Why Russia Will Halt the Ruble’s Slide and Keep Pumping Oil

Why Russia Will Halt the Ruble’s Slide and Keep Pumping Oil

By Marin Katusa, Chief Energy Investment Strategist

The harsh reality is that U.S. shale fields have much more to fear from plummeting oil prices than the Russians, since their costs of production are much higher, says Marin Katusa, author of The Colder War: How the Global Energy Trade Slipped from America’s Grasp.

Russia’s ruble may have strengthened sharply Wednesday, but it’s plunge in recent days has encouraged plenty of talk about the country’s catastrophe, with some even proclaiming that the new Russia is about to go the way of the old USSR.

Don’t believe it. Russia is not the United States, and the effects of a rapidly declining currency over there are much less dramatic than they would be in the U.S.

One important thing to remember is that the fall of the ruble has accompanied a precipitous decline in the per barrel price of oil. But the two are not as intimately connected as might be supposed. Yes, Russia has a resource-based economy that is hurt by oil weakness. However, oil is traded nearly everywhere in U.S. dollars, which are presently enjoying considerable strength.

This means that Russian oil producers can sell their product in these strong dollars but pay their expenses in devalued rubles. Thus, they can make capital improvements, invest in new capacity, or do further explorations for less than it would have cost before the ruble’s value was halved against the dollar. The sector remains healthy, and able to continue contributing the lion’s share of governmental tax revenues.

Nor is ruble volatility going to affect the ability of most Russian companies to service their debt. Most of the dollar-denominated corporate debt that has to be rolled over in the coming months was borrowed by state companies, which have a steady stream of foreign currency revenues from oil and gas exports.

Russian consumers will be hurt, of course, due to the higher costs of imported goods, as well as the squeeze inflation puts on their incomes. But, by the same token, exports become much more attractive to foreign buyers. A cheaper ruble boosts the profit outlook for all Russian companies involved in international trade. Additionally, when the present currency weakness is added to the ban on food imports from the European Union, the two could eventually lead to an import-substitution boom in Russia.

In any event, don’t expect any deprivations to inspire riots in the streets of Moscow. Russian President Vladimir Putin’s popularity has soared since the beginning of the Ukraine crisis. The people trust him. They’ll tighten their belts and there will be no widespread revolt against his policies.

Further, the high price of oil during the commodity supercycle, coupled with a high real exchange rate, led to a serious decline in the Russia’s manufacturing and agricultural sectors over the past 15 years. This correlation—termed by economists “Dutch disease”—lowered the Russian manufacturing sector’s share of its economy to 8% from 21% in 2000.

The longer the ruble remains weak, however, the less Dutch disease will rule the day. A lower currency means investment in Russian manufacturing and agriculture will make good economic sense again. Both should be given a real fillip.

Low oil prices are also good for Russia’s big customers, especially China, with which Putin has been forging ever-stronger ties. If, as expected, Russia and China agree to transactions in rubles and/or yuan, that will push them even closer together and further undermine the dollar’s worldwide hegemony. Putin always thinks decades ahead, and any short-term loss of energy revenues will be far offset by the long-term gains of his economic alliances.

In the most recent development, the Russian central bank has reacted by raising interest rates to 17%. On the one hand, this is meant to curb inflation. On the other, it’s an direct response to the short selling speculators who’ve been attacking the ruble. They now have to pay additional premiums, so the risk/reward ratio has gone up. Speculators are going to be much warier going forward.

The rise in interest rates mirrors how former U.S. Fed Chair Paul Volcker fought inflation in the U.S. in the early ‘80s. It worked for Volcker, as the U.S. stock market embarked on a historic bull run. The Russians — whose market has been beaten down during the oil/currency crisis — are expecting a similar result.

Not that the Russian market is anywhere near as important to that country’s economy as the US’s is to its. Russians don’t play the market like Americans do. There is no Jim Kramerovsky’s Mad Money in Russia.

Russia is not some Zimbabwe-to-be. It’s sitting on a surplus of foreign assets and very healthy foreign exchange reserves of around $375 billion. Moreover, it has a strong debt-to-GDP ratio of just 13% and a large (and steadily growing) stockpile of gold. Why Russia will arrest the ruble’s slide and keep pumping oil

And there is Russia’s energy relationship with the EU, particularly Germany. Putin showed his clout when he axed the South Stream pipeline and announced that he would run a pipeline through Turkey instead. The cancellation barely lasted long enough to speak it before the EU caved and offered Putin what he needed to get South Stream back on line. Germany is never going to let Turkey be a gatekeeper of European energy security. With winter arriving, the EU’s dependence on Russian oil and gas will take center stage, and the union will become a stabilizing influence on Russia once again.

In short, while the current situation is not working in Russia’s favor, the country is far from down for the count. It will arrest the ruble’s slide and keep pumping oil. Its economy will contract but not crumble. The harsh reality is that American shale fields have much more to fear from plummeting oil prices than the Russians (or the Saudis), since their costs of production are much higher. Many US shale wells will become uneconomic if oil falls much further. And it they start shutting down, it’ll be disastrous for the American economy, since the growth of the shale industry has underpinned 100% of US economic growth for the past several years.

Those waving their arms about the ruble might do better to look at countries facing real currency crises, like oil-dependent Venezuela and Nigeria, as well as Ukraine. That’s where the serious trouble is going to come.

The collapse in oil prices is just the opening salvo in a decades-long conflict to control the world’s energy trade. To find out what the future holds, specifically how Vladimir Putin has positioned Russia to come roaring back by leveraging its immense natural resource wealth, click here to get your copy of Marin Katusa’s smash hit New York Times bestseller, The Colder War. Inside, you’ll discover how underestimating Putin will have dire consequences. And you’ll also discover how dangerous the deepening alliance between China, Russia and the emerging markets is to the future of American prosperity. Click here to get your copy.

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Five Rare Birds Sing a Wise Tune

Five Rare Birds Sing a Wise Tune

By Dennis Miller

In the spirit of the holidays, I’m sharing a happy truth: many people do, in fact, retire rich. Who are these rare birds and what can they teach us?

Rich Retire #1—The Pension Holder. If you have a large pension in 2014, you likely are or were a government employee. Many government workers receive pensions equal to 75-80% of their working salaries. In some government departments, it’s the unwritten custom for department heads to bump a worker’s salary 20% or so when he or she is a year or two from retirement. This boosts the employee’s base for his retirement pay.

Of course, in the private sector, pensions have gone the way of the slide rule. So let’s move on.

Rich Retire #2—The Small-Business Owner. If a self-employed person builds up a small or mid-sized business that he can sell when he’s ready to retire, that can fund a comfortable lifestyle during his nonworking years. Sure, it’s not “retirement investing” in the traditional sense, but it’s a path that’s worked for many entrepreneurs.

Rich Retire #3—The exceptional investor. Investors who lock in large boom-time gains are a step ahead of most. Those who resist the ever-so-tempting urge to spend that extra dough can watch it grow, and just like that, a rich retirement is theirs for the taking.

Rich Retire #4—The exceptional saver. A friend’s dad used to tell him, “Save 10% of your pay once you start working and you’ll be a millionaire by your mid-40s.” This friend’s dad was wrong. It didn’t take him that long. Ultra-disciplined savers live their lives this way, setting themselves up to retire rich without a last-minute race to the finish line.

Rich Retire #5—The former debtor who pays himself now. Except for those born independently wealthy, many of us spend years paying down sizable debts, such as a mortgage or educational loans. The rich retire clears those debts as soon as possible, but continues to make those payments… to himself.

Paying off your mortgage is a golden opportunity. Say it eats up 30-40% of your income. After you write that last check to the bank, you can save and invest 30-40% of your income without adjusting your lifestyle the tiniest bit. That money starts to compound, and pretty soon your real wealth is growing in leaps and bounds.

Joining the Flock

If you’re one of these rare birds, your biggest financial problem is the kettle of hawks eager to confiscate your wealth and redistribute it to those who haven’t exercised as much financial discipline as you have. On the other hand, if you’re not part of this flock, there’s likely still time for you.

Though the statistics often sound bleak for people who’ve spent 40-plus years as capital-S Spenders, it’s still possible to change.

