Sprott AM - Embry Nov 2009

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					  V O T E D             T H E         W O R L D ’ S               B E S T          I N V E S T M E N T                    A D V I S O RY

November 27, 2009                                                    Vol. 41, No. 21

                         Financial front: the
                      Four Horsemen are riding
           he gold market                       the U.S. dollar is forcibly   evidence concerning gold-market        flects growing concern that the
           has become                           propped up, and stocks,       manipulation is both repetitive        gold being held on the behalf of
           more fascinat-                       commodities and pre-          and compelling and should be           others in both the U.S. and Eng-
           ing by the day as                    cious metals are taken        addressed forthwith.                   land might not all be there.
we move through the fall                        downwith the express              Fortunately, it may not have to        A recent study by Paul
season. In mid-October                          purpose of getting a sol-     come to that because the physical      Mylchreest of Thunder Road, a
gold surged to new all                          id bid into the bond          gold market may be in the process      consultancy in London, lends
time highs approaching                          market on the eve of the      of overwhelming the chicanery in       credence to this concern. In his
US$1070 an ounce de-            John Embry      auctions. As preposter-       the paper-gold market, thus mak-       report, he examined the gold
spite a massive buildup in                      ous as this sounds, it is     ing it less relevant. There have       turnover on the London Bullion
short positions by the commer-         unfortunately a reality. The great     been numerous developments             Market Association, by far the
cials (bullion banks, etc.) on the     news, in this instance, was that,      recently that suggest the physical     world’s largest gold-trading ex-
Comex and widespread, main-            within a week of this travesty,        markets are getting increasingly       change, and concluded that the
stream commentary that it was          gold was away to the races again,      tight. Indian ex-duty premiums         staggering volume transacted
overpriced and in a bubble phase.      posting new highs in the wake of       have held up remarkably well in        raised serious questions about
Nothing could be further from the      a stunning Indian purchase of          the face of the recent, sharp price    how many paper claims there
truth, but the failing currency mar-   203 tonnes of IMF gold.                rise in gold, indicating that Indian   were on each London Good De-
kets require the dissemination of          However, what I find particu-      demand remains firm despite the        livery bar.
considerable disinformation on         larly objectionable is the blatant     higher price. This is somewhat             An even more fascinating story
gold to keep the public in line.       manipulation of the gold price         unusual in that Indian demand          making the rounds in the upper
     In the face of another option     prior to option expiries. In my        traditionally takes time to adjust     echelons of the gold business
expiry, gold was then subjected to     mind, under any reasonable in-         to a higher price level. However,      claims that at the end of Septem-
its usual vertiginous drop with the    terpretation of the law concern-       the Indians are now in competi-        ber, a number of well-heeled in-
price being driven down nearly         ing market interference or re-         tion with the Chinese for the          vestors in London with a large po-
$30 an ounce in less than 24 hours     straint of trade, it should be seen    shrinking amount of physical           sition on the LBMA called for phys-
early in the last week of October.     as highly illegal.                     gold available and, thus, they can     ical delivery. Their counterparties,
Ostensibly, this was caused by             Legitimate call-option holders     no longer afford to be as circum-      which apparently included J.P.
dollar strength, but the true ex-      are essentially being defrauded by     spect. Similarly, the premiums to      Morgan Chase, could not deliver
planation was another bear raid        big banks as the gold price is in-     import gold into the increasingly      and offered a huge premium for
related to the option expiry and       tentionally driven down to ensure      important market in Vietnam            cash settlement. The investors re-
the approach of yet another mas-       that the options expire out of the     have dramatically widened, sug-        fused and demanded physical,
sive U.S. Treasury auction.            money. The Commodities Fu-             gesting that demand in all of Asia     which sent the bullion banks, hat
     I believe that it is absolutely   tures Trading Commission bears         is on the rise.                        in hand, to their central-bank con-
essential that investors realize       the responsibility for monitoring          Of perhaps greater import,         freres to get actual gold bars in or-
that the U.S. government is be-        the Comex, but I feel it has been      there are strong rumors that the       der to make delivery.
coming ever more panic stricken        derelict it its duties by ignoring a   Germans have requested that the            The tightness in the physical
as its financial condition deterio-    battery of complaints on the issue     gold held for their account in the     market in London was further
rates. Its fear of a failed auction    by aggrieved investors. In reality,    U.S. be repatriated, while Hong        confirmed by one of London’s
(in spite of the Fed buying a sig-     how does this differ from the          Kong has announced that it is go-      largest gold traders who has re-
nificant amount of the bonds) is       SEC.ís SEC’s failure to seriously      ing to have its own depository         cently picked up two major new
now so ingrained that it feels the     investigate Bernie Madoff despite      near the airport to hold Asian         American accounts with a vora-
need to aggressively groom mar-        10 years of well-documented            gold, thus removing it from the        cious appetite for physical gold.
kets to create the impression that     complaints          from      Harry    increasingly suspect London            He apparently is having consider-
