Servias Ministries Blog

For the past few years I have been a “watchman on the wall” for the readers of our blogs.  The readers were told to expect gold and silver to move notably higher, warned of a Great Recession, and warned of the financial system’s stress due to toxic mortgages.  As we know those events are now in play.  With the latest reporting of the legal battles erupting all over the country, expect gold and silver prices to become volatile with possible $100 swings in gold within a 24 hour period.  Yesterday, I saw “Wall Street, Money Never Sleeps”.  This movie provides a stark view of the way Wall Street thinks, acts, and responds.  Oliver Stone captured Wall Street’s essence and arrogance when Michael Douglas proclaimed “I used to say ‘greed is good’, but now I must add ‘greed is legal too’”.

Anyone who has ever reviewed an abstract or county courthouse records understands the requirement for “chain of title”.  Property rights in America are based on a well-recorded history of the chain of title.  We buy title insurance to insure that we have clear title to our property so that nobody can come back and legally take our property away due to some failure of proper recording of a deed.  This includes error and omissions of legal descriptions, names, etc.  This is where the ugliness begins.  For an in depth understanding, the following video is a must: http://market-ticker.org/akcs-www?post=168528

Bankers have received a “cease and desist” order to stop foreclosures in several states because of this problem.  What about those of us who have paid our mortgages?  Has the recipient of our interest been collecting it illegally, without a note to back it up?  That is another issue in itself.  If I were to demand the lender to prove his legal position to collect interest in a court, could he?  This sloppy handling of paperwork could work its way up the food chain rapidly if bloodthirsty attorneys began building a class action suit against the perpetrators of the greatest fraud in American history.  Could this be the tipping point I’ve been writing about in the last several months?

As confidence diminishes in the U.S. economic structure, the dollar will get hammered.  Hot money moves around the globe at the speed of light.  This sets the stage for extreme volatility in the gold market.  I would expect to wake up some morning and find that gold has jumped $100+ overnight in other markets whereas silver might jump $2 in a single trading session.  At some point, investors will see that they can leverage their investments by investing in gold and silver mining stocks.  Currently, the stocks have been lagging the metal marketwise.  Once John Public figures this out, I expect the stocks to outperform the metal.  Professionals see this as phase three of the bull market in precious metals where big money is made as prices skyrocket.

When do you sell?  I suspect we have a long way to go before the resolution to all of this monetary meltdown is resolved.  Until then, volatility will be the name of the game.

"There hasn’t been an empire in the history of mankind that has given away its wealth and its power base like the United States is currently doing. What are you doing? You’ve got 20% unemployment, you’re trying to bailout out the Chinese, you’re trying to bailout the Indians, you’re trying to bailout the Middle East, and no peace is arising you’ve got wars still everywhere. So what are you doing? Why are you allowing this huge transfer of your wealth to these other countries, who, I promise you, from and international perspective, are laughing."

Manduca does a fine job in explaining the global issues that will fuel the price of gold to much higher levels:

Remember when “flipping” houses was the hottest investment around.  Just go down to Florida and buy a condo, put it back on the market at a higher price and wait.  If you had a good credit score and reasonable cash flow, you could leverage up dramatically thus generate much greater profits.  60 Minutes interviewed a young man who did that in Phoenix.  He had in excess of 10 houses and he had no true prior business expertise.  After a short period of time, he was a millionaire on paper.  All that is history now.  The Federal Government is now subsidizing a broken business model of debt and leverage.  Ben Bernanke is prepared to take interest rates “negative”.  That means you will pay to keep your money in the bank and that is a scary thought.  The longer the government subsidizes the broken business model, the worse the outcome.

We do not have a free market but an interventionist market instead.  When you have this type of market, you can throw out most of your economic assumptions and past comparisons.  The intervention perverts the normal technical analysis of markets.  The Fed and others thought we could borrow our way into perpetual prosperity.  Wrong!  There are now doubts about the fiat currencies’ continued viability.  The issue with fiat currencies is that their problems are serious and complex.  Nobody is certain about the total liabilities tied to these currencies.

