Turkish Forum

Tag: GOLD

  • Turkey: melting Ottoman gold

    Turkey: melting Ottoman gold

    April 12, 2011 12:17 pm by Delphine Strauss

    Turkish women look at gold earringsEvery evening, Ahmet Akamak or one of his extended family boards a flight to Istanbul, keeping a careful grip on a bag loaded with solid gold.

    The former banker runs a network of shops in Turkey’s south-eastern city of Diyarbakir, buying second-hand jewellery from people in need of ready cash, and selling it as scrap to the dealers clustered in Istanbul’s Grand Bazaar. His trade has boomed in recent years, as high gold prices turned Turkey – the world’s fourth biggest market for gold jewellery – into a net exporter of the metal.

    “We need at least 2 kg a day to be worth the journey. A couple of months ago, we were taking 20kg every day,” Akamak says, as a man enters the shop to sell a worn gold ring for 298TL ($198).

    For each kilo of gold, he makes around 300TL. Oguzhan Aloglu, vice president of the Istanbul Gold Exchange (IAB), says: “High prices have affected the physical and jewellery sector. Turkey used to be only a gold-importing country. Now, because of high prices, Turkey is a big supplier of scrap.”

    The value of scrap exports to Switzerland – the global centre for smelting gold – reached $4.5bn in 2008, rose to $5bn in 2009 as Turkey’s economy suffered a deep recession, before easing to $2.5bn in 2010, Aloglu says.

    At the same time, demand for new jewellery has fallen, hitting trading volumes on the IAB, which slumped from 337 tonnes in 2008 to 115 tonnes last year. Alaoglu says consumers are starting to buy 14 carat gold, because high prices make the traditional 24 carat unaffordable. Yet he estimates that people in Turkey still own some 5,000 tonnes of gold – some of it dating back as far as Ottoman times.

    Gold’s popularity – as an investment and as a traditional gift at weddings or births – is understandable, given Turkey’s history of bank collapses and hyperinflation. Owning property is more common than owning shares – seen as the preserve of speculators. Even after nearly a decade of stability, with Turkey’s banks emerging unscathed from the global crisis, customers tend to opt for deposit accounts with short maturities.

    This is a problem for policymakers struggling to boost Turkey’s chronically low savings rate and reliance on external capital to finance growth.

    Several banks, in particular Turkey’s Islamic-style participation banks, have begun offering gold deposit accounts, exchange traded funds and even gold-dispensing cashpoints in an attempt to bring under-the-mattress savings into the financial system.

    Yet the gold dealers are still at the centre of financial dealings in many rural and traditional areas. Akamak says people also come to him and his colleagues to borrow cash – bought with credit cards so they can repay the debt at better rates than they used to pay money lenders. Even when he worked in Diyarbakir’s banks, he says, many customers simply rented safe deposit boxes in which to leave their gold.

    “This place is well protected – we have security, guns,” he says of his own shop. The couriers have a special ID for flying to Istanbul, and are met at the airport. Even so, “we’ve been robbed many times,” he admits. “Recently, my brother was seeing a girl in Istanbul. Sometimes she carried the gold for us. One night, she collected it and ran.”

    via Turkey: melting Ottoman gold | beyondbrics | News and views on emerging markets from the Financial Times – FT.com.

  • Is the U.S. dollar on the brink?

    Is the U.S. dollar on the brink?

    julianBy: Julian D. W. Phillips, Gold/Silver Forecaster – Global Watch

    Just take a look at the chart of the U.S. dollar Index and you see a frightening sight.   If it sinks any further its support will have evaporated.   We have watched all this week the gold price rise and look good in the dollar.   But in the euro it has barely moved.   Against the Swiss Franc the dollar looks so weak.   With the Technical picture looking so poor, one turns to the fundamentals to see if they conflict or support a downturn for the dollar.

    The U.S. dollar Fundamentals

    Can government govern finances?