all is well in the debt world. Ergo,   Markopolous. In my opinion, the        market. In both instances, this re-    able difficulty obtaining the gold
and observed that physical gold is    our financial leaders in the west-         “There is no means of avoid-        this time are occurring in the fi-
becoming extremely hard to ac-        ern world who are enthusiastical-       ing a final collapse of a boom         nancial and commodity markets.
quire in size.                        ly promoting and aggressively im-       brought about by credit expan-         The real economy continues to
    It is my strong feeling that a    plementing quantitative easing in       sion. The alternative is only          stagnate and, if left to its own de-
dramatic inflexion point in the       an attempt to sustain an obvious-       whether the crisis should come         vices, would undoubtedly im-
gold market is rapidly approach-      ly failed system and to bail out        sooner as the result of a volun-       plode. Thus, the suggestion of
ing and it will reflect the growing   their banking cronies. They would       tary abandonment of further            any serious attempt to remove
realization by investors that hold    include the atavistic Lawrence          credit expansion, or later as a fi-    the excessive monetary and fiscal
substantial amounts of paper-         Summers, President Obama’s              nal and total catastrophe of the       stimulus currently in effect seems
gold vehicles that they may not       economic guru and a key figure in       currency system.”                      bogus to me.
actually have the protection they     the gold-suppression scheme, the                                                  I have always believed in the
think they have. A flood out of       extremely naive Fed chairman,                                                  immutable economic law which
paper gold into physical will ob-     Ben Bernanke; the truly feckless          Any serious attempt to               postulates that what goes before
viously increase the demand for       U.S. Treasury Secretary, Timothy         withdraw the stimulus at              dictates what comes afterward.
the latter dramatically and           Geithner and Bernanke’s British                                                We experienced the most abusive
should have a very salutary im-       equivalent, the hapless Mervyn
                                                                                this point will trigger a            credit cycle in history, fuelled by
pact on the price.                    King, head of the Bank of Eng-            deflationary depression              former Fed chairman Alan
    Switching themes, it has now      land. To be fair to the latter, he       and a continuation of the             Greenspan’s wildly expansionary
been 85 years since the renowned      has partially redeemed himself in       current policies will put us           monetary policy, which created
U.S. sportswriter Grantland Rice      my eyes by recently calling for a          firmly on the road to               serial bubbles and amplified by
penned what is arguably the most      breakup of the largest British                 hyperinflation.                 the creation of unfathomable
compelling lead in the history of     banks, a move that drew a frosty                                               quantities of unregulated OTC
American sports. Following Notre      response from British Prime Min-                                               derivatives that increased lever-
Dame’s stirring football upset of a   ister Gordon Brown. I’m on the              Mr. Bernanke and his fellow        age to ridiculous levels. The whole
vaunted Army side, Rice opened        side of anybody opposing Brown,         travellers have clearly chosen the     exercise was then masked by a
his account of the game with the      who is the true villain in the          second option, and as a result, the    continuing litany of doctored eco-
following classic:                    British saga and one of the             strong probability is that we will     nomic statistics in order to con-
    “Outlined against a blue-grey     world’s great hypocrites.               ultimately see the worst of all        ceal the true state of affairs.
October sky, the Four Horsemen            There is absolutely no doubt        worlds, hyperinflationary mone-           As a result, should there really
rode again. In dramatic lore, their   in my mind that what these gen-         tary conditions in conjunction         be any wonder that we are now
names are Death, Destruction,         tlemen are trying to engineer is        with very depressed economic ac-       confronted with a situation that
Pestilence and Famine. But those      going to end in an utter debacle.       tivity. The Fed chairman fore-         appears to have no reasonable
are only aliases. Their real names    Any serious attempt to withdraw         shadowed all of this with his infa-    outcome? I continue to believe
are Stuhldreher, Crowley, Miller      the stimulus at this point will trig-   mous speech some seven years           that gold and silver remain the
and Leyden. They formed the           ger a deflationary depression and       ago in which he claimed that he        preferred refuges in what I sus-
crest of the South Bend cyclone       a continuation of the current poli-     could combat deflation by the use      pect is going to remain an ex-
before which another fighting         cies will put us firmly on the road     of a printing press or, if need be,    tremely difficult financial and
Army team was swept over the          to hyperinflation.                      by dropping money from heli-           economic environment for the
precipice at the Polo Grounds this        The futility of this was foreseen   copters to sustain demand. The         foreseeable future.
afternoon.”                           in the middle of the last century by    whole concept was ludicrous at
    In my opinion, the current        the father of Austrian economics,       the time and remains so today.         John Embry is chief investment
equivalent of the mythical Four       the brilliant Ludwig Von Mises,             In reality, the only significant   strategist at Sprott Asset
Horsemen of the Apocalypse are        who correctly observed that:            recoveries in the western world at     Management.

© Copyright 2009 by MPL Communications Inc., Reproduced by permission of Investor's Digest of Canada, 133 Richmond St. W., Toronto, ON M5H 3M8

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