Colors, Protests in Madrid, Greek Employment Crash, and The Chinese Bet on a US Default

5/19/2011 Portland, Oregon – Pop in your mints…

It is a bright and sunny day in Portland, the type of day that makes you feel like you are on another planet.  After seven months of rainfall the sunshine overcomes the gray and the world takes on the most vivid of colors.  It is amazing.  

They are shooting a movie at the old US Customs House these days and today quite a crowd was gathered outside.  We later found that the movie is called "Gone." From what we can tell, it is a teenage thriller of the "Scream" genre and will come out in February 2012.

That explains the school buses and scores of teenage extras roaming the neighborhood.

In Portland people literally hibernate for the winter.  One would think the population figures grossly overstated if they only visited during the rainy months.  Once the sunshine hits, then city springs to life and one wonders where all of these people came from.  It is like living in two worlds, depending upon the season, and the difference is marked here like nowhere else.

Maybe we are on another planet.  We hardly recognize what is going on around us.

The Socialists in Greece and Spain are implementing austerity measures…

The LinkedIn (LNKD) IPO shot to the moon…

The Chinese are net sellers of US Treasury Debt…

And the US Government is going to default.

Are we still on planet earth?  The answer would be a resounding NO from anyone who had fallen asleep in 2006 and been recently awakened to this news.  They would think these are headlines from The Onion.

Yet what once would have seemed absurd is now coming to pass. 

One can no longer chastise the Socialists as spendthrifts.  The Socialist governments of Spain and Greece did not gain power by running on austerity driven platforms.  Yet there they are, forced to do the dirty work as their disillusioned electorates take to the streets in protest.

A union leader in Greece warned of an "Employment Crash" that will occur as the Greek economy digests the latest round of tough love from its fellow Eurozone members.  What exactly is an "Employment Crash"?  From what we can gather, there is not much work being done in Greece at the moment anyhow.

Any reduction would be a mere fender bender.

Then there is the LinkedIn IPO, which at face value appears to be a miracle.  Up 110% on its opening day?  Time to party like its 1999, right?

Upon further examination, the LinkedIn IPO appears to have been a product of an extremely limited stock offering which then shot to the moon without the danger of being sold short.  The market essentially prohibited any short bets being made against the stock, removing any restraint to its initial rise.

This is not how healthy markets operate.  But at this point, mortgage backed securities can be held at face value with no hope of near term price discovery.  Hence, no one in their right mind would pay face value for them, which of course explains why the FED did just that.

And what about the Chinese?  Aren't they raking in Billions of US Dollars in excess reserves each day with which they are "obligated" to buy US Treasury debt?  Yet since January, they have been reducing their holdings.  What gives?

It appears that China, along with Mexico and Bolivia, are pouring these reserves into Gold, infrastructure, anything tangible in anticipation of the debt ceiling debacle in the US spiraling out of control.

Yes, the impasse in Washington appears to be heading towards the "unthinkable," namely the US defaulting on its debt.  We predicted this here at The Mint earlier this year and frankly are shocked that it may take place.  Yet there it is, and the behavior of the Chinese makes us believe that a default is on the horizon.

So will the US give the shaft to its foreign creditors or its domestic dependents?  Maybe the more relevant question is, will the US go to war with China or fight a Civil war?

All we can say is come, Lord Jesus!

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Thursday, May 19th, 2011

Copper Price per Lb: $4.04
Oil Price per Barrel:  $98.86

10 Yr US Treasury Bond:  3.17%
FED Target Rate:  0.10% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,494

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,605
M1 Monetary Base:  $1,880,400,000,000 THE CRACK-UP BOOM BEGINS!!!!
M2 Monetary Base:  $9,011,900,000,000 DESPERATION!!!!

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

The Parable of the Zoo, A Crack-up Boom on the Horizon as Currency and Debt Markets Decouple

5/17/2011 Portland, Oregon – Pop in your mints…

Last week we raised the specter that the Job, Sovereign Debt, and Housing markets were essentially carcasses, mere shadows of an economy that was.   While the financial authorities all across the globe are spending their time and other people's money trying to revive the carcasses, a new economic model is springing up largely beyond their reach.

