Harry Schultz of the International Harry Schultz Letter is saying that the deflation he sees in the world economy today must work through and out of the system before the gold price will make a decisive move. Schultz is highly acclaimed in his prognostication, however 2008 was a pretty bad year for him.

While I will agree to deflation in some respects, excessive hedging over the past year is actually holding some retail prices higher than they would be otherwise.

Case in point is natural gas and propane gas for heating.

Last summer the same idiots who told us in the summer of 2007 that we should not buy because oil was headed lower toward $60 per barrel - it went UP to $147 instead - said that oil was going to $200 and propane to $3 per gallon (from $2.15).

As a result, retail propane distributors bought forward contracts to protect themselves for the winter. Then when the price of oil fell like a rock, wholesale propane followed but retail propane did not. Now with NYMEX propane under $0.60 per gallon, retail is still a whopping $1.74, over a $1.10 margin over wholesale! Unheard of previous to this fall.

Likewise, municipalities have locked in natural gas for their residents at sky high prices over $13 per MMBTU when the spot price today is under $6.

My fear is that by the time the hedged gas is through the system, oil could be much higher due to concerns of war in the Middle East and/or and Israeli attack on Iran.

Never fear, though, the guys who SOLD those contracts at sky high prices are making an absolute KILLING.

Most of us probably cannot afford the International Harry Schultz Letter; and after last year’s performance one might hesitate even if he could afford it.

But I know two sources of top notch investment newsletter advice you and I CAN afford:

The Casey Report

the TREND letter ($50 discount ending soon!)

Here’s hoping for some big time deflation in home heating gas prices.

Not that I needed it, but in support of my comment about most financial advisors being morons in my year-end missive posted (and emailed) yesterday, this cartoon says it all.

A similar cartoon I’m sure has been done illustrating how stupid it is for Detroit auto makers to receive condemnation and advice from the U.S. Congress on fiscal responsibility.

But that’s the way the world is and voters have long ago figured out how to vote themselves the largess of the Treasury.

It’s now up to us to determine how we can best protect ourselves and even profit from it.

I recommend you take a risk free look at the Casey Report.

Christmas Day, 2008

I wish each and every one of you a happy and safe Holiday season!

I do so with the sad realization that for some that is easier than
for others. It’s been quite a year.

Few people are rejoicing at the results of their year, especially
investment-wise.

For those of us who have some profits from shorting the market and
financial stocks in particular, it’s hard to rejoice in the face
of the losses in other areas or the hardship brought about to so
many by the circumstances bringing our gain.

But as always there is little point in bemoaning the past when we
should be planning for our future.

InvestLetters.com is a focus on services that provide us with
investment advice which will hopefully enrich our portfolios.

Few publications I am aware of succeeded to any great degree at
that this year.

———–
Disclaimer:

Let me note here that nothing in this missive is to be construed
as investment advice. I am NOT a registered investment advisor
of any kind. Please seek someone who is when making investment
decisions.
———–

(With the disclaimer out of the way, let me note that most, not
all, investment advisors are morons - in my HUMBLE opinion.)

Many experts are pulling out past issues of missives and waving
them in the air saying “I told you so”…

Some actually did. But of those, how many actually offered the
exact advice on how to profit from it? Of those, how many merely
reiterated their yearly advice and it FINALLY came true?

I have heard a few prognosticators predict something on the order
of what happened in 2008 for over a decade. If you had followed
their advice in 2008 you would have likely avoided some losses.

But if you had been following their advice for very long, you
probably would have either racked up serious losses in years before
or at minimum suffered what economists call “opportunity cost”;
ie, missing out on huge profits enjoyed by others.

Let’s look at some cases in point:

Currencies: This year was pretty good for being short the U.S.
dollar - up until July when the trade SHARPLY went against you.

Some of us have been short the dollar so long that even the
seemingly large gains, when taken over the time of the trade,
dwindle to mediocre returns. Chinese Renmimbi is probably a
poster child of this. And it didn’t suffer the effects of the
dollar rally July to December.

