2/15/10 Thoughts On Why Silver And Gold Explode This Year

Precious Metals Market Analysis, By Michael Pennington (Copyright 2010 Pennco Coins)

1.    Bankrupt States – If you think Greece has a problem, you’re right, but even worse is the bankruptcy of California, New York, New Jersey and many others. Of course, the federal government will have to bail them out but they will have to cut entitlements to those who need them most.

2.    Residential Housing Catastrophe – Another foreclosure record is here and things aren’t getting any better. The number of those just walking away from their underwater homes is still increasing. What’s worse is the tsunami of Adjustable Rate Mortgages that are on their way and will shove millions more households into default and foreclosure. Meanwhile, local and regional banks are choking on real estate already in default that they are afraid to foreclose on and have been keeping off the market through 2009 in order to not send the price of houses down further and put even more households “under water” for houses worth much less than the face value of their mortgage. I doubt that the banks are doing this out of the goodness of their hearts, but whatever the motive, this racket of just sucking up bad loans can’t go on forever. At some point, a banking system has to be based on credibility, on loans actually being paid back, or it will break, and we are close to the breaking point.

3.    Commercial Real Estate Loans –  The vast oversupply of malls, strip malls, office parks, and other furnishings of the expiring “consumer” economy is about to become the biggest liability that any economy in world history has ever seen. Who will even want to buy these absurd properties cheaply, when they will never find any retail tenants for the badly-built structures, nor be able to keep up with the maintenance (think: leaking flat roofs), or retrofit them for anything?  When driving through your town just watch the number of “For Lease” signs popping up everywhere.

4.    Rising Price of Energy – The price of oil starts this week over $83 a barrel. That puts it about $1.50 from the price “danger zone” where it begins to kill economic activity in the USA. Things and procedures just start to cost too much. One especially eerie situation the past few weeks has been the decoupling of moves upward in oil from moves in the value of the dollar. Lately, oil has been going up whether or not the dollar has gone up or down.  This very well could be the year that we conclusively realize that world oil demand exceeds world oil supply, and that global oil production cannot hold above 85 million barrels a day no matter what we do.

5.    Eurozone Collapse – The economic crisis is now officially a global phenomena. The promoters of globalization have managed to tie the welfare of all nations to each other. If one or two collapse, there’s a good chance all collapse. On the other hand, if Germany bails out Greece, it just makes the problems in Europe worse. Greece stops trying to fix itself, and every other broke European country knows they can have a bailout, too. They also stop austerity measures. And meanwhile, the debt burden is still there. It hasn’t gone away. They’ve just pushed the default farther into the future.

6.    Currency Devaluations – All currencies are headed in one direction: down as a storehouse of value. We hear weekly that China needs to adjust its currency. Venezuela has already devalued as well as several other currencies. Gold is the only storehouse of value. Gold has demonstrated that clearly even in the face of the Crimex and the gold banks fighting it. As currencies fall, gold rises. Which would you rather own?

Anyway, the grotesque carnival of rackets and lies that the US economy has become – held together with the duct tape of stimulus cash, gamed accounting, mortgage subsidies, carry trades, TBTF bailouts, TARPS, TALFS, shell-game BLS reports, and MSNBC “green shoots” cheerleading – gives every sign of tipping into collapse at a moment’s notice. There are just too many obvious things that can go wrong, and that means there are many less obvious, hidden things that can go wrong, and isn’t it tragically foolish to tempt Murphy’s Law, since it operates so well without any help from us? The call is even going out lately for criminal prosecution of the current Treasury Secretary, Mr. Geithner, for engineering AIG’s $14 billion credit default swap payoff to Goldman Sachs as part of the AIG bailout. Okay then, why not Paulson, Bernanke, Blankfein…?

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