Build a realistic plan. Some friends of mine had 20-plus credit cards, each with large balances. The exorbitant interest rates charged by credit cards makes paying off large balances extremely difficult. But these friends wrote out a tight budget, focused on paying off one credit card at a time, and with each success took a large pair of scissors and cut up the card and celebrated—on the cheap.

Large debt can make people feel out of control. It’s often overwhelming. But we all have a lot control over the expense side of our ledgers. You can’t un-spend money you’ve already spent, but you can reduce what you spend today, the next day, and the day after that. Those reductions can help you eliminate debt, and from there, you can follow the path of Rich Retiree #5—start making those debt payments to yourself.

Sell off large assets. Are you still living in a McMansion? Could you capture some of that equity and add it to your nest egg? Downsizing to the Goldilocks house—the one that’s not too big and not too small—can help you reduce regular home maintenance costs and property taxes. In high-tax states like Illinois, for example, it’s not unusual to pay well over $10,000 in real estate taxes.

Do you need a new luxury car every three years? Do you own a boat you take out on the lake once or twice a year? Jettison all of your unnecessary stuff and you’ll be many steps closer to a comfortable retirement.

Reduce your overhead. Do you really need to pay the cable company $100-plus per month for channels you never watch? What other fixed monthly expenses are wants disguised as needs?

This is emotionally tough stuff. We have friends who gave up their country club membership because they decided a comfortable retirement was a much higher priority. It was a straightforward decision in theory, but a lot of their friends are at the club. It’s hard to give up life’s little luxuries, especially when giving them up means excluding yourself. But when those luxuries are keeping you from a comfortable retirement, it’s time to bite the bullet.

Ask yourself the tough questions. Are you spending on status and prestige to give yourself an emotional boost? Many of us do this without even knowing it. But is a rich retirement worth giving up for status?

Know your bottom line. When baby boomers run their retirement numbers the first time, many are shocked. They realize they’re not saving nearly enough to retire comfortably. Up to this point, they’d never had to live within, much less below, their means.

Depending on your age, it can be difficult to save enough to replicate your current lifestyle in retirement. You can, however, begin to control your expenses fairly quickly. Once you do that, you can determine what kind of lifestyle you can realistically afford and build a plan to get there. Or maybe you’ll decide to work a few years longer or launch a second career so that you can maintain your current lifestyle over the long haul.

Money Forever Chief Analyst Andrey Dashkov built a Retirement Income Calculator that you can download to run your own projections. Using it is an invaluable first step. You can also sign up to receive timely, actionable tips on how to make the most of your nest egg from our free weekly e-letter, Miller’s Money Weekly. Each Thursday we send out need-to-know economic and investment news uniquely tailored for seniors and savers. Click here to join the Miller’s Money Weekly family today.

The article Five Rare Birds Sing a Wise Tune was originally published at millersmoney.com.

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Russia’s Unfazed by Falling Oil Prices

Russia’s Unfazed by Falling Oil Prices

By Marin Katusa, Chief Energy Investment Strategist

Oil is not quite as powerful a weapon against modern-day Russia as one might think.

By arguing that the slump in oil prices will finish off Russia just like it did the Soviet Union, Ambrose Evans-Pritchard, writing in the Daily Telegraph, is forgetting how far Russia has come since those dark days.

It is true that the USSR couldn’t cope with falling oil revenues and that Saudi Arabia is credited with helping to break up the former empire by dramatically increasing oil production from 2 million to 10 million barrels per day in 1985.

And sanctions could make it harder for Russian firms to access Western know-how, and ultimately affect Russia’s oil output.

But that’s only if they drag on for years—which is doubtful, given the price the EU is already paying. A cut in global oil supply—and stronger global growth—will likely rebalance the oil market in the meantime.

A measure of Russia’s improved prospects is that the population is growing again for the first time since 1992. In fact, sanctions notwithstanding, Russia’s finances look pretty stable for now.

Russia has only about $678 billion in foreign debt, which it’s been vigorously paying down from the high of $732 billion reached at the end of 2013. (The US debt to foreigners has passed $6 trillion, and it’s growing.) It’s running a record-high budget surplus and a positive balance of payments. And it’s circumventing the dollar through trade deals. Even after spending $60 billion propping up companies starved of dollar liquidity, Russia has nearly $375 billion of foreign reserves.

Although GDP growth has slowed from 2012’s torrid 4.25% pace, it’s still projected to come in at 1%, no worse than 2013.

Furious about being locked out of SWIFT—the Society for Worldwide Interbank Financial Telecommunication, which helps facilitate international financial transactions—Putin has also ordered the Russian central bank to proceed with building its own national payment settlement system as an alternative.

Then there’s “Project Double Eagle,” which will enable trade partners to price oil in gold. That will allow users to move away from the dollar (and the euro), and conduct their business in something physical and more substantial than fiat money—and Russia’s fellow BRICS nations (Brazil, India, China and South Africa) are cheering it on.

So, perhaps there’s method in Putin’s madness. Russia has not only substantially increased gold production but is stockpiling the stuff, doubling its reserves between 2008 and 2014.

It’s true that the country’s budget was based on oil prices of $96 per barrel. With oil sinking below $70, that hurts for certain. But Russia will survive. It will do some belt-tightening. And it gets a boost from the falling ruble—which is down 25% against the dollar just since the end of September—because that helps to offset losses from cheaper oil.

Russian oil companies earn dollars abroad for their exports, but spend rubles domestically. That means that their extraction budgets remain unaffected and, additionally, it ensures that government tax receipts won’t drop precipitously. Production actually rose to 10.6 million barrels per day in September, close to the highest monthly figure since the collapse of the Soviet Union. Russia’s 8 million barrels of daily export account for 15% of the total oil moving in world markets.

Ironically, Obama’s sanctions could have worse consequences for the US. If Russia ramps up production in order to raise revenues, that will lead to an even bigger fall in oil prices. And one of the primary victims will be US shale production. US fracking operations—which are more costly than conventional Russian (or Saudi) drilling—begin to get uneconomical below $70 per barrel. If the price drops to $60, many US unconventional wells will have to shut down and imports will rise once again.

Thus, the slide in oil prices threatens American energy independence and emboldens rather than weakens Russia.

Meanwhile, Russia forges ahead with exploration and infrastructure development. Putin just inked a 25-year oil deal with China that includes the construction of a brand new 3,000-mile pipeline. And he’s sending fleets of nuclear-powered icebreakers into the Arctic to stake out more reserves, along with troops to protect them.

While Americans are counting the few dollars they’ll save on gasoline now and spend on gifts this Christmas, Putin is counting all the billions he’ll make when oil rebounds.

Russia may or may not be losing the current battle. But no matter what Evans-Pritchard may think, Putin has no intention of losing the war—in fact, he’s the only one who really understands what the ultimate prize for winning it is.

As my new book, The Colder War, makes clear, the geopolitics of energy—especially the struggle between Russia and the US—is the single most important force in the world today.

Putin’s not going to spare any effort to come out on top, and the smart money isn’t betting against him. This would not mark the first time he has been wounded and come back stronger.

To discover all the ways you can invest with Putin and make a bundle in the process, sign up for Marin Katusa’s just-launched advisory, The Colder War Letter.

You’ll discover how Marin is uniquely positioned, as Putin is, to profit from this slump in oil prices. And you’ll receive monthly updates on the latest geopolitical moves in this struggle to control the energy sector and what it means for your personal wealth.Plus, you’ll get a free hardback copy of Marin’s New York Times best-selling book, The Colder War, just for signing up today. Click here for all the details.

The article Russia’s Unfazed by Falling Oil Prices was originally published at caseyresearch.com.

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The Run Away from the Economic Tsunami

Run Away from the Economic Tsunami

By Dennis Miller

This warning comes from “Big Al” Greenspan, age 88. He’s been in the news a lot lately, speaking with Gillian Tett of the Financial Times at the Council on Foreign Relations and at the New Orleans Investment Conference. After reading several reports of both events, I spoke with Casey Research colleagues who’d attended the conference and asked, “Did Big Al really say this, this, and this?”

Their response was crystal clear: “Yep! That’s exactly how I saw it and what I took his remarks to mean.”