We offer you a brief recap of where we are, disguised as a zoo metaphor.

The financial authorizes first built the zoo to cage the capitalist beasts in North America back in 1913 when the creation of the Federal Reserve hijacked the money supply.  They took them down and dragged them to the zoo one by one as FDR signed the order to confiscate gold on April 3, 1933.  The beasts have been languishing in captivity for nearly 80 years.  Some of them have grown old and passed away in captivity.

By the time they died, the beasts had become so lethargic that all they did was sit around and eat all day.  The beasts had become so bloated that the zookeepers didn't even to bother to take them out for their daily exercise.  Why would they?  They had grown fat themselves charging the price of admission to see the beasts.

In their lethargic state, all the zookeepers could do was make their daily rounds to feed the beasts, not even bothering to see if they are alive or dead.

Such is the state of things today, circa 2011.  The FEDs shovel cheap money and credit into the cages and assume that the beasts eat and are satisfied.

The Health Care Industry wasting away in the Zoo

 What they don't know, due to their self delusions and inner laziness, is that the food the leave is no longer being consumed by the caged beasts, rather, beasts that are still in the wild enter the zoo unimpeded and snatch away the food.

Even if the zookeepers were aware, their own lethargic state (see the current US Debt ceiling standoff) leaves them helpless to put a stop to it.

And so we watch as the carcass of housing rolls over, and Sovereign Debt begins to rot.  Finance, the best fed of all the caged beasts, is going into cardiac arrest and Health Care is helpless to save it, hopelessly caged in and wheezing, while the auto industry struggles in its shackles.

Meanwhile, commodities, technology, and their offspring, which have either never been caged or managed to escape along the way, are now openly raiding the zoo and taking down the stores of food as quickly as the zookeeper sets it out.

Soon, the stores of food will be gone and the agile beasts will once again forage in the forest, remaining nimble, while the caged beasts and their keepers perish.

As we see in this parable, we are witnessing a dramatic decoupling of the currency and debt markets.  The food is currency and the debt markets are the bloated and dead carcasses.  Now that the debt markets are unable to absorb the flood of currency, bizarre manifestations of depression and hyperinflation (what Ludwig Von Mises referred to as a "Crack-up Boom") are beginning to rise to the surface, like a boiling cauldron.

Something new is forming outside of the Federal Reserve's US Dollar system and the agile industries are busy building it, using what is naturally available outside of the system (the entire world!) and sustaining itself on what is left of the food at the US Dollar zoo.

The visitors of the zoo are those seeking employment inside of the old system.

The logical conclusion?  One is better off taking their chances out in the wild.

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Tuesday, May 17th, 2011

Copper Price per Lb: $4.02
Oil Price per Barrel:  $97.89

10 Yr US Treasury Bond:  3.12%
FED Target Rate:  0.10% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,519

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,479
M1 Monetary Base:  $1,986,500,000,000 THE CRACK-UP BOOM BEGINS!!!!
M2 Monetary Base:  $8,980,800,000,000 DESPERATION!!!!

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

The Inflation Train is Back on Track, Citi Shares Rise the Hard way, and the Carcass of Housing and Sovereign Debt issues

5/10/2011 Portland, Oregon – Pop in your mints…

A head fake.  That is the only way we can describe the action in the commodity markets last week.  Commodity markets differ from equity, bond, and money markets in that commodity markets are where real stuff changes hands, even if the owners never actually take delivery. 

When one buys a bond or equity, they own the vague or explicit promise of an income stream at some future date.  These streams generally come in the form of currency, which must pass through the money markets to get to their wallet.  From the time the bond or equity is purchased until the income hits their wallet, this income undergoes a hazing ritual in the form of taxes and regulatory fees which would cause any fraternity house to be banned from the college campus.  This hazing ritual reduces the income stream to a mere trickle.

It should come as no surprise, then, that speculation in stocks and bonds is much more profitable than any buy and hold strategy, especially when the FED is supplying free money at the casino!  Equities are easy to manipulate which makes them the preference of modern day money changers.

