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Could This Emerging Financial Alliance Kill the U.S. Dollar?

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A world-shaking event occurred this week in the global financial arena, and its impact will be felt for years to come. It will yank the wind straight out of the U.S. dollar’s sails and force a fundamental de-valuation of assets down to emerging-market levels.

Five leading nations — Brazil, Russia, India, China and South Africa — are starting their own financial system with a development bank funded exclusively by their nations.

They aim to establish an easy convertibility of currency (the real, ruble, rupee, renminbi and rand, respectively) and a focus on building long-term business relationships among themselves.

This isn’t just some emerging-market version of the euro zone. These up-and-coming economic leaders are opening the doors of opportunity for emerging-market companies that are positioned to challenge the global giants in their respective industries.

As an investor, you can’t afford to ignore this friendly meeting of the BRICS. (Note the fairly recent addition of the “S” with South Africa.) Here are three reasons why these countries are banking on a declining U.S. dollar and lessening U.S. influence … and why it may benefit you to do the same in the very near future!

Reason No. 1 : With this, the BRICS are set to assume pole position in global financial governance.

BRICS nations represent nearly half the world’s population. Two of them are already among the top five economies in terms of purchasing power parity. (That is, an “exchange rate” of sorts as measured by the amount of money needed to buy the same goods/services in different countries). Four are in the top 10.

The plan strengthens financial cooperation among the BRICS’ development banks. This comes as leaders from Brazil, Russia, India, China and South Africa are seeking a bigger say in running the International Monetary Fund and other multilateral bodies to match their rising economic heft.

But these are not all investment-grade countries that can issue bonds to fund a new bank. One suggested solution is to dedicate a proportion of BRICS members’ foreign reserves to a trust fund that would back-stop the borrowed capital.

In the case of the World Bank, the total paid-up capital is around 10% while the rest is AAA-rated, “callable” capital. To enhance the creditworthiness further, existing multilateral banks and other Western countries could also be given minority stakes.

If you consider that these five countries now hold over $4 trillion in foreign currency reserves, the creation of this type of bank could mean some very serious contributions of capital. And this is clearly going to make these fast-growing countries, well, grow even faster!

Already, The IMF projects 2012 economic growth at 3% in Brazil; 3.3% in Russia; 7% in India; 8.2% in China; and 2.5% in South Africa. In contrast, the U.S. growth this year will be 1.8% while the 17-nation euro area will shrink by 0.5%, according to the IMF estimates released last month.

And trading in local currencies will strike a blow at the U.S. dollar and euro as a reserve currency, increasing the role of China’s, Brazil’s India’s and even Russia’s currencies relative to the U.S. dollar and the euro. This in turn would make it even easier for these countries to sign more-favorable transactions with other parties that would have normally demanded dollars.

Reason No. 2 : This will also have real production and political effects.

Don’t assume this is just trade finance for only agricultural and natural-resource products.

Brazil will make a special effort to show that the country’s economy is more than just commodities and raw materials. Some of the businessmen traveling with the president will be from cutting-edge technology corporations.

Reuters is indicating that Brazil may be about to choose France’s Rafale fighter jet as the new aircraft for its military — at least a $4 billion deal from this emerging-market player that’s eager to become an economic superpower. If the deal goes through, it will come directly on the tails of India’s decision to buy 126 of the company’s warplanes.

Speaking of India, its relationship with the U.S. administration is better than ever before. However, there’s no guarantee that differences on some sensitive issue in the future won’t push the U.S. toward sanctions that could curtail this development or create other support issues. A conflict with Pakistan could be an example. Likewise, Brazil’s clear support for Cuba and Venezuela could at some point create similar problems if they selected the U.S. option.

More importantly, though, it’s extremely interesting that India and Brazil are discussing a military accord, since each country could complement each other in the industrial sector.

In addition to modernizing its fighter jet fleet, Brazil is seeking to obtain a transfer of software technology for the nuclear submarine that it is planning to build in partnership with France. And India officially rejoined the nuclear submarine operators’ club when the Russian manufacturers handed over to an Indian crew the Nerpa, in Russia’s Far East.

