For a decade I have been urging my subscribers to move into gold — either physical bullion or other wise. Now I am at it again PLEASE MOVE INTO GOLD. Those who think gold has lapsed into a bear market simply do not know what they are talking about. Gold has simply been correcting in an on-going bull market.

U.S. Stock Market – I continue to believe the least resistance in the stock market is to the upside despite believing not only is economic growth greatly hampered by the ever-increasing debt levels, but also political paralysis that has gripped Washington. I do believe it can get another shot in the arm from a “QE 3″ type action by the Fed in the not-too-distant future. I’m not the only one who thinks this.

U.S. Bonds – I’m struggling with two things in 2012:

1-Not saying anything bad about the Vancouver Canucks (You have to admit I’m doing okay on this)
2-Wanting to short bonds in the worse way

Ideally, a new low on yields on a new QE action by the FED would be too much to resist so stay tuned.

Gold – This article is not far-fetched. We still need 2 consecutive closes above $1646 to remove any lingering negative technical angles for the perma-bears to harp on but it’s nice to know they have once again cried wolf and ended up bloodied from their erroneous cries. Isn’t it also nice to know you can always count on Tokyo Rose to be wrong and go the other way?

U.S. Dollar – The bull dollar boat is so filled up that some of them are holding onto the sides while treading water. Interestingly, it has not gotten above real key resistance despite all the fluff about some new mega dollar bull market. A reversal on something like a new QE action would not surprise me. In the end, America faces a far worse debt crisis than Europe has seen and the longer we don’t face up to it, the worse it shall be when the can is no longer able to be kicked further down the road.

Oil and Natural Gas – With all the sable rattling in the Middle East, hard to envision a much lower oil price. Natural gas is overflowing and hard to see how we go much higher for now. Longer-term its still okay but the shares are mostly overvalued.

Please Note – I like to suggest you take a look at this report. I’ve no compensation arrangement but find the author and interesting young man in our business and am interviewed by him from time to time.

Read other articles and posts at Grandich.com

01/11/12 Johannesburg, South Africa – The Financial Times led off its series on ‘Capitalism in Crisis’ with a wandering piece that attempted to outline the problem. Unfortunately, the FT writers don’t seem to understand what capitalism is, let alone what is wrong with it. They say they are “rethinking capitalism.” But it doesn’t appear that they ever thought about it the first time.

“At the heart of the problem is widening income inequality,” they write.

Anatomically, income equality is right on the surface…not at the heart. It is more like warts or boils…on the skin of the system for all to see. Right out in the open. The question is what causes these blemishes… More in just a minute…

First, let’s look briefly at what is going on in the markets. A quick preview — nothing much. The Dow rose 69 points yesterday. Gold shot up $23.

Meanwhile, The Wall Street Journal tells us that consumers have begun to borrow again:

Consumer borrowing leapt as holiday spending kicked in late last year, according to a new Federal Reserve report that hinted the era of household debt reduction that has held the economy back for years might be entering a new, milder phase.

The Fed said Monday that household borrowing on credit cards, car loans, student loans and other kinds of installment debt rose at a 9.9% seasonally adjusted annual rate in November, the fastest monthly increase since November 2001. That was when the economy was bouncing back from the Sept. 11 terror attacks and Detroit car companies were rolling out zero-percent…

Whoa… Does this mean the Great Correction is over? Have households decided to go back to their old free-borrowing, free-spending ways? Is it 2005 all over again? Let’s hold that question…

What are consumers doing? Are they taking their cue from the US government? USA Today reports that federal debt is now as big as the entire economy. That is, we have a government debt-to-GDP ratio of 100%. And only if you don’t count the rest of government’s debt — such as the debt of Fannie and Freddie, and unfunded pension debt, as well as state and local obligations. Add them to the calculation and the ratio jumps to high heaven.

Fortunately for the feds, they have no trouble borrowing money. Bloomberg reports that there are plenty of people willing to give the Treasury more rope:

The Treasury attracted record demand at today’s $32 billion auction of three-year notes as concern that a resolution to Europe’s sovereign-debt crisis is far off drove investors to the safety of the securities.

