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And they say gold is going sideways…..

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This is what the bankruptcy of a western nation looks like…do you really want to run to a dollar?

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This is a wonderful house centrally located in Fira with caldera view.  It is 280m2 in size and is actually comprised of two homes, one on top of the other.   The home has a courtyard, area for roof garden.   Bedrooms and livingrooms with high 5m cielings, and lofts in both houses.   The home needs repairs but is structurally sound.

Price 670.000 euros firm, Reduced from 800.000

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You are most likely aware of the Nigerian email scams where you get an email from some supposed financial minister or dictator who wants to get your bank account information so they can deposit some 20M that they have obtained from some oil transaction or military coup, where they trick you into giving them money or giving up your account information to process some illegal activity in exchange for a cut of the money.  Well there is a new scam out of italy and me and 3 close friends have had our doors knocked.

The new scam involves real estate and what happens is that someone calling from Milan wants to buy your property and will pay your asking amount (no matter how high it is) but there is a hitch.   You have to fly to Milan and meet with them.   Here they offer to buy your property but you have to swap 500 euro bills with that of smaller denominations before they buy your property.    In one case they said that the money comes from diamond sales.    My one colleague who did go to Milan said these people were Israeli and that mentioned a diamond money link.        The man I spoke to on the phone did not have an Italian accent but it could have been Israeli, Lebanese, Syrian or some other nearby mid east accent.   That doesn’t really matter.

We are not sure if the 500 Euro bills are counterfeit, even though they let you pass them through a bank counter, or if this is just simple money laundering.    There is no way of knowing for sure unless you proceed with the scam, and who knows if they even buy your property after you’ve done the exchange with them.

Post comments if you have had any such experiences

A little visual aid from Mark Lundeen compating the current gold bubble to the stock market bubble from 1980-2000, we aint seen nothing yet.

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Here is an interesting article by zero hedge which refers to a Jim Ricards article.  Jim, of course, was the one of the key players in the negotiation to settle the LTCM fiasco about a decade ago – someone in the front lines of the ponzimonium war.    He suggests the same thing I do as probably the only solution to the crisis, a revaluation of gold, except I think he is a bit conservative on his revaluation price.

He is clear to explain the reasons of the current crisis, but I think he a bit short on his gold price prediction.   I said 7000 and ShadowStats says a bit higher than 7000.   Hommel said 32000 in 2003, and after the CFTC hearings FOA most likely changes theirs from 52000 to some higher number.    Ricards number is static and refers to the NOW, not considering the billions or trillion still to be shoved down the black hole.   I had raised my estimate in order to take into account of future money pitting.   You can read my previous post called “Buy one house and Get four Free”  http://www.rieas.gr/images/NICKDINOS.pdf which discusses this issue and if you think about the title you will see that even the title suggests Ricards price.   Eg.  If you sold an asset now and bought a piece of gold at lets say 1100 per oz, you will eventually be able to pull it out at Ricards price and have 4 free assets and your original investment.

Here it the zero hedge article.

LTCM General Counsel On Debt Denial: “There Is Little Time To Avoid Catastrophe And Almost No Exit”, Suggests Gold Price Of $5,500

Recently we posted a terrific interview of Kathryn Welling with LTCM’s former General Counsel, James Rickards. The lawyer turned economist, who is now a director of Omnis, posts the following stunner on the implications of the endless sovereign debt glut and the Keynsen abortion that every developed economy has undertaken. As the man who survived (and, well, created) the original market “systemic” event, Rickards should certainly be heard by all those who believe the government can sustain the latest, and by all measures, last iteration of the global reflation Ponzi. Not surprisingly, Rickards is the latest to jump on the fiat alternative bandwagon, seeing gold at $5,500 as a fair price for the precious metal.

Debt Denial, by James Rickards in The Daily Caller

The sovereign debt crisis has crossed a threshold. It’s no longer about economics. It’s about math and a complex system whose dynamics tell us there is little time to avoid catastrophe and almost no exit. Going forward, elections and policies will matter less as the debt plague takes hold and dictates hard outcomes.

