George Soros

Over the past few years, mainstream analysts have shown a tenacious blind faith in the U.S. economy and the dollar that goes far beyond religion to the point of mindless cultism, so, when even they begin to question the future of American finance (as has been occurring more and more everyday), you know its time to worry. For those that have been following my work since 2007, the events of the past few months have not been a surprise at all, however, for those just waking up to the ongoing implosion of our fiscal infrastructure, the bubbling inflationary meltdown just over the horizon and the nightmare unfolding around our national debt is rather shocking. Living through a full spectrum catastrophe is, to say the least, confusing, especially when you have no idea where the whole thing began. Until now, the mainstream media has provided nothing but economic fantasy for the masses. They have satiated the public with what amounts to financial toddler talk for helpless preschool minds averse to any research beyond their daily 15 minute sippy cup of New York Times, CNN, MSNBC or FOX cable news sound bites. I mean, have you ever actually stopped and read a Paul Krugman article more than once? Or listened carefully to an MSNBC economic piece? It’s like being violently accosted by a band of slobbering mental deficients with securitized ARM mortgages stuffed in their pants. Of course, fewer and fewer people are now buying what these hucksters are selling. With gasoline nearing $5 a gallon, grain prices doubling, and shelf prices beginning to skyrocket, it’s hard for even the most ignorant suburban schlep to remain oblivious to the problem anymore. We are no longer on the edge of the abyss; we have fallen into it head first…

Gold and silver have surged to new record nominal highs in dollar terms (all time and 31 year) with the dollar falling sharply on international markets. Silver has continued to surge in all currencies and has surged to a new record nominal high of $46.25/oz (£27.85/oz and €31.54/oz) on growing rumours of a short squeeze involving a billionaire or state interest attempting to corner the silver market. The massive concentrated short positions of some Wall Street banks have incurred serious losses and a desperate attempt to close their futures positions due to the tight physical marketplace may be leading to a short squeeze. This is something that GoldCore and a few other analysts have warned of for some time. We have long said that the very small silver market was ripe for cornering by private or state interests and that appears to be happening on some level. However, there are an increasingly large number of silver buyers who realize the market can be cornered and they are buying in anticipation of this event. The blogosphere has again been ahead of the curve and dismissal of much circumstantial evidence of silver manipulation, a short squeeze etc. as “conspiracy theories” is becoming less easy to do. It looks like many investors internationally and one or a few private individuals and states are cornering the silver market. At one stage the Hunt Brothers cornering of the market was a “conspiracy theory” – it soon became fact.

Concerns that the sovereign debt crisis may be entering a new phase and the risk of contagion has seen peripheral eurozone bonds fall sharply and the euro fall against major currencies and gold today. Sovereign debt risk, global inflation concerns, geopolitical risk, disappointing European earnings and concerns about Japan's coming reporting season have seen equities weaken and new record nominal highs for gold and silver (all time and 31 year). Greek bond yields have continued their relentless march higher and have risen above 14.07% (10 year) and Portuguese debt (10 year) has risen to a euro era record over 9.27%.Spanish and Irish debt are also under pressure this morning. Gold is increasingly being seen as the superior currency in a world of trillion dollar and euro deficits and bailouts. Indeed, the printing and electronic creation of billion and trillions of the major paper currencies is increasingly making gold and silver the currencies of last resort. One of the largest pension funds in the world, the University of Texas Investment Management Co (which manages the endowment for the Texas teachers pension fund), has realized this and has put 5% of the pension fund into gold bullion (see news). The fund has previously expressed concerns about the counter party risk in ETFs. However, the reason given for opting for taking delivery of 100 oz gold bars in a warehouse was that if the holders of just 5 percent of COMEX futures contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand leading to a COMEX default. The risk of a COMEX default increases by the day and appears to be moving from the realms of the “conspiracy theory” to that of “of course we knew it would happen, it stands to reason and was inevitable.” A COMEX default would have serious ramifications for the dollar and all fiat currencies as it would further erode trust in central banks, fiat currencies and today’s monetary system.

Silver's nearly 3% surge in trading in Asia may indicate that the long expected short squeeze may be underway. Bullion banks with very large concentrated short positions may be being forced to buy back their short positions – propelling silver higher. This could see silver surge over the record nominal high of $50.35/oz in short order. At the same time caution is merited as silver has risen nearly 10% in April so far and over 33% year to date. Speculators need to be very cautious as margin requirements may be increased again and profit taking could lead to sharp falls in price. Leveraged speculation is extremely high risk and should be avoided by investors and savers. Proof of the lack of animal spirits in the silver marker is seen in the data which shows that speculative sentiment on the COMEX (as seen in the Commitment of Traders/ COT data – see chart below) is subdued. While the total silver ETF holdings increased to a record, they are not far above the levels seen in December 2010 (see chart above). Importantly, even at $41.30/oz the dollar value of the total silver ETF holdings remains very small at just over $20.5 billion. To put that number in perspective, today bankers put a prospective value of around $60 billion on Glencore, one of the world’s largest commodity trading companies. BP has set up a fund worth $20 billion to cover legal claims from the oil spill disaster.