And while we are on the topic of the dollar, how about all of
those highly paid nincompoops (sp?) saying (once the dollar had
rallied significantly) that the dollar would now stay strong for
years? Following that advice would have cost you about 10% in the
last 6 weeks or so.

Those same nincompoops completely missed the profits of being
short the dollar in the first place, or the brief rally that
accompanied the financial meltdown.

Gold: If gold can close the year about $835 it will have a yearly
gain winning streak of 8 years. Pretty impressive. And for those
who got in at $280 in 2002 congratulations are in order.

But what if you got in back in the mid 1990’s at higher prices?
Sure, you have a double by now, but so would you have by investing
in CDs and money market funds - even though the last 10 years or
so have seen, at times, some pretty low returns.

And you would have lost no sleep.

When looking for financial advice, we have to understand that some
gurus finally got it right in 2008 only because they have had the
same message for 20 years and cicumstances finally matched their
predictions.

Others got it right in 2008, probaby surprising even themselves,
but they never gave any clear advice on how to profit from it.

Getting even a small part wrong this year could have easily
mounted enough losses to offset your gains.

Past is prologue, what do we do NOW?

1. I hope you have sold enough losers to offset any gains
   you might have had so as to avoid paying capital gains tax.
2. Throw away hope. Hope won’t make any stock return to the
   prices of its former glory. Facts, and cash in the bank, rule the
   day.
3. Determine your risk tolerance. Did you have sleepless nights
   this past year because of your investment portfolio? If so, it’s
   time to re-evaluate what types of investments you are getting into.
4. If you make New Year’s resolutions, resolve to identify the
   mistakes of 2008 and resolve further to endeavor NOT to make them
   again in 2009.
5. If you have been managing your investment portfolio without
   a plan in the past, there is no better time than right now to start
   operating WITH a plan.

Lessons learned.

For those still holding onto the mantra of buy and hold with the
phrase “it will come back” spewing forth from your lips, 2008 should
be bury that nonsense for good.

There is always a time to sell.

Remember what I said above about time; it may come back, but what’s
your overall return when that finally occurs? That’s where
opportunity cost comes in. Something else might serve your
portfolio much better. Find it.

In my review of the investment newsletters I have paid homage to
over the last year, one comes out a clear winner.

the Trend Letter, (Subscribe through my link and save $50 on the annual subscription.
That deal is available NO WHERE ELSE!)

is one investment newsletter that did no flip flops, made no excuses,
and allowed stop loss orders to do their job of preserving capital.

I will admit that I believed some of the stops they recommended were
so low that:
a) the stock would never go that low
b) if it did go that low, it wouldn’t go lower
c) it would be painful to be sold out at that level

Guess what?
a) they did go that low
b) they continued lower thereafter
c) it would have been much less painful than the tax loss sales I
ended up taking

The Trend Letter doesn’t hold your hand, though. They give you the
advice you need and then they say no more until that advice changes.

You receive a monthly newsletter and as many flash reports as they
deem necessary depending on what’s going on. It is NOT a trading
service.

As their name implies, they identify a trend, look for the best way
to invest in it, then invest and wait for the facts to change.

It’s been good advice and I predict it will continue to prove itself
time after time.

Remember, subscribe through this link on my website to save $50 off of the subscription.

I think you will find it one of the best newsletters out there.

Happy Holidays!

Roger.

The eBay Index

The one place that shows you how much gold is really worth

By the editors of BIG GOLD

Anyone who has watched the price of gold lately must have felt that something was off. While public demand for bullion coins went through the roof and major bullion dealers ran out of coins to sell, the spot gold price was flat, teetering between the upper 700- and lower 800-dollar range.

