Year, and a big chunk of our group were fellow students in my Tai Chi class (and spouses).

The weather was beautiful...

To my gold buddies on the Internet, I am happy to report that we did NOT suffer a boating accident, probably because I forgot to bring my gold along with me (ah, silly me).  Next time I will bring along my gold, and then I can tell anyone interested that I did indeed lose my gold in a boating accident...  Happens all the time I hear...  One of the oldest hard luck stories in the book...

All below pictures taken by Linda or or her friends, and kindly shared with me so I could bring them to you!

This first picture is of our Tai Chi instructor (left) and me on the right.  Blog reader tough-guy "GB" suggested that I take a robust approach to the ZH guy who leaked my blog link out to the world.  In subsequent conversations, GB told me not to bring a knife to a gunfight, to which I responded that my Tai Chi instructor was a cop who had told us that a knife wins at up to 7 yards vs. a gun in the holster.  He then came back at me saying he did not know that there were holsters for shotguns.  I then just told him to take it up with our instructor...  He doesn't look too tough, does he?

The next photo is my lovely wife, I am truly blessed...

Our Cruise Director Linda (and fellow Tai Chi student) is next.  She is responsible for all of us having such a nice afternoon.  She arranged for all 18 (per my count right now) of us to be fed.  Here is Linda down in the hold with one of the two bedrooms behind her.

Captain Tom made sure we were safe and sound and not strike any submerged objects...  I asked the Captain several sort-of technical questions re sailing (as this was only the third time I had ever been sailing, the second time was with them as well on another boat they owned awhile back).  <sarc>He told me that if  we hit a reef that he would be FIRST off the boat, the new tradition I guess...</sarc>

We witnessed a beautiful sunset and at that time some of our fellow passengers shared dignified memories of their loved ones who had passed on...  Poignant, yet perfect.

UPDATE!


Naydu sent me photos as well, so I put up these two.  The first one shows (left to right) me, my wife, Naydu and our instructor.  Everyone looks pretty happy, no?

This next photo shows two happy Tai Chi students: Cruise Director Linda and Naydu.  There are a handful of readers of my blog who are on my Joke List, I thought you would be interested to see the person who sends such nice material to me from time-to-time.

*****

Tom and Linda, is difficult for us to express our gratitude for bringing us along.  Thank you again!  It was unforgettable for us, and that is why I wanted to pass this along to all the readers of my blog, ESPECIALLY the ones going through a cold winter now...

*****

UPDATE!


I mentioned above my reader "GB", the one who advised me not to bring a knife to a gun fight.  Well, it looks like he is one of legion who has suffered a loss of his gold, but under slightly different circumstances.  I sent along my sincere condolences.  Please read his sad story below:

Don't know if others will find the humor in our exchange.  Too bad.

Thanks for the warm pictures.  Here in the northern plains, winter so far has been relatively mild.  We've experienced a less than average number of days with bone chilling deep-freeze-like temperatures...and January is nearly complete.

Good thing you didn't take your PM's with you on the boat. Seems PM's and water (even when it's frozen) don't mix.  I recently lost all of my PM's while ice fishing.  Not exactly a boating accident like so many others are reportedly experiencing, but still painful and costly...and water related.  Like a fool I took my stash with me on my little fishing adventure, figuring it'd be safer with me than at home in it's usual hiding spot.  In hindsight, that was a very bad decision.  Well, one thing led to another, and one beer led to another dozen or more, and I'll be damned if I didn't drop my stash and watch it fall right into the hole and through the ice as I was fighting a fish.  It was a tragic loss...but I did manage to land a nice walleye.  So the day wasn't a total bust.  I just wish I could remember on which lake I was fishing.  

Crony Capitalism At Its Most Cynical

Once in a while the thievery gets to me so much that I have to work out my anger by writing about it.  Both Zero Hedge earlier today and Mark Steyn (Rush's cynical and riotously funny fill-in host, "the undocumented anchorman") have brought us the news of the biggest beneficiary of Obama's killing the Keystone XL pipeline from Canada to the US Gulf Coast.

I understand that many of you already know about this, so skip this one if you feel you are up to speed.

