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Go Global, Before It’s Too Late

By David Galland, Managing Director, Casey Research

It has been years since I last watched The Matrix, a lapse I corrected last night. As the movie makers intended, the film serves as stark metaphor of the world as we know it.

Or, more appropriately, as we think we know it. If asked, the average citizen of these United States would describe their life in entirely ordinary terms. They work at such-and-such a company, they live in this or that place, they enjoy one activity or another, and so on.

All in all, a life of self-directed activity, designed to sustain themselves and their families in a satisfactory way.

But I suspect if we could actually take a “red pill” of the sort offered by Morpheus in The Matrix, and by so doing awaken to the truth of our situation, a different reality might be revealed.

This thought was reinforced by emails received from attentive readers about remarks I made in my article The Road to Detroit. I urged people to get serious about international diversification, making the following remarks about Canada:

    For a U.S. citizen, if you did nothing more than opened up a Canadian bank and brokerage account, you’d be well ahead of the game. While Canada has its own share of problems, the banking system there is in far better shape than here, and as a “foreigner” you are far less susceptible to government intrusions into your affairs. Oh, and for the record, the Toronto Stock Exchange has outperformed the S&P 500 in eight of the past nine years in nominal terms, and by a considerable margin when you also consider how much stronger the Canadian currency has been compared to the U.S. dollar in recent years.

As some readers pointed out, thanks to energetic efforts by the U.S. government, it is difficult for an American to open up foreign bank and brokerage accounts, in Canada as well as pretty much everywhere else.

That said, based on my personal experience and that of many Americans I know, you can open a Canadian bank account – maybe not with all Canadian banks, but at least two of the majors that I’m aware of.

That doesn’t mean they will open an account for you, but rather that they have no restrictions that prohibit them from doing so. Whether they open an account for you or not will largely depend on how you present yourself.

More specifically, after you have identified a Canadian bank that will open accounts for U.S. citizens – a phone call should suffice – you will have to present yourself in person, along with all the appropriate documentation. The banker will then ask you some questions to better get to know you and your purposes for opening a Canadian account. In my case, the answers were simply that I make investments in Canada and prefer to do my transactions in Canadian dollars held in a local institution, rather than go through the time, hassle, and costs of currency exchange and cross-border money transfers.

If, on the other hand, a person were to show up unshaven and muttering about the damn U.S. government, asking if the Canadian bank reported account information to the U.S. government, I can assure you an account would not be opened.

As for the brokerage account, that is far more difficult – and in fact, my Canadian accounts are technically domiciled in the U.S., because of an agreement forced on the Canadians by the U.S. financial authorities. That said, if you are willing to jump over a couple of fairly high hurdles – preferably with the help of competent counsel – there are ways to legally get around the restrictions using, for example, a foreign trust or a foreign LLC. But as there is a fair amount of costs and complexity involved, such measures are typically only for individuals looking to diversify significant assets.

But if you have significant assets, then it is becoming increasingly important to get educated on diversification. Because, as mentioned, it’s not just Canada, but pretty much every country in the world that kowtows to the U.S. government at this point.

Case in point: as an experiment a couple of years ago I tried to open a personal account in Uruguay and, despite being accompanied on my prearranged appointments by a well-known Uruguayan, a man of considerable influence at the highest echelon of Uruguayan society, none of the native banks would open an account for me. The only one that would was an Israeli bank with large headquarters in NYC. I passed.

Back to my theme… namely, once the scales drop from your eyes, an unpleasant reality materializes. In the case of the human inhabitants of The Matrix, it was that they were drugged and raised in pods to serve as a renewable energy source for the machines that had taken over.

In the United States and elsewhere, the reality is that while we are not raised in pods – but rather allowed to live our lives as free-range humanoids – the net result is much the same. In the eyes of officialdom, our best and highest purpose as individuals is to provide the fuel that keeps the bloated state operating.

I know that sounds extreme, but then please explain to me why my own government should have even the slightest influence on whether or not I open overseas financial accounts, let alone actively take steps to pressure international financial institutions not to accept my account.

It is time to wake up… to take the red pill, so to speak. Don’t do anything illegal, and never try to avoid your taxes – The Matrix is almost all-seeing at this point – but if you have significant assets to protect, you need to begin a course of serious study as to your options. Buying property overseas is one approach you can take; another is to research securing another passport and look into off-shore trusts and LLCs. In all cases, keep caveat emptor in mind.

Or take the blue pill and settle back into your routine, knowing that the odds are good you’ll end up broke and discarded once Big Brother’s machine is done with you.

