Monday, December 30, 2013

The Oldest Bank In the World Is On The Verge Of Collapsing Read more:

"A delay to vital fundraising at Banca Monte dei Paschi di Siena<BMPS.MI> has increased the risk that Italy's third-biggest bank has to be nationalized, a move the government would like to avoid.
Shareholders led by the biggest investor in the bailed-out bank rejected plans for a 3 billion euro ($4 billion) share sale in January and postponed the capital raising until after May 12.
The bank's chairman and its chief executive may resign following the unprecedented clash with the main shareholder in the Siena-based lender, a charitable banking foundation with close ties to local politicians..."

NYSE Margin Debt Levels Are Still Climbing

"The New York Stock Exchange publishes end-of-month data for margin debt on the NYXdata website, where we can also find historical data back to 1959. Let's examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter.
The first chart shows the two series in real terms — adjusted for inflation to today's dollar using the Consumer Price Index as the deflator. I picked 1995 as an arbitrary start date. We were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July, 2007, three months before the market peak.
Nominal margin debt is at an all-time high. In real (inflation-adjusted) terms, the latest margin debt is at an interim high, 0.7% below the all-time real high in July 2007.


I Will Never Sell My Gold As Long As We Have People Like Bernanke At The Fed

"I will never sell my gold as long as we have people like Bernanke at the Fed and fiscal deficits as far as we can see. - in CNBC"


Money Is Not Flowing Into Economic Activity, It`s Flowing Into Asset Prices

"The money (from monetary easing) does not flow into economic activity, it flows essentially into asset prices, into speculation. - in a recent FNN Australia interview"


A Global Currency War Is In Progress

""A global currency war is in progress. That's usually leading to some kind of problem somewhere. Somebody's on the wrong side of that trade. We're going to have more currency turmoil and more currency problems. Be careful." - in Money News"


Michael Pento - 2014 & The Contrarian Trade Of The Decade

"Mr. Bernanke, in a move made mostly to bolster his legacy, stated in his final press conference as Chairman of the Fed that he would start to reduce asset purchases in January of 2014.  Nearly every advisor on Wall Street took the news as evidence the Fed can now remove its manipulation of interest rates with complete economic immunity.  However, what these pundits fail to realize is that the Fed’s economic recovery strategy is based on artificially boosting bond, equity and real estate prices....

Now our central bank is promising to remove its support of asset prices.  Therefore, the lesson we are all about to learn is that bubble-based economies always fail.

As 2013 year draws to a close, the 10-Year Note yield has climbed above 3%, from its 1.5% level in the spring.  This move higher is occurring despite the fact that the Fed’s tapering of bond purchases has yet to even begin.  And, even when the taper starts in January, the Fed will still be buying $75 billion of MBS and Treasuries.  Therefore, Wall Street’s ebullient reaction to the taper announcement is both premature and misguided.  

Interest rates will rise significantly in the first half of next year, which will send bonds, stocks and home values into a sharp correction.  The real estate market (the corner stone of the Fed-engineered recovery) is already starting to see cracks in its foundation.  According to the Mortgage Banking Association, the index for applications to purchase and refinance a home fell 6.3% last month, sending the index to its lowest level in 13 years.  Further evidence of waning demand for homes came from the National Association of Realtors (NAR).  Existing home sales fell for the third straight month to the lowest level in a year.  The NAR also reported that sales were down 4.3% from October to November and were lower by 1.2% YOY.  The weakness in housing extended to new home sales also, as they fell 2.1% in November. 

Weakening demand for homes hasn’t stopped builders from ignoring the fundamentals (much like they did during the housing bubble in the middle of last decade) and continuing to increase inventory.  New home starts were up 22.7% in November and were up 29.6% YOY.  Existing home inventories were also up 5% YOY.  In normal market conditions, falling demand and increasing supply would cause prices to fall.  However, prices for new homes are up 10.6% YOY, while existing home prices rose 9.4% YOY, according to the NAR.  Other measures of home prices, like the S&P/Case-Shiller National Index, shows overall home values climbed 13.3% YOY.  Why would prices be soaring double digits when demand is plunging and supply is on the rise?  The only viable answer is QE!

Turning to the equity markets, the S&P is up 25% this year, while real GDP has advanced only about 2%?  You just can’t have strong and sustainable revenue and earnings growth when real GDP is growing at 2%.  And, you certainly should not be able to post equity market returns of 25% if growth in the economy is so small.  How did investors achieve such lofty gains this year?  The only answer can be QE!

