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Auguries—Scrooge Turns Left

March 29, 2012

By Kevin Michael Grace

Gold was up (at press time) $10.10 (+0.6%) for the week to $1,655, and silver was up $0.41 (+1.3%) to $31.58. According to Reuters, gold “has struggled for traction after a rally early in the week sparked by Federal Reserve hints that accommodative monetary policy is set to persist.”

The reference above is to a Monday speech by the Ben Bernanke, wherein he fretted that recalcitrant joblessness was “something of a puzzle” and declared, “While both cyclical and structural forces have doubtless contributed to the increase in long-term unemployment, the continued weakness in aggregate demand is likely the predominant factor. Consequently, the Federal Reserve’s accommodative monetary policies, by providing support for demand and for the recovery, should help, over time, to reduce long-term unemployment as well.”

March 22, 2012

At Seeking Alpha, Daryl Montgomery argues, “Essentially, Bernanke’s remarks are an admission that the Fed’s policy of zero percent interest rates for almost three and a half years now and two rounds of quantitative easing (combined with trillion-plus dollar budget deficits for four years in a row) have been a big dud. The average American, however, wouldn’t know this based on what they read in the papers and hear on TV. There have been three years of reports from the mass media informing the public about the ‘recovery’ that is taking place.”

Bernanke claims that his “forceful policy response to the recent financial crisis and recession likely averted much worse outcomes,” but he would say that, wouldn’t he? Yes, we have been spared Great Depression II, but the recent financial crisis is now almost four years old, with no end in sight, and until the recovery is demonstrated to be real and sustained, GDII is not out of the question.

In any event, the consequences of helicopter-delivered easy money and the record deficits of the Bush-Obama presidencies will be real and sustained. At LewRockwell.com, Gary North contends they are likely to be calamitous. “If the American economy begins to recover to the degree that businessmen are willing to borrow and bankers are willing to lend to them, the monetary base that the Fed holds will at long last push up consumer spending by the employees of businesses… At that point, the Fed will have to decide how to offset this in order to head off major price inflation. If it does not sell assets, mainly Treasury bonds and Fannie Mae and Freddie Mac mortgage bonds, it will face mass inflation (15% to 25%).”

Alternately, “If Bernanke decides to stop buying US government debt and all other forms of debt, and the Fed ceases to create new reserves, there will be a recession. If the Fed sticks to its guns, the fractionally reserved banks—very large banks—will fail. That will shrink the money supply. That is what happened in the United States from 1930 to March 1933. About 9,000 banks failed. The Fed bailed out the biggest ones. The problem next time will be this: the biggest banks are leveraged 33 to one.”

America’s fiscal crisis is almost beyond comprehension. It is certainly beyond Timothy Geithner’s ken. Last week, Congressman Trey Gowdy asked the Treasury Secretary, “How much would we need to [raise the debt ceiling to] meet current and future obligations, assuming the status quo?” As much as $20 trillion or $50 trillion? After much humming and hawing, Geithner replied, “It would be a lot. It would make you uncomfortable.”

If all this money hasn’t secured a recovery or stabilized the system, where has it gone? Walter Ramsley of Walrus Partners points out that it certainly “hasn’t been directed to the American people. Per capita inflation adjusted income is down -6% since the President took over. It’s gone into the bond market instead—anyone wonder why Warren Buffett is such a huge supporter?—and from there to every other market, particularly hard assets and commodities.”

In other words, it’s gone to make the rich richer. Charles Moore, in the course of a wide-ranging interview on the future of conservatism in the European, says, “What people think is that free markets and the capitalist system have been discredited. That it is very understandable. Marxists have always said that the idea of the free market is a fiction created by capitalists to justify a system that benefits them and makes everyone else suffer. It appears as if that is what happened. Banks made a lot of money for bankers and lost a lot of money for shareholders and taxpayers.”

But of course the capitalists are not as they were. Moore notes, “Indeed, there seems to be an unholy alliance between international greed and Leftist ideas about personal fulfillment and liberation.” In the bad old days, we knew what the capitalists stood for: hard work, personal responsibility and strictly limited government. They were men like Warren Buffett’s father, rock-ribbed Howard Buffett, champion of the gold standard, or to give an extreme example, Ebenezer Scrooge: “Are there no prisons? And the union workhouses, are they still in operation?”

Today, the leading capitalists are men of the Left, like Buffett fils, or to give an extreme example, Gingerbread Man Peter Mandelson, he of the infamous declaration that Tony Blair’s Labour government was “intensely relaxed about people getting filthy rich as long as they pay their taxes.” This Young Communist has of late changed his tune (again) but not before becoming filthy rich himself, even as the source of his wealth remains obscure. Doing well by doing good, I believe it’s called. Bring back Scrooge; at least he was honest.

The honest truth about precious-metals equities is that investors in them are not getting filthy rich. David Berman reports in the Globe and Mail, “The 16-member NYSE Arca Gold Bugs index has returned an impressive 36.8% over the past five years. However, gold has risen 150% over this period, meaning that gold producers have lagged their underlying commodity by an astounding 113.2 percentage points.”

And now to cases. Reuters reports March 29 that CIBC has downgraded Richmont Mines TSX:RIC from “sector outperformer” to “sector performer.”

At the Financial Post, Peter Koven reports that Brian Christie of Desjardins Securities has given a “thumbs-up” to AuRico’s TSX:AUQ sale of its Australia gold projects for $105 million. “It provides AuRico with immediate cash and allows management to direct its full attention to its strong portfolio of North American assets.” Christie maintains a “buy” rating for the company and a $14.25 price target (currently $8.72).

At the Globe, Darcy Keith reports that Alec Kodatsky of CIBC has cut his price target for Centerra Gold TSX:CG (“sector outperformer”) from $32 to $26 (currently $14.56) and that Nicholas Campbell of Canaccord has cut Fortuna Silver’s TSX:FVI (“speculative buy”) target from $9.50 to $7 (currently $4.27).

From the same source, Jody White reports that, in the event of a Chinese economic downturn, China Gold TSX:CGG is particularly at risk, as it “derived 100% of [its] latest fiscal year revenue from the Chinese market.”

At Seeking Alpha, Simit Patel is sweet on Merrex Gold TSXV:MXI. He explains, “IAMGOLD TSX:IMG is a major partner of the firm on some of their operations and has a 15% stake as well. The NI 43-101 report for its Siribaya Project claims over 316,000 ounces at 3.31 grams per tonne—an especially high grade, in my opinion, which I regard as a sign that its final cost per ounce produced may be low enough to yield exceptional profit margins… That the stock is not reacting negatively to [news of the coup in Mali] suggests me to the bottom is in.”

And at Happy Capitalism, Lou Schizas concludes of HudBay Minerals TSX:HBM, “We need more evidence that the stock is ready to move higher. The company is expected to report 1Q 2012 on May 4, which will provide a milestone we can track progress against. Best-case scenario: HBM catches a bounce off $11 [currently $10.91] and moves through resistance…”

Finally, the Onion A.V. Club mocks America’s Next Top Model for supposed ignorance of Canada: “A magical land where beavers run for Parliament, the economy is based on Tim Horton’s [sic], and Hockey Night In Canada is sacrosanct weekly viewing. Yes, none of these things are true…” Shows how little they know. Our economy is based on Tim Hortons, Hockey Night In Canada is sacrosanct weekly viewing, and as for beavers running for Parliament, take a closer look at Jason Kenney.


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