The auction’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of notes offered, was 3.73, the highest since at least 1993, when the government began releasing the data. Yields on US debt securities were little changed. German Chancellor Angela Merkel was meeting International Monetary Fund Managing Director Christine Lagarde as pressure grows to complete a Greek debt resolution.

“There is still strong risk aversion in the market,” said Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities LLC in New York. “There is still enough headline risk out there that it should keep the Treasury market relatively in check and in this very narrow range.”

The yield on the current three-year note was little changed at 0.36 percent at 5 p.m. in New York, according to Bloomberg Bond Trader Prices.

How do you like that, dear reader? Lend money to the world’s biggest debtor…who has no plausible plan for ever paying off these debts…and get a paltry third of a percent on a three-year note. Pretty soon, you’ll have to pay to lend the feds money.

Is that strange, or what?

And now let’s return to the “Crisis in Capitalism”…

In 1965, US chief executives received 24 times the wages of the average worker. Over the next 25 years, the ratio went to 70 times. Then, it exploded to the upside, rising to 299 times in 2000 and 325 times today. People look at these figures with the same look of appalling disgust as they once looked at syphilitics. It is ugly, the outward sign of an inner sin, they believe.

But it is hardly the heart of capitalism. Nor the liver. Nor the kidneys. Nor any other vital organ. Executive pay is not a benefit to capitalism. It’s not what makes the system works. It’s a cost. A drag. An impediment. It’s only a benefit to a very special segment of the working class, the managers. They are the cadres…the insiders…the controllers. More like plantation overseers and prison wardens than capitalists, their interests are very different from either the working stiffs or the shareholders. They squeeze the former and cheat the latter. They cut costs…deliver profits…and pay a large percentage of them to themselves.

According to John Kay, also writing in the FT, a breach opening between capitalists and managers was observed as early as the 1930s. The capitalists still owned the capital. But the managers controlled it.

“Modern titans derive their authority and influence from their position in a hierarchy, not their ownership of capital,” Kay explains. “They have obtained these positions through their skills in organizational politics, in the traditional ways bishops and generals acquire positions in an ecclesiastical or military hierarchy.”

They are bureaucrats, in other words…glad handlers…schmoozers…not entrepreneurs or capitalists. And over time, like major domos, regents, and regisseurs, they use their control of the institution for their own benefit.

How do they get away with it? It is a part of the process we call ‘zombification.’ Institutions all tend to shift, over time, from fulfilling some outward-centered purpose — such as making bread or making war — to looking out for themselves. Whether it is a government or a corporation, hustlers, anglers, and idlers figure out how to take advantage of them. These ‘insiders,’ pervert the organization and divert its power and money to themselves.

The club secretary, the company president, the charity director, the dictator and the senator…all look for ways to build their own power and wealth. National economies are undermined. Whole industries are corrupted.

We thought the idea was somewhat original. We thought we had come up with something new. But once again, Mansur Olson, a professor of institutional economics at the University of Maryland, was way ahead of us. He described the process as it applies to government in his 1982 book, The Decline of Nations. His view of it was a little narrower and more responsible than ours. He described how lobbyists and special interest groups corrupted the government and the economy. Businesses — protected, subsidized, heavily regulated — became inefficient. Real output per unit of investment went down. The nation declined.

We’ve already seen how in the US, the health care, education and defense industries have been thoroughly zombified. Huge amounts of money have been “invested” in these industries over the last four decades. Despite all the money, people are statistically no healthier…and no better educated. As for defense, military lobbyists insist that we are safer. But never have so many foreigners had a grudge against America.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010. 

Special Report: Ben Bernanke’s Dirty Secret… Head of the Fed Ben Bernanke is kicking the printing presses into overdrive to “save the economy.” But by doing so, he’s stuffing his dirty paw into YOUR pocket and handing your hard-earned wealth to his Washington and Wall Street chums. Now’s the time to get the scoop on what inflation REALLY means for the economy and you… Click here to watch this presentation now!

