Servias Ministries Blog

There has substantial manipulation of gold & silver prices over the last several years and everybody knows it.  Regulators turned a blind eye to the issue until know.  Once the voters caught wind of the alleged corruption in the financial markets, the government finds it necessary to bring some of the players to justice.  Otherwise, a revolt might arise among the populous and they want to steer clear of that alternative.  The following clip is an indication of the next phase of the bull market in precious metals:

Our Heavenly Father is the source of light which exposes the truth of all things.  It appears the gold bashing is just about over and once again the ageless currency is being considered as a basis for exchange.  The IMF meeting tomorrow may catapult gold & silver to the forefront of the investing public.  We mentioned $5,000 gold in past blogs and now the mainstream is putting this number of their radar.  Silver may be the best investment since it is underpriced relative to gold.  The historic ratio of gold to silver is 30:1 which would put silver at $165 if gold were in the $5,000 range, nearly 10x of its current price.

What is a hyperinflationary depression?  A depression is a severe contraction in the Gross Domestic Product over multiple quarters.  To date, there is no consensus on the meaning of “severe”.  The Great Depression in the 1930’s is our only true benchmark for this country.  The term “hyperinflationary” is a severe increase in money supply which works its way to prices of goods and services.  There are competent statisticians who watch these trends closely.  John Williams with www.shadowstats.com is one such analyst.  He continues to calculate comparative government statistics using historically sound definitions.  If you have been following this website you may recall that Bill Clinton changed the definition of the unemployment rate.  His definition improved the unemployment picture overnight.  How convenient!  John Williams uses the raw data and calculates an “apples to apples” comparison which puts our unemployment at over 10%.  Unlike the 30’s, our infrastructure masks the severity of unemployment when compared to that era.  Broke people just don’t look broke.  Loose credit has delayed the inevitable.  In the 30’s they did not have credit cards to delay the day of reconciliation.  Banks have been less willing to foreclose on properties and book the losses on their balance sheets.  To do so might put some of them in an insolvent state.

Blogging on the economy is full of bad news that can cause fear to grip the weak at heart.  Our intent is not to spread fear but to alert you of the potential events that could adversely affect you and your loved ones.  If you are alerted to a potential tsunami, you respond by staying away from the seashore until the threat has passed.  We have spent much time and energy in making you aware of the economic threats to your household.  The time of preparation is still at hand.  We are doing our part by developing/enhancing the EDS “detoxification” technology that we believe will revolutionize family wellness.  By removing inhibitors to health and healing, the body is free to heal itself.  A trained individual with a cost-effective device could easily test family members and promote overall healthy living thus decreasing the cost of medical assistance.  Hopefully, our solution will be in place before the brunt of any severe downturn occurs.

Most of all, you should prepare spiritually.  Refresh yourself in Scripture often.  Study Love.  When things get tough, Love will direct your path just as it did for Joseph when he was in the depths of despair.  When he saw his brethren, he responded in Love.

Yesterday, we saw a 1,000 point drop before buyers came in and propped up the market with a 400 point loss for the day.  Gold closed over 1,200 on the same day.  Volatile times are ahead and we must expect days like yesterday’s volatile trading day.  The U.S. direction is running parallel to the Roaring 20’s moving into the 30’s and 40’s.  The Great Depression was followed by a World War.  Expect the war drums to grow louder.

California’s woes are 4X worse than Greece’s economic issues.  If Greece is causing this type of volatility in Europe, consider what would happen if California’s fiscal problems don’t get resolved soon.

Hope for the best, plan for the worst.

In a blog on March 13th, I mentioned several stocks that I personally believe would benefit from the coming inflation.  If one took these stocks and invested approximately $1,000 in each on March 15th and sold yesterday you would have made over 10%+ in 50 days:

MFN was down but I continue to believe in this stock.  UXG and SVM were obviously the highlights of the group.  This is a good example why you want to spread risks over multiple stocks.  There are no guarantees of performance.