We are now moving into the endgame and it is high risk.  The potential of the destruction of currencies is real and the probability is rising rapidly.  The destruction could occur within a few weeks’ time and the Central Banks’ balance sheets could balloon by a factor of 20,30, even 50 times the current size.  At that point, the currency is “toast”.  Interest rates would rise dramatically and bust the bond market where investors would lose billions if not trillions in value.

The subsidy of debt with fiat currency is forcing all fiat currencies downward relative to the price of commodities, specifically gold and silver.  This is why both metals are achieving fresh highs in their prices.  For the gold & silver prices to fall, the central banks would have to get religion and increase interest rates substantially to prop up their currency.  Don’t expect that to happen soon with the sustained unemployment numbers.  If China revalued their currency by 20%, millions of Chinese workers would lose their jobs and their central government will not take the risk.

There are no consistent rules in today’s economy.  The savers are “loaning” banks money at virtually 0%.  Does that mean that their money has no value? Preposterous!  The banks are turning around and loaning that money at 6%.  Whose interest does the government have at heart?  What “public” are they serving?  Someone is living a lie and it may be the entire American structure.

The average investor incorrectly thinks we are a capitalistic country.  In the U.S., we operate as socialism at the top where interest rates dictated and the government intervenes in the markets.  At the bottom, we have fierce competition for jobs.  The socialistic top structure will fail.

The U.S. has sent low paying manufacturing jobs overseas over the last 30 years which converted us to an asset based economy.  Those low paying jobs are now developing into middle class jobs but they are not here in the U.S. but in China and other developing countries.  Our productive capacity continues to decline thus our future value will decline as well.

We don’t know what would have happened in 2008 if there had not intervention in the financial markets.  GE would have probably bit the dust.  Several large banks would have evaporated.  As long as there is intervention by the Fed, we will not go through deflation because their mandate is inflation.  This is the reason you are seeing new highs in gold and silver almost on a daily basis now.

“Greed is the root of all evil.”  Yes, I know we have heard that the “love of money” should start the sentence but the translators could have easily replace the phrase with the word greed.  Greed is an excessive desire to possess wealth or goods and it also known as known as avarice or covetousness.  The last three of the Ten Commandments in Exodus 20 dealt with greed:

15 "You shall not steal.

16 "You shall not bear false witness against your neighbor.

17 "You shall not covet your neighbor’s house; you shall not covet your neighbor’s wife, nor his male servant, nor his female servant, nor his ox, nor his donkey, nor anything that is your neighbor’s."

The title of the blog is a quote from the new movie WALL STREET: Money Never Sleeps and features a man named Gordon Gekko who epitomizes the Wall Street mentality.  In the original 1987 movie, Gekko proclaims “greed is good”.  In this sequel, he now adds “greed is legal”.

Greed is what put the U.S. in its current economic recession (or depression if you are without a job).  The Wall Street banksters managed to lobby Congress and get the laws changed, repealed, or watered down to the point where greed could take over in reckless abandon.  We may find that there has never been a point in this nation’s history where the greed of a few has had such a disastrous impact on so many.  Greed found a way to exploit the covetousness of the average person wanting a bigger, nicer house, car, or trappings.  This greed got kicked off in the early 80’s with changes in the law over the next 20 years.  This greed is found throughout Scripture.  The greed of inheritance surfaces when Judah wanted to remove Joseph from the scene in Genesis 37.  Judah was in line to receive the cherished inheritance from Jacob but Joseph’s dream indicated otherwise.  Judah needed to insure that Joseph’s dream would not come to pass.  His spirit of greed rose up and took action.  Nobody was going to take his inheritance away.  He did not trust in the Word of the LORD so he felt he must take immediate and decisive action.  Get rid of the kid!  Is today any different?  How many first or second hand stories do each of us know of where the inheritors ravage through the house and belongings of the parent who has died?  Inheritance can bring out the root of all evil.  On the other hand, Love exposes this evil and can pluck it out by its root.

