Peter Schiff’s Urgent Update to Gold & Silver Investors

Following the surprise move by the Fed and five other central banks to lower the interest rate of dollar swaps by 50 basis points, through Feb. 1, 2013, Euro Pacific Capital CEO Peter Schiff issued a special and urgent update to investors.

“There’s an old expression that nobody rings a bell when it’s time to buy or sell,” Schiff began his video message of Wednesday.  “ . . . Well, I think the world’s central banks rung a pretty loud bell today to buy precious metals.”

As the Dow opened on Wednesday, soaring more than 400 points, gold vaulting more than $30 per ounce and silver adding more than a buck following the Fed announcement that the world will soon be flooded with more dollars due to the coordinated cut in the swaps rate, the US currency dropped sharply against its peers which comprise the UDX. Sign-up for my 100% FREE Alerts!

“I believe that it [the dollar] is going to lose a lot more value, not just against other fiat currencies, but against real money, gold and silver,” Schiff continued.  “I think investors should be buying.  Those of you who’ve been on the sidelines waiting for an opportunity to buy, I would not wait much longer; I would just buy.”

Wednesday’s ringing endorsement by central banks to sell dollars and buy precious metals—so far—has fit well into the call Schiff made in October for a lower dollar by year end—a bold call, indeed, in that, it flies in the face of famed FX Concept Founder John Taylor’s prediction for a euro collapse.  Not many traders want to take the other side of a Taylor trade.

“What’s really frustrating is that we’re supposed to do well in a lousy world market,” Taylor told Bloomberg in an Oct. 12 interview. “We’re doing very badly.”

Nearly two weeks later, on Oct. 25, Schiff defiantly told KWN, “Our short-term target for the euro, maybe by year end, will be up near 1.48,” adding, “I think that’s going to catch a lot of people off guard who were writing the obituaries for the euro, to see the euro approaching the 1.50 level. The dollar index should be headed back down to the 72 level.”

Schiff recommend to KWN listeners to buy gold and silver as the hedge against the coming drop.  So far, Schiff is holding up quite well to senior Taylor.

“I think we will come pretty close to hitting $2,000 on gold this year,” Schiff predicted. “It would be hard for gold not to be above $2,000 in 2012.  I really think it would be unlikely that we wouldn’t see prices north of $2,000 next year.”  See BER article, Peter Schiff’s Boldest Call Ever.

Fast forward to today, Schiff recommended to his video audience that new positions should be taken in gold and silver, with first-time buyers who’ve been waiting for a pullback to jump aboard.

“You have gold at around $1,700, silver around $32,” Schiff said, Wednesday.  “I think these are good positions to buy gold for the first time, if you still haven’t bought, or add to your positions if you already own.”

In addition to his recommendation to buy precious metals, Schiff reminded investors of the ongoing disinformation campaign waged against investors by central bankers and the media all through this crisis.  Schiff has continually stated, as far back as the early 2000s, that central bankers and ‘respected’ media outlets, to put it bluntly, “lie” to investors about the intentions of the Fed; it’s all part of, what famed trends forecaster Gerald Celente has said is, a CON-fidence game the Fed plays with the markets.

“Here’s the deal, Eric, they are suckering in the people to keep playing the market. This solved nothing,” Celente told KWN, Thursday.  “So when I see this, this is just a con game.  And anybody that sees the game, all they have to do is follow the money.  Where is the money going?  Look at what gold did, zoom it shot up!  Look what silver did, bam!  Everybody knows what’s going on, they are devaluing our currency.”

Schiff provided more detail than Celente about the latest Fed rouse, citing the curious timing of the Bernanke announcement of the day following the Standard & Poor’s large list of bank downgrades, underscoring what both gentlemen have been warning investors for a long time—and that is, that the game is “rigged” against investors of dollar-denominated paper assets and to buy gold.