[As David said, it is critical for any investor – and especially those with sizeable assets – to internationalize their wealth. Don’t wait until it’s too late… the doors on legal asset transfer outside of the U.S. could literally close any moment. Learn why you need to act NOW, and all about the 5 best ways to diversify – click here

The Simple Truth About Gold Leverage Programs

By Peter Schiff, Febuary 3

A lot of people ride motorcycles, but there’s a reason most don’t try to be Evel Knievel. Sure, there’s a big reward if you can land a jump over 14 school buses – but what if you don’t?

A new craze among our competitors is to push gold buyers into “leveraged accounts.” In one of these accounts, the dealer lends you money to buy gold, on the assumption that gold will go up faster than the rate of interest on the loan. In other words, if you call with $5K, they’ll give you another $20K in credit to make a $25K total purchase of gold bullion.

The sales pitch is that since we all know gold is going up, you might as well maximize your returns by leveraging up. What they don’t often mention is what happens if gold goes through a correction. You’ll likely be asked to send in more cash for a “margin call.” If you don’t, they’ll sell your gold for a substantial loss.

GOOD OLD BUY & HOLD BULLION

If you simply purchase bullion, it doesn’t really matter whether gold falls in the interim, as long as it regains the loss by the time you need to sell it. In fact, the money you would use to pay margin calls on leveraged accounts could instead be used to buy more bullion on dips. That’s how you make serious money in a gold bull market.

THE LEVERAGE RIPOFF

Unfortunately, the leverage rip-off doesn’t end with margin calls. Expect to pay commission on the entire value of the purchase. If you have to pay 3% commission on the whole $25K, that’s actually 15% of the $5K you invested.

Then, there is interest on the $20K loan, which may run you 8% per year, adding an additional $1,600 in the first year of holding. With the commissions, this amounts to a staggering 47% of your original $5K investment!

Tack on leasing fees, transaction fees, administration fees, storage fees, delivery fees… with many of these accounts, it is nearly impossible to come out ahead.

A “GOLD ACCOUNT” IS NOT GOLD

Importantly, with leverage, you do not get possession of your gold – it is held as collateral. That defeats the major objective of buying physical gold coins: the elimination of counterparty risk. Counterparty risk is the chance that the person who owes you gold doesn’t actually have it, or refuses to pay. That could leave you stuck when you need your gold most – like in a hyperinflationary environment.

Maintaining a brokerage-style account with a dealer also defeats a second objective of buying physical gold coins, financial privacy.

THE HOUSE ALWAYS WINS

Even if it weren’t for the rampant shady practices of firms offering these accounts or the disadvantages of not holding your own gold, leverage still adds a large element of market risk that I think is inappropriate for most gold investors.

If you do happen to be experienced enough to successfully speculate on gold prices, you should be trading on the futures markets, where fees and interest rates are substantially lower. 

There really isn’t any demographic that should be opening leveraged accounts with coin dealers. The only reason these accounts are offered is that they are extremely profitable to the dealers and salesmen who push them, at the expense of the small percentage of people who are suckered into opening them.

THE GOLD-MEDIA COMPLEX

This brings up a key point about the current state of the gold industry. Dishonest dealers are raking in profits from inexperienced buyers, which are funneled into pricey advertising campaigns, driving more inexperienced buyers into their clutches.

Some pundits point to these ubiquitous ads as a sign of a bubble. However, I see it as just the opposite. Right now, legitimate dealers are not profitable enough to pay for big ad campaigns by simply selling bullion at reasonable markups. That is why all the ads we’re seeing now are produced by dealers pushing leverage and over-priced numismatics. The huge markups and fees enable them to afford high-priced marketing campaigns.

If gold truly were to become a bubble, then there would be such great volume and so much interest and education among buyers that legitimate dealers would take over most of the market. Your neighbors would be able to tell you the average markup on an American Gold Eagle just like they can now tell you the average price of a three-bedroom house in the neighborhood.

My public profile provides a certain level of exposure that allows Euro Pacific Precious Metals to overcome the high barrier to entry facing other honest dealers this early in the bull market. We see it as our mission to guide investors who are new to the gold market into making smart purchases and help them avoid the traps that have already ensnared so many others.

A LONG ROAD AHEAD – CHOOSE THE RIGHT VEHICLE

It’s going to be a long road to the top of this gold bull. If you can avoid pitfalls like leveraged accounts and numismatics, gold will shield your wealth from the Fed’s steady erosion of the dollar’s purchasing power. An old proverb goes, “the greatest truths are the simplest; and so are the greatest men.” Don’t trust brokers who pressure you to invest in complicated schemes or fancy products when all you really need are pure bullion coins and bars, held in your physical possession. This advice has been given from father to son since Ancient Babylon, and though Americans have forgotten it for a few generations, it remains the simple truth.