Mr. Greenspan is issuing a warning to anyone who will listen, ‘fessing up to things many of us thought might be true. His candor reinforces many of my worst fears:

  • The Federal Reserve is raining money down from the heavens to fund unprecedented government spending and to keep the banking system solvent.
  • The credit needs of the US government are so huge that if the Fed didn’t add liquidity to the system, the private sector would be choked out, unable to afford to borrow money.
  • An inflationary bonfire is just a spark away. Big Al likened the money supply to kindling awaiting a match to ignite an inflationary explosion.

The Fed’s Real Job

Greenspan made it clear that the Fed’s mission is to help fund US government spending and to defend the banking system. In his talk at the Council on Foreign Relations, he also mentioned coordinating with other central bankers throughout the world.

In essence, the Federal Reserve functions as a low-interest Visa card with no spending limit. The Fed enables a spendaholic government, dealing it trillions of doses of its drug of choice.

Frankly, Janet Yellen inherited a mess. When she talks about the Fed’s role in combating inflation and promoting unemployment, it’s window dressing. When push comes to shove, the needs of the US government and big banks take priority. As long as government spending continues, the Fed will continue to feed the beast with cheap money—just like Big Al says.

On Government Debt

While US government debt is reportedly in the $17-trillion range, that’s a drop in the bucket compared to its real liabilities. On top of Social Security obligations and unfunded pension promises, Big Al also reminds us that no one knows what the Fed’s true liabilities are because it has essentially guaranteed the liabilities of too-big-to-fail entities.

All this means that the US government cannot satisfy its debts without inflating the US dollar at a much greater rate than most of us could imagine.

He Who Has the Gold

Unlike Ben Bernanke, who’s likened gold to an ancient relic, Big Al sees things differently, stating: “Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” Greenspan went on to discuss tapering and agreements with central banks, confirming that gold serves a very important role in monetary reserves.

All this reminds me of the other golden rule: “He who has the gold makes the rules.” Russia and China must believe that, given their buying habits over the last few years.

Warning Recap

Let’s review Big Al’s warning. The Federal Reserve’s primary mission is to support out-of-control government spending. To do so it’s “created” trillions of dollars. Regardless of who is in office, politicians can’t help themselves. Spending will continue. If the Fed tries to reverse the trend, there will be a significant market event. If it keeps doing what it’s doing, significant inflation is inevitable.

A lot of people will be hurt. Seniors and savers, particularly those holding the majority of their wealth in US dollars, are standing on the seashore so they can get a better view of the tsunami. There is a better way.

The day will come when the inevitable becomes imminent. I fear for those who ignore or refuse to accept the warning. Anyone who holds gold and/or other inflation hedges likely isn’t shocked by what Big Al is saying. For everyone else, don’t ignore Greenspan’s warnings—they are crystal clear.

If you’re one of the seniors or savers who’s standing at the shoreline, watching the tsunami come in but unsure of where to run, we can show you a path to safety. Every Thursday my team and I share timely, no-nonsense financial strategies for risk-adverse investors in our free weekly e-letter, Miller’s Money Weekly. Sign up here to start receiving your free copy now.

The article Run Away from the Economic Tsunami was originally published at millersmoney.com.

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Doug Casey on Russia and Russian Stocks

Doug Casey on Russia and Russian Stocks

By Nick Giambruno, Senior Editor, InternationalMan.com

Nick: Okay Doug, so looking around, what markets look cheap to you today?

Doug: I saw recently that many stocks in Greece are selling at around four times earnings. But I don’t know what the quality of their earnings are. Of course, the dividend yield on Greek stocks isn’t very high, and dividends are, I think, the best real indicator of how much free cash flow there actually is in a company.

Nick: One market that has struck me as cheap—with a decent dividend yield—and that’s accessible is Russia. What are your thoughts on Russia?

Doug: I think that things might get better there. That they’re doing this big natural gas deal with China is a plus. The fact that the Russians have apparently been continuing to buy a lot of gold is a plus.

As far as Ukraine is concerned—with the proviso that I don’t believe in the sanctity of any nation-state, and so I don’t cheer for any of them—you’ve got to be on Putin’s side of that situation from an ethical and a practical point of view. So I’m not terribly afraid of Russia. I don’t think there’s going to be a war of any type with Russia, and because the market there is now so cheap, it could be very interesting.

In any event, the colors of the world map have been running since the first map was drawn. And Ukraine isn’t even a coherent country to start with—it’s an ethnic intertidal zone. It’s certainly no place where the US government should stick its nose, which is only making things worse.

One thing I’ve learned in years of wandering around the world, trying to figure out how things actually work, is that few things are either as good or as bad as you might have been led to believe, whether it’s an idyllic paradise or a war zone.

Nick: What’s interesting about Putin’s Russia is that it’s one of the few countries in the entire world that’s actually capable of resisting bullying by the US. We’ve seen this with Russia’s granting of asylum to Edward Snowden, among other things. Russia is also one of the very few countries that the US would hesitate to bomb. And I think that makes it an exceptional place. My first visit to Russia was in 2006.

Doug: Mine was in 1977. By the next time, in 1996, the country had changed radically. In 1977, the only places open to foreigners were Moscow and Leningrad, which were, I assure you, as grim as anything Orwell ever imagined. By 1996—just five years after the collapse of the USSR—those cities had been transformed. They were almost indistinguishable from any Western European metropolis. Even the old factories along the river have been converted into fashionable lofts.

But outside of Moscow and Saint Petersburg, which attracted all the money and talent, Russia in 1996 was still a depressing Third World country. But today it’s well past the stage when the main imports were stolen cars and the main exports were prostitutes. I really should have gone there to live in the early ‘90s. That’s when the streets were paved with opportunity, but I believe recent events have again set the table for making serious money in Russia.

Nick: That brings to mind the Russian oligarchs, who built their mountains of money through crisis investing. By buying when Russia was in chaos, they were able to pick up some of the crown jewels of the Russian economy for just a few pennies on the dollar.

Doug: It’s an instructive example. The post-Soviet government gave everyone vouchers that could be traded for shares in the state-owned businesses that were being privatized at the time. The average person had no idea what his vouchers meant or what they were worth. The few who did—today’s oligarchs—profited enormously from that confusion and from the fear that followed the collapse of the Soviet Union. They bought up the vouchers and paid just a tiny percentage of their value. The good thing about Russia being as screwed up and volatile as it appears is that there will be opportunities to do nearly the same thing with publicly traded shares.

Nick: As it is now, no matter what happens in the West, Russia has some big positives working in its favor—like the gas deal with China you mentioned earlier, and also Putin’s Eurasian Union. So despite the overwhelmingly negative sentiment about Russia in the mainstream media and the cheap valuations, it doesn’t seem like Russia is going out of business. Does that make it a good crisis investment market, in your opinion?

Doug: The examples of extreme opportunity I like to bring up are from the mid-1980s, when stock markets in Belgium, Hong Kong, and Spain were all selling at two to three times earnings, half of book value, and with dividend yields on the order of 12-15%. That shows how cheap things can actually get. Today, markets around the world are overpriced because interest rates are so low. At this point, I think Russia is a place you ought to be watching from the long side a lot more than, say, the US.

Nick: Another market that might have seemed interesting from a crisis perspective is Thailand, with its recent military coup. However, coups aren’t exactly rare. This is Thailand’s twelfth since 1932; the previous one came in 2006. Thai stocks essentially shrugged off this year’s rotation of power.

Doug: You’re right. During the Asian crisis of 1997, Thai stocks collapsed, and dividend yields jumped above 10%, in some cases close to 20%. So I guess there’s a lot of money out there that runs scared, but this year’s coup didn’t seem to unsettle anybody.

Nick: In your view, are dividend yields a better gauge of value than other measures?

Doug: I think you’ve got to look at dividends, because reported earnings can be fictional, and book values can be subject to accounting tricks. But dividends are actual cash in your pocket. They are real. So I’d have to say that if there were one really quick indicator of value, dividends are at the top of the list. It’s incredible what you can get in dividends alone when a market is at a bottom—something a lot of people have forgotten.

Nick: I totally agree. Thanks for sharing your informed perspective.

Doug: My pleasure.

You’ve just read an excerpt from Crisis Speculator, International Man’s new publication dedicating to identifying crisis-born investment opportunities.

The article Doug Casey on Russia and Russian Stocks was originally published at caseyresearch.com.

