From David's Desk 

I will not be brief with my own comments today. Susan and I are heading back to Minneapolis for a two-week "vacation." Funny, I used to go south for a vacation but now that we live half the year in Miami, we go back up to Minneapolis for a vacation.

Today, Kitco published an article explaining WHY gold sold off. Here is what they said:

The minutes of the latest meeting of the Federal Reserve's Open Market Committee were released Thursday afternoon and they somewhat surprisingly revealed some FOMC members believe that quantitative easing of U.S. monetary policy should be wound down during 2013. That spooked the precious metals market bulls and gave the U.S. dollar index another boost higher. The past four years of very easy U.S. monetary policy have been an underlying bullish factor for the raw commodity sector, including gold and silver.

Continue reading on Kitco.com

This is what the manufactured sell-off looks like:

The gold action this week is more of the same - the M(ain)S(treet)Media bull that the banks can use to force gold down. It is just another red herring, just more B.S. The Fed can't cut back on QE, but they don't have to, all they have to do is issue a rumor that they are considering doing it. Just remember, this is all just paper shenanigans and the demand for physical gold (and silver) is off the charts. Sophisticated buyers are buying at these prices and they laugh all the way to the bank. Don't worry, you'll get your monster profits in gold and silver soon enough, but not on YOUR timetable. That's up to JPMorgan and friends.

After I finished writing the above, Jim Sinclair voiced the same views. He released the following. Read it CAREFULLY.

Such an announcement has been part of QE either from MSM or some Fed board member since it began. The implication of stopping QE is so dire to the economy that it is in a practical sense impossible. When gold was being sold by central banks during the 1970s market announcements were made constantly with the bias to depress metals.

There is no way that the implications and consequences of what has been done up to now can be talked or manipulated away. There is no practical way that QE can cease here or in Euroland without a total and final collapse of the financial system. Just go back to the IMF report on OTC derivatives I posted this morning. If QE ceases, the US bond market collapses and the Fed must debt monetize all required debt, which means if QE stops, it starts up again immediately and in a crisis mode.

I have to admit that if you have been a reader here for any length of time you should know this without asking me. The pressure that people unload on me during any gold reaction is downright mean.

The statement that QE can stop is simply MOPE. QE cannot stop or the world ends as you know it.

Please print this out and post it on your computer because every time the long cycle guy repeats his year old bear gold price prediction or the Fed says anything about stopping QE, you all go wild. It is embarrassing really.

If you do not understand what you are in, why are you in it?

Truman said it all when he said if you can't stand the heat, get out of the kitchen.

The Federal Reserve has no practical option to end QE without ending the economic world for decades to come. Should that actually occur in some parallel universe, only gold will protect those citizens from the collapse of the by-default reserve currency. I am sure I have written this at least 200 times.

Continue reading on jsmineset.com

It's now 8 A.M. in Miami and Sinclair has more to say about the B.S. announcement that the Fed will cut back on bond buying:

The Federal Reserve Really Has No Practical Option To End QE

January 4, 2013, at 6:40 am
by Jim Sinclair

Mr. Jim,

Sorry to hear you have to hand hold the unfaithful...

Kindly let me know if I am missing something:

1. Fed stops buying the 10-year. As Fed is buying something like 60% of the 10 year, supply constant to up, demand falls, interest rates go up and bond prices go down. Existing bondholders take a haircut, new issuances have to go out at higher rates. Economic activity decreases, perhaps intensely

2. Fed stops buying, slows down buying MBS. MBS predicated on 10-year rate, MBS rates rise/MBS nominal value falls, refi rates rise, house fini market slows (crashes!)...

3. Fed jumps in, buys with gusto, market loves the juice and all is (s)well...

Rinse, lather, repeat.

The idea that these guys can stop, even slow QE seems ridiculous to myself, similar to a fool trying to refute Newton`s 3rd law of motion.

As always, thanks for your time!

Cheers,

CIGA Rod

Dear Rod,

To some degree, yes. Keep in mind that "QE to Infinity" has nothing to do with Main Street. It has to do with the lingering real balance sheet problem camouflaged by FASB permission for financial companies as a product of their ability to value their OTC derivatives at whatever price pleases them.

If QE comes to an end it will further impact the lending ability and willingness to lend by major institutions. You CANNOT show up on the doorstep again with QE and expect that all factors will move in a desired direction. There is no other tool out there to handle the unique economic problems of today (buy time) other than QE.