And the winner is: Warren Buffett!  His Berkshire Hathaway owns the Burlington Northern Santa Fe railroad (our largest railroad) and will be (already is) hauling LOTS of Canadian and Bakken Shale (North Dakota) oil.  Warren's Berkshire Hathaway was also featured in last weekend's Barron's as being a company that pays NO dividends (although its long-term price appreciation has made many people wealthy, I even bought and sold BRK.B at a profit, that was a long time ago, I do not own it now).  So, how about spreading some of that wealth around, Warren?

Yes, Obama buddy Warren Buffett, the folksy Oracle of Omaha.  Warren has been busy working out cozy deals ever since Hope & Change happened, but this one (there is even a picture of WB and H&C over there at Zero Hedge).  Let's see, Warren is either the richest (or second richest) guy in the USA, and he needs MORE?!  Via sleaze like this?  If he needs more, why doesn't he go out and EARN some more?

The cynical group at Zero Hedge (what, 90%?) are right: the thieves don't even bother to hide it anymore.

---

My understanding of the proposed pipeline is that it would relieve the bottlenecks around Cushing (Oklahoma, the pricing point of US-based oil).  It would allow our Gulf Coast refineries to process and export much of the Canadian oil (so, some jobs and some export revenue, we need both!).  The pipeline would also give us access to friendly Canada's oil and allow us to buy a little less from the the Middle East.

Safety issues re the pipeline?  Turns out that oil transport by pipeline is SAFER than transport by leaky and shipwreck-prone oil tankers.

There are so many reasons for the proposed pipeline.  There are so few downsides.  Now we know why it will not be built (soon anyway).  Because Crony Capitalism rules!

Aerial Video of Molycorp's New Facilities Under Construction

Long time readers of my blog know that I am interested in the rare earth metals industry.  One of the world's leaders is Molycorp (ticker: MCP), which used to be the world's largest miner of rare earths (until the Chinese started producing their huge deposits for much cheaper).

This video shows some serious money being spent on revamping their mine and separation facilities.  Nice music too.  I would not have posted this if I did not like it...

http://vimeo.com/35227441

Review of Barron's, Dated 23 January

Barron's now has something of a captive audience, having spread out their Roundtable (in which they invite investment pros to a meeting to share their views and picks) write-up over three weeks.  Hey, it worked on me!  So after my second Italian class today I bought it without even looking at the cover, which actually is an interesting story (more below) on how companies could get their share prices up by paying more in dividends.

A contact (who is in a position to know) mentioned to me that Morningstar also covers each weekend's Barron's.  Mighty Morningstar itself.  My contact also mentioned that Morningstar's review is very long, long enough so that it has to be split into two parts!  Morningstar is a BIG financial information company that can throw lots of high quality manpower into this endeavor.  My review is different, I am "writing as if my readers might want to spring the $5.00 plus sales tax" based on my attempt to summarize what is of interest to me (and with luck to many of my readers) in time for them "to help make a buying decision" before the weekend is over.  And I have to read and write fast to do this.

Onward.

Andrew Bary writes the Cover Story ("The Magic of 4%").  US companies (S&P 500) pay only some 2% in dividends.  Japanese companies pay 2.5% and European companies pay almost 5%.  This story is very timely, in fact not long ago Barron's had another Cover Story on the search for INCOME.  It hits home in my household, we make much less in interest and dividends than just three or so years ago.  These very low interest rates are a real problem for those of us who want to SAVE.  One of the earlier solutions offered up in the other Barron's was to buy stocks of high dividend payers.  This article is little different, the author shines the light on companies who COULD pay higher dividends and easily afford it (one metric he uses is the "Payout Ratio" which is the percentage of company profit paid out in dividends to shareholders).  A Payout Ratio of 50% is (rather has been) pretty common, in Bary's article, he works with a more conservative (less financial risk for the company paying out) of 40%.  Seems reasonable to me.

There are several companies that are very strong that could start a dividend (or raise) with little harm to their business prospects.  Different companies, of course, have different needs and capital requirements, but the below table shows 10 companies that apparently ARE financially strong and could, and SHOULD pay a decent dividend (the data comes from the "Too Stingy" in Bary's article).  "Click on the image for a better view."

