The shared Development Bank being launched by the BRICS – Brazil, Russia, India, China and South Africa has the potential to jump start infrastructure, economic growth and and employment prospects in member states. Sub Saharan Africa could be a substantial beneficiary.
Jim O’Neil, the author of the following article ‘Is The BRICS Rise Over’ literally invented the BRICS acronym. It’s interesting he excludes South Africa from his economic projections . The reason is, in his opinion, South Africa’s contribution is so small it doesn’t ‘deserve to be included’ with the others. Keep in mind, however, South Africa is the industrial power house of sub Saharan Africa with major investments, interests and influence across the sub continent and is a democracy free of the religious battles afflicting Nigeria in the sub-continent.
South Africa also has a respected central bank, a legal system that protects investors, a major world Stock Exchange and a competent, innovative and wealthy financial services industry.
The idea of a BRICS Development Bank has been spoken about for years. It’s likely South Africa’s expertise and resources have been useful in actually making it happen now and will be useful in making it succeed in future.
# Note added 22nd July 2014
Professor Ari Shlain on Hamas’s “Terrible Charter.”
Interviewed on BBC Newsnight last night Oxford Professor Ari Shlaim, a prominent academic, writer and critic of Israel, claimed “Palestine does not pose any threat to Israel’s basic security.” An amazing statement while a war is being waged following their strategy of firing thousands of rockets into Israel and their refusal to agree to a cease fire. Since yesterday rockets from Gaza have landed near Tel Aviv airport and civilian flights are being curtailed.
On overall responsibility for the conflict Shlaim again held Israel responsible contending it was a result of Israel’s occupation of Palestinian lands and of Israel shunning meaningful negotiations over the years.
Asked what Israel should do in view of Hamas’s Charter commitment to the destruction of Israel Shlaim said Hamas had a “Terrible Charter” but had a group of political or military leaders – (he stumbled over this and it’s not clear which leaders he meant to refer to) moving towards moderation.
It’s unlikely that Hamas ‘moving to moderation’ will resolve the situation while it subscribes to its ‘Terrible Charter.’ For Israel to have a peace partner Hamas will have to abandon its charter commitment to the destruction of Israel. An unlikely prospect at this stage.
Thankfully Ban Ki-moon, John Kerry and regional powers are committed to ending the ghastly toll of civilian casualties. Hamas will have to become part of the solution instead of the problem for them to really succeed.
THE GOLDWATCHER AND THE HAMAS CHARTER:
When writing on investing I follow Warren Buffett’s advice and use fact based information such as company financial accounts and regulatory filings. Opinions of others can be useful. But getting to grips with the facts before taking a view on opinions must always make sense
Let me explain what Buffett’s sage advice to investors has to do with this article on the Hamas Charter and the Protocols of Zion. In January 2007 I proposed a fact based, objective and unbiased book addressing the pros and cons of owning gold to the publishers John Wiley & Son. It was an unusual proposal for a book on a subject usually associated with getting rich quick and with pots of gold at the end of rainbows. I launched The Goldwatcher blog in March 2007. Wiley commissioned the book in April and The Goldwatcher reached bookseller’s shelves a few months before the Global Financial Crisis erupted when the investment bank Lehman Brothers collapsed in September 2008.
Since I started writing The Goldwatcher in 2007 movements in the price of gold have been dramatic. Adverse world events that led to investors and institutions owning gold as insurance against financial market and geopolitical risks boosted demand for gold. These adverse events included the economic and geopolitical consequences of nine-eleven, the invasions of Afghanistan and Iraq; America’s sub prime mortgage and property busts; losses from duff collateralised debt obligations marketed globally by US investment banks; the Global Financial Crisis; The Euro crisis and now the Ukraine crisis. I have attempted to get to grips with and to comment on this formidable range of events for over seven years. But I have not commented on The Israel Palestine conflict already extensively covered by well informed commentators.
However the Middle East is now on the brink of chaos and, while attempting to find facts to help me get a grip on the implications for investors, I read the Hamas Charter and realised why it’s impossible for Israel and Hamas to co-exist in harmony.
ISRAEL PALESTINE & HAMAS:
Of course there are usually at least two sides to disputes and I expected this would be the case in issues between Israel and Palestine.But, with Hamas involved, it isn’t the case.