Ed Note: David Coffin and Eric Coffin – Editors of Hard Rock Advisories, have been very precise in describing the various world conditions affecting both the major markets and the resource sector that most of us trade. In a normal market, resource stocks tend to trade on results. While waiting for results, they usually hold most of their value. Today, we have resource stocks collapsing while their fundamentals remain positive. Traders have to be familiar with the big picture to understand why this is happening. Today’s editorial fills in a lot of the gaps on what is going on and what we can expect in the near future. The Coffins have a great track record for picking profitable investments through their Hard Rock Advisories services. 

New Year’s Irresolution 

“Just how happy the market’s New Year will be is still to be determined.   The past few months have shaken out a lot of traders as markets seemed to fall apart every time they looked ready to finally break out.  That pattern may continue but we think we could see higher highs after the New Year starts.  Traders seem closer to accepting that, while Euro politicians have no magic bullet, they probably won’t go out of their way to hold a gun to their own heads. 

Northern Europeans will get their way on austerity and Beijing will squeeze property speculators a little harder.  We do think the market will get through that eventually and that some contrarian thinking may be in order.  Not totally contrarian, mind you.  The company we re-visited this month has ounces in the ground and is drilling to expand them. Likewise, most of the companies in the Updates that we’re more comfortable with have resources to build on, and the monetary resources to get the work done.  It’s not time yet to just toss the dice but we think many of the marked down names on the list will prove to be bargains.” – David & Eric Coffin of HRA Advisories (Hard Rock Analyst)

Europe’s Red Tape Blues                                                  

This summiting is reminiscent of the show around the Canadian constitution in the 1970s and ’80s to change a document written in the 1860s without a domestic amending formula (it was an Act of the British parliament before de-colonizing was a concept.)  At the time Quebec’s separatist government coined sovereignty-association for its wont.  

Quebec “sovereignists” in fact pointed to the nascent EU as model for what it wanted.  That blatantly ignored the point that the EC was about integration rather than disintegration.  Regardless, the Canadian constitution came home with an amending formula, after much ballyhoo and with Quebec sidelined.  A later attempt to include Quebec’s signature floundered in its final days when a single Cree member of the Manitoba legislature refused to vote and filibustered through the amending stale date.     

Who thinks the larger concerns of the Euro on the world stage over a Canadian system that functioned well enough as it was means more sensible treatment?  Neither do we.  Spain alone could spark protests by half a dozen groupings who will want change-before-change.  They will have to be heard, as will general populations.  

Relatively minor gripes from a global perspective might have forced a split of the Canadian union.  It’s in the nature of splitting up that it can get focused on irritants and “final straws”.   Forcing together on the other hand does require some serious push behind it.  Markets won’t be happy with Euroland until they see that.  Perhaps they are, finally.  

 We do think this shift at the governmental level in Europe is an important step towards a more workable Euro system.  But more than half is still not a whole.  The UK will likely have company on the sidelines before any concrete formula is worked out, and the market will shudder again as this happens.  It had to happen to someone, and the reality is benching Britain is easier than punting weaker partners who would wreak havoc on German and French banks.  Now the rest of the pick and choose can happen.

Eventually something of greater market import will happen — the process of European integration will be accepted as necessarily prolonged, and the political hand wringing that comes with it as normal.  As this process normalizes it will become easier for the market to ignore it.  ‘It’ being the politics, not the economics.  

That market can’t ignore the debt forcing the integration.  How much of it still needs to be written off along the way isn’t finalized, nor is how to do that.  European banks will have to merge with and borrow from unlikely sources before they are close to healed.  Consumer spending will continue to shrink, and to shrink the amount of capital that is willing to invest against future.  

This is no secret.  The real hold up is waiting for the bottom, and that is a psychological shift that’s usually only recognized when viewed in a rear view mirror.  We aren’t there yet, but now that the notion of absolute consensus is gone a realistic process has begun.  That is worth viewing through contrarian glasses.  