OK, arguments can be made that some of these companies could put such money to better use (research), but I believe that Bary is correct.  We find ourselves in a low / no growth environment.  We also find ourselves in a situation that technology companies now would find lower returns on research...

In another table, Bary lists companies that DO pay a nice dividend (including AT& T (T), Lockheed Martin (LMT), Pfizer (PFE) and Merck (MRK) and some others.

Bary then goes on to examine the other way executives can drive up share price with any extra money they have, namely bu buying back shares.  But, that has been shown in numerous cases since 2007 that companies went on to overpay for their shares (that then went down)...

Intel (INTC) now pays 3.2%, and they are capital intensive.  Bary makes a powerful case that more companies ought to be paying up.

I highly recommend this article to those interested in stocks and income.

---

Alan Abelson, whom I nominate to receive "The Jim Willie CB Most Growlingest Bear At Barron's Award" opens up with hilarity on Newt Gingrich, I laughed twice.  He wrote this piece, of course, before Newt's big win in South Carolina today...  And I guess he did not see Newt tear smug John King (CNN) a new one...  After his humor (which is typical, and he IS a master...), he then goes on to write how the equity markets yawned off to news from Europe (they're still there?).  And he wonders that not so good news from Google, Apple, Amazon etc., is not a tiding of bad news to come in stocks.

Abelson finishes with a graph of the Baltic Dry Index (I believe its ticker is BDI at stockcharts.com).  The Index is an aggregation of the prices paid to ship bulk materials (iron ore, corn,  and coal for example) in special ships, a LOT going to China.  And that chart is VERY UGLY!  The Index topped out at almost 12,000 (I do not know the methodology) in 2008, dove down under 1000 in the wake the crisis in 2008, has bounced around up to 4000, but now is back under 1000.  This is, of course, a very bad signal.  China and world trade are slowing.  And the Baltic Dry Index is a very sensitive measure.

---

Barron's has a transparency and honesty that I like.  In their "Follow-Up" column they looked back at their prediction in April 2011 that Carnival ((CCL), owner of the Costa Concordia that struck the reef off Italy, YOU KNOW, the ship with the Captain who was FIRST OFF, none of this Captain goes down with the ship business, I have found out from our Italian language instructors that there are T-shirts all over Italy saying awful things about him: "Capitano, Che Cazzo Fai?").  Author Miriam Gottffried sticks to a bullish view of Carnival.

---

By curious timing a "Cloud' company will IPO soon (Guidewire), the column is written by Jack Willoughby.  What is curious is that the federales just took down a cloud company called Megaupload.  Megaupload apparently allowed its users to store intellectual property at their site.  An alarmed "George Washington" (who has a blog that Zero Hedge often features), and many of the comments there at his column feel that this may be the end of the "Cloud".  Naah, it's not the end of the Cloud, but we will see lots of back and forth between those of us (like me!) who want the Internet "open" and those who have buddies in Hollywood who want it "closed".  Did I just betray my stand?

---

Part Two of the Roundtable meet-fest is chronicled in this issue.  Mario Gabelli, who I must say has a very wide perspective recommended auto & truck parts companies like Dana (DAN) and Genuine Parts (GPC) as well as Navistar International (NAV), the maker of heavy trucks here in the USA.  I mentioned in one of my Peru articles that the International brand seems to be making a comeback in Peru, a strong market a long time ago.  Gabelli also likes some companies that have been spun-off or are otherwise in special situations, like Beam (BEAM), yes, the booze-maker.  He also likes Xylem, a water products company, that will likely benefit in coming years as the world's needs for more & cleaner water become greater.

Bill Gross reminded me again of how we savers are getting "el Zippo" ("el Zirpo"?), all my words not his) re interest and dividends.  So he recommends a utility fund and muni-bond funds (one of which is, surprise! a Pimco one).

I have noticed in the past that Meryl Witmer often finds companies in interesting businesses that I have never heard of.  She picks two companies involved in chemical-related businesses: Tronox (TROX) and Rockwood Holdings (ROC), both involved in titanium dioxide (think paint, TiO2 is used to make paint more opaque, that makes the color bolder).  ROC is also in the lithium business.  Was Meryl Witmer a chemistry major?