Managing Editor Jeff Clark of BIG GOLD wrote in the November 2008 newsletter:

Many dealers are out of 1-oz. coins, and not just here in the U.S. Londoners have been queuing up in front of coin shops; German suppliers are refusing new orders; demand exceeds mint capabilities in Canada, Australia, and South Africa; and Switzerland is working around the clock. If you’re fortunate enough to locate a source of coins, expect to pay an unusually high premium over the price of spot gold — in the U.S. perhaps 10%, 15%, or more — triple the normal level. Even then you may have to wait eight weeks or longer for delivery.

According to the laws of supply and demand, shouldn’t the spot price have skyrocketed?

Whatever the reason that it didn’t - hypotheses bounced around on the Internet ranged from deleveraging to governmental price manipulation - the BIG GOLD editors managed to find an unexpected indicator of the true value of gold that seems to be more reliable than the spot gold market itself…

The eBay Index.

Just like The Economist with its Big Mac Index or its modern cousin, CommSec’s iPod Index, both of which explain and compare the purchasing power of currencies, online auction house eBay makes an excellent yardstick for the true value of, well, just about everything.

In recent years, politics and economics seem to have entered an unholy alliance, thus increasingly obstructing the view on causes and effects in the markets. eBay, on the other hand, is the free market at its best and simplest. In other words, a seller’s item is worth exactly what a prospective buyer is willing to pay for it.

In April of this year, when the U.S. Mint rationed one-ounce, 2008 Silver Eagles to its thirteen authorized buyers, those same Silver Eagles sold on eBay for $25 apiece… nearly 50% over the then-spot price of $16.80.

Along the same lines, a few weeks ago, when gold was at $750/oz, one-ounce Gold Eagles got bids of $1,000 on eBay… a premium of 33% over spot price.

At the time of this writing, the availability of bullion coins has slightly improved, and major bullion dealers like Kitco.com have resumed offering some of their standard bullion products. Even though inventories are still selling like hotcakes, at least there is an inventory - and the eBay Index has reacted accordingly. Right now, with spot gold at $852, 2008 Gold Eagles are fetching bids of $876 on average… a premium of only 2.8% over spot.

This is a Christmas gift. It means any investor concerned about the government’s out-of-control printing of dollars has a window of opportunity to buy gold bullion at reduced markup. You can, at the moment, buy gold while both it and the underlying premiums are cheap. The eBay Index demonstrates that premiums can spike any time and without notice.

And since the editors of BIG GOLD recommend keeping 33% of your portfolio in gold bullion, it is well worth watching the eBay Index to gauge how high gold prices should be at any given time. For it is almost certain that the spot market will follow the Index sooner rather than later. Buy gold now before eBay signals premiums are expensive again.

***

Deflation today + government responses = inflation tomorrow. This means you would be well advised to own some physical gold, as well as crisis-proof stocks of major gold producers and quality ETFs. BIG GOLD is the monthly advisory for the prudent investor, focusing on precious metals investments that are safe havens in times of crisis. Learn more about it here.

The battle rages over whether we can expect inflation or deflation; and naturally your investment decisions will be proven correct or incorrect based on which wins the battle or maybe the war.

The same people who have argued whether the dollar is going up or down, oil is going up or down and gold’s direction are arguing over the result of the Federal Reserve’s actions causing inflation or deflation.

Here is a guest editorial from very sharp guy at Casey Research, Bud Conrad. Bud is their chief economist and was the first person I heard the recommendation from to short MBIA, Ambac and the banking sector. Very profitable trades those were.

Here’s Bud:

Battle of the Flations

By Bud Conrad

Chief Economist, The Casey Report

One of the most hotly debated topics among financial talking heads these days is, “Deflation or inflation, what is it going to be?”

There is no question that we are currently experiencing asset price deflation and economic slowing. But we, the editors of The Casey Report, see this as a transitional phase. In our analysis, the truly extraordinary and historic levels of government spending and bailouts being deployed to keep the economy afloat are certain to lead to inflation in the not-too-distant future.