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7 Questions Gold Bears Must Answer

7 Questions Gold Bears Must Answer

By Jeff Clark, Senior Precious Metals Analyst

A glance at any gold price chart reveals the severity of the bear mauling it has endured over the last three years.

More alarming, even for die-hard gold investors, is that some of the fundamental drivers that would normally push gold higher, like a weak US dollar, have reversed.

Throw in a correction-defying Wall Street stock market and the never-ending rain of disdain for gold from the mainstream and it may seem that there’s no reason to buy gold; the bear is here to stay.

If so, then I have a question. Actually, a whole bunch of questions.

If we’re in a bear market, then…

Why Is China Accumulating Record Amounts of Gold?

Mainstream reports will tell you Chinese imports through Hong Kong are down. They are.

But total gold imports are up. Most journalists continue to overlook the fact that China imports gold directly into Beijing and Shanghai now. And there are at least 12 importing banks—that we know of.

Counting these “unreported” sources, imports have risen sharply. How do we know? From other countries’ export data. Take Switzerland, for example:

So far in 2014, Switzerland has shipped 153 tonnes (4.9 million ounces) to China directly. This represents over 50% of what they sent through Hong Kong (299 tonnes).

The UK has also exported £15 billion in gold so far in 2014, according to customs data. In fact, London has shipped so much gold to China (and other parts of Asia) that their domestic market has “tightened significantly” according to bullion analysts there.

Why Is China Working to Accelerate Its Accumulation?

This is a growing trend. The People’s Bank of China released a plan just last Wednesday to open up gold imports to qualified miners, as well as all banks that are members of the Shanghai Gold Exchange. Even commemorative gold maker China Gold Coin could qualify to import bullion. Not only will this further increase imports, but it will serve to lower premiums for Chinese buyers, making purchases more affordable.

As evidence of burgeoning demand, gold trading on China’s largest physical exchange has already exceeded last year’s record volume. YTD volume on the Shanghai Gold Exchange, including the city’s free-trade zone, was 12,077 tonnes through October vs. 11,614 tonnes in all of 2013.

The Chinese wave has reached tidal proportions—and it’s still growing.

Why Are Other Countries Hoarding Gold?

The World Gold Council (WGC) reports that for the 12 months ending September 2014, gold demand outside of China and India was 1,566 tonnes (50.3 million ounces). The problem is that demand from China and India already equals global production!

India and China currently account for approximately 3,100 tonnes of gold demand, and the WGC says new mine production was 3,115 tonnes during the same period.

And in spite of all the government attempts to limit gold imports, India just recorded the highest level of imports in 41 months; the country imported over 39 tonnes in November alone, the most since May 2011.

Let’s not forget Russia. Not only does the Russian central bank continue to buy aggressively on the international market, Moscow now buys directly from Russian miners. This is largely because banks and brokers are blocked from using international markets by US sanctions. Despite this, and the fact that Russia doesn’t have to buy gold but keeps doing so anyway.

Global gold demand now eats up more than miners around the world can produce. Do all these countries see something we don’t?

Why Are Retail Investors NOT Selling SLV?

SPDR gold ETF (GLD) holdings continue to largely track the price of gold—but not the iShares silver ETF (SLV). The latter has more retail investors than GLD, and they’re not selling. In fact, while GLD holdings continue to decline, SLV holdings have shot higher.

While the silver price has fallen 16.5% so far this year, SLV holdings have risen 9.5%.

Why are so many silver investors not only holding on to their ETF shares but buying more?

Why Are Bullion Sales Setting New Records?

2013 was a record-setting year for gold and silver purchases from the US Mint. Pretty bullish when you consider the price crashed and headlines were universally negative.

And yet 2014 is on track to exceed last year’s record-setting pace, particularly with silver…

  • November silver Eagle sales from the US Mint totaled 3,426,000 ounces, 49% more than the previous year. If December sales surpass 1.1 million coins—a near certainty at this point—2014 will be another record-breaking year.
  • Silver sales at the Perth Mint last month also hit their highest level since January. Silver coin sales jumped to 851,836 ounces in November. That was also substantially higher than the 655,881 ounces in October.
  • And India’s silver imports rose 14% for the first 10 months of the year and set a record for that period. Silver imports totaled a massive 169 million ounces, draining many vaults in the UK, similar to the drain for gold I mentioned above.

To be fair, the Royal Canadian Mint reported lower gold and silver bullion sales for Q3. But volumes are still historically high.

Why Are Some Mainstream Investors Buying Gold?

The negative headlines we all see about gold come from the mainstream. Yet, some in that group are buyers…

Ray Dalio runs the world’s largest hedge fund, with approximately $150 billion in assets under management. As my colleague Marin Katusa puts it, “When Ray talks, you listen.”

And Ray currently allocates 7.5% of his portfolio to gold.

He’s not alone. Joe Wickwire, portfolio manager of Fidelity Investments, said last week, “I believe now is a good time to take advantage of negative short-term trading sentiment in gold.”

Then there are Japanese pension funds, which as recently as 2011 did not invest in gold at all. Today, several hundred Japanese pension funds actively invest in the metal. Consider that Japan is the second-largest pension market in the world. Demand is also reportedly growing from defined benefit and defined contribution plans.

And just last Friday, Credit Suisse sold $24 million of US notes tied to an index of gold stocks, the largest offering in 14 months, a bet that producers will rebound from near six-year lows.

These (and other) mainstream investors are clearly not expecting gold and gold stocks to keep declining.

Why Are Countries Repatriating Gold?

I mean, it’s not as if the New York depository is unsafe. It and Ft. Knox rank as among the most secure storage facilities in the world. That makes the following developments very curious:

  • Netherlands repatriated 122 tonnes (3.9 million ounces) last month.
  • France’s National Front leader urged the Bank of France last month to repatriate all its gold from overseas vaults, and to increase its bullion assets by 20%.
  • The Swiss Gold Initiative, which did not pass a popular vote, would’ve required all overseas gold be repatriated, as well as gold to comprise 20% of Swiss assets.
  • Germany announced a repatriation program last year, though the plan has since fizzled.
  • And this just in: there are reports that the Belgian central bank is investigating repatriation of its gold reserves.

What’s so important about gold right now that’s spurned a new trend to store it closer to home and increase reserves?

http://www.caseyresearch.com/images/goldarrow.jpg These strong signs of demand don’t normally correlate with an asset in a bear market. Do you know of any bear market, in any asset, that’s seen this kind of demand?

Neither do I.

My friends, there’s only one explanation: all these parties see the bear soon yielding to the bull. You and I obviously aren’t the only ones that see it on the horizon.

Christmas Wishes Come True…

One more thing: our founder and chairman, Doug Casey himself, is now willing to go on the record saying that he thinks the bottom is in for gold.

I say we back up the truck for the bargain of the century. Just like all the others above are doing.

With gold on sale for the holidays, I arranged for premium discounts on SEVEN different bullion products in the new issue of BIG GOLD. With gold and silver prices at four-year lows and fundamental forces that will someday propel them a lot higher, we have a truly unique buying opportunity. I want to capitalize on today’s “most mispriced asset” before sentiment reverses and the next uptrend in precious metals kicks into gear.

It’s our first ever Bullion Buyers Blowout—and I hope you’ll take advantage of the can’t-beat offers. Someday soon you will pay a lot more for your insurance. Save now with these discounts.

The article 7 Questions Gold Bears Must Answer was originally published at caseyresearch.com.

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Judge This Country by Its Enemies

Judge This Country by Its Enemies

By Nick Giambruno

Pop quiz: can you name this free-market jurisdiction in the Western hemisphere?

Here are some of its attributes:

  • Personal income tax: NONE
  • Corporate income tax: NONE
  • Capital gains tax: NONE
  • Taxation of dividends: NONE
  • Taxation of interest: NONE
  • Withholding taxes: NONE
  • Payroll tax: NONE
  • Social Security tax: NONE
  • Wealth tax: NONE
  • Inheritance/estate tax: NONE
  • Property taxes: NONE

Compared to the levels of taxation in the US, Canada, and Europe, to say the above is a breath of fresh air would be a major understatement.