Finally, Felix Zulauf discussed with the others the perilous world we live in and offers his picks as well.  He LIKES 10-Year US Treasuries and gold (physical Au, hey, now you're talking Felix!).  He does NOT LIKE the Turkish Lira (huge deficits and need for foreign capital) nor emerging markets in general.  Felix also has a matched trade that I do not understand re Australian 3-Year Bond future (long) vs. shorting the Australian dollar against the US$.  He is short the Aussie dollar because of a slowing China.

---

Leslie P. Norton (one of their writers whom I have followed ever since her great road trip to TEXAS some years ago with another of Barron's women writers) wrote a somewhat negative piece on J C Penney, in that the company is not turning around as had been hoped.  Change is planned soon.

I LIKE J C Penney's stuff, but I am 55...

---

I am starting to like Jim McTague's "D. C. Current" column more and more.  Seems Obama is playin' politics with the proposed Keystone XL pipeline from Canada to the Gulf Coast.  Apparently we would really benefit if this pipeline were to be built, as our current pipeline network would then have the capacity to serve more markets (domestic and export) and more jobs and profits would then result.

+ 1

---

Tiernan Ray ("Technology Week") for the 3rd week in a row writes positively about Microsoft and Intel.  I guess he uses "Wintel" computers...

He also writes that Apple is partnering up with textbook publishers, he believes Apple may jazz up the textbooks-on-computers business.

---

Murray Coleman ("ETF Focus") writes that municipal bonds have much to offer.  Apparently muni-bond funds and ETFs have performed very well over the past year.  Munis offer fairly high yields, even with pretax yields higher than treasuries.  He then makes some picks.

Once again, the whole issue of INCOME arises...  I am going to have to address this one soon...

A year ago, I would never have had the guts or the knowledge to think that munis would do so well.

---

Jonathan Buck wrote an interesting article on the upcoming Davos Forum.  All of these Important People will be showing up and talking...  There's a lot to talk about in Davos, but it does not look like they will even make  much progress on Europe's woes alone, let alone the whole world's woes...

---

Editor Thomas Donlan wrote a great (and most cynical) piece on a cozy deal between some companies, some lobbyists and our dear .gov.  Hiring lobbyists can yield returns of up to 22,000%!


Wow, where do I sign up?!

---

Because of all the interesting material in the main section of Barron's, I will short-shrift the Market Week section.

Vito J. Racanelli describes the Lazarus Rally we have lately seen on Wall St.

"Economic Beat" author Gene Epstein notes that the government is monkeying around with the CPI (really?).  This is no surprise to those who follow zerohedge.com and fans of Shadowstats.

"Commodities Corner" author Ian Berry notes than corn is down for the count because of a larger supply that most had expected.

Again the Classifieds are interesting, including another ad (in case you missed the one two weeks or so ago) for "The Most Luxurious Residence in the Caribbean", take a look at onesandylane.com.  Another ad is from a law firm looking for $45 billion in damages from the financial crisis.  If interested email James Mitchell at: jmitchell@abbingtonpartners.com.

Money Matters:

-- Total Fed up almost $21 bn (0.7%, kind of a lot for one week).
-- Monetary Base up 2% (seems like a lot)
-- M1 up 1.1%
-- M2 up 0.2% (once again, if I understand this, credit is "underperforming" money...)

And the mighty Peruvian Sol strikes again!  Up (but just barely 0.02%) against the US$!  I am going to have to ask my in-laws WTF (Che cazzo fa, in Italian, I think I am going to LIKE Italian...) is going on down there in Peru...  I did read that new President Humala might NOT be the Chavez clone we had feared, he has changed his cabinet, putting in more military types and some technocrats...

---

Verdict: Yes, buy this issue!

Widget Tracker Update...

Many of you know that I am tracking the prices of gold & silver as well as their US Eagle premiums over spot (24hgold.com).  This is a project that will be going on for some time, but, I learn as I go along and would like to share some early results.

