Paramount Times

A Dissection and Discussion of Economics and World Affairs

Volume 1, Issue 2 September 19th, 2011 Benjamin V. Keller within their own borders may collapse due to their exposure to Greek, Italian, and Spanish debt. With the US facing its own harsh reality, Germany is hoping the Chinese will help by buying junk bonds. It sure is an interesting time we are living in with developing nations needing to save developed nations. Grab your popcorn!

Inside this issue:

Case for Precious Metals 2 Investing US Boogeymen: The Battle Lines are Drawn Parody Picture Price Chart Quote of the Month: Warren Buffett 2, 3 3 4 4

Since last issue a lot of major events have occurred: S&P Downgraded US Credit Rollercoaster Markets The FED announced 0% interest rates for at least 2 more years Greece, Italy, and Spain on the verge of default Obamas American Jobs Act

One month the attention is on the United States and the next it is on the Eurozone. Greece and Italy are on the brink of default, but Germany and the International Monetary Fund (IMF) are getting fed up with continually bailing out the Eurozone outcasts. However, if Germany doesnt step in and provide aid then the financials

The Great Gold Bubble

Almost every day that I tune into CNBC I have to listen to someone warn Americans about the potential bubble in the Gold Market. They have been calling it a bubble since gold was $850 an ounce. With gold now closing in on $2,000 dollars an ounce, it is making headlines daily. So what do you think? Is gold in a secular bull market or is it in a bubble? I would like you to try to name five people who invest in physical gold or silver. Notice I said physical and NOT precious metals stocks or exchange traded funds (ETFs). A majority of stocks and ETFs mirror the metals spot prices but do not keep any physical metal in inventory. I bet you were unable to think of three or more people investing in precious metals. That is because almost nobody is buying physical precious metals. I have noticed dozens of gold shops spawning up all around me but this does not suggest that gold is in a bubble. This verifies my position, that the masses are still net sellers of gold and silver because they would rather have quick cash. You may be asking then who is buying precious metals that are causing the sky rocketing prices in the precious metals markets? Answer: Central Banks. China, Russia, India, Mexico, and most recently South Korea have been buying tons (or tonnes) of gold at a staggering rate. way, they would settle in Federal Reserve Notes instead of Pounds. At the time, the US dollar was a stable currency because it was still on a gold standard. Thirty-five dollars equaled one ounce of gold. However, in the early 1970s the US economy was suffering from stagflation as we found ourselves in a never-ending conflict with Vietnam. Low interest rates, rising miliWhy do central banks hold gold? Ben tary costs, and increased domestic spendBernanke said because of tradition, but ing (sound familiar?) paved the way for I would say because gold and silver have inflation and a loss in US Dollar confibeen money since 7th century B.C. when dence. In early 1971 countries started to Greek city states first started bartering in cash in some of their paper money for coins. Throughout history, gold and physical gold. Switzerland traded in $50 silver have remained valuable serving million in paper for physical gold and as both jewelry and money. Paper curFrance followed suit by redeeming $191 rency was first issued as way to exchange million for gold. On August 15th, 1971 precious metals without having to carry President Nixon took the most drastic the metals around. Eventually, people response and closed the gold window to became accustomed to exchanging the prevent foreign countries from emptying gold notes instead of physical gold and Fort Knox. Since that day, which besilver. The price of gold provided an came known as Nixon Shock, gold has exchange rate between international curbeen sky rocketing and the dollar has rencies prior to 1945. In 1945, the Bretbeen weakening as a result of our growton Woods System was set up and 29 naing trade deficit and the FEDs inflationtions agreed to accept the US dollar as ary monetary policy. So gold may be in the currency by which international busia bubble, but we are only in the beginness was to be conducted. For example, if ning stages! Britain was to purchase goods from Nor1

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Top Ten Reasons to Invest in Physical Precious Metals