While our long-term view remains solidly in the inflation camp, over the past four months, the U.S.’s financial problems have caused deflation in many important asset classes. Put another way, a reduction in asset prices amounting to about $14 trillion (in housing, equities, etc.) is bigger than the government’s countervailing actions of around $3 trillion — the total, so far, arrived at by combining the measures taken by the Fed with the federal government bailouts.

But there are important differences between a sharp collapse in asset prices and the potentially leveraged stimulus packages.

The Fed’s actions, if taken in normal times, would be multiplied throughout the banking system as banks used the new money to increase their lending and, in so doing, leveraged the funds throughout the entire economy. This time around, however, while the Fed has been extremely accommodating to the banks, even going so far as to make direct loans to them, the effect is moderated. That’s because of tighter lending standards, the need to replenish capital, and the demise of many complex structures, which were previously available for securitizing and selling loans on to others.

As a result, the banking system as a whole is not responding to the stimulus. It can be thought of as pushing on a string. Simply, as large as the stimulus has been to date, it has not yet been enough to offset the effects of the economic collapse. The resulting deflationary pressure increases concern over a downward spiral in the economy.

Another way to view this is that consumers and businesses alike are now anticipating deflation, which makes saving and survival the primary goal (in an inflation, spending becomes the primary goal, unloading the money before it can lose value). Of course, a cutback in spending and demand drives down the price of things, at least temporarily.

But the longer-term expectation is that Bernanke’s assertion – an assertion now backed up by action – that the government can and will print new money to any extent needed is the more important force.

As long as there is evidence of serious economic collapse, it can be expected that the bailout programs will be ratcheted up. And, to the extent that the public expects deflation – and so businesses reduce prices to raise cash and reduce inventories – the wave of price inflation experienced in the spring of 2008 will be moderated. But within the seeds of that positive are the very big negatives that the government, seeing that its extraordinary money creation is not being evidenced in rising prices, will be emboldened to go even further.

This is of great importance because, unlike in the 1930s, there is no limitation on what the government can do, because there is no gold standard to enforce monetary discipline. Instead, the world is afloat on a sea of massive new government spending and credit facilities. After a lag, the stimulus will perform the expected actions of reinstating credit and debasing the currency. But never lose sight of the fact that the government is creating money out of thin air. Some call it bailouts, we would call it legal counterfeiting on an epic scale.

In the New Deal, FDR created the FDIC and guaranteed bank deposits, set minimum bank deposit rates, and brought the discount rate to almost 0%. He cut the dollar/gold exchange rate from $20.67 to $35 and confiscated gold; i.e., devalued the dollar by 40%.

While the beginning of the collapse from too much credit was parallel to the previous experience of the depression, the response today is different. The size of the monetary stimulus and the risk to the dollar from foreign holders — who can also see the implications of the out-of-control deficits — strongly argue for a return to inflation much sooner.

How much sooner? Impossible to say, but remember: deflationary or inflationary fears are not the independent agent that will determine whether or not we will see inflation (though, in the intervening phase, they will certainly be an important economic driver). The Federal Reserve is throwing everything it can at the financial markets to fight deflation. As you can see in the chart below, the Fed has doubled the size of its balance sheet since September.

On December 16, the Fed cut interest rates to a range of between a quarter of a point and zero. That is lower than ever in the 94 years of their existence. And they promised in the accompanying announcement to provide additional funds to “stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level… the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets.”

At this time individuals and companies alike are sensing deflation and, as a result, are raising cash… in the process deleveraging the extreme debt loads. That is causing downward pressure on asset prices and, soon, a serious contraction in the economy as more and more companies lay off workers and cancel spending. This will not be a happy holiday season. And it will be a long-term recession and maybe even a protracted depression.

But the fact of the extraordinary deficit spending is there for all to see and, over time, more and more will see it. And, more to the point, understand it. In fact, thanks to the Internet and always-there financial media, the shift in sentiment can happen almost on a dime. Slowly at first, and then faster, fears over inflation will return, but this time they will be well founded.