The below is a graph for gold price vs. the premium for the eBay/24hgold.com Widget (no time component for this first graph), click on image for a better view:

Note that this graph has become less linear, less intelligible than the last time I looked at this...  There was an interesting spike in HIGHER premium AND paper price than I have recently seen.

Same graph for silver:

Note that for silver we are scattered all over the map.  Perhaps in the coming days I can tease out some useful data re silver and the Widget.

The below is a graph of the premiums of gold vs. the premiums of silver from the Widget:

Again, this is preliminary data that I provide, without analysis.  As time goes by, so will I comment further with increasing confidence...

Exponential Growth

Most of you already know most of what I will write and illustrate below.  Exponential growth of our money supply (roughly inflation) and of our US national debt will be the two examples of how exponential growth of these two is leading us into great financial peril.

In looking at the decline of the dollar (inflation) I use as a starting point 1913, the year the Federal Reserve was founded and a popular place for many in showing how the purchasing power of $1.00 in 1913 has fallen to about $0.03 today...  That is, 3 cents then is now what a 2012 dollar is now worth.  Because so many of you have seen those graphs and/or are familiar with this concept, I will follow that template.

All my graphs and comments below are not the exact numbers (which would be disputed anyway), but are close enough to make the lessons clear.

This first graph illustrates what happens in a constant 3% inflation from 1913 - 2012.  3% is close to the average rate of inflation since 1913, but is NOT the correct figure, but it is close enough.  A hammer that cost $1.00 in 1913 would cost over $18.00 today, given that 3% inflation (blue series data points).  The red data points show a 3 cent (not 3%!) fixed increase each year.  I put the "red" data in because that would be what would have been PERCEIVED by a hammer buyer looking at a price change over a year or two.  CLICK on any of the graphs for a better view.

The next chart is the "inverse" of the above and may be more familiar looking.  It shows the value of the dollar falling vs. the 1913 dollar.  Most researchers who have prepared a similar graph to the below usually arrive at a final end point of the 2012 dollar being only worth 3 cents.  In my case here (using a constant 3% inflation), the dollar has fallen in value from 1913 - 2012 to about 4 - 5 cents:

Again, I picked a close to 3% inflation as "about right" for the period 1913 - 2012, so my graph and end result is different than what other researchers have put out there (again, this for educational purposes here).

This next graph extends the first graph out to the year 2032 (twenty years from now).  You may be thinking two things:

1)  20 years, that's a long time.  My response, look how the last 20 years have flown by...
2)  That curve doesn't look so bad.  My response, please look at the vertical scale, a $34 hammer in 2032 vs. $18 now...

The red data points are the same, a three cent increase each year.

The next graph is an extension out to 2062.  Yes, I know that it is unlikely that we will see 3% constant inflation from now until then AND that 2062 is a year for our grandchildren, but it illustrates well what happens in "the out years" (note that the $1.00 1913 hammer is now over $80):

I now turn our attention to the US National Debt, a current figure that is in the Debt Widget above.  Again, this debt widget throws off a number which is different than the approx. $15.2 trillion typically seen elsewhere, but it certainly close enough.  The below graph shows what would happen if we allowed our national debt to grow at 11%, which by some rough-and-ready calculation is what I derive from 2007 until now.  This 11% growth is probably conservative (low) for the interval since 2007, and would be much disputed, but it is at least approximately right and useful enough to illustrate our plight.  Note that our debt would be at over $70 trillion dollars by 2026, a mere 14 years away (a mere 14 years for long-term thinkers anyway!).  Note that I started with 2007 debt at $9.8 trillion, it has grown a little faster up through today than my graph shows (that's why I said recent growth in our debt of 11% is likely conservative = a  low growth rate).

In the next graph I extend the time frame out some more to 2036:

We would have a $200 trillion dollar national debt in 2036.  Obviously that is not going to happen, unless we hyperinflate.  But, it is HARD for politicians to stop spending, so a scenario like the above (11% growth of national debt) is possible even if very unlikely.  Predicting things out to 2036 is really a fool's chore, I just illustrate here what would happen given 11% growth in the debt, even if this scenario will not happen.