Finally, the 10-Year Note is yielding 3%.  How could that benchmark yield be offering a return that is four hundred basis points below its 40-year average, while the nation’s publicly traded debt is up $7.2 trillion (140%) since the start of the Great Recession? You guessed it, QE!

Without the Fed’s intentional manipulation of interest rates and money supply, the real estate and stock markets would be in a significant correction.  This is because the Fed’s debt monetization efforts have distorted all free-market indicators of where prices ought to be..."

Cashin Warns About West’s Disappearing Gold Hoard

"Today 50-year veteran Art Cashin warned King World News about the West’s disappearing gold hoard.  Cashin, who is Director of Floor Operations at UBS ($650 billion under management), also discussed what surprises him the most regarding the West’s loss of gold.

Eric King:  “Art, I wanted to discuss a Bloomberg story where they talked about gold literally disappearing from the vaults in London.  An individual interviewed in that piece said the vaults were full two years ago, and now they are virtually empty.  This transfer of gold from the West to the East, does it worry you, Art?”

Cashin:  “It is concerning ... China has stepped up to be a pretty big buyer of gold.  So we will keep an eye on where these transfers go.  These people (in the East) are concerned about their own currencies and the ability of their own governments to control things.  They look for the safety of gold, something hard that has stood them well (in terms of wealth preservation) over the decades.”

Eric King:  “Art, obviously the listeners (and readers) know by now that you traded gold during your half a century (long career), and you know the old saying, ‘So goes the gold, so goes the power.’  The fact that the West is just letting its gold go, ‘We don’t need this anymore, just let it go to China,’ that has people worried.  Is that legitimate?”

Cashin:  “I think people should be concerned.  You will recall that over the years the European and Western central banks have been somewhat dismissive of gold.  The UK called it ‘a barbarous relic,’ echoing Keynes, and they (England) sold off their gold at somewhat ridiculously cheap prices.

I am always amazed that the citizenry has not called for an investigation of the central bankers who effectively gave away their gold at prices far below even the levels we are seeing today.  So I think that people will be very concerned about what happens (going forward).”

Eric King:  “With sentiment at historically negative extremes on gold, do you think that metal might surprise investors in 2014?”

Cashin:  “I think it well could.  We should find out early.  I think some of the late pressure may have been tax-related selling.  This may have given us this December down-spike that we’ve seen.  We’ll know that rather quickly.  If the selling does continue into next year, then we will have to take another strategic look at where you want to go.  If in fact it is tax-selling, it should abate and gold should begin to firm up early into the (new) year.” 

Thursday, December 26, 2013

What Chinese Consumers Are Rushing To Buy This Christmas

"While the US consumer is rushing to spend what little savings they have left and grab that last for 2013 "X% off" deal from the local inventory-clearance bin on plastic Made in China trinkets or marked-down clothing, Chinese consumers are likewise scrambling to buy products. Only, unlike in the US, the object of China's affection is not some gizmo that will end up in the local landfill within 3-6 months. China News Network shows what it is.
Gold price lower and lower end of the Christmas rush of people buying
Taiyuan a gold shop gold prices as low as 287 yuan / gram, people flocked buying gold jewelry. Western Christmas in China has gradually become the "Consumer Day", much of the gold market on this day after discounts, plus the price of gold hovering cheap Christmas discounts, and more gold has broken 300 yuan / gram mark..."

Wednesday, December 25, 2013

The Gold Rush Spreads From China And India To Saudi Arabia

"In the "west", the higher the price of gold rose, the more demand there seemingly was bymomentum-chasing gamblers investors, if only for paper certificates claiming to represent gold, or GLD as the case may be. Conversely, once the momentum turned, the sameinvestors couldn't be bothered with gld (sic) even at 30% lower. At the same time, in the "east" the higher the price of gold rose, the lower the demand was for physical, which for that extinct breed of deranged gambler known as "value investor" is a familiar concept."  And now that gold's price is not only back to early 2011 levels, but is essentially below production costs, demand out of China is off the charts. Demand in India - traditionally the greatest in the world - continues to also atunprecedented levels, although now that official purchases of gold are regulated and limited through capital controls, it is forcing the local population to smuggle in gold through the most innovative of schemes.
But while the west is the west, and the east is the east, and no amount of adaptive behavioral modifications can change that, much to central bankers' chagrin, what lies in-between? Courtesy of the Saudi Gazette we learn that the uber-rich middle eastern kingdom, which floats on a sea of oil has picked its side... and it has chosen to take advantage of the ongoing paper-driven price collapse and load up on as much gold as possible.
From the Saudi Gazette:
The gold shops in Jeddah are now flourishing as more customers are buying various gold types thanks to the international drop of gold prices.

