Saturday, March 31, 2012

Argentine Banker Mercedes Marcó del Pont is a Lunatic

I will be avoiding the Argentine Peso and so should you, not that I ever had any plans to buy it in the first place.  This lady (who has somehow become their bank president) has gone, as they say on ZeroHedge, "full retard".  It figures, since she went to Yale.  At least the Princeton paper-bug crew like Bernanke and Krugman acknowledge that printing money COULD cause inflation (although the proper Austrian definition of inflation is simply an increase in the total supply of money and credit).


Check it out:

Printing Money Does Not Lead To Inflation, Argues Argentine Central Bank President

Excerpt: The banker added that “it is totally false to say that printing more money generates inflation, price increases are generated by other phenomena like supply and external sector’s behaviour”.

Hasn't Argentina already experienced hyper-inflation at least twice? I think three times? I am a small-time merchant of foreign coins and banknotes and have old 1,000,000 Peso notes from there.  In the late 1800s and early 1900s it was a true first world nation and lots of Europeans had a tough decision between the US and Argentina on where to immigrate to. But they threw their wealth away with successive rounds of money-printing, thus wiping out both the middle-class and foreign investment.  It appears as though they are dedicated to repeating history once again.  I think her US education may have taught all the wrong lessons - our central bank only gets away with wild money-printing because we have the world's reserve currency (a privilege that is quickly fading).  Argentina doesn't.

Good article by a local banker

Below I am re-posting an article which originally appears on the website of "State Bank & Trust" here:

The Silver Squirrel makes no claim of authorship or ownership of this work and it is re-posted here for convenience, education, and fair use.  I stumbled across it while looking to see if there were any publicly traded banks based in North Dakota.  If anyone knows of any, please let me know.  The only one I am aware of so far is Dactotah Bank which only trades in the OTC pink sheets.

Mr. Greg Sweeney's article goes well alongside my own article written back in 2010, which also points out some of the negative consequences of artificially low rates:
I don't know if he likes precious metals or Austrian economics at all, but at least he is not blinded by Keynesian propagandists like Paul Krugman who see nothing but angels and geniuses running the Fed.


The Hidden Costs of Sustained Low Interest Rates

By Greg Sweeney, Chief Investment Officer, State Bank & Trust

Reducing interest rates across the spectrum may be backfiring

From a retiree’s point of view, the impact of today’s low interest rates is painfully evident: there is very little interest income to provide for living expenses. The Federal Reserve has made a point of reducing interest rates across the spectrum in an effort to encourage borrowing to stimulate economic growth. It may be backfiring. Consumers are not in the frame of mind to take on more debt, while low rates have made it very difficult for people living on fixed incomes to generate any money to spend.

Hidden challenges of sustained low rates

Behind the scenes, sustained low interest rates are creating other, less visible problems. Corporate and municipality pension plans, also known as defined benefit plans, promise to pay beneficiaries a predetermined amount of money each month during retirement. Each year, these plans are evaluated to determine if the plan sponsor (corporation or municipality) has set aside enough money to meet its promises. As interest rates drop, more money must be set aside to meet obligations, even if there is no change in the money to be paid out to beneficiaries. In the case of a short-term decline in interest rates, accounting rules allow a plan sponsor to spread new cash contributions across several years. As interest rates remain low, they become more permanent, cost more money and can spiral into substantial costs in a short period of time. This will hurt corporate Market Engagement earnings and put pressure on municipalities that already have strained resources.

Insurance companies collect premiums for car, property, health and other types of coverage. They invest these premiums in bonds to earn interest income in an effort to keep insurance rates competitive and to generate income to pay claims. As the insurance companies’ ability to generate income goes down, the pressure to raise premiums goes up, and customers end up with higher premium expenses.

These are just two of the hidden challenges of sustained low rates. The pension situation is particularly concerning because of the scale of expenses that can accrue in the face of lower yields. This is one of the many features we look at when evaluating stocks for consistency, as we create a diversified portfolio across large, medium and small cap stocks, value and growth characteristics and all sectors in both domestic and foreign holdings. For long-term investors, this combination of consistency and diversification provides a more solid foundation than you can build by choosing a particular index or market that ebbs and flows in popularity.

Wednesday, March 21, 2012

Eight Reasons to Not Fear Silver Consolidation

Worried about the COMEX spot price?

Obviously silver has taken a breather lately, hovering in the low 30s, which has been frustrating for both owners of physical silver and bullish traders alike.  Some, like Bob Chapman, GATA, and Ted Butler for example, say its due to manipulation by interested parties (US Gov't, JP Morgan, etc).  Regardless of the cause for this pullback, its beneficial to look back at the bigger picture of where we have been over the last 10 years.  10 years ago, silver was trading around $5 an ounce, less than 1/6th its current price.  Even if silver continues to consolidate and mellow out for some time, that should not dull the enthusiasm of people who know the true fundamentals that back up the silver story.  In my opinion, the strong hands in this market will be rewarded handsomely if they have the courage to stick by their core beliefs that:

1) Artificially low interest rates cannot continue forever without dire economic consequences.  This is basic Austrian School of Economics.

2) Nations cannot go $15 Trillion or more into debt without dire fiscal consequence.  This is basic Austrian School of Economics.

3) Central banks cannot continue creating exponential amounts of currency without dire monetary consequences.  Again, basic stuff.

4) Industry uses for silver are expanding rapidly, especially in tech and solar, while new mine supply is not. 

5) Silver is slowly but surely re-claiming its status as a monetary metal and the above ground stockpiles are much lower than the last time silver had a significant monetary vector. (The arrest and conviction of von NotHaus by the federal government shows how afraid some people are of this fact - and the recent display of a Silver Eagle to Bernanke by Ron Paul was truly a symbolic moment in our national history).

6) The newly wealthy and still growing Asian populations in China, India, and the Far East generally have shown a track record of buying gold and silver on the dips, acting as a strong counter-balance to the predominant view in the West that precious metals are a "risk asset". (The Asian gold exchange was stopped from getting off the ground this time, but it cannot be prevented forever.)

7) Central banks and governments have no silver left to sell into the market - this is one of their weak points in masking inflation through high bond prices.  No physical metal = No power in the long run to control price.

8) Silver is not only below its inflation adjusted high in 1980, it is well below the NOMINAL high!  People who are savers instead of traders should buy for value and fundamentals, not momentum or technical moves.  Who cares if silver takes a year or two or three to get back to $40 an ounce when the alternative is a 2% bond, 1% CD, or 0.25% savings account?

Banknote of the Month - St. Pierre & Miquelon, 10 Francs

Series 1950

Saint Pierre and Miquelon is an overseas island territory of France off the coast of Canada with a present population of about 6,000. Today, like France, they use the Euro instead of the Franc. However, due to proximity, Canadian Dollars are widely accepted.

SILVER is The Achilles' Heel