Retrenchment 

This is the point when we would like to say thrashing in the commodities space for the past while is normal.  Mostly, it just sucked.  It was a typical reaction to US$ strengthening as trades fled from the Euro.  It came at the end of a weak year and was exaggerated by that.  However, the damage it did to related equities looked overdone to us.

Selling is normal this time of year, but we expect it would have been more measured had Euro flight not taken place.  We respect the concern, but it’s not as though it’s a new issue.  Even if concern about the structure underlying the Euro is cause to shift away from it, there was no cause for that large a commodities move against the Dollar buying.  Unless you think global demand is sinking. 

Market turbulence aside, the weak early year recoveries in the US and Europe have continued.  Uneven at times and never the stuff of legend, but none the less positive though Europe seems destined to austerity itself back into recession.  Continued and in fact prolonged Western weakness is the smart money bet until the heavy buildup of debt is considerably paid down.  At the same time, there is also a lot of cash on the sidelines getting weak returns.  There are also structural imbalances in the balance of trade that need work, but as Germany and Japan attest there is still room for wealthy and productive economies to export. 

Growth is appearing to accelerate in the US, though slowly.  The EU is trickier since it appears northern Europeans will get their way and force substantial austerity on the spendthrift South.  This does have to happen but it’s going to cut growth in the EU for some time to come. It may have been wiser to be more Keynesian about it but Germany simply will not allow the adjustment to be about more spending.  Austerity is the price for their financial support and that will mean weak or no growth in the EU for a while.

The other issue over the year for commodities has been slowing growth in China and India.  This has however been against rising inflation in the former and persistent high inflation in the latter.

China backed away from stimulus and restricted lending to housing in particular.  Its problem has been wage-push in manufacturing and more recently from soft commodities as coastal industrial workers moved to higher end pantries.  Many will point to excess money supply as the root cause of inflation.  It is usually just this sort of wage push addition to household cash that that is the source of that extra money flow.  

Prices have begun to moderate in China.  This will have shaved a few percent off of growth, but China is still in a very healthy growth spurt and increasingly able to import goods as well as materials for re-export.  

Just how quickly this will translate into a moderating of restrictive measures is next year’s question.  However, since next year will see turnover of much of the top leadership we expect stimulus measures to be in place to go with the guard changing.  With protests over corruption and indifference to local concerns rising, even those leading in a one party state have to pull the prosperity levers at election time.

India’s GDP expansion has moderated from 9.4% in early 2010 to 6.9% in Q3 of this year, and there are forecasting for some further shrinkage.   The mining and food sectors both shrank, which was partly a matter of price rather than output.  Manufacturing growth also slowed considerably.  However, investment grew by 30% y/y.  This is despite the Reserve (central) Bank pushing up interest rates to try and deal with inflation. 

In November India’s inflation rate was running at 9%, which though high is still down from the double digits it had seen.  The interest rate gains are fighting a Rupee that has fallen 20% since midyear and pushed the cost of imported oil and other goods.  The high interest rate policy must be helping stem inflation given that, and is in turn dampening growth.  However, the economy is still early in its economic take-off and there is no evidence the growth spurt is faltering.  Keeping it going will also require dismantling of some of India’s famous red tape that decreases efficiency and capital formation in nearly every sector. India has good political management at the very top but lots of incompetence in the middle, and plenty of corruption and politically self-serving foolishness too.  Democracy has its drawbacks and one of the biggest is that politics can and often does get in the way of sensible decisions and Mumbai has suffered some of the same gridlock as Washington lately.

Markets have swung between hope and despair for several months now.  We are not expecting an outbreak of euphoria but we think markets will find some new normal as more Euro countries sign on to fiscal discipline and amounts get added to rescue funds.  Better than feared numbers out of the US should help calm some nerves too.  The combination may be enough to allow markets to lift.  If Europe actually pulls together a workable new treaty that would be good for the Euro and for the US$ gold price.