The Charter Of The Islamic Resistance Movement (HAMAS) OF PALESTINE unambiguously spells out that it exists to destroy the State of Israel. Hamas is the branch of the Islamic Brotherhood claiming to act as the agent of Allah in securing the destruction of the Zionest entity. Hamas imposes an obligation on all Muslims to be part of the Jihad against Israel, promises the reward of eternal life to martyrs in the cause and warns that Hell awaits those who do not.
Some phrases that speak for themselves follow at the end of this posting on Hamas’s interpretation of their religion and their hatred of the Jews.
THE PROTOCOLS OF THE ELDERS OF ZION:
At the end of their Charter Hamas embellish their anti-semitism with a reference to The Protocols of The Elders of Zion. This forgery was published by anti-semites early in the 20th century to promote hatred and it is now universally known as a forgery. Yet Hamas include the Protocols in their Charter as evidence they are not acting only for religious motives.
SELECTED EXTRACTS FROM THE HAMAS CHARTER
Links to the Hamas Charter or Covenant
Charter of the Islamic Resistance Movement : Hamas of Palestine
#Note: Both links are to the same material. The Covenant link is easier to read
The following extracts from the 5000+ word document reveal Hamas’s beliefs, purpose and plans. The extracts are not in sequence.
‘This is the charter of Harakat al-Muqawama al-Islamiyya (Hamas)l [the Islamic Resistance Movement] manifesting its form, unveiling its identity, stating its position, clarifying its expectations, discussing its hopes, and calling for aid, support, and members…
The Messenger is its Leader. The Qur’an is its Constitution. Jihad is its methodology, and Death for the sake of Allah is its most coveted desire.
Israel will be established and will stay established until Islam nullifies it as it nullified what was before…
Our battle with the Jews is long and dangerous, requiring all dedicated efforts. It is a phase which must be followed by succeeding phases, a battalion which must be supported by battalion after battalion of the divided Arab and Islamic world until the enemy is overcome, and the victory of Allah descends…
The Islamic Resistance Movement welcomes all Muslims who adopt its doctrines and ideology, enact its program, guard its secrets, and desire to join its ranks to perform the obligation and receive their reward from Allah…
The Islamic Resistance Movement is a link in [a long] chain of the Jihad against the Zionist occupation…the Prophet of Allah (saas) says: The Last Hour would not come until the Muslims fight against the Jews and the Muslims would kill them, …
Allah is its Goal. The Messenger is its Leader. The Qur’an is its Constitution…
Jihad is its methodology, and Death for the sake of Allah is its most coveted desire…
The Islamic Resistance Movement [firmly] believes that the land of Palestine is an Is-islamic Waqf [Trust] upon all Muslim generations till the day of Resurrection. It is not right to give it up nor any part of it. Neither a single Arab state nor all the Arab states…
…neither a King nor a leader, nor all the kings or leaders, nor any organization-Palestinian or Arab-have such authority because the land of Palestine is an Islamic Trust upon all Muslim generations until the day of Resurrection. …
Fighting the enemy becomes the individual obligation of every Muslim man and woman. The woman is allowed to go fight without the permission of her husband and the slave without the permission of his master.
Since this is the case, the liberation of Palestine is obligatory for every Muslim, no matter where he is; it is on this basis that the problem should be viewed, and every Muslim must know this.
Jihad for the Liberation of Palestine is Obligatory
To guard Muslims from infidels in Allah’s cause for one day is better than the world and whatever is on its surface, and a place in paradise as small as that occupied by the whip of one of you is better than the world By Him in whose Hand is Muhammad’s life, I love to be killed in the way of Allah then to be revived to life again, then to be killed and then to be revived …Jihad must be raised. That requires that Islamic education be passed to the masses locally, in the Arab [world and in the Islamic [world], and that the spirit of Jihad-fighting and joining the ranks-must be broadcast among the Ummah (Muslim community)
Resistance Movement went forth to perform its role Mujahida (struggling) for the sake of it’s Lord. The Movement placed its hands with the hands of all the Mujahidin who strive to free Palestine. The souls of its Mujahidin gather with all the souls of the Mujahidin who strove with their souls on the land of Palestine for all time since it was conquered by the companions of the Messenger of Allah (saas) until today.
The Islamic Resistance Movement is an outstanding type of Palestinian movement. It gives its loyalty to Allah, adopts Islam as a system of life, and works toward raising the banner of Allah on every inch of Palestine. Therefore, in the shadow of Islam, it is possible for all followers of different religions to live in peace and with security over their person, property, and rights. In the absence of Islam, discord takes form, oppression and destruction are rampant, and wars and battles take place.
