The Dollar Puzzle Is Nearing Completion

The dollar puzzle is nearing completion and the implications for gold are staggering.  Like a giant puzzle the dollars future is becoming quite clear to many governments and investors around the world as the dollar puzzle is nearing completion!

We are in stuck in the middle of a battle between the gold bank traders on the Comex and countries in the cash markets.  This battle should be resolved before the end of 2009.  As with any prediction there is always a fudge factor,  which can delay a move shortly, but not stop it entirely.  There is no doubt about it, the next major move up in gold is coming shortly.  There are too many pressures being applied to the dollar for it to retain its current value.  The looters in the government, aka the political class, think that the dollar is their own personal Gumby that they can stretch and manipulate at will.  They are about to find out that even Gumby breaks when stretched too far.

Gold is refusing to be pushed down and is staying in an ever narrowing trading range between the upper $930′s and $960.  Keep your eye on the prize because it is all about the price of gold as valued in the U.S. dollar. The dollar puzzle is nearing completion.

The Dollar Puzzle Is Nearing Completion!

The attempt at solving the debt crisis by adding more debt to the pile is shortly to be exposed for the out right fraud that it is.  The banking system is no more solvent than it was last September.  All that the progressives have done is to delay the inevitable and to greatly reduce the odds of the system being saved.  Unfortunately the progressives (read Saul Alinsky’s Rules For Radicals) have no intention of allowing the U.S. to recover from this recession/depression.  If you look and see where the stimulus money went, you will find nearly all of it is positioned to grow government rather than to help business and grow jobs. Crisis is the tool that they are using to impliment their agenda.

Exhibit A

Mortgage Company Taylor Bean Files For Bankruptcy Protection

August 24, 2009: 02:40 PM ET

Taylor, Bean & Whitaker Mortgage Corp. announced it has filed for Chapter 11 bankruptcy protection, the move coming three weeks after a chain of events ” crippled the company’s business operation.”

The death spiral began after the Federal Housing Administration suspended Taylor Beanâs authority to issue FHA-insured loans. That was immediately followed by notices from Ginnie Mae and Freddie Mac (FRE) suspending Taylor Bean as an issuer of mortgage-backed securities and a mortgage servicer.

Taylor Bean was one of the largest independent home-loan providers before it closed down its mortgage-lending operation Wednesday in the wake of the FHA move. Among originators of FHA mortgages, Taylor Bean was the third-largest, and it was the nation’s 12th-largest home-mortgage lender overall, according to Inside Mortgage Finance, a trade publication.

The company was forced to lay off some 2,000 workers and Taylor Bean said Monday it “has no way to continue normal business operations” as it appeals the actions by the FHA, Ginnie Mae and Freddie Mac. While under bankruptcy protection, it will work to recover, restructure and possibly liquidate its assets.

Taylor Bean put the blame for the events on the investigations surrounding the failure of Colonial Bank, which for years was Taylor Bean’s primary bank. But it froze nearly 100 Taylor Bean bank accounts in the days after the federal suspensions on Taylor Bean. “This action created myriad problems in processing borrower payments and making payments on their behalf  such as homeowner’s insurance premiums and real estate taxes,” the company said Monday.

Exhibit B

Three more bank closings bring this year’s tally to 84

Douglas McIntyre
Aug 29th 2009 at 8:00AM

Regulators shut down three more banks late yesterday, bringing this year’s total number of failed banks to 84.

The closures included Affinity Bank, of Ventura, CA, Bradford Bank in Baltimore, and Mainstreet Bank in Minnesota, according to the Federal Deposit Insurance Corporation. The FDIC found other banks to assume the deposits of each of the three.

Customers will still be able to access their money  over the weekend. The FDIC will share the losses with the new acquirers. It is not clear what those amounts will eventually be, but the figure will probably be in the hundreds of millions of dollars.

There is a debate going on about how many banks will eventually fail this year due to the credit crisis and recession. Several bank analysts, including Meredith Whitney, have put the number in the hundreds.