These and other proposed intra-BRICS initiatives like improving global governance will not only contribute to enhanced intra-BRICS trade and investments, but they would also facilitate growth in difficult economic times for these countries.

Reason No. 3: It’s no surprise — the winners are the top emerging-market industrial and technology companies.

These developments and the new financial arrangement will create many new investment opportunities for investors that did not exist before AND strengthen some that are already available.

Keep in mind, though, that this financial alliance won’t be the easiest thing to implement. There will be points where these countries disagree.

For example, under intense pressure from the Russian government, India may consider working out a solution to grant some relief to Sistema Shyam TeleServices Ltd. According to official sources, SSTL’s case may be treated differently from others whose licenses were ordered to be canceled because it is the sole operator based on CDMA communication technology.

If you would like to follow these stories, I encourage you to take my Emerging Market Winners newsletter service for a risk-free test drive. As a member, you can easily follow the growing list of public companies that will benefit from this tectonic shift in focus and resources among the world’s fastest-growing emerging economies.

Best wishes,

Rudy

Rudy Martin, editor of Emerging Market Winners, is widely recognized as an authority on stock and ETF investing. With more than 25 years of investing experience, Rudy started his investment career by co-managing a $2 billion private equity portfolio for Transamerica. He also served as an analyst for DeanWitter and Fidelity Investments, and research director of a quantitative research firm that is now part of TheStreet.com. Recently he has been providing his investment ideas directly to a select list of global hedge funds as Managing Director of Latin Capital Management, an institutional money management firm with more than $180 million in assets under management. For more information on Emerging Market Winners, click here.

Source: http://www.uncommonwisdomdaily.com/could-this-emerging-financial-alliance-kill-the-u-s-dollar-14004

Will the Federal Reserve Devalue the Dollar?

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The news around the world has been rather interesting over the last few weeks.  We have Iran trading Oil for Gold instead of PetroDollars.    The Greek crisis still has not been solved while Italy, Spain and Portugal are struggling to stay solvent.  China has signed fourteen currency swap agreements bypassing the US Dollar.  The Federal Reserve has announced that it will keep interest rates at or near zero until 2014.  The US has just raised its debt limit once again, with little opposition.  We all know that 2012 is an election year in the USA which usually means very little will be done in Washington.

So what will we see this year?  Will we see Deflation or Inflation? Currently I hear news out of the USA and here locally in Panama that items are going up in price. I just spent a week in San Jose, Costa Rica where one liter of Coca Cola was $2.50.  They were just forced here in Panama to raise the minimum wage to $500 just so people could afford to survive.  You can imagine the repercussions, many businesses will have to let employees go in order to keep the doors open.  Here in Panama we use the US Dollar as our currency.  Who is to blame for the inflation we are seeing?  It is not the printing presses fault. It is the powers behind the printing.

Way back on November 21, 2002 there was a Federal Reserve Governor named Ben Bernanke, who gave a speech to the National Economist´s Club.  In this speech he outlined exactly what he would do if he was Chairman of the Federal Reserve in the instance of a financial crisis or Depression.

  1. The Federal Reserve would lower the interest rate to zero
  2. Purchase Securities from Banks (GM, Chrysler)
  3. Increase the Money Supply
  4. Buy Countries Debt QE1, QE2, QE3 and QE Infinity
  5. Devalue the Dollar

I will not go into each of these scenarios individually.  We all know that points one through four are already in play.  The one that has not occurred yet is the devaluation of the Dollar.  Mr. Bernanke calls himself a student of the depression.  He has studied The Federal Reserve actions during that time.  Here is an excerpt from that speech.

Ben Bernanke November 21, 2002

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it´s worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt´s 40 percent devaluation of the dollar against Gold in 1933-34, enforced by a program of Gold purchases and domestic money creation.  The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly.  Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market.  If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt´s devaluation.