“Legal” greed is going to take down the economy of this country unless it plucked up by the root.  Passing new laws to confiscate personal wealth is a form of greed by lawmakers to perpetuate their paradigm of power.  Lowering interest rates to transfer wealth from the savers to the banks is another form of greed.  The banks lost money in their greedy quest for bonuses and now the hard earned money of the savers of this country will re-liquefy the very banks that need to be shut down.  As fruit inspectors we must conclude that greed is indeed legal. 

I have been associated with the technology field for nearly 40 years.  It used to be an 8 to 5 job but is now 24×7.  Our misassumption is that technology will improve our lives but I beg to differ.  It will certainly change our lives but it will also put us at risk of loss on all fronts.

Some of us remember when our cars could be fixed without a computer, no longer true.  Three networks on TV were enough, 150+ channels is the new standard.  We can now be entertained 24 hours a day without getting off the sofa, except for bodily input and output.

Our fascination with technology and its expanded application will enslave us soon.  We are putting our trust in a paradigm perception encapsulated in safety which forms a target for techno-soldiers.  We buy all of this technology without considering the safety factor or assuming there is some type of protection built in.

We don’t want to sweat or stress so we apply technology to eliminate biological transport and strengthening systems that Our Heavenly Father created.  Sweat removes toxins and stress builds muscles and maturity.  We want a technologically enhanced life of ease with all of its trappings.  Our assumptions are our weaknesses and they will be exploited by predators.

We all assume hackers simply want notoriety but this is a simplistic view.  Serious hackers want to exploit technology weaknesses without the user realizing anything has occurred.  This complacency will be exploited and may prove to be newest form of control, war and terrorism.  See: http://news.yahoo.com/s/csm/20100921/ts_csm/327178

One in seven Americans is living at poverty levels which equates 43.6 million people.  This number does not account for the underground cash economy.  Some of these people are not reporting cash payments and are evading the tax system.  By doing this, they do not contribute their share of social security and the tax structure of state and local governments.  They consume the services but avoid paying their share of the costs.  On the other hand, wage destruction of those who are not yet classified at the poverty level would probably offset those who avoid taxes.

Declining interest rates are now moving toward diminishing returns.  When interest rates move lower, the monthly payment difference is not as great as it would be if the rates were above 7-9%.  For instance, a $100,000 loan moving from 7.5% to 6% would save about $100 per month.  From 6.5% to 5% saves $95.  When comparing the savings to the closing costs and upfront cash requirements, the incentive and the ability to lower monthly borrowing costs is reduced.  Couple this with many Americans’ change in credit score and monthly cash flow, you find that lower rates are not functioning as the Federal Reserve had expected.

Energy prices remain high while the American economy suffers.  Why?  The developing countries such as China are taking up the slack in American demand for oil and other sources of energy.  China is now the largest new car market in the world.  Increased commodity prices will translate to higher inflation in food and energy prices.

Home foreclosures are up 25% over last year and home construction is in the tank.  It appears that the weak recovery has just about run its course.  Locally, our economy is in better shape than most but new construction reflects the national trend.  People are pessimistic about the future and are rethinking all purchases.

Savings rates are dismal.  The problem is that there are no truly safe alternatives to cash at this point in time except for gold and silver.  The Fed has reduced rates to benefit the banking system thereby transferring wealth from the savers to the bankers.  The banks enjoyed the profits in the past without the exposure of the offsetting risks of loss.  How sweet it must be!

Gold has hit a new record high.  For those reading the blogs at this website, we have been predicting this event for some time.  NBC Nightly News is now reporting on gold as an investment.  This signals an increase in public awareness which typically causes an increase in overall demand.  The result is higher gold  (and silver) prices.

It wasn’t that long ago you could eat lunch for $5 at the local sandwich shop.  Now the price point is $6.50.  This 30% increase in prices is not reflected in the government numbers but the average citizen feels the pinch.  Utility bills continue to rise and exceed the meager wage increases that employers can pay.  All of this combined causes consumer frustration.  How can the average person save for retirement with all of the stiff economic headwinds.  To some, these are hurricane winds.