Therefore:

It will be interesting to see if the PPT (plunge protection team) can hold general equities up via their immense spreads.

Now negative economic news becomes more positive for gold as it makes, in the mind of the market, more difficult to take a hawkish stand at the Federal Reserve, which the cessation of QE would certainly be. On the other side, good economic news would have the opposite impact.

2. I cannot at present conceive of a better answer now to you inquiry than to again post what I explain correctly as the reality of the subject of QE, so important to understand.

Continue reading on jsmineset.com 

Let's get to the point here. If Sinclair is correct (and he is) and the Fed can not stop QE (buying bonds), and gold is falling because the market believes that the Fed will cut back on QE (but they won't), then gold will reverse course quickly when the "excuse" used by the bullion banks (JPMorgan and friends) to force gold down is seen as nonsense.

Remember the drill - the Fed releases a false story; it is jumped on by the M(ain)S(treet)M(edium); JPMorgan then shorts gold heavily causing the price to fall; the herd follows along, and their selling adds to the fall; the falling price activates black box computer selling by the momentum hedge funds as their "stop loss" points are breached; JPMorgan starts to cover their shorts at much lower prices (making a killing) and the price stabilizes are rises. The end result? Since the reason (used by JPMorgan) gold fell is invalid, prices go back to where they were and JPMorgan makes a bundle. And a lot of you lose sleep and gnash your teeth.

What can YOU do about it? See this for what it is and buy these "artificially manufactured dips." Nothing has changed - only a planted rumor by the Fed, designed to stop gold's rise. The Fed buys some time and JPMorgan makes a profit. And we sell a lot more gold and silver at prices much lower than they should be. A Christmas present 11-months early! Now go enjoy your weekend!

Sincerely,

David Schectman

Miles Franklin

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The Holter Report

Hyperinflation 201

Published: January 3rd, 2013

As a continuum to "Hyperinflation 101" I will try to wrap it up with this piece.  If you agree with what I wrote yesterday regarding the "cause" of hyperinflation at its most basic being a break, or lack of confidence in a fiat currency then you are ready for what follows.  If you do not agree and instead have the view that dictionary definitions or the pablum spoon fed to you by Washington and Wall Street (CNBC) are correct then please keep reading, you may have an "a Ha" moment.

Just to backtrack a little, "fiat" money by definition is a currency that is not "backed" by anything real or tangible.  It has value, whatever value, based on confidence or the belief... that it has value.  This "confidence" or "belief" at its most basic and primal level is that the currency will SPEND.  Once a population believes that a currency will one day NOT "spend"... this is exactly what they will do... spend it as fast and furiously as they can!  They will spend EVERY last currency unit that they have for "stuff"... any "stuff" because "any stuff" can either be used or bartered and at least has SOME value and "some" value is more than NO VALUE.  THIS is effectively what hyperinflation is... to the man on the street.

Another way of saying "loss of confidence" is to use the word "panic".  In the case of hyperinflation, a panic involves exiting a currency.  In today's world, please remember that there are no currencies anywhere on the planet that are "hard" currencies (backed by Gold or Silver) other than Gold and Silver themselves.  Years ago when money WAS backed by Gold, a "panic" would involve a run on the bank where it would run out of Gold and be forced to close their doors.  This happened in the 1930's and resulted in mass "deflation" where Dollars (which 20 of them were readily exchangeable for 1 ounce of Gold) became scarce and people hoarded them.  The reverse situation exists today.  (Yes I know, the banks are hoarding them which is why velocity is so low).  This is a very very important distinction, back then Gold and Dollars were officially interchangeable as where today they are officially "mortal enemies" and the exact opposites of each other.

My point is this, back in the good old days, a "panic" would usher in a deflation, today a true and uncontrolled panic will, must by definition usher in a hyperinflation.  Follow this logic through and it doesn't matter what government or central bank you think of because they are all sleeping in the same fiat bed and have all contracted the same disease.  They all go to the same doctors and are covered by the same insurance company.  In a word, they will all die the same deaths at identical times for identical reasons.

OK, mathematically the Treasury is broke.  They can never tax enough or cut spending enough to actually pay back lenders with current Dollars.  For that matter, the Dollars for future interest payments do not even exist today for future payment... they must be created (printed) but that is a story for another day.  Keeping it simple and within an easy box to understand, the Treasury has simply borrowed and guaranteed too much to ever be repaid in current Dollars.  The ONLY way to make payment is to print more which is another way of saying that the only way to make payment is to BORROW more.  But round and round we go... too much borrowing IS the problem... logically "borrowing more" cannot fix the problem of having already borrowed too much!  In a deflation "the money" becomes more valuable, I becomes worthless in a hyperinflation.  In a fiat system, the money can NEVER become more valuable over a longer time frame and devalues into obscurity or uselessness.  The only question is how long does this take to happen?