The Islamic Resistance Movement is a link in [a long] chain of the Jihad against the Zionist occupation, which is connected and tied with the initiation [of the Jihad of the Martyr 'Izz al-Din al-Qassam and his Mujahid brothers in 1936. And the chain continues on to connect and tie another episode to add to the jihad of the Palestinians and the jihad of the Muslim Brotherhood in the war of 1948 and the Jihad operation of the Muslim Brotherhood in 1968 and thereafter. Even though the episodes were few and far between, and were not continuous in Jihad due to the obstacles placed by those in the sphere of [influence of] the Zionist entity in the face of the Mujahidin. Even though the Islamic Resistance Movement looks forward to fulfill the promise of Allah no matter how long it takes because the Prophet of Allah (saas) says: The Last Hour would not come until the Muslims fight against the Jews and the Muslims would kill them, and until the Jews would hide themselves behind a stone or a tree and a stone or a tree
…for an international conference to look into solving the problem. … the Islamic Resistance Movement does not perceive that the conferences are able to deliver the demands, provide the rights, nor do justice to the oppressed. Those conferences are nothing but a form of enforcing the rule of the un-believers in the land of Muslims. And when have the unbelievers justly treated the believers?
There is no solution to the Palestinian Problem except by Jihad. The initiatives, options, and international conferences are a waste of time and a kind of child’s play.
The problem of liberating Palestine is related to three spheres: the Palestinian sphere, the Arab sphere, and the Islamic sphere. Every one of them has a role to play in the struggle against Zionism. …because Palestine is an Islamic land accommodating the first Qibla,4 the third Holy Sanctuary,5 the [place where the] ascent of the Messenger (saas) took place.
… what are called “Peaceful Solutions” and “International Conferences” to solve the Palestinian problem. As far as the ideology of the Islamic Resistance Movement is concerned, giving up any part of Palestine is like giving up part of its religion. The nationalism of the Islamic Resistance Movement is part of its religion, in that it educates its members, and they perform Jihad to raise the banner of Allah over their nation. …
“Now the Crusades are over,” and General Gurud stood by Salah al- Din’s (Saladin’s) grave saying, “Here we have returned 0 Saladin.” Imperialism has helped and is still helping the Ideological Invasion to establish its roots firmly. And all that was preparation for the loss of Palestine. We must instill in the minds of the Muslim generation that the Palestinian cause is a religious cause. It must be solved on this basis because it contains Islamic sanctuaries where Masjid al-Aqsa is tied firmly to asjid al-Haram (in Mecca) never to be released, as long as the heavens and the earth last, by way of the night journey (‘Isra) of Rasulallah (Saas) and ascension (Mi’raj) to the heavens … and a place in paradise as small as that occupied by the whip of one of you is better than the world …
The enemy planned long ago and perfected their plan so that they can achieve what they want to achieve,..They are behind the French Revolution, the Communist Revolution, and most of the revolutions here and there which we have heard of and are hearing of. With wealth they formed secret organizations throughout the world to destroy societies and promote the Zionist cause; these organizations include the freemasons, the Rotary and Lions clubs, and others. These are all destructive intelligence-gathering organizations…
They are behind the First World War in which they destroyed the Islamic Calipha and gained material profit, monopolized raw wealth, and got the Balfour Declaration. They created the League of Nations so they could control the world through that organization. They are behind the Second World War where they grossed huge profits from their trade of war materials, and set down the foundations to establish their nation by forming the United Nations and Security Council, instead of the League of Nations, in order to rule the world through that organization. There is not a war that goes on here or there in which their fingers are not playing behind it…
…the Zionist plan has no bounds, and after Palestine they wish to expand from the Nile River to the Euphrates. When they totally occupy it they will look towards another, and such is their plan in the “Protocols of the Learned Elders of Zion.” Their present is the best witness on what is said. Withdrawal from the circle of struggle is high treason and a curse on the doer. If any do turn his back to them on such a day- unless it be in a stratagem of war, or to retreat to a troop (of his own)-he draws on himself the wrath of Allah, and his abode is Hell-an evil refuge
Key questions on market exuberance concerning us all are highighted in this Streettalkalive Investor Psychology Cycle Chart
Chart included with permission from STREETTALK LIVE
It’s seven years since The Global Financial Crisis (GFC) erupted. A rerun of the Great Depression was averted by monetary reflation, policy makers imposing artificially low interest rates (financial repression) and printing money (including quantitative easing) all on unprecedented scales. Equity markets have soared. Investors have been well rewarded.
