Historic Reports
 

Larry Myles Reports

As Sovereign Freedom Leeches Out of Europe
….Days of Whine and Poses

As the global monetary system continues to stress fracture under its own weight, the volume of the background screech coming out of Europe is becoming intolerable. I have to hand it to the unseen and unelected oafs in Brussels; they cannot be faulted for the sheer size and scope of their Cirque de Effectus. All that is missing is the free bread and having the inside scoop on the number of gladiators participating in the final melee.

Fortunately, I am as deaf as an adder when it comes to what the over-reaching Keynesians have to say. As far as the Ludi Circenses, I can be better entertained by watching a rerun of my favourite Russell Crowe movie.

I also see little to gain from watching the lob of the ball as it moves from one side of the Atlantic to the other. But I see everything to gain by not ignoring the muzzled warning signals coming from the rating agencies; as I anticipate a series of rolling downgrades across Southern Europe. Also worth waiting for, the machinations by the European Central Bank as it wrestles with the inconvenient technicality of not yet being able to print more fiat currency; regardless of the current pose struck by Mario Draghi, the new head of the ECB. After all, no one can beat the European elite for polished nuance or Machiavellian theatre.   

The Fade of Salvation in Europe…Liberum Veto

The current and deeply flawed structure that is the European Union is reminiscent of Poland’s “Golden Liberty” (1573); a novel and grand attempt at a democratic system of government that included every member of the Szlachto (nobles) being deemed equal to one another. They enjoyed guaranteed rights and privileges – including a veto vote (liberum veto).  This type of veto allowed any member of the legislature to force an immediate end to the current session and nullify any legislation that was already in the works by standing up and shouting ‘Nie pozwalam’ (I do not allow!).

Apparently after 14  high-powered European summit meetings in less than two years, the EU has decided that ‘I do not allow’ was not good enough; with the result being what was referred to as the “breakthrough plan”. The markets were giddy (for one day) as the Wall Street Journal aggressively announced “EU Forges Greek Bond Deal”. The implication being that the EU has solved the problem of Greece going into default. Dare I pose a question after taking the time to read past the headline? Private investors are to take a 50% write-down on their investment. Is that 50% haircut just another way of admitting a Greek default?

At least the Europeans, rejecting past failures and misadventures, scraped together the semblance of a bare-bones plan, and after two years of wrangling, this could be considered a positive step by some. The European leaders, if not biting the bullet, are at least rolling it around on their tongues. They appear to finally recognize the recapitalization of the banking system is an absolute must, along with coming to grips that realistic write-downs of sovereign debts should also include iron-clad guarantees for any newly issued bonds.

Obviously this is not the end of the crisis as evidenced by the dislocation and chaos brought about by the latest Greek Folly; the ill-timed plebiscite followed by the hapless Greek Prime Minister George Papandreou being roundly condemned and publicly upbraided as he was forced to retract. 

Setting aside the distraction of some extremely entertaining theatre let us look at the stark reality. Greece remains in a bleak and unrelenting pit of debt with absolutely zero hope of climbing out of that pit.
 
Not to mention Portugal and its acute problem of a contracting money supply. This all comes at precisely the same time the rest of Europe is looking for an increase in liquidity. Take Italy for example; can it deliver on the promise of its deficit- reduction scheme while at the same time boosting growth? And I hate to be a nag, but what about Spain as it turns itself inside out trying to avoid looking like the penultimate chump nation for putting all of its mortgaged eggs into the green energy basket.

Any way you cut it, the EU continues to offer only whirling confusion as it tries to explain to the investment community their desperate and clunky formula to even make it appear they have found a way to pump $1 trillion into the European Financial Stability Fund (EFSF). All the while blithely ignoring the fact that even three times that amount will not be enough to keep the European Ship of Fool’s afloat.

