James Turk on Gold: Getting Close to the Endgame

James Turk increasingly sees the tell-tale signs of the endgame for the U.S. dollar rapidly emerging right before his eyes.  Ergo, a move in gold that will “light people’s hair on fire,” as the Nostradamus of the gold market, Jim Sinclair, has predicted, moves ever closer to reality.

“What we are seeing today is just like we saw in the 1970s when hot money was flying around the world from place to place,” Turk told King World News on Monday.  “Despite the fact that the Federal Reserve is buying long-term paper, interest rates are still rising.”

And rising rates on the long end of the curve, not only have demonstrated the dangers of levering up the Fed’s balance sheet but extending its average maturity (one of the many problems with Greek sovereign debt), it’s extraordinarily costly to the Fed and those who’ve made a living front-running the Fed, a la PIMCO’s Bill Gross, who, by the way, just released his crocodile tears mea culpa address to investors on Friday.  It appears the insiders at Gross and Co. have had a bad year.

“So the high in government [Treasuries] prices is probably behind us,” Turk speculated.  “This will eventually [lead] to questions about the Federal Reserve’s solvency.  The Fed has a lot of low-yielding paper and as interest rates rise, the price of that paper will fall.”

It appears that while Turk’s legion of tin-foil hat wearers have so far weathered this year the most vicious turmoil in currencies, sovereign debt and stocks since the 2008-2009 meltdown, Bill Gross has been busy taking a bullet for the Fed (Buffett, too, from his purchase of BofA ahead of the most dreadful earnings releases for the banks in recent memory) at the expense of his shareholders.

What?  Bill Gross?  Sounds like another tin-foil conspiracy theory.

Consider the real threat of a military invasion of any OPEC nation that threatens to bypass the U.S. dollar in oil transactions.  Collectively, OPEC holds approximately 30 percent less Treasuries than the potential holdings of PIMCO’s $1 trillion.  It’s a far-reaching conclusion to support a case that Gross has not been touched by someone at the NY Fed—and at a most critical time when ‘Operation Twist’ needed a little help beyond the initial reaction to the news of its deployment.

That’s a sign of desperation, or fear, at the Fed.  As the founder of bullion storage company Goldmoney reviews his proprietary model, called the ‘Fear Index,’ Turk has not backed off from his earlier prediction of $2,000 by November 1.  But from the looks of things, gold may not reach Turk’s $2,000 target with only 10 trading days left for October, but given his widely-followed track record, reaching as far back to the year 2000, Turk can only be faulted for his intermittent flubs in the precise timing of his calls.

That precision, of course, only proves that Turk is not included in the loop of cc’ed memos following ad hoc conference call pow-wows held by Bernanke, Geithner, JP Morgan and CFTC cabal.

Besides, a review of Turk’s record for timing major moves reveals miscalculations of only mere weeks, for the most part, but more importantly and typical of Turk, it shows his willingness to stick his neck out for investors time and time again—unlike the endless lame calls made by big Wall Street firms that issue target prices 5% from present levels and on a time horizon that nearly assures a correct call.

Turk continued, “It won’t take a big jump in interest rates to cause people to question the Federal Reserve solvency, especially given the poor quality of the assets on the Fed’s books from the bailouts it has engineered.  This is all part of the the overall trend of increasing fear as part of my ‘Fear Index.’”

And that’s where the dollar dominoes are mostly likely to fall first.  In line with Turk’s belief that a dollar collapse will show up first in the U.S. Treasury market, Donald Coxe, former Global Portfolio Strategist for BMO Capital Markets (the firm of the iconic CEO Jeremy Grantham) told listeners of Financial Sense Newshour that the dollar’s Achilles heal can be gleaned from the stresses on the Fed’s balance sheet and from the participation (or lack, thereof) at Treasury market auctions.

Keeping a careful eye on the amount of direct bid take-downs by the Fed’s primary dealers in relation to the indirects (mostly central banks and the likes of PIMCO) may provide investors a heads up to the stress the Bernanke Fed feels.  Zerohedge.com does a good job keeping investors apprised of the capital flows at the Fed’s custodial accounts.

As the Fed stresses, gold moves higher.

“What we are seeing in the metals right now is the quiet before the storm, Eric,” said Turk. “These are excellent times to be accumulating gold and silver on the dips because longer-term you are going to see price levels for the metals that today would be considered unimaginable.  This is how secular bull markets work and this one won’t be any different.  It will end in a mania that will, ‘Light people’s hair on fire,’ as Jim Sinclair is fond of saying.”

