By: Lee Rogers
Source: www.funnymoneyreport.com
Posted: 2006-12-09
I believe that 2007 is going to be a tremendous year for precious metals and stocks associated with precious metals. The entire fiat currency illusion that is built only on the confidence of people who use it is in the process of disappearing. As the value of U.S. currency continues to erode, the American dominance of the world will go with it. We have recently seen the value of Federal Reserve Notes move down in terms of other major currencies and down more so in terms of gold and silver. The chance of a currency crisis is great and it is very likely that we could see a major currency crisis take place within the next three years.
The mainstream media spin from CNBC surrounding the plunging value of our currency has been misleading at best. Despite a significant technical breakdown in the value of U.S. currency, the media spent the days following the slide talking about a significant rebound that never took place. Sure, our currency went up a little bit following the post-Thanksgiving crash, but to say that we’ve had a significant rebound is ridiculous. The U.S. Dollar/Federal Reserve Note Index has languished around the 83 mark for the past week and has in no way rebounded significantly. If we saw a significant rebound, the index would have gone back up several points. Instead it has literally treaded water and the media is saying how great everything is. The long term trend of the index is down and from a technical and fundamental basis it looks terrible.
Believe it or not, CNBC is actually worth watching from time to time. CNBC is a valuable tool for investors because if you look at how dishonest and misleading much of their reporting is, they tell you exactly what not to buy. The big investment institutions use CNBC as a way to promote the stocks and sectors of stocks that they are trying to unload. It provides them with an avenue to promote stocks that they are trying to find buyers for. They’ve been promoting Intel and Microsoft for the past six years and both stocks have done nothing over that entire period of time. When you factor in inflation, stockholders have actually lost a great deal of purchasing power by holding on to those stocks. Of course, much of their reporting continues to remain negative on precious metals. Earlier in the year they were even trying to sell us on the idea of a commodity bubble. Never mind the fact that both gold and silver have more than doubled since 2000 with very little participation from the general public.
Despite the mainstream media spin, news continues to be negative for the U.S. economy. The New York Post has reported that CEO’s and other top level insiders are selling a significant amount of their stock holdings. Traditionally, heavy insider selling is an indicator of a recession or worse. Below is an excerpt from the article.
Wall Street investors are displaying fresh worries that the Federal Reserve might pull the trigger too quickly on hiking rates again, possibly plunging the U.S. into a recession as the Fed did in 2000.
Just before the worst of the 2000 recession, insider sales were also at a near record. Leading the latest wave of insider selling is Microsoft, with $594.2 million of stock sold by insiders during November, with Gates unloading $581.1 million.
Gates has been selling shares regularly – including $2.1 billion last year – as he whittles down his once mammoth stake, putting a big chunk of his wealth to work in a not-for-profit foundation that invests in a wide range of securities and other deals.
Billionaire Paul Allen also sold off 28 percent of his stake last month in DreamWorks Animation SKG for $224.2 million, keeping about 21 million shares. Insiders at Seagate sold $311.8 million in November, while Google insiders unloaded $182.1 million in the four weeks.
Google’s CEO Eric Schmidt and its co-founders Sergey Brin and Larry Page have usually led the insider-selling parade with sales of hundreds of millions as the stock rose steadily to break the $500 mark.
More bad news for the value of Federal Reserve Notes comes from China. The Associated Press reported that Chinese gold consumption is set to grow 17 percent this year to a record 350 tons. Additionally, China’s foreign exchange reserves are thought to have eclipsed $1 trillion. Many economists believe that China will begin diversifying more of these funds into gold to hedge against our weakening currency. Gold is the most logical place for the Chinese to diversify their $1 trillion into and I’m surprised that they haven’t diversified more already. Even if the government doesn’t heavily diversify their holdings into gold, more Chinese are obtaining middle class status and the more that do the more gold they will buy. Unlike most Americans who insanely believe that defaulted paper receipts and illusionary digital credits on computers represent wealth, the Chinese actually understand how precious metals represent real wealth. It is no wonder why Ben Bernake and Hank Paulson are making a visit to China. They realize that if China starts diversifying into gold, they could have a hard time keeping the lid on the gold market and retaining any sort of confidence in our currency.
Additional bad news comes from Iran. Iran looks as if they may finally start using Euros to conduct oil transactions. Although not 100% official, a source from inside Iran’s Oil Ministry has said that they want to start cutting down U.S. currency based transactions. Below is an excerpt from a Bloomberg article which details Iran’s plans to use the Euro instead of U.S. currency for transactions.
Iran, the world’s fourth-largest oil exporter, plans to reduce its use of the U.S. dollar in world trade and increase use of the euro, two Tehran-based newspapers reported.
The Tehran Times said today Iran has started substituting euros for dollars in oil sales, citing an unidentified person at the Oil Ministry. Iran Daily reported Iran wants to cut its dollar-based transactions to a minimum, citing Minister of Economy Davoud Danesh-Ja’fari.
Iran’s policy of selling oil in U.S. dollars “has not changed yet,” said Hojatollah Ghanimifard, executive director for international affairs at National Iranian Oil Co., in a statement read to Bloomberg News from his office.
If Iran makes a serious move towards using the Euro, I wouldn’t be surprised if we see military action against Iran because of it. Saddam Hussein wanted to trade oil for Euros and we invaded his country. Another country that has talked about using the Euro in oil transactions is Venezuela and the mainstream media has all sorts of horrible things to say about Hugo Chavez. Either way, any Iranian move to the Euro is significant for the long term value of our currency and increases the possibility of a military conflict with them. Any sort of military conflict with Iran would be a disaster for our currency and would cause oil prices to rise over $100. Gold and silver would react in accordance with the rising oil price.
With all of these things happening, it is really tough to say what the Federal Reserve can do to prevent a currency disaster. Regardless of what the Federal Reserve does with the money supply it will be bad. If they keep or cut interest rates our currency will continue to lose purchasing power and inflation will run out of control. If the Federal Reserve decides to tighten the money supply to a point where they actually try to bring credibility to the currency the U.S. economy will suffer a complete meltdown and we could enter a depression. When you consider how much people are relying on debt instruments to maintain their standard of living, a major tightening of the money supply would be devastating. Either way the Fed decides to go, it will be bullish for precious metals. Chances are likely that the Fed is going to continue inflating the money supply until inflation really runs wild. When it is obvious that there are major problems with our currency that is when we will start hearing much more about a regional North American currency.
The American empire is in decline. Anyone who has the majority of their investments in U.S. bonds or Federal Reserve Notes is crazy considering all of the potential economic problems that we could face in 2007. Besides what we are up against with China and Iran our debt continues to skyrocket and the problems in the housing market are just starting. 2007 should be a big year for gold and silver and if you don’t have at least a portion of your portfolio in precious metals, I highly suggest diversifying some of your capital into those sectors immediately.