For Those With a Relish For the Sublime

Now here is an evil thought: This obvious, yet unstated shortfall may be a deliberate act to allow the gnomes in Brussels to nudge Europe one step closer toward magically reaching a (terrible) decision. This would be to rescue the euro dollar through crisis and the threat of deflation, thereby allowing the ECB to temporarily set aside the obstacle of not being able to print more money. Of course the shadowy Keynesian juggernaut lurking in Brussels feel they will be able to control the rate of inflation. History has proven that although many have tried, no one has succeeded. But, they will succeed in deflecting the question from whether or not the European Union can survive, to whether the euro currency can survive.  And this is really the end game for Brussels. Reason: The trick will be to shock the peoples of Europe into believing that losing national sovereignty to an unelected ‘foreign administration’ (Brussels) is not particularly a bad thing. Huh?

American Numbers are Improving…Really?
A Breach of Confidence

I am not going encourage any vagrant mental wandering by wasting ink on fiction; government statistics that today may imply the U.S. economy is improving – only to be exposed two months later as numbers that were too optimistic, and are then rolled back into the realm of negative reality. Instead, let us review what we know for sure:  The U.S. economy is still the largest on the planet. The economy has not fully collapsed, but definitely remains in dire straits. Inflationary pressures are being experienced around the world, and it is only a matter of time before the rising prices in America jump the fence from being considered merely annoying, to muscling into the realm of the everyday decision making process. Evidence: The National Inflation Association predicts that by 2012, Americans will be spending nearly 40% of their income on food. Buying a house will remain only a dream as the national narrative slides into tips on how to pay rent and keep your family fed.

Something else we know for sure; America promised to be the guardian nation of the world’s reserve currency, and as such, owns the responsibility of practicing prudence about how much debt the country takes on.  I think we can all agree that America has broken that promise, and has turned morally and monetarily into an unscrupulous adventurer. We can also all agree that Ben Bernanke and the Fed have put America’s future into a box. The (relatively) modest debt load that began to slowly accumulate during the 1980’s, grew willy-nilly through the 1990’s, and has now spiralled totally out of control. As a result, the Fed has been able to initially create and then sustain an illusion! Their pitch being, that by allowing the free market forces to impact the debt would be counter-productive and result in a prolonged period of intense deflationary pain.

For decades, Washington has aided and abetted the Fed position by suggesting that the best America’s producers could do was to keep their heads down and work hard, while financial experts in the nation’s capital come up with new and novel ways to service the debt. But here we are in 2011 and facing the perfect storm; namely an administration that is blatantly anti-industrial, and instead of greasing the American production treadmill, they are attempting to dismantle it.  Must be tough on the Fed to have such a dubious ally in the White House! As fate would have it, Bernanke is turning himself every which way but free, looking more defeated every time he faces the media.  “Helicopter Ben” is saddled with a president that consistently misses the can he claims he is trying to kick down the road, all the while mumbling something about a murky and elusive economic recovery.

Thus far, the measures taken by the Federal Reserve to assist the recovery have not been able to nudge growth, significant or otherwise in the American economy. Pointing at the dismal growth figures in Europe as adding a further drag on America’s unemployment numbers he issued a warning to Congress that budget cuts could affect economic recovery around the world. On cutting taxes, he remained silent!

He continued to repeat his earlier statements that the Federal Open Market Committee would continue to monitor economic progress closely and he would be prepared to take ‘additional steps’ as may be appropriate to jump start an economic recovery.

Vague generalities, campaign jingoism and broken promises are all the Fed and the current regime in Washington can offer.  Sadly, it is their only alternative to an unavoidable and cataclysmic collapse of the American economic system. What we as individuals can do to protect and grow our wealth is another matter entirely. Remember: Part of our reality-based investment strategy is to plan for the worst but hope for the best. The American election is still a year away and although it appears America will vote in a more pro-American and pro-industry government; but what happens if this is not the case? Inflation will hardline and people will pay whatever it takes to buy precious metals as the value of the U.S. paper dollar drops off a cliff. Already more and more of the American herd is learning that gold is a currency, not a speculative investment.

