INTERESTING CHART O' THE DAY: Inflation vs. Gold, 1915-2010

In order to pay for excessive government spending, the United States and other countries around the world are busy printing money. This practice, known as "debt monetization", is the precursor for inflation. Sometimes, in fact, the act of paying sovereign debt by printing money can lead to hyperinflation and currency collapse; the Weimar Republic and Zimbabwe's recent experience being two noteworthy examples.

I was thinking to myself how a typical investor might be able to profit from a sudden burst of inflation. After all, the printing can only go on so long before a currency becomes a joke. We also know that America's most recent bout of severe inflation took place during the Carter administration.

Knowing that gold and silver are bellwether commodities that tend to march inversely against a devaluing currency, I decided to compare those metals against CPI to determine whether any obvious trends could be discerned.

History tells us that timing a peak is well nigh impossible. Perhaps once gold and silver go parabolic it will be time to sell. And given this administration's march to currency collapse, parabolic it will go.


Hat tips: Wikipedia: Consumer Price Index by Country and MacroTrends.

NEAT STOCK MARKET GRAPH: What goes around, comes around

That much is clear from this excellent chart spotted at Above The Market:

The largest contributing factor to equity returns is the P/E ratio. The expansion or contraction of the broad market P/E ratio creates secular bull and bear markets. The chart below from Crestmont Research breaks down the components of total return for the S&P 500 for ten-year rolling periods.

Yale Professor Robert Shiller’s 10-year Average Inflation-Adjusted PE Ratio, also known as CAPE, Shiller PE or PE10, provides the best longer-term market gauge available. PE10 is the stock index price divided by the average real earnings from the previous 10 years – the time period is designed to smooth out near-term noise in the data. The basis for this approach is the finding that earnings valuation ratios provide predictive power for long-term stock market returns.

It's science, dammit! Like global warming, only real!

THAT "COMING COLLAPSE" HAS BEEN COMING FOR DECADES: What does this gold ad from 1973 really tell us?

Considering that the CAGR (compound annual growth rate) of gold since 1973 is roughly 17.2%, who's to say this ad wasn't right?

An ad from a 1973 issue of Barron's provides clear proof that feverish concerns about imminent economic collapse and a concomitant enthusiasm for precious metals has long been a theme amongst modern investors.

With the race to devalue currencies around the world -- led by Ben Bernanke's magical printer -- and unsustainable sovereign debt, it's pretty clear that a collapse will come.

The only question is whether it's two years away -- or 10. History and arithmetic both tell us it won't be longer than that.


Hat tip: BadBlue Money News.

I HOPE YOU'RE SITTING DOWN: Why Gold Is Insurance

Writing at Safe Haven, Przemyslaw Radomski offers the historical perspective on U.S. deficit spending and the price of gold.

I repeat: you should be sitting down before viewing the following graph.

While the general idea of dividing your portfolio between long-term and speculative capital (the latter is only the money you can afford to lose) is not a particularly new one, the inclusion of the insurance part in the portfolio may make it more robust to financial blow-ups. We will now focus on that - gold and silver as insurance against severe financial turmoil.

Gold may be perceived as insurance if you believe that, because of psychological reasons, it appeals to investors as a wealth-preservation vehicle. In case of financial turmoil they turn to precious metals, the increased demand causes an increase in the price and gold and silver deliver on their promise to provide an alternative to government bonds.

There is also another dimension to it: in the past gold and silver were used as money. As a matter of fact, gold had been indirectly used as money up to 1971 when U.S. president Richard Nixon officially announced that the U.S. government would cease to adhere to its promise to redeem the greenback in gold. Since that moment money has been only paper and a promise of the government to accept payments in it...

Some investors fear that excessive deficits as seen in the U.S. will result in money being printed on a large scale (which actually is already the case: open-ended QE) or even in the implosion of the dollar. The bigger the deficits, the more likely such a scenario seems. This is shown on the chart below.

...since 2000 increases in the U.S. debt have been accompanied by increases in the price of gold. This might reflect investors' fear that the U.S. government will eventually default and their belief that gold may be a safe haven in case of such a development.

The abovementioned points may lead to the conclusion that gold may in fact skyrocket if things get out of hand in the U.S. or in the European Union. The main problem here is that nobody knows when (if at all) the paper currencies will begin to visibly deteriorate or disappear completely. Precisely because of that, we suggest holding on to gold and silver at all times with a part of your portfolio.

We call this part of your portfolio "Insurance," because by holding on to gold and silver even during corrections you accept small losses in hope of enormous gains should serious economic turmoil materialize. Economic crises have the inherent quality of catching most investors off-guard. We don't want you to be among them.

If you believe that government can continue to increase its debt -- which already amounts to 550 percent of GDP (all the goods and services produced in a year) -- then by all means, ignore the advice.

Because if you believe that, you're obviously a Democrat and an Obama supporter, in which you can fend for yourself after the inevitable reboot.


Hat tip: BadBlue.com/Money.

A must-read: What happens when the dollar dies?

In Investment News, the brilliant Peter Schiff describes the real fiscal cliff facing Americans.

The current national debt is about $16 trillion (this is just the funded portion...the unfunded liabilities of the Treasury are much, much larger). The only reason the United States is able to service this staggering level of debt is that the currently low interest rate on government debt (now below 2 per cent) keeps debt service payments to a relatively manageable $300 billion per year.

On the current trajectory the national debt will likely hit $20 trillion in a few years. If, by that time interest rates were to return to some semblance of historic normalcy, say 5 per cent, interest payments on the debt would then run $1 trillion per year. This sum could represent almost 40 per cent of total federal revenues in 2012!

