Archive for July, 2011
July 29, 2011
ProActive Investors UK
Sovereign debt worries here in Europe and in the US could push the gold price up to US$2,500 an ounce, and possibly even as high as US$5,000 ounce, according to research from Citigroup.
Today gold is changing hands at over US$1,600 an ounce as investors beat a retreat into a safe-haven “hard asset”.
And analyst Heath Jansen likens the current, seemingly inexorable rise of precious metal to the bull run of the 1970s and 1980s.
“When investors are hungry for gold, the metal has a habit of rising exponentially which has no parallel amongst metals,” he said in a note to clients.
“While base metals still have to adhere to some form of analysis along the lines of “supply less demand = inventory”, gold has decades of inventory lying in Central Banks and so that consideration doesn’t enter the equation, unless banks wish to sell that inventory.
“The last time they did that, and swapped their hard-asset gold for cash, it turned out to be the wrong option.
We do not believe that they will go that route in a hurry again. In fact, we believe it is that hard-lesson learned which makes them even more keen holders of gold and this has tightened up the market significantly.
“Added to that, equity investors nowadays often express dissatisfaction when gold companies hedge their gold and so that big negative, prominent in the nineties, has also been removed.
He singles out Randgold (LON:RRS) as its favoured equity play in the sector and jumps on the apparent disconnect between the lacklustre valuations of the miners and the precious metal’s sparkling performance on the commodities market.
“On a worst-case scenario for Euro sovereign debt and USA fiscal problems, we believe gold could repeat the extent of the 1970-1980 gold bull market, implying upside-risk to above $2500 an ounce,” Jansen added.
“A short-term (but not long lasting) large spike in gold is still possible in our view. We would now rate that probability as above 25 per cent, up from below 5 per cent just weeks ago (because of increased sovereign financial issues), and growing.”
This in turn ought to give a significant boost to the UK gold producers, which have underperformed the gold price and global gold equities.
The reason for this underperformance is put down to company-specific factors. For example, Randgold derives 20 per cent of its asset value from the Ivory Coast, which Jansen describes as a “tense political geography”.
Centamin (LON:CEY) and European Goldfields (LON:EGU) are discounted for the tough backdrop in Egypt and Greece respectively, while Tanzania is the major drag on African Barrick Gold (LON:ABG), he adds.
“These issues have contributed to the UK gold miners’ underperformance against the gold price and global gold equities,” Jansen explained.
“It also appears that investors do not view the current gold price as sustainable and are therefore not factoring current prices into the earnings estimates of the gold miners.
“However, based on the analysis presented in this note on the direction and magnitude of possible gold price movements, there could well be a swathe of earnings upgrades to come and a corresponding share price reaction, should gold prices maintain current strong levels or rise even further.”
Jansen even runs scenarios where the gold price could conceivably go to US$3,800 or US$5,000.
“It is difficult to argue that gold is going to $5,000 an ounce on the basis of equivalence with the seventies bull market. However the drivers are the same – the debasement of fiat currencies as a store of value and fear over the outlook for the global economy,” the analyst said.
“Given the historical role of gold as a storage of wealth, perceived devaluation in the purchasing power of fiat currencies translates into demand for the what is essentially the ultimate global reserve currency. It is not illogical then, to ask what conditions are needed to drive gold up to and even past this level.”
Citi’s is the latest in a long list of research which looks at the gold price and the underperformance of stocks in the sector.
Earlier this week, Investec’s Mark Heyhoe released ‘buy’ recommendations on a number of gold miners that have not been hitting the mark operationally, but are now expected to catch up.
They included Randgold, African Barrick Gold, European Goldfields and Centamin Egypt.
The analyst said: “We have a positive outlook on all companies, but stress that each company offers its own particular attraction to investors.”
Before that heavyweight Bank of America Merrill Lynch said it believes that bullion prices are sustainable between $1,500-2,000 an ounce in the medium term.
Like Investec, Merrill said there is ‘compelling scope’ for catch up trade for a number of gold plays.
Its favourite ‘buys’ are Centamin, Petropavlovsk (LON:POG), African Barrick, Randgold, and European Goldfields.
Ambrian Capital’s Duncan Hughes singles out Avocet Mining (LON:AVM) as his top pick in the gold sector.
Among the small-caps Archipelago Resources (LON:AR.), Condor Resources (LON:CNR), Hambledon Mining (LON:HMB), Mwana Africa (LON:MWA), Nyota Minerals (LON:NYO) and Vatukoula Gold Mines (LON:VGM), catch his eye.
Read the entire article HERE.
By Chris Martenson PhD
For the record, I still believe that there will not be a breach of the debt ceiling and no overt default for the US. Things will be worked out in the nick of time, like they always are.
However, the media is full of articles wondering about what ‘investors’ might do in response to a US default and/or credit downgrade. What will happen to Treasury prices? Will they go down as investors dump them en masse in response to a credit downgrade forcing interest rates to climb?
It’s a big question and the most likely answer is “No, not really”. Partly because these so-called investors have been well-conditioned to believe that another bailout is always around the corner, but mainly because they have nowhere to go.
The big money is trapped.
For example, imagine that you are in charge of a money market fund with $100 billion under management and your job is to both cover your expenses and assure a return for your depositors and you are heavily invested in US Treasurys. Or imagine that you are in charge of a public pension with $200 billion under management with the same basic concerns of managing expenses and delivering returns and a heavy exposure to US Treasurys but with a much longer time horizon.
In either case, in light of the possibility of a US default what would you do? Where would you put your money right now if you were suddenly of the mind that the $50 billion you had in Treasurys should be placed somewhere else? In reality there are not that many places to quickly move such large sums of money. Further, there might be fiduciary restrictions that limit your investment options to regions, securities types and/or ratings grades or there might be a minimum liquidity requirement for the investment pool.
So let’s imagine that you have to make very large and important financial decisions and that you have to put your money to work; it’s either an actual fiduciary or operational requirement of yours. An excessive amount of cash is not an option and neither are hard assets such as land, gold or silver. Where would you put it? What realistic options exist? It turns out there are not that many.
The Treasury market is the largest and most liquid in the world, by far. For many big money funds there really aren’t any realistic options other than the Treasury market, and this present reality will limit the market reaction to any downgrade.
A Foul Choice
With interest rates on ‘safe’ sovereign debt at or near zero on the short end, and well below the rate of inflation on the long end, safe bonds offer a negative real yield (meaning a yield below the rate of inflation). This is a compounding disaster for everyone but especially for pension funds with their longer time horizons. Worse, we now know sovereign debt can no longer be considered safe (even the US is facing a downgrade threat) - which means that on a risk-adjusted basis, the returns are even more unattractive than the negative real yields on offer.
On the surface, the choice that Bernanke has engineered for investors is between guaranteed losses via the miracle of negative real compounding and taking on more investment risk. But he’s managed to combine both negative returns and risk into a very unattractive investment brew.
Most big money funds have opted to take on more risk rather than suffer such low returns (and who could blame them?) and have done so by going to where the yields happen to be. This means buying up corporate paper and European debt, both of which have far more risk than their nominally more attractive yields would imply. For individual investors, especially savers and those living on small incomes tied to interest rates, the negative interest rates have been especially difficult if not an outright disaster.
Once again, we can thank Ben Bernanke et al for driving interest rates into punishingly-low territory forcing everyone with a desire or responsibility to save and invest to either lose to inflation or to take on more risk.
Part of the goal behind ultra-low interest rates was to drive money back into the stock market, which the Fed has been specifically and openly targeting in both word and deed. It is a well known fact that low interest rates are supportive to the stock market and so far that strategy has worked.
On the flip side of this success is the fact that a lot more risk has been forced into the system. When prices are artificially distorted to the upside for stocks or bonds, then it is axiomatic that risk becomes mispriced.
Having to choose between mispriced risk and negative returns is truly a foul choice indeed.
The Deficit Theatre
All of this brings us to the current sad state of affairs now put into high relief by the deficit talks in DC, which more properly should be viewed as political theater rather than a legitimate attempt to square the federal budget up with reality. If the talks were truly legitimate, then on the expense side everything would be on the table, especially and including defense spending and a balanced budget amendment would not be a source of contention but a mutually agreed upon goal.
Instead the Democrats are willing to entertain higher spending cuts in the vicinity of $250 billion per year as long as they can have a debt ceiling increase that would get them safely past the 2012 elections. Conversely, the Republicans as represented by Boehner are ready to concede to relatively meaningless spending cuts in the vicinity of $100 billion per year as long as they can force the debt ceiling to be an issue for the 2012 election cycle:
Mr. Reid, the Senate’s top Democrat, was trying Sunday to cobble together a plan to raise the government’s debt limit by $2.4 trillion through the 2012 election, with spending cuts of about $2.5 trillion. He would seek to avoid cuts to entitlement programs, but it was unclear how those savings would be achieved.
Notably, the plan does not currently contain any new or increased taxes, an approach that many in his caucus would probably balk at.
The contours of Mr. Boehner’s backup plan were far from clear, but it seemed likely to take the form of a two-step process, with a short-term increase in the debt limit along with about $1 trillion in cuts, an amount the Republicans said was sufficient to clear the way for a debt limit increase through year’s end. That would be followed by future cuts guided by a new legislative commission that would consider a broader range of trims, program overhauls and revenue increases.
(Source – NYT)
Just looking at the proposed levels of deficit reduction, whether it’s $1 trillion or $2.5 trillion, neither plan will drop the deficit enough to prevent the US from slipping deeper and deeper into the red. The true drivers of the debate, such as they are, center on political advantage and power. Count us among the unsurprised at this turn of events.
It would be nice – essential even – to have enough information to go on to really assess the true dimensions of the deficit reduction proposals but, even for a committed analyst like myself, there’s just too little detail to make a decent analysis of any of the competing packages.
However, we can be almost certain that their baseline assumptions about GDP and revenue growth that undergird the putative future deficit levels are unrealistic. They always are in these sorts of circumstances, which means the amount of future savings being bandied about are unlikely to be as robust as claimed.
For example, the most recent CBO budget projections (the foundation upon which the deficit reduction proposals are most likely built), assume that over the next 5 years (2011 – 2016) that revenue will grow at a compounded rate of 11.4% per annum(!), expenses by 3.9% and GDP by a whopping 4.95%.