Now, there are only three jurisdictions in the Western hemisphere that do not levy property taxes, so that should narrow the field. The mere existence of property taxes is a ridiculous notion that should offend anyone with a respect of property rights. I have already covered this topic here in case you’re interested.

Those three jurisdictions are the Cayman Islands, Dominica, and Turks and Caicos Islands.

All three are worthy of discussion, but as I just returned from a speaking engagement at the Grand Cayman Liberty Forum, I want to focus on Cayman today.

(By the way, locals pronounce it like cay-man, not cay-men. It sort of rhymes with the way you would say “hey man.”)

There is one absolutely crucial feature that distinguishes the Cayman Islands from other low-tax jurisdictions: a culture and history that is vehemently opposed to direct taxation—which has never existed in Cayman.

Over the years, every proposal that has had even a whiff of a possibility that it might lead to direct taxation has been driven out of town, along with the foolish politicians who sponsored it. It’s proven to be a great deterrent.

This dynamic has been fostered by the fact that Cayman is a small place where everybody—including the politicians—know each other. The political system in that sense remains very personal. The legislators go to the same restaurants and live in the same neighborhoods as their constituents—they cannot easily hide. This sort of personal accountability is impossible in large countries. It helps keep Caymanian politicians in check.

Give an Inch and They’ll Take a Mile

The aversion to even the concept of direct taxation in Cayman is extremely important. Because once the principle is conceded—and you give politicians an inch—it’s only a matter of time before they’ll take a mile.

You’ll recall that when the federal income tax was introduced in the US in 1913, those making up to $20,000 (equivalent to around $475,000 today) were only taxed at 1%—that’s ONE PERCENT.

The top bracket kicked in at $500,000 (equivalent to around $12 million today), and the tax rate for it was only 7%.

Of course, once the principle was conceded in 1913, the politicians naturally couldn’t resist ramping it up until we have the monstrosity that exists today in the US tax code, which most Americans passively accept as “normal.”

In my view, it’s Cayman’s unique culture and history that’s opposed to the very principle of direct taxation, which is the best guarantor it will continue to be a beacon of light well into the future.

Judge Me by My Enemies

But not everyone is as thrilled about the Caymanians’ love for low taxes as I am.

Spendthrift politicians the world over have long despised Cayman—something that should be taken as a badge of honor, as far as I’m concerned.

This is because productive people and companies gravitate to places where they’re treated best. And it’s hard to find a place where you’ll be treated better with respect to taxation than in Cayman. This healthy dynamic is called tax competition.

Naturally, politicians in countries with uncompetitive tax policies don’t like this because it means fewer productive people to fleece, which helps puts a limit on their wasteful spending.

Consequently, Cayman has long been pressured. A prominent Caymanian professional told me about how the US government used to fax over laws to the Cayman government and demand that they adopt them. Imagine a situation where China arrogantly faxed over a new law to the US Congress and demanded they adopt it and you’ll know how the Caymanians felt.

Fortunately, these methods were never really that successful. In fact, they’ve made Cayman stronger. Now the jurisdiction is battle-hardened and knows how to handle the pressure.

Another way Cayman has been pressured is through demonization in the media and popular culture as some sort of shady money-laundering center. Never mind the fact that unlike murder, robbery, and rape, money laundering is a victimless make-believe crime invented by politicians.

Here’s what Lew Rockwell said in a post titled The Totalitarian Notion of ‘Money Laundering’:

Normal people … are outraged and astounded to know that using your own cash, honestly gained and (dishonestly) taxed, can be a major-league federal felony. Spending $10,000 or more of your own cash without filling out a federal form is a crime. But get this: spending smaller amounts can be a crime too, if they add up to more than $10,000. We are told that this police-state measure is necessary to fight terrorism. But when the evil Reagan administration pushed all these laws through, the excuse was to fight the drug war. Of course, neither is true. Such surveillance is part of the federal effort to tax and control every dime you have and spend. Need I mention that only one public official, then and now, fights for our privacy and property rights in this area? Ron Paul battled Reagan, Bush I, Clinton I, and Bush II on the victimless crime of “money laundering.” As Ron says, freedom means governmental transparency and private opacity, not the reverse.

But let’s set that argument aside and assume that money laundering is indeed a real crime. The people who demonize Cayman never mention that New York and London are some of the largest money laundering centers in the world. Cayman is squeaky clean in comparison with tight “know your customer” and other banking controls.

Here’s what the New York Times has said:

A study last year by the Colombian economists Alejandro Gaviria and Daniel Mejía concluded that the vast majority of profits from drug trafficking in Colombia were reaped by criminal syndicates in rich countries and laundered by banks in global financial centers like New York and London.

What this all means is that the popular (mis)conception about Cayman being some sort of unique and illicit jurisdiction is nothing but propaganda from proponents of big government.

The reality is that Cayman is a highly sophisticated and professional financial center that stands out because of its unique history and culture opposed to direct taxation. For people looking to make the most of their personal freedom and financial opportunity, Cayman checks a lot of boxes.

If we judge Cayman by its enemies, I’d say it’s a wonderful place.

Before I sign off, I’d be remiss if I didn’t mention the latest issue of Crisis Speculator. In it, I have an in-depth discussion with the legendary Jim Rogers on investing in productive farmland in a crisis market that both he and I are very excited about. It’s a region that happens to contain some of the most fertile soil in the entire world. Jim recently became a director of a company that operates in the area.

Crucially, I have found a way for US investors to easily access this opportunity with a retail brokerage account. If you’re interested in scooping up productive agricultural real estate in arguably the most fertile area of the world at crisis-driven bargains—and with the ease of buying a stock in your US brokerage account—I’d suggest you check out the investment pick in the latest issue of Crisis Speculator.

 

The article was originally published at internationalman.com.

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Will You Light $180,000 on Fire by Taking Social Security at Age 62?

Will You Light $180,000 on Fire by Taking Social Security at Age 62?

By Dennis Miller

On the television series Dragnet, Sgt. Joe Friday was known for his calm demeanor while questioning witnesses. When they began to ramble, he would corral them with comments like, “Just the facts, ma’am.” Sound advice for the witness stand, but when it comes to retirement planning, Sgt. Friday was giving the wrong instructions. Instead of asking for “just the facts” we should ask for “all the facts.”

A recent article for Bankrate featured a frightening graphic quoting Social Security Solutions founder William Meyer: “Two-thirds of Americans take Social Security at age 62, giving up $180,000 if single, $323,000 if married.”

With those statistics in mind, holding off until age 70 can seem like a no-brainer. Let’s take a closer look, though, with “all the facts” in plain sight.

The Social Security Administration’s website offers a handy tool for estimating benefits. We used it to run through a few hypotheticals for a man I’ll call Joe Friday.

Let’s assume Joe was born on January 1, 1953. This would make him 62 on January 1, 2015, and he plans to retire immediately before this birthday. Joe would rather sail around the world than work. To keep it simple, let’s say he’s unmarried—or married to his boat, so to speak.

Joe’s current annual salary is $200,000, which puts him above the Social Security maximum ($114,000 in 2014). According to the calculator, if Joe starts receiving Social Security benefits beginning at age 62, his monthly check will be $2,000. If he waits until age 70, he’ll receive an estimated $3,562 per month (all amounts are in 2014 dollars), or $1,562 more. In other words, if he waits eight years, his monthly benefits will increase by approximately 78%.

And there you have “just the facts.” Wait eight years longer… receive 78% more each month. Now, let’s explore “all the facts.”

If Joe takes Social Security at age 62, he will have collected $192,000 by age 70. At this point, he is well ahead of the game.

About 10 years and 3 months later, or just after Joe’s 80th birthday, though, he will have received the same total amount in benefits whether he began taking them at age 62 or age 70. Taking the benefits at age 62, however, won’t put him $180,000 behind, as Meyer said, until he reaches 89 years, 10 months of age.

With that in mind, Joe should consider a few details before waiting to take Social Security:

  • If he lives past 80 years, 3 months of age, he’ll receive more money. If not, waiting is a bum deal.
  • These estimates are just that: estimates. They do not take into account potential changes to the Social Security system. The government could reduce benefits, tax a larger portion, or scrap the program entirely. With so many uncertainties, there’s something to be said for having some money in hand, even if it’s in exchange for more (but not guaranteed) money later.
  • These calculations ignore the value of money. They assume Joe will spend, not invest his Social Security, from age 62 until age 70.

