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And they say gold is going sideways…..

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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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…just look at this chart

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As I have been saying all along, the situation here is dire and unless zero hedge posts it, no one seems to believe me.   Greece will default and the domino effect will be huge.   I think gold will be a good preserve of wealth.   Real estate will also be if there is a currency depreciation but you have to wonder how they will tax property.

Here is the zerohedge article

The soap opera that just refuses to die, is just getting better and more bizarre by the day. The latest lunacy out of Greece, as reported by Market News, is that the near-bankrupt country is now imposing its own conditions on the bailout, saying it wants to amend the deal struck recently by Eurozone lenders, and wants to bypass the IMF’s financial contribution, and eliminate the role of the IMF entirely, as it is “concerned that intolerably stringent conditions would be imposed by the International Monetary Fund in exchange for aid.” Did anyone over in Athens even bother to read the fine print of what austerity means? It is good of the nation to finally wake up before suckering in US taxpayer dollars that, of course, would have never been repaid. And with that America, and the IMF, should wash their hands off the whole offer, and throw the ticking time bomb squarely into Merkel and Sarkozy’s court where it belongs, together with the $1.5 trillion in Club Med bank claims that the Eurozone is on the hook for if, and certainly when, things go sour.

More from Market News:

“The reason is that since the summit, [Greek] Prime Minister [George Papandreou] has been receiving information from the IMF about the possible measures and reforms it would be asking in exchange for  financial support,” said one senior official. “The measures are tough and might cause social and political unrest. After that, various cabinet  members voiced their opposition to the IMF contribution.”

Curious, what did Mr. G-Pap expect? That reducing a cash deficit of 16% to something like 3% was going to be as simple as downloading the latest Ricky Martin song to his iPad? Oops. Oh and guess, what, all that stuff about Greece not needing help (yes, yes, hold your laughter), was bullshit after all:

Several Greek officials have already voiced their concern that the agreement reached by Eurozone leaders requires a lot of time to be put into effect and that the procedure is bureaucratic. The sources said the Greek government will be seeking a clearer European mechanism, without the participation of the IMF, which will be speedier and will respond immediately to a country’s official request for financial support.

“What the government wants is to improve the deal and iron out the details that have not been decided yet,” the senior official said. “There is a strong chance that Greece might be forced to ask for financial support after all, despite official statements to the contrary, and it is essential that the terms and conditions be clear.”

Oh, and remember when G-Pap said he welcomed the IMF’s (aka US taxpayers’) participation? Yeah… he was just kidding about that.

Greece’s apparent aversion to IMF involvement represents a sharp reversal from just a month ago, when Papandreou said his government would go to the IMF on its own if European leaders couldn’t agree on the details of an emergency package.

Also, once this news is fully digested by the market, we expect the GGB 10 Year yield (currently at 6.5%) to primptly go north of 7%, once the implicit guarantee of lower rates in the future is eliminated.

While the IMF might insist on tough fiscal conditions in exchange for funds, it would almost certainly charge lower interest rates on loans than Greece’s fellow Eurozone members. The EMU deal struck at the summit states that bilateral loans from Euro area states are to contain “no subsidy element” — in contrast to the IMF’s traditional practice.

In a nutshell what Greece is doing is, simply said, lunacy. In its attempt to once again take the easy way out, and to prevent losing already non-existent political favor with the masses, the administration is literally risking a full out sovereign bankruptcy.

Since the contingency aid deal was announced late last month, some analysts have wondered why Greece would bother borrowing from its fellow Eurozone states when it could get money so much more cheaply at the IMF.

And some high profile officials at the European Central Bank warned that the conditions requested by the IMF would actually be more lenient than those already required by the European Union’s Stability and Growth Pact.

ECB Executive Board member Lorenzo Bini Smaghi, for example, argued that the conditions imposed by the IMF “are generally not stronger but rather weaker than those that we in Europe have now agreed on.” He warned that, in the event of IMF involvement, “these weaker conditions will become the new standard and replace the EU’s Stability Pact.”

Once again, Greece defines what shooting oneself in the foot truly means. At least, post bankruptcy, the Greeks will have a good climate, good music and drink. Now… where is that Sotheby’s auction of Santorini?