In addition to making the debt service unmanageable, higher rates would depress economic activity, thereby slowing tax collection and requiring increased government spending. This would increase the budget deficits further, putting even more upward pressure on interest rates. Higher mortgage rates and increased unemployment will put renewed downward pressure on home prices, perhaps leading to another large wave of foreclosures. My guess is that losses on government insured mortgages alone could add several hundred billion more to annual budget deficits. When all of these factors are taken into account, I believe that annual budget deficits could quickly approach, and exceed $3 trillion. All this could be in the cards if interest rates were to approach a modest five per cent.

If the sheer enormity of the red ink were to finally worry our creditors, five per cent interest rates could quickly rise to ten. At those rates, the annual cost to pay the interest on the national debt could equal all federal tax revenues combined. If that occurs we will have to either slash federal spending across the board (including cuts to politically sensitive entitlements), raise taxes significantly on the poor and middle class (as well as the rich), default on the debt, or hit everyone with the sustained impact of high inflation. Now that's a real fiscal cliff!

By foolishly borrowing so heavily when interest rates are low our government is driving us toward this cliff with its eyes firmly glued to the rear view mirror. For years I have warned that a financial crisis would be triggered by the popping of the real estate bubble. My warnings were routinely ignored based on the near universal assumption that real estate prices would never fall. My warnings about the real fiscal cliff are also being ignored because of a similarly false premise that interest rates can never rise. However, if history can be a guide, we should view the current period of ultra low rates as the exception rather than the rule.

And what happens when our colossal debts truly become unmanageable? Chris Martenson provides the sobering lessons from one such episode that occurred less than a century ago in "Our Money Is Dying."

In the book When Money Dies by Adam Fergusson, which details Weimar Germany's inflation over the period from 1918 to 1923, the most riveting parts for me were the first-hand accounts from the people caught in the storm.

So many people left their wealth in the system only to watch it get eroded and utterly destroyed over time. The reasons were many: patriotism, inertia, disbelief, and denial cruelly fed by hope every time prices moderated or even retreated momentarily.

The simple observation is that many people had a blind belief in the money system. They lost their wealth because they were unable or unwilling to allow reality to challenge their beliefs. It's not that there weren't numerous warning signs to heed -- in fact, they could be seen everywhere -- but most willfully ignored them.

Most mysterious is the fact that in Austria and Germany, where the inflation struck most severely, there were numerous borders and currencies into which people could have dodged to protect their wealth. That is, protecting one's wealth was a relatively straightforward and simple manner. And yet…it did not happen.

What can you do to protect yourself? I'm no expert, but according to the real financial gurus like Mike Shedlock, investing a portion of your assets in gold could help protect your portfolio. Shedlock recommends GoldMoney to do so.

I would just recommend preparing. Because annual trillion-dollar deficits are certain to end in disaster, unless we return this country to Constitutional conservatism.

Best I can tell, if you're a gun-owner, Bank of America would prefer you move your business to another bank. Immediately.

Papa B writes, "If you are not familiar with McMillan manufacturing, they are a large manufacturer of firearms stocks and components located in Phoenix, Arizona."

McMillan Fiberglass Stocks, McMillan Firearms Manufacturing, McMillan Group International have been collectively banking with Bank of America for 12 years.

Today Mr. Ray Fox, Senior Vice President, Market Manager, Business Banking, Global Commercial Banking (Bank of America) came to my office. He scheduled the meeting as an “account analysis” meeting in order to evaluate the two lines of credit we have with them... He spent five minutes talking about how McMillan has changed in the last five years and have become more of a firearms manufacturer than a supplier of accessories.

At this point I interrupted him and asked "Can I possibly save you some time so that you don’t waste your breath? What you are going to tell me is that because we are in the firearms manufacturing business you no longer want my business."

"That is correct", he says.

I replied, "That is okay, we will move our accounts as soon as possible. We can find a Second Amendment-friendly bank that will be glad to have our business. You won’t mind if I tell the NRA, SCI and everyone one I know that BofA is not firearms industry friendly?"

"You have to do what you must," he said.

"So you are telling me this is a politically motivated decision, is that right?"

Mr. Fox confirmed that it was. At which point I told him that the meeting was over and there was nothing left for him to say.

I think it is important for all Americans who believe in and support our Second amendment rights to keep and bear arms should know when a business does not support these rights. What you do with that knowledge is up to you.

When I don’t agree with a business’ political position I can not in good conscience support them. We will soon no longer be accepting Bank of America credit cards as payment for our products.

Kelly D. McMillan
Director of Operations
McMillan Group International, LLC
1638 W Knudsen Dr
Phoenix, Arizona 85027
McMillan Integrity-Global Vision

I later discovered that William Jacobson wrote about this incident a few weeks ago. You can confirm the letter's content on McMillan's Facebook page.

Good News: Feds Look Seriously at Attacking the Deficit. Bad News: They're Targeting Retirement Accounts.

There are really no depths to which Democrats won't stoop in order to keep their unconstitutional Ponzi schemes running, are there?

Uncle Sam, in a desperate attempt to fix its $16 trillion-plus deficit, is leering over Americans’ retirement nest egg as its new bailout fund.

Capitol Hill politicians are assessing tax changes that could let the Internal Revenue Service lay claim to a portion of the $18 trillion sitting in 401(k) accounts and other tax breaks used by middle-class workers, including cutting the mortgage tax deduction... as one way to prevent government bankruptcy.

I love the term "tax breaks", don't you? As if it's the government's money, and not yours.

Besides 401(k)s, other possibilities include the mortgage-interest deduction on second homes, as well as benefits from employer-provided health insurance, which are untaxed now.

And once the mortgage-interest deduction is removed for second homes, it won't be much longer until all mortgage deductions are eliminated. Because when the Constitution no longer constrains government, the leviathan becomes insatiable.

And all of these Rube Golberg contraptions should do wonders for the housing market, don't you think?