Q1 is traditionally good for resource stocks.  There is too much trepidation to expect a large rally but a lift as year-end selling is exhausted isn’t too much to expect.   Continued decent economic numbers from North America and some signs that Beijing and Mumbai are taking the foot off the economic brake could build on that.   

Ω

HRA is your key to uncovering and profiting from extraordinary resource shares by getting ahead of the crowd. At HRA, we look for companies with the potential to at least double over one or two years based on asset growth and development of metals deposits for production or take over by larger companies.  HRA also uncovers high risk/ high potential exploration plays, the kind of “swing for the fences” trade that can yield returns of hundreds or even thousands of percent.  You choose your comfort zone and which type of company you want to follow.

About: The Editors of the HRA Subscribers

Services

Who are these guys and how do they keep finding winner after winner before other analysts do?

The “secret” to their success is simple. It’s hard work. A LOT of it. The other key to the success of HRA publications is the background of the editors, David Coffin and Eric Coffin. They are brothers, born in a mining town and raised in the industry. They have both spent decades in the resource business. This gives them a background of real practical experience that no other editors can match. That’s why they can spot winners before anyone else. They have “been there and done that” on both the geology and the market fronts. They’ve run exploration programs, helped form and structure companies and they know what works and what doesn’t. They know everyonein the sector and can quickly check the facts and the management on new opportunities. HRA readers profit from their special insight into metals and exploration gained from over 50 years of combined experience in the resource sector. It’s an unbeatable combination that delivers unbeatable returns for HRA readers. Not politics, not rumors, not regurgitated broker research – just hard work, real insight and real gains.

David is the “rocks side” of HRA, and has been active in mining exploration for over 30 years in roles spanning prospecting through feasibility studies, and now markets commentary.

David Coffin founded, with his brother Eric, the HRA newsletter service that deals with the mining and metals sectors in 1995. David, the “rocks side” of HRA, has been active in mining exploration for over 30 years in roles spanning prospecting through feasibility studies, and now markets commentary.

David logs literally hundreds of thousands of miles every year, visiting exploration and development sites on six continents in order to bring back the real goods for HRA subscribers. They benefit not just from Dave’s seal of approval, but his outline of what he is seeing and where that might lead so that subscribers can fine-tune their own sector gauges. And a lot of serious market players take notice.

David is a regular speaker at Cambridge House, the PDAC, the New Orleans Gold Show as well as other resource and commodity investment forums in North America and Europe, and has been interviewed numerous times on radio and TV and in third party news articles for his opinions on the sector and markets. HRA was one of the first, back in 2001, to call the current cycle as the secular trend others have only recently recognized.

Since then fifteen HRA “picks” have been taken over in the ensuing boom market, half a dozen have successfully completed the shift from exploration to production and an equal number are closing on the that threshold. But HRA is not a cheerleader – numerous others have garnered gains for subscribers on profits taking calls, and despite a continued believe in the long term growth of the mining sector it has made several calls for general profits taking ahead of market corrections. HRA is opinion about developments and developers in the mining sector, on a considered, factual, and timely basis.

Responsible for the “financial analysis” side of HRA, Eric has a degree in Corporate and Investment Finance. He has extensive experience in merger and acquisitions and small company financing and promotion. For many years he tracked the financial performance and funding of all exchange listed Canadian mining companies and has helped with the formation of several successful exploration ventures.

Eric has been interviewed on CBC Television’s Business News and national and local radio in Canada and the US for his opinions on resource trends and is a frequent contributor to several third party publications and a number of resource, gold, metals and market related Internet sites.

He regularly speaks at a number of North American gold and resource conferences. He was one of the first analysts (along with David) to point out the disastrous effects of gold hedging and gold loan capital financing (1997) and to predict the start of the current secular bull market in commodities based on the movement of the US Dollar (2001) and the acceleration of growth in Asia and India.

Eric reviews data from hundreds of companies seeking strong management and finance teams in undiscovered companies for HRA’s readers. Combined with good share structures and projects that David like, these companies have the potential to make the HRA list and generate gains for their readers.

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