Stagflation worse than 1970s, says Jim Rogers

Speaking from Singapore, famed commodities trader Jim Rogers of Rogers Holdings urged investors to run from bonds and avoid a serious knock to your purchasing power during, what Rogers believes will be, the upcoming mother of all post-WWII inflation. Sign-up for my 100% FREE Alerts!

For those who remember the ‘stagflation’ of the late 70s, now picture how the US would look after a double dose of the Arthur Burns/William Miller Fed policy of the 1970s hits the US economy today.  Times were very bad then for those holding paper assets.  And Rogers expects that we’ve seen nothing yet.

“As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds,” Rogers told CNBC on Friday, “Somewhere along the line we get to the point when (bond prices) go down.”

Between the years 1974 and 1980, consumer prices jump more than 8 percent on a compounded basis each year.  On average, the cost of living rose more than 50 percent during that 5-year period, while inflation-adjusted household net worth plunged more than the wealth destruction following the wake of the Great Depression.

Unemployment peaked at 9 percent (BLS U-3) in the Spring of 1975.  Loans were expensive and the roads were littered with older-model cars.  Stocks went no where and bonds tanked during the long decade of the 1970s.

Under a Rogers scenario, money-supply induced inflation, the bulk of it exported by the Fed, will return to US shores soon amidst a steepening decline in the dollar. Rogers insists US bonds are aching for a big fall when the dollar falls.

“I wouldn’t advise anybody to buy bonds, I would advise you to sell bonds,” he said. “If I were a bond portfolio manager, I would get another job.”

Rogers scoffs at the notion of the US mirroring the Japanese experience of multi-year low yields despite loose monetary policy from the BOJ.  The comparison is flawed, said Rogers.  The US dependency on foreign sovereign debt purchases is off the charts—it’s historic.  Japan funds a lot of its debt through exports and domestic debt purchases.

“A difference is when Japan did that they were the largest creditor nation in the world,” Rogers explained.  “America is the largest debtor nation – not just in the world – but in the history of the world and the U.S. dollar has been – and is the world’s reserve currency. So there are some factors that might not keep the interest rate down in the U.S.”

For the US to fund its ever-increasing deficits, foreign buyers of Treasuries must buy at ever-increasing rates, a situation that won’t square with a slowing global economy, a Europe engulfed in a protracted financial crisis, and in the midst of a budding trade war with the no. 1 buyer of US Treasuries (after the Fed), China.

According to Shadowstats.com John Williams, after backing out the heavily massaged consumer prices index (severely revised methodologies for calculating CPI, post-Reagan), CPI has already breached double digits.

“As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds – somewhere along the line we get to the point when (bond prices) go down.”

Rogers is looking into the future, of course.  But could the foreign exodus out of Treasuries be in progress?  It’s tough to say until the TIC data come in, but recent Fed statistics of the last 9 weeks regarding its custodial account suggest something is going on—right now.

Fed data series H.4.1 reveals that since the week ending Aug. 17, foreigner(s) have unloaded nearly $83 billion of US Treasuries, or nearly 2.4 percent or the total held by the Fed, within a 9-week period. That calculates to a 14.4 percent annualized simple rate of decline of the account, at a most inopportune time, as the Fed needs a dramatic increase in foreign participation to avoid monetizing even more US debt (contrary to Bernanke’s statements, the Fed is monetizing, though the technicality of waiting a few weeks after auction to buy debt from its primary dealer network, he thinks, allows him to fudge the truth).

Zerohedge states: “ . . . in the week ended October 12, a further $17.7 billion was ‘removed’ from the Fed’s custodial Treasury account, meaning that someone, somewhere is very displeased with US paper, and, far more importantly, what it represents, and wants to make their displeasure heard loud and clear.”

China, maybe?  We’ll wait for the TIC data.

In the meantime, the Bernanke Fed operates increasingly more in the  shadows to keep the US bond market alive—but when the Fed stops (if it does stop) buying the overhang of escalating additional debt, the bubble burst will be that much louder, according to Rogers.

“Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us,” Rogers said. “so they can drive interest rates down again. As I say they are making the bubble worse.”

“In the 70s you didn’t make much money in stocks, you made fortunes owning commodities,” said Rogers.