Bullion Bulls Canada

In Part II, I discussed a few of the asset-bubbles in the U.S. economy, which, due to the epidemic of “bubble blindness” in the U.S. are “invisible” to almost all American writers. I also pointed out that the United States is the “home” of most of the world’s largest “debt bubbles” as well. I will now cover that part of the discussion in this installment.

Recall the definition of an “asset bubble” from Part I: a seriously over-valued market where there is large amounts of leveraged-debt present. As I explained previously, both ingredients are necessary in order to produce the characteristic “pop” when a bubble bursts – leading to an implosion of debt in that market, which turns an orderly retreat in prices into a “crash”.

Given that definition, arguably any and every pool of unsecured debt is a “debt bubble”, since any large amount of unsecured debt could potentially implode. However, a normal debt scenario implies that debt is being accumulated gradually – and that the inability to service such debt is also a gradual process.

This is not the case with the U.S. economy, and more particularly, with the U.S. government. In the case of the U.S. government, not only has it been recklessly amassing “unfunded liabilities”, but it has plundered $5 trillion of government “trust funds”, which (once) “backed” a portion of these gigantic liabilities.

In other words, while U.S. government obligations for its extremely bloated “entitlement programs” are increasing exponentially rather than arithmetically, the U.S. government has been hollowing-out this “debt bubble” by stealing the money which was supposed to pay for these entitlements. Like a hoard of termites devouring the foundation of a house, the U.S.’s political parasites have eaten-away the U.S.’s fiscal foundation.

This not only ensures the bankruptcy of the U.S. government, but it creates an ugly, “future shock” scenario, where tens of millions of Americans who are totally relying upon these programs to maintain their standard of living in their old-age will, at best, get paid-out pennies on the dollar versus what they were promised by the U.S. government.

Lest we feel any misguided “pity” for this “baby-boomer” generation, not only did this generation demand far more government services than they were ever willing to pay for (which created these “unfunded liabilities”), but they are the ones who elected one group of thieves/liars after another (who are responsible for all these problems). The people who deserve our pity are the children and grand-children of the baby-boomers: not only are the mountains of unpaid, baby-boomer “bills” being heaped atop their shoulders, but the “social programs” which these children and grand-children are paying into will have ceased to exist long before they could ever collect a penny.

The U.S. government’s most-recent estimate of its own “unfunded liabilities” was about $70 trillion. Given that this amount bounces around (due to economic fluctuations), and given that this huge sum greatly exceeds global GDP, the precise number is almost irrelevant. The U.S. government is not only totally broke, but already burdened with a national debt which it is only capable of servicing by keeping interest rates frozen at 0%, and through “buying” most of its own debt (i.e. “monetizing debt”). It can’t pay for one penny of these entitlements, let alone $70 trillion.

The only way that the U.S. can/could make payments to the beneficiaries of these programs is through hyperinflationary money-printing: printing trillions and trillions of dollars “out of thin air”. Given that such hyperinflation must take the value of the U.S. dollar down to near-zero, it becomes virtually irrelevant whether the nominal amount of these “benefits” is $1 trillion or $70 trillion, since the real-dollar value of these “entitlements” will be near-zero.

Part of this $70 trillion debt-bubble is “Social Security” obligations. In the case of this social program, it is quite easy to understand the repercussions of beneficiaries only receiving pennies on the dollar: regardless of the nominal amount of the “benefit”, its real-dollar value will be almost nothing.

This issue of “unfunded entitlements” is much more disturbing when we consider the vast majority of this funding-gap: health-care entitlements. When someone is ill, you can’t simply say “well, since we can only afford 1% of the spending, you’ll have to make-do with 1% of the cure.”

For millions of Americans, having 1% or 2% of the health-care “coverage” which they thought they would have is essentially no medical coverage, at all. Forgetting about the financial component of “quality of life”, millions of these baby-boomers will see their quality of life destroyed by (untreated) health problems – and those are the “lucky ones”. The “unlucky ones” will simply drop-dead, prematurely.

In Parts I, II, and III; I discussed the “epidemic of bubble-blindness” among American business writers and analysts. This is a very peculiar condition in that not only are all U.S. asset-bubbles completely “invisible” to those afflicted (approximately 95% of all U.S. writers), but those suffering from this condition are prone to seeing non-U.S. asset-bubbles virtually everywhere.

The ultimate example of this phenomenon is the endless multitude of U.S. articles “warning” investors that there is a “gold bubble” which is about to burst. These bubble-blind boobs were totally unable to see the U.S. dot.com bubble, the first and second U.S. housing bubbles, and the especially outrageous U.S. Treasuries bubble – despite the overwhelming evidence of absurdly excessive prices, and enormous amounts of leveraged-debt (the two components necessary for any bubble).