Complexity promotes diminishing returns.  The automobile is a great example.  In the 1960’s, I could replace the starter, alternator, and thermostat.  Today, the engine has become too complex for the average person to tackle auto repair.  Special tools are required that most of us don’t own.  Now where do these extras parts go?  Yes, the extra gadgets are great, your buns can be cooled in the summer and heated in the winter by those new seats but at what cost!

Over the last 50 years, we have enjoyed improvements in the comforts of living.  All of this was built on cheap energy.  Those days are coming to an end.  Our infrastructure promotes energy consumption, not conservation.  There are those who point out cheap alternatives but the capital costs and the time frame to make the transition are substantial.  Also, the corporate will to change has not yet manifested.  The Tea Party has surfaced to reflect the “anger” cycle of loss.  Loss of what?  The way of life we have come to expect.  We are no longer in denial of the problem.  Next comes the sadness then followed by acceptance.  At that point will new leadership rise to guide us in the right direction.  Could it be the glorified sons of GOD?

The following describes the downward spiral of the commercial real estate contraction:

1. Less consumer traffic forces marginal retailers to close once they have liquidated their merchandise at distressed prices.

2. Distressed prices redirect consumers away from the stronger retailers moving them toward marginal business levels.

3. Further price erosion occurs in an attempt to regain volume, especially among the large retailers.

4. Malls and strip centers increase their vacancy rate and reduce their rental income placing pressure on cash flow to support existing borrowings.

5. Landlords walk away from properties and loans (in most states)

6. Stronger properties reduce their lease rates to attract or keep occupants.

7. Banks now have more toxic assets.

8. Banks reduce their exposure to commercial real estate.

9.  Existing properties begin to deteriorate.

10. Consumers stay away from deteriorated malls and strip centers.

11. Remainder of occupants move to better, cheaper locations.

12. Contraction of spending increases unemployment thus starting the process over again (#1)

See:  http://articles.latimes.com/2010/sep/11/business/la-fi-melrose-avenue-20100911

How do you stop the spiral downward?  It will be painful.  Retailers will be closely watching the Christmas spending season this year.  Could the 1/11/11 date see a massive correction?

The next five years (2011-2016) have a high probability of a national if not a global crisis.  The globe is headed towards an economic cliff and the challenge is that no one knows “when” we will arrive.  Those in power simply do not know how to fix the economic problems and are now beginning to admit this reality.

The Federal Reserve is committed to inflation.  They will print as much money as possible to keep deflation from occurring since there is no gold standard to hinder them.  This will increase the price of commodities priced in U.S. Dollars.  Other countries will defend themselves by printing more of their own currencies.

“The U.S. is bankrupt, neither spending more nor taxing less will help pay its bills”  The real debt of the U.S. is 22 times the official debt declared by the government.  In order to survive, we must radically simplify our tax system, healthcare system, retirement system, and our financial system.  Tax revenue is currently  14,,9% of our Gross Domestic Product (GDP) and to survive, we must double the tax revenue on a permanent basis.  Is it possible to do this without collapsing the economy?  No!  The alternative is to immediately cut spending.  There are about 80 million baby boomers in the U.S.  When they are fully retired (within 20 years), the government is committed to paying them about $4 Trillion per year in Social Security, Medicare, and Medicaid payments.

There are three ways to deal with this issue: heavy taxation, decreased spending by reducing benefits, and printing more money thus devaluing the currency.  Those is power will do all three.  Other countries will suffer as well since they are interconnected with the U.S. economy.

Complexity allowed our financial system to become corrupt.  It is riddled with fraud and and those assets have been classified as “toxic assets”.  The government knows it, the banks know it, and the public knows it, but nobody wants to really admit it.  Living out this illusion will prove to be one critical aspect of the coming crisis.  The “too big to fail” policy is simply a “get out of jail free” card.  Independent verification of appraisals, income statements, and disclosures did not occur.

We need a new system.  Taking from the young and giving to the old is a ponzi scheme.  When the life span of the elderly was much younger, this was not a problem.  However, increased life spans has brought this scheme to light.  This scheme is now in its latter stages where the money runs out.  When will it crash?  That is the $202 Trillion question.