So, what is the right decision? If Joe asked me, I’d recommend he consider:

  • His realistic life expectancy based on his health, lifestyle, and family history;
  • Whether he needs the money now; and
  • Whether he’s confident the Social Security system will remain intact throughout his lifetime.

If Joe were married, he’d also want to consider his spouse’s income and expected longevity.

When you make these decisions for yourself, keep in mind that taking Social Security at 62 or 70 are not the only choices. You can start receiving benefits any point after age 62; the amount will go up with each passing month.

I have a high school classmate who, at age 70, told me about his quadruple bypass and how he’d outlived every male in his family… by 20 years! He died shortly thereafter. My own grandmother passed away two months shy of her 100th birthday, and my mother’s twin sister just celebrated her 99th birthday. Although a man who reaches age 65 today can expect to live, on average, until age 84.3, you know many more details about yourself. Although it’s uncomfortable to think about, you can make a more personalized estimate than “84.3.”

Because you can’t know for sure if you’ve made the right decision until after the fact, the best decision is one that weighs all of your personal facts. Headlines and sound bites might make it seem like a no-brainer, but it’s not. I’m sure most of the two-thirds of Americans who take Social Security at age 62 have good reasons for doing so. Many who wait and enjoy increased benefits can likely say the same.

Learn more retirement truths every Thursday by signing up for our free e-letter, Miller’s Money Weekly.

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What If Silicon Valley Moved to Puerto Rico?

What If Silicon Valley Moved to Puerto Rico?

By Gerald Nowotny

The tax benefits of Puerto Rican residency gained some attention and notoriety when hedge fund billionaire John Paulson went to Puerto Rico to “kick the tires.”

He did not become a Puerto Rican resident (not yet, at least), but ended up buying a resort there instead. My theory is that John Paulson can’t move anywhere without attracting adverse media attention. The media would declare that Paulson’s purchase of a Big Gulp at Seven Eleven as tax motivated.

Puerto Rico has long used corporate tax incentives to attract many large American multinational companies. Both Apple and Microsoft can attribute a great deal of their tax benefits and success to Puerto Rico. Many pharmaceutical companies have Puerto Rican operations.

The Puerto Rican government—not lacking in creativity—passed a series of tax bills in 2012 to create economic incentives for Americans to move and start businesses in Puerto Rico. Namely, they eliminated taxation on dividends, interest, and capital gains as well as reduced corporate taxes to just 4%.

Frankly, my hat is off to the Puerto Rican government for its ingenuity. Our own federal government could learn a lesson or two from this legislation.

Less known are the substantial benefits for research and development in Puerto Rico. The combination of the R&D, business, and personal tax benefits make Puerto Rico a far better option than Silicon Valley.

While the reader may argue that any intent to unseat Silicon Valley as the King of the technology hill is foolish and farfetched, I will make the argument in this article that Puerto Rico is a much better location for operations, or at least a subsidiary.

To all my friends in the “city by the Bay,” no offense, but the Fillmore has been closed for a long time, Janis Joplin has been dead for more than 40 years, and Journey stopped touring a long time ago. Yes, the proximity of Sonoma and world-class wine and beauty is compelling, but the costs of living in the Bay area are not.

Silicon Valley Versus Puerto Rico—David Versus Goliath

A few key distinctions come to mind right away when you consider the possibility of Puerto Rico versus Silicon Valley as an alternative location for research and development.

Immediately, I think of the dramatic differences in the cost of living between Puerto Rico and San Francisco and Silicon Valley. Housing is a major factor in the cost of living and typically the largest expense for employees when considering whether to relocate to a high-cost urban area. Outside of San Juan, the differential becomes dramatically more pronounced.

The difference in the cost of housing between San Francisco and San Juan is massive. Rents are a third of what they are in Silicon Valley.

I heard a story during the early days of the tech bubble that has always stayed in my mind. A single mother with a child rented a room in a person’s house without kitchen privileges for $2,000 per month in 2000. The same mother would have had a three-bedroom house in a nice neighborhood, a live-in maid, and could have sent her child to the best private school in San Juan or any other Puerto Rican city for the same money.

Of course, there is the incredible difference in taxes as well.

Startups tend to attract young entrepreneurs with young families. Cash compensation tends to be low, in favor of “success-based” compensation after a sale or IPO.

Recently, Puerto Rico adopted tax incentives that would allow workers to exercise the sale of stock in their company following a sale or an IPO without any personal tax due.

The proceeds would not be subject to federal taxation or Puerto Rican taxation.

The taxes in California by contrast would be confiscatory.

Assuming a significant sale, the California resident would be subject to long-term capital gains taxation of 20% along with the 3.8% Medicare tax on investment income. At the state level, the capital gains wouldn’t receive preferential treatment and would be taxed at ordinary tax rates, which could reach as high as 13.1%.

A Puerto Rican resident would pay no federal or Puerto Rico taxes on the sale of company shares, while the California resident pays 37%. That’s an incredible difference.

Let’s not understate the fact that San Francisco is a very cosmopolitan city, but when you’re barely paying your bills, the quality of the local museum and opera company aren’t your biggest concerns.

A few recent stories have covered tech companies providing housing for workers not only to reduce the high cost of living but also to encourage a family (more likely, frat house) environment, where employees can exchange ideas 24-7. Clearly, a beach house in the Puerto Rico could provide a similar work and living environment at a fraction of the cost.

What about the weather?

The Bay area is prone to earthquakes and foggy weather. Puerto Rico has Caribbean weather and world-class resorts. The Bay has wine country; Puerto Rico has world-class rum. Puerto Rico is very accessible from the mainland. I once counted over 50 flights per day from the mainland US originating from major Eastern cities and Chicago. Most of the discount airlines have multiple flights per day to Puerto Rico.

What about the rule of law?

Remember that Puerto Rico is part of the US with federal courts. Law firms in Puerto Rico are sophisticated and cost about 75% less than firms in San Francisco and New York City. You’ll need and want to keep your US lawyer, but it’s likely that your attorney in Puerto Rico also went to Harvard or Georgetown.

Ultimately, it’s about the money.

Shareholders and employers will be able to dramatically reduce operating costs through a combination of significant tax incentives and R&D incentives in Puerto Rico. The local universities provide a rich talent pool and US-based employees who move to Puerto Rico and become residents will be able to personally benefit financially in a manner that’s impossible in Silicon Valley or the entire continental US. If it’s about the money, then it’s equally about how much of the money that you get to keep.

Conclusion

I am certain that many of the readers of this article will say “foolish” and “very naïve” at the idea that Silicon Valley should move to Puerto Rico.

All it takes is for someone to be first.

I recently met two entrepreneurs who were moving through another round of venture-capital financing. Both were in a position to sell some of their shares following the financing. Both shareholders would reap a few million dollars each. One of the shareholders was a resident of NYC, while the other was a California resident. The company had 20 employees living and working in Silicon Valley.

If their company had been in Puerto Rico instead of Silicon Valley, neither of the entrepreneurs would have paid any federal and state income taxes. Neither of the two would have paid any Puerto Rican taxes. The employees would have qualified for the compensation exemptions under R&D provisions and had no taxation on the sale of company shares.

The employees’ families would have enjoyed living in housing that is a fraction of the cost of the Bay area. Their children would become bilingual. Their families would come to visit them every winter, and the employees would return to see their families a few times per year. And there would be no need to renounce your US citizenship like Eduardo Saverin.

In the final analysis, perhaps the proposal is a bit naïve, but if money really talks, the venture capitalists and entrepreneurs should be listening.

If you want to find out more about taking advantage of Puerto Rico’s tax benefits, I’d suggest you check out this free video that we put together. It’s information you won’t find anywhere else and is really a must-see. You’ll hear from hedge fund legend John Paulson, best-selling author and financial commentator Peter Schiff, and all-star investor Nick Prouty, as well as a handful of others who have taken advantage of these incentives. You can see the free video by clicking here.

 

The article was originally published at internationalman.com.

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Golden Bottom

Gold Scents

Today I’m going to follow up on my last article “Are commodities at a major turning point”.