I could go off on all sorts of tangents, examples and proof how we are mathematically upside down and financially screwed, I assume that you already understand this.  What I am trying to do is break it down to such a basic, grounded and simple equation that no one can misunderstand.  Here it is: if the issuer of a fiat currency is fiscally, financially and mathematically BROKE then what does that mean for their fiat currency.  Remember the words "the full faith and credit"?  How much "faith" and how much "credit" would you give to an obvious bankrupt?  None... right?  (Yet every single day you wake up and wonder "what's Gold doing"?  You have it 180 degrees BACKWARDS!  You should be wondering each morning whether or not the Dollar is being devalued further... you should be wondering whether or not the mathematically certain panic OUT of Dollars has begun.  But no, you wonder where or not "Gold went up".)  Down and dirty, "How much is the IOU of a bankrupt lender worth?"  The answer to this question gives you the ultimate "value" of the currency issued by the bankrupt which is exactly the same value as a hyperinflated currency... ZERO!

Let me put it this way, absolutely positively we are set up for a panic out of Dollars and all other fiat currencies because the very same Dollars that are issued by a bankrupt government are what all these other central banks use as their "reserves."  Just look at the latest 3 ring circus in Washington where they avoided the "fiscal cliff" by adding another $4 trillion in debt over the next 10 years  while giving subsidies to Hollywood, Nascar and asparagus farmers... they can't even do a "fiscal fix" without adding more PORK.  Next they will raise the imaginary debt ceiling.  The only real question that comes to my mind is "when"... "when" does the panic begin?

I know that I strayed a little from "hyperinflation" but in the case of a world where all money, all accounts, all savings... everything "financial" is fiat, a panic means hyperinflation.  It means hyperinflation because the ONLY policy tool available is... you guessed it... print and thus borrow more and dilute the paper even further!  I had planned to explain "why" I don't believe that hyperinflation can be a long term phenomenon but got caught up in the layman's nuts and bolts deeper than I anticipated.  I will finish this tomorrow and explain why I believe this will most likely be a very short term event and one where you are either positioned correctly and survive... or you are not and you will find it nearly impossible to survive.

LeMetropole Cafe (www.LeMetropoleCafe.com)

1/2 Gold Now Up THIRTEEN Years In A Row / Silver Rises 78 Cents

My mouth dropped when I read the above over a casual dinner at Chili's. It was that mindboggling. Then, I got to thinking ... the equivalent are the people in the mainstream gold world who continue to not recognize how manipulated the precious metals are. They are as pitiful as the basketball players Kobe Bryant is referring to.

First, some of the basic on the fiscal cliff news:

00:45 Congress passes fiscal-cliff deal; fails to address major issues - WSJ

In a front-page summary article, the WSJ reports that the compromise that was reached ensured Democrats and Republicans will continue to fight for some time to come. The bill raises income-tax rates for the first time in nearly 20 years -- a development the WSJ discusses in a second front-page story focusing on high earners -- but does not address health-care costs and does not make a significant reduction in the deficit. And the $110B in spending cuts have merely been delayed by two months, setting up a new cliff as the US will need to raise its debt ceiling.

http://online.wsj.com/article
/SB1000142412788732332040
4578215373352793876.html?mod=ITP_pageone_0

* * * * *

The gold/silver trading in the new year has started out the way it ended last year with Gold Cartel written all over it. Both gold and silver came in roaring on the Comex opening with gold quickly rising to $1695 and silver to $31.49. Some serious excitement for a change, right? Especially with the stellar silver action, as its price was up 4% plus.

Wrong! While better than a kick in the butt, it was just another day in the life of The Gold Cartel dealing with general market exuberance following the fiscal cliff nonsense. Was talking to a colleague this morning, with gold and silver near their highs, without the slightest bit of enthusiasm, figuring the odds were 100 to 1 The Gold Cartel would not be very visible before the day was over.