Original speech can be viewed here

On April 3rd 1933 President Roosevelt declared the Presidential Order 6102.

All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933.

At this time Gold was valued at $20 per ounce.  Shortly after the Gold confiscation was completed the Federal Reserve revalued Gold at $35 per ounce or a 40 percent devaluation of the currency.  Remember that during this time the Dollar was backed by the promise of Gold.

In my mind Mr. Bernanke is telling us what he is going to do next if the economy does not respond to the other four measures that he has implemented.  What would a 40% devaluation of the US Dollar do to your savings if everything is in US Dollars or a currency pegged to the Dollar? The devaluation of the US Dollar would be great for Gold, Silver, Home Values, Debt and the stock market.  What about the people that do not have hard assets?  People who live off Social Security, Government Subsidies, Fixed Incomes and Savings will have a difficult time.  Imagine tomorrow you wake up and your savings has just been devalued 40%.

Growing up I was taught that putting your savings in the bank was important.  Today it seems that the idea is no longer valid.  What Mr. Bernanke has told us is that he will devalue the currency in order for the country to continue to have growth.  What are you doing to protect your family and future?

By: Randy Hilarski - The Rare Metals Guy

Bankers, Precious Metals, And MF Global

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Gold Nugget

Did bankers use the MF Global (MFGLQ.PK) bankruptcy to suppress gold and silver prices and create the panicked appearance of collapsing precious metals to give themselves additional precious time to delay the crash of the euro and the U.S. dollar? As crazy as this sounds, a closer investigation of some key data seems to imply this possibility. Though bankers claim that they created futures markets to provide a mechanism for commodity producers to hedge against volatile market prices, I have never bought the Kool-Aid the bankers were selling in this explanation for the rationale behind their creation of futures markets.

Given that today, futures and spot prices for gold and silver in the short-term are entirely set by banker manipulation of the supply and demand for paper derivatives that often have no backing of any physical metal, I believe that bankers created futures markets for the explicit intent of allowing themselves to manipulate the prices of commodities and to enrich themselves, and themselves only, through the process of alternately and artificially inflating and deflating prices as would not be allowed in any type of free market. In other words, bankers invented futures markets to allow themselves to siphon off and steal money from other parties that wanted to invest in commodities with a mechanism, risk-free to them, that required deception and zero honest work and zero integrity.

The futures markets in commodities is such a deceptive market that it is hard to know even where to begin to unravel its many mechanisms of deceit in all their glory. Futures contracts traded on the world’s largest commodity markets such as the COMEX in New York and the LBM in London allow bankers to commit reverse alchemy, turning real physical gold and real physical silver into nothing but false paper contracts and air.

Secondly, through futures contracts traded in New York and London, bankers routinely defy the economic principles of supply and demand, and set short-term prices for gold and silver that have zero to do with the supply and demand dynamics of the physical gold and physical silver market. In the world of physics, such an illogical, comparable feat of deception would be the indefinite suspension of the law of gravity. Bankers invented paper-derivative gold and silver markets to allow themselves to defy and suspend every sound economic principle that exists.

This is important to understand because not only does understanding this concept make the bulk of what you learn in business school a lie and entirely useless, but also because bullion banks, such as Deutsche Bank (DB), Citigroup (C), JPMorgan Chase (JPM), Goldman Sachs (GS), et al, that serve as the puppet conduits for more powerful families that control Central Banks, routinely used to lease physical gold into the open market as their primary mechanism to suppress the price of gold and silver.

However, as their mechanism of fractional reserve banking began to threaten the viability and utility of the most widely used fiat currencies in the world, the USD and the Euro, bankers understood that they needed to utilize and/or create another mechanism to suppress gold and silver prices that could replace selling physical PMs into the open market as they no longer wished to give up a solid asset with no third party counter-risk for what they knew they were turning into essentially worthless pieces of paper.