Conversely, these pseudo-journalists regularly proclaim they can “see a gold bubble”, despite there being absolutely zero evidence of such. To begin any analysis of asset-prices, the first step of such analysis is to strip-out inflation from the price of the asset in question. This is an obvious necessity, as if this is not done, then it is absolutely impossible to state how much of a “price rise” is an actual (absolute) gain in price, and how much of this “price rise” is merely tracking inflation.

Virtually none of the American writers who see this supposed “gold bubble” ever even conduct this preliminary (and elementary) step in their analysis. Lest you think that I am cherry-picking among these dolts for the especially-clueless among the gold bubble-spotters (who failed to adjust the price of gold for inflation before concluding that there is a “gold bubble”), this list of incompetent analysts includes Nobel Prize winner (for economics), Nouriel Roubini (among many others).

There is an obvious reason for the gold-bubble zealots to refuse to factor-in inflation in their facile attempts at analysis: any attempt to strip-out inflation from the price of gold shows that rather being in a “bubble” that gold is one of the most under-priced assets on the planet.

If we use the official inflation numbers of the U.S. government (i.e. ridiculously fraudulent numbers for inflation), even that partial-analysis shows that the price of gold would have to more-than-double (to nearly $2500/oz) from its current price just to equal its (“real dollar”) all-time high from 1980. If we scan the world of commodities to look for any other major commodity which is currently priced at less-than-half its (“real dollar”) price of 30 years ago, we find only one other commodity: silver.

In fact, it is this remarkable coincidence that both of the most grossly-undervalued commodities on the planet are precious metals which is one of the myriad reasons why gold-bugs are convinced of rampant manipulation in the gold market (with the confessions of many prominent officials being another reason).

However, we can’t truly understand the degree of U.S. gold-bubble idiocy until we use legitimate numbers for inflation (i.e. those from John Williams of Shadowstats.com). In other words, we need to look at the real, “real dollar price” of gold. As subscribers to Mr. Williams site already know (along with my own, regular readers), if we use actual numbers for inflation over the last 30 years, then the price of gold would have to rise to approximately $7,500/oz to equal the 1980-high (a more than six-fold increase from today’s price).

WHO WOKE THE DRAGON

China is a sleeping dragon. Let it sleep. If it wakes, it will shake the world.
Napoleon Bonaparte

It has been said God doesn’t speak to mankind because mankind doesn’t listen. Be that as
it may, it is certainly true that England didn’t listen to Napoleon’s warning regarding
China. Contrary to Napoleon’s advice, England woke China up.

 

CHASING THE DRAGON

In 1999 China was a source of cheap labor, the dot.com bubble hadn’t yet burst, the
financial deregulation allowed by the repeal of Glass-Steagall still had to work its
destructive magic and global growth appeared to be endless. Life, however, was about to
change.

G'day, mates! Bullion Bulls Canada would like to wish a warm "hello" to our members and guests from Down Under. In November, Australia became our third largest audience - and largest outside of North America. While speaking the same language always helps, clearly Australia and Canada have much more in common than that. Both countries have economies with a strong orientation toward natural resources - meaning that investors in both countries tend to be much more savvy with respect to the commodity markets (and their producers).

With 2009 drawing to a close, we are already looking ahead eagerly to 2010. For starters, we plan on introducing some of our own audio content on site - through doing some interviews and pod-casts for our members. We hope to add this new area of content some time in early February. For those who would like to see an example of my work behind a microphone, I did an audio interview for a call-in program - on a U.S. real estate web-site, several weeks ago.

Here's a link for that broadcast, for any interested: http://instantTeleseminar.com/?eventid=9768747

There are various ways for us to become more "interactive" with our audience, so feel free to make your own suggestions on how we can better serve your needs as investors. As for our live "chat" function, no sooner did I write here that it was still not operational, when our plucky Webmaster got it back into operation.

We also encourage members to make use of our blogs, our bulletin boards, and through sharing your thoughts with personal messages - either via our "message" function (for members) or general e-mail. We try to be responsive to the thoughts and ideas of our members. Indeed, several of my commentaries have been directly inspired by the ideas passed on to me by readers.

We see 2010 as being a very strong year for the commodity sectors (again), but certainly expect precious metals to lead the way. We hope we have succeeded in keeping you informed of developments in the global economy and the precious metals sector in 2009, but know we can continue to improve in both our content - and the way we present that content to you. 

For our newer members and guests, we would like you to know that our site is viewable in more than twenty languages. This sets the stage for part of our mission at Bullion Bulls Canada: to bring the wonderful investment opportunities in Canadian mining (and precious metals, in particular) not just to a North American audience – but to the world.

We see most sectors of Canadian resource stocks as being seriously undervalued, with (in our view) the greatest opportunities currently existing in the precious metals sector. Alerting foreign investors to these stellar values can hopefully attract additional investment to redress these poor valuations.