These assumptions are just silly. Costs have risen much faster, and revenue and GDP far slower, over the prior five years, and if these pie in the sky projections do not come to pass then all of the deficit numbers will blow out to the upside in those future years.
For example, if we assume that GDP growth is 2.5% per annum instead of nearly 5% (and that revenues are tied to GDP),adn that revenues will therefore ‘only’ increase by 5% per annum (both completely reasonable assumptions at this stage) then the additional cumulative deficit that will accrue between 2011 and 2016 is $2.7 trillion dollars.
That will completely eliminate all of the projected savings from even the most agressive of the proposals on the table. Is this unlikely? No, in fact these are a far more defensible set of assumptions than those currently being put forth by the CBO.
To really make a mockery of the current budget projections, there is absolutely no chance of the government both cutting its share of GDP by 2% per year and having the GDP grow by nearly 5% per year. Implied is a rate of economic growth in the private sector that would be truly extraordinary. Further, there is no chance of revenues climbing by more than 11% per year over the next five years without an enormous increase in taxes, which neither party is currently proposing.
In short, without knowing the underlying assumptions that are driving the projections, we cannot say much about the proposals themselves. All I can tell you for sure is that for as long as I have been crunching government numbers, taking their rosy projections and cutting them in half has always been a reliable and reasonable starting point.
A Dawning Awareness
What should not be lost on anyone is the degree to which some of the biggest names in the financial world are starting to openly question fiat money and the entire system of debt itself. They’re even doing it on TV, in prime time and on the op-ed pages of the largest newspapers.
Again, by the time we are seeing such open questioning of the very firmament of the entire system, this tells us something about how far along in the narrative we really are. Just a few years ago such talk would have been relegated to the very fringes of the blogosphere.
Here are a few recent examples:
As Washington dithers over raising the nation’s debt ceiling, investor confidence is flowing away.
“The issue is not just whether Moody’s or Standard and Poor’s were to downgrade (U.S. Treasury debt), it’s whether the market decides to downgrade,” said Rochdale Securities bank analyst Richard Bove.
“If they lose faith in the Congress and the government to, in essence, create a solid security for the buyers of that security, then you get the downgrade,” he said.
The sentiment was echoed overseas, where many countries hold U.S. Treasuries as an investment. “An adverse shock in the United States could have serious spillovers on the rest of the world,” warned Christine Lagarde, the managing director of the International Monetary Fund.
“We live in a highly interconnected international financial world that is really based upon confidence,” said financial services industry lobbyist Paul Equale.
“And without confidence, both domestically and internationally — that the United States is mature enough and has a system that can handle making the big decisions — without that confidence we’re going to see things like the dollar becoming less important as the world’s reserve currency.“
Debt-based fiat money relies on multiple levels of confidence. There has to be confidence that the money will not be over-produced in response to every perceived crisis (oops), that its allocation is justified and fair to all parties when it is placed into circulation (oops, again), and there has to be confidence that the future will be exponentially larger than the past to justify ever-increasing levels of debt (this is the big ‘oops’).
We are drawing ever closer to the recognition that endless growth is simply neither possible nor a reasonable expectation. There are even doubts now that growth as we’ve recently know it will return for one last cameo appearance over the next five to ten years.
With the evaporation of that all-important narrative of growth, everything else becomes immediately suspect, especially money itself.
Sometimes you will hear or read someone exclaim that ever since the slamming of the gold window in 1971 that US dollars are not backed by anything. This is not true, they are backed by debt. Debt is an incredible motivator and assures that the person, entity or country under its yoke will dedicate some portion of their productive efforts towards servicing that debt.
Another Big Round Number (and a Nice Symmetry)
On August 15th 2011 we experience the 40th anniversary of the slamming of the gold window back on the same date in 1971. Perhaps we should all bow our heads and have a silent moment to mark the occasion.
Interestingly, that’s almost exactly the date, give or take a few days, on which the US treasury will run out of money here in 2011:
“We don’t think there will be a default,” Ahrens, head of U.S. rates strategy for UBS in Stamford, Connecticut, said yesterday in a telephone interview. He estimates the Treasury has enough cash to make all payments until Aug. 8-10.
Forty years between a final abandonment of the last vestige of external restraint on money/credit creation and the dawning recognition that the US has simply gone too far, spent too much, and is now in an enormous fiscal predicament. In the annals of history that’s just about right for the lifespan of a purely fiat currency.
Mark the date on your calendars: we’ll certainly be observing the anniversary here at ChrisMartenson.com. Forty is a big, round number and therefore important.
So what’s likely to happen to the dollar and key asset classes in the aftermath of the looming August 2 deadline? In Part II of this report: What Should Happen and What Will Happen we analyze the probable future direction of stocks, bonds, precious metals, commodities, real estate and other assets. Additionally, we assess the odds of a resumption of quantitative easing by the Federal Reserve, and what changes to the picture that will cause when/if it occurs.
Read the entire article HERE.
by John Williams
The Gold Report
The Gold Report: Unless Congress approves and President Obama signs an increase in the $14.29 trillion debt ceiling, the U.S. Treasury is set to begin defaulting on payments starting August 2. That threat launched months of competing big deals to cut spending and/or raise taxes. To add to the pressure, in mid-July the credit rating agencies Moody’s and Standard & Poor’s threatened to downgrade the U.S. credit rating from its historic AAA status if the debt limit isn’t raised in time to avoid defaulting on interest and bond payments. That could raise interest rates for the government and trickle down to consumer mortgage loan and credit card payments. John, what kind of deal would be good enough to satisfy bond rating agencies and avoid a double-dip recession?
John Williams: First of all, the chances are nil that the government actually will default. There is some talk that if the debt ceiling were not raised by the August 2 deadline, the government could avoid default for a while by playing games with its payments—pay interest and debt first instead of paying other obligations. That could trigger a rating downgrade, if one had not occurred otherwise. Also, I don’t think global investors would view non-payment of general obligations as a plus and could engage in dumping the dollar. I think Congress will agree, however, to something by the deadline. I have no expectation, though, that the deal will be of any substance; nothing that has been proposed would improve U.S. fiscal conditions meaningfully.
A country’s credit rating is a measure of the risk of debt default. The U.S. dollar, as the world’s reserve currency, is considered the benchmark instrument for an AAA rating. That generally is considered the riskless category. It would be very unusual for rating agencies to downgrade a benchmark. Yet the credit rating agencies now are seeing risk of a U.S. default and are talking a possible downgrade of U.S. Treasuries. A downgrade would have about as much negative impact as an actual default. You don’t want to see a downgrade. You don’t want to see a default. Those actions would have all sorts of implications, very negative implications for the financial markets, particularly for the U.S. dollar. You would see heavy U.S. dollar selling and dumping of U.S. dollar-denominated assets such as Treasury bonds. You would see a spike in dollar-denominated commodity prices such as oil. Gold prices would rally sharply, as would silver, as traditional hedges against inflation.
TGR: Is printing more money really what the government is going to do to pay its debt?
JW: That is what countries that spend beyond their means usually do if they can’t raise adequate tax revenues. I can tell you that the current government cannot raise enough taxes to bring the actual deficit under control. It could tax 100% of income, take 100% of income and corporate profits, and it would still be in deficit. In terms of generally-accepted accounting principles (GAAP) that include annual increases in the unfunded liabilities on a net present value basis, the U.S. is long-term bankrupt. A true balanced budget approach would require excessive overhaul—I’m talking massive cuts in the social programs because cutting every penny of government spending except for Social Security and Medicare would still leave the country in deficit. We are spending well beyond the bounds of reason in a number of areas. The country just does not have the ability to pay for all the services it provides.
TGR: In a July 14 commentary, you said that, “In the event of an actual default or downgrade, the United States position as the elephant in the bathtub of sovereign risk likely would cause the dollar to plummet against all major currencies irrespective of any ongoing concerns related to Euro-area debt.” What would this mean for the U.S. dollar and the price of gold going forward?
JW: Already stocks are down because the markets are frustrated with the lack of a deal. The U.S. is such a large player in the world markets that if the dollar is downgraded, the impact will be felt globally. The dollar should sink against most major currencies, including the euro, and gold prices would experience a big bump up. It should be very positive for gold long term. It doesn’t mean that Central Banks aren’t going to intervene and that the Treasury or IMF are not going to try to keep gold prices down. But, over the long haul, you’ll see much higher gold prices.
TGR: What would default or downgrading mean for the dollar?
JW: If the U.S. defaults or gets downgraded, that likely will end the U.S. dollar as the global reserve currency. That’s not a viable option for the United States. People involved with getting the country to that point should be removed from office. If you are the most financially powerful country on earth, you don’t fool around with your creditworthiness.
TGR: So, if the dollar isn’t the benchmark, would it be the euro? Would it be the yen? Would it go back to a gold standard? What would happen?
JW: It would probably revert to some kind of a basket of currencies, probably including gold. The dollar would tend to suffer against the new benchmark and gold would tend to increase relative to the dollar in such a circumstance. But I can’t tell you exactly what would happen.
TGR: The new European Union plan for reducing the debt burden for Greece, Ireland and Portugal offers longer-term and low-interest loans and allows some bonds to go into temporary default. Does that set a precedent? Will it contain Europe’s debt crisis?
JW: The euro never should have been put in place. Anyone who ever thought that the Germans and the Italians could coordinate fiscal policy didn’t know the Germans and the Italians very well. The euro would have been disbanded or at least realigned by now if we weren’t in the middle of a systemic solvency crisis. The European Union will do anything to keep Greece afloat, as long as it is viewed as a threat to systemic solvency. Once the system stabilizes, I’d expect to see a breakup of the euro.
TGR: In our conversation with you last January, you talked about the difference between the true deficit and the cash-based deficit published by the government. What is the true deficit and what can be done to deal with that?
JW: The GAAP-based deficit is running around $5 trillion a year right now. That includes the numbers popularly looked at in the press and the year-to-year change in the unfunded liabilities for Social Security and Medicare adjusted for the present value of money.