Sheila Bair, head of the FDIC, has taken a more optimistic approach.  Although the agency has over 400 banks on its troubled bank “watch list” Bair indicated in statements last week  that she was not ready to go to the Treasury to get more funds for her agency.  Its assets have dropped to $10.4 billion.

Nouriel Roubini told Barron’s over a year ago that close to 1,200 American banks would fail due to the crisis. His figure was much too high. Now, it is beginning to look like many other dire predictions may be as well.

In response to Mr. McIntyre’s last paragraph, I would like to point out that this crisis is no where near ending as is being reported in the media, but rather it is just beginning.  Time will tell who was right between Roubini and McIntyre!

Exhibit C

The budget deficit for the next 10 years has been revised upwards to $9 Trillion. The current estimate makes me think of the U.S. postage stamp.  When ever it’s price moves, it is always up.  Have you ever heard of a postage stamp price going down?  Like clock work, they go up.  The next revision of the projected deficit is certainly going to go past $10 Trillion.

If you can believe the current revision (there is some property in Detroit that I would like to sell you), to $9 Trillion, that’s a $2 trillion dollar increase in just 2 months!  Gumby is getting stretched pretty thin in a hurry.

Exhibit D

Gold And Backwardation

I hate getting into academic explanations of markets, but at the risk of sounding like some sort of market maven, I want to give you a brief lesson in backwardation and cantango.  It sounds pompous just typing it, but here we go anyway.

In the futures markets  backwardation means that gold, or any other precious metal for that matter, to be delivered today is being priced higher than metal to be delivered later in the London Bullion Market Association’s futures market in London, England.  Contango is the opposite of backwardation and occurs when the futures price is higher than the spot price of gold.  What does this have to do with anything?  Ah grasshopper, the answer is very simple. As the basis gets as low as zero, it means that the discount on gold futures has gone so high that it is equal to what it would cost you to physically hold the gold.  If you give up your physical gold,  you can invest the price of gold , less the 5% and  still benefit from any advance in the gold price in the future.  That is roughly where we are right now.

The problem for the futures markets is that people are still reluctant to give up there physical gold to the market. that’s where backwardation comes into play. People are not giving up their physical gold, so the market is forced to sweeten the pot by pushing the  basis  down into negative territory.  This  means that you can sell your cash gold and buy it back for future delivery at a discount. This means that somebody needs your gold so badly that he is willing to pay you for the privilege of holding it for a few months  by paying your storage and insurance fees.  You can get your gold back at a cheaper price and make a risk-free profit. Well, not totally risk free because commodity markets can change the rules of the game mid-stream. They can simply declare  cash settlement only for outstanding contracts. You lose, they have your physical gold, game over.

We will see gold settle further and further into backwardation shortly because the need for physical gold is going up, not down, and more and more gold holders are becoming wise to the game and are unwilling to give up their physical gold for the risk of paper profits no matter how sweet the discount is.

Ok, enough class for today.  I need a break.  I ran across this little gem on youtube and thought we should end today with a short music video that sets the tone for the current batch of looters running the country.  It’s is amazing what can be said in 1 minute and 34 seconds of video. Enjoy!

If they  ever get ObamaCare and Cap and Tax, the good ‘ol U.S.A. as we know it will become a distant memory. Let’s hope that day never comes!

Because the dollar puzzle is nearing completion it is imperative that you stay the course, keep adding to your gold holdings on dips and under no circumstances give up any of your physical gold. As the gold market goes forward there will be wild swings in an attempt to disslodge you from your gold. Don’t be swayed because gold is real wealth, and soon it may be the only measure of wealth left standing.

Till next time, good luck and good trading!

Also Noteworthy:

• Is Gold Putting In a Bottom?
• The Future Of The Dollar
• Take It To The Bank, Gold Is Going To Run!
• Where Is Gold Going?
• Gold Rallies VS. Major Currencies

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