Let's play pretend one last time (or have a "Thought Experiment" for finicky adults who do not like to play).  "Let's say" that in a moment of relative panic and seriousness that our politicians in 2017 (after Obama's second term or after Romney's first term) decide to get "really serious" about our debt.  I mean it, really serious!  And, let's say they are SO serious that they decide limit the growth of government debt by 5% per year (as the looming debt growing at 11% is starting to look scary even for politicians...).  They are SO SERIOUS that they get a Constitutional Amendment through limiting growth of the debt to 5% a year!  Wow!  That's pretty serious!  Well, that sounds pretty good, doesn't it?  And 5% is not so much, no?  Just a little bit over our projected economic growth rate.  Hallelujah!  Hallelujah!

Well, let's see:

Mmm.  In studying this one, we see the debt still going up at a 5% rate after 2017.  Look carefully at the "kink" in the graph in the year 2017 (just after the "2015" label).  The curve then grows markedly less steeply than just before in 2014, 2015 and 2016.  But, take another look at 2036 (when a lot of us may still be alive), the debt has grown to over $70 trillion.

*****

All of the above debt figures are just the US National Debt, and do not count "unfunded liabilities" (which are some very large numbers, many trillions MORE than our national debt).  Nor do these debt figures count other debts (states, municipalities, student loans, mortgages, credit card debt, etc., etc.).  And of course this is for the USA alone.

About The New Widget Above

^--- The ClustrMaps widget above is not catching all of my viewers from other countries.  I know this because Google (Blogger) supplies reader origin info on a daily and weekly basis.  In the past 8 or 9 days, I have had visitors from the below countries who did not show up on the widget above, in approximately descending order (countries with most visitors here to fewest visitors):

Brazil
Russia
Germany
Ukraine
Latvia
Ecuador
Saudi Arabia   (the red dot near there is from Bahrain)
China

I believe, but am not sure, that I have had visitors from Australia and New Zealand since the widget went up.

In any case, I would like to say THANK YOU to readers in other countries who have visited my blog!  Just because ClustrMaps doesn't show you, I know you have been by.

Review of Barron's, Dated 16 January

A New Year often brings New Year's Resolutions!  I made two this year: to hug my wife more and to learn Italian (at least some).  Today was the first day of Italian class (Beginner Level).  The only other student there was a 16 year old young lady, who is way mature beyond her years.  She wants to learn enough Italian before she is 18 to go study there, in an Italian university.  Good luck, Alejandra!  Hey, Alejandra, you're famous!  Work like a dog at this, and your dream can come true!

After class, I picked up this weekend's Barron's at 7-11, kind of without even thinking about it.  When I got to the cashier, I was pleased to note that I had picked a promising issue of the big fat newspaper.  They have Part 1 of their Roundtable (and also the Cover Story), in which they invite "investment pros" to discuss investment opportunities around the world.  Among the famous personalities: Marc Faber, Bill Gross, Mario Gabelli and Abby J. Cohen.  Most of you know their names.

Before I discuss what they had to say, I cannot let slip the opportunity to see how they did with their recommendations for 2011!  Keep in mind that stocks were VERY CLOSE to flat last year (0%).  I average their percentage gains and losses on their various picks.  Price movement only, apparently does NOT include any dividends.  Also keep in mind this is just one year...

Scott Black's Picks:  -13.5%     Oops!
Abby J. Cohen's Picks:    -2.7%    Oops!  But, not too bad.
Marc Faber's Picks:    -14.3%   Oops!  (20 picks)
Mario Gabelli's Picks:    +6.1%    A Winner!
Bill Gross's Picks:    +8.3%      Another Winner!
Fred Hickey's Picks:    +9.2%     Another Winner!
(Archie MacAllaster passed away last year, so I do not tabulate his)
Oscar Schafer's Picks:    -6.1%    Oops!
Meryl Witmer's Picks:    -3.9%    Oops!  But, not too bad.
Felix Zulauf's Picks:     -13.3%    Oops!

Summary: six of nine "investment pros" did worse than the market.  Grand total average of all Barron's Roundtable 2011 stock picks: -3.35%, bummer!  GOLD was up some 16% in 2011, nyaah, nyaah!

