Today the American Revolution

Today silver hit $17.76, marking the beginning of the American revolution.  Actually, as I write this, silver just traded at $17.83, thereby completing the entire Revolutionary War.  It's nice to see silver making up for lost time.

Speaking of silver, I just received an e-mail from Silver Standard to the efffect that they are issuing $120 million worth of convertible bonds.  They have not set the terms yet, but this bears watching.  Depending on the terms of conversion, this security could offer the best of both worlds.  An interest payment and the ability to convert to common stock if SSRI goes to the moon.  Details to follow.

IMF gold sale...who are you kidding?

Gold continues to work its way higher, and silver is doing even better, while the global stock markets have staggered through the new year.  So there's only one thing to do...sell the International Monetary Fund's gold reserves!

I have seen our government do some stupid things in the past, but this ranks up there with the best (or worst) of them.  It is clear that the government will try anything to hold down the price of gold as long as possible, but this won't help much.

More likely, they are threatening to sell gold, and hoping to shake out some speculators from the long side.  But what would happen if the IMF actually sold its gold?  As I write this, gold is $908/oz, which is about $29/gram, or $29 million/ton.  I'm not sure how much gold the IMF really has.  I have heard 3200 tons, and they claim 4000 tons.  I will give them the benefit of the doubt and when I multiply 4000 tons by $30 million/ton (it's late so I'm using round numbers) I get $120 billion.  So the IMF proposes to raise $120 billion by selling off ALL of its gold.

This assumes the IMF really has 4000 tons, and that none of it is encumbered, i.e. already covertly leased or sold with the usual lack of transparency.  It also assumes that selling 4000 tons won't crush the price of gold, and the IMF will collect its full $120 billion.

Now consider that China has about $1.5 TRILLION worth of US Treasury bonds that are worth less almost every day, that they would love to get rid of.  Then consider the other Asian countries (except Japan, which has large $ reserves, but is beholden to us, so it plays its part as US Fed East) and Russians and Arabs that would jump at the chance to diverify their reserves out of the US dollar.  How long will that $120 billion worth of gold last in this economic climate?

This proposed sale reminds me of Gordon "Goldfinger" Brown selling half of the Bank of England's gold reserves a decade ago, after first telegraphing his intentions.  The sale went through at the lowest gold price in a generation, and he cost his country billions of pounds, but there was a happy ending.  He was rewarded for his efforts by being elected Prime Minister.  I'm not kidding, this really happened.

This IMF sale is ten times larger, and about a hundred times stupider.  At least the dollar was strong when Goldfinger sold England's treasure.  Now there is no excuse.  So if there is a temporary decline in the gold price, load the boat.  All the IMF sale would do is hasten the world's ongoing transfer of wealth from West to East .

 

Final Score: Giants 17, Patriots 14

As upsets go, this one was somewhere between improbable and impossible.  If it had been an earthquake, it would have measured 7 on the Richter scale.  As 13-point underdogs, no one expected the Giants to beat the Patriots, except me, of course, but I'm way too modest to point that out.  (see previous blog entry from ten days ago.)

Eli Manning, Super Bowl MVP.

Now those are word we would never have expected to see in the same sentence even a year ago.  Even a month ago, for that matter.  Maybe the Eli-haters will finally give him a break.  If that kid's last name were Smith or Jones, or he played anywhere but New York, everyone would be talking about that good young quarterback in say, Cleveland or Denver.  Now the critics will have to complain about someone else.

And the funny thing is the best team won today.  The Giants outplayed the Patriots and deserved to win.  New York controlled the line of scrimmage, out-rushed and out-passed New England.  More importantly, the Giants made the big plays when they had to.  Manning's scramble out of trouble to throw a bomb that David Tyree caught with his HEAD is going to be on the Super Bowl highlight reel forever.

Prior to the Super Bowl, the Patriots trademarked the words "19-0."  As they say, pride goeth before a fall.  And to quote that eminent philosopher Osi Umenyiora, maybe they can trademark "18-1" now.

Give the Patriots credit; the players were gracious in defeat, with even Randy Moss saying they couldn't match the Giants' intensity.  Even Bill Belichick was no more grumpy in defeat than he usually is in victory.

On paper, the Patriots should have won by two touchdowns, but that's why they play the game.  Congratulations to Tom Coughlin, who could easily have been fired after last season, and the rest of the underdog Giants.

Once again, as strange as it may seem, final score:

New York Giants 17, New England Patriots 14

 

Age of Enlightenment

Today silver entered the 18th century, ever so briefly poking its nose up above $17.00, before dropping back a few pennies.  Needless to say, the broad market hasn't been doing as well in 2008.  Despite another 50-basis point rate cut (for a total of 1.25% in January) all of the major market averages are down.

Some of the mining shares are underperforming the metals, but that won't last forever.  Soon enough, the juniors will revert to their normal performance of providing leverage to the metals prices.  And when they do, look out.  The exploration companies that have real assets are screaming buys right now.  Even larger companies like Silver Standard aren't just cheap, they are stupid cheap.