But what will happen when interest rates normalise and money printing is reigned in. Or when other events are catalysts for a market sell off?
And what if, as investors, we discover too late we have been bluffing ourselves and we have been behaving like amateur gamblers and we find ourselves running for the exit at the same time as everyone else and dealing with the consequences of a market crash.
STREETTALK LIVE An Information Treasure Chest:
Lance Roberts’s out of the box Streettalklive.com analysis is a treasure chest of useful information – starting with his comment introducing the Investor Psychology Chart:
“The more the markets rise in the face of negative news, the more ’confident’ that individual investors become in their own abilities. The lure of becoming ’rich’ overwhelms logical thinking creating a ’willful blindness’ to rising investment risks ….“No warning can save people determined to grow suddenly rich.”
‘Geopolitical unrest in Iraq/Ukraine? Buy stocks.
‘Unemployment drops to 6.1%? Buy stocks.
‘Loss of 500,000 full-time jobs? Buy stocks.
‘GDP falls by much more than expected? Buy stocks.
‘Q2 economic rebound much weaker than originally estimated? Buy stocks
‘Rising/falling oil prices? Buy stocks
THE EVERYTHING BOOM
In “Five Things to Ponder : The Everything Boom” Roberts poses the question ‘is the “everything boom” a realization of economic nirvana, or is it the next financial “bubble” quietly waiting to be ignored so that it can “pop?.” His conclusion: ‘the psychological cycle of investors over time explains why ‘individuals always wind up ‘buying high and selling low.’
The ‘problem Roberts explains ‘is that a period of “irrational exuberance” can last much longer than “logic” would dictate…because “exuberance” denotes a level of “illogic” as participants come to “complete acceptance” that the current bullish trend is infinitely sustainable…(and) ‘bubbles can exist even at times when valuations and fundamentals might argue otherwise…’
SURVIVING THE LONG TERM INVESTOR GAME:’
Here again Roberts has useful out of the box advice:
‘The one overriding positive of the “always bullish” financial media is that they live in a “bubble” of never being wrong. When asset prices are rising they continue the “sirens song” of the bullish mantras of long term investing, buy and hold, and beating some random benchmark index. However, when it inevitably goes horribly wrong and costs individuals a major chunk of their life savings, the excuse is simply “well, no one could have seen that coming.”
‘To survive the long term investing game, it is crucially important to use a logic-based approached to your investing. Fundamentals, valuations, economics and politics are all extremely lousy…This is why stock market bubbles are “never” seen in advance, but only in hindsight. This is also why it is extremely important to focus on price. At the beginning of the “reversion to the mean,” when it occurs, it is only a change in the trend of prices that will warn individuals that something has changed. Fundamentals, valuations and economic data move far too slowly to be of any value in protecting investor capital.
SELECTED GOLDWATCHER POSTINGS ON BUBBLES:
This link is to an April 2007 Goldwatcher posting outlining Jeremy Grantham’s insights. The Lehman Brothers collapse and the onset of the Global Financial crisis followed the next year. Grantham’s 2007 analysis is +++ pertinent to current conditions
This link is to a November 2013 Goldwatcher posting on Helicopter Ben & Janet Yellin’s money printing & Nouriel Roubini’s recent comment on The Mother of all Asset Bubbles
CHART COURTESY KITCO
To update this chart press the refresh button and alt keys
# The following comment by Ross Norman was published yesterday on the Sharps Pixley website and is cross posted with permission
Ross Norman, Managing Director of Sharps Pixley:
‘Surely never before have so many lines been written by journalists on a subject that they palpably know so little about and have made little attempt to understand… as the London gold fix.
‘Yesterday we were questioned by the BBC in a live TV interview which demonstrated the problem ; their belief was clearly that a group of bankers met in secret and arbitrarily decided what the price should be without reference to actual trades and that was the price for that day – they clearly were unaware that gold also has a spot price outside the fix and that almost all commodities have a benchmark or reference price. The lack of research ahead of the interview was shameful – but that did not prevent them for recycling hackneyed stereotypes about secretive banksters. They are not alone.