Last week a group of retirement industry experts went to Capitol Hill to criticize these proposed changes in retirement-plan rules. “These changes could have unintended consequences,” warns Lynn Dudley of the American Benefits Council (ABC).

Testifying before the House Ways and Means Committee about the proposals, Randolf Hardock, of ABC’s board of directors, said, “[The idea] could seriously undermine the retirement savings system.”

Jack VanDerhei, research director of Employee Benefit Research Institute (EBRI), believes either of the two proposed 401(k) changes under review would have a “catastrophic” effect on the current retirement saving system.

Unintended consequences indeed.

How about a really crazy idea? Like the federal government slashes expenses until it's spending only what it takes in? Oh, that's right -- we have a president addicted to trillion-dollar deficits. Forget I mentioned it.


Hat tip: Mark Levin.

Chart: The Price of Gold Since... The Year 1265 A.D.

Tyler Durden offers the following graph courtesy of the Bank of England, which reinforces the notion that what goes around comes around.

We have often seen requests to show the price of gold going back as long as possible. Tonight we can oblige, with a gold price chart, indexed in 2010 British Pounds, going all the way back to 1265...

...To the surprise of many, the early 1980s gold price surge is not the only time in history when gold exploded. It appears that based on the surge in gold back in the late 15th century, there was actually quite a serious need for Columbus to go forth and find a source of gold, because last we checked Ferdinand and Isabella did not have Bernanke's money printers back then. And yes, as Goldman says, there were no ETFs back in the 16th century to draw demand away from the real deal and into make believe exposure.

Ben Bernanke could not be reached for comment at press time.


Related: Introducing the Obama Financial Anxiety Index Level™ (O-FAIL for short)

John Mauldin on Gold

John Mauldin, author and financial advisor, has some interesting thoughts on gold.

The question I am asked the most is some variant on “What do you think about gold?” So, let me deal with that question here, as it has been a while.



First, I do not think of gold as an investment. It is insurance for me. I buy a rather fixed amount of gold nearly every month, no matter the price. I hope the price of gold goes down, because that means I get more coins in the mail to go into the vault. Yes, I take delivery of my gold, and it is near me if I need it.



My fondest dream is that I will give my gold coins to my great-great grandkids some 70-80 years from now, and they will be rather embarrassed that their “Papa John” bought all that much of that barbarous yellow metal instead of more biotech stocks. But as I live in the real world, I buy gold, even though I am optimistic we’ll get through this rough patch; because I simply don’t trust the bas*%*ds who are driving this ship with 100% of my money in dollars, or any fiat currency, for that matter.



Gold to me is a neutral currency. While the metal looks good over the last ten years (and I became bullish on it in 2002 in this letter), over the last 32 years it has not had all that much luster. Bonds have been much better as an investment. It is all about timing.



If I wanted to buy gold for investment or trading, I would simply buy GLD. (It is an excellent vehicle for traders; however, GLD is not what I think of as insurance.) And if I were buying gold as a trade, I would buy it in terms of the euro or yen, which I think are both going down against the US dollar.



For those who want to buy larger sums of gold, there is a program that I like backed/sponsored by the state government of Western Australia, called the Perth Mint. You can buy gold certificates that represent actual bullion in vaults in Perth at reasonable prices. While your gold is stored in Perth, you can take delivery if you want and leave the country with no taxes owed. Or you can sell the gold and get cash. You diversify your country risk, have excellent and safe storage facilities, diversify your currency risk (if, like me, you think of gold as a currency), and have a different asset class than traditional portfolios.



...Where to buy actual bullion? Gold coins are gold coins. ASI is a good choice, but I would shop around. Depending on the amount you are buying, mark-ups can be significant, and there are differences in service and responsiveness. Delivery can be an issue, although I get mine in the mail with insured mail (although we do have to pick it up!).



Do I think gold is at a high? While I hope so, I truly do, I rather think that gold still has some upside because of government policies. When the deficit gets under control and we are on the road to real recovery, I rather think that gold will come back down from whatever highs it makes. I remember in 1980 there were True Believers who thought gold could only go one way.



For the record, I think you should own about 5% of your net worth in gold, as insurance, not as an investment. The “goal” and your hope should be to never have a reason to sell your gold. I trust that tells you where I stand.

Given the ongoing meltdown in Europe -- with a liquidity crunch unfolding at this very moment -- words of caution are warranted.

Banks are seeking to retain their liquidity, making interbank lending more difficult, as funding from money and capital markets becomes harder to obtain, ABN Amro Group NV Chief Executive Officer Gerrit Zalm said.



Interbank borrowing for more than six months is also becoming problematic because banks are reluctant to lend to competitors with “big positions in weaker countries’ debt, for instance,” he said today on Dutch television...



A demise of the euro would have “catastrophic” consequences for the Dutch economy, which sends about three- fourths of its exports to other euro-zone states, and “would cause a recession that would make the 1930s a trifle by comparison,” Zalm said.

No one can say where the price of gold is headed. But the reckless debts run up by big government Marxists and progressives around the world do nothing but demoralize investors in fiat currencies.

Is a Run on Physical Gold Beginning? Hugo Chavez Launches 'The Largest Physical Move of Gold In Recent History'

Adding to the month's economic turbulence comes this announcement by Venezuela's dictator:

The largest physical movement of gold in recent history is under way... Hugo Chavez... wants to move his country’s 211 tonnes of gold (over $12B at Friday’s close) currently stored in American & European banks back to Caracas.



...this recent move by Venezuela is rather unique. Instead than buying more gold, Venezuala merely wants to repatriate what is already hers. Unlike central bank purchases, which could involve just a ledger entry, this is the real thing. Physical gold is being moved around. What’s more significant is the discovery that after accounting for the 99 tonnes and 11.2 tonnes being held at the Bank of England (BoE) and Bank of International Settlements (BIS) respectively, about half of this huge stash are held in bullion banks like JP Morgan Chase et al – all major gold shorts. The move has left them scrambling for the real stuff.