Thus bankers increasingly turned to the paper futures markets to manipulate and control the price of gold and silver and also served up additional bogus derivative products to the public like the GLD and SLV ETFs. Bankers knew that there was no way they could possibly control the price of gold and silver if the supply and demand determinants of physical gold and physical silver had anything to do with the price, so they conspired to fool the world into believing that the fake paper price they set was set by the supply and demand of the physical markets.

Collapsing of Gold/Silver Futures Markets Directly Related to MF Global Collapse?

And here’s where MF Global enters the banking cartel gold and silver price suppression scheme. Today, short-term futures and spot prices of gold and silver have almost nothing to do with the physical supply and demand dynamics of gold and silver, as odd as that may sound. Bankers created the futures markets and paper derivatives in gold and silver to kill free markets and for the express purpose of suppressing gold and silver prices.

Today we have no idea what the free market price of gold and silver should be or could be, besides the fact that both would be multiples higher than their current price, because of the fake paper market in gold and silver that the bankers created.

As well, bankers ensured that they armed a legion of worker bees in commercial investment firms all over the world that would represent these paper derivatives backed by very little physical gold and silver to their clients as the equivalent of investing in 99.999% pure physical gold and silver. In doing so, the worker bees thereby lured people all over the world into what will turn out to be the fatal mistake of not buying millions of troy ounces of physical gold and silver and instead buying their offering of fool’s gold and fool’s silver.

When we receive a massive default of gold and silver futures contracts that stand for delivery on the COMEX or LBM, or if the SLV and GLD default, then, and only then, will the public start to see true price discovery of physical gold and physical silver in action. However, for clients of MF Global, unfortunately, they have already experienced the mistake of buying fool’s gold and fool’s silver from the bankers and have received air in exchange for gold and silver futures contracts they purchased that stood for delivery.

Bankers invented fake paper gold and silver contracts, because they knew that if they could not fulfill contractual obligations to deliver physical gold and physical silver because the contracts were a binding lie to begin with), that they could always renege on these contractual obligations and give the people the nothingness they truly owned in return. And thus, we have the story of MF Global.

Ratings agencies downgraded MF Global on Oct 25 and MF Global declared bankruptcy on Oct 31. If one scours the data that the Chicago Mercantile Exchange (CME) releases via its aggregated Commitment of Trader reports during this time period, one may not notice any data that immediately stands. However, investigation of the disaggregated reports reveals far more interesting patterns that almost undoubtedly can be traced back to the collapse of MF Global.

In a period just preceding the MF Global collapse, from late August to mid October, the open interest (OI) in longs in gold and silver futures within the Managed Money category collapsed by 33.75% in gold (202,430 to 136,103) and 44.74% in silver (29,849 to 16,494). During this exact same time period, shorts in the gold and silver futures in the Managed Money category increased by 19.3% and 83.82% respectively (see the chart below).

Within the Managed Money category, between Sept 13th and 27th, in just a two-week period, the drop in OI in the longs in gold and silver futures was even more pronounced, with a 25.41% plunge and 34.3% plunge in silver. I imagine if someone could trace the connection of this plunge in OI in the Managed Money category in the gold and silver futures markets, one would discover that a good deal of the plunge was somehow directly tied to the impending MF Global bankruptcy and its freezing and/or liquidation of gold and silver futures accounts in its possession.

After Phase I of the collapse in OI in the gold and silver futures markets, Phase II followed. When the story about MF Global’s legalized client theft hit the presses, an enormous public distrust of the entire futures markets started to build. If clients lost millions of dollars in gold and silver futures accounts due to forced liquidation or freezing of contracts that they were holding for delivery, anyone that had considered using the futures markets to take delivery of real gold and real silver following the MF Global debacle obviously reconsidered their options.

Thus, due to the massive fraud of the futures markets that was revealed by the MF Global collapse, another huge drop in the OI of gold and silver longs in the Managed Money category occurred during Phase II (as labeled in the above chart) that respectively amounted to an additional respective 11.79% and 7.48% plunge. In essence, it appears that the MF Global collapse served up the exact same price suppression effect as a CME issued initial or maintenance margin hike in gold and silver futures, which forces a tidal wave of unwanted and involuntary liquidation of gold and silver longs that consequently violate technical support lines and trigger technical sells.