Saleh who works in Al-Amari gold shop said that more people are now buying various gold jewelries and others are buying gold bullions to store their money after staying away from gold for quite sometime.

According to him various nationalities are approaching them including Saudis, Africans and Indians. The prices he said range from SR165 to SR140 per gram based on the item being sold. The price is set based on any additional work or jewelries being added. The country where the gold comes from also determent the price, “We have Italian Indian, Bahraini, Korean and local gold creations each with a distinct price,” said Saleh.

Speaking to the Saudi Gazette, Ali Batarfi,  deputy chief of gold in Jeddah, said that they anticipate that the gold prices will continue to drop towards this month to reach $1150 per once, however the prices are likely to increase during the first quarter of 2014.

Batarfi said “the gold market is now witnessing an increase in sales thinks to the drop in gold prices, however not only that but also the school break that will start very soon will also drag more consumers into the market who will buy gold for their special occasions especially weddings.”

The gold has marked a drop this year from $1,920 per once to $1,193.3, which crated a difference in the costumer attitude in buying and storing gold, said Batarfi and added, “we anticipate that more gold will be sold both with jewelries and pure bullions.”
Experts in the field believe that the international move towards investing in various sectors and the stabilization of these moves have decreased the investment in gold with China and India lessening their investment in gold. The demand on gold from central banks has also lessened. Consumer demand for gold jewelry worldwide grew by 20 percent for the year ending September 2013, reaching 3,757 tons and valued at $183.9 billion.

According to a report released lately by The World Gold Council’s Gold Demand Trends, regional consumer demand for gold jewelry has grown by 25 percent, reaching 225.8 tons and valued at $10.9 billion, with the UAE and Saudi Arabia featuring prominently.
So while the rest of the world celebrates the anti-Giffen good nature of gold, a function of sophisticated US investors for whom only momentum and 200 DMA lines matter, and is buying it up at an unprecedented pace, these same sophisticated investors in the US are dumping the certificates representing to be backed by the yellow metal in droves and are BTFATHing stock certificates exchangeable for a currency that is being diluted at a pace of $85 $75 billion per month, even as more and more gold miners are set to go out of business if the price of gold continues to drop below production cost.
We are confident that we know how this latest "conflict" between "east" and "west" will end..."

Sunday, December 22, 2013

Comex Claims Per Deliverable Ounce of Gold at 92 to 1 - Let Them Eat Treasuries

"Luckily for the Comex most of the gold deliveries this month have been taken by JPM for their 'house account.'

January is not an active month for the precious metals on the Comex, so the wiseguys only need to muddle through the next couple of weeks, and then it should be clear sailing until February.

I hear the bullion banks are putting some heavy pressure on the miners to hedge their forward production, and even on some central banks to lease more gold. I am a little surprised that there have not been more acquisitive moves on the miners at these fire sale prices.

This situation on the Comex is not a default scenario per se. There is plenty of gold available, but it might require higher prices for customers to present their bullion for delivery. Unless of course that customer is a big bullion bank which is playing multiple sides of the same market.

Still, it pays to be prepared I suppose, even for the unlikely. CME Seeks To Broaden Cash Options In Clearinghouse Members Default Rules

Have a great holiday..."


Maguire - Shocking Amount Of Physical Gold Bought In 7 Days

"Today London metals trader Andrew Maguire told King World News that a shocking amount of physical gold has been purchased by foreign central banks and sovereigns in just the past week.  He also spoke about what is going on behind the scenes in the war on gold.  Below is what Maguire said in part II of his powerful interview.

Maguire: “Outside of the virtual world of the Comex casino, sovereign and central bank buying is evident, as are the bullion banks, who are fully aware of this bullion drain, and they are taking the long side of these naked short sellers who blindly ignore the fundamentals....

“Now, Eric, in the real world wholesalers were the busiest in months yesterday, and they are run off their feet again today.  Looking at the charts, that’s really counterintuitive to what’s happening.  There is enormous demand sub-$1,200, and these divergences cannot last much longer.