‘More laughably some authors suggest the gold price might rise if we dispensed with the fix – presumably on the notion that the banks have been artificially holding the price down… well who do you suppose creates the spot price that is your alternative – the same banks that are in the fixing room ! In fact, you would be more likely see less participation in gold amongst institutional investors and possibly central banks if you removed those moments of deep liquidity that the fix provides. To boot, London will have lost one of its most prized institutions which is a massive contributor to the UK economy and the envy of centres such as Dubai, Shanghai, Mumbai and Singapore. British experts in the sector are global leaders in many fields from trade finance, structured deals, vaulting, refining assaying and we stand to lose primacy in the global bullion market simply because a bunch of tired and rather lazy hacks cannot be bothered to work it out.
‘The central question is we see it is how can a fixing member usefully use the information of a possible trade in the fix to their advantage given that it can be changed right up until the precise moment the fix is settled – rather like a hammer coming down at an auction – the simple answer is he cannot. Go say to a traditional art auction or even bid on ebay and you will not have the right to revoke your trade. You do however get that flexibility with the gold fix. A fixing participant – or indeed someone getting a live commentary might be tempted to trade the gold futures markets in parallel during the p.m. fix but, given that the client fixing order bears no commitment to actually trade you would be crazy to do so.
‘Even the Treasury Select Committee into the gold fix missed the three key issues. Firstly client orders for the fixing are invariably given by clients to a fixing member during the process, secondly the client has the option of getting a fixing commentary so he has visibility on the likely fix price and thirdly he can change his order at any point during the process if he wants to change his mind – in short, the information to the fixing member is almost worthless if they have malice aforethought. As such it could be said to provide more transparency than most benchmarks and indeed in looking after the clients interests.
‘Frankly, if you wanted to stitch a client up there are many far, far easier ways. For example – reading him – if he is a gold producer you know with a high level of certainty which side of the spread he is likely to hit you on. Risks exist in all traded markets – voice or electronic and actually the London fix affords you more protection than most.
‘The question as we see it is the fix fit for purpose ? In the main the answer has to be an overwhelming “yes”. This was seen earlier this week during the meeting held by the WGC at which a wide range of members from the bullion market (although not the LBMA and no fixing members were present – in fact only one bank). In the final session we were invited to offer creative ideas to improve the fixing mechanism… not a single person could reply and consequently the meeting was wrapped up half an hour early.
‘Now the gold market does not stand above scrutiny and to some extent blame for getting to this pretty place does also lie with the fixing community. Firstly it has failed to provide a spokesman who can explain the mechanisms of the fix and to answer legitimate questions from the media. And secondly it should have separated the administration of the process from participation – that would have ensured self-scrutiny would have been observed.
‘Speaking as a user of the fix (not a fixing member) we remain satisfied that the process is fit for purpose and it is with some disappointment we see the dismantling of an institution not because it is outmoded or anachronistic, but because the right questions have not been asked.’
#Note added 2nd July:
Platinum 27th June $1479 (date blog posted)
Platinum 2nd July : $1512
2014 Platinum prices data courtesy Kitco
Press the “Refresh” button on your browser while holding down the <ctrl> key to refresh the charts below
Platinum and palladium 24 hour spot courtesy Kitco
The Following item from Kitco quotes Societe Generali research headlining the strong demand driven case for platinum and palladium:
Societe Generale Sees Longer-Term Recovery In Platinum
Thursday June 26, 2014 1:38 PM
“Societe Generale lists three reasons for a longer-term recovery in platinum despite potential for short-term weakness after resolution of a five-month-long strike in the South African mining sector.
“First, just because the workers gradually return does not mean that refined output will jump back,” the bank says. “Instead, the lingering effects of the strikes, including the lead times for ore to become refined metal, but also due to mine changes, requirements for worker training etc. means that it will probably be over three months before production at the mine gate has returned to, say, 90% of former levels, presupposing all affected shafts reopen. And in our view output will probably never recover to its previous peaks as was the case after the strikes in 2012.”
“Second, platinum prices below $1,400 per ounce are likely to encourage jewelry demand for the metal, especially in China, the bank continues. Third, investors may jump in ahead of anticipated tightness. “In particular, investors are aware that swathes of the South African operations will be loss-making at the lower price level and hence cuts to operations will, eventually, be necessary, even if to some extent this arises from a lack of sustaining capital expenditure,” Societe Generale says.
“In addition, even assuming the recovery in mine output, palladium will stay in a structural deficit even if the mines do manage to return to former levels.”