This article is written by Peter Schiff of Europac and with their kind permission, O B Research has been privileged to publish their work on our website. To find out more about Europac, please visit:

The Real Reason for Rising Commodity Prices

By James Turk, February 3

An article today in The Wall Street Journal highlights the latest rise in the price of wheat.  Blaming bad weather, it notes that the “global wheat market is caught between freezing winds and a sirocco.”

The WSJ therefore warns that “investors should beware of whiplash as weather normalizes.”  Given that wheat is “up 13% since the start of December”, it is good advice – if weather were to blame. 

The reality is that wheat is being driven higher by more than bad weather.  The price of wheat has been climbing since June, a fact conveniently ignored in the WSJ article, perhaps because it doesn’t square with its premise that bad weather is causing higher wheat prices.  Are we to believe that the market knew seven months ago that weather around the world today would be so bad that it would impact global wheat output?  Or has wheat – which has risen $3.50 per bushel, or 70%, since its June low – been climbing steadily higher over these several months for another reason?  And more to the point, why are all commodity prices rising?

For example, since June copper has risen $1.70 per pound, or 59%.  Is bad weather to blame?

No, of course it isn’t.  Something else is at work here.  Maybe wheat has risen more than copper over this period because bad weather really has had some impact on wheat production.  But obviously, given that commodity prices are rising across the board, we have to look for other factors that are causing this surge in prices.  And we do not need to look too hard.  Just consider the money printing – a/k/a “quantitative easing” – by central banks going on all around the world.  QE is building up tremendous inflationary pressures in the pipeline of goods and services, which for months now has been showing up in the area most sensitive to monetary debasement, namely, commodity prices.

The WSJ article ends by warning that “political storms could provide a tailwind for wheat prices.”  That could be, but right now, the gathering monetary storm is far more important, and there is one easy way to seek shelter – buy physical gold.  Look at the correlation between gold and the CRB Continuing Commodity Index in the following chart.

The above chart makes one point crystal clear.  Rising commodity prices are not short-term phenomena.  Except for a brief deflationary blip in 2008 after the collapse of Lehman Brothers, this CRB Index of 17 essential commodities has been rising steadily all decade – and it is meaningful to note, so too has gold.

So I wouldn’t worry about any shortage of wheat, provided you own physical gold.  Farmers will continue to grow produce, and the market in which money is exchanged for food will continue to function as it has since humankind began to interact in commerce thousands of years ago.  So regardless what happens to the price of wheat, you will continue to buy bread in the future just like you do today, provided you have physical gold to preserve your purchasing power from the ongoing debasement of national currencies being engineered by governments and central banks.

This article is written by James Turk of Goldmoney.com and with his kind permission, O B Research has been privileged to publish his work on our website. To find out more about Goldmoney, please visit:

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Reagan for President…of China!

By Axel G Merk, February 3

With Ronald Reagan’s 100th birthday around the corner, it seems fitting that the world may need another President with the same level of foresight. This time it’s not the U.S., but China that may need a President Reagan.

When Reagan became the 40th President of the United States, he gave the U.S. a vision that inspired an entire generation. Not only was he a charismatic leader, but timing was on his side, allowing him to be a catalyst for change. The economy was suffering from the effects of push-cost inflation of the 1970s; perceived political weakness inherited from the Carter era and a post-Vietnam demoralized military also held back the country.

Reagan has many supporters, but also many critics. One point of contention are the massive fiscal deficits that Reagan introduced. Others believe that because “Reagonomics” worked, supply side economics (government spending) must be the cure to all economic slowdowns. We take issue with both sides: in our view, the key to Reagan’s policies was the fact that he unleashed energy that had been held back for a decade. Americans are inherently entrepreneurial, but the environment had made it difficult to pursue the American dream. It’s in this context that Reagonomics may not be a cure for all problems: in today’s environment, an exhausted consumer needs a break, not a stimulus.

What does this have to do with China? Few would call the Chinese demoralized or the economy in the doldrums. However, a key challenge with China’s growth has been the overt focus on exports and infrastructure investment. It’s great to provide jobs through construction, but someone has to occupy those buildings, which may be jeopardized by the government’s attempts to cool the economy. China is an export powerhouse, but the Chinese government is concerned exports could suffer should the artificially low exchange rate of the Chinese renminbi versus the U.S. dollar be allowed to appreciate. The trouble is that these policies are fostering inflation, and lots of it. Historically, inflation has led to social unrest and uprising, and ultimately toppled governments in China and around the world. In the Middle East, people have shown that they can put up with autocratic governments, but only if they can afford to eat: food inflation throughout the Middle East and Asia are, in our assessment, a key contributor to the growing instability. Commodity inflation has been exacerbated by loose monetary policy in the U.S., a policy exported to the Middle East and Asia as those regions peg their currencies to the U.S. dollar, or are otherwise reluctant to pursue substantially tighter monetary policies than the U.S.