In this year's Roundtable session, there was definitely a more gloomy atmosphere...  Here's a snippet:

Gabelli: Let's look at the history of deleveraging.  How do you get out of it?
Zulauf: You either default and have a large deflationary accident or hyperinflate, which just delays the collapse.  Politicians are trying to find a painless solution, which doesn't exist.
Gabelli: You're just describing the lobster trap we're in.  Give us the pain now.
Zulauf: Default.
Gabelli: Across the board.
Zulauf:  Yes.  Or raise taxes, which further destroys confidence.
Faber: It would be best for all governments to cut spending by 50%.  Then the private sector would expand again.

[ed. note:  Faber is kind of famous for his use of substances, evidence of that just above...]

A lot of gloomy talk this year.  Another choice quote, Marc Faber: "It is not that the gold price will go up.  It is that the value of paper money will go down."

This week Faber's picks and Schafer's picks were featured.  Faber recommended 13 companies (just 2 in the USA) and 3 shorts (IBM, Salesforce.com and the Aussie dollar).  Schafer picked United Rentals (URI), Verint (VRNT), Crown Holdings (CCK) and Walgreen (WAG).

The next two editions of Barron's will continue the Roundtable discussion.

---

Alan Abelson offers the rather alarming prospect of class war starting up.  The Pew Research Center poll of 2048 citizens found 66% think believe that there are strong conflicts between the rich and poor (vs. 47% in 2009).

The not very cheerful Alan goes on to write about Europe.  He notes that Mark Grant (Southwest Securities) says that Greece's total debts (sovereign, bank and municipal debts) as well as $90 billion derivative exposure all add up to a cool $1.1 trillion.  Hmm, big money at stake from such a little country...

Abelson finishes with some comments on Dave Rosenberg (Gluskin Sheff) growling again...

---

Tiernan Ray issued a grade of "A" to Intel (new and exciting chips) and a "B" to Microsoft for their new products at the Consumer Electronics Show in Las Vegas.

---

Andrew Bary wrote up their "2011 Report Card", which I gather is a compilation of all company reviews (positive reviews and negative ones).  Their Bullish reviews averages a loss of 6.9% while their Bearish reviews rose 16.9% (that is, their "shorts" were good calls).  But, there were about three times as many Bullish picks vs. Bearish, so the net would be: ((-6.9% * 3) + 16.9%) = -3.8% (very approximately), in a year that was essentially flat.

---

This week's look at Mutual Funds looks at the Ave Maria Rising Dividend Fund, in which the managers pick dividend payers from companies that pass their "morally responsible screen" (from a Catholic Church viewpoint).  The average annual return over the past three years is an impressive 18% (per year note)!  The largest holding is ExxonMobil.  The fourth largest perhaps made it through their above-noted screen (General Dynamics).

---

Murray Coleman's "ETF Focus" writes up a new ETF (AdvisorShares Rockledge SectorSAM, ticker: SSAM) which purports to be run like a hedge fund!  They go long and short with wild abandon!  If you need some extra beta, do not already fool around with options (etc.) and trust others, then maybe SSAM is for you!

---

Jim McTague's almost always interesting column ("D.C.Current") this week says that Romney will take South Carolina and probably the nomination.

I had wished for Ron Paul.

---

Editor Thomas Donlan writes about the huge mess that Medicaid (-aid, not -care) has become.  Mostly because of long-term care.  It seems that many elderly have had money, they spent on their medical condition(s) and have become poor, and so eligible for Medicaid.  And this is hugely expensive.

Note that I do not have any answers or even suggestions as to how we resolve this one...

---

In the Market Week section, there is a nice cartoon, which maybe I can give you a flavor of.

"Small Talk in a Police State" (Condron)

In a city with pictures and a statue of the General running the country, two men approach each other and say:

Man 1:  "How ya doin'?
Man 2: "Oh, I can't complain."

Hmm...

---

Jonathan Buck writes this week's "European Trader" and discusses Europe's woes.  Nothing really new here.

---

"Commodities Corner" and the Classifieds are on the same page (my edition anyway).  Because the author believes we will NOT go to war with Iran and because of a recessionary world, he expects the price of crude oil to fall.