“A lot of people think that what is going on is a bailout for the eurozone.  It’s not; it’s a bailout for the banks on both sides of the Atlantic,” Schiff explained.  “It’s not a coincidence . . . last night Standard & Poor’s downgraded credit ratings for about 20 major banks, including banks like Bank of America [and] Morgan Stanley.”

Moreover, Schiff noted a similar observation to zerohedge.com‘s post regarding Warren Buffet’s Bank of America’s share price, which, as of Tuesday, traded briefly and dangerously below the $5 mark—a mark at which pension funds and other large institutions must sell the stock, which would no doubt cause another Citigroup-like meltdown in shares of BAC.

“Before the bell [Wednesday], Bank of America shares were under five bucks, a new 52-week low, and this announcement came and the banks rallied,” Schiff said.  “I think this is a bank bailout, a la QE2.  This is not about economic growth; it’s about propping up insolvent financial institutions by creating inflation.”

More evidence of Schiff’s contention came from U.S.-based Forbes Magazine on Wednesday morning.  Forbes stated that it had observed central banks taking unusual steps to liquefy an unknown (undisclosed?) European bank in ways reminiscent of the 2008 financial system meltdown.

“It appears that a big European bank got close to failure last night,” stated Forbes.  “European banks, especially French banks, rely heavily on funding in the wholesale money markets.  It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue.”

Experienced Wall Street observers, such as Schiff, the staff of zerohedge.com and the journalists of Forbes understand the motives and obfuscations disseminated through communiques of central banks all too well.  And those “who do understand this dynamic will buy gold,” said Schiff.

And how high could the price of gold go?

Ironically, France-based Societe Generale issued a note to clients on Monday, a couple of days too soon from the Wednesday’s Fed’s bombshell announcement, in which, it stated, “A major liquidity crisis should not occur this time, as we think we are on the eve of major QE in the UK, U.S. and (a bit) later on in the EZ.”

If the analysts at SocGen had read zerohedge.com’s Friday post regarding a curious and massive blip on the Fed’s “Non-Reserve Balances” statement of an additional $88 billion to its “other” category, they may have wondered if another bank was about to blow up in the system and most likely would have suspended their analysis for a little while longer.

In any event, SocGen also stated it expects the price of gold to soar to nose-bleed heights in the wake of more central bank quantitative easing, as they need to catch up to the unprecedented rate and amount of debt destruction on both sides of the Atlantic.

“Buy gold ahead of QE3 as money creation has a strong impact on prices,” according to the SocGen release.  “Gold is highly sensitive to U.S. QE, as every dollar of QE goes into M0, triggering the debasement of the USD.  Gold = $8,500/Oz: to catch up with the increase in the monetary base since 1920 (as it did in the early 80s).  Gold = $1900/Oz: to close the gap with the monetary base increase since July 2007(QE1+QE2).”

Warren Buffett’s strange $5 billion play in BofA

As Warren Buffett makes headlines again with his $5 billion preferred stake in Bank of America (NYSE: BAC), many questions have swirled surrounding Buffett’s thinking about this complete dog of a bank.

The problems with BofA’s balance sheet are so numerous, just with the bank’s tier 1 and 2 assets, alone, that the bank should have gone under in 2008 along with Lehman.

Here are the problems with BofA’s balance sheet:

Yves Smith (Susan Webber of Aurora Advisors) of Nakedcapitalism.com has looked at the second-mortgages assets of BofA and cannot fathom a write down of anything less than 60% of the $80 billion reported by BofA.  That’s $48 billion.

Smith also winced at BofA’s “Goodwill” fluff of $78 billion, stating that “perhaps a lot of their $78 billion of goodwill might have air in it.” Add that to the $48 billion and we get a total of $126 billion in questionable valuations.

Next, BofA is being sued by everyone who’s ever heard of the bank, which according to zerohedge.com could amount to $20 billion in judgments and/or settlements to make whole the customers of its Countrywide subsidiary.  Now we’re up to $146 billion of inflated garbage.