To bring the true deficit into balance, there is nothing that can be done short of slashing Social Security and Medicare programs, and I see that as a political impossibility. Again, I mention the entitlement programs here, because you could eliminate every penny of government spending except for Social Security and Medicare, and the government still would be in deficit.
TGR: One of the other things that we’ve discussed with you before is quantitative easing (QE). Federal Reserve Board Chairman Ben Bernanke said there will be no more quantitative easing. In your July 8 commentary, you said the Fed will likely find the markets and banking system pressuring it into some form of QE3. What form might that take? And, how might that impact the dollar and precious metals?
JW: Well, Mr. Bernanke hemmed and hawed about the status of QE3 at his Congressional testimony earlier this month. The economy is weak enough; he will use that as an excuse. I can’t tell you exactly what the Fed is going to do. I imagine it will go back to buying Treasuries, once the debt ceiling is raised. That will cause weakness in the dollar and strength in gold. Generally, anything the Fed does to debase the dollar, which it continues to do on an ongoing and very deliberate basis, means higher gold.
TGR: So, what is your prediction for the final solution?
JW: In terms of the debt ceiling, the solution is going to be to continue raising the debt ceiling. Either that or eliminate the debt ceiling. I don’t know what can be done politically on either side there. But, the government is committed to certain obligations. It doesn’t make sense that it wouldn’t follow through and borrow the funds to pay what it has already committed to spend. As to bringing the U.S. fiscal circumstance under control at present, there simply is no political will by the president or by the aggregate sitting Congress to do so.
TGR: Isn’t it strange that instead of having this debate when they were voting about the budget and whether to spend the money, they are talking about it when it is time to pay the bill for the spending decisions already approved?
JW: No, we’re just dealing with a group of individuals in Washington who are politicians first, second and last. Most of them have very little real interest in the nation’s fiscal condition. They are looking at getting reelected and serving their special interests wherever they can. That has been evident to anyone who has watched the system in recent decades. There are some new, good people in Congress, but not enough to change things, yet. As Congress stands right now, there is no chance whatsoever of putting the U.S. fiscal house in order.
TGR: You look at a lot of numbers. We have really only talked about the debt limit. Anything else that you would like to leave us with that could impact the price of gold?
JW: Well, I think you have covered them. You are going to see ongoing weakness in the economy. The government is going to respond with more stimulus before the 2012 election, despite the so-called efforts at reducing the deficit. The Fed is going to ease liquidity more. All those actions to address the economic problems will tend to be inflationary, and that is generally positive for gold.
Read the entire article HERE.
By Pham-Duy Nguyen and Maria Kolesnikova
Jul 27, 2011 7:36 AM PT
Gold futures rose to a record $1,631.20 an ounce as the impasse on the U.S. debt ceiling boosted demand for the precious metal as a haven.
The cost of insuring U.S. debt rose to a 17-month high, and the dollar fell to a record against the Swiss franc as congressional leaders offered competing budget plans. Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have said they will cut the U.S.’s top-level credit rating should a failure to raise the debt ceiling lead to a default.
“Government securities, the traditional area of safety, are now at risk, so that’s why you’re seeing gold grind higher,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “The level of U.S. government borrowing has caused the erosion of the dollar and adds more fuel to the metal’s rally.”
Gold futures for December delivery rose $8.90, or 0.5 percent, to $1,628 at 10:33 a.m. on the Comex in New York. In July, the price has climbed 8.3 percent, heading for the biggest gain since November 2009.
Holdings of gold in exchange-traded products rose 0.3 percent to a record 2,128.229 metric tons yesterday, data compiled by Bloomberg show.
Silver futures for September delivery rose 57.7 cents, or 1.4 percent, to $41.275 an ounce on the Comex.
Platinum futures for October delivery gained $8.80, or 0.5 percent, to $1,816 an ounce on the New York Mercantile Exchange. Palladium futures for September delivery climbed $8.35, or 1 percent, to $844.45 an ounce.
Read the entire article HERE.
Yes, indeed it is. While everyone and their grandmother is foaming at the mouth how both republicans and democrats hiked the debt ceiling for umpteen times over the past x years, the truth is that never before has the ratio of the proposed debt ceiling to the tax receipt ratio been as high as it is now. At nearly 6 times, this means that the top line (forget bottom line) cash inflows into the Treasury are 6 times lower than the current debt ceiling. And following the upcoming $2.5 trillion this number will surge to almost 8 times. So please ignore the next “pundit” who is complaining about the hypocrisy of not agreeing to an outright debt ceiling hike this time around – as usual they have no idea what they are talking about.
(Click Image for Larger View)
There is however one correlation that will continue to trend at 1.000:
(Click Image for Larger View)
Read the entire article HERE.
Jim welcomes Eric Sprott, Founder of Sprott Asset Management back to Financial Sense Newshour and discusses silver manipulation, and why he sees silver as the investment for the next decade.
Eric has accumulated 35 years of experience in the investment industry. After earning his designation as a chartered accountant, Eric entered the investment industry as a research analyst at Merrill Lynch. In 1981, he founded Sprott Securities (now called Cormark Securities Inc.), which today is one of Canada’s largest independently owned securities firms. After establishing Sprott Asset Management Inc. in December 2001 as a separate entity, Eric divested his entire ownership of Sprott Securities to its employees.
Audio Link HERE.
by Tyler Durden
07/26/2011 18:01 -0400
Morgan Stanley has released its comprehensive quarterly metals outlook update for Q3, which while traditionally furiously wrong in its price targets for the assorted metals under consideration, represents one of the best reference materials for the underlying fundamentals behind each hard asset including base and precious metals, steel and bulk commodities, mined energy, rare earths, even such arcania as zircon and titanium dioxide. We suggest readers avoid the conclusion by Morgan Stanley which ultimately will be based on the firm’s prop trading bias, and instead focus on the key supply/demand mechanics in any given product. For the sake of reference, we break down MS’ outlook on gold, silver due to the special place these hold in the modern geo-political and voodoo economic discussions.
Investment demand is strengthening again…
- Identified and implied investment has become the main driver of demand in the gold market over the past decade and has become essential to absorb the fundamental surplus resulting from mine production, secondary supply, any net sales from central banks and producer hedging, and the long-term decline in jewellery fabrication demand.
- As the transparency of reporting of bar hoarding demand has increased along with the growth in physically backed ETF demand, the depth and structure of the physical investment market has become more visible. In our view, assessing the sustainability of this investment flow has become critical to the gold price outlook.
- According to GFMS, total identifiable investment demand for gold reached a record 1,514t in 2011, or 1,675t if implied investment demand is included, for a new annual record of US$66bn.
- More dramatic growth in investment demand for gold can be pinpointed to 2008-09 and the global financial crisis, which raised serious concerns about a debt deflationary spiral and the long-term purchasing power of the world’s major fiat currencies, especially the US dollar and the Japanese yen.
…as sovereign debt concerns highlight fiat currency risks
- More recently, a sharp rise in inflationary pressures partially driven by a surge in oil prices since February 2011 and the growing risk of sovereign debt default in peripheral countries of the Eurozone have given added impetus to investment demand growth as the fear of sovereign debt contagion has also raised questions over the long-term future of the euro.
- Even more recently, the impending threat of technical default by the US government if the government debt ceiling is breached, and the associated risk of a sovereign debt rating downgrade if a satisfactory long-term debt reduction program is not established have added to investor concerns about the long-term outlook for US treasuries and “risk-free assets.”
- In these circumstances, we expect the long-running bull market in gold will receive further impetus, even if there is no return to QE in the US. However, QE3 is a potential further upside risk to prices in the current environment.
- A further illustration of the growing quasi-monetary role of gold in the current global financial environment has been the persistent trend in official sector sales from net selling to net buying, a trend that we expect to continue, especially now that the sale of the IMF gold tranche has been completed.
- We have increased our annual gold price forecasts by 8%, 22% and 24% for 2011, 2012 and 2013 respectively to US$1,511/oz, US$1,624/0z and US$1,550/oz.
Global supply / demand
May 2011 correction has reduced risks of demand destruction…
- As GFMS observed in the 2011 World Silver Survey published for the Silver Institute, silver’s “hybrid” precious and industrial nature leads to links with gold, copper, and the CRB index, which can vary greatly.
- In the course of 2011, silver’s precious metal status and therefore its links with gold have been strongly reinforced by investors’ preference to hedge systemic financial risk, rising inflationary pressures, and resurgent political risk in MENA through a cheaper vehicle with characteristics similar to gold as a store of value.
- Driven by a spectacular rally between late March and May led by retail investors, the gold:silver ratio narrowed sharply, reaching its lowest point since October 1980 in early May 2011 at 30:1.
- Closing prices for silver at the peak of the rally in late April 2011 at US$48.70/oz came within 1.5% of the all time high established in January 1980 during the Hunt brothers’ squeeze. Successive increases in the Comex margin requirements then saw prices trade between US$33 and US$36/oz and the gold:silver ratio stabilize around 40 to 44:1.
…helping sustain investment demand going into 2012
- In our view, the 2,000t outflow of silver from ETF funds that has followed this correction is likely to be temporary, as all of the drivers for the initial 3,500t surge in ETF inflows between September 2010 and late April 2011 are still in place.
- Furthermore, the lower trading range for prices since the crash in early May should be an incentive for investors to return to the physical investment market now that the impact of the violent correction has largely been discounted.
- Investor sentiment should also be encouraged by evidence of strongly rising fabrication demand, especially in the brazing alloy/solder and jewellery markets, which are forecast to grow by 8.2% and 3.7%, respectively, in 2011.
- As a result, we have made significant upgrades to prices throughout the forecast period. For 2011, we now expect an average price of US$36.21/oz, up 15% from our previous forecast, and in 2012 we see prices averaging US$36.90/oz, 30% higher than our previous estimate.
- For 2013, we have raised our forecast 32% to US$32.98/oz.
Global supply / demand
Read the entire article HERE.
By Tom Chivers, Raf Sanchez, Chris Irvine
9:40PM BST 25 Jul 2011
21.40 That’s it for tonight’s coverage. For all the latest coverage on Anders Behring Breivik and the fallout of the attacks on Oslo and Utoya, please visit The Telegraph’s Norway page.