It took less than two hours for that to occur. More specifically, they went right to PLAN B again, following the PM Fix, which came in at $1693.75. Both gold and silver were then pounded down off their highs. It was a zero surprise, especially after watching the gold/silver shares go into blah mode with the DOW almost 300 higher. Gold was taken down to $1685 and then all rallies were sold. Silver was taken down to $30.85 and then went through the same procedure as gold.

The price of gold should be up $100 an ounce, which would only put it $40 higher than where it was before QE3 was announced. Big deal. Nothing has been done to address our growing fiscal deficits and debt problem in the US. Within days the squabbling will be right back where it was the past several months. So I'm not nominated for Grouch of 2013, the good news is gold is now up 13 YEARS IN A ROW.

Back to the grouch program, gold was stopped cold about 1% higher. Hello James Mc. Will the no follow-through allowed drill be implemented for the zillionth time tomorrow? At some point this year the precious metals physical markets are going to blow The Gold Cartel out of the water. But when is the question I have no answer to.

Were today's orders to cap gold and silver emanating from the BIS or ESF? When are JP Morgan's silver traders going to be held accountable for their manipulation of that market and ripping off the public? Will they ever?

Silver left a huge gap on the downside after its opening and we know how it loves to fill them. Will this be a breakaway, with the gap signifying as such, or will it be biz as usual? Don't know, but if silver is on its way to $100 per ounce this year, there will be a number of them this time around.

The AM Fix was only $1681.50, so we finally got a more than $5 rise with the PM Fix. That has to have the bad guys really ticked off.

The gold open interest rose 2472 contracts to 427,991. The silver open interest fell 259 contracts to 141,419.

After the way gold traded early, my first thoughts were toward what James Mc might have to say. The Gold Cartel script is just so obvious. Just in...

January 1%, 2013.

***

From the mouths of imbeciles, which are the only opinions allowed on CNBC, comes this incredibly moronic comment from the "guru" Dennis Gartman:

"Gold has always been the haven. It's not a safe trade. I'm always amused when people say gold is safe. Gold is not safe. Gold is a very speculative medium. It moves 1, 2, or sometimes 3% in a day and that's not a haven". FYI Dennis: Besides being totally confusing you apparently don't even bother to watch gold trade on a daily basis. This is surprising given your guru status by the elitists. If you did you would know that you could count on one hand all the +3% gold days in the past DECADE. You'd also know you could count on one hand all the +2% days in ALL of 2012. And really Dennis, how can you even call 1% a volatile day? Maybe like today's "volatility", where gold is capped at 1% by 10:00 AM and then as usual drifts lower the rest of the day? Gold by the force of the PPT is NEVER volatile on a daily basis. Anybody investing with Gartman should be very disturbed that he doesn't even know these basic FACTS.

Paid tools are the worst. On the first day of the New Year pathetic old Dennis offers up the scary monsters on a platter to keep gold investors away. The JPM gods must be smiling.

JMc

Dave from Denver...

The Fiscal Cliff And Gold

America will endure until the day Congress discovers that it can bribe the public with the public's money - Alexis de Tocqueville

I mentioned twice in November that the Fiscal Cliff would be averted with a last minute deal that would postpone America's budgetary day of reckoning. And of course the clowns in Congress and in the White House once again did not fail to disappoint. I just came across a fact about that new agreement that you will definitely NOT see mentioned in any of the mainstream media - yesterday's deal included an extension of a big tax break for Hollywood: Movie Mogul Tax Break and for Warren Buffet: And For Railroad Owners The latter will benefit Phil Anschutz, Denver's local zillionaire. I guess Buffet's big fundraising dinners for Obama paid off nicely. I'm sure Phil takes care of the The Big O as well. At any rate, I wrote piece published on Seeking alpha that explains why yesterday's Cliff deal will help grease the set-up for the next big run in gold/silver: "the Fiscal Cliff deal will now lead to a much higher Treasury debt limit ceiling - if not the complete elimination of it, which has been proposed by Obama - and a much higher level of QE. How do you invest knowing this ahead of time?" Here's the LINK

Next on deck will be the dealings over the debt ceiling limit, which was breached in late December. You can be sure that Congress will pass a huge ceiling raise, if not a total elimination of the ceiling, because otherwise they won't get their paychecks and Harry Reid, John Boehner and Nancy Pelosi will have to furlough their limo drivers...

Subscribe to LeMetropoleCafe.com for the full article.

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Larry Edelson (www.uncommonwisdomdaily.com)

The Mayans Were Right...

Larry Edelson | December 31, 2012

The Mayans were right. They never predicted the end of the world on 12/21/12. Those predictions were the antics of doomsayers and others hell bent on frightening you.