Next, European exposure to Europe sovereign debt totals $17 billion, of which $1.7 billion is on the line with the PIIGS (Portugal, Ireland, Italy and Spain).  $1.7 billion is not enough to put the bank in trouble, but the domino effect of contagion within the banks of France and Germany could be substantial.  Would BofA have to set aside billions more for the inevitable demise of the euro?

Lastly, the biggy.  The Bank of International Settlement (BIS), the central bank of central banks, has notified the 14 largest holders of tier 3 derivatives to begin clearing them by June 2012.  Of the $697 trillion on the books of the top 14 institutions, of which BofA is one of them, how much in write-offs will BofA have to take?  Who knows?  And that’s the problem.  BofA’s balance sheet, like the other TBTF banks report fictitious numbers.  That write off could be too large for anyone to bailout.

Buffett knows all of this.  Then, what in the world is he thinking?

The $5 billion “investment” in BofA may just be Buffett’s way of remaining a “good” guy with Washington and the American public during the slow-motion collapse of the financial system.  He’s already been the biggest beneficiary of TARP and clandestine shenanigans from the Fed in the bailout of AIG.  Hank Greenberg took the lion’s share of the hit in the AIG scandal, and the American people bailed out Buffett and his precious AIG.  Buffett owes the American people nearly everything he’s got, because he knows who’s going to be stuck paying the bill for the biggest mess yet to come.

Mr. Big dumps Bank of America

After making headlines last year for his brilliance in foreseeing a rebound in bank stocks following the March 2009 stock market crash, hedge fund manager John Paulson has made headlines again, but not for his record fee take down, but for his recent timing blunder from his substantial sale of his fund’s stake in Bank of America (NYSE: BAC).

According to a CNBC news report, the $38 billion Paulson & Co. founder sold shares in BAC through to the announcement made by the bank that it had settled for $8.5 billion with angry investors who bought misrepresented mortgage-backed securities related to the bank’s Countrywide subsidiary.

CNBC’s Kate Kelly reported Thursday that Paulson had sold a “substantial portion” of his stake in BAC in April and May, citing persons close to the transactions.  According to SEC form 13-F, Paulson & Co. held 123.6 million shares of BAC with a market value of $1.65 billion.

Paulson’s dumping of BAC during the second quarter comes off the heals of his fund’s liquidation of 80,000 shares of Citigroup (NYSE: C) and 2 million shares of CIT Group (NYSE: CIT) during the first quarter, which strongly suggests that he has become less optimistic about the future of the banking industry, maybe even less sanguine on the outlook for the U.S. economy—as the banking sector traditionally leads out of economic recession.

However, Paulson’s positions within the banking sector, specifically in BAC, have taken a backseat to the rest of the story behind the man who charged his investors $5 billion in fees last year for his stellar market performance.

Paulson’s “brilliance” last year may have been a fluke (or the result of collusion with Goldman Sachs on some MBS deals), speculate analysts.

In the case of BAC, since the beginning of 2011, shares of BAC have dropped approximately 20%, leaving Paulson & Co. investors with an estimated $200 million – $300 million haircut to the funds NAV.  And now, CNBC reported that its sources told the financial news outlet that Paulson may be considering buying BAC back, now that the bank has decided to settle the Countrywide MBS class action suit.

Following BAC’s late-afternoon announcement on Wednesday, shares of BAC soared 3% to more than $11.  Some stock technicians suggest that Paulson was fell for an amateur-like whipsaw.

His recent substantial loss in BAC follows another large loss, an embarrassing one, on Sino-Forest (TRE.TO), a Chinese tree plantation.  After research firm Muddy Waters released a report in early June that asserted Sino-Forest overstated its timber holdings, shares of TRE plunged 71% on the Toronto Stock Exchange (TSX).

For the year, TRE has dropped 85%.  Paulson & Co. took a $750 million loss on TRE in June, according to the Wall Street Journal.

Overall, in stark contrast to last year, 2011 has so far been a tough year for Paulson & Co.  Through June 10, Paulson’s flagship Advantage Fund Plus has shed approximately 20% off its NAV, according to two WSJ sources.