Take Citibank (C) for example, their share price was languishing around $4.50 per share (which is still way too much for their carcass of a balance sheet).  Most institutional investors (read those who invest workers' 401Ks), wouldn't touch it with a 10 foot pole, simply because the stock trades below $10 (which says something about the brain dead fund managers and their models but that is fodder for another Mint).  What to do?

Voila!  On Monday, Citibank opened with a share price around $44.  This was accomplished with a little mathematical operation called a "reverse split."  You see, Citibank, on a whim, made 10 of their shares suddenly equal to one share.  Problem solved!  Citi promptly fell more than 2%.

AIG, another carcass, pulled the same type of head fake in July of 2009.  After rising 87%, according to the Wall Street Journal, they are down 39% year to date in 2011.  Mathematical operations do not change fundamentals.

In contrast, when you buy a contract for wheat or any other commodity you have the right to take delivery of said commodity.  In the case of wheat, all you need is some yeast and an oven and you are on your way to a good meal.

Speculation in Commodity markets is their very essence and function.  The stakes are high.  These markets can literally affect the price of producer and consumer goods all over the planet.

If the income stream doesn't pan out for an equity or bond, the seller simply points the angry buyer to the prospectus where it tells them that the equity or bond may lose value for any number of reasons. 

In commodities, if the seller can't deliver the wheat they promised, people may starve.

Last week, the commodity markets went into a nosedive.  It appeared for a moment that they anticipated demand to plummet and called for worldwide production to slow.

This was merely a head fake.  Astute readers have picked up on the fact that we are comparing the commodity markets to a basketball player.  The prices of various contracts are the "head" of the basketball player and the fundamentals of the market (supply and demand) are the player's hips.

A head fake is where a player leads one way with his or her head and then darts the other way with the ball towards the goal.  As a defender (or investor in commodities) one MUST keep their eye on the opposing player's hips.

The fundamentals in the commodities markets take many years to change.  This week the fundamentals are driving commodity prices higher and signaling a looming hyperinflation after throwing a deflationary head fake at investors last week.

Nothing has changed to stop the "inflation megatrend", as Nadeem Wayalat of the Market Oracle calls it.  See for yourself in our Key Statistics below.  Even if the FED were to change course now and raise its short term interest rate target, it would take around three years for this to trickle down to consumer prices.

But how can this be?  Isn't there slack in employment, ever increasing sovereign debt issues, and an overhang of housing inventory in the US as far as the eye can see?

Again, this deflationary propaganda is a mere head fake.  They are describing the carcass of the old economic model that governments worldwide are fighting to prop up.  This carcass will continue to decay.

Behold, a new economy is arising far from the reaches of the carcass and its handlers.  Most of the FED's money will end up not propping up the carcass but rushing into the new model. 

Skyrocketing commodity prices, which still have a long way to rise, are announcing this fact loud and clear to those who will listen.

He who has ears, let him hear!

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Tuesday, May 10th, 2011

Copper Price per Lb: $4.02 Oil Price per Barrel:  $103.72

10 Yr US Treasury Bond:  3.19%
FED Target Rate:  0.09% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,519

MINT Perceived Target Rate*:  3.25%Unemployment Rate:  9.0%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,767
M1 Monetary Base:  $1,960,200,000,000 DESPERATION!!!!M2 Monetary Base:  $8,995,300,000,000 DESPERATION!!!!

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

The Parable of the Cupcake Addict, Absent QE3 Commodities go into Hibernation, and the Markets attach their Bungee Cord and Plunge Headlong off a Cliff!

5/5/2011 Portland, Oregon – Pop in your mints…

We are back from a breather at The Mint to find that the numbers we follow are beginning to reach a strange sort of plateau.  Like a man who has taken to eating nothing but cupcakes for breakfast, the Feds got what they wanted in the short term with their monetary alchemy.  

Anyone who has done this knows that cupcakes taste great and wake you right up.  Unfortunately for the man, after three long years of this indulgent behavior the long term effects are starting to show up.  

The man faces a dilemma.

A raging headache is beginning to come over him.  He knows that another cupcake would give him a much needed sugar rush.  A glance down at his sagging belly, however, gives him pause.  "I will feel better for a time," he ponders to himself, "but eventually I'll need new clothing and risk diabetes and heart disease if I continue this strange habit."  