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I am always amazed at the cavalier attitude of regulators who are public servants.  when Penn Square Bank was closed in the 1980’s, I knew a lady who had a Certificate of Deposit (CD) in the amount of $240,000 with the bank.  The bank was seized by the FDIC on Friday.  On Monday, she stood in line with other depositors and waited for her money.  That day she was handed a check from the FDIC for $100,000 and told that she would receive some portion of the remainder in the future.  Finally, she received about $30,000 having a loss of $110,000.  That money was hard earned, saved money for it was going to be her retirement.  She learned a valuable lesson- don’t assume that the government is going to fully protect your money.

Senior Bank Officers and Directors knew the bank was failing yet they failed their fiduciary capacity to protect depositors.  If you or I did this, we would be residing in an orange jumpsuit now.  The regulators also knew of the impending failure.  They create confidential “watch lists” to monitor these banks losing money.  Fraud is intentional deception resulting in injury to another person.

For the week ending April 30th:

This week’s losses were notable They were the largest in any single week since the failure of IndyMac Bank on July 11, 2008.  IndyMac had assets of about $32 billion and deposits of $19 billion. Its failure cost the FDIC an estimated $8 billion.

The seven banks that failed this week had combined assets of about $25.8 billion and deposits of $19.6 billion. These failures cost the FDIC an estimated $7.33 billion. Prior to this week, the FDIC’s estimated losses from 57 bank failures in 2010 stood at about $8.6 billion. This week’s failures practically doubled that figure, to $15.93 billion.

According to an AP article, the FDIC’s deposit insurance fund “fell into the red last year, hitting a $20.9 billion deficit as of [Dec. 31, 2009].” With this year’s losses, the fund’s deficit has grown to at least $36.8 billion. In addition, the FDIC has a huge exposure for worse-than-expected losses on some $165 billion of assets taken over by acquiring banks. See: http://finance.yahoo.com/news/Banks-closed-in-Puerto-Rico-apf-1507617949.html?x=0&sec=topStories&pos=main&asset=&ccode

That wipes out the $45 billion the FDIC announced it was going to raise by requiring banks to pre-pay premiums for the period, 2010 through 2012. Obligations of the FDIC will soon become obligations of the U.S. taxpayer, adding further to the federal deficits.

FASB Valuations

Each of the FDIC’s press releases provides vital information about the true market value of the failed banks’ assets versus the values assigned them by bank management. This gives some insight into the extent of over-valuations across the banking sector in the wake of the Financial Accounting Standards Board (“FASB”) having suspended fair value accounting rules last year.  The FASB’s compromise in the area of valuations has given bank management far too much leeway to value assets at levels far beyond what they could fetch in the open market, resulting in banks’ balance sheets becoming increasingly less reliable indicators of their true financial health.

Bank Closure Details:

Westernbank Puerto Rico of Mayaguez, Puerto Rico, had stated assets of $11.94 billion and deposits of $8.62 billion. On paper, it was an extremely healthy bank; yet the FDIC’s loss estimate for its closure is $3.31 billion. Based on that estimate, the real market value of its assets is only $5.31 billion. Bank management had over-valued these assets by 125%.

R-G Premier Bank of Puerto Rico of Hato Rey, Puerto Rico, had stated assets of $5.92 billion and deposits of $4.25 billion. The FDIC’s loss estimate for its closure is $1.23 billion. Based on that estimate, the real market value of its assets is $3.02 billion, and had been over-valued by 96%.

Frontier Bank of Everett, WA, had stated assets of $3.5 billion and deposits of $3.13 billion. Its loss estimate is $1.37 billion. Based on that estimate, its assets are really worth $1.76 billion, and had been over-valued by 99%.

Eurobank of San Juan, Puerto Rico had stated assets of $2.56 billion and deposits of $1.97 billion. Its loss estimate is $744 million. Based on that estimate, its assets are really worth $1.226 billion, and had been over-valued by 109%.