The economic downturn could be protracted, but that does not mean that the deflation will be protracted. Instead, once we are through this phase, we expect to see poor economic conditions, but against a backdrop of rising inflation. Stagflation is a word that remains in our vocabulary.

Inflation or deflation – whatever the current market trend, there is a way to play it. Every crisis contains opportunity as well as danger… and many of those who manage to mitigate the risk and grab the opportunity have made a fortune in times like these.

Making the trend your friend and riding the market “riptides” that can lead to exceptional returns in the double, triple or even quadruple digits is easier than you think… with a little help from experts who have been correctly predicting – and profiting from — these riptides for years. Learn more here.

SELL!

Can we be any more clear than that?

Richard Russell commented on two charts of the U.S. Dollar, and everyone is printing that. I want to do more than just reprint it here. (In case you didn’t see it elsewhere, the Dollar has put in a classic head and shoulders top AND broken below an important trend line - UGH! in Richard’s words.)

Let me remind everyone that when the top was being put in that Richard Russell is referring to, the U.S. Dollar had almost exclusively cheerleaders - at least in the mainstream. Every over paid analyst and his brother was spewing slime out of his mouth about how the U.S. Dollar is the one to own.

“The dollar will be strong for years to come.”

Maybe, but we’ve got a blip on the screen now, don’t we?

At the same time I want to caution you all that the U.S. Dollar turned up just when no one said it would. And now we have a massive switch to those saying it’s going lower.

I personally believe that, long term, it will go lower. Short term is anyone’s guess in these markets. And since so many people are calling this the end again - be cautious selling the U.S. Dollar, it could easily turn irrational again; at least for long enough to bankrupt you.

The antidote for many is to buy gold and silver. If you can get your hands on any at a reasonable price.

A financial newsletter that I have subscribed to for years and has kept me in good stead just came out with a Flash Report this morning detailing both the details of the U.S. Dollar and which gold and silver shares to be buying right now.

We like all of our gold and silver stocks in our templates right now. If you do not have any gold or silver positions right now, we suggest you might want to take a position at this time. DO NOT use leverage to position here. Our gold and silver stocks are:

I’d love to tell you which ones, but that wouldn’t be fair to their subscribers.

What I can do is offer you an EXCLUSIVE DISCOUNT - available nowhere else on the internet.

the TREND letter ($50 discount through this link only!)

Today we have another guest editorial from Olivier Garret of Casey Research. As he points out, one tiny benefit of this financial debacle is the tightening of credit card standards that leads to less junk mail to shred.

It astounds me how the financial stocks are still capable of the occasional bullish day like last Friday, up 6%. These banks are in trouble and it ain’t over soon.

The Credit Crunch, Close Up and Personal

By Olivier Garret - CEO, Casey Research, The Casey Report

Within the last year, the true extent of the real estate debacle and ensuing credit crisis in the United States has become blatantly obvious.

But now there is a new phenomenon rearing its ugly head: a credit crisis of the individual that is hitting a large number of Americans straight in the pocketbook. The reason: credit providers have started to batten down the hatches.

According to a November report by the Federal Reserve, nearly 60% of banks severely tightened their lending standards on credit card loans and 65% on other consumer loans in the last three months. As unemployment and delinquency rates go up and lenders are trying to minimize their risk, the average American all of a sudden finds himself cash strapped… this at a time when home equity has dried up, 401(k)s and IRAs are losing value by the day, and many common stocks are barely worth the paper they’re printed on.

“We’ve been hearing about the liquidity crisis affecting banks for quite a while,” Joe Ridout, spokesman for the advocacy group Consumer Action, told the Washington Post. “Now we’re seeing it transform into a crisis affecting people’s personal finances as well. The next wave of the financial crisis may well be a credit-card-related crisis.”