If commodities and gold are ready to reverse then the first thing that has to happen is the dollar needs to form a top. I think that may have occurred on November 7th when the last employment report was released. Notice how the dollar formed a key reversal on that day, that was retested Friday and failed, forming a bearish engulfing candlestick.

dollar retest

Considering that the daily cycle is now on day 22 and late in the cycle timing band, the odds are good that the reversal Friday marked at least a daily cycle top in the dollar index. If that’s the case then the euro’s daily cycle should have bottomed. Looking at the euro chart it does appear that the euro bottomed on November 7.

euro

Now the question is are we looking at just a minor daily cycle rally to be followed soon by another lower low, or is the intermediate trend about to reverse? If the intermediate trend is about to reverse, then the euro is going form a right translated daily cycle (rally for more than 12 days) which would force the dollar into a stretched decline that may generate a failed daily cycle even though it is currently right translated (topped after day 12). While the odds are against a right translated cycle producing a lower low it does happen rarely, and I’m starting to think it might be setting up to happen in the dollar index. I think we could see the euro rally until the December employment report, which would correspond with the dollar forming a daily cycle low also on December 5 (stretching the current daily cycle to 36 days).

currency cycle expectations

If this unfolds as I have described then both currencies would produce a minor corrective move and then continue the intermediate trend reversal. Notice in the chart below the pattern that would form if this scenario plays out.

head and shoulder patterns corrected

As I have been saying all along, the May bottom in the dollar just did not look like a major three year cycle low to me. On top of that over the last 9 years the euro has developed a very distinct two year cycle, which makes me wonder if the three year cycle in the dollar is evolving into something different. If that’s the case, and the euro is about to put in a major 2 year cycle low, then the dollar is about to form a major multi-month, or possibly multiyear top.

multiyear currency cycles

So how does this relate to commodities you ask? Well as long as the dollar continues to rally commodities are probably going to continue to struggle. But if the euro is putting in a major multi-month, or multi-year bottom, and the dollar a major top, then it’s likely, as I discussed in my previous article, that the CRB is forming a slightly early 3 year cycle low right here and now.

US dollar commodities cycles

So how does this affect the gold market you ask? Well if the dollar is in the process of putting in a major multi-year top (which I think it’s safe to say no one is expecting at this moment) then it is possible that gold just put in a final bear market bottom. Yes I have been expecting gold to make a final bottom next summer, and that is still a very strong possibility, but based on that two year cycle in the euro, there is a credible possibility that the bottom I was expecting next summer is occurring right now.

With Friday’s reversal and rally, gold is now flashing signals that an intermediate bottom may have occurred on November 7. Starting with the weekly charts we not only have a weekly swing (the first confirmation that an intermediate bottom has formed) but also a bottoming pattern with two hammer candlesticks in a row.

gold hammers

Another sign that something may have changed is the false breakdown below multi-year support. The last time this happened in 2013 gold collapsed in a waterfall decline. This time the break of support has been quickly reversed. As I have noted in the past this is often how major trends reverse as big money will create an artificial technical breakdown (to trigger stops and create a massive liquidity event) to produce the conditions necessary for them to enter very large positions. Unlike me and you these institutions can’t just click a mouse and enter positions. They need a panic selling event to bring enough shares into the market so that they can take multi-million or even billion-dollar positions.

technical breakdowns

And speaking of entering large positions, note the volume on the triple leveraged mining indexes. Almost 20 billion dollars worth of shares have changed hands over the last two weeks in just GDX and GDXJ, and that doesn’t even include the triple leveraged funds.

NUGT

jnug

For no other reason than the dollar is due for a move down into its daily cycle low the metals should rally next week. Here’s what I’m going to look for to tell me if the rally is the beginning of a new intermediate cycle and possibly a new cyclical bull market.

First: If gold has put in an intermediate cycle low then the miners are going to produce a very large move this week, somewhere in the neighborhood of 7-10%. A recognition candle stick that signals that the smartest and most nimble players in the market are convinced a bottom has formed and have taken positions.

miners weekly recognition candle

Second: In order for gold to generate a major trend change the currency markets also have to complete a larger degree trend reversal. The rally in the euro will be key. If it rallies enough next week to challenge or break its intermediate trend line that will provide confirmation that the currency markets are reversing.

euro intermediate trend line

So watch these two charts next week and they will tell us whether or not this is just a short-term bounce in gold with one more lower low to follow later in December, or if the metals have completed a major multi-month bottom, or maybe even a final bear market low.

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The Colder War is Heating Up as Putin Tightens His Grip on the Global Energy Trade

The Colder War is Heating Up as Putin Tightens His Grip on the Global Energy Trade

By Marin Katusa, Chief Energy Investment Strategist

Vladimir Putin is stronger than ever and judgement day for the petrodollar is here says Marin Katusa, author of the bestselling book, The Colder War, in a new interview with Bloomberg Radio.

Marin warns that America cannot achieve energy independence and that downward pressure on the price of oil will remain a near-term threat. He also reveals where he thinks the next big discoveries in oil will occur. Hint: It’s not America. And gives his insights on the deals happening between Russia and China and what’s in store for the future of OPEC and US oil exports.

For the full story on The Colder War and how it will directly affect you, click here to get your copy of Marin’s new book.

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Russia Back to Superpower Status

Marin Katusa: “Russia Back to Superpower Status”

By Marin Katusa, Chief Energy Investment Strategist

Russian President Vladimir Putin has re-established his country as a global superpower. “Not only that, he’s got the other emerging markets working in concert against U.S. interests, globally,” said Marin Katusa, author of The Colder War, during an interview on the “Steve Malzberg Show” on Newsmax TV. On top of that, Marin added, “Western Europe’s become more addicted to Russian sources of oil and natural gas.”

 

Click here to get your copy of Marin’s new book and discover how the struggle between Russia and the West to control the world’s energy trade will directly affect you and the future of global finance.

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Love What You Do

People seek to make money in many different ways, but money isn’t all there is to life. Perhaps people are looking at money in the wrong way. While money doesn’t buy happiness, not having money can bring sadness and stress and frustration and homelessness. People can decide to be happy with money. However, people are more likely to be sad without money. Money, in and of itself, is not what is of value. Money enables people to pursue what they love. If people can make money doing what they love, it’s even better.

Drop shipping is an excellent and easy way to make money without having to worry about overhead or inventory. However, it means keeping a sharp eye for things of value. Seller “B” lists an item for a buyer. Once the buyer buys the item listed, Seller “B” buys the item for a lesser amount from Seller “A” and has it shipped directly to the buyer. In this manner, Seller “B” makes a profit without having to keep inventory, go to the post office and without paying extra for postage. The key is to obtain items that buyers wouldn’t be able to and sell them for a marked up price.

Trading presents amazing freedom in generating cash flow. However, it should not be entered into unless a person knows what they’re doing. It’s important to have a rule of when to buy and when to sell. If a person is seeking to make money long-term, the chances that a person will turn a profit is unlikely. Trading must occur daily or in some other short duration of time. It’s important to learn about trading, and it’s important to learn about who to learn from. Checking out Reviews of Online Trading Academy is one way to discover who the best option is to learn from.

Real estate presents another hot way to make good money. Some people resort to flipping houses where they buy a house for a lesser amount, fix it up and sell for a profit. People need to know what they’re doing when they begin such an undertaking. Houses that are damaged or stripped of things due to a foreclosure present a wonderful opportunity to flip. However, many others get into rental properties to have a steady stream of income. Whatever a person decides to do, the key is to love it and have fun.

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The Madness of the EU’s Energy Policy

The Madness of the EU’s Energy Policy

By Marin Katusa, Chief Energy Investment Strategist

The stakes couldn’t be higher. Vladimir Putin has launched a devastating plan to turn Russia into an energy powerhouse. And Europe, dependent on Russian natural gas and oil for a third of its fuel needs, has fallen right into his hands: Putin can bend the EU to his will simply by twisting the valve shut.

Considering how precarious Europe’s economic security is, one would have thought that now would be a good time for the EU to reassess its energy policy and address the effect crippling energy costs are having on its struggling economy.

But the EU is never going to agree to a rational reappraisal of its policies, because eco-loons like its new energy commissioner, Violetta Bulc, have taken over the asylum.