Speaking of (broken) promises, let us revisit the unabashed insolence of promises made to the American people by Franklin D. Roosevelt:

Franklin Roosevelt rode into Washington on a political white horse in 1933, capitalizing in a huge way on the mistakes of his predecessor. He rode into town on the platform of reducing government spending by 25%, a balanced Federal budget, and a gold currency that would be defended at all costs. That was the platform. Also on the platform was the removal of the Federal government from all issues that would be better handled by private enterprises and the ending of the disastrous and terribly inefficient Hoover farm subsidies. You can do the research for yourself; this is what FDR promised when he ran for President. It all sounded very good. America got none of it.

A Settled Conviction of Reality and Success

Ignoring the benign and hopeful poses struck by government leaders and the constant drone and whine of the fiat currency crowd, consider these reality-based facts:

• Every minute of every day the central banks of the world put out an additional $2 million in new currency, while during the same time period the world’s mines produce 90 ounces of gold. 
• The Singapore government continues to advise people to invest in physical gold.
• The government of China continues to aggressively advise their citizens to buy physical gold and silver; raising the currency metal profile by announcing plans to initially install 2,000 vending machines to dispense gold coins.
• Hong Kong has witnessed a tripling in demand for physical gold. 
• India continues to meet the demand for physical gold with an all-encompassing network of post office outlets set up to distribute physical gold. The original number of outlets (two dozen) has grown to 700 and that number is expected to increase.
• October 2011, the Chicago Mercantile Exchange (CME) raised by a factor of 150% the amount of physical gold customers could use as collateral. The CME is on record as saying gold is now the most stable and powerful form of cash.
• Qatar plans to make a massive gold investment ($10 billion). The Qatari Wealth Fund seeks to invest in reality-based resources, but has clearly stated that owning physical gold is the fund’s number one strategy.
• The U.S. Mint has sold almost 33 million ounces of silver this year through the end of September. The projected 2011 physical sales of silver are as much as the first six years of physical silver sales from 1986 through 1992.  

Going 'all in' With our Forecast
…gold is in a bull market that is indefatigable

Remember: The dangers and pitfalls of a complete economic collapse in America (and around the world) are very real. Those who decide to invest in physical gold are guaranteed to profit. It is as simple as that! As discussed, printing presses churning out money guarantees inflation.

The world’s reserve currency is declining not only in value – but in trust. The threat of economic collapse in the world’s largest economy will be viewed as the largest collapse in the history of the world, and anyone astute enough to have turned to gold and silver will not only profit – but survive!

The Undeniable Truth Of Junior Gold Stocks

Junior gold companies are cheap! It is really that simple. Relative to the price of physical gold, the gold juniors are at their lowest levels since the crunch of 2008. And remember what happened after even a few of the brave investors came out of their shock and started researching the quality companies that were trading at bottom-feeder prices? They benefitted from the ensuing soaring market and many of those under-priced companies rose dramatically, far outpacing physical gold’s strong gains. If we agree the indefatigability factor of gold in the current market environment, then it only stands to reason the upward bias for gold will soon translate into a renewed impetus for the junior gold sector.  As long as we always remember that we speculate in the shares of the junior gold companies, but not in gold coins and bars – those we keep!

Larry Myles
Larry Myles Reports
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Larry Myles is neither a geologist nor a financial analyst. I do not purport to offer personal investment advice nor recommendations. While all statements of fact are derived from reliable sources, and are believed to be accurate, I make no warrant that they are so. You must do your own research and check statements of fact for yourself. My opinions are precisely that, my opinions. I do not accept any responsibility for any gains or losses you may experience resulting from actions taken based on my opinions. If not otherwise qualified, you should consult with your own personal financial advisor before engaging in any investment activities. Larry Myles Reports does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Larry Myles may actively trade in the investments discussed in this publication. Larry Myles may have a substantial position in the securities recommended and may increase or decrease such positions without notice. I do not know your personal financial circumstances. I am not your personal financial advisor. You must do your own due diligence. By entering this web site, or reading LMR reports, you acknowledge and accept the foregoing.