Monday, October 13, 2008

The Ten Trillion Dollar Bailout and Coming Inflation Holocaust / Savant Commentary via Investment Intelligence Research


Investment Intelligence Research

'The Triple Decade Impact' we wrote about two years ago is upon us as is 'The Trillion Dollar Killing', the Implications of which could lead to an "Inflation Holocaust" not unlike Iceland or Zimbabwe...

Two years ago, a PhD told me Gold could reach $38,000 per ounce in this next SuperCycle and being one to 'Never say Never' I could not bring myself to summarily dismiss this notion as another crackpot in the World of Goldbugs and with the intrinsic value of Gold based on cumulative inflation already at around $3,150 per ounce, it certainly validates some of the more conservative forecasts for Gold, at anywhere from our own long held target of $1,785, to thousands higher.

What Investors need to understand is just how wealthy they may become if anything like the above occurs and even minimum upside targets, will render quality juniors to soar 10 to 20 fold from here.
To put this into perspective, one needs to look back and see what happened to other countries currencies and understand just how much investing in Gold, not only might have made for you, but eminently more importantly, how much it would have saved and preserved your buying power from the devastating effects of sudden and rapid devaluation not unlike what just occurred in Iceland and catastrophically in Zimbabwe and of course back in the Weimar Republic of yesteryear and many subsequent international devaluations.

Putting aside all of the assets in Zimbabwe, such as real estate, cars and other wealth: If you were the only citizen in the country to own an ounce of Gold just years ago and no one else had any other Gold with only Zimbabwean money as competitor, you would theoretically be the richest citizen in the country today. And, how rich would you be? How about a Zimbabwean Quadrillionaire. Yes that's right. With inflation running at the rate of about a million and half per cent year to date, you could be worth One Thousand Trillion Dollars.

In case you haven't heard, before they removed about 10 Zeros, US$2 Dollars was worth about Z$10 Billion and a shopping cart was estimated at going on a Z$Trillion, according to one BBC reporter there and that was over a month ago, before a whole new vicious cycle ultra-compounded to an even higher inflation rate.

In our Triple Decade Effect scenario published herein, we warned of the coming credit meltdown and went on to explain how another period not unlike the 1970's was upon us, and whether we like it or not, there was no way out of this forthcoming maelstrom that is now finally arrived, with mind-numbing catastrophic impact, that is a real mind-bender for everyone around the World and is going to take a monumental effort and eventually up to 10 Trillion Dollar bailout Worldwide to avert a World that could truly spin out of control.

The Triple Decade Impact was the first phase of our scenario and that is now happening live in real time. So far, the only development that has yet to unfold is a sudden lack of confidence in the US Dollar, that aready is impacting other currencies around the World, most notably those of Iceland, Mexico, Canada, Australia and all Euromonies over recent months and one wonders, when the contrived stacking up of the US Dollar, will suffer a similar, if not worse fate than all of its counterparts, as the true horror of all of its fundamentals are exposed and recognized for all the World to see. That is the big question and the answer has to be: It is merely a function of time. And as have gone the US's almighty markets, so too the 'Almighty Dollar' will go, as there is no God given right ordained to this currency, that it should somehow remain almighty for ever...

That is simply not going to happen and the scary part of this whole scenario is that the actions of today will result in a meltdown in the Dollar perhaps not unlike the speed with which the Dow has fallen since its high 13,136 plus double top back on May 19 to its sickening lows in days just past, in the final unraveling of the US unit and perhaps many other World currencies in tandem. Almost everything has been falling in value against Gold in recent months, indicating its increasing intrinsic value and its only reason for being thus far so subdued, might be explained by forced liquidation having little choice but to offload their most coveted of all investments at this time as a matter of survival and not for the love of the World's most revered metal.

On countless occasions analysts have declared the Dollar's day of reckoning is nigh and when Gold finally begins to move higher of its own volition, and running its own race, independently of currencies or other influences, then we will know, that the next leg of the Grand Super-Cycle will have begun, as Gold explodes in a third wave to the upside, that could last by our calculations, as long as 10 years hence to up to 18 total.

Numerous Billionaires, including Warren Buffet have collectively lost Trillions over the past year and one would think they would be diving into Gold, to protect their dwindling assets, just in case... And that time is fast approaching, because fears of declining currencies around the World, will force these Billionaires to re-assess their situations and go for Gold. Take Dubai for example, the implosion in oil prices has popped the biggest bubble of them all and one would have thought that the most logical switch at the time might've been out of Oil at $147 and into Gold, seeing as an ounce of Gold now buys about 11 Barrels instead of 7...

The difference today is they are gripped by a fear that is making them wake up and re-evaluate their entire situations and given that so many suspect bubble currencies are tied in with the US Dollar could well mean that these long held relationships could drag down the Dollar should panic transfer of assets occur out of such related jurisdictions. Just look at what happened to Mexico and Canada over recent days to see that.