This enormous leverage employed by these paper market sellers is a distortion of what’s really happening.  We’re stretched so far that the unwind and the rebound higher are going to be disorderly as sovereign and central bank buyers continue to milk Comex-based leverage selling.

They are busy converting this resulting spot price into physical (gold) at the painted fixes (in London).  This physical latency will catch up in a very disorderly way the moment the downside momentum wavers.  And we’re reaching the point where we can see that change in behavior is beginning to become evident.” 

Eric King:  “Andrew, can you give us an idea of how much tonnage is being taken out of the market as they put the (recent) smash on gold?”

Maguire:  “Eric, the amount of synthetic supply that’s coming into the market is in the tens of tons, in (increments of) several tons at a time.  It’s resulting in literally hundreds of tons in a week being supplied into the marketplace.

Because of the latency I discussed, it’s not being noticed but the central banks, bullion banks, and the sovereigns are taking the long side of that (trade).  They are taking delivery on an unleveraged basis, and it will show up, but it’s in the hundreds of tons, especially as we moved sub-$1,200 (on gold).  That’s why sub-$1,200 is unsustainable, despite what the likes of Goldman Sachs and all of these shill bullion banks are saying.”

Maguire - Behind The Scenes Look At The Fierce War In Gold

"Maguire:  “The real problem lies in these untenable, under-water rehypothecated bullion related positions that these very same banks and the BIS have built up in the over-the-counter market.... 

“Now, due the very fact that China and much of the East are rapidly increasing their bullion inventories in an escalating move to ‘de-Americanize their economies,’ there is a resultant scramble in the West to repay rehypothecated bullion from both unallocated and allocated LBMA bullion accounts.

This includes the Fed and the BIS (Bank for International Settlements), who are unable to even repay current requests by the likes of Germany to repatriate just a fraction of their gold.  And it should be noted here, Eric, that the amount requested to be repatriated will take seven years, but is less than half the gold cleared by the LPMCL (London Precious Metals Clearing Ltd.), amongst the LBMA members every single day here in London. 

The BIS and the Fed are providing leased gold into the market, but, importantly, laying the liability directly upon the bullion banks who are no longer receiving any bullion, just credit ledger entries.  This most recent attempt to force producer hedging is the final stage of being able to milk future supply out of the market, as GLD is about tapped out of the weak hands, and will in the future be much more difficult to dislodge from increasingly strong hands. 

Eric, one has to ask oneself, ‘Where is the risk/reward now?’  We are not at $1,900 gold, with the ‘hot money’ long.  We are here now with gold (around) $1,200, below the cost of production, a strong physical market, the ‘hot money’ all-in short, the bullion banks going long, and the bullion game changing forever in 2014.

I’ll leave it up to your informed listeners (and readers) to decide (what to do).  I’m doing what Goldman Sachs is doing:  I’m positioning myself long with a very low cost delta put protection.”

Wednesday, December 18, 2013

The Frightening Reality Of Gold Disappearing From The West

"...There is a divergence between the availability of physical gold and paper gold with deliverable Comex inventories dropping from three million ounces to 700,000 ounces.  The plunge in the gold price was caused by extraordinary large sell orders dumped on a coordinated basis at least a half dozen times.  The dramatic drop in delivered gold has caused more than 800 tonnes of redemption from the gold ETFs, resulting in a dramatic shift with physical gold ending up in Chinese vaults.  The gold cupboards of the West are empty and markets are vulnerable to a huge short covering rally.

Gold climbed a whopping 550 percent in a twelve year run from the August 1999 low at $253 an ounce to the peak at $1,941 in September 2011 spurred by the financial crisis and quantitative easing. Since the peak, gold has fallen 37 percent or 26 percent this year, retesting the lows.  Gold trading was interrupted half a dozen times as large futures contracts were dumped on the market raising questions that these leveraged bets were really manipulation.  The trading action, however has caused a shortage of physical bullion. Inventory stockpiles on Comex are at record lows such that paper claims per ounce of registered gold are at a whopping 70 times.  There is simply not enough gold to satisfy these claims.  As such we continue to believe $2,000 an ounce is only an interim objective and gold’s twelve year bull run is not over.  This year is the pause that refreshes.”