Of course, we also have to factor in the temporary OI-increasing effect of the risk-on CME event when they lowered initial margins to a 1:1 ratio with maintenance margins at the onset of November. Still, given the figures presented in the chart above, it seems that bankers used the MF Global collapse to force liquidation of gold and silver longs in the futures market quite rapidly and drastically. Why is this important? This is important because typically strong hands ride out any temporary banker manipulations of gold and silver prices downward.

In this case, strong hands, if they existed at MF Global, were not given this opportunity and were forced to liquidate or had their accounts frozen whether or not they desired such an outcome. Furthermore, if primarily strong hands were forced out of the futures market, this would leave the majority of volume in the gold and silver futures markets primarily in the hands of the criminal banking cartel.

We’ve seen repeatedly, this past year in the US SP 500 index, when low trading volume primarily controlled by the banking cartel has translated into curious and inexplicable market bounces of 2% in a single day. In other words, low trading volume allows bankers excessive and easy manipulation over markets. If this was indeed the scenario bankers deliberately created with the MF Global collapse, then the MF Global collapse and simultaneous collapse of open interest in gold and silvers futures certainly would have paved the way for the banking cartel to easily manipulate gold and silver prices.

There was also further circumstantial evidence that bankers used the MF Global collapse to collapse gold and silver futures markets at the end of 2011. For example, in an article posted on the SilverDoctors blog by Jim Willie in which he gathered data regarding the amount of physical gold and silver ounces represented by the longs at MF Global that were standing for delivery in the futures markets before these contracts imploded, he stated: “JP Morgan increased the amount of registered silver and gold by precisely the amount that was suppose to be delivered [by MF Global]…JP Morgan effectively averted both a Comex default and a European Sovereign Debt implosion.”

Silver Lining in the MF Global Debacle?

Can there be a silver lining in the MF Global debacle? I believe that in the long-term, this extremely unethical, negative event could transform into a positive game-changer in the way people buy large amounts of gold and silver. Obviously, the futures market is not a safe market for anyone seeking to take delivery of millions of dollars of physical gold and silver as many MF Global clients learned. The GLD and SLV ETFs, of course, are no safer than any gold or silver futures contract for the same reasons.

So in the future, and I mean the immediate future starting now, I believe that large buyers of physical gold and silver will now opt to bypass the bullion bank’s middle men in the futures market and go directly to the gold and silver mining companies to buy large quantities of bullion. This should eventually help usher in the death of futures markets as a mechanism for buying physical gold and physical silver and be a step towards establishing a free market for gold and silver prices for the first time in our lives.

Mark Cutifani, CEO of AngloGold Ashanti, recently echoed the same:

“Major [asset management fund] buyers are finding it is hard to get physical gold. People are coming directly to us [for large gold purchases,] people who want tonnes of physical gold, people with serious financial muscle, because they are finding it is very difficult to secure the volume of gold they want. That is something we have noticed over the last 18 months, and it has been increasing in the last six months. People are finding it’s hard to get physical gold.”

People that want to own physical gold and physical silver never should have been buying the GLD, SLV, or gold and silver futures. Now, in light of the MF Global debacle, scores of people will stay away from these fraudulent vehicles for good.

About the author: JS Kim is the Chief Investment Strategist and founder of SmartKnowledgeU, a fiercely independent investment research and consulting firm with a mission to help re-establish the monetary freedom that bankers have stolen from us. Despite believing that gold and silver will remain highly volatile in 2012, JS believes that long-term holders of physical gold and silver will be richly rewarded as bogus paper gold and silver derivatives start collapsing and reach their intrinsic value in coming years. Follow JS on Twitter and Facebook.

Republishing rights: The above article may be reprinted as long as all text, links and the author acknowledgment remain intact and exactly as printed above.

Article source: http://seekingalpha.com/article/316197-bankers-precious-metals-and-mf-global

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