Breivik was understood to have met leaders of the EDL in March last year when he came to London for the visit of Geert Wilders, the Dutch Right-wing politician.
Daryl Hobson, who organises EDL demonstrations, said Breivik, who told police there were “two more cells” ready to follow him, had met members of the group.
Another senior member of the EDL told The Telegraph Breivik had been in regular contact with its members via Facebook, and had a “hypnotic” effect on them.
21.35 British police are investigating a cell of right-wing radicals known as the Knights Templar, as it emerged that a blogger using the name Lionheart called for a revival of the movement. Duncan Gardham and John-Paul Ford Rojas write.
21.28 An author cited in the Breivik’s 1,500-page manifesto has expressed regret that her writing might have served to inspire him.
Gisele Littman, who writes under the name Bat Ye’or, wrote a book in 2005 called ‘Eurabia: the Euro-Arab Axis’, which explores the relationship between EUropean and Muslim countries.
She told the Associated Press:
Of course I regret if this man took inspiration from what I wrote or from what other writers wrote.
As an insane person he should have been treated before, and I am greatly saddened for all the young innocents who tragically lost their lives, and for their families.
21.12 Andrew Gilligan writes that the threat of Islamist attacks far outweighs that from loners with no political clout.
Clearly, the number killed by Anders Behring Breivik is greater than in any single Islamist terror attack in the UK; and equally clearly, the murderer was motivated by hatred of Muslims. This cannot, however, have been his main motive, or he surely would have taken his assault rifle to an Oslo mosque, rather than an island of white teenagers. To even suggest equivalence between years of Islamist terror and the far Right, based on a single, awful case, is deeply dangerous and false.
21.10 David Cameron has demanded an urgent review of the threat from far-Right extremist groups in Britain in the wake of the Norwegian attacks. The Telegraph’s Robert Winnett has the story in full.
20.45 A full report from The Telegraph’s Nick Meo and John Bingham, both in Oslo, on Anders Behring Breivik coming to the attention of intelligence services in March after he bought a large quantity of chemicals from a Polish company.
20.25 A survivor of the Utoya Island massacre, Adrian Pracon speaks out on his terrifying ordeal. Mr Pracon was on the holiday island when he struck. He escaped, having been shot in the shoulder by lying under abandoned clothes and one of the bodies.
20.22 Anders Behring Breivik in his own words: a Q&A in his manifesto in which he describes himself as a “laid-back type” and “quite tolerant on most issues”. He also says he would most like to meet The Pope or Vladimir Putin.
20.10 More on Anders Breivik’s father, this time a video courtesy of Telegraph TV in which he tells Norwegian TV that he will never return to Norway.
20.03 Jens Stoltenberg earlier addressed the throngs who poured onto Oslo’s streets, as well as Crown Prince Haakon.
Crown Prince Haakon said:
Tonight the streets are filled with love… Those who were in the government district and on Utoeya were targets for terror. But it has affected us all.
And Mr Stoltenberg:
Evil can kill a person but it cannot kill a people.
20.00 Glenn Beck, the leading right-wing American broadcaster, has prompted outrage after comparing the teenage victims of the Utoya Island massacre to the Hitler Youth.
Beck said that the Labour party youth camp on the island of Utoya, where 68 people were murdered, bore “disturbing” similarities to the Nazi party’s notorious juvenile wing.
Torbjørn Eriksen, a former press secretary to Jens Stoltenberg, Norway’s prime minister, described the comment as “a new low” for the broadcaster, who has frequently been forced to apologise for offensive remarks.
19.55 More pictures coming from the vigil in Oslo, with thousands carrying flowers as a tribute to the victims.
Thousands carried flowers as a tribute to the victims
And this one shows the scale of people who took part. Truly powerful:
People in Oslo take part in the ‘rose march’ for the victims of Anders Behring Breivik
19.44 More from Janne Kristiansen. Here is what she had to say about the incident:
In March, we received … a list of 50-60 names and his name was on it because he spent 120 krone (15 euros or 22 dollars) at a business in Poland, the head of the PST, which reports directly to the ministry of justice, told Norway’s public television channel NRK.
This business was under surveillance because it was selling other chemical products…
We don’t have the right to put people’s names on the register just like that but we checked if we had anything on these people, if any of them could be connected to any other intelligence we had but we had absolutely nothing on Behring Breivik.
19.00 More on those earlier reports that the Norwegian Police Security Service had Breivik on list of people who bought chemicals from a Polish man in March.
This has apparently now been confirmed by Janne Kristiansen, head of the service, who has told TV channel NRK that Breivik was flagged but the incident was too insignificant to warrant a follow-up.
Meanwhile in Oslo, crowds continue to come to the vigil, the Observer’s Mark Townsend reports:
From where I stand, for a mile along Oslo’s central st, a huge tide of people approaches, almost all are carrying a single rose.less than a minute ago via Twitter for BlackBerry® Favorite Retweet ReplyMark Townsend
18.30 Latest estimates, from Norwegian news network NRK, place numbers at the vigil at 150,000.
18.19 Eskil Pederson, leader of the Labour party youth wing and a survivor of the Utoya island massacre, is among those speaking to the vigil in Oslo.
Never have we felt such togetherness, with this togetherness we shall continue to fight for the values that are so important for all of Norway … Norway shall not hate and we are not revenging … We are to stand together in grief, hoping and believing in the same values … He used weapons; we are using the right to vote in elections this autumn and that way participate in democracy … He took some of the most beautiful roses we had but he cannot stop the spring from coming.
17.54 Further quotes from Jens Breivik, the father of Anders:
I think that ultimately he should have taken his own life rather than kill so many people. I will never have any more contact with him. [Yes, these are strong words from a father about his son] but when I think of what happened, I’m filled with despair. I still don’t understand how something like this could happen. No-one normal could do that.
17.48 An astonishing number of people have turned out in Oslo for the vigil in memory of the attacks. Estimates on Twitter of 100,000 attendees, but no official estimates yet. Most people are holding flowers:
17.45 Reverend Olav Fykse Tveit, the head of the World Council of Churches, has condemned Breivik for citing Christianity as a justification for his massacre:
It’s important to say to all Muslims wherever they are, in Europe or elsewhere in the world, that these actions in no way can express what is our Christian faith and our Christian values. It is blasphemous to make that kind of connection.
We as Christians need to be aware of how our faith and our religion can be abused. This event shows how important it is that we continue this work more than ever.
17.37 Video: the Oslo court orders an investigation into the “terror cells” claim:
17.15 “Thousands and thousands” have turned up for the march to remember the victims in Kristiansand, says Ketil Stensrud of Radio NRJ Kristiansand:
17.10 There have been many reports that the maximum prison sentence is 21 years in Norway. That is the case, but if a convict poses a danger to society, they can be held even after their sentence is up – hence Breivik’s statement that he never expects to be released.
17.09 A bit more from the police on why their death-toll estimates were off, and what to expect later:
This figure could still go up and the search (for bodies) is ongoing. On Friday afternoon the situation was very chaotic. The police had to put the accent on helping the wounded and providing emergency care, it’s possible that victims were counted several times.
17.02 Cecilia Malmstroem, the EU’s Commissioner for Home Affairs, has attacked European leaders for remaining silent on xenophobia in the continent ahead of the Norway attacks. She said on her blog:
Sadly there are too few leaders today who stand up for diversity and for the importance of having open, democratic and tolerant societies where everybody is welcome. This manifesto is a product of a very disturbed man, but unfortunately we recognise some of these sentiments in Europe today.
I have many times expressed my concern over xenophobic parties who build their unfortunately quite successful rhetoric on negative opinions on Islam and other so-called threats against society.
16.59 Our data reporter Conrad Quilty-Harper has put together this graphic of Breivik’s papers:
16.45 Anders Behring Breivik is prepared to spend the rest of his life in prison, the police spokesman has said. He remained calm during questioning and appeared “unaffected” by his actions.;
16.36 Nick Meo, one of our foreign correspondents, emails from Oslo:
Hundreds of people, many carrying roses, are making their way on foot from the suburbs in the west of the city into the centre for tonight’s march. I’ve watched a steady flow for at least half an hour now along a road at a point about half a mile away – they seem to prefer walking to taking the tram. Many are alone, making their way into the city after work. They are not being put off by spitting rain and black clouds. Their mood is very calm. People don’t look particularly sad or angry, and many are chatting, although there are some serious faces.
People in Oslo still can’t believe that, as one old man told me today, “there was a Norwegian with so much hate in him”. One woman on her way to the march, Ingeborg Olsen, a civil servant aged 45, said: “I have felt physically sick for two days. This is nice safe Norway, things like this don’t happen here.” She wanted to lay her rose at the end of the march in memory of the dead, she wasn’t sure where exactly.
16.31 Hans-Inge Langø, a security researcher, tweets that “Norwegian Police Security Service had Breivik on list of people who bought chemicals from Polish man in March. Police checked Breivik out, but found no reason to take precautionary measures”. There’s more here: link in Norwegian.
16.25 There have been no arrests in Poland about this matter, they say.
16.23 The police won’t release the number of people currently missing to avoid “confusion” around the death tolls. Boats and divers are still searching the deep waters around Utoya.
16.16 Are there any more details on the two “cells”, the spokesman is asked by a journalist. The prosecutor says he will answer that questions:
The reason why we closed the court today was so as not to destroy any evidence. The reasoning is that we can’t quite rule out that someone else was involved. This is partly based on the information that there are two other cells. I cannot, due to the investigation, give any more information about whether these are two cells that he is operating or that he is working with. He has explained that he has operated in a cell, and that there are two other cells, or individuals.
16.14 Norwegian society will still be open and therefore vulnerable, he says. “A life without risks is not really living”, he says, if I understood the translation correctly.
16.11 “Now it is important that Oslo life gets back to normal”, the spokesman says. But there will be areas closed around the Government quarter for days or even weeks, he warns.
16.08 So a total death toll of 76, down from 93. Now the police are working to bring the bodies from Utoya and to identify them all. “There is no way that we can do this any quicker than we are at the moment”, he says. “It is going according to plan, but it is very time-consuming, gathering information from families.” They hope to have a final figure by Thursday.