1) Gold and Silver have been money for over 2,500 years. 2) Golds 1980 price peak of $875 would be $2,300 in todays dollars after adjusting for inflation. We may have made a nominal high of $1,900 recently, but we still have not made a real all-time high. Problems are also much deeper this time around. 3) Gold is currently less than 1% of global assets. In 1947, after WWII, it was the highest at 30% of global assets. In 1980, when it was at its all-time high, gold made up about 25% of global assets. *Data from Mike Maloneys Wealth Cycles+ 4) Precious metals are immune to current monetary expansion tactics employed by Western Central Banks. 5) Central Banks of BRIC nations (Brazil, Russia, India, China) have been buying tonnes of gold at an astonishing pace. 6) Precious metals are finite resources on a planet with an exploding population. 7) A good hedge against your stock market investments (Rule of Thumb: stocks down, gold/silver up). 8) Precious Metals are the ultimate safe haven. US citizens may turn to US treasuries during hard times, but Europeans find safety in precious metals. 9) With the repeal of Mark-to-Market auditing of stocks and Federal Reserves secrecy in the bond market there is little transparency in equity investments. Physical metals you can hold in your hand and pass them down to your children. What can you do with your NFLX or AAPL stock? 10) HSBC & JPMorgan have been shorting the silver market. As the price of silver goes up, the banks will be forced to cover their short positions which drives the price up even more.

Top Five Reasons not to Invest in Physical Precious Metals

1) Better have a strong stomach! Precious metals markets are some of the most volatile markets it is not uncommon to see price swings of 5% a day. 2) Physical metals can be bulky to store (especially silver) and require some form of protection from theft. 3) If the economy takes a turn for the worst- the government may make physical gold and silver illegal to own as they did in 1933 with executive order 6102. Gold was confiscated and citizens faced criminal charges for hoarding. 4) Going against the grain: You need to be able to withstand the mainstream media and friends telling you that youre crazy and precious metals are in a bubble. 5) Gold and silver cannot supplement cash for everyday purchases yet.

USAs Boogeymen: The Battle Lines are Drawn

What do Osama bin Laden and Saddam Hussein have in common besides being boogeymen to Westerners? They were both CIA assets at some point in their lives. Saddam Hussein was a member of a small Arab nationalist party known as the Ba'ath Party. In 1959, at the young age of 22, Saddam was part of a six person CIA operation to rout out the Iraqi leader General Abd al-Karim Kassim. Kassim was an enemy of the USs because in two short years he nationalized Iraqs oil, threatened invasion of Kuwait, and shifted Iraqs cold war position from US to Soviet. Saddam was the gunman in the assassination attempt of Kassim, but he ended up botching it. Kassim stayed in power for another three years while Saddam fled to Egypt for safety. In 1963 Kassim was successfully assassinated and Saddam returned to Iraq. He was immediately instated as the head the Al-Jihaz al-Khas, the clandestine Ba'athist Intelligence organization. His cooperation and effectiveness in eliminating Communists allowed him to rise through the ranks until he became the leader of Iraq in 1979. The USA and Britain allied themselves with Saddams Iraq during the 1980 Iraq-Iran war. The western powers and Saddam Hussein were both fearful of the rise of Shia Muslims in the region, which may be why the US turned a blind eye to Saddam Husseins suppressive regime. It wasnt until Iraqs invasion of Kuwait, a long time US alley, did Saddam step on the USs toes. Saddams betrayal was used to make an international example of what will happen to those who defy us. We couldnt get him the first time around (due to the elite Iraqi Repub2 lic Guard) and he wasnt corruptible so it required a second attempt. Bin Laden grew up in an affluent Saudi family which made their money through oil and banking. In 1979, he left his family to help fight against the Soviets in Afghanistan. Osama bin Laden has always been an Arab nationalist, rejecting any sort of western guide to righteousness. Shortly after arriving in Afghanistan he became leader of an organization known as Maktab alKhidamar (MAK), which was an Afghan mujahedeen [A group of guerilla Islamic fundamentalists]. Osama bin Ladens money and connections to Saudi government and the Pakistani Interservices Intelligence (ISI) allowed Arab countries to funnel money and arms to the rebels. The CIA noticed the rise of these Freedom Fighters and helped train, fund, and arm the MAK and similar organizations in their fight against