It is the case that real debt cannot be repaid through any feasible combination of growth and taxes. We will soon arrive at the point where it cannot be rolled over. Debt includes contingent liabilities as well as bonds. In the U.S., this means social security, healthcare and housing obligations estimated at over $60 trillion. That does not include unfunded pension obligations of the states whose plans use fanciful 8% growth assumptions to limit contributions. Pension debt grows exponentially; a toxic brew of increased benefits, contribution shortfalls and anemic performance.

Even what we call money is debt. Paper money is a contract between citizen and government. As with any contract, it pays to read the fine print. Embossed on each U.S. bill is the phrase “Federal Reserve Note.” Give the Fed credit for full disclosure; these notes are liabilities. If the Fed’s mortgage assets were marked-to-market the Fed itself would be insolvent. In short, it’s all debt. Wealth is illusory if it involves a claim payable in dollars which are but a claim on an insolvent central bank backed only by its ability to print more debt. The situation is worse in the UK, Europe and Japan. The global financial system is a rope of sand.

If this system is illusory, how has it prospered over centuries? The answer is that for many years governments ran surpluses and at times had no debt at all. Growth was robust providing support to the tax base. Governments had the trust of bond markets to rollover maturing obligations. With some fits and starts, tangible wealth creation outpaced debt creation. And until recently paper money was backed by gold at fixed rates of exchange. Today all four legs of the table – surpluses, growth, trust and gold are gone or damaged.

There is no prospect for surpluses; nations hit the brink of disorder at the mere mention of 3% deficit-to-GDP ratios. Growth prospects are likewise dim given current policy. Obama grew spending on a feed-the-beast theory that forces taxes to rise to match spending. If Obama does not get his way, deficits will be ruinous. If he does get his way, taxes will stifle growth. You cannot tax your way to solvency in a world of low growth and compound interest.

As for market trust, go ask the Greeks. Each bond buyer has a critical threshold where he will not buy another bond. Picture bond buyers as theatre patrons. The image of someone yelling “fire” and patrons rushing out in a panic is familiar. More intriguing is the case in which just a few patrons rush out for no apparent reason. Do those remaining follow suit or stay seated? It depends on their individual thresholds. If high enough, everyone remains seated. But if some thresholds are low, those patrons leave too triggering other thresholds and so on until a cascade of exits empties the theatre.

In markets, the array of individual thresholds is immensely complex. The scale, interdependence and adaptability of market participants today are greater than ever. It would take very little to trigger a wholesale revulsion with sovereign debt.

What about gold? The view is that systems on a gold standard system cannot increase money supply as needed; of course, that’s the whole idea. Increasing money beyond the modest levels at which gold supply grows is the Keynesian remedy. But empirical evidence shows the so-called Keynesian multiplier is fractional and therefore a wealth destroyer. Another attack on gold is that there’s not enough of it to support money supply; but of course there’s always enough gold; it’s just a question of price.

The U.S. has never truly gone off the gold standard. The U.S. gold hoard today has a dollar value equal to about 20% of U.S. M1 money supply – a respectable ratio even in the heyday of the fractional gold standard. A gold price of $5,500 per ounce would comfortably support a broader U.S. money supply on a one-to-one ratio and maintain confidence in the dollar and U.S. sovereign debt.

Is there an exit? One path involves hyperinflation to destroy the real value of debt followed by redenomination and a new paper money game. The other path involves a gold backed currency at a non-deflationary price. This is a choice between denial and frank talk. Sound money leads to sound growth and the creation of real, not illusory, wealth.

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by Christopher Laird, PrudentSquirrel.com | April 7, 2010

Print

Something big is up, and it’s possible the Euro is going into a real crisis within two months…Is this the next big market surprise ala Lehman? Not exactly like Lehman, but of the scale of that crisis that shook the entire world and almost caused worldwide bank shutdowns in Fall 2008? I am beginning to think so, and have been discussing this looming new worry for subscribers, IE we are right at the cusp of something big for the Euro and the European Union, not only financially but very much so politically. Imagine what a real Euro crisis would do to – everything!