All five of the Classifieds are interesting to a degree or another:

* 100% Performing Lease Portfolio for Sale (commercial real estate I imagine)
* Investment partnership (renting residential houses in Las Vegas)
* A company wants 235K to develop a new magnetic motor ( I will call them)
* Bakken Shale opportunity: help them build housing for all the oilfield workers there)
* 10 banks for sale trading at 50% of book

---

Money Stuff:

-- Total Fed Holdings: -0.6%, the second meaningful decline in a row (if you believe the Fed)
-- Currency in circulation: -0.5%
-- Monetary Base: +2.1%
-- M1: + 3.1%
-- M2: + 0.8% (credit grew SLOWER than M1...)

The Peruvian Sol continues to kick the dollar in the teeth!  In a week which saw the US$ go up sharply vs. the euro, The Sol just keeps going up!  Vamos Peru, pues...

---

Verdict:  Yes!  Buy this if you want to see the "investment pros" in action!

A Thought Experiment On The Value Of Gold

My "Trail Guide" FOFOA wrote a new piece just Wednesday.  In it he describes how hard it is to convince those we know to buy some gold.  Even when many of those know that our system has gone horribly off the rails.  He is not trying to convince others, he is mostly just reporting as well as charting what he feels will be the end-game, at least regarding gold.

fofoa.blogspot.com

In the comments section below his article, there was a remarkable comment by one of his readers "Hill C", I lightly edit the quotation:

"Do you believe that China would exchange its current $2 trillion reserves for all of America's gold currently valued at $419 billion?  The answer is almost universally "Yes or probably"."

In other words, lots of people that "Hill C" knows believe that China would happily trade its $2 trillion dollar horde for $419 billion in gold, taking a US$ LOSS of over $1.5 TRILLION to take the gold.

Furthering Hill C's idea, do you think that the US government would allow China to do that?  To let the Chinese take our $419 billion in gold in exchange for settling the $2 trillion in debt?  The answer is: NO WAY.


---

The below graph is a tool that I am now going to be using to monitor stress in the physical gold markets. That is, how available gold (that would be the metal, not gold futures or other types of "paper gold") really is at the market price.

Buying REAL GOLD always costs more that the quoted "spot" price (found at kitco.com or 24hgold.com or even right here at my blog).  This higher price exists because there is a "premium" (spot plus a "premium", the premium covers other costs like transport, opportunity cost of capital, etc.) over the spot ("paper") price of gold.

The graph below shows the price of gold (Y Axis) vs. the premium over the price of gold (X Axis) in order to be able to buy a 1 oz Gold Eagle (coin), America's most popular retail way to buy gold.  The graph's data points are from Dec 30, 2011 - Jan 13, 2012, so it is very short term.  The original data comes from the eBay/24hgold.com joint venture widget.

Click on the image for a better view.

To help interpret the graph, please look at the five points above "0.10".  That 0.10 means that on each of those times I took the data that a Gold Eagle had a 10% percent price premium (on eBay) vs. the quoted price of gold in the markets.  Note that the premium has varied quite a bit in just a bit over two weeks, from 7% to 19%.  Please also note that there is NO time information, the linear trend you can see shows that as the recent price of gold has been lower, the premium tends to be higher.

FOFOA believes that what is going to happen sooner or later is that the "paper gold" price will not reflect the real value of gold (because of the approximately 100 times the paper claims on each physical ounce, that is LOTS of derivatives claiming the same ounce).  "Paper gold" will eventually become worth less (worthless), and for a short time there will be NO GOLD available because owners of gold will NOT sell...  Until the price of gold goes much higher...

The graph (and the Widget, found at 24hgold.com, at their home page at the bottom), will help me follow how scarce physical gold is vs. the paper price.  This is the ONLY way I know of at present to follow this dynamic.

---

Let's go back to the Thought Experiment above (would China exchange its $2 trillion of Treasury debt for just $419 billion worth of gold).  That kind of implies that gold is/should be worth over $7600 / oz right now (($2 trillion / $419 billion) * $1600).

Let's think some more.  If the USA were to pay off our debt by exchanging gold for it, the price of gold would have to be $75,000 per ounce...