This has led many to believe that the “Golden Retrieval” may have been a contributing factor to the most recent spike in gold price. It hits at the core of what GATA has been highlighting for over a decade – that bullion banks have been working hand in glove with central banks to suppress the price of gold, and that much of the physical gold at bullion banks and central banks are encumbered, leased or sold many times over, resulting in multiple claims for each bar of physical gold.

Grant Williams offers a well-informed take on why this step is so important:

To sum up:



• It is common practice for most Central Banks to hold part of their gold reserves overseas in ‘gold trading centres’ (read London and New York)

• One of those Central Banks - that of Venezuela - wants its gold back

• That means that a group of banks (mainly in the UK and the USA) who are supposed to have that gold in their vaults need to GIVE it back...

• ...which in turn could potentially trigger a race to repatriate national gold holdings

• Neither Fort Knox nor the Federal Reserve (the world’s two biggest gold depositories) have been independently audited in recent times

• The status of the gold held in the Bundesbank (home to the world’s third-largest hoard) is somewhat unclear

• The practice of leasing gold by Central Banks has been going on so long that it even predates the time when Alan Greenspan advocated sound money

• The gold ‘physical market’ is approximately 100 times the size of the amount of actual underlying metal by which it is purportedly backed

• The top four bullion banks, or ‘commercials’ on the COMEX continue to run what we shall politely call ‘significant’ short positions...



In the three trading sessions since Chavez made his announcement on August 17th, gold has added almost $100, coming within a whisker of $1,900 before settling back at another record weekly close.

Last year, a board member of GATA ("The Gold Antitrust Action Committee"), predicted this "run on physical gold":

• the gold price is suppressed through fractional reserve bullion banking

• the gold market is selling on average 45 ounces of gold for every one ounce of real physical gold via “unallocated gold” (fractional reserve bullion banking). In other words the gold market is backed by only 2.3% gold

• The true price of physical gold is currently around $54,000/oz if fractional reserve bullion banking did not exist. In the presence of fractional reserve banking with 2.3% gold backing the market price of “gold” is reduced to $1200/oz

• The US dollar has a purchasing power that is 45 times over valued

• The way to end gold price suppression is for investors to ensure they have allocated physical bullion preferably held outside of the bullion banking system

Chavez' call to repatriate his country's gold could therefore be the start of a true "run on the bullion banks".

When a major “client” like Venezuala suddenly decides to have take physical possession of her gold, it may cause a run on the bullion banks, not unlike the much feared bank run for cash. Bank runs start when depositors begin to lose confidence in the banks holding their cash. All it takes is a a few large depositors withdrawing at the same time, thereby creating the initial stress in the fractional reserve banking system. Soon, the panic hits the masses and long lines form outside the banks.

The next few weeks of market action should be, er, exciting.

Is There Really a 'Gold Bubble'? Maybe Not.

Brett Arends, writing at MarketWatch, refutes the notion that gold is in a speculative "bubble". He does so by comparing the current spike in gold prices with other speculative run-ups in recent history.

Gold is in a bubble. Anyone will tell you that. They've been saying it since gold was about, oh, $500 an ounce.

But it's a funny kind of a bubble. It's the only one I've encountered where so few people seem to own the asset in question... During the dot-com bubble, you met lots of people with tech stocks. Taxi drivers told you what dot-coms they owned.

During the housing bubble you met normal, ordinary people who were trading up to expensive homes using adjustable-rate mortgages, buying new condos off plan to flip, and cashing out their fictional "equity" through a refinance mortgage.

But who actually owns gold? I keep hearing about the gold bubble, but every time I ask people if they own any themselves, they say, "no, no, of course not, it's a bubble."

Some bubble...

[The accompanying chart] compares the bull market in gold with the last two undisputed "bubbles," namely tech stocks and housing. It shows the gold price since 2001, the Nasdaq Composite COMP from 1989 to 2001, and Standard & Poor's index of Homebuilding stocks from 1995 to 2007.

The picture is pretty remarkable.

If gold is a "bubble," it doesn't look like it's peaked yet. Indeed it looks like it might be just about to enter its big, blow-off phase.

Gold is a quirky investment, to be sure, and I'm about the last person to advise anyone on anything when it comes to financial matters.

But one thing is certain: the administration's policy of "Quantitative Easing" (or, as I like to call it, "Quantitative Bankrupting of America's Future") has unleashed the Treasury's printing press like nothing ever seen in world history.

Trillions in cash has materialized from thin air as the Treasury Department issues IOUs and the Federal Reserve purchases them on the open market. Which, by the way, enriches Goldman Sachs (and other so-called "primary dealers") with tens of millions of dollars in needless commissions each month.

Until the money-printing stops, until the deficit spending is brought under control, and until the dollar is rescued from the most radical administration in American history, I would hold some precious metals like gold.

It's a hedge against governmental stupidity -- and heaven knows we need it now more than ever.

China floats the idea of selling two-thirds of its US debt. Say, I wonder what will happen to gas and food prices when that happens?

With Ben Bernanke's "Quantitative Easing" 2.0 coming to an end, this news from China could represent the proverbial 'perfect storm'.

China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings

All those who were hoping global stock markets would surge tomorrow based on a ridiculous rumor that China would revalue the CNY by 10% will have to wait. Instead, China has decided to serve the world another surprise...

...China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trillion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that "end of QE" again?

...Xia Bin, a member of the monetary policy committee of the central bank, said ... that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy...

And as if the public sector making it all too clear what is about to happen was not enough, here is the private one as well:

...China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday... Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves...