CF Bankcorp of Port Huron, MI, had stated assets of $1.65 billion and deposits of $1.43 billion. Its loss estimate is $615 million. Based on that estimate, its assets are really worth $815 million, and had been over-valued by 102%.

These bank failures are being reported free of any allegations of fraud or even negligence on the part of bank management. Absent any such allegations, it stands to reason that these over-valuations, ranging from 96% to 125%, are considered to be in line with reasonable accounting practices sanctioned by the FASB at the time it suspended fair value requirements.

Do you think that this is an isolated practice among these banks?  Be vigilant!  It looks like they’ll be cutting down a forest to supply enough money to cover all of the losses.  Oh, by the way, there are banks being closed every week.

On April 19th, Oklahoma City honored the victims of the Murrah Bombing which occurred fifteen years ago.  This tragedy rallied the people of America and brought forth a unifying affect across the country.  Pearl Harbor and the World Trade Center disasters had the same effect.  In those cases, the country went to war and brought forth a requirement of personal sacrifice.  According to the Washington Post, 5,425 military personnel have died in the current wars in the Middle East.  37,467 soldiers have been wounded in action as of this week.  After all of this along with $990,000,000,000 expended on the two war fronts, Osama Bin Laden is still out there.  See: http://www.costofwar.com/

Another 7 banks were closed by the FDIC on Friday with an estimated cost of $7.33 Billion, an optimistic number (you better double it).  33 states are on the verge of bankruptcy and the largest U.S. investment bank is being investigated for criminal intent.  Although the media is not acknowledging the ground swell of discontent, there are many voters who are staging demonstrations against the current direction of government.

What do the think tanks think?  There is already talk of a valued-added tax (VAT).  I was first exposed to VAT during my first trip to England in the 1980’s.  I bought a souvenir and the tax added about 25% to the price.  What???  I felt that I was bamboozled.  How can you get Americans to agree to a VAT?  It sounds like we need a “Black Swan” event to take our minds off the dismal economic picture.  A catastrophic event would bring out our compassion for our fellow man and while we are focused on the human suffering and healing/recovery, a VAT could get passed at midnight on a Sunday night while we’re all in Church.  Am I a conspiracy theorist?  No, I just read and study history and understand man’s failed state when he operates in self-interest.  Greed causes men to rationalize their actions for the “greater good” which always includes them at the top of the ‘greater good” recipient list.  We have been consistently warned in the news media of the potential for another terrorist attack on U.S. soil.  However, each of us must trust Our Heavenly Father to protect us from the ways of man.

The only solution to all of the muck and mire is Love.  Hope by itself will not get us there.  Faith without Love isn’t enough either.  Love eliminates the self-interest motivation and moves the focus to helping others.  It converts our enemies to friends, it reconciles separation!  When Love is backed by the power of the Most Holy Spirit, nations change.  This must be our prayer.

Below is an example of the discontent among the citizenry:

As a parent with two kids, I understand equality.  Each child is unique but our goal and challenge is to treat each child with an equivalent expression of love.  This takes on various aspects including the economic arena.  College education is the classic financial challenge in a family.  We want the best for both children but one will finish college and the other won’t.  Economic inequality ensues.  How do you help the child that did not complete college and maintain some level of equivalency?

Greece is in trouble.  Their socialist spending patterns causing a less motivated population to “coast” through life is now coming back to haunt them.  On the other side, the Germans have sacrificed and are extremely productive.  The Germans are expected to bail out the “slothful” nation of Greece and they are not happy about it.  Why rescue a nation who will simply continue to do the same thing that got them into trouble in the first place?

California, New York, and Michigan are in similar financial straits.  For those living in other states, we have known for some time that California’s economy was somewhat of a fairy tale.  Stories of how the housing costs were 3 to 10 times the cost of housing compared to the heartland caused many of us to wonder how long this disparity could continue. 