By Allen Sykora of Kitco News: firstname.lastname@example.org
Supply and demand fundamentals underpin firm platinum and palladium prices. Global auto production is surging. At this stage, except rhodium in limited applications, the only clean exhaust catalysts are platinum and palladium.
80% of platinum mined is from the South African mines. Palladium is also mined in Russia but, as with most info from Russia, reliability is suspect.
Investor interest interest in the commodities sector will be energised next month next with Bloomberg’s new initiative. This info from their 23rd June announcement:
“From lean hogs to gold, the world of commodities is as vast as the world around us. On July 1, Bloomberg will take control of UBS’s leading commodity index, a diversified index that provides investors with exposure to the most widely followed commodities in the world. The index will be renamed from the “Dow Jones-UBS Commodity Index” to the “Bloomberg Commodity Index”.
With Bloomberg assuming management of the index, investors can now have broad commodity exposure with an index that is governed, calculated, distributed and licensed by the world’s leading provider of financial data.
To illustrate the importance of commodities, and how the materials and resources in each asset class are accessed by investors every day, see the below infographic. To learn even more about the Bloomberg Commodities Index Family, please go to bloombergindexes.com/djubs-transition or INDEX<GO> on the Bloomberg Professional service.”
# Note added 19th July 2014
Charlie Rose interview with former CIA chief Michael Morell on Iraq, ISIS, Syria & Iran. Informed and insightful analysis on the regional crises and options for resolution including:
# Iraq breaking up into 3 States – Sunni, Shia & Kurdish. This is the most likely and the least preferred option as it would generate more sectarian violence, bloodshed and other problems;
#Enlisting Iran’s support to make Maliki’s pro Shia and pro Iran government an effective force that could repel ISIS but would not represent the Sunni or satisfy the Kurds and would be problematic for US relations in Iraq and would also give Iran extra strength in the regional political power struggle; and
#The ‘Diplomatic’ option – replacing the Maliki government with a government of national unity. This would be the preferred option but the least likely as, for starters, Maliki unlikely to agree
Back to article as posted:
Fire, Ready, Aim:
When on May 1st 2003, only forty days after the invasion of Iraq started, President George W. Bush declared victory he was alarmingly misinformed. The invasion had predictably been swift. A real victory could of course only be claimed after a transformative occupation and a national reconstruction. Bush should have known that. His mission accomplished speech was really a mission impossible statement.
‘The Economic Consequences of 9/11 and George W. Bush,” Goldwatcher Chapter 6, is appropriately prefaced “Fire, Ready, Aim.” Never in modern history has there been such a costly and ill advised war and wasteful occupation as happened in Iraq
Apart from his catastrophically wrong claims about weapons of mass destruction Bush must take responsibility for consequences following his personal failure of intelligence. In February 2002, a year prior to the invasion of Iraq, The American Academy published an exhaustive study”War with Iraq : Costs, Consequences and Alternatives.” The report by authoritative authors spelled out the political and social realities and the likely costs of an American invasion and occupation of Iraq . One scenario discussed suggested a cost of $1.9 trillion. Bush chose instead to follow the line that the Iraq war would fund itself through cheaper oil and that American soldiers would be welcomed in the streets as liberators. He had obviously neither read nor understood the Academy Report……but can it be true that the President of the United States was unaware of the Sunni Shia sectarian conflict?
Beyond Bush’s personal errors of judgement U.S. intelligence services were also catastrophically deficient with their flawed analysis on weapons of mass destruction. Apart from the chaos that erupted in Iraq there are signs intelligence services are still deficient. The massive US Embassy compound in Damascus, built on the site of one of former Dictator Saddam’s palaces at a cost of almost a billion dollars, has a staff of over 25,000 people. What have they been doing? Surely it’s impossible that ISIS could have gained the operational power it has without being observed?
Intelligence Failures That Preceded 9/11:
A section in the Goldwatcher Introduction is headed “Insight Into The Post 9/11 World and The Jihad Against America.” (Pages 21 to 23). Over the years between 1982 and 1992 an estimated 100,000 Muslim radicals, many from foreign countries, joined the holy war against Soviet Russia. They were trained as combat soldiers and indoctrinated by religious extremists in Afghanistan. After the war many filtered into other regional conflicts or their home countries to promote the Jihad against America and to further the dream of re-establishing the Islamic Caliphate- a subject also addressed and explained in The Goldwatcher. On 11th September 2001 these militants were responsible for the first attack on the World Trade Centre in New York. Now Global security is again being menaced by ISIS and their Caliphate ideal.
