|
Joel Bowman, with a few words from Taipei, Taiwan...
Given the nationwide, tryptophan-induced coma that usually succeeds the
Thanksgiving Day feast, we'll keep today's issue nice and short.
Bill Bonner has today's essay, on the mind-boggling scope of the sovereign
debt bubble looming, below. But first...
Here's Addison Wiggin, checking in from Baltimore with the one
chart every gold investor wants to see his reflection in...
Gold is on track for its best monthly performance in a decade. The money
metal reached $1,180 earlier this week, another all-time high. There's
buzz that India, which bought 200 metric tons of gold from the
International Monetary Fund earlier this month, might well buy the rest of
the 203.3 metric tons the IMF has put up for sale.
|
 |
A gold run-up like this perks up the ears of the mainstream...and that
often gets our contrarian impulses tingling. MarketWatch took
note this week of the interest in gold among big-name hedge fund managers.
Good for them. MarketWatch is only 10 months behind us in noting
David Einhorn's interest, and seven months late catching onto John
Paulson's stake in South African miners and the gold ETF.
All of this is fueling talk of a "bubble" in gold. To our friend James
Turk, this signals that gold has begun only stage two of a three-stage
bull market. "Don't be misled by what you may hear or read in the
mainstream media, and even much of the alternative media," he writes.
"After all, how many commentators have correctly identified gold's bull
market, now a decade old?" Or for that matter, how many correctly
identified the tech bubble in the '90s or the housing bubble this decade?
"Gold has moved from apathy and neglect - stage-one characteristics - to
growing attention. But importantly, instead of embracing gold and
analyzing it to determine relative value, today's attention is one of
widespread disbelief and skepticism that gold can climb higher. These are
exactly the responses one should expect to emanate from stage two."
"As gold climbs higher, we will eventually enter stage three. The timing
of its arrival cannot be predicted, but we will know it has arrived when
commentators who have been consistently wrong about gold will be telling
everyone willing to listen to buy gold."
And now to Bill with today's column...
--- Breaking News for Gold Investors ---
Now you can...
Triple Your Gold Gains With "Slingshot Options"
Every time gold goes up $1, this "slingshot option" could pay you $3 or
more... with gains as high as 620% by June 2010.
Collect Your Special Opportunity Report by Byron
King, Senior Analyst
"[Slingshot options] are the investment opportunity of a lifetime." -
MoneyWeek
|
The Daily Reckoning
Presents: |
Governments around the world are borrowing
like there's no tomorrow...and if this "faux-recovery" keeps going the
way it has been, there might not be - at least not for those "trapped by
the logic of Keynesianism." Bill Bonner explains...
Freak Show
By Bill Bonner
London, England
Governments benefit from 'teaser' rates. Wait 'til they come to an
end...
There are so many breathtaking things going on around us we practically
suffocate. Last week, three-month US Treasury-bills yielded all of
0.015% interest. Some yields were below zero. In effect, investors gave
the government money. The government thanked them and promised to give
them back less money three months later. How do you explain this strange
transaction? Was there a full moon?
Moonlight on the week of November 6 must have been especially intense.
Bids totaled a record $361 billion for just $86 billion worth of T-
bills. This was $100 billion more than the peak set during the credit
crisis a year ago. What? A third of a trillion dollars, per week, gives
itself up to the hard labor of government service and asks for nothing
in return?
Even lending to the government for much longer period yields little to
the investor. The 10-year yield is only 3.32%. Thirty-year lenders get
only 100 basis points more. And this in a currency that is melting
faster than polar ice. Gold, the traditional bank reserve, is soaring in
comparison. Not surprising; the US dollar money supply - measured by the
US monetary base - rose 147% over the past 24 months.