Credit card companies are indeed clamping down hard on customers. Many Americans may have noticed that while their mailbox used to burst with junk mail of the “You’re Pre-Approved!” sort, these days the influx has slowed down to a dribble. That’s no coincidence - credit card direct mail offers in the third quarter of 2008 have seen a 28% drop year-over year as Visa, AmEx & Co. are struggling to cope with a tidal wave of defaults.

Moody’s Investors Service reported that charge-off rates rose 48% in August compared to the same month last year, the 20^th consecutive year-over-year increase. This number is expected to go even higher in 2009, potentially exceeding the charge-off rates during past recessions.

Thus, credit card members are increasingly coming under scrutiny - and not just those in the subprime category. Customers with a credit score of 700, who were deemed “most creditworthy” just a year ago are not anymore. According to cardratings.com, 730 is the new 700.

The palette of “risk factors” has also broadened. Aside from late bill and mortgage payments, now location, profession, and even shopping behavior are considered. If you live in a high-foreclosure area, work in the real estate, auto, or construction business, and buy your household necessities at Wal-Mart, you’re likely on the target list.

One of the measures credit card issuers have devised to reduce risk is slashing credit limits in half. 60% of banks lowered the credit ceiling for existing nonprime and 20% for prime customers. And, as a testament that the intended “trickle-down effect” of the Fed’s massive rate cuts didn’t work at all, many companies have kept their interest rates at the same level or even raised them by two or three percentage points. Late fees, too, have been increased.

This tightening of credit translates directly to people’s shopping habits. While Black Friday weekend brought an overall growth of 0.9% in sales from last year, retail sales data show that that wasn’t enough to save the month of November. The MasterCard SpendingPulse reading noted that electronics and appliance sales dropped by 25% in November, luxury goods by 24%, and sales at clothing and department stores by 20%. Foot traffic decreased by 19% from 2007, meaning shoppers visited fewer stores.

C. Britt Beemer, CEO and founder of America’s Research Group, who has correctly predicted percentage changes in Christmas retail sales for 16 of the last 17 years, published his first negative forecast (of -1%) in 23 years, calling the 2008 Christmas shopping season a “perfect storm” for retailers.

Even as the average American is battening down the hatches and reining in consumption, the Federal Reserve seems to be going the opposite way, judging from the $700 billion bailout package that has - literally within weeks - ballooned into an estimated $8.5 trillion colossus. But despite throwing fistfuls of money at the problem, says Bud Conrad, Casey Research chief economist and editor of The Casey Report, “all the king’s horses and all the king’s men haven’t been able to put Humpty back together again.”

We don’t know whether the Humpty Dumpty economy can be saved… what we do know, though, is that every crisis holds danger and opportunity. By making the trend your friend instead of swimming against the stream, you can preserve your assets and profit handsomely, especially in highly volatile environments like the one we are seeing now. To learn more about how to generate double- and triple-digit returns in a crisis, click here.

Last week when I listened to Dennis Gartman on Al Korelin’s show, gold was at about $765 and Dennis said he was comfortable being “short of gold”.

Today, gold is touching $830, Mr. Gartman’s stop is somewhere in the low $830’s and I’m just wondering if he is still comfortable being “short of gold”.

The dollar is taking a bit on the chin - when some of us think it should be taking it a bit harder than that - we’ll see where gold ends up going today.

– update –

No sooner did I write this than I see where The Gartman Letter covered its gold short position entirely. As is typical, when one feels comfortable with a trade, it’s time to get out!

The Real Cost of the 2008 Recession

By Olivier Garret, CEO,

The Casey Report, www.caseyresearch.com

It took the statisticians of the National Bureau of Economic Research almost a year to confirm what the rest of us already knew, that the US registered a significant decline in economic activity, thus officially entering a period of recession.  While I am pleased that the members of NBER take their duties seriously, thereby ensuring that they don’t leap to any hasty conclusions, I only wish that similar moderation could be displayed by their colleagues at the Fed and the Treasury.