Putting Humpty Dumpty Together Again:
Humpty Dumpty has fallen off the wall in Iraq. I am not well enough informed to comment on the chances of putting him together again but, in the story book tale, all the Kings horses and all the King’s men couldn’t put Humpty together again – and several well informed commentators now see no prospect of a unitary Iraq as presently constituted surviving.
A revised Chapter 6 of The Goldwatcher would have to be titled ‘The Economic Consequences of George W Bush and Barack Obama.’ Two successive American administrations have blundered in Iraq and Afghanistan at great loss of life, with veterans maimed for life and enormous financial and security costs.
What does the future hold?
Presidents Rohani, Putin, Obama and gold as a contrarian investment:
President Obama is dispatching 270 armed personnel to Iraq to guard and protect the US Embassy. Two US Navy vessels have been despatched to the region. Further announcements are expected including negotiations for cooperation with Iran.
Iran has an interest in both the continuity of the present Iraqi government and the Assad regime it finances and supports with arms and military personnel. Russia supports Assad in Syria, supplies it with armaments and is in a security pact with Iran and China.
Syria’s displaced population is a stain on the conscience of the world and I know no one who would have predicted that the United States would be engaging with Assad’s sponsors to prevent chaos crippling Iraq and the Middle East. But that’s where we may be now.
On June 5th I posted a comment on gold as a contrarian investment and updated it June 10th with a note on an interview with Jeff Christian.
Don’t read too much into jubilant financial markets riding high on cheap money or central bank guidance that interest rates are not going to be increased soon. Last week Bank of England Governor Mark Carney gave the message that forward guidance isn’t a promise and it can not be relied on.
Focus instead on geopolitical risks, catastrophic failures of intelligence and irrational exuberance in financial markets. As evidence compare the pending Hula IPO valuing a business prospect at $17 billion and gold with a production cost of $1200 trading at under $1300 an ounce .
The Goldwatcher addresses supply and demand for gold, motivation, timing and strategies for owning gold, price overshoots and undershoots, gold as a contrarian investment, ‘moderation’as the golden rule for investing in gold and the other issues investors need to consider.
Readers are reminded this web site is not advisory. Information and comment is not published as investment advice and must not be used as investment advice.
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US$ UKRAINE HRYVNIA EXCHANGE RATE
Barrons: What attracted you to Ukraine?
It is actually a very rich country with an educated population, incredible agricultural wealth, and a manufacturing base that, with investment, could improve. There is long-term potential. The good news is it started this crisis with very solvent debt conditions—only 40% debt to GDP. That’s important because it indicates a country’s ability to pay back debt. [The European Union average debt/GDP was 87%.] It’s been a question of accessing global capital and liquidity.
Barrons :How is Ukraine handling the crisis?
A crisis is a horrible thing to waste, and Ukraine didn’t waste it. The urgency let a long list of structural reforms pass that had previously run into opposition. They signed a good package with the International Monetary Fund, which unlocked other potential international assistance; now they have ample liquidity. It is also moving toward a flexible exchange rate rather than one that is pegged. That should weaken the currency, making exports more competitive, which will help its balance of what it imports versus exports. Ukraine is also freezing public wages and hiring to cut costs and reforming the way it awards government contracts to tackle corruption.
Barrons : What about the political crisis?
Hopefully it can engineer changes that move Ukraine away from the tug of war—like moving away from NATO membership and giving some of its Russian-speaking states more autonomy in a decentralized, federalist system. The economy is highly integrated with those of Europe and Russia, so it’s in Ukraine’s best interest to deepen both relationships and, therefore, decide against joining NATO. That would allow Russia to move away from intervention, and Ukraine can then live up to its full economic potential. The high voter turnout for Petro Poroshenko [voted president-elect last month] gives him a solid mandate.
Isn’t Ukraine a risky bet, even for you?
This isn’t much different than others. During the financial crisis, Lithuania ran into short-term solvency challenges because it couldn’t access capital markets. We were the largest investors providing them short-term liquidity. Now, Lithuania is issuing debt with very low yields, and no one even talks about it. That took about four years. Hungary also took about two to three years to pay off. We may need to be patient. It may be three years before some of these factors can move in a positive direction in Ukraine.