Alert that Euro on verge of real crisis

We are so concerned by recent developments with Greece as a canary in the coal mine for the Euro that we just issued an alert to subscribers that we foresee a big blow up for the Euro in about roughly one month’s time. That is USD bullish and gold bullish, and bearish for about everything else out there. And this has many other implications for US Treasury bonds, the China Yuan revaluation issue and many others. This Euro situation is a huge potential bombshell, possibly outgunning all previous huge crises we faced over the last 2.5 years. That’s right, the Euro situation can outgun all the worst financial chaos we have seen so far, and lead to massive currency instability worldwide. This is a big deal if it happens as we foresee.

If you noticed in the last week or so of trading days, the USD and gold often went up together. Gold and the USD are fundamentally inverse, the USD pricing most commodities, even gold if you will – especially gold. That particular gold / USD inverse is tied to the fact that the USD is still the world’s paper reserve currency still and is not losing that status yet – and gold is the world’s precious metal reserve currency.

When the USD and gold rise together, trouble is near

Now, when both rise together, you can be assured that flight to safety and liquidity/cash is in effect…

The biggest reason for the USD rising at this time is flight to safety due to concerns about the Euro. And money coming out of emerging markets that are peaked out and falling. The Euro makes up over half of the US Dollar index currency basket. So, when the Euro has trouble, the USD is the biggest beneficiary along with gold.

‘This Ain’t happening.’

It became clear last week that the EU bailout with the IMF for Greece was basically hot air. Greek bond spreads rose last week to their highest level versus Germany last week; the bond markets saying the proposed Greek bailout deal was just smoke and mirrors. Since this Greece story has been out for months, it became clear that all the Club med states and the so called PIIGS (I don’t like that term but everyone is using it to refer to those states, Portugal, Ireland, Italy, Greece and Spain) are even larger versions of the looming Greek tragedy, with even larger debt problems. And their time is running out this year too.

Must have $20 billion within two months

Why is Greece causing such a stir, its economy is small compared to say Spain, who is next in line in this crisis…? Because Greece has to refinance about $50 billion worth of bonds over the next number of months, a big $20 billion chunk due to roll over in two months. Greece is now at the door of insolvency.

The fact that the EU cannot come to terms with a relatively small bailout of $50 billion for Greece shows the internal dissention in the EU over the bailouts of the Club Med guys (PIIGS), with Germany finding it politically impossible to sign a deal. Greece is being left to its own devices. That ain’t good. Not good at all.

IMF solves nothing

Getting the IMF involved is viewed by markets as a last ditch effort, and reflects terribly on the EU monetary union and political union. It is said that using the IMF here merely confirms the political paralysis in the EU over this situation, and reflects terribly on the EU and the Euro. Major political paralysis is not something a major potential reserve currency can tolerate. Calls in Germany and elsewhere to kick out repeat EMU (European monetary union) offenders with huge financial deficits, Greece running something like a 13 pct of GDP deficit yearly. It’s going bankrupt.

Money is fleeing the country. A big surge of money flight to international banks in Switzerland, UK, Cyprus in the last week or so. In short, Greece is rapidly developing a sovereign bond crisis. That is nothing new, but the timing is, in light of the fact they need about $20 billion over the next two months. And money fleeing the country…is particularly worrisome.

There are many facets to this EU situation and they are bleak as hell for the Euro. This appears to be the next looming ‘big one’ crisis. We have kept subscribers well informed of potential outcomes for the Euro, and we also called the USD rally at end of Nov 2009, and a gold bottom in Dec 2008. We have made a lot of great currency calls way ahead (by months) of anyone I know of. We also called the 2008 summer commodity peak in April 08 warning the USD would rally, again months ahead of anyone I know of.

We have some basic defensive strategies to cover these potential events – a market crash and a possible Yuan revaluation. In any case, we have made some incredible calls for the last two years on the overall markets, calling huge swings in the USD, currencies, gold and commodity markets at key times, predicting trends that lasted 6 or more months out from our calls. There is a chart showing several of the major ones we called in the last 2 years on our site. Our newsletter is 44 issues a year with mid week email alerts.

Even though our newsletter is named PrudentSquirrel, it is probably one of the best currency newsletters for big currency calls you will find out there. The name reflects our ultra conservatism.

Copyright © 2010 Christopher Laird

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