In this state of mind, the man stands frozen before the tray full of cupcakes, unable to react as his headache worsens.

In the meantime, across town, the bakery prepares to send the man a courtesy notice that he can no longer supply the amount of cupcakes at the current price.  The man will soon have to choose either pay more or accept fewer cupcakes.

The Markets take a dive, will they Hit Bottom?

In our parable, the man is the US Government and economy at large.  The cupcakes are money substitutes created by the Federal Reserve.  The Federal Reserve is the bakery.  The headache represents high unemployment and the man's belly represents increased debt obligations.

What will the man do?  The markets, from stocks, to bonds, to precious metals and other commodities, are betting that the man will call the bakery, cancel his orders, and go on a diet.

Want Proof?  A quick peek over the last 5 days in the engineered markets:

The Dow?  Down 2%

S&P 500?  Down 2.5%

Bond Yields?  Down 4%

The real evidence of this opinion, however, is in the commodity markets which operate in a relatively organic fashion:

Oil?  Down 12%

Gold?  Down 6.5%

And our favorite commodity, Silver is down a whopping 26% over the past 5 days!

What is going on?  We recently discussed the immutability of the seasonality in all aspects of life.  The advent of spring and summer tends to trigger a feeling of abundance and there is a tendency to stop hoarding and begin using stores of certain items.  This is beginning to affect commodities market in the usual way. 

Another factor that is directly affecting silver and may explain its outsized drop in price is that the Chicago Mercantile Exchange has raised the margin limits on silver contracts three times in the past week which severely impacts liquidity in this market.  The end result of this action will be further shortages of physical silver which only makes it that much more appealing as an investment.

But in a bigger sense, the longer the man stands motionless before the tray of cupcakes, the Markets, a new character in our parable who represents the clothiers, doctors, etc. who were counting on the man to continue his insane habit of consuming his cupcakes in the morning.

Now that the man appears ready to kick his habit, the markets have attached their bungee cords and have just taken a head first plunge off of a high cliff. 

Unless the bakery intervenes, they are likely to hit the bottom!

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Thursday, May 5th, 2011

Copper Price per Lb: $3.99  PLUNGING!!!!Oil Price per Barrel:  $98.31 PLUNGING!!!!10 Yr US Treasury Bond:  3.17%
FED Target Rate:  0.09% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,465  PLUNGING!!!!

MINT Perceived Target Rate*:  3.25%Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,546
M1 Monetary Base:  $1,895,300,000,000 DESPERATION!!!!M2 Monetary Base:  $9,071,900,000,000 DESPERATION!!!!

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

Bernanke Speaks, Silver ETF Volume Exceeds that of S&P 500 Index ETF, is the Collapse of the Currency Regime at Hand?

4/27/2011 Portland, Oregon – Pop in your mints…

After a brief hiatus, we are back at The Mint and quite amazed at what is transpiring.  It is, of course, a logical and expected outcome of the present situation.  Simply, it is what the immutable laws of economics (namely supply and demand) demand.  What amazes us is the breathtaking speed with which things appear to be transpiring.

What are we talking about?  Witness for yourself, fellow taxpayer:

From the Wall Street Journal:

Silver Rush Spreads to Stock Market

"The mania for silver has spread to the stock market as day traders pile into the buying.

Trading got so heated during the past two days that shares traded in the iShares Silver Trust, the biggest exchange-traded fund tracking the price of silver, topped that of the SPDR S&P 500 ETF, usually one of the most actively traded securities in the world.

Day traders "are going crazy," says Joseph Saluzzi, co-head of trading at brokerage firm Themis Trading. "It's typical of the bubbly speculation that's been going on in silver."

If you are interested in purchasing physical silver and not the "maybe it exists, maybe it doesn't" iShares/JP Morgan/ETF variety, our Affiliate APMEX can help you acquire Brand New Silver Bars and Rounds.  They are offering free shipping on mobile orders until the end of April:

Back to the news, we now see an article that in months past would have been blasphemy at CNBC:

Will FED Trigger a Bond Sell-Off?