...While China is certainly tired of recycling US Dollars, it still has no viable alternative... But that will all change very soon. Once the push for broad Chinese currency acceptance is in play, the CNY and the USD will be unpegged, promptly followed by China dumping the bulk of its USD exposure, and also sending the world a message that US debt is no longer a viable investment opportunity.

In fact, we are confident that the reval is a likely a key preceding step to any strategic decision vis-a-vis US FX exposure (read bond purchasing/selling intentions). As such, all those Americans pushing China to revalue, may want to consider that such an action could well guarantee hyperinflation, once the Fed is stuck as being the only buyer of US debt.

Expect commodity prices -- especially oil and food -- to continue compensating for the insane fiscal policies of the current administration. By that I mean they will skyrocket.

What Obama and the Democrats have done with their deficit spending is truly awful. They have levied the most oppressive tax possible on the poor and middle class, making food and transportation far more expensive than under the evil Bush administration.

Remember in 2012.

How Groupon Got Its Start: a Lesson for Entrepreneurs

Groupon, according to Forbes, is the fastest growing web company in history. Which, given the competition of Netscape, eBay, Yahoo, Google and Facebook, is nothing short of astounding. The company launched less than three years ago and its headcount has grown from seven employees to 3,000 around the world.

The idea man -- 30-year old Andrew Mason -- dropped out of grad school at the University of Chicago to tackle the project. But it's original intent had nothing to do with group buying. And therein lies the lesson.

While [working weekends as a programmer], he developed PolicyTree.org, a site that sought to simplify political debate about the Iraq war by presenting various policy perspectives in flow-chart form. This earned him a scholarship to the University of Chicago's Harris School of Public Policy in 2006. A mere three months later, though, he dropped out when Mr. Lefkofsky offered him $1 million in angel capital to keep working on the site.

After struggling to cancel a cell phone contract later that year, Mr. Mason became interested in collective action. In an early interview with a tech blog, he attributes the basic Groupon concept to “an overactive sense of vengeance,” wondering, “What if we just got everyone on the web who had this problem to refuse to abide by (cell phone companies') terms and just basically stop paying their bill?”

Thus began ThePoint.com, a group-powered site whose goal was “solving all the world's unsolvable ideas.” In an oft-invoked story that demonstrates Mr. Mason's quirky personality, he initiated a campaign on the Point to raise $10 billion to enclose Chicago in a dome that would shield the city from cold weather. (The plan raised $250,000 in pledges, but because it fell short of it goal—or didn't “tip,” in Groupon parlance—no one actually ponied up.)

But Mr. Lefkofsky eventually began pressuring the Point to make money, and Mr. Mason noted that people were using the site to organize discounted group purchases. Groupon launched in November 2008...

This is a common theme for many successful companies.

Forced to execute a strategic shift midstream because of changing market conditions, they evaluate the current state of their laboratory. That evaluation asks a fundamental question: what do people like best about my current offering -- what do they use most, and why are they using it?

The laboratory approach -- if a company is in the right place at the right time -- allows multiple ideas to incubate, one of which could address an unmet need. Filling that need quickly requires excellent decision-making and execution, to be sure. In other words, good old fashioned management discipline.

But the germ of the idea is something that can only be validated in the lab environment, something that no amount of accounting and finance expertise can predict.

But don't worry, the Fed says there's no inflation risk: Experts predict collapse of dollar as commodity prices skyrocket

Runner-up headline: Mission Cloward-Piven nears completion

Jeff Clark of Casey Research, writing at Zero Hedge, offers us the transcript of a roundtable featuring some of the world's best macroeconomic minds, Peter Schiff and billionaire Jim Rogers among them.

The "highlights":

Q: A lot of economists, including the government, believe the worst is behind us economically. Do you agree? If not, what should we be on the lookout for in 2011?

Jim Rogers: It is better for those getting all the government largesse, but the overall situation is worse. More currency turmoil. State and local problems, plus pension problems.

Bill Bonner: None of the problems that caused the crises in Europe and America have been resolved...

Peter Schiff: ...We are [like] an indebted family going out for an expensive meal to celebrate getting approved for a new credit card. It might feel good (at the time), but we're still simply delaying the inevitable...

John Williams: An intensifying economic downturn – what formally will be viewed as the second dip of a double-dip depression – already has started to unfold. The problem with the economy remains structural, where household income is not growing fast enough to beat inflation...

Steve Henningsen: ...What I will be watching for this year is sovereign and U.S. municipal debt corpses floating to the surface sometime in the months ahead...

Krassimir Petrov: ...No, the worst is yet to come. No structural changes have been made, no problems have been fixed. Printing money, a.k.a. Quantitative Easing, is a quick fix that has postponed the problem, yet also made it a lot worse. I would say that we are still in the early stages of the crisis and have another 4-8 years to go.

Bob Hoye: The worst of the post-bubble economic adversity is not behind us.

...Q: The U.S. dollar ended 2010 about where it started; does it resume its downtrend in 2011, or are fears about its demise overblown?

Jim Rogers: No, but further down the road...

Peter Schiff: It's hard to pinpoint exactly when the dollar will collapse, but it will take a miracle to avoid that outcome in the near term. It really depends on when the creditors of the United States realize that they are not going to get their principal returned to them in real terms, but rather in grossly devalued dollars. We have already seen the average duration of U.S. Treasury debt drop below that of Greece. No one wants to buy a 30-year bond with negative real interest rates as far as the eye can see...

John Williams: There remains high risk of a dollar selling panic unfolding in the year ahead, as the U.S. economy tanks anew, as the Fed continuously expands its easing, and as dollar holders dump the U.S. currency and dollar-denominated paper assets. Such would be a precursor to the inflation problem.

Thanks to reckless borrowing and spending programs like the "Stimulus" program, which failed to stimulate anything but government hiring, the U.S. dollar is tanking. The charts above represent the day's spot price of gold, oil and silver, respectively.

