Servias Ministries Blog

Gold was down $104 at the time of this writing and this correction was not unexpected.  As the market jitters increase, I expect large dollar moves in both directions.  I also expect those in power over trading account regulations to increase margin requirements on gold and silver traders in an attempt to lower market moves upward.  The Gold Barometer may work against Ben Bernanke once he discloses his plans at Friday’s Jackson Hole speech.  I suspect details will surface after the markets close on Friday.  Another round of quantitative easing is sure to come forth during this election season.  Politicians will not hesitate to start the money printing presses to get reelected.

My next intermediate target for gold is at $2,400 now that $1,600 has been passed.  Today was a good day to add to positions on the mining stock side for those who understand the risk of investing.  I have a great concern for those who are unprepared for the storms ahead.  Many of us will be called to minister peace during the expected economic turbulence.  A transfer of wealth differs from a transition of wealth or power.  Those who lose the wealth will not be happy campers.

My Panera Barometer is on the move.  Let me explain.  A colleague and I have periodic lunches at the same Panera Bread café located half way between our two offices.  We both order similar lunches each time and thus are accustomed to the total amount of the ticket.  Panera  has just increased their prices by 5% across the board and other local restaurants are doing the same.  This is occurring all over the product spectrum.  As a matter of fact, John Williams’ Shadowstats.com reports July’s Annual Inflation: 3.6% (CPI-U), 4.1% (CPI-W), 11.2% (SGS).  SGS’s (Shadowstats Government Statistics) 11.2% is based on the pre-1990 government method of calculating inflation.  They continue to report the raw numbers that allows John Williams to calculate an accurate comparison.

Because of the interconnectedness of the global financial network, money flows in microseconds around the world.  Lately, the Swiss Franc has gained favor among investors for safety reasons.  The problem is that the demand for their currency causes the currency price to go up making their exports more expensive and reduces demand.  This forces the Swiss central bank to print more Francs to lower the exchange rate.  Nobody wants their currency to be too expensive.  The result is a currency war.  Since there is no international gold standard, central banks can simply fight it out with money printing, flooding the market with more dollars, francs, yen, etc.  However, the commodity prices will reflect this inflationary spiral with gold being the primary barometer.  This is why there is such focus by governments to manipulate the price of gold, and to a lesser degree the price of silver.

If we took the amount of gold the U.S. Government claims to have and calculated the ratio of U.S. Dollars to gold reserves. gold would need to be at an official exchange rate exceeding $12,500.  This in turn would pull the silver price up with it.  Underlying precious metal stocks would appreciated in value as well.  On the way up, the average investor would finally enter into the precious metal investing space.  Result?  A parabolic rise in prices and return on investment for those who invested early.  What could keep this from happening?  A global depression.  Investors would sell anything (including gold and silver) to eat and survive.  When the market drops, leveraged investors have to raise cash by any means including selling their good investments such as gold and silver.

This decade is going to be a wild ride for investors and those with heart problems will be stress-tested.  Maalox stock should go up due to the high demand.  Investors may find “religion” soon.

On 11/11/10, I shorted the market with “bear”  leap call options.  Don’t worry about understanding the trade but understand if the market goes down, I generate a profit.  I closed out my position yesterday with a handsome return.  Unlike most investors, I slept like a baby last night.  Gold blasted through new highs and is up again as I write this blog.  Our investments have no debt attached and we have been simplifying our lives and eliminating our debt.  The U.S. on the other hand has been doing the opposite.  More debt, more complexity, and nobody to control the runaway train.  Two major drops in the market within days looks ominous for many of the baby boomers hoping to retire.  Where is that Walmart application?

Gold is coming to the forefront of the mainstream media… at last.  I tuned into CNBC to catch the market opening for the first time in years and the fireworks started early:  Market down, Gold up.  Silver is a laggard but will catch up as investors start looking for safety on a large scale.  Many junior gold & silver producers were down with the market yesterday thus I was a buyer with my profits from the option trade.  By the way, that trade was down 80% at one point so it is not for the feint of heart.  I simply held tight to my convictions that the economic illusion could not keep the market propped up forever.

Inflation is running at over 10% according to SGS-Alternate CPI (John William’s Shadowstats.com).  This number is based on the 1990 U.S. Government calculation method.  This means that if you had $10,000 of purchasing power one year ago, it will only purchase $9,000 of equivalent value today.  Uh-oh.  If the government used this number in calculating Social Security payment increases, the recipients would be smiling with bigger checks but the fund would go bankrupt sooner.  Interest rates would be at 7-10% and the National Debt would be growing faster due to higher interest payments.  Get the picture?

Investors are getting anxious about whether to ride out this market or cash out and take the losses.  There is no win-win scenario.  They can see the edge of the cliff and fear is gripping them.  What’s the answer?  Busting the illusion bubble and dealing with the reality of where we are at.  We must repent of our sins and seek Our Heavenly Father who has the solution to our national woes.  Love must be at the forefront and must be the motivating factor of our actions.  The lies and manipulations must cease.  The blindness of the masses must be replaced by  revelation and only then will the healing of the nations occur.