16.06 “It is a small piece of good news”, says the police spokesman of the Utoya revision, now that fewer families are dealing with the loss of loved ones.
16.04 The police press conference is under way. Their first piece of information is that the number of deaths in Utoya has been revised downwards, from 86 to 68. They warn that the number may go back up, as the police are still searching the island. They say that the number of dead in the Oslo bombing has gone up from seven to eight, although this too may change.
16.01 Steve Futterman reports on Twitter: “Norway newspaper VG says Anders Breivik was with a 2nd person when he tried to buy fertilizer earlier this year. They seemed to be friends”.
15.52 Markus Thorr, a Norwegian video journalist, tweets:
MThorr Even though it was closed Behring Breivik took the opportunity to quote his manifesto in court today. The judge let him go on for a few minutes before he stopped him on the grounds of there not being anything that could hinder injailment.
15.41 As Neil Tweedie said earlier, there will be a candlelit vigil tonight in Oslo. Ali Bunkall of Sky says that “thousands” are expected to attend.
15.31 Breivik’s father has been talking to Norway’s TV2 – the full interview will be aired at 17.30BST. I’m getting this via Ketil Stensrud on Twitter:
The last thing he should have done, instead of killing so many people, is to kill himself. I’ll never ever have any contact with him again [...] no normal person would every do anything like this.
Jens Breivik, father of Anders. (Photo: REX FEATURES)
15.14 Norwegian Prime Minister Jens Stoltenberg is talking on the BBC. He’s asked about whether there were security failings:
The police investigation is ongoing, and hopefully we will know much more after the inquiry. So far the police believe that this was one man doing it alone. When the police investigations are finished we will have a much better basis for knowing if we could have done anything better. As far as I know, the police don’t have any records of him being a threat or a dangerous person. One possible explanation is that if he acted alone, it was more difficult to discover and see and know about beforehand.
Asked about a possible international connection:
There are still lots of people missing and people wounded in hospital, and the police investigation is ongoing. This is so serious, it would be wrong of me to start speculating on reasons and motives. When the police investigation is finished, we will know much more about any international connection.
On whether Norwegian society will become less open after the killings:
I believe Norway will change: there will be a Norway before and a Norway after the killing. But I believe the Norway afterwards will be possible to recognise, a society based on democracy and openness and where we welcome people to take part in society.
The decision [to close Breivik's court appearance] was taken by the court. The government has its responsibilities, the parliament has its responsibility, and the courts have their responsibility. I am the prime minister, and I will never comment or intervene on how the courts do their work.
We have extreme people in Norway and we have violence, but we have never seen violence on this scale. I will do everything I can to ensure that we will not lose our core values of openness and democracy.
15.13 Here’s some video of the minute’s silence in Oslo, and of David Cameron talking about the events:
15.07 In the questions afterwards, the judge says it is too early to say whether the main court case will be open to the public, as is the norm.
14.40 So the key points from the 35-minute court hearing were:
• Breivik admitted carrying out the massacre, but did not plead guilty
• He told the court that wanted to save Europe from “cultural Marxism” and Muslim immigration.
• He referred to two other “cells” in his “organisation”
• His aim was not to kill as many people as possible
• He meant instead to send a “signal” to the Labour Party
• Breivik said he was punishing the party for “treason” of mass immigration
• He will be held for eight weeks for interrogation
• The first four weeks he will be held in complete isolation
• He will have no visits, letters or access to media.
Anders Behring Breivik leaves the Oslo court after his hearing. (Photo: JEFF GILBERT)
14.23 Here’s the judge’s ruling:
The judgment has been communicated to the accused, to the defence attorney and the prosecuting attorney. This is the judgment. Anders Behring Breivik, has been charged under the Norwegian criminal law, article 147a, for acts of terrorism. Oslo police district has asked for the suspect to be remanded in custody for eight weeks with a ban on letters and visits with a complete isolation for four weeks.
The penal code 147a regards the destablisation or destruction of sections society such as the government and creating serious fear in the population, when the accused is suspected of criminal acts that could lead to more than six months in prison.
• Breivik admitted to carrying out attacks but pleaded not guilty:
The court refers to that the accused has acknowledged carrying out the bomb explosion in the government buildings and the shootings in Utoya as mentioned in the court charges. Despite the accused acknowledging the actual circumstances, he has not pleaded guilty.
• He wished to make the Labour Party ‘pay’ for ‘treason’ of allowing Muslim immigration:
The court understands that the accused believes he had to carry out these attacks in order to save Europe from among other things “cultural Marxism” and Muslim takeover.
His motive can be understood in the following manner: the objective of the attacks was to give a “sharp signal” to people, to give the greatest possible loss to the Labour Party, to limit future recruitment. The accused explained that the Labour Party has failed the country and the people, and the price of their treason was what they had to pay yesterday.
The intention was not to kill as many people as possible, but to give a strong signal to the Labour Party that if they continue to allow mass immigration and to import Muslims [there would be consequences].
Based on the statement of the accused, the court finds it sufficiently proven that the accused has acted to carry out terror, as defined under penal code 147a. Beyond that the court does not find it necessary to process the accused’s motive.
• He is to be held for eight weeks, four in complete isolation, to prevent him communicating with accomplices
The court further finds that the conditions for remanding the accused in custody have been met, as there is an immediate risk that the accused would tamper with evidence if he were now relased. Reference has been made to the accused making statements that require further investigation, including a statement about “two more cells in our organisation”, and as such the investigations must be carried out without the accused being able to interfere with the investigation or to disturb it.
Penal alternatives to the penal code 168 are not applicable in this case. Remanding in custody for up to eight weeks is a proportional measure. The court finds out of consideration to the investigation, the accused not be given the op[portunity to communicate with others [and so Breivik will be denied access to media and prevented from communicating].
The prosecution has also requested complete isolation, with regard of the loss of evidence. The court finds that the seriousness of the case means that the conditions are met. The isolation has been set at four weeks.
Anders Behring Breivik, born 13 February 1979, will be held by the court not beyond 20 September 2011. He will be held in complete isolation until 22 August 2011. That is the ruling.
14.22 The judge’s statement is expected any minute now.
14.20 The few brief glimpses of Breivik that journalists got through his car window as he arrived showed he was wearing a red shirt and red jumper – it looks as though his request to wear a “uniform” was denied.
14.14 “Pandemonium” outside the courtroom ahead of the judge’s statement, according to Sky’s Ali Bunkall. “Norway is a very polite society”, he notes. “Blame foreign media?”
14.11 David Cameron has been asked in his press conference about the suggestion that Breivik was “recruited” by two members of an English far-Right group. He said:
We’ve only just heard those claims and I don’t want to give you partial information, but I assure you we take it extremely seriously. We are working extremely closely with Norway and want to help in any way we can.
14.09 Two young men tried to attack the car that was transporting Breivik when it arrived at court earlier. Michelle Shephard of the Toronto Star spoke to one of them; he said that one of his friends had been killed and another wounded in Utoya.
14.03 This is the armoured Mercedes that Breivik arrived and left court in.
13.54 Jose Zapatero describes the attacks as “One of the most serious and worrying events we have seen on European soil” and says it calls for a “European response”. Zapatero became Prime Minister just weeks after the 2004 Madrid bombings which killed 191 people.
13.47 David Cameron is speaking alongside the Spanish Prime Minister Jose Zapatero in Downing Street:
Norway is very much in our hearts and minds today. The thoughts of everyone in Britain are with the victims of this atrocity Britain and Spain have both been victims of terror and wish to offer their full support. We know that the resilience and the courage and the decency of our Norwegian friends will overcome this evil.
In the wake of this atrocity Britain must of course review its own security, and that’s what the NSC started to do this morning.
13.42 The Oslo newspaper Aftenposten ran a large interview this morning with Geir Lippestad, the lawyer who is to represent Breivik in court. Thore Haugstad, one of our reporters, has translated a few key points from it – these aren’t verbatim:
Breivik says that in 60 years, society will understand what he just did. Lippestad does not want to promote any of the ideologies represented by Breivik; he has not, and will not, tell Breivik his own views on the actions.
Lippestad has consciously decided not to comment or repeat the manifesto. He also doubts whether the press are right to do this.
Breivik has not changed. He remains calm and is focusing on the details. He perceives this as a kind of war or revolution, and that his actions are necessary to achieve his goals; it is clear he acted on deep beliefs.
Lippestad has personally been engaged in the Norwergian handicap society, donor organisations, a cancer charity and other charities; he says the case poses personal problems for him, but that it is important to follow democratic principles, and he wants to remain professional.
13.39 Neil Tweedie also says Breivik has left the building:
There is an underground car park that you can use to rejoin the traffic, and it looks like he must have been taken out from there. They are letting people back into car park, which is an almost certain sign that he’s left. The crowd is starting to dissipate and there’s a feeling of anti-climax.
13.34 NRK is now saying that the hearing is over and that Breivik is on his way back to jail. The judge will give his ruling at 3.15pm local time – 2.15pm BST.
13.31 A bit more on the Poland connection, via Reuters. Polish police are questioning the owner of a fertiliser company in Wroclaw about his contacts, but the deputy head of the national security agency ABW, Pawel Bialek, has told a news conference:
According to our experts, the materials bought in Poland were not critical for the construction of the bomb. At this stage, the information and materials we have do not indicate that the relations with the terrorist were anything other than commercial.
No detentions have been made, and no charges brought against anybody in Poland over the case, he said.
13.29 Prosecutors are calling for Breivik to be detained for questioning for eight weeks, double the usual limit.
13.22 The Breivik hearing is now under way, according to NRK.
13.19 The Polish security agency says that “for now” it seems that Breivik “was only in commercial contact” with the Polish chemical store. More when we hear it.
13.17 Raf Sanchez has the following report on Breivik’s appearance at court:
The 32-year-old arrived at court under heavy guard as hundreds of people and the world’s media waited outside.
He was driven into the court’s basement car park in the back of a heavily armoured vehicle, which onlookers banged on as it drove past.
Some screamed “You have betrayed our country” as the convoy rolled through.