Tuesday, December 17, 2013

Richard Russell - Hyperinflation, Default, Bitcoin, Gold & China

"Richard Russell:  Today the US debt is $16.7 trillion.  The entire Gross Domestic Product of the US is $15.68 trillion.  This means that the debt to GDP ratio is over 105%.  History shows that a debt to GDP ratio of over 100% is dangerous.  With the debt now growing exponentially, we face a situation of inflation, hyperinflation or bankruptcy. 

On another subject, we hear that the hedge fund industry has not kept up with the markets.  Hedge fund managers tend to be knowledgeable and professional.  If professionals can’t keep up with the stock market, what are the odds that amateurs can?  The current stock market has been erratic, volatile and very difficult to make money in. 

As I see it, we are in the latter phase of perhaps the greatest debt bubble in history.  A bubble can inflate just so far, and then it pops.  When the current debt bubble bursts, it will prove to be an unmitigated disaster..."

Absolutely Shocking Developments In The War On Gold

"Kaye:  “Despite yesterday’s strength in the paper gold price, the Spyder GLD lost another 1.05% of their inventory.  So they are down now to just a little over 800 tons, Eric.  To put that into perspective, in December of 2012, the inventory of GLD was a little over 1,350 tons....

“So GLD has lost 550 tons of gold in one year.  There are a few anomalies here:  One is that the paper price of gold peaked in September of 2011, and yet in spite of a sustained price decline through last year, the inventory and the number of shares of GLD continued to sustainably increase.

That itself is interesting in view of the fact that the explanation which has been given in the mainstream media and occasionally by representatives of the ETF industry, is that because of the bear market in gold in gold we have had investors looking to sell.  Well, that’s an interesting explanation because it goes against the prior experience when gold was under pressure from 2011 through 2012, when GLD inventories actually grew.

It is also against the experience of the sister trust SLV, which is an identical structure for holding physical silver in an ETF format.  As everybody knows, the price of silver has been whacked far worse than gold, and yet they’ve lost virtually no inventory in SLV.

So if there is a connection between having a bear market in the paper price of a given precious metal and a reduction in the inventory of that metal then it’s certainly a curious one.  Meaning, it hasn’t been consistent in both GLD and SLV, as there has been no knock-on effect in SLV.

This anomaly is of considerable interest to us and it does further support the idea that the Spyder GLD Trust and the other exchange-traded products have been and are continuing to be used as feedstock for the prosecution of the raids that you and I have been talking about since April, Eric.”

Eric King:  “Did the loss of inventory in GLD surprise you?  The last time we saw that was in April during the time frame when gold was under enormous pressure, and gold is now just kind of wallowing in a range.”

Kaye:  “We’ve been in a reasonably tight range, as you said, so the key question you are asking is, why the loss of inventory all of the sudden when gold is just in a range?  Why is an entity, or why are various entities redeeming shares and drawing down the physical gold inventory in GLD?

There is not a lot of rationale this drawdown in physical gold inventories absent the possibility that the gold market is being set up for one last takedown or smash in the paper price.  As we’ve talked about several times, in order to orchestrate a smash in the paper price of gold, the powers that be need to have access to physical gold inventories.  Certainly GLD would appear to be one of the feedstocks which have been utilized for that purpose.  

I’m saying that I am extremely suspicious about what is taking place with regards to the further draining of GLD inventories, especially ahead of tomorrow’s Fed decision.  But the other thing I have been watching is that Comex inventories, which continue to be very low, in recent days have been somewhat replenished.  Both JP Morgan and to a lesser extent HSBC have been seeing increases in the inventory that is being made available to the Comex.  This reduction in the inventory of the Spyder Gold Trust and some of the other exchange-traded products could be partly responsible for that. 

The bottom line here is gold is being looted out of GLD for one reason or another, meaning, the central planners may very well be up to something here, and KWN readers around the world should be aware of this fact, particularly ahead of tomorro’s Fed announcement.”

Monday, December 16, 2013

Why Investors Are Fleeing Muni Bonds At Record Rates

"Municipal bond investors, a conservative bunch who want to avoid rollercoaster rides and cliffhangers, are getting frazzled. And they’re bailing out of muni bond funds at record rate, while they still can without losing their shirts. So far this year, they have yanked out $52.8 billion. In the third quarter alone, as yields were soaring on the Fed’s taper cacophony and as bond values were swooning, net outflows from muni funds reached $32 billion, which according to Thomson Reuters, was more than during any whole year.
Muni investors have a lot to be frazzled about. Municipal bonds used to be considered a safe investment – though that may have been propaganda more than anything else. Munis are exempt from federal income taxes, hence their attractiveness to conservative investors in high tax brackets. Munis packaged into bond funds appealed to those looking for a convenient way to spread the risk over numerous municipalities and states. While the Fed was repressing rates, muni bond funds were great deals.
Then came the bankruptcies..."