Is the current economic system starting to look like the above picture?  The debt super cycle no longer works and has ended for consumers.  It will soon come to an end for governments.  10  Years ago, the official U.S. Government debt was just below $6 Trillion, today it is at $14.6 Trillion.  This additional $8.6 Trillion failed to produce full employment and with unemployment at 9.1%, there is no good news in sight for those who are looking for jobs created by economic expansion.  Both personal and public debt have supported a national lifestyle that is no longer sustainable.

The current model is of consumers spending money at 70% of GDP and this model is broken.  They are no longer increasing debt, the stock market has reduced wealth, and job growth is not occurring.  These three factors are negatively impacting the current paradigm.  Americans are reducing the discretionary spending due to lower home equity value, greater energy costs, and state/local governments are cutting back services and increasing taxes when possible.

We are now in an era of austerity.  Consumption will be replaced with savings and investment, the standard of a half century ago.  A crisis of confidence is ahead for all politicians.  Their unemployment numbers may soar in November, 2012, elections.

Corporations are building cash on their balance sheets but the uncertainty is forcing them to hold their cash until some sort of stability is seen.  Corporations are being thrown under the bus to divert attention from the politicians.  When government creates uncertainty and instability, they eliminate the incentive for corporations to invest in long term capital programs thus jobs are not created.

Europe’s economic stability is in question.  Italy’s 10 year bond rate is above 6% which reflects the risk of default whereas Germany’s bond rate is hovering around 3-3 1/2%.  Greece’s rate is much higher.  European investors may head to the door soon and if they decide to cash out, the U.S. market will suffer another record drop in the Dow Jones Industrial Average.

The coming storm is setting up the next move for gold and silver.  Now that gold has surpassed the $1,600 level,  I suspect we could see a parabolic move upward.  Within 5 years we could see $10,000 gold and $250 silver.  However, this would be accompanied by gut-wrenching corrections that could trigger your adrenalin flight response.  Emotions play an important part in the market.  Fear trumps greed in one’s core survival instinct.  A 40% correction in stock prices would not be unexpected.  Economic instability will create a lot of noise as the thunder rolls though.  Now is the time to seek Our Heavenly Father’s voice to guide you through the coming storm.  Man’s opinion and $5 will buy a Cinnamon Dolce Latte right now, that is, until inflation brings forth another price increase

Each manufactured good we possess contains embedded energy: the energy consumed to design, manufacture, ship, market, and install.  This subtle cost is overlooked as opposed to the amount of energy we consume when we go to the grocery store.  Each tank of gasoline reminds us of energy consumption.  However, other goods consumed are less obvious and only the market price of such items give us an indication of the embedded energy.

Over the last 100 years, our economy has been based on cheap and unlimited energy.  Our decisions and frame of reference have followed this paradigm.  Unless you lived abroad, you have no idea of expensive, scarce energy.  We borrow money today based on  tomorrow’s expected income growth and sustainability.  As a country, we do the same but the ramifications are much greater.  The leaders assume expansion to be the norm.  Wood, coal, and oil provided sufficient energy for expansion on a historical basis.

Oil depletion is contained within the “energy flow rate”.  Generally, an oil well’s best flow rate occurs early in the life of the well.  There is a finite reserve of oil that the well can flow from.  Based on known flow rates, engineers can estimate the reserves of the well but that does not guarantee that the well will be able to sustain a flow to remove all of the calculated reserve.  Depletion is determined to be 2-3% per year on a global basis.  Newly discovered oil is not sufficiently offsetting depletion and global economic growth rates.

As the price of oil moves up, the cost of all manufactured goods will reflect this price increase.  This increase will reduce demand and economic contraction will occur.  We must move toward conservation efforts rather than just focus on expansion.  In my previous blogs, I have suggested simplification which in turn moves the individual to less energy consumption.  On a national basis, the transition would be painful but not as severe as a crisis that will occur if we choose to continue down the current paradigm.  America needs to go on an economic diet while it still can.

Spare capacity of oil is quite small versus the global demand.  I expect to see the price reflect this crunch within 12 months.  OPEC’s spare capacity is being impacted by Libya’s internal conflict.  The market will respond this coming winter unless the global economy falters.  Either way, the economics will not bode well for the U.S. and its deficit.  High oil prices will send money out of the U.S. whereas a faltering economy will reduce demand but also will reduce tax receipts thus keeping the deficit at record rates.

We must change the way we operate and factor in the cost of energy.  Each purchase must consider the energy cost of acquisition.  For instance, going to a restaurant 15 miles away costs $5 more in travel than the local restaurant.  Is it worth it?  Trip consolidation will become a way of life soon.  Modification of behavior will create a reduction of Gross Domestic Product of the U.S.  This will result in continued high unemployment and a weak economy.

Cheap oil is gone.  $25 oil ended in 2005.  The cost of exploration assures us of this and technology will not be the silver bullet everyone is hoping for.  Expect the price of oil to be between $100 and $150 soon.  Shale gas will help but the scale of the energy industry is so large that the depletion of existing production outstrips the increase in production in these areas.

Retirees will be hit hardest.  Fixed incomes in the midst of rising energy costs will cause an increase in belt tightening.  The government will continue to find ways to limit transfer payments such as social security.  They will rework inflation and interest rates to minimize cost of living increases to the recipients.  Expect family consolidations to occur.  Independent living will only be a dream for many.  In increasing numbers, grown children will resent the fact that they must provide for their parents.  It will take a big dose of “Love” to overcome the hardships coming to many who have been able to coast through life in relative terms.