13.10 David Cameron, the Prime Minister, earlier chaired a meeting of the National Security Council looking at the implications of Breivik’s actions for Britain. Security services are to examine whether “adequate scrutiny” is being applied to far-Right extremists in this country, Downing Street said, after it was reported that Breivik had been recruited by two such extremists at a meeting in 2002.
13.04 The Norwegian newspaper Aftenposten, without citing sources, has reported that Breivik told investigators that he had hoped to reach Utoya while former Prime Minister Harlem Brundtland was visiting, but got there after she had left. Oslo police have declined to comment. The paper said:
Anders Behring Breivik had plans to come to Utoeya (island) while Gro Harlem Brundtland was visiting on Friday, but claims under interrogation that he was delayed.
Former Norwegian prime minister Gro Harlem Brundtland. (Photo: GETTY)
13.01 The BBC’s Europe editor, Gavin Hewitt, writes on Norway and the “politics of hate”:
I was reminded of [Timothy McVeigh, the Oklahoma City bomber, and] America’s paranoid strain as I read through the manifesto of Anders Behring Breivik who admits carrying out the bombings and shootings in Norway.
For at least nine years he carried anger towards the changes occurring in Norwegian society. He did not accept the multicultural country that was emerging. It threatened his identity and he felt alienated from it. He was in contact with other extreme groups who increasingly saw Islam as a danger and the enemy.
12.55 Our feature writer Neil Tweedie calls from outside the courtroom. He says:
There are about a thousand people at a vehicle exit at the back, and lots of media. We don’t know when the hearing will be over. It’s not an ugly mood – this is Norway, it doesn’t really do ugly moods. “We want to show him it’s our city, not his”, says one woman. “We are many, we are one”, says another, with some eloquence.
Later, at about 6pm local time [5pm BST], there will be a candlelit procession through Oslo.
Here’s a screengrab from Norwegian TV of Breivik being brought to the court by the police:
12.44 Breivik has arrived at court. Crowds are screaming at him. Mark Townsend tweets that they are shouting “You have betrayed our country”.
12.35 Still no sign of Breivik at the court, although he is expected soon. Journalists still gathered outside the courtroom.
12.30 Dr Tim Stanley, one of our bloggers, writes that the Tea Party does not bear responsibility for Anders Breivik:
…what has been released of Breivik’s writings suggest that this vainglorious, steroid-addicted madman didn’t understand the conservative sources he quoted or regularly attend the church he professed to love. Even if he did, the claim that there is a direct link between the Tea Party, the BNP and Anders Breivik is to draw lines between totally unconnected dots. The Tea Party, in particular, is not racist and does not advocate violence. Claims to the contrary have been investigated and debunked. It is primarily concerned with balancing the federal budget: hardly code-language for genocide
12.22 Reuters has a bit more colour on the observation of the minute’s silence in Oslo – even after the minute was up, people stayed standing:
The silence stretched to five minutes as thousands more stood around a carpet of flowers outside the nearby Oslo cathedral. The only sound was the squawking of seagulls and a lone dog barking.
Cars stopped in the streets and their drivers got out and stood motionless as traffic lights changed from red to green.
12.15 The online chemical supplier is mentioned in Breivik’s 1,500-page manifesto, according to Norwegian journalist Stian Pride on Twitter. Ketil Stensrud says that the Norwegian police are yet to confirm that the Polish arrests are connected to Breivik.
12.08 More on the Polish connection: it sounds as though there have been six Polish nationals arrested in connection with the attacks. One is the owner of a web-based chemical products supplier; it seems as though the other five have been released. More as we hear it.
12.06 As the media scrum gathers around the Oslo courtroom, a round of applause ripples around. The BBC’s reporter looks around; it turns out that a wedding has been taking place in the registry office, and the couple, a heavily pregnant, widely smiling woman in a red dress and her new husband, come out of the course. “A glimpse of normality“, says the Norwegian man being interviewed.
12.04 Sky reports that Polish police are investigating reports that Breivik tried to buy explosives in Poland. A man has been arrested in the city of Wroclaw, according to NRK.
12.03 Further to the earlier revelation that Breivik is an admirer of Vladimir Putin, the Russian Prime Minister has responded. Andrew Osborn has more
A spokesman for Vladimir Putin, the Russian prime minister, has dismissed admiring comments made by Norwegian mass murderer Anders Breivik about Mr Putin.
The spokesman, Dmitry Peskov, told Russian daily newspaper Kommersant: “This person (Breivik) is the devil incarnate. He is absolutely mad. And whatever he wrote or said cannot be called anything but the ravings of a mad man.” Meanwhile Nashi, the Kremlin-backed patriotic youth movement which also found itself mentioned by Breivik in flattering terms, has declined to comment on his views of the organisation.
12.01 The Guardian’s Mark Townsend tweeted an hour or so ago on the reaction of ordinary Norwegians – one of remarkable stoicism, it seems:
TownsendMark One striking aspect is that of dozens of locals, including survivors from island, I’ve met not one has condemned Breivik. Tolerance prevails
12.00 Breivik’s hearing begins at any moment.
11.45 Charlie Brooker has written a piece in today’s Guardian, bemoaning the willingness of the media to push “fact-free conjecture” as expert analysis in the early hours of the crisis, rushing to blame the attack on Islamists:
If anyone reading this runs a news channel, please, don’t clog the airwaves with fact-free conjecture unless you’re going to replace the word “expert” with “guesser” and the word “speculate” with “guess”, so it’ll be absolutely clear that when the anchor asks the expert to speculate, they’re actually just asking a guesser to guess. Also, choose better guessers. Your guessers were terrible, like toddlers hypothesising how a helicopter works. I don’t know anything about international terrorism, but even I outguessed them.
11.40 The judge’s statement in full:
Based on information in the case the court finds that today’s detention hearing should be held behind closed doors. It is clear that there is concrete information that a public hearing with the suspect present could quickly lead to an extraordinary and very difficult situation in terms of the investigation and security.
11.25 Confirmed: no media or members of the public will be present in the Breivik hearing. TV2 says that police fear that the shooter could have sent coded messages to accomplices via television, according to Ketil B Stensrud of Radio NRJ Kristiansand. The judge, Kim Heger, says that an open hearing would make the investigation difficult and would raise security issues.
11.08 The Guardian’s Roy Greenslade has blogged on the decisions of various newspapers this morning to lead on the Norway attacks or on Amy Winehouse’s death – “How editors confront the hierarchy of death“:
Another example today of journalism’s hierarchy of death. Which is the most important story? The murder of 93 people in Norway or the lonely death of Amy Winehouse?
Editors’ choices illustrate, yet again, the two distinct presses that exist in Britain.
11.03 The Prime Minister and members of the Norwegian royal family are signing a book of condolence for the victims. Meanwhile, Sky’s Alistair Bunkall reportsthat the Breivik hearing will be held behind closed doors: no official confirmation yet, and his colleague Ian Woods says that there has been no statement as such to the press waiting outside the courtroom. However, Norway’s TV2 is saying the same thing.
11.01 He goes back inside after an impeccably observed silence, with only seagulls breaking the peace. Here’s the crowd in front of the government buildings, with a field of flowers left in memory:
11.00 The minute’s silence begins. The Prime Minister Jens Stoltenberg is standing, dressed in black, in front of a crowd outside Oslo’s government buildings, and says “To remember the victims who died at the goverment’s headquarters and on the island of Utoeya, I declare a minute of silence”.
10.56 In a few moments a minute’s silence will be observed in Norway. People are filling the streets of Oslo ahead of it:
(Photo: Christian Aglen/Twitpic)
10.52 Andrew Osborn, our Russia correspondent, writes that Breivik’s admiration for Vladimir Putin and the “Nashi” political youth movement in Russia has been “getting some play” in the media there:
Breivik wrote: “Putin seems to be a fair and decisive leader, deserving of respect. At this stage I am not sure whether in the future he will be our best friend or our worst enemy … but I’d rather not have him as an enemy.”
Breivik also admitted that Putin would have no choice but to condemn the attack, adding that he “understood this”.
On Russia’s Nashi youth movement which he believed Norway should imitate: “We must reach a consensus on establishing a modern, ‘untainted’ conservative patriotic youth movement,” Breivik wrote. “This should be an equivalent of the Russian movement Nashi. They are anti-fascists but patriotic conservatives.”
10.44 As we wait to hear whether the Breivik hearing will be open or closed to the public, here’s a picture – via Carl Dinnen on Twitter – of the press outside queuing to get in:
CarlDinnen 50 or so reporters and photographers waiting to get into Oslo courtroom for Breivik case. Confusion on local remand hearings restrictions. Judge now deciding if anyone from the media will be allowed into Breivik hearing or if it will be completely closed.
A decision will be made in the next half an hour, according to the BBC.
10.32 Anders Behring Breivik‘s father and stepmother are under armed guard in France, and “haven’t slept a wink since his arrest”, according to AFP. Wanda Breivik, the second wife of Anders’s father Jens, said:
We are not leaving at present. Jens left for Spain on Sunday morning to get away from the media pressure. We’ve spent terrible nights, not sleeping a wink since his arrest. I’ve not met Anders but I’m still traumatised. We both are.
Yesterday, Mr Breivik, a retired diplomat, told of his “absolute horror” at his son’s actions:
I view this atrocity with absolute horror. My condolences go out to all those who have suffered because of this. I am in a state of shock and have not recovered.
Police are stationed outside Mr Breivik’s house in Carcassonne, in the south of France, to “prevent incidents, any disturbance to public order”, according to the local public prosecutor.
French police officers work around the house of Jens Breivik, the father of Anders Behring Breivik, in Cournanel, southern France. (Photo: AP)
10.21 Further to the last point: in fact there has been no confirmation on whether the open hearing is to be allowed. A police prosecutor told Reuters:
It’s up to the judge to decide. It’s not uncommon that the police will ask for it in advance but I don’t know if the police will ask for that.
10.10 The Norwegian broadcaster NRK has spoken to Breivik’s lawyer Geir Lippestad, who says that the massacre was brought on by his client’s desire to bring about “revolution” in Norwegian society. He told NRK that his actions were “atrocious, but necessary”, and that he admits carrying them out but denies “criminal responsibility”.