Unfortunately, the facts prove otherwise.  Three months before the recession was officially declared, Paulson and Bernanke have embarked on the largest bailout program ever conceived with the blessing of a lame-duck president and a complicit Congress - a program which so far will cost taxpayers $8.5 trillion. This staggering sum encompasses:  loans backed by worthless assets ($2.3T), equity investments in bankrupt companies with negative net worth ($3.0T), and guarantees on crumbling derivatives and other hollow collateral ($3.2T).

Back in September I was stunned that Paulson was able to make his case and win the support of Congress for a $700 billion bailout package (more than the total war spending in Iraq to date).

How could Americans (or more accurately, their representatives) agree to give such a broad mandate with so few checks and balances?  Have we become completely numb?

While I realize that many of our compatriots have been running large credit card balances and interest-only mortgages with little thought as to how they would repay their debt, one would expect a little more restraint when dealing with the financial future of the largest economy in the world.

Operating under the assumption that our largest financial institutions are “too big to fail”, in the span of a few weeks we went from pledging to spend $1 trillion to $3 trillion - a commitment which then grew to $5 trillion before ballooning to a staggering $8.5 trillion.

At the rate we are going, we will be dealing with double digits - in trillions- before the end of the year.

And while all off that money is not yet spent, make no mistake - these are real commitments with serious liabilities attached to them.

I have heard the argument that an equity infusion is not the same as spending money.  While I would agree that in an arms-length transaction this might actually be the case, our government is definitely paying a large premium.  What is the real value of Citicorp or AIG?  Since they are quasi-bankrupt (and would be totally bankrupt without massive injections from the Fed), a reasonable businessperson might pay a token price for their equity and the assumption of their enormous liabilities.  Before doing so however, a buyer would have to see some significant value in buying these entities as a continuing business.  In most cases, a buyer would not want to assume the company’s liabilities but would prefer to buy selective unencumbered assets in a bankruptcy proceeding.  Any money our government pays above what a reasonable person would pay in an arms-length transaction is real spending and should more accurately be called a grant.

While defenders of the too-big-to-fail policies argue that providing guarantees is not the same as granting money, the reality is that these guarantees are necessary to prevent the collapse of financial institutions currently lacking the necessary collateral to meet their loan covenants.  Should their loans be called, we could actually find out the real value of their assets.  The fact is that in-spite of Paulson’s and Bernanke’s efforts, deleveraging is already happening.  Although at a slower pace, one asset class after another is being adjusted down towards its intrinsic value, which is usually not much.  Make no mistake; many of these guarantees will eventually be called in by lenders.  In due time, unless our government is able to inflates its way out of this bottomless pit, it will have to honor most of these guarantees.

So how does $8.5 trillion dollars compare with the cost of some of the major conflicts and programs initiated by the US government since its inception?  To try and grasp the enormity of this figure, let’s look at some other financial commitments undertaken by our government in the past:

As illustrated above, one can see that in today’s dollar, we have already committed to spending levels that surpass the cumulative cost of all of the major wars and government initiatives since the American Revolution.

Recently, the Congressional Research Service estimated the cost of all of the major wars our country has fought in 2008 dollars.  The chart above shows that the entire cost of WWII over four to five years was less than half the current pledges made by Paulson and Bernanke in the last three months!

In spite of years of conflict, the Vietnam and the Iraq wars have each cost less than the bailout package that was approved by Congress in two weeks.   The Civil War that devastated our country had a total price tag (for both the Union and Confederacy) of $60.4 billion, while the Revolutionary War was fought for a mere $1.8 billion.

In its fifty or so years of existence, NASA has only managed to spend $885 billion - a figure which got us to the moon and beyond.

The New Deal had a price tag of only $500 billion.  The Marshall Plan that enabled the reconstruction of Europe following WWII for $13 billion, comes out to approximately $125 billion in 2008 dollars.  The cost of fixing the S&L crisis was $235 billion.