A practicing fire walker and a shaman, she’s the sort of airy-fairy Goddard College type who only believes in the power of “positive energy.” What will guide us in this frightening new era is, according to her blog, the spirit of the White Lions:

The Legend says that White Lions are star beings, uniting star energy within earth form of Lions. The native ancestors were convinced that they are children of the Sun God, thus embodying Solar Logos and legends say that they came down to Earth to help save humanity at a time of crisis. There is no doubt that this time is right now.

With the European Commission stuffed with green anti-capitalist zealots, it’s not surprising that the EU’s response to the challenges of a resurgent Russia is a complete break with reality.

The EU has come up with an aggressive climate plan—just like Obama’s. In defiance of all logic—if not Putin—it’s agreed to cut greenhouse gas emissions by 40% and make clean energy, like wind and solar, 27% of overall energy use by 2030.

Instead of guaranteeing the “survival of mankind,” this would cause the extinction of Europe’s industry—unless there’s a secret plan to massively expand nuclear power.

Fortunately for Europe, its leaders haven’t yet lost all their marbles.

These climate goals are just a bargaining chip in the runup to next year’s UN climate summit in Paris. They’re not legally binding. Unless the whole world commits to an equally radical policy of deindustrialization—which seems rather unlikely to say the least—the EU will “review” its climate targets.

This is just as well. In trying to meet the so-called 20:20 target—a 20% reduction in emissions by 2020—Germany and the UK have already discovered that renewable energy is too costly to maintain a competitive industry. As electricity prices skyrocket, Germany’s industrial giants are either having their power costs subsidized or are relocating to the US.

Both countries are struggling with the inability of wind and solar energy to provide reliable baseload power, which is threatening to cause blackouts.

The UK is putting its faith in fracking—and has managed to head off any EU legislation to ban shale-gas. But Germany and its fellow travelers, who have no qualms about reverting to coal, are simply overriding the EU Commission and its zero emissions utopia.

Knowing that EU climate policy would destroy international competitiveness and crush their economies, Poland, which depends on coal for 90% of its energy needs, and other low-income countries have taken a different approach. They’ve forced the Commission to give them special exemptions from any emissions reduction plan.

Unlike in the US—where Obama is taking executive action to wipe out the coal industry—lignite, or brown coal, is set to become an increasingly important part of Europe’s energy supply, as it is in much of the rest of the world. There are 19 new lignite power stations in various stages of approval and construction in Bulgaria, Czech Republic, Greece, Germany, Poland, Romania, and Slovenia. When completed, these will emit nearly as much CO2 as the UK.

Which is ironic. The UK is the only member of the EU to have been insane enough to impose a legally binding carbon dioxide reduction target intended to take it to 80 percent of 1990 levels by 2050. It’s also the only modern industrial nation where there’s serious talk of World War II-style energy rationing.

As you’ll discover in my new book, The Colder War, Europe and America need to wake up. They’ve never been so economically vulnerable. The time for indulging environmental fantasies and putting one’s faith in White Lions is over—unless, that is, you want to see Putin controlling the world.

Click here to get your copy of my new book. Inside, you’ll discover exactly how Putin is orchestrating a takeover of the global energy trade, what it means for the future of America, and how it will directly affect you and your personal savings.

The article The Madness of the EU’s Energy Policy was originally published at caseyresearch.com.

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Putin Signs Secret Pact to Crush NATO

Putin Signs Secret Pact to Crush NATO

By Marin Katusa, Chief Energy Investment Strategist

Back on September 11 and 12, there was a summit meeting in a city that involved an organization that most Americans have never heard of. Mainstream media coverage was all but nonexistent.

The place was Dushanbe, the capital of Tajikistan, a country few Westerners could correctly place on a map.

But you can bet your last ruble that Vladimir Putin knows exactly where Tajikistan is. Because the group that met there is the Russian president’s baby. It’s the Shanghai Cooperation Organization (SCO), consisting of six member states: Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan.

The SCO was founded in 2001, ostensibly to collectively oppose extremism and enhance border security. But its real reason for being is larger. Putin sees it in a broad context, as a counterweight to NATO (a position that the SCO doesn’t deny, by the way). Its official stance may be to pledge nonalignment, nonconfrontation, and noninterference in other countries’ affairs, but—pointedly—the members do conduct joint military exercises.

Why should we care about this meeting in the middle of nowhere? Well, obviously, anything that Russia and China propose to do together warrants our attention. But there’s a whole lot more to the story.

Since the SCO’s inception, Russia has been treading somewhat softly, not wanting the group to become a possible stalking horse for Chinese expansion into what it considers its own strategic backyard, Central Asia. But at the same time, Putin has been making new friends around the world as fast as he can. If he is to challenge US global hegemony—a proposition that I examine in detail in my new book, The Colder War—he will need as many alliances as he can forge.

Many observers had been predicting that the Dushanbe meeting would be historic. The expectation was that the organization would open up to new members. However, expansion was tabled in order to concentrate on the situation in Ukraine. Members predictably backed the Russian position and voiced support for continuing talks in the country. They hailed the Minsk cease-fire agreement and lauded the Russian president’s achievement of a peace initiative.

However, the idea of adding new members was hardly forgotten. There are other countries which have been actively seeking to join for years. Now, with the rotating chairmanship of the organization passing to Moscow—and with the next summit scheduled for July 2015 in Ufa, Russia—conditions could favor the organization’s expansion process truly taking shape by next summer, says Putin.

To that end, the participants in Dushanbe signed documents that addressed the relevant issues: a “Model Memorandum on the Obligations of Applicant States for Obtaining SCO Member State Status,” and “On the Procedure for Granting the Status of the SCO Member States.”

This is extremely important, both to Russia and the West, because two of the nations clamoring for inclusion loom large in geopolitics: India and Pakistan. And waiting in the wings is yet another major player—Iran.

In explaining the putting off of a vote on admittance for those countries, Putin’s presidential aide Yuri Ushakov was candid. He told Russian media that expansion at this moment is still premature, due to potential difficulties stemming from the well-known acrimony between India and China, and India and Pakistan, as well as the Western sanctions against Iran. These conflicts could serve to weaken the alliance, and that’s something Russia wants to avoid.

Bringing longtime antagonists to the same table is going to require some delicate diplomatic maneuvering, but that’s not something Putin has ever shied away from. (Who else has managed to maintain cordial relationships with both Iran and Israel?)

As always, Putin is not thinking small or short term here. Among the priorities he’s laid out for the Russian chairmanship are: beefing up the role of the SCO in providing regional security; launching major multilateral economic projects; enhancing cultural and humanitarian ties between member nations; and designing comprehensive approaches to current global problems. He is also preparing an SCO development strategy for the 2015-2025 period and believes it will be ready by the time of the next summit.

We should care what’s going on inside the SCO. Once India and Pakistan get in (and they will) and Iran follows shortly thereafter, it’ll be a geopolitical game changer.

Putin is taking a leadership role in the creation of an international alliance among four of the ten most populous countries on the planet—its combined population constitutes over 40% of the world’s total, just short of 3 billion people. It encompasses the two fastest-growing global economies. Adding Iran means its members would control over half of all natural gas reserves. Development of Asian pipeline networks would boost the nations of the region economically and tie them more closely together.

If Putin has his way, the SCO could not only rival NATO, it could fashion a new financial structure that directly competes with the IMF and World Bank. The New Development Bank (FKA the BRICS Bank), created this past summer in Brazil, was a first step in that direction. And that could lead to the dethroning of the US dollar as the world’s reserve currency, with dire consequences for the American economy.

As I argue in The Colder War, I believe that this is Putin’s ultimate aim: to stage an assault on the dollar that brings the US down to the level of just one ordinary nation among many… and in the process, to elevate his motherland to the most exalted status possible.

What happened in Tajikistan this year and what will happen in Ufa next summer—these things matter. A lot.

Perhaps no one knows how dangerous Vladimir Putin is and how much he controls the flow of capital in the global energy trade than author of The Colder War, Marin Katusa.

Marin stakes millions on his deep knowledge of energy and politics. And as a result, his hedge funds have outperformed the TSXV index by 6-fold over the past 5 years. To discover everything Putin is planning and how it will directly affect you, click here to get a copy of Marin’s brand new book, The Colder War.

The article Putin Signs Secret Pact to Crush NATO was originally published at caseyresearch.com.

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