Speaking of Mexico, which went through its own similar meltdown to the US today back '94~'95, its money crashed in value from around 3 pesos to the Dollar to 14 in a matter of weeks and earlier in the decade was the equivalent of 2 to 1 $US. Interestingly, prior to its devaluation, which incidentally looks a lot like the US vs the Yuan in the same programmed devaluation scenario, (be careful what you wish for ie a weaker Dollar against the Chinese currency, as you might get a lot more than you bargained for, a la Mexico did). Had you invested in 1 ounce of Gold prior to the Peso's devaluation, it would've cost the equivalent of 700 in today's pesos in 1992 or so, and by March of '95, that same ounce of Gold would have been worth about P$4,200 and by this week, with the latest peso devaluation of 30% since August 4, that oz would have been worth at its most extreme point of decline, somewhere around P$13,410 pesos. Further proof, of Gold's rising value.

Now for the more scary scenario that just unfolded last week that has implications almost too awful to even contemplate and the stark reality of just how rapidly and dramatically, the US Dollar could without warning completely unravel, just as rapidly as the stock market has over just the past five months or so and we truly believe that this could begin at any time henceforth over the coming year to 18 months and it would do well to remember that in the 4th quarter of 1978, following a substantial correction almost exactly 30 years ago in the price of Gold, from $235 down to $193, that just 15 months later, was trading 4.5 times higher at $875.

We are believers in the 'Warning shots across the bows theory' ie, there's almost always a microcosm type event that precedes a larger and much more dramatic event in the offing. The collapse of Bear Stearns and other institutions have turned out to be harbingers of the larger market meltdown and the same can be said perhaps of what has happened in Zimababwe, which might be an extreme or isolated case, is still a glaring example of what can happen, but perhaps far more ominous implications, occurred in Iceland last week...

The second phase of our nightmare scenario first published herein a couple of years ago, could already be unfolding along the lines of the Icelandic meltdown that began in earnest last week, and is now in full force.

That is the Trillion Dollar Killing... Let's look at what happened in Iceland first to get an inkling of what this is all about and how this scenario could spread to the US in the coming months with equally dramatic impact:

When looked in the context of inflows of capital over recent years, Iceland in a way resembles a microcosm of the US Economy, that like Iceland has relied heavily on significant inflows of capital, to fuel its growth and maintain its newly inflated lifestyle and insatiable appetite for imported goods and growing energy use.

To attract foreign capital, its Treasury and Money Markets have been viewed as a safe haven for the more conservative capital that now amounts in the Trillions and then the higher yielding appeal of the Sub-prime related investments was offered to the more racy investors around the World, wanting to make fast money.

Iceland, apparently had the same idea, that like a Ponzi scheme that is too good to be true, attracted tens of Billions of Dollars from offshore through on line savings accounts offering as much as 7% yield something a great many investors around the World viewed as a deal too good to pass up... Unfortunately, it became increasingly difficult for the Icelanders to deliver on their 7% promised yield and as early depositers began to withdraw funds, the Icelandic Krona fell over the course of the last 9 months from 58 to the Dollar to 144 in recent days as the collapsing currency accelerated to the downside in a near freefall, as the whole mess became exposed and Iceland's Banks began collapsing one after the other, leaving investors savings in a in a mad scramble to be repatriated at any price, in much the same way as pesos fled Mexico in the 1990's.

And just as Mexico's stock market collapsed and lost nearly 90% of its value, so too Iceland's markets sold off precipitously, as the whole country had gotten pretty rich on Iceland's deregulated banking binge, were now left with deflated values, that like Russia with its 60% losses, has closed its markets till further notice...

If it were not for the Russians and Swedes coming to Iceland's rescue, the country would be in default and is technically bankrupt today, because it cannot make good on deposits, as tens of billions are totally lost...

Does this remind you of anything? The only difference is the US has not yet reached the levels of near total insolvency that Iceland has and its currency has yet to collapse but the parallels are nonetheless apparent.

And that is the meaning of this message: The Trillion Dollar Killing is the next shoe to drop, as inevitably as has already begun: US Treasury Bond prices have already plummeted and that means that foreign buyers and locals at higher prices are already losing big on their investments and should the US Dollar sooner or later begin to collapse and should interest rates rise to defend the currency, something that tends to occur almost automatically in banana republic currencies when they are under pressure as a defense mechanism then the US Dollar could go into a death spiral decline a la Iceland or Mexico as investors around the World scramble to sell Treasury Bonds at any price and move the proceeds out of US Currency, out of the same fear that has driven other denominations to suffer a similar fate. And just as with the stock market decline, it is every man for himself and every nation alike, when Trillions are at stake. And thus, the stage is perilously set for a time that may not be too far hence, when the US has to pay the piper and the enormity of its actual $10 Trillion in current debt, $93 Trillion in future liabilities and anywhere from 70 to 700 Trillion in derivatives come home to roost, the only repository of trust in a World of collapsing currencies, will ultimately, be Gold.