A complex system hides the fraud and the truth about our fiscal situation.  If we don’t simplify our system and expose the truth about our issues, we will surely experience a disaster and collapse.  Will we take our pain early?  The current generation is pretty immature and will probably try to delay the solution as long as possible.  This will cause the crisis to be more severe.

The baby boomer generation has fueled the use of credit for the last 40 years and that is now changing.  The prime means of increasing wealth was through the use of leverage: borrow as much as possible to buy the biggest house because it will increase in value.  The problem was the “end game”.  What do you do with your big asset?  Sell it and buy a smaller house and bank the profit for a retirement nest egg?  It seemed like a good plan at the time.

The Law of Familiarity 

How many of us want to live in Hawaii?  The problem is that once you have spent a substantial amount of time in a locale, it becomes familiar and much less exotic.  Each sunset is less of a surprise and no longer tweaks the senses.  The same is true when buying a larger house.  Once the newness has worn off, it is simply a larger asset to maintain.  Less is now more.

Looking Inward

Once all of the big boy toys have lost their appeal, baby boomers will look inward and reassess their priorities.  After all, we can’t take our toys with us when we die.  I believe this collapse of credit will bring forth an awakening of mankind.  Our priorities will shift from material to spiritual.  People will become important again and relationships will once again be a priority.  This will usher in new revelation rather than reviving old revelation and our understanding will be expanded after the idols have been disposed of.

The Fallacy of Assumptions

Over the last five decades, financial assumptions of asset appreciation have served many Americans well.  That is about to change.  Housing may not be the investment it once was.  Granted, everyone has to live somewhere but your house may not hold your retirement funds you were counting on.  Being out of debt with a house that is paid for contains an inherent return on investment (ROI).  You are “making money” by simply not paying rent or a mortgage payment thus you need less money to live on and also will have less tax burden to support.  Those that see the fallacy of more and bigger “things” will position themselves well in the coming economic change.

The Expense Annuity

Many boomers will focus on recurring monthly expenses and energy consumption will be at the top of the list.  Your monthly utility bills are like financial “black holes”.  Once that money is gone, it never returns.  Minimizing monthly recurring expenses will move to the forefront of boomers’ minds.  Energy efficient windows, insulation, and other measures will provide entrepreneurs with a notable growth opportunity.

Gold and Silver

The gold price is flirting with a new all time high.  As the uncertainty continues, more investors will put gold on their radar.  As of late, silver has been leading the way in price appreciation.  Related stocks stand to gain from this price strength.  Physical assets are replacing paper assets as the best store of value.

Inflation or Deflation?

How about both!  It depends on your perspective.  Price deflation of “toys” and McMansions is likely to occur as the attitude and focus of the boomers change and the velocity of money is reduced.  However if the Fed persists in printing more money, inflation will force up prices in food and other necessities of life.  Food, shelter, and clothing are needed no matter what the environment.

The credit “traps” of the past have been uncovered.  Tax credits to increase our borrowing are no longer the incentives they once were.  People are tired of being servants to the lenders.  This servitude has caused many to grow weary.  This fundamental “megatrend” change will create a brave new world.

What a journey!

My near-term target for gold has been $1,600 for some time.  Now, the mainstream press is hopping on board with widely read stories:

http://www.bloomberg.com/news/2010-08-30/gold-rallying-to-1-500-for-analysts-as-soros-s-bubble-inflates.html

Ben Bernanke has assured us that the Fed will print more money to deal with any potential deflation.  That provides plenty of steam for gold and silver to continue their rise.  Gold and silver stocks continue to benefit from the market prices and are still lagging in their stock prices.  Producers are building cash balances that will allow them to acquire smaller producers.

I continue to expect the second leg of the double dip “W” recession and suspect it will be deeper than the first, based on real statistics.  Investors looking in the rearview mirror may be in for a big surprise in the bond market has a large correction.  If this occurs, it may be the tipping point of a new era.