There was a time when having one’s name listed in the despised ranks of those villains that governments often categorize as “terrorists” involved quite a bit of leg work, as well as an ominous running resume of death, destruction, and general mean spiritedness. Of course, if one examines the history of every modern country which eventually disintegrated into despotism, the definition of who the “enemy” is tends to become rather broad rather quickly. That is to say, the more criminal the leadership of a country becomes, the easier it is for the average person to find himself labeled a criminal by that same leadership. Today, one does not need to blow up buildings, take hostages in political motivation, send anthrax through the mail, or even wave a gun around in a public place to be considered a terrorist threat. In fact, a man could never leave his house and still find himself under suspicion as an enemy of the state. The Department of Homeland Security has released numerous standardized guidelines to law enforcement offices across the country which are meant to make it “easier” for police and others to identify a possible terrorist. If you were to take at face value such documents as the now famous MIAC Report, the Virginia Fusion Center Report, the DHS’ “see something, say something” campaign, the Enemy Belligerents Act, the post trial statements of the Department Of Justice in the Liberty Dollar case, or the wild spewing rhetoric of establishment mouthpiece organizations like the SPLC, then you would discover that a likely terrorist is...

Unlike the last time a bunch of men gathered at Bretton Woods to determine the monetary fate of the world and set the stage for globalization, this time around the prevailing activity was a casting call for the role of the new Emperor Palpatine. Yet despite that (or maybe because of) George Soros appeared in full Open Society regalia and spoke to Bloomberg TV about how importing foreign asset collateral (also known as exporting debt) through "globalization" is still the name of the game. And obviously while the Hungarian billionaire would not disuss the true purpose for his presence in Bretton Woods, he did have some words of caution for China bulls: "while the big banks under direct central control are in fact refusing to
lend, there is a shadow banking system that is growing out of control.
There is a real danger there of wage price inflation because prices have
gone up, particularly real estate prices have gone up because there was
a real estate boom." But to those concerned about the key issue at play, namely the future of the reserve monetary system, some could interpret the following statement by Soros, as a tacit agreement that the end of the dollar is fast approaching: "cautionary words for the dollar: "There's a big question whether the U.S. dollar should be the main
reserve currency and in fact it no longer is because it maybe accounts
for two-thirds of the monetary reserves. The euro is an alternative and
there's a lot of diversification into other currencies and even more
into commodities. Not only gold, but actually oil is now an asset class
for investors. That has put some upward pressure on the commodities." Of course what actually is decided in B-W will be made clear over the next year or so, once the decision makers have already placed their bets accordingly and pull the rug from under the market.

American foreign policy theory divides into two main schools. Both have been useful in the past, but neither fits the world we have to deal with now. On one side are realists, who believe that nations try to ‘balance’, try to make sure that no one of their potential rivals becomes powerful enough to dominate them. Wars, in realist theories, occur when the relative capabilities of nations change, and serve to ratify such changes. In such a dangerous world, national security is a concern that trumps everything else, and weakness only encourages aggression. On the other side are Wilsonians, who are impressed by the historical evidence that democracies don’t fight democracies. They essentially agree with Immanuel Kant, who argued, in Perpetual Peace, that a world of liberal states would be a world free of war. Kant, however, went one step further, suggesting that such a world would eventually become a sort of global federation, as the long habit of peaceful collaboration caused mutual trust to harden into mutual obligation. Once this occurred, of course, the Wilsonian foreign policy model would no longer apply, because international war would cease to be the issue – the security problem would then revolve around the potential for civil wars within the federation.

The U.S. dollar and yen are under pressure again today while gold and silver have taken breathers after yesterday’s gains (see table). Rather than gold and silver rising in price, we are seeing the continual devaluation of the U.S. dollar, the yen and all fiat currencies and thus their prices falling against the precious metals. Incredibly, the dollar has lost 7.5% of its value in less than 3 months (since January 7th 2011) and more than 17% in just 8 months since August 2010. Hence the nominal record highs in gold and silver. The volatility and sharp falls in the dollar are leading to deepening inflation throughout the world (as seen in the UK inflation rate of 4.4% today). Thus, the dollar’s safe haven status is being increasingly questioned. Many market participants are worried because the dollar continues to fall despite the real risks of a recurrence of the Eurozone sovereign debt crisis, a wider military conflict in North Africa and the Middle East and a nuclear catastrophe in Japan.