They continue to shoot to new highs, seemingly on a daily basis.

But Ben Bernanke, who completely failed to predict the housing crisis, now insists that long-term inflation risks are "unlikely."

In other news, Dallas Federal Reserve Bank President just stated that the U.S. is at a "tipping point" and that it is "on a fiscal path to insolvency."

And America's current entitlement programs -- Social Security, Medicare and Medicaid -- are all headed for collapse if left untended. And rather than fix those problems, Democrats rammed a new entitlement program, Obamacare, down our throats last year; it will be the largest such program in world history.

As James Simpson aptly put it, "It is time to cast aside all remaining doubt. President Obama is not trying to lead America forward to recovery, prosperity and strength. Quite the opposite, in fact."

And now we have proof: the Left is trying to collapse our society.

Our only choice in 2012 is to politically eradicate the traitorous Democrat Party; to vote for the most conservative candidates possible; and to try and restore the rule of law in this country.

Anything less condemns our country to an ugly fate: the exact kind of collapse advocated by Cloward and Piven.

2012 is right around the corner. What are you doing to help reestablish Constitutional conservatism?

Dr. Marc Faber on the World Economy: 'I Think We Are All Doomed'

Courtesy Tyler Durden, we discover this enlightening interview (PDF) with economist Marc Faber -- who isn't called "Dr. Doom" for nothing.

I think we are in a money-printing environment. If something happens in China, they will print even more than the U.S. prints. If something in happens in Europe, they will also print money.

They are going to print money everywhere, and with interest rates, essentially on short-term deposits, being zero, or below zero, inflation-adjusted, in other words, if inflation rates everywhere in the world are higher than the interest rates on short-term deposits, I think, for the investor, the question is really, “How do I invest my money for the long-term?”

...I do not think that [equity] returns will be fantastic, but if you print money it is very difficult to say what the returns will be, because it is not stocks that adjust on the downside, but it is the currency that adjusts on the downside. So in theory, it is possible that the Dow could double if you print money, or it could even go up 10 times, depending on how much money you print, and with Mr. Bernanke at the Fed, I think it is quite likely that a lot of money will be printed...


...[On government holding inflation (CPI) artificially low] But you understand, you are not really helping the economy, you are impoverishing, let’s say, the honest people who are decent, who have deposits, who save money and keep it in the banking system, who simply do not want to speculate. So, it is a tax on people’s savings, and it is a very vicious tax, because it is not so obvious to them, but it will become obvious one day, when with their money they can buy less and less. In other words, the purchasing power of money goes down. That is why I am telling everyone, if you already own cash, consider gold and silver to be a component of your cash portfolio, and own some of it, because the government can appropriate it, but otherwise they cannot fiddle around with it in terms of increasing the supply.


...I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it.

For the investor, the question is: How do I navigate through this complete disaster that is going to unfold? And I think if you look at different asset classes – real estate, equities, bonds, cash, precious metals – I suppose that you have to be diversified. I think real estate in the U.S. may go down another 10% or so, or even 15%, but I am always telling people, if you can buy the piece of land or the house you like, what do you actually care if it does down another 10%? If everything I bought in my life had only gone down 10-15%, I would be very rich, because a lot of things became worthless, especially loans to friends, and bonds, and so forth.

Look at the history, for example, of Germany, for the last 100 years. They had World War I. They had the hyper-inflation in World War II. The bond-holders got wiped out three times. If you owned Siemens, and you still own Siemens today, it was not a fantastic investment, but at least you still have something. You were not wiped out. I think that in equities you will be better off because you have an ownership in a company, than by being the lenders to companies, and the lenders, especially, to governments.


In a money-printing environment, it is very difficult to know what is actually cheap and what is expensive. Is the price of wheat high, or is it low? Inflation-adjusted, it is extremely low. In nominal terms, it is relatively high. I believe that, in March 2009 when the S&P was at 666, the market was actually much cheaper than is generally perceived, because of the money-printing, and I do not anticipate that we will see 666 on the S&P again, in nominal terms.

In other words, they are going to print so much money that the S&P could be at, perhaps, 2000, but in real terms, it could be down below the lows of March 6, 2009. Maybe in gold terms, we could one day reach a ratio of Dow Jones to gold of 1-to-1, as we were in 1980. In other words, the Dow could be perhaps at 10,000 or 12,000, and gold could be at the same level.

That is why I am advising people to accumulate gold. Can gold have a correction? Yes, there has been a little bit too much euphoria about gold, and we may have a correction, but I do not think we are in a bubble in the price of gold. In fact, I could make a case that gold, at this level of $1400 an ounce, is cheaper than in 1999, when I look at the unfunded liability growth of the U.S., at the credit growth of the U.S., and at the household growth, and at the money printing, and at all the wealth creation that happens in China and Russia.

If I interpret Faber correctly, you're better off holding precious metals than equities... and better off holding equities than U.S. debt.

Which says a lot about the policies of the current administration, Tiny Tim Geithner and Helicopter Ben Bernanke.

Applying the Individual Mandate to your retirement account

Rather than abide by Judge Roger Vinson's ruling that the entirety of Obamacare is null and void, the Obama administration is doing its best to ignore the decision. It is continuing to implement new regulations and create new bureaucracies while playing "Four Corners" in court.

The reason is simple: if the Individual Mandate is eventually deemed unconstitutional by the Supreme Court, many of the Statists' grand plans for this society go poof -- pulverized into dust.

For if the government can compel you to purchase a particular kind of health insurance product, what are the limits on the bureaucrats' control over the individual? Truly, there are none, for the appetite of the Democrats is insatiable. As their massive social engineering experiments implode (say, Medicare and Fannie Mae), they're on to the next set (e.g., Obamacare and HAMP) without a single look back to see what went wrong.