The only thing rising faster than the demand for government debt is the
supply of it. All major governments of the West - and Japan - are now
borrowing as if their lives depended on it. The IMF predicts that
Britain's ratio of public debt to GDP will rise 50% between 2007 and
2014. In America, the increase is forecast to take taxpayers nearly to
the debt levels of WWII. Those estimates are probably far too low, since
they depend on an economic 'recovery' that will almost certainly prove
to be a disappointment. The purpose of a depression is to get rid of bad
debts and correct bad investment decisions. But an economy cannot
correct itself unless it is allowed to enter a correction. When you try
to prevent it, you get a zombie economy in constant need of freshly
borrowed blood. Debts rise, but with no recovery. As reported on this
back page, former US Office of Management and Budget director David
Stockman expects a zombie economy in the US, with deficits twice as
great as those now projected...that is, of $2 trillion per year, not $1
trillion. This will send US debt beyond WWII levels...up to Japan- like
heights.
Other governments, too, are likely to see similar swelling in their
public debt limbs. All right-thinking economists and commentators have
come to the same conclusion - that fiscal and monetary stimulus must
continue until the 'recovery' is more manifest. Worse, they've been
trapped by the logic of Keynesianism itself. Now, everything is
'stimulus.' Nothing can be cut. The boils cannot be lanced.
When you come to the end of a war, spending is naturally reduced.
Deficits can go home with the troops. Debts can be paid down. But there
is no end in sight for these deficits. Because only a small part of them
is the direct consequence of the war against depression. Instead, they
are merely the inevitable result of governments that spend too much
money. In the US this "structural deficit" is estimated by the IMF at
3.7% of GDP. In Japan and Britain it is twice that amount.
Whatever else can be said of it, this freak show cannot go on forever.
The US has $2 trillion worth of short-term bills that must be refinanced
in the next 12 months. It must also refinance about $1 trillion more of
notes and bonds. That's without adding any additional debt! So put a
deficit of $1.5 trillion on top of that and you have $4.5 trillion of
financing for the US alone.
But the US is not the only one fishing in this pond. Japan's national
debt already measures 200% of its GDP and is increasing rapidly. So far,
Japan's deficits have been financed internally. The Japanese saved 20%
of their household incomes in 1980. But the Japanese are aging. When
they retire, people cease saving and begin drawing on savings to cover
living expenses. At the current pace, the household savings rate should
fall to zero in 5 years. Then, who will buy Japan's bonds? Who will
cover Japan's deficits? The same people who are supposed to cover
America's deficits?
Taken all together, the world's governments will need $1 trillion per
month, in financing, over the next 12 months, according to an estimate
in the Financial Times. Who has that kind of money? Total US savings are
only $700 billion. Even the Chinese, if they put their entire cash pile
to it, could only fund the deficits for about 67 days' worth. Warren
Buffett? Less than 48 hours.
There is also the problem of paying the interest on rising debt loads.
Thanks to the forgetfulness or credulity of the world's lenders,
borrowers now benefit from exceptionally low rates - just like the
'teaser' rates once accorded to sub-prime lenders. But the tease will
come to an end soon. Even the Obama Administration forecasts interest
payments to rise from $200 billion at present to $700 billion by 2019.
This assumes interest rates only regress to 'normal.' But "hot money"
from the feds has acted like spent nuclear fuel; every fish in the
financial pond now seems to have two heads and a bag over both of them.
The freaks of November 2009 may be replaced by things perhaps no less
strange, but in a different way. The last time gold was over $800
lenders to the US government demanded yields in excess of 18% in order
to part with their money. That was odd too. But it had very different
consequences for investors.
Enjoy your long weekend,
Bill Bonner,
for The Daily Reckoning
--- Agora Financial Reserve: Bonus Subscription ---
Private Invitation: Your Only Chance to Join The Top 1% of My 119,000
Readers
Your "30-Day Retirement Plan"
It's happened before. It could happen again -
starting as early as this coming week...
So will it happen to you...?
Peek Inside Here to see how you could've recently
made millions in fast, easy profits!
 |