And while Gold bullion or ETF's is one way to own Gold, quality juniors with proven reserves and imminent production, will probably be the most highly leveraged way to profit from future Gold price increases, apart from the more risky pursuit of futures or options. A doubling in the price of Gold could potentially equate to at least 20 times upside potential, in one extremely undervalued issue we particularly like, trading at a mere 100th of its proven in ground reserves today and a tripling of Gold could lead to 30 times upside and so on.
Readers may recall how we called the market highs on both July 19 and October 11 of 2007 and have been exceedingly bearish on stocks ever since and the warning is repeated: Just as many were complacent with their investments, thinking nothing like this could ever happen, now that it has happened, it is all the more important to being critically important in terms of financial survival and future prosperity if at all to be totally prepared for such an eventuality to occur, because as we've already seen, these kinds of events can occur with mind-numbing speed and intensity, that most investors are not well enough prepared to handle. The key is to be positioned ahead of time, in a solid company that has strong cash-flow potential, even at lower Gold prices, that can leverage itself exponentially, from multiple increases in Gold to the power of 10. We've identified and invested in one such company and several others, that comprise our portfolio of options to deal with whatever we have to and our record in calling of Gold moves to date has been exemplary, without missing a single upside move of significance during its entire bull run and exiting near the highs each time.
As for the Ten Trillion Dollar Bailout: Even before all this selling frenzy began in earnest, we proclaimed it'd probably take at least $10 Trillion or so to fix this unprecedented "Triple Contraction Scenario" wherein the economy, markets and real estate are similarly and severely impacted. And now, fortuitously, in light of the above, and at least to try and expand the economy again, the authorities may have finally gotten the memo and are ready to swing into high action and move mountains to turn things around. It can only be helpful to Gold as we see it, but the numbers are rising and by our count could approach $10 Trillion on a leveraged lending basis, now that the Treasury has proposed a capital injection for banks as a better use of the $700 Billion Rescue package. On a 10 to 1 loan leverage, that would equate to $7 Trillion of real teeth and added to the Fed's, nearly $2 Trillion war chest and monies already expended Worldwide approaching $1 Trillion, in a way we would appear to be theoretically at least on track for $10 Trillion, or lest we forget, Britain's bold move which at 400 Billion Pounds equates to $700 Billion, which adjusted for US population size gives the UK the equivalent of $3.5 Trillion that without lending leverage kind of makes the US $700 Billion look puny.

All of this does not obfuscate the inevitable need for all bank deposits to be fully guaranteed, as sacrosant and essential to restoring confidence in the normal conducting of business, and while such measure could portend to upwards of $100 Trillion for the US alone, it will have to be extended Worldwide by arrangement.

The Panic of 2008 - How it Could Be Our Silver Lining for Gold, Silver and Stocks

There will be more to come, we can be sure of that. This may only be the beginning of this bailout out and it could be a lot larger than $10 Trillion before it's all over and it will have impact, in fact we believe the US and World economies could rebound quite sharply, over the next year to 18 months, so the news, is not all bad.

We are students of history and to us, this looks an awful lot like the Panic of 1907 and when you look at the early 1900's there are some distinct similarities in market behavior, between the different centuries. At the turn of the 20th Century there was euphoria just as when we turned the Millennium then there was the Rich Man's panic of 1903: Remind you of anything? Like the "Formerly Rich" dot.commers panic of 2002~2003, when $7 Trillion was wiped off stockmarket values and the intriguing similarities between the Panic of 1907 versus 2008 which looks like a carbon copy thus far and percentage wise has almost met its mark, tends to suggest that like the Panic of 1907 could literally turn on a dime and potentially recover all of its losses over the next 18 months or so, would certainly be most welcomed by all and sundry and given the potential size of the forthcomng bailout and aggressive actions by governments, including the likelihood of truly massive infrastructure projects, to boost the economy even further, the idea certainly looks credible, but will surely not come without cost. Boosting the US economy, will likely get Global growth back on track and it could be back to business as usual before too long and even if the Dollar falters, it would be even more bullish for the US Economy, as the provider of much of the infrastructure for World growth. But re-kindling growth will re-ignite inflation and thus the next 15 months, could look a lot like Gold 30 years ago month for month as Gold prices rise inexorably and relentlessly higher just as they did in '79, rising 4.5 fold over that period.

Should such a scenario occur, it could send Gold prices as high as $4,000 per ounce from current levels or more and that would mean our # 1 contender emerging mid-tier Gold play could be looking at 40 X upside...

We especially value the writings of a great many analysts and contributors, but feel worthy enough only to write upon occasion, when we have such compelling research or reasoning, it perhaps merits contributing what may be something of import readers can hopefully employ to their benefit. Whether we're facing what Jim Rogers is calling a forthcoming "Inflation Holocaust" that one day might mean $38,000 per oz Gold, or something less severe at around one tenth of that, the message is the same 'Be prepared for eventualities'.

If you are interested in subscribing to a service that took close to 300 points per contract out of the S&P in 30 hours over October 9th & 10th and almost $100 out of Gold, over the same period. This could be for you.

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"My difinitive goal is to make money each and every day. That is my discipline."Aristotle Onassis - World's Richest Man - Circa 1970

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