It is later than you think.
07.05.04

As the editor of the Silver Bear Cafe, I spend most of my time researching current events. I explore the markets, the war, precious metals, the Federal Reserve and energy. In this weekly column I will attempt to condense the week's events and examine how the news might affect your pocketbook. JSB

On the war front

In a recent newsletter we examined the deployment of fully one-third of the U.S. Naval Fleet to the South Pacific. It now looking like hydrocarbon deposits are the object of the armada's attention. Big oil has known for sometime that there was a large natural gas field quite close to or perhaps within Japan's Exclusive Economic Zone. In our on going discussion over China's insatiable thirst for energy, we will look at how this deposit will play an important role in the potentially deadly standoff that we are headed for with China.

It is only speculation on my part that allows me to suggest that the U.S. naval fleet has orders to intercede any confrontation between Japan and China. Does the South Pacific coming together of US naval and other forces have anything to do with all the oil and natural gas that’s in the East China Sea? Natural gas has certainly been a hot subject with Bubbles Greenspan testifying before Congress two weeks ago.

The Financial Times reported this week about China's strongest yet warning to the Japanese not to launch exploration for hydrocarbons in the East China Sea.

if Japan has sought backup from the U.S. Government and as a result gained the support of America's Pacific fleet, China might be tempted to play its economic card and thereby wreak havoc on the U.S. bond market. There is no doubt that the U.S. would side with its close financial and trade ally, Japan. Oil has been, and will continue to be the main cause of World War III and we can only pray that this will not end up badly. China is a sleeping dragon that no one should risk waking.
 
I would venture to speculate that the coming together of the strongest armada in history has more to do with oil and natural gas and  nothing to do with Taiwan. This is another extremely dangerous situation because the coming together of so much power can sometimes lead to an accident. You bring together all that high tech hardware and a war can start with a computer glitch.

This will probably escalate into another critical world event that could stretch our military resources to the limit. At this point I just hope we have an election in November.

Financial Markets

We are witnessing "Custers last stand" on Wall Street. The equity markets are running out of gas and that they are preparing to enter a free fall. To keep enough of the sheeple vested in the market, CNBC and other mainstream advocates have had to keep feeding us that tired load of hooey to give time for the fund managers and CEOs of this world to get out before the walls come tumbling down.

When we start to look a the financial markets at home, it is impossible to do so without examining the foreign markets as well. Once again China becomes the greatest factor effecting the U.S. equity markets.

China is now running a trade deficit. China recently announced a trade deficit of 8.4 billion yuan for the first quarter of this year, the first quarterly unfavorable balance of trade registered by the country in 17 years.

What difference does this make to the big picture?

Basically, when a country has a favorable balance of trade with other nations it is lending money. An unfavorable balance requires that the country borrow from other countries.

This means that China is no longer accumulating Western currencies. It is now spending the massive amounts of U.S. Dollars that is has been accumulating to purchase imports. Presumably, these imports are mainly raw materials: oil, cement, and steel. China is now the second-largest importer of oil in the world after the United States. It is consuming over half of the world’s cement and almost 40% of the world’s steel. An unprecedented construction boom is going on in China.

If China is no longer accumulating U.S. dollars, then its central bank will cease buying T-bills. Since China has been holding more U.S. debt that any other country in the world except Japan, this situation is serious. It is beginning to sell T-bills in order to obtain dollars in order to buy oil. The world’s oil price is set in dollars.

China holds a huge amount of U.S. Treasury bills. If they sold only 10% of their holdings, it could irreparably damage the U.S. Bond market. Prices would go down the toidy forcing interest rate up. Rising interest rates, beyond the control of the Fed, will spell disaster for American equities. This in turn will cause a massive flight to silver and gold.

The prices of long-dated Treasury bonds have been descending for the last 12 months, pushing the yield on 10-year notes up from 3.11% to 4.64%.

Precious Metals

Owning gold is a long-term relationship, not a one-night stand. And like any long-term relationship, a complete and unwavering commitment is essential if one is to derive the maximum benefit.

The reality of owning precious metals is simple. It just makes sense. Each and every day the reasons become more and more obvious. In the end, financial independence may be decided as a result of the exposure one has to gold and silver bullion and stocks.