In the 1980’s, the Southwest went through a boom and a bust because of energy prices.  Housing prices dropped 45% during this period.  Penn Square Bank went from a sleepy shopping mall bank to a major energy lender and took down a few financial center banks when the energy industry went bust.  The Federal Government decided to make the region pay for its mistakes.  There was no bailout money for banks in the area nor was there any assistance for businesses.  We simply had to survive the economic bust as best we could.  All of the otherwise incompetent bankers and businessmen were sifted out of the management arena and they went back to their previous job classifications.  During the boom, it was like the Wild West for energy companies.

Now the shoe is on the other foot.  People from states who lived within their means will be expected to bailout the states who have been riding high in the economy over the last 20 years.  Oklahoma’s constitution requires a balanced budget and this prevents lawmakers from spending money they don’t have.  Sure it is painful when there is a drop in revenue but we don’t delay the pain in hope of a better day.  Delaying the inevitable only creates a monster.  There’s an old saying: “Take you pain early and there will be less pain!”

Mankind has been so focused on “things” and entertainment, they have failed to understand financial accountability.  The Great Depression guided our parents into a “saving” mentality and they took nothing for granted.  If you don’t have the cash, you don’t buy it.  We were a nation of savers.  Now, we are a nation of debtors.  Who do we owe?  Other countries.  When will we pay off our debt?  No time soon.  This prevailing attitude has dug us into an insurmountable hole and will require of us tremendous pain.  The states will fend for themselves and there will be many battles with the Federal Government and its attempt to make states pay for others’ poor fiscal policy.  Voters will vote their pocketbooks and remove those who attempt to saddle them with unfair tax burdens.  Money spent on excessive entertainment is now a memory.  The big boy toys are now tagged for the next garage sale.  Was mortgaging our future worth the temporary pleasure?  Repent!

It was only a matter of time before the banks would create wagers against states such as California, New York, and Michigan.  The latest derivatives are called municipal credit default swaps.  JP Morgan Chase and Citibank are both offering these bets against the states and other municipalities.  The problem with these derivatives and any other similar instrument, is that they are unregulated and are only as good as the capital of the entity on the other side of the transaction- similar to a bet.  If the bookie accepts a bet with a person, he expects to be paid if he wins.  Otherwise, he sends his “enforcer” to collect.  These banks continue to play with taxpayer money  since they would once again be bailed out if they lose too much capital.  Betting against California’s ability to repay a municipal bond is no different than betting on tomorrow’s basketball game, only the stakes are higher.  Any increase in price of these derivatives will signal to bond traders to demand higher interest rates for these bonds thus creating a death spiral.  California’s woes are greater than Greece but most of the focus has been in Europe until now.

See: http://www.huffingtonpost.com/2010/04/27/banks-bet-against-us-citi_n_553891.html

When greed is left unchecked, financial chaos will ultimately prevail.  Only by changing the law will banks no longer “double dip” by both selling municipal bonds and derivatives that promote the default of the very same bonds.

The cascading waterfall effect of a stock price chart is triggered by an inflection point in the markets.  Everyone expects the US Dollar to decline but it’s anybody’s guess on how and when.  The hope is an orderly decline over multiple years yet the global markets cannot be government controlled just as an elephant cannot really be controlled by a mere man with a stick.  The elephant allows his “master” to have his way until the elephant simply decides to do something different.  Governments attempt to paint an acceptable picture to the markets so as to control their direction and response.  This will only work until the markets smell “blood”.

Banks continue to act as hedge funds and speculate in the market and at the same time provide great resistance through the Washington Lobbying machine to keep restrictions from forcing them to once again be a banking industry that serve the common man.

Gold is a hedge against the mismanagement of the “economic system”, not a hedge against inflation.  When politicians continue to make decisions promoting self-interest, they undermine the productivity of the country and push it towards destruction.  As the confidence in the future growth of true productivity and capacity wanes, gold becomes the store of value to protect against the mismanagement.  Once you are convinced the policies will result in the destruction of infrastructure, personal savings, and reinvestment, you must discipline yourself to sit on the sidelines and wait for the ship to sink while guarding your wealth from being swept into the fracas.