Recovery has been Anaemic in The West

"“Recovery has been anaemic in the West, around 2 per cent on average and slower in Japan.

“There is still deleveraging going on. The name of the game is monetary stimulus, but this is causing asset inflation, rather than goods inflation or increased employment. We are beginning to see signs of frothiness in global markets again, while equity prices are high and price [to] earnings ratios [a measurement of equity values] above historical averages,”

Quantitative Easing leads to Bubbles & Crashes

"“Quantitative easing leads to a risk of financial instability, and greed in financial markets can still cause bubbles and crashes,”


This May Create A Cascading Collapse & Crisis

"...If the decision to do some form of tapering is announced, it must accompany new programs and policies to manage the resultant rise in interest rates.  If rates rise in an uncontrolled fashion, it could very well have a catastrophic effect on the equity markets.  You can see that there is a tremendous gap between the current level of $178 and support back at $107, a potential decline of some 40%.  The same potential damage exists for the bond and housing markets.  What makes the pending announcement “perilous” is not the announcement per se.  It will be the accompanying new initiatives designed to mitigate the effects of pulling back on the purchases.

The policies of the Fed and the government have created an environment where corporate profit margins, stock buy backs, and margin debt are at nosebleed levels, and the belief that equities are the only asset class in which to invest.  If and when there is tapering and rates rise gradually, it would not dictate that equity prices would collapse, but a very tricky and delicate balancing act is required by the central planners.  A significant change in any of these factors could lead to a cascading decline in equity valuations.

The metals and miners continue to be subject to periodic attacks by the central planners, but the effects seem to be diminishing.  As above ground gold stocks continue to disappear and demand by Asia remains at extremely high levels for physical metals and mining properties, it feels as if the reversal which we have all been expecting might be at hand.  Investors should continue to take advantage of any short-term declines in both areas just like the major international players such as Chinese and the Indians."

Friday, December 13, 2013

Be careful. Be worried. Be prepared !

""These guys are academics and bureaucrats. I suspect the first time they do come to their senses and start to cut back it will lead to some kind of correction, markets going down everywhere. So they will panic and they will start printing again.
    "We've had economic slowdowns every 4-6 years in America...In 2008 it got worse and worse and worse, because the debt so much higher. Look out the window. You can probably see the debt rising! It's like the beanstalk.
    "Whether it's 2014, 2015, whenever [the downturn] comes next time it's gonna be much much worse, because the debt is so much higher.
    "Be careful. Be worried. Be prepared."

This Will Trigger A Massive Gold Spike To New All-Time Highs

"Hathaway:  “We have an inexplicable discrepancy between what’s happening in physical markets and paper markets.  I think there is really something to it.  We know that there is now some regulatory interest.  The FCA (Financial Conduct Authority) in the UK is looking into it....

“The German equivalent is also looking into this.  It will be interesting to see where it all goes, but anything to shed light on the inexplicable trading patterns in the gold market is a step in the right direction.  During Western hours of trading our paper markets have historically hammered gold.

Then you look at what’s happening in Eastern markets, which is purely physical, and the difference between the two is just eye-opening to say the least.  We know the market right now is quite short gold, maybe as short as it was back in July when we had a huge rally.  We are set up for that once again..."

How the Paper Money Experiment Will End

"We are now in a situation that looks like a dead end for the paper money system. After the last cycle, governments have bailed out malinvestments in the private sector and boosted their public welfare spending. Deficits and debts skyrocketed. Central banks printed money to buy public debts (or accept them as collateral in loans to the banking system) in unprecedented amounts. Interest rates were cut close to zero. Deficits remain large. No substantial real growth is in sight. At the same time banking system and other financial players sit on large piles of public debt. A public default would immediately trigger the bankruptcy of the banking sector. Raising interest rates to more realistic levels or selling the assets purchased by the central bank would put into jeopardy the solvency of the banking sector, highly indebted companies, and the government. It looks like even the slowing down of money printing (now called “QE tapering”) could trigger a bankruptcy spiral. A drastic reduction of government spending and deficits does not seem very likely either, given the incentives for politicians in democracies.
So will there simply be ever more money printing and close to zero interest rates, until people lose their confidence in the paper currencies? Can the paper money system be maintained or will we necessarily get a hyperinflation sooner or later?