He has requested an open hearing in court, which Ketil Stensrud reports has been allowed. There is no word yet whether his request to wear a uniform at the hearing will be granted.
10.06 Ketil B Stensrud, a former Mirror and Independent journalist who now works at Radio NRJ Kristiansand in Norway, tweets that “Anders Behring Breivik was on anabolic steroids during Utoya massacre to feel ‘insurmountable’“, according to the Norwegian tabloid VG. More as we hear it.
10.00 More from our commenters. Boris Johnson, the Mayor of London and Telegraph columnist, writes that there is nothing to study in the mind of Norway’s mass killer:
We will never be satisfied with simple words like “mad” or “evil”, and for the days and weeks ahead we can expect exhaustive psychoanalysis of this dreary and supercilious 32-year-old sicko. We will summon and interview all the potential hobgoblins of his mind. With the help of the Norwegian investigators, we will try to understand how these demons persuaded him to engage in an act of such premeditated cruelty; and as our guide we will use the 1,500-page manifesto of hate that he (and possibly his accomplices) have posted on the internet… but like so many others of his type he was essentially a narcissist and egomaniac who could not cope with being snubbed. We should spend less time thinking about him, and much more on the victims and their families.
09.49 Dr Matthew Goodwin, the author of New British Fascism and a Nottingham University lecturer in extremism, race and immigration, writes that many within the far Right share Anders Breivik’s ideas:
Make no mistake: Breivik has already become a heroic figure for sections of the ultra far right, much in the same way Timothy McVeigh became a hero for sections of the militia movement in the United States… His manifesto suggests that some of his ideas were influenced by groups in Britain, namely the English Defence League (EDL).
For too long, our efforts to prevent violent extremism and counter radicalisation have focused almost exclusively on Muslim communities.
9.38 Sweden, Finland, Denmark and Iceland will join Norway in a minute of silence at noon in Olso (11am BST). Prime Minister Jens Stoltenberg and the royal family will observe it together at the University of Oslo and flags across Scandanavia will fly at half mast.
9.27 Denmark’s justice minister, Lars Barfoed, has announced a review of rules on fertiliser sales in light of the apparent ease with which Breivik was able to build a bomb. Lars Barfoed told Danish national radio:
We must learn from this episode and it is sensible for us to go through the rules on sales of artificial fertiliser to see whether there is a need to make them even more restrictive. It may be that we should require a report if a company suddenly buys an unusually large amount of fertiliser.
9.20 Oeystein Maeland, the head of Norway’s police force: “From what we now know, it looks like we will revise down the number of people killed (on the island).”
9.17 Norwegian prosecutors will ask for eight weeks to prepare their case, meaning a trial could go ahead as early September
9.16 We’re now hearing that the court session could be closed, if it is then it’s unlikely we’ll get much out of it straight away.
9.11 We’re getting a little more detail about the death of Trond Berntsen, the security guard on the island and the step brother of Norway’s Crown Princess Mette-Marit.
The 51-year-old off-duty policeman apparently had a son on the island who was attending the youth camp. Once he ensured the boy was safe, Berntsen attempted to arrest Breivik and was killed. It’s not yet clear whether his son survived.
Trond Berntsen, an off-duty police officer and half-brother of Norway’s Princess Mette-Marit, who was killed by Anders Behring Breivik on Utoya. (Photo: AP)
9.08 The daily newspaper Dagsavien demands “Why didn’t you come earlier?” on its front page as criticism of the police response mounts. You can see all the Norwegian front pages online – interesting to note how muted they seem compared to the British ones and how few have run with pictures of the gunman.
9.03 Breaking: Reuters is reporting that the police are likely to “revise down” the number of deaths in the Utoya island shooting. The current figure is 86 and as of this morning police were still searching for several people. It’s not yet clear what development led the police to make this announcement.
9.01 In, London, David Cameron is due to chair a meeting of the National Security Council to review how the emergency services would respond to a terrorist attack. The meeting comes amid growing fears that Breivik may have made contact with extreme Right figures in Britain.
9.00 French gendarmes are searching Breivikh’s father’s house in Cournanel, in the south of the country near Carcassone. Jens Breivik is a former Norwegian diplomat who served at the embassy in London while his son was a small child. He is estranged from the 32-year-old and said he saw “this atrocity with absolute horror”.
8.56 Breivikh, who has already confessed to the twin attacks but denies criminal responsibility, will appear in court for the first time at around 12pm BST (1pm Norway).
He has two wishes: the first is that there is a public hearing and the second is that he is allowed to wear a uniform,” Geir Lippestad told the NRK television channel late Sunday.
“I don’t know what uniform,” he said, adding that the 32-year-old wanted to explain why he unleashed the carnage and “wants to do it publicly”.
Behring Breivik will run a central Oslo court-house gauntlet set for around 1:00 pm (1200BST).
He has the status of “official suspect” ahead of the arraignment, but will not learn the actual charges until the investigation is concluded, with police still hunting for possible accomplices.
Under Norwegian law the judge can order his detention for up to four weeks, after which it must be renewed. It is also up to the judge whether to hold the hearing behind closed doors.
8.55 The step-brother of Norwegian Crown Princess Mette Marit was among the 86 people killed on the island of Utoya, the royal court has announced.
Court spokeswoman Marianne Hagen says the victim was Trond Berntsen, an off duty policeman who was working as a security guard on the island. He is the son of Mette-Marit’s stepfather, who died in 2008.
8.54 The police response to Friday’s attacks is coming under increasing scrutiny, as questions are asked why it took so long to respond to the island massacre. Peter Hutchison and Nick Meo write:
Transport problems, including a lack of helicopters and a boat that sank, meant it took an hour to apprehend Anders Breivik after he began his attack, police admitted.
There had also been anger among some of the grieving families after suggestions that a security guard at the summer camp had not been at his post and had failed to apprehend the gunman.
However, police officials confirmed he had been at the scene, but had been one of Breivik’s first victims.
8.53 Among the “cultural traitors” named in Breivik’s rambling 1,500 page manifesto were Gordon Brown, Tony Blair and the Prince of Wales.
Written in perfect, idiomatic English and datelined “London, 2011″, the “European Declaration of Independence” is laced with references to British politicians, journalists and public figures seen as “targets”.
The manifesto, which took Breivik three years to write, is part terrorists’ handbook, part autobiography and part extremist political rant. It has provided police with a mine of information which will help establish whether the gunman had accomplices.
Gordon Brown’s picture appears alongside that of Hitler in a gallery of “war criminals” who have failed to halt the spread of Islam, and Breivik says Gordon Brown was “colluding with” Islamic terror groups by making “London the global centre of Islamic banking”. He adds: “Brown is giving Muslims more influence over our lives yet knows that terrorists are organising to go to war with us.”
Jack Straw and Tony Blair are named because they “‘dishonestly’ concealed a plan to allow in more immigrants and make Britain more multicultural”.
8.52 The hunt is on for possible British accomplices of Anders Behring Breivikh after it emerged that he had met other Right-wing extremists in London. Our chief reporter Gordon Rayner reports:
Before he carried out Norway’s worst terrorist atrocity, Breivik typed out a chilling 1,500-page description of his plans, written entirely in English and datelined “London, 2011”.
He signed the document “Andrew Berwick”, an Anglicised version of his name, and described his “mentor” as an Englishman he identified as Richard.
Scotland Yard counter-terrorism officers are now trying to establish whether Breivik visited London in recent years and whether he was part of a wider network preparing to carry out similar attacks.
The 32 year-old boasted that he was just one of up to 80 “solo martyr cells” recruited throughout Western Europe who were ready to follow his example of trying to overthrow governments tolerant of Islam.
He said he regarded himself as a successor to the medieval Knights Templar, and claimed to have been recruited at a meeting in London in April 2002, which was hosted by two English extremists and attended by eight people in total.
8.50BST (9.50 Norway) Good morning and welcome back to our live blog, bringing you all the latest developments from the tragedy in Norway.
Read the entire article and updates HERE.
by Jason Folkmanis
Jul 22, 2011 8:47 PM PT
Consumer prices rose 22.16 percent from a year earlier, compared with June’s 20.82 percent pace, data released by the General Statistics Office in Hanoi showed today. Prices climbed 1.17 percent from June.
The central bank reduced its repurchase rate to 14 percent from 15 percent on July 4 after a spate of increases since November to fight inflation, leading the International Monetary Fund to say the cut may confuse investors. The benchmark VN Index of stocks is down 16 percent this year, on concern price gains will hurt the economy.
“The markets were very surprised by the easing,” Prakriti Sofat, a Singapore-based economist at Barclays Capital, said before the release. “It’s too early to go into a full-blown easing cycle given that inflation and inflation expectations remain elevated.”
Vietnam will find it “very difficult” to slow inflation to 17 percent by the end of 2011, Ha Van Hien, head of the National Assembly’s Economic Committee, told the opening of the body in Hanoi on July 21. It may peak as high as 23 percent in August before slowing to 18 percent by year-end, Sofat said.
The VN Index fell 0.9 percent yesterday to 409.2, while the dong weakened 0.1 percent, according to data compiled by Bloomberg. The currency was devalued by about 7 percent in February, the most since at least 1993, risking costlier imports.
Food, Transport Costs
Food, transport and construction-material prices have stoked consumer-price growth, according to Australia & New Zealand Banking Group Ltd. Transport prices rose 21.7 percent from a year earlier in July, today’s data showed. July’s annual inflation rate is the highest in a basket of 17 Asian economies tracked by Bloomberg.
Prime Minister Nguyen Tan Dung in February cut the credit- growth target and ordered a tighter monetary policy to try to tame inflation, revive confidence in the economy and prevent another credit-rating downgrade. This month’s rate cut wasn’t a “policy signal,” the central bank said in a July 8 statement.
“We assume policymakers are again demonstrating their low tolerance for slower growth,” Christian de Guzman, a Singapore- based assistant vice president at Moody’s Investors Service, said in a note on July 11.
The nation’s economy expanded 5.6 percent from a year earlier in the first half of 2011. Moody’s said that a “tight” monetary policy would threaten the government’s full-year target of 6 percent.