Using the Individual Mandate to force you to buy 'safe investments'

Next on the Democrats' agenda: a plan to use the precedent of the Individual Mandate to force you to buy "safe investments" in your retirement accounts. Oh, it would be for your own benefit. They're just looking out for you.

The always fascinating Pensions & Investments (their latest centerfold was a real doozy) reported last year that the feds were examining the regulation of all private pension plans.

The point being: the Obama administration would love to get their hands on the trillions of dollars in private retirement accounts. By forcing individuals, say, to buy annuities (for their own safety, remember), they would require the insurance companies that manufacture annuities to include a certain amount of Treasury notes (government debt) in their investment portfolios (again, just for safety's sake).

That would funnel trillions of private dollars into the government's coffers in exchange for paper promises, enabling them to continue borrowing and spending like drunken liberals.

In 2008 Democrats talked openly about 'eliminating investment risk'

It's not crazy talk: Congressional Democrats, circa 2008, openly discussed the possibility of confiscating 401(k) and IRA plans; one can legitimately connect the notion of "eliminat[ing] investment risk" to giving the feds control of your retirement account.

...In a joint agency RFI published in today's Federal Register, the Treasury and Labor departments expressed concern that defined contribution plans generally make only lump-sum payments available to plan retirees.

The agencies specifically want to know whether some form of “lifetime income distribution” should be required in all defined contribution plans...

To put this news in context, consider that in late 2008 Democrats openly discussed the possibility of confiscating private retirement accounts in order to "strengthen and protect Americans’ 401(k)s, pensions, and other... plans".

The [Congressional] testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers’ retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.

...The current retirement system, Ghilarducci said, “exacerbates income and wealth inequalities” because tax breaks for voluntary retirement accounts are “skewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do.”

...GRAs would guarantee a fixed 3 percent annual rate of return, although later in her article Ghilarducci explained that participants would not “earn a 3% real return in perpetuity.” In place of tax breaks workers now receive for contributions and thus a lower tax rate, workers would receive $600 annually from the government, inflation-adjusted. For low-income workers whose annual contributions are less than $600, the government would deposit whatever amount it would take to equal the minimum $600 for all participants.

In a radio interview with Kirby Wilbur in Seattle on Oct. 27, 2008, Ghilarducci explained that her proposal doesn’t eliminate the tax breaks, rather, “I’m just rearranging the tax breaks that are available now for 401(k)s and spreading — spreading the wealth.”

Now that the Democrats have decimated the economy (more quantitative easing, anyone?), the trillions of dollars in private retirement accounts represent the juiciest of all possible targets.

The Individual Mandate is unconstitutional. Because if it is not, the federal government has unlimited power over the individual -- and our free society really will have come to an abrupt and unseemly end.

Cramer vs. Cramer, Gold Edition

Far be it from me to accuse anyone, especially experts with the very highest credibility -- like Jim Cramer -- of untoward behavior, but the following graphs certainly make you sit up and take notice.

First, here are the dates of some of Mr. Cramer's key recommendations (both buy and sell) for First Solar (FSLR), one of his favorite stocks in 2008 and 2009*.

Here is the performance of GLD (the exchange traded fund roughly representing the price of gold) versus First Solar over the same period:

When it comes to any so-called "expert" who claims they can help you time the market, remember the ancient advice: caveat emptor.


*Reference:

• On March 7, 2008, Jim Cramer issued a strong recommendation to buy First Solar (FSLR).
• On April 3, 2008, Cramer's Mad Money said FSLR "Is Hot" and issued another buy recommendation.
• On May 8, 2009, Cramer listed FSLR as a Buy!
• On June 1, 2009, Cramer said, "First Solar (FSLR) remains the only solar play that I want as oil goes higher."
• On May 20, 2010, Cramer listed FSLR as a "Sell".
• On November 16, 2010, Cramer again listed FSLR as a "Sell".

A Completely Unrelated Series of Events

Observe the master at work:

• September 23, 2008: Buffett's Berkshire invests $5B in Goldman

• September 28, 2008: Buffett to Congress: Bail out economy or face 'meltdown'

• September 29, 2008: Goldman, Merrill Collect Billions After Fed's AIG Bailout Loans

As much as $37 billion from federal bailout loans to American International Group Inc. has gone to investment banks including Goldman Sachs Group Inc., the firm Treasury Secretary Henry Paulson used to run...

...Without the government money, Goldman, Merrill Lynch & Co., Morgan Stanley, Deutsche Bank AG and other firms could have become some of the biggest creditors in a bankruptcy filing by AIG, the world's largest insurer, because of its billions in losses on subprime bonds and corporate debt.

• October 2, 2008: Buffett: $700 billion bailout may be too low

• October 2009: It's 12 months later and Warren Buffett's Berkshire Hathaway is $3 billion richer.

One year ago today, on September 23, 2008, with the financial world still reeling from the collapse of Lehman Brothers just days before, Buffett stunned Wall Street with a massive vote of confidence for Goldman Sachs..

Goldman agreed to pay Berkshire a 10 percent annual dividend on [Buffet's] preferred stock. That's $500 million a year, and the payout didn't depend at all on what happened to Goldman's common stock price... But there was more. In what Buffett later described as a "bonus," Goldman also gave Berkshire the right to buy $5 billion of common stock at $115 a share...

The bonus has turned into big bucks.

• November 2010: Warren Buffett Pens NYT Op-Ed Praising Administration During Economic Crisis

• November 2010: Report: Warren Buffett to Receive a Presidential Medal of Freedom from White House

* * * * * * * * *
Mmmm, yes, Democrats are for the little people. The working man. Right.

Kids, can you say "Crony Capitalism"?