• Arab Regimes Under Siege (WSJ)
• Rift Over Command of Libya Campaign (FT)
• Premier Wen Jiabao Says ‘Urgent Steps’ Needed on China’s Trade Imbalance (Bloomberg)
• Japan Maintains Threat of Further G-7 Action (WSJ)
• China Central Bank to Lift HK Yuan Clearing Interest Rate (Reuters)
• U.S. Banks Oppose Tighter Money Rules (WSJ)
• How Germany Can Avoid a Two-Speed Europe (George Soros)
• Trichet Signals Rate Increase Likely (WSJ)
• Osborne to Reveal Borrowing Increase (FT)

This is not 2008, it is much, much worse and far more dangerous. This will not simply be the collapse of the banking system (although I fully expect that), rather it will be the collapse of the central banking system. This will not be the temporary collapse of some phony paper wealth, it will be the permanent destruction of real wealth and the end of how the economy functions today which we can simply call “the system.” While many people think the stock market will fly up 5,000% as it did in the Zimbabwe hyperinflation I have never held this view and still do not. I do however believe that the Dow Industrials and the price of gold will trade at a 1:1 ratio. If I had to take my best guess that level will be around 5,000. That said, I may change my mind about this depending on what happens going forward but I still think that is the most likely scenario.

Where do the likes of Warren Buffet get off when he's all in favor of the death tax and allowing the government to redistribute your wealth yet he leaves his pile to Bill Gates's foundation, neatly avoiding the death tax.

There is a real sense of the “calm before the storm” in markets globally. Complacency reigns, despite signs that the sovereign debt crisis in Europe is deepening and that Japanese and US bond markets also look very vulnerable due to rising inflation, very large deficits and massive public debt. US Treasuries have been sold by some of the largest investors (both private and sovereign) in the world recently (see news). These include large creditor nations Russia and China but also PIMCO, the largest bond fund in the world. A global sovereign debt crisis is now quite possible. At the very least, we are likely to have a long period of rising interest rates which will depress economic growth. Contrary to some misguided commentary, rising interest rates will benefit gold as was seen when interest rates rose sharply in the 1970s. It was only towards the end of the interest rate tightening cycle in 1980, when interest rates were higher than inflation, that gold prices began to fall.

Silver and particularly gold rose sharply on the release of the higher than expected UK inflation data. It showed that UK inflation quickened to 26 month highs at 4.0%. Currency debasement and higher food and energy prices are leading to an inflation surge in both developed and emerging markets. The Chinese inflation data appears to be even more misleading and manipulated than that in western economies. Many governments are attempting to manage consumers perceptions regarding the significant increase in the cost of living as fiat currencies are debased. Silver is now less than 2% from its 30 year nominal high of $31.25/oz seen at the start of the year and looks set to challenge and surpass this level in the coming days due to continued robust physical demand (both investment and industrial) and the fact that the futures market is seeing some big money go long again after the recent correction. Silver remains in backwardation with spot trading at $30.68/oz while the July 11 contract trades at $30.55/oz and the December 14 at $30.40/oz.

The gradual drain of COMEX silver inventories seen in recent months continues and COMEX silver inventories are at 4 year lows. Total dealer inventory is now 42.16 million ounces and total customer inventory is now at 60.68 million ounces, giving a combined total of 102.847 million ounces. The small size of the physical silver market is seen in the fact that at $30 per ounce, the COMEX silver inventories are only worth some $3 billion....Talk of a default on the COMEX is premature but the scale of current investment demand and industrial demand, especially from China, is such that it is important to monitor COMEX warehouse stocks. The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge as it did in the 1970s.

JP Morgan announced today that from now on they will accept physical gold bullion as collateral. This is a sign of gold’s further remonetisation in the global financial and monetary system. It may signal that JP Morgan is having difficulty in securing gold bullion in volume. JP Morgan is the custodian for many of the gold and silver exchange traded funds. They will not accept ETF trust gold as collateral. In October, the clearing house of global exchange CME Group – CME Clearing – announced it will now accept gold as collateral for trades on the exchange. Gold bullion can be used for margins for CME trades, ranging from crude oil, gold, grains, equity indexes and Treasury bonds. Given the current monetary, macroeconomic and geopolitical risk gold is an attractive alternative to debt, equities or other paper assets as collateral. JP Morgans’s move shows how gold bullion’s fungiblity and tangibility as an asset makes it attractive and shows gold’s increasing importance in the financial system. Interestingly, the CME is storing their collateral gold at JP Morgan Chase Bank in London. The exchange said it hoped to add additional depositories in the future but there has been no announcement of developments in this regard.