‘A Bit Concerned’
“We are a bit concerned that the cut in rates will confuse the market about the government’s commitment to sustaining the stabilization effort under Resolution 11,” Benedict Bingham, the IMF’s senior resident representative in Vietnam, said this month. Resolution 11 refers to the steps Dung took in February.
“A strong commitment to sustaining this effort is essential to re-establishing confidence in the dong and restoring macro-economic stability more generally,” Bingham said.
The State Bank of Vietnam had increased the repurchase rate for the seven-day term from 7 percent at the start of November 2010 before this month’s cut. It appears to have become the benchmark for monetary policy, according to JPMorgan Chase & Co.
Read the entire article HERE.
by Ben Traynor
“How the U.S. and Euro debt crises are making the gold price rise. . .”
Europe and Washington’s debt ceiling squabble has seen the gold price breach $1600 per ounce and €36,500 per kilo.
The financial media’s standard line is that investors are scared and gold represents a “safe haven.” But how? What are investors scared of that’s led some of them to bid the gold price.
First off, a little context. Over the last decade, U.S. national debt has more than doubled, rising 138% in Dollar terms. That doesn’t account for inflation, however—and as we’ll see below, inflation is viewed by some as part of the ‘solution’ to the debt problem.
Yet measured in terms of gold bullion—the nemisis of Uncle Sam’s debt, apparently—U.S. national debt has actually fallen for the last ten years:
Put another way, the average annual Dollar gold price has risen faster than Uncle Sam has been able to write his IOUs. Which is no mean feat!
The U.S. now only owes the equivalent of 340,000 tons of gold—still more than the total sum of gold ever mined (twice as much, in fact, according to best estimates) and way above the 8,113.5 tons the United States Treasury says it holds between Fort Knox and the New York Fed.
But why would gold demand rise—pushing the gold price higher—in response to the growth of national debt?
Like money itself, debt—whether a personal loan or the kind racked up on our behalf by our elected representatives—represents a claim on resources, otherwise known as wealth. At some point in the future, the debtor is expected to hand some wealth back to his or her creditor, ideally the principal plus some level of profit. Trouble is, debtors don’t always follow the script.
Now, when it comes to resolving its national debt, the U.S. government has five options:
#1. Economic growth—The economy produces more real wealth. The government, through taxes, takes a slice of this growing pie, and pays back the bondholders from whom it has borrowed in the past;
#2. Raise taxes—The economic pie doesn’t need to grow. Uncle Sam could simply raise the rate of taxation, and use that bigger sum of cash to repay its debt;
#3. More borrowing—As interest or debt repayments fall due, the Treasury simply goes back to the bond market and borrows from Peter to pay Paul;
#4. Default—Just don’t pay. Tell the creditors to get lost;
#5. Pretend to pay—The U.S. Dollar is the world’s No.1 reserve currency, giving foreign central banks (especially in fast-growing Asia) little choice for where they might store their burgeoning savings. The U.S. Treasury borrows in Dollars. The Federal Reserve has the power to create Dollars. The more Dollars there are, the less each one is worth—but when you’re handing them over to someone else, who cares?
The first option tends to be the one creditors bank on, in order to get back what they lend. Right now, however, the prospects for strong growth look bleak. Check out these scary numbers:
- The Congressional Budget Office reckons this year’s deficit will be $1.5 trillion;
- U.S. national debt was U.S. national debt was an estimated $13.4 trillion in 2010;
- This implies a growth rate for debt of around 11% per year.
Economists may quibble at the margins about the data, the methodology, and so on. But a stark fact remains—the U.S. will need to post some stellar growth rates just to stand still. Unless, that is, its government picks one of the other four options. Besides the highly contentious Option 2 of raising taxes, in fact, this is exactly what America’s been doing for years.
Option 3, more borrowing, has been exceedingly popular, leading to accusations that Washington is running a Ponzi scheme. The problem with a Ponzi scheme comes when you run out of new schmucks to help pay profits (or simply repay the principal) to early investors.
Is $14.3 trillion that point? Clearly not—the debt ceiling is an artificial, political construction, not a reflection of any financial reality. Investors remain willing to hold U.S. sovereign debt, as shown by—and despite—the appalling rates of return it offers. (Bond yields fall when prices rise, and U.S. debt has never paid so little in interest.) This may not always be the case, though, especially if creditors start to fear that Option 4 is on the table and a true default is looming.
One thing the debt ceiling squabble has achieved is to make the once notional concept of a U.S. default frighteningly real. Ratings agencies—never the quickest on the draw, as the subprime disaster proved—have repeatedly issued warnings that they might strip America of its AAA status, the “triple-A rating” which signals no risk of default. Standard & Poor’s even went so far as to say there is a 50-50 chance this downgrade will happen before the end of October.
Newspapers meanwhile have been full of stories of what will happen if the debt ceiling isn’t raised. Will the Treasury refuse to pay bondholders or veterans? Social Security claimants or military contractors? Suddenly we have a much clearer vision of what an America that can’t pay its debts might look like.
The artificial “debt ceiling” aside, a true U.S. default still seems unlikely, at least for now. But bondholders should have perhaps taken fright, and nor should they forget this scare too soon. The fact that they keep backing Uncle Sam—paying such high prices to buy his debt that Washington is paying them record-low interest rates—is nothing unusual, however.
Complacency is the bondholder’s biggest risk, but also his most common trait. August 1914 “came like a bolt from the blue” to Europe’s creditors, despite the loud and clear warnings of war. From 1979, when U.S. price-inflation breached double-digits, it took another two years for 10-year U.S. bond yields to catch up.
Today, several leading U.S. economists repeatedly (and rightly) ask “Where are the bond vigilantes?” The answer is Europe, where they’re driving up bond yields at their own expense by pushing bond prices lower, causing a rise in refinancing costs which will force a change of debt policy—or at least force the issue—in the increasingly less “peripheral” Eurozone states.
Two-year Greek government bond yields this week reached 39% as prices cratered once more. But again, bondholders were late to the game, as yields only began rising 18 months ago, first rising from a decade-long average below 3.5% in January 2010. Athens had long been subject to “special measures” from the European Commission, aimed at forcing it to reduce its annual deficits. Perhaps the fact that virtually every other European state was also in breach of the 3% deficit, 60% total-debt-to-GDP ratios meant Greece’s problems looked unexceptional. But the absence of rising bond yields to date does not mean that there’s nothing to fear in U.S. debt. It simply means, just as in 1914 and 1979, that bondholders haven’t got scared yet.
How long before America’s creditors start insisting on higher interest rates to compensate for the risks that come with lending to the States? If they do, Option 3—more borrowing—may become prohibitively expensive. And Option 5, meantime, is already happening. Lend the United States government $100 today, and you’ll get $100 back when your government bond matures. You’ll also pick up interest in the meantime. Unfortunately, though, at current interest rates this won’t compensate you for inflation in the cost of living.
Official consumer price inflation for June was running at 3.6% for June. Unofficially it could be much higher, as John Williams of ShadowStats suggests. The yield on a 5-Year U.S. Treasury bond, meanwhile, is currently around 1.5%. So the $100 plus interest you get back over five years will buy you less than your original $100 would have if you hadn’t lent it to the government. The purchasing power of your wealth has been eroded—with Uncle Sam enjoying the profitable side of the deal.
The U.S. government’s plan—if you can call it a plan—for dealing with its debt mountain is thus a combination of Option 3 and Option 5. Keep on borrowing, while devaluing the money you plan to pay back. Option 1 is still needed, therefore. Because the burden is not shrinking, and won’t shrink, without the economic growth which the U.S. so clearly lacks.
Which brings us back to the gold price. Ten years or so back, a handful of investors started to realize that U.S. debt was simply getting too big. It could not be paid off via the conventional method (Option 1) of growing real wealth. Option 2 (raising taxes) was then, as now, too hot to handle (indeed, by not cutting spending, Bush’s tax cuts made debt-growth very much worse). But Option 3, many of these gold buyers felt, could not last forever—there comes a time when investors wise up, and even a sovereign nation printing the world’s number one reserve currency loses its access to cheap credit.
This is exactly what is happening right now in Europe, and why bond buyers are demanding higher interest rates for lending to Greece, Ireland, Portugal and even Italy and Spain, the Eurozone’s third and fourth largest economies.
So with Options 1 out of commission, Option 2 at an impasse, and Option 3 looking increasingly shaky, only default and devaluation remain. And gold has traditionally been an excellent hedge against both.
Let’s take default first. For one, gold simply can’t default—you own it. It’s not a promise to pay you, it’s a possession.
Secondly, a U.S. default would be a highly deflationary event. It would introduce unprecedented levels of uncertainty to the credit markets. We saw how they seized up in 2007 as the subprime bubble burst. Any signal from the world’s most powerful nation that it’s okay to not pay your debts would cause immeasurably more damage. And as credit markets seize up, default sucks money out of an economy, lowering prices of everything from labor (wages) to a carton of milk.
In his seminal book of the mid-1970s, The Golden Constant, Professor Roy Jastram—looking at 350 years of economic data—showed that gold has historically gained purchasing power in periods of deflation. This makes gold an attractive portfolio hedge for anyone who fears a U.S. default may one day become too clear a threat to be dismissed as a media scare story.
More likely—and the one the Treasury and the Fed have gone with so far—is the inflationary Option 5, eroding the value of the Dollar. Gold has a historical advantage here too. It has been a recognized store of value for most of human history—not something that can be said for any paper currency. It also can’t be created, and is naturally in limited supply.
So investors looking to preserve what they’ve earned see gold as a convenient, proven way to store their wealth.
Recent analysis by British economic consultancy Oxford Economics, commissioned by our friends at the World Gold Council, suggests that gold would perform well in both deflationary and inflationary scenarios. Today’s national debt problem, just like every other (only more so, since it’s trans-Atlantic) threatens both.
And now the political theater has drawn attention to the gargantuan size of America’s debt, more investors are opting to take money out of the firing line—pushing the gold price to this week’s new record highs.
The fact that gold has risen more than national debt is good news for U.S. investors. Because while you don’t have a say in how big that debt gets, that doesn’t mean you and your children won’t have to pay it. The rising gold price means that those who bought gold will have something left after they’ve picked up the tab.
Read the entire article HERE.