Volume 1, Issue 2

September 19th, 2011

Benjamin V. Keller

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the Soviets. Osama bin Laden did not shift his hatred to the western world until the first invasion of Iraq in the early 1990s. To throw salt in the wound, it was the royal Bin Laden family that permitted the United States to use Saudi Arabia as a launching pad for operations in Iraq. Feeling disowned by his own family, he shifted his anger and operations towards the new occupying power: The United States of America. *Note: Shortly after news of Osama Bin Ladens death. China released a statement Any attack on Pakistan would be construed as an attack on China. Mahmoud Ahmadinejad, may be the next boogeyman in line. Will the US connect the dots between Afghanistan and Iraq? Occupation

of Iran would be a logistical boon to US military operations in the region. Also, with access to the Caspian Sea and the Persian Gulf, there would be great possibilities for Government contractors to build the mother of all oil pipelines. Motive for war is already being laid down; there are reports that Iran is developing excessive amounts of radioactive materials. Iran claims that their nuclear program is strictly for bolstering electricity supply and to provide fuel for medical reactors. The UN, Israel, and the USA are growing increasingly wary of the situation and may make a pre-emptive move. There is only one little issue that stands in the way: Iran is Chinas largest oil supplier. Hugo Chavez, the current leader of Venezuela, has been drawing more attention recently. Just last month, Chavez nationalized gold producers in 3

Venezuela. That same day he announced that he was withdrawing all of Venezuelas wealth (cash & gold bullion) from western banks to keep Venezuelas worth in countries that have more solid economies. This move will transfer $12 Billion in gold and $6.5 Billion in cash from HSBC, JP Morgan, Barclays, and Bank of England to Chinese and Russian banks. In my opinion this move makes perfect sense because Venezuela is Chinas second largest oil supplier after Iran and before Sudan. With growing tensions between China and the United States, other countries may follow Venezuelas move and start securing their wealth through their allies. Kim Jong-Il, North Korean dictator and longtime ally of the Chinese government. All I have to say is: Bat Shit Crazy.

Price Chart
Price
DOW NASDAQ 10 Year Bond Yield DOLLAR CPI GOLD SILVER OIL 11,510 2,622 2.10 76.54 3.9 1813 40.66 88.14

% MOM Change (Last months price)

-5.21% (12,143) -4.86% (2,756) 26% (2.84) 3.78% (73.75) 8.33% (3.6) 11.4% (1627.53) 1.85% (39.92) -7.90% (95.70)

% YOY Change (Last years price)

8.51% (10,607) 13.26% (2,315) 23.6% (2.75) -6.08% (81.50) 225% (1.2) 42.4% (1273) 94.6% (20.89) 24.1% (71)

* Month to Month Change (August 1st, 2011 to September 19th, 2011)

Quote of the Month

If there were a quadruple-A rating, I'd give the U.S. that. -Warren Buffett
The Oracle of Omaha has become the Nutcase from Nebraska. Warren Buffett, currently the third wealthiest person in the world, was once a voice of reason in the world of investing. In January of 2004, he had an article published in Fortune Magazine titled Squanderville Versus Thriftville. The article was widely acclaimed and is a must read for anybody trying to understand the economic relationship between China and the United States. Simple and brilliant, the article displays that Warren Buffett had a sound understanding of macroeconomics to accompany his investing talent. However, Warren Buffett now dances to a different tune. He no longer warns Americans of inflation or a declining dollar. He has become a confidence cheerleader. Following the S&P downgrade Warren Buffett came out and announced, In Omaha, the U.S. is still triple A. In fact, if there were a quadruple-A rating, I'd give the U.S. that. This statement is a direct contradiction to his Squanderville Versus Thriftville essay. Since his 2004 essay, the National Debt has ballooned from 7 trillion to 14.7 trillion, the dollar has continued to decline, domestic production is down, and consumption has risen. So why would Warren Buffett do a complete 180 with his view on the trade deficit and how it affects our credit? It doesnt take a rocket scientist (or a Princeton Economist) to see that sovereign debt across the globe is suffocating what may be described as a comatose economy. But this is AMERICA! We are the most successful and powerful nation! We will not admit to be being broke! We will continue to spend and ignore our debt until Daddy takes away our credit card! Substitute China for Daddy and Printing Press for credit card. Maybe Buffett realizes the severity of the situation and is doing this to inject confidence in the domestic markets. He has always kept his investments confined within the United States. Soon he may be recommending specific American stocks such as GE, Goldman Sacs, and Bank of American. All of which he is a large shareholder receiving preferred stock at high 7-10% usury rates.

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