You Won't Believe What They're Up To Now

Regular readers -- all seven of them -- know that I am not a conspiracy theorist. But I can put two and two together. Earlier this evening Papa B pointed me to an oozing secretion from the Puffington Roast, which markets the idea that 401(k) retirement savings accounts are evil and should be abolished.

Here's a novel idea. Instead of worrying that Social Security will go bust in 30 years (it won't) and considering absurd and unnecessary cuts in benefits for millions of Americans, why not expand this, the most popular social insurance program in the country, to provide for a universal defined benefit pension for every worker and his/her family? [Ed: Eh, because it's a giant Ponzi scheme? And the government stole all the money from the 'Trust Fund'?]

It's really not such a novel idea; most modern and civilized industrial nations have in place such pension systems... [Ed: Oh. Like Greece, Portugal, Spain, Italy and Ireland? How's that working out?]

...A favorite of mine, economist Teresa Ghilarducci, of the New School for Social Research, was the first to call the 401(k) a failure for retirees and she shocked lawmakers when she suggested they be ended in favor of what she calls a Guaranteed Retirement Account that would be as safe and secure as defined benefit pension plans... [Ed: More on Teresa below.]

...Now, according to Richard Trumka, president of the AFL-CIO, "only 13 percent of workers say they are very confident about having enough money for a comfortable retirement-that's the lowest level in 16 years...With the enactment of Social Security and the growth of union-negotiated pensions, elderly Americans became [and are still] the least impoverished age group." [Ed: Because who knows better about wasting money than Trumka?]

...Ghilarducci makes the same point, that 401(k)s and IRAs, in which taxes on earnings are deferred, reduce tax receipts by $193 billion a year. But, she says, 80 percent of these tax breaks go to the top 20 percent of taxpayers. Her solution: "Guaranteed Retirement Accounts", to which employers and employees would each be required to contribute 2.5 percent of salaries, with a $600 refundable tax credit for the employee's contribution... [Ed: Net-net, confiscate the 401(k) monies, increase taxes, and create brand new revenue streams that can be stolen to bankrupt future generations even more.]

The walking bedsore known as Saul Friedman is a Communist. Yes, I said it. Oh, Doug -- that's so harsh. No it's not. Friedman advocates that the government -- legally -- confiscate Americans' hard-earned money and redistribute it to their union allies who intentionally underfunded their pensions.

That's what this is really about. Connie Hair at Human Events describes the real intent of Friedman's covering fire.

Democrats in the Senate on Thursday held a recess hearing covering a taxpayer bailout of union pensions and a plan to seize private 401(k) plans to more "fairly" distribute taxpayer-funded pensions to everyone.

Sen. Tom Harkin (D-Iowa), Chairman of the Health, Education, Labor and Pensions (HELP) Committee heard from hand-picked witnesses advocating the infamous "Guaranteed Retirement Account" (GRA) authored by Theresa Guilarducci... (listen to the outstanding 2007 interview with Guilarducci by Mark Levin)

...the pressing issue for the lame duck [session] is the union pension bailout with new Financial Accounting Standards Board (FASB) rules currently set to take effect December 15. These new rules would force companies to account for the cost of penalties to extract themselves from these union pension plans against their bottom line...

...In a nutshell, under the GRA system government would seize private 401(k) accounts, setting up an additional 5% mandatory payroll tax to dole out a "fair" pension to everyone using that confiscated money coupled with the mandated contributions. This would, of course, be a sister government ponzi scheme working in tandem with Social Security, the primary purpose being to give big government politicians additional taxpayer funds to raid to pay for their out-of-control spending.

Guilarducci and the Democrats are advocating legalized theft of the juicy trillions of dollars Americans have saved in their retirement plans. Nationalizing those accounts would support massive new spending programs plus payoff the unions and crony capitalists looking for more bailouts at the "workers'" expense.

As Hair concludes, "The lame duck session would offer the last chance for unions and companies to be able to place liability for their underwater pensions on the taxpayers' backs before the new FASB rule goes into effect."

In short, while I'm not a conspiracy theorist, when Harry Reid promises plenty of legislation during a lame-duck session... when the Stuffington Toast prints agit-prop... and a Marxist-led recess session considers an outrageous new way to steal your money... well, I get chills down my spine.

These Democrats need to be kicked to the curb next month -- politically. And in every election from this point forward, if we are to save this Republic.


Hat tip: RL

The Best Way to Objectively Measure Just How Bad This President Is

Epiphany: please consider the following historical chart for the price of gold. The red line represents the price in 2010 inflation-adjusted U.S. dollars while the black line reflects the nominal price in dollars.

I've highlighted the two worst spikes in gold prices which correspond -- shockingly -- to the erratic presidencies of James Earl Carter and Barack Milhaus Obama.

It would appear that the price of gold is an excellent proxy for the level of horror the world feels when the American president is incompetent and/or an ideologue.

The Carter era was riddled with crises: Russia rolled into Afghanistan unopposed; the Sheiks touched off an oil crisis; the Iranian clerics deposed the Shah and launched the hostage fiasco; etc. The uncertainty caused a massive spike in gold prices as investors around the globe sought a safe haven to hedge against disaster.

Similarly, the Obama administration has displayed a complete disregard for the Iranian nuclear menace, exhibited indecision in Afghanistan; has devalued the U.S. dollar with debt monetization and unsustainable deficit spending; has created new entitlement programs when the old ones are heading for disaster; and callously disregarded the will of an angry American electorate.

Put simply: when gold spikes, you know the American President is sowing investor uncertainty, whether through incompetence, ideology or malice. That people are scurrying to gold tells you that this President is a walking, talking catastrophe.


Postscript: It's worth noting that the left also played a significant role in undermining the Vietnam War effort and, ultimately, touching off the resignation of Richard M. Nixon (who truly was a shyster). That era, too, corresponds with a spike in gold.

Hat tips for chart: Wikipedia and RealTerm.de.