The fundamentals of stock investing do not take into account of an outside force impacting the stock.  For instance, the oil embargo impacted energy sensitive stocks but could not be accounted for in the fundamental analysis of the stock.  The recent volcanic eruption costing the airline industry $2 Billion in revenues could not be foreseen in the decision to acquire transportation stocks.  The volatility of world events are forcing investors to add “insurance” to their portfolio in terms of precious metals and related mining shares.

Below is an inflation adjusted graph of the price of gold.  The point of this graph is that gold has not yet hit the record $850 achieved in 1979.  It would have to surpass $1775 to break the inflation adjusted record.

During the time of the Carter Administration, high interest rates solved the problem that parallels today’s environment.  However, never in the history of this country has the debt burden outlook been so severe as it is now.  It all but insures that Obama will be a one-term president.  He has few options that are palatable among voters.  An orderly depreciation of the US Dollar is the optimum solution but the markets and our creditors are not going to sit on the sidelines while their investment in US Dollars is depreciated away.  At some point, a big player will head to the exit with others fighting their way to the door.  The last one out will be the ultimate loser and it may just be the U.S. citizenry.  If this Black Swan event happens, %5,000 Gold will be on the radar…

Add 32 million people to the healthcare system without the necessary additional infrastructure to handle them and what do you get?  A disaster.  It takes a minimum of eleven years of schooling to become a primary care physician.  Many of the uninsured have pre-existing conditions already and physicians are going to order enough tests to minimize their legal exposure.  Healthcare costs will exceed estimates thus causing further damage to the economy.  Many doctors will retire early and further exacerbate the shortage.

Nearly five years after conventional peak oil and the population still does not get it.  Thank the media and legislators who continue to shove the problem into the future.  $85 oil is a warning sign.  Automobile sales in China in March jumped up 55.8% year-on-year to a record 1,735,100 units.  China pushed past the U.S. to became the world’s largest auto market for the first time last year as vehicle sales rose nearly 50% to 13.6 million units, due in large part to government incentives.  China’s overall vehicle sales could rise to 16 million units this year if demand continues to grow.  Total auto sales in the U.S. fell 21% last year to 10.4 million.  Many of China’s sales are to first time buyers, new users of oil.  Unless something happens unexpectedly, oil will rise to $100 soon.

Sovereign bond rates for Greece jumped to 7%.  The Eurozone is trying to keep the wheels on the wagon but this is symptomatic for municipal debt around the world.  California is worse off than Greece.  Major banks still have those bad debts on the books at cost rather than market value thanks to the Financial Accounting Standards Board (FASB).

The stimulus dollars of 2009 have just about run their course.  Unemployment remains stubbornly high since Main Street has not enjoyed the stimulus as other sectors of the economy, mainly government.

Definition of “Dollar”:  371.25 grains of silver (from Spanish milled dollar) or the value thereof.  This is the definition referenced in the Constitution of The United States.  Federal Reserve Notes are not “Dollars”.  Is this misrepresentation or fraud?  The Law of Biblical weights and measure are being broken.

The budget deficit is $1.9 Trillion and will get worse.  With an aging population moving to retirement, promises of Social Security and Medicare will either bankrupt the country or the recipients, or both.  The current pension shortfall is north of $3 Trillion and who will step up to bail this sector out?  The day of reckoning will arrive and will probably occur over a weekend.

Since 2000, gold has had an average annual appreciation of 17%.  Name another investment during this period with this performance.  The media has not reported on this success because it is an indictment against the Dollar.

These complexities are moving toward a “collapse” scenario and each of us needs to seek Our Heavenly Father for personal direction of preparation for change.  HE knows what, where, when, and how… nobody else has a clue!