When the Fed discontinues its government bond purchase program at the end of June, a large portion of current demand will disappear. The Fed purchased more than 60 percent of all traded US Treasuries in the fourth quarter 2010," said Alessandro Bee, a fixed income strategist at Sarasin in Zurich in a note to clients on Wednesday.

"Experience gathered over the last two and a half years shows that expectations were more important than supply and demand. Once the starting shot for QE1 and QE2 was fired, yields in each case rose, despite the added demand for bonds caused by the Fed's action," Bee said.

For those of you new to The Mint, our current case study is the US dollar.  We are looking for clues of its imminent demise, a demise which would have ramifications that simply boggle the mind. 

Over the past 30 years, up until 2007, the dollar had generally been very good to America.  It was the world's reserve currency and the Americans had first dibs on it. 

Then, like a beloved aging relative, the US Dollar suffered something of a stroke in August of 2007 from which it has not, nor will it ever, fully recover.

Upon witnessing the "stroke," the monetary authorities thought they had a simple supply shortage and began to correct this by working triple shifts and refining their production processes to the point that they can create US Dollars out of thin air and keep a stranglehold on short and long interest rates.

Perfect, right?  Problem solved, the dollar will be on its feet in no time and no one will know or care.  That is the line that the monetary authorities have been feeding us in some way, shape, or form for the past three years.

Ben Bernanke, giving the first official, government sanctioned post FED policy meeting press conference, gave a classic example of the line today in response to nearly every question and took the opportunity to prod Congress to reduce the deficit, which is necessary to keep the illusion of the government and financial system's solvency intact.

We prefer our Mint finger puppet version (which you can see here) of the press conference to the real one.

Then Timothy Geithner, the US Dollar's second greatest apologist after Bernanke, came out yesterday with the kiss of death, stating that the US will not pursue a strategy to weaken the dollar.

Over the past three years, many an investor has believed the line and consequently have been waiting for their beloved relative (the dollar) to return to her former vitality.  Others realized that it is time to begin to prepare for the beloved relative to make drastic lifestyle changes and perhaps to pass on from this world. 

Those who were preparing for the demise saw that the new production process that the FED is employing has a fatal side affect.  The process emitted enormous amounts of debt denominated in US Dollars, which completely overwhelmed what the alchemists at the FED were trying to accomplish.  Add that to competing mad scientists (read Central Bank Governors) the world over and the patient's quality of life was not only rapidly diminishing, her very lifespan was being shortened at a staggering rate.

All the while, the doctors (read bankers) made money both attending the patient and taking kickbacks from the pharmaceutical companies (The FED and US Treasury).

A Chinese Satire of the Bank Spin Doctors?

The end result of this rapidly accelerating plot line is that US Government debt and the Dollars created to pay them are quickly moving from their central role in the global financial system to becoming a byline in history books alongside the paper mark of the Weimar Republic.

So we stand today, fellow taxpayer, and witness that Silver, the people's money, is at least in theory trading in greater volumes than the entire S&P 500.  This has taken almost all observers, including your author, by surprise and taken at face value would mean that the price of silver is about to explode further to the upside.

Will it be much longer before the price of Silver outstrips the S&P 500?

Whatever is happening, it appears to be happening quickly, and one would sleep much better being short (selling) dollars and dollar denominated bonds and being long (buying) silver and, really, almost anything else tangible will do!

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  Please check out our latest 72 Hour Call at www.davidmint.com

Key Indicators for Thursday, April 27th, 2011

Copper Price per Lb: $4.26
Oil Price per Barrel:  $112.76 SKYROCKETING!!!!
10 Yr US Treasury Bond:  3.37%
FED Target Rate:  0.09% FED IN DESPERATION MODE!!!!

Gold Price Per Ounce:  $1,528  SKYROCKETING!!!!

MINT Perceived Target Rate*:  3.25%
Unemployment Rate:  8.8%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  12,691
M1 Monetary Base:  $1,855,600,000,000 DESPERATION!!!!
M2 Monetary Base:  $9,053,300,000,000 DESPERATION!!!!

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.