    The United States, right now, is on the brink of having used up all its legislated credit capacity.   At $14.3 trillion there is a desperate need for a higher credit limit.   Unless, by Friday, they have passed legislation to raise this, the government cannot issue checks or pay staff.   Yes, they can use various tricks to delay this to accommodate political brinkmanship, but the outside world will be alarmed that the government is unable to tend to such basics or allows politics to overrule finances.   Here there is a clash of systems, the need for financial correctness against the games politicians play.   With President Obama’s administration without sufficient power to legislate as they want at a critical time when government should be strong, there is little to inspire confidence in the U.S. government.   Global confidence in the U.S. dollar will be shaken if such a financial mess were to happen.   We would most likely see the ratings agencies downgrade U.S. debt before that happens.   From outside it looks as though the U.S. is oblivious to foreign investor’s opinions at a time when the U.S. is reliant on foreign investors buying U.S. debt.

    Moving down the ladder we have seen so much in the press that individual States are on the brink of bankruptcy and some already there and little seems to be being done to rectify matters to date.   Or should foreigners just presume that the Fed will rescue them with bailouts?   If that is to be the path followed that again will undermine foreign investors confidence in the dollar.

    What needs to be understood is that government finances at all levels have to be sound to inspire confidence?   It seems to be a simple obvious statement, so why is it not being applied?   Even Fed Chairman Mr. Ben Bernanke is calling for government to sort out the Federal deficit but all we see is a partisan battle that seems oblivious to their countries crying needs.   Or do we misunderstand the scene.   Are politics more important than good order?   Today saw the revelation that China owns more than $360 billion of Treasuries than was thought to be the case.   Does the government not worry about this dependence?   Or does the government want to ensure that the dollar weakens?   This is a strong impression pervading so many foreign exchanges now.

    And the inflation coming from the food and energy worlds is globally pervasive and capable of threatening what little economic growth there is in the developed world.  It will affect many, many countries and could reach into the U.S.A.   We do expect the U.K to experience a shrinking of its GDP in the first quarter of 2011 announcing the arrival of a double-dip recession, so shrinking growth could also affect the U.S. still with its lackluster economy.   What will this somewhat emasculated government do then?

    The Trade Deficit

    For so many years now the U.S. has run a Trade deficit balanced by a surplus on the Capital account.   This inflow of capital is the flow of power from the U.S. to foreign creditors.   Already we are seeing a tendency to try to diversify away from the U.S. dollar.   If this trend gathers momentum then the overall picture on the Balance of Payments could sink to a deficit.   How close is it now?   Or is it happening as foreign investors diversify into other currencies to stave off or reduce the impact on their surpluses of a falling dollar and overweight natures of their dollar holdings.   It’s bound to happen if only because of prudence.   And yet the U.S. is doing nothing to address the situation, why not?   We see that the main beneficiary of a weak dollar would be the U.S. on the trade front as well as on the debt front.  So one question that needs an answer is, does the U.S. government want a weak dollar?   Or is the U.S. government unconcerned at the U.S. dollar’s exchange rate.

    Inevitable weakness

    It seems that Europe and other nations are more worried about the U.S. dollar exchange rate than the U.S. is.   This laissez-faire attitude appears to confirm that the U.S. has no intention of protecting the U.S. dollar’s exchange rate.   For that reason we have to conclude that the U.S. dollar is inevitably headed to more weakness.   In the past the ‘top dog’ nature of the U.S. currency meant that the rest of the world had to suck it up.   Now, it’s only a matter of time before the U.S. is second to China’s economy in the world.   By 202 the Chinese economy will have doubled and we have no doubt that the Yuan will be the world’s ‘top dog’ currency, eclipsing the dollar.   When that happens and it may be well before 2020, the dollar like all other global currencies will have to pay its own bills with goods not simply freshly printed dollars.

    The $ and the € Gold Price

    Is it any wonder then that the gold price is rising in the U.S. dollar.   The euro is, the Swiss Franc, the Pound and other currencies are rising in the dollar too.   It’