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Regarding my article which I linked to in my last post (http://www.rieas.gr/images/NICKDINOS.pdf), I just want to clarify something.    As many of you may have gathered, I am a gold bug.  I am not a gold bug in the sense that I will hold gold forever, but I think that now is the time for gold.   Global currency debasement has brought us into an Economic winter which still has a long time to run its course.   We will get out of it but not for a while and not, perhaps, without a war or without a change in global monetary policy meaning a move to some sort of sound money.

Gold has been sound money for the last 6000 years and it is reasserting itself today.  You can see this in the price of gold valued in all currencies.   The rise has been phenomenal and we are not even close to where this game will finish.   You must realize that the Greek Empire based on gold money lasted 1000 years.   Please note that I am not talking about the classical greek empire but the Byzantine Empire.   This was the Greek empire which historians try to rub out.   (thank you Christos my dear friend for this insight). Sound money gave this empire a millenium of life, rather than fizzing out like the Roman Empire did due to debasement of its coins from silver to base metals.   Our western empire is meeting this same fate.   Sound money is all you need for a stable economy because people can save the fruit of their labor and have an incentive to work.

I had client come to my office to discuss the purchase of some real estate and the topic came around to the value of assets priced in gold.    We all know the effects of the recent hyperinflation in Zimbabwe but few non-Greeks know that we had a similar event here in Greece about 60 years ago.   My father in-law told me how he remembers families selling all their household furniture for a piece of bread.   My client told me something much more interesting.    He told me that some family friends of his purchased the entire block of downtown Athens which houses the ministry of the economy for three British Sovereigns during this hyperinflation period.    If you are not aware of the block of land, it is located close to Syntagma Square in Athens and is uber prime.  If I were to value this property today, I could conservatively put it at around 40M euros.   Let’s see now, one British sovereign sells now for about 220 euros and consists of 7.322 grams of gold (http://en.wikipedia.org/wiki/Sovereign_(British_coin))    So these friends of his paid 660 euros of today’s money for a 40M piece of land. 

Now either land today is overpriced or gold is cheap (or both).   Sure, easy credit raised the prices of real estate, and sure the recent CFTC hearings show gold is being manipulated to the downside but can these differences cause such a huge gap in property prices priced in gold?   Let’s say that the manipulation is to the point of 100:1 as the CFTC hearings revealed.    This means that the gold price in euros now would be about 82500 euros per ounce.   If 3 british sovereigns contain less than 3/4 of an ounce of gold, these buyers still got a great deal in paying only about 60000 euros for a 40M piece of land.    Now for the other end.  What if my conservative estimate for the land is wrong and we drop it by 60%.  This block of land would be priced at 16M euros….still a great deal for the buyers.   

Let’s see what the price of gold would be for that property if it were priced at and even more conservative 10M euros.  We said that 3 British sovereigns contain a bit less than 3/4 and ounce of gold.    This means that this property, in today’s prices, was bought at a gold price of about 14M per ounce!

What’s going on here?   Even with an inflated gold price, which takes into consideration central bank manipulation of the metal, and a reduction in the property price to an insulting current property value, we can not attain the deal which was made in that transaction.  The property was exchanged for gold at around 14M euros per ounce!    What happened to the theory that an ounce of gold would consistently buy a nice gentleman’s suit?   Not even Michael Jackson had such a suit!  What I’m trying to show in my “Buy one get 4 free article” is that in times of financial distress things fall out of balance, out of whack, and there is an opportunity in the pain and strife to make huge gains.  

The economic winter will be bad for certain assets and good for others but I think FOFOA said it best that there will be a time coming soon where there will be inflation in everything priced in dollars (currency) and deflation in everything priced in gold.  Gold will go up, real estate will go down, however my point in the article is that there will be an opportune time to make disgustingly insane trades when there is blood on the streets.

Cheers

n

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This is a second article I wrote which was published at the research Institute of European and American Studies regarding the economic crises with respect to real estate on Santorini

http://www.rieas.gr/images/NICKDINOS.pdf

We will be referring to this article in future posts.

Regards

Niko

www.santoriniselection.com

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