Here's how I look at it. I believe, without a doubt, that gold will rise in each of the next several years. I believe gold will hit new highs, before it finally does peak. I think the possibility exists that it could go to over $2000/oz. before it levels off. I am not saying that this will occur overnight, but rather over a period of years, (think 2010). If I'm correct, all gold stocks will rise in multiples. I believe the real risk is being caught out of the gold stocks or being under-invested in them. I predict that gold will reach the $640 to $720 range in 2005.

Energy

I believe that news about oil and gas will forever be intwined with news about the wars. The ever dwindling resources will be harder to find, more highly contested and higher in price. Check out the Silver Bear for news on renewable energy sources.

Oil prices were lifted by a weekend pipeline attack in Iraq and increasing signs that OPEC could hold back on a planned production hike next month.

Oil prices remain well supported at high levels assisted by a spate of sabotage attacks in Iraq over the weekend. The length and remoteness of Iraq's pipelines renders them un-defendable and subject to continued militant Islamic targeting.

Iran's Oil Minister said that current world oil prices were "good" and that OPEC might consider delaying a scheduled production increase when it meets later this month. Read in: gasoline prices are headed back up.

The Fed

In 1913, on Christmas Eve, Congress passed the The Federal Reserve Act. Knowing that they would never have had a chance of passing such a blatantly unconstitutional law with the full House and Senate present, the elitists, representing the largest banking cartels in the world, waited until eighty percent of the congressmen had left for the holidays. They were then able to buy off enough of the remaining politicians to pass the bill. Not any slimier than what is going on today, but slimy none the less. Today, the dollar is worth only 2.5% of its value when the Fed was set up to protect it in 1913. The other 97.5% was stolen from the American public. The Federal Reserve is stealing your money at a faster rate today than any other time in history. Americans have grown up thinking that inflation is just a fact of life. If you believe that inflation is a natural thing, then that is just one more thing you think you know that is wrong. Oh, its not necessarily your fault that a lot of what you think you know is wrong. You have been mislead by the Central Bankers and their stooges in Government all your lives. Your parents were mislead before you. In fact, the elitists started rewriting the history books in the nineteen-twenties just so the sheeple would grow up believing their hooey. If "We the People" would get off our butts and prosecute bankers and politicians that break Constitutional law, 90% of all of them would be behind bars.

Financial Survival

First of all, take a deep breath. Nothings going to happen right away. There is plenty of time to secure your future if you are willing to get started now.

Start thinking in terms of how society is going to react when they finally wake up. There will be opportunities abounding for the clever, forward thinking patriot.

First get your financial house in order.

Since equity bull market is the only kind of equity market the majority of Americans have known, they naively expect that to continue indefinitely into the future. They have little use for the study of market cycles because they like bull markets, and it is easier to simply project the known past indefinitely into the future.

Oil and gas stocks remain cheap relative to their cash flows. Many of the stocks are in strong up trends and with higher prices would move considerably higher. About half of the oil and gas that will be needed 10 years from now will have to come from fields not currently in production – a very bullish fact for energy investors.

Buy big oil. Do your own "due dilligence". Find out which ones have proven reserves. Those reserves will only go up in value. Most companies also pay dividends, which will also be ever increasing. I see oil selling for $100 per barrel in five years, (that's $8 - $10 per gallon at the pump).

Last year, the minimum household income needed to purchase a median-priced home was $84,510. Now it takes $102,550.

Houses are not presently a good buy. If you can't buy a house, rent it out, and cover your costs, then it is over priced. As you already know, today, there aren't many houses out there that pass this test. In other words, it's far cheaper to rent a home than it is to buy one.

Where else should I move my money, you ask? I am also very bullish on base metals, energy services and pipelines, hydro-electric power, basic materials, raw land, timber, paper and pulp, and farming and agricultural commodities. These are real things, that the world will continue to consume, no matter what.

Its not what you don't know that will screw you up, it's what you know that is wrong. The spin you hear from the mainstream media is intended to mislead you. Open your eyes and face the future. If you leave your head in the sand and ignore it, you are only leaving your butt exposed for the world to kick. This all may sound like gloom and doom, but when you get a handle on what is going to happen, you will have a future filled with opportunity. Fortune favors the Informed.