It is clear than Ben Bernanke has thrown in the towel on fighting inflation, and the ECB won't be far behind.  Were it not for the Germans and their long memories of the Weimar Republic hyperinflation, the Mediterranean countries would already be cutting interest rates.  And when the euro goes through $1.50 I doubt even the Germans will be able to hold the line, or the euro could break up into national currencies again.

Like a couple of punch-drunk boxers leaning on each other, the euro and the dollar are trying to hold each other up, but gold (and silver) will appreciate against ALL currencies. If you're conservative, buy CEF.  If you can afford to take risks, buy juniors.  And then buy more juniors.

And now for something completely different

It is now only ten days to Super Sunday, as in Super Bowl 42.  Not XLII, as the NFL calls it.  I had to take three years of Latin in high school, and I have had my fill of Roman numerals.

The New England Patriots are a 13-point favorite, as they are still undefeated.  It is hard to argue with 18-0, especially when the New York Giants are one of those 18.  On paper, it looks like a mismatch.  But then I didn't think the Giants could beat the Cowboys, either.  And I was sure they couldn't beat the Packers in Green Bay, a game played in weather so cold that I wouldn't go outside for three seconds, let alone three hours.

But here they are.  And the more I think about it, the Patriots aren't the same team that ran up the score on opponents early in the year.  They have some age on defense, and lately they have had to outscore their opponents.  I think they are vulnerable to both the pass and the run.  The Giants can run effectively with Brandon Jacobs and Ahmad Bradshaw, and their receivers made a couple of Pro Bowl defensive backs look silly in the NFC title game.  The real problem is stopping the Patriots, who rang up 38 on the Giants in December.  No one's been able to do that all year, and I don't think the Giants can do it.

The Patriots have so many weapons (Moss, Welker, Stallworth, Maroney, Faulk) that all you can do is try to slow them down.  In addition, the Giants defensive backs are hurting, and they aren't very good even when they're healthy.  But Randy Moss hasn't played well the past two weeks, and Brady threw three interceptions in the AFC title game.

If they played this game ten times, I think the Patriots would win nine of them.  Logically, the Giants will stay with them for two or three quarters, and then Eli Manning will make the big turnover that he's overdue for, and the Patriots will pull away.

But since I've been wrong about the Giants so many times already, my prediction is the Giants pass rush will disrupt Brady's offense just enough in a high-scoring slugfest ending with the biggest Super Bowl upset in 40 years.

Final score: Giants 34, Patriots 31

That being said, I will not bet a nickel on the Giants.  I do all of my gambling in the stock market, where the odds are much better.

Helicopter Ben to the rescue

Today the Gold Cartel stared down into the abyss, and ended the inflation vs. deflation debate, as far as I'm concerned.  Yesterday with the U.S. markets closed for MLK Day, global markets plunged with Canada's TSX down 600 points.  Last night, all of the markets in Asia crashed as well, with India down 9%.  With the overnight futures indicating the Dow would open down 500 points (and might well go off a cliff after that) Ben Bernanke cut the Fed Funds rate by 75 basis points.

They said they're trying to stave off a recession.  But as I recall, we used to have recessions every four or five years, and the world never came to an end.  Bush and Cheney aren't running for re-election, and if any incumbents are blamed it would be the Democrats who control the House and Senate.  So why was it so important to cut interest rates today, instead of waiting until the next Fed meeting on Jan. 29-30?

Because the financial markets were about to become unglued.  A bond insurer just lost its AAA rating, and the credit-worthiness of the $556 billion worth of bonds it insures is now called into question.  And this is only a tiny portion of the $450 TRILLION worth of derivatives that sit on top of a $13 trillion economy.  We have already seen $10+ billion write-offs at Citigroup and Merrill, and that is only the beginning.  The companies themselves don't even know what they have on their balance sheets, and what they are worth.

So the Fed and the Treasury are going to pump at least another $140 billion of fiscal stimulus along with the monetary stimulus (another rate cut at the Fed meeting next week?) because now they have to inflate or die.  They think they can control inflation later, but they know that if deflation takes hold, there is no antidote.  When companies go out of business (think Countrywide and Bear Stearns for starters) they don't come back.  Everyone loses their jobs, and the effects ripple throughout the economy.

And to think that with monetary growth (the reconstituted M3) running at 15%, gold and silver are below $900 and $16 as I write this.  Not for long! 

Past the Spanish Armada, Plymouth Rock next

On Thursday, the price of silver surpassed the Spanish Armada being destroyed by storms in the English Channel (1588) and yesterday it passed the Pilgrims landing at Plymouth Rock (1620)

The Age of Enlightenment approaches, and at this rate silver could test the American Revolution ($17.76) or even the Battle of Waterloo ($18.15) soon.

And if Ben Bernanke opens his mouth again, we could get there even sooner.