China needs to balance its economy, making it less dependent on exports and infrastructure spending, while at the same time addressing inflationary pressures. American policy makers would love China to hand out credit cards to all its citizens to bolster domestic consumption. That is not what China wants, nor needs.

To foster domestic consumption, China needs a Ronald Reagan. Many in China think exporting goods to U.S. consumers is the most important driver of Chinese economic growth. This is wrong – exports to the European Union exceed those to the U.S. Beyond that, driving domestic consumption by driving Chinese citizens into debt will not lead to sustainable growth, especially not in an environment that’s already inflationary. Instead, China should consider unleashing the entrepreneurial spirit of its people to further build the domestic economy. Instead of focusing on infrastructure spending to drive economic growth, Chinese policy makers should foster entrepreneurialism. That’s why China needs Reagan. What we call charismatic leadership in the U.S. tends to be referred to as propaganda in China; and while most may have a difficult time imagining Reagan running China, few have a problem imagining China leveraging its ability to promote a unified message.

By promoting domestic growth, a strong currency is welcome, as it dampens inflationary pressures. Commodity prices in local currency go down as the currency strengthens. Given that China is a major importer of commodities, a strong Chinese renminbi will help tame inflationary pressures. China has been reluctant to allow its currency to rise, mostly because of the feared negative impact on exporters. We are not as pessimistic, as our analysis shows that Chinese companies have pricing power: China has long given up competing on price, as the goods and services exported from China are at the higher end of the value chain. Think about it from a U.S. corporation’s point of view: to remain competitive, more outsourcing needs to take place at a time when just about everything is outsourced already. As a result, ever more complex processes are being outsourced. China is best positioned in the world to accommodate complex outsourcing projects.

The weak renminbi has allowed some businesses to operate that would not be able to compete should the Chinese currency strengthen. Because of the fear of an economic slowdown as the renminbi rises, we believe it is quite likely that any currency appreciation may be accompanied by another stimulus. If that is correct, and if China wants to avoid the inflationary fallout, unleashing the entrepreneurial spirit to focus on developing the domestic middle class may best help China be prepared for the next growth phase. Hence, figuratively speaking, we are calling for Ronald Reagan to become the next President of China. Incidentally, China’s next President will be Xi Jinping, who comes from a well known political family – at times compared to the Kennedy’s in the U.S.; together with his wife Peng Liyuan, a glamorous Chinese folk-singer more famous than her husband, he just might have the charisma necessary to rebalance China’s economy and place the world economy on a more sustainable footing.

This article is written by Axel G Merk of Merk Investments LLC and with his kind permission, O B Research has been privileged to publish his work on our website. To find out more about Merk Investments, please visit:


Record Copper Price Tests $10,000

Copper has hit a fresh record high just below $10,000 a tonne on hopes of increased demand amid supply shortages, which could be made worse by giant Cyclone Yasi in Australia.


Economic data has shown strong demand from the Asian manufacturing sector for copper.

Metals have been strong across the board this week, with tin hitting a record and nickel at its highest since May 2008.

The weak dollar has led investors trading in other currencies to seek commodity investments. Economic data has also shown strong demand from the Asian manufacturing sector, especially for copper.

Analysts pointed out that the most recent rally in the copper price may be less about fundamentals than the unwinding of positions in Shanghai ahead of the Chinese New Year.

However, there are still signs that there will be a shortage of the red metal this year, as mining companies have been reporting lower than expected production.

BHP Billiton, Xstrata and Rio Tinto found that output dropped 12pc in the first half of 2010. It appears that this trend continued in the second half of last year as well.

Copper prices have tripled over the last two years. The City expects prices to head towards $12,000 per tonne by 2012, owing to spiralling demand and lack of new investment in mines. The metal closed on Wednesday at $9,945.25 a tonne.

Australia’s huge Cyclone Yasi forced a copper refinery and coal mines to shut and paralysed sugar and coal exports as it began pounding the northeast coast on Wednesday, threatening to further inflate world sugar, copper and coal prices.

The edge of the cyclone, one of the most powerful recorded, came ashore in north Queensland state, heading directly for sugarcane fields and threatening a 300,000-tonnes-a-year copper refinery in the coastal city of Townsville.

“We’ve shut everything down and that situation is likely to carry on for several days until a clearer picture emerges,” said Josh Euler, a spokesman for the refinery owner, Xstrata.

Earlier this week, a 30,000 tonnes-a-year nickel refinery at Yabulu shut down ahead of the cyclone, and the major coal export terminals of Dalrymple Bay and Gladstone stopped loading ships.

Shipping in and out of the region has come to a standstill, with ports along hundreds of kilometres of coastline closed and bulk carriers retreating from the cyclone zone to safe anchorages.

Source

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