The Mayans predicted a turn in the major cycles impacting the world, and the beginning of a new era. And to that degree, I think they were spot on.

I say this because my work on economic cycles tells me the same thing; namely that we are now about to pass through the eye of the hurricane of what will be the biggest and nastiest financial storm of all time ... and the back wall of that hurricane is about to hit in 2013.

I've studied the K-wave in detail ... the Jugular economic cycle ... the Kitchen cycle ... the Kuznets cycle ... and even the War cycles ...

And all of them start ramping up in 2013, and will exert their influence for years to come, converging upon the economy in a way that hasn't been seen since the period from 1841 to 1896, a period in U.S. history ...

• That was characterized by 14 distinct recessions and SEVEN major financial panics.
• Included the longest and steepest depression in U.S. history, from 1873 to 1896. And ...
• Where three of the ten deadliest wars in U.S. history occurred: The Civil War, the Spanish-American Wars, and U.S. Indian wars.

So fasten your seatbelts. The relative calm you've seen in the markets over the last 12 to 18 months is nearly over and the next phase of the financial crisis is just about here.

I can't cover it all in this column today. But I will be making a major presentation of my forecasts at the Weiss Wealth Summit in Florida on January 18, where I'll reveal all the details, including the strategies you will need to survive the second half of the financial crisis.

Right now though, I want to tell you about one market that stands out from all the rest, and it's not gold.

It's none other than the U.S. Treasury bond market and interest rates.

And I'll put it very bluntly: If you own Treasury bonds, get the heck out of them NOW. Holding Treasury bonds is a recipe for financial suicide; no matter how much credence you give to Mr. Bernanke and the Federal Reserve.

Look, we all know interest rates are going to go up. So there's nothing new there. The only things that matter then is the timing, when are interest rates going to go up, and then, how rapidly will they go up.

Again, I would not bet on the Fed being successful keeping rates low to 2015 or until unemployment hits 6.5%, as they have recently promised. Rates are going to start going up - and bond prices will fall - starting almost immediately.

Look, we all know interest rates are going to go up. So there's nothing new there. The only things that matter then is the timing, when are interest rates going to go up, and then, how rapidly will they go up.

Again, I would not bet on the Fed being successful keeping rates low to 2015 or until unemployment hits 6.5%, as they have recently promised. Rates are going to start going up - and bond prices will fall - starting almost immediately.

All you have to do is look at the well-established 64-year cycle in interest rates. It's here in a chart for you.

As you can clearly see, interest rates peaked right on cue in 1980, then fell for 32-years into their record lows this year.

And now take a look at where the next half-cycle, or 32-years is pointing. Much, much higher for interest rates. Till the year 2044!

Put another way, we are at the very, very bottom of the cycle for interest rates, hovering just above record low interest rates, and there's virtually nowhere for interest rates to go but up, and starting almost immediately.

Personally, I believe that U.S. Treasury bonds will be the worst investment you can possibly make in the years ahead, destined for dramatic losses.

Moreover, the picture that chart tells you speaks a thousand words ...

• The U.S. federal debt and budget deficit will likely get worse, not better, as a result of rising interest expenditures and Washington's increased trouble selling new debt.
• As interest rates rise, we are likely to see a renewed bear market in the dollar. Rates will not be defending the dollar in this cycle, but instead, will be a reflection of investors, especially foreign investors, cashing in their holdings of our bonds.
• It will also reflect a dramatic increase in inflation.
• And to many analysts and investors, it will also signal renewed bull markets in many asset markets, especially commodities, but also in the shares of cream of the crop multinational companies.

What about other bonds? Shorter-term Treasuries, corporate bonds, municipals, junk bonds?

Based on my work, their prices all headed lower. I repeat: Owning them is a recipe for disaster.

The only interest rate investments I would buy today are sovereign notes and bonds of the emerging economies in Asia. Period. And even there, I would be very selective.

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About Miles Franklin

Miles Franklin was founded in January, 1990 by David MILES Schectman.  David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991.  Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry.  In November, 2000, we decided to  de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle.  Our timing and our new direction proved to be the right thing to do.

We are approaching $200 million a year in precious metals sales.  We are rated A+ by the BBB.  We are recommended by many prominent newsletter writers including Doug Casey, David Morgan, Ron Hera and LeMetropole Caf�.  Our reputation for service, education, quality product and pricing is outstanding.

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