There are at least seven possibilities:
1. Inflate. Governments and central banks can simply proceed on the path of inflation and print all the money necessary to bail out the banking system, governments, and other over-indebted agents. This will further increase moral hazard. This option ultimately leads into hyperinflation, thereby eradicating debts. Debtors profit, savers lose. The paper wealth that people have saved over their life time will not be able to assure such a high standard of living as envisioned.
2. Default on Entitlements. Governments can improve their financial positions by simply not fulfilling their promises. Governments may, for instance, drastically cut public pensions, social security and unemployment benefits to eliminate deficits and pay down accumulated debts. Many entitlements, that people have planned upon, will prove to be worthless.
3. Repudiate Debt. Governments can also default outright on their debts. This leads to losses for banks and insurance companies that have invested the savings of their clients in government bonds. The people see the value of their mutual funds, investment funds, and insurance plummet thereby revealing the already-occurred losses. The default of the government could lead to the collapse of the banking system. The bankruptcy spiral of overindebted agents would be an economic Armageddon. Therefore, politicians until now have done everything to prevent this option from happening.
4. Financial Repression. Another way to get out of the debt trap is financial repression. Financial repression is a way of channeling more funds to the government thereby facilitating public debt liquidation. Financial repression may consist of legislation making investment alternatives less attractive or more directly in regulation inducing investors to buy government bonds. Together with real growth and spending cuts, financial repression may work to actually reduce government debt loads.
5. Pay Off Debt. The problem of overindebtedness can also be solved through fiscal measures. The idea is to eliminate debts of governments and recapitalize banks through taxation. By reducing overindebtedness, the need for the central bank to keep interest low and to continue printing money is alleviated. The currency could be put on a sounder base again. To achieve this purpose, the government expropriates wealth on a massive scale to pay back government debts. The government simply increases existing tax rates or may employ one-time confiscatory expropriations of wealth. It uses these receipts to pay down its debts and recapitalize banks. Indeed the IMF has recently proposed a one-time 10-percent wealth tax in Europe in order to reduce the high levels of public debts. Large scale cuts in spending could also be employed to pay off debts. After WWII, the US managed to reduce its debt-to-GDP ratio from 130 percent in 1946 to 80 percent in 1952. However, it seems unlikely that such a debt reduction through spending cuts could work again. This time the US does not stand at the end of a successful war. Government spending was cut in half from $118 billion in 1945 to $58 billion in 1947, mostly through cuts in military spending. Similar spending cuts today do not seem likely without leading to massive political resistance and bankruptcies of overindebted agents depending on government spending.
6. Currency Reform. There is the option of a full-fledged currency reform including a (partial) default on government debt. This option is also very attractive if one wants to eliminate overindebtedness without engaging in a strong price inflation. It is like pressing the reset button and continuing with a paper money regime. Such a reform worked in Germany after the WWII (after the last war financial repression was not an option) when the old paper money, the Reichsmark, was substituted by a new paper money, the Deutsche Mark. In this case, savers who hold large amounts of the old currency are heavily expropriated, but debt loads for many people will decline.
7. Bail-in. There could be a bail-in amounting to a half-way currency reform. In a bail-in, such as occurred in Cyprus, bank creditors (savers) are converted into bank shareholders. Bank debts decrease and equity increases. The money supply is reduced. A bail-in recapitalizes the banking system, and eliminates bad debts at the same time. Equity may increase so much, that a partial default on government bonds would not threaten the stability of the banking system. Savers will suffer losses. For instance, people that invested in life insurances that in turn bought bank liabilities or government bonds will assume losses. As a result the overindebtedness of banks and governments is reduced.
Any of the seven options, or combinations of two or more options, may lie ahead. In any case they will reveal the losses incurred in and end the wealth illusion. Basically, taxpayers, savers, or currency users are exploited to reduce debts and put the currency on a more stable basis. A one-time wealth tax, a currency reform or a bail-in are not very popular policy options as they make losses brutally apparent at once. The first option of inflation is much more popular with governments as it hides the costs of the bail out of overindebted agents. However, there is the danger that the inflation at some point gets out of control. And the monopolist money producer does not want to spoil his privilege by a monetary meltdown. Before it gets to the point of a runaway inflation, governments will increasingly ponder the other options as these alternatives could enable a reset of the system."