Ukraine’s Aircraft Industry:
Little did I know in November last year when I posted a comment on Helicopter Ben and The Mother of all Asset Bubbles suggesting something bigger than a helicopter for his & Mario Draghi’s money drops that the giant Antonov An 225ov aircraft proposed was……. ……………………………made in Ukraine!
# 9th June Picture of Ukraine’s Antonov A225 Freighter added
NOTE: This website is not advisory. Comments and opinions are not published as investment advice and may not be used as investment advise. This comment is posted as an item of interest in relation to the West, Ukraine and Russia and is not intended to encourage investment or speculation in Ukraine or elsewhere.
#Note added 10th June 2014
Jeff Christian’s analysis suggests positive investor demand for gold particularly from Switzerland in video interview with Kitco’s Daniela Cambone
Chart courtesy of Kitco
Contrarians and gold:
The gold price is now $1243 after falling almost 40% from a September 2011 spike that breached $1900. Investment banks and other pundits are competing with each other to forecast further drops. Some are suggesting a fall to as low as $1000.
It’s well known that contrarian investors have at times been successful with gold. But a bet on gold, just because you think the consensus is always wrong, or is probably wrong, will have less chance of paying off than any random bet made in a casino. By contrast investments in gold made when it was out of favour, based on an understanding of supply and demand factors, have at times been rewarding. I have two examples of prescient contrarian calls with gold – one hypothetical and one actual.
The hypothetical opportunity goes back to the turn of the century when Stock Exchanges were flying high because……“this time it was different.” Remember we were told the world had morphed from a boring old industrial economy to an exciting new age and new paradigm economy.
Gold, absolutely out of favour, was languishing at about $250 and the prices of technology shares were stratospheric when, before the stock exchange bubble popped, the contrarian investing icon Marc Faber gratuitously advised Bill Gates to sell his Microsoft Shares and to buy gold with the proceeds.
Bill Gates might have been orders of magnitude richer if he had acted on Marc Faber’s gratuitous advice. But Marc Faber’s suggestion was only clever journalism and Bill Gates probably never even knew about it. And, for the record, Marc Faber has not always been right.
Another and, this time real world contrarian opportunity, goes back to March 2001 when the formidably successful contrarian Kiril Sokoloff published an article “Buy Gold Before Central Banks Are Forced Into A Major Reflation.” In the article he made the case for massive central bank intervention to counter deflation, meticulously analysed supply and demand for gold and gold mining shares and concluded that a surge in investor interest would have a dramatic effect on the gold price. Sokoloff was right. His contrarian call was immensely rewarding.
Is gold a contrarian opportunity now?
I have an opinion on this but, to save you the time of reading further if you are expecting advice, remind you that this web site is not advisory. And, in any event, investment opinions have short sell by dates and are often past their sell by date when read. What I can do, however, is set out four headline points illustrating why I think gold should be on the agenda for consideration as a contrarian opportunity now.
1: This time is not different : Gold has been owned as stateless money and as a store of wealth for millennia. Driven by hype, fear and greed the gold price overshot any measure of fair value in 2011. But price overshoots and undershoots are par for the course in financial, currency and commodity markets and, after disruptions, prices settle down at a level determined by supply and demand.
2: Demand: Gold as an investment in Western markets is pathetically weak now. But in the East demand for gold jewellery is strong and gold is being promoted as an investment. Further, in relation to the West, though the spotlight is presently off the economic anxieties that had supported investor demand for gold, underlying economic problems remain unresolved and menacing geo-political problems are multiplying.
3: The all in cost of mining gold is now estimated to be in the region of $1200 an ounce. Supply of newly mined gold will fall and the supply demand equation will change radically if gold miners can’t achieve a price that rewards them for the capital and risks involved in production.
4: Informed analysis of supply and demand for gold is not all negative. A recent Goldwatcher posting with Jeff Christian’s analysis on gold supply, demand and prices has useful information
Motivation, Timing and Strategy:
I approach gold as ‘The Stateless Money Franchise’ with potential utility as an investment and an almost universal attraction as a store of wealth. In this context, as with any other investment, gold only makes sense if the price is reasonable and the investment is consistent with your investing strategy. If your strategy is to get rich quick the chances are you will find better opportunities elsewhere. But, if your motivation is to own some gold as an asset with a different risk reward profile to your other financial assets, consider investing some time in understanding the supply and demand dynamics for gold. There may be an opportunity for a well informed contrarian investment as markets realign.