The best deal ever for a government program was the Louisiana Purchase, a deal with the French that gave us 23% of the surface of today’s US for only $15 million ($284 million in today’s dollars).  Why couldn’t Paulson and Bernanke display the financial acumen of a Thomas Jefferson?

How will our country repay its debts?   The current bailout represents 62% of our GDP.  Our current deficit of almost $11 trillion may exceed our GDP next year.

Recently the Treasury has been able to place new debt; investors have liquidated equities and bonds and sought refuge in the relative safety of the dollar and government bonds.

As we move forward however, our government will need to attract trillions of dollars annually to fund its programs and commitments.  The foreigners who have financed our irresponsible spending for many years will no longer be able to afford it, let alone finance more of our reckless behavior.

As a matter of fact, several countries have already announced their own bailout packages to prop up their domestic economy.  And, unlike during WWII, when Americans invested their savings to support the war effort and fund our government’s deficit, our citizens are in debt themselves with no savings left to invest.

In the near future, the Fed will have no choice but to turn on the printing presses and start operating them around the clock to create the money that can’t be raised in the capital market.

These actions will lead to a significant debasement of the dollar and a major appreciation of gold and all commodities (real assets).

Once this inflationary cycle starts, foreigners will realize that their investments in T-bills are depreciating rapidly.  There will be a massive exodus that will put more pressure on the dollar and on interest rates.  Our weakened US economy will be faced with the rising cost of capital and a painful period of stagflation.  Trillions of dollars will have been wasted.  Our government will have mortgaged America and the ensuing debt will have to be paid by future generations.

Not a very bright picture, to be sure, but the Casey Research team strongly believes that there are opportunities in every crisis. Preserving your assets and even profiting in times of crisis by making the trend your friend is the focus of Casey’s flagship publication, The Casey Report. We have helped subscribers get positioned in commodities in the late ‘90s, buy grains in 2006, and short financial stocks 18 months ago… resulting in double- and often triple-digit returns.

To learn more about the trends we predicted and, more importantly, the emerging trends we now foresee, click here now.

Dennis Gartman spent a few minutes on Al Korelin’s radio show talking about gold and it’s future price. Dennis Gartman disagrees with the typical guest on Al’s show. Dennis is comfortable being short of gold and feels the near term price is down.

In fact, continuing to be at odds with other guests of the Korelin Economics program, Dennis feels this is just another recession. He said that, and he listed a number of other recessions in the 20th century, this is similar to those in that we didn’t know how we would get out; but that we did then and we will now.

Mr. Gartman feels that 1974 was worse than now because unemployment was higher then.

Well, I don’t remember 1974 as well as he does. But I do remember, and know this from the history books, that our financial system wasn’t imploding then. We didn’t have the largest banks in the world going belly up. We didn’t have the big three going belly up. We didn’t have countries of the stature of Iceland in the trouble they are in.

Dennis Gartman is a lot sharper than I am, and infinitely more learned on economic matters. But Mr. Gartman, who charges $500/month for his newsletter last I knew, probably isn’t feeling much of pinch right now. But since he knows so much more than I do, perhaps you should listen to him, not me.

But I know some other people who are incredibly sharp also. And those people are expecting gold to bottom in the next week or two. And if it does, they will be selective buyers of gold mining equities.

If you want to follow Mr. Gartman, then maybe you should look for a bounce in gold to go short; and go to his website and pay $500 per month for a subscription. If you don’t like what he says, I can assure you that you will at least be entertained by the way he says it, and impressed by the research and logic he uses in his financial newsletter.

If, on the other hand, you think it might really be different this time, perhaps because you have NEVER seen so many governments throwing so much money at so many problems ever in your life, then perhaps you want to read more from someone with a bit different take than Mr. Gartman.

And you can do so right now, I will give you the link.

But just in case you decide to subscribe to a newsletter that charges less than half of Dennis Gartman’s MONTHLY subscription for a  WHOLE YEAR, then subscribe via this link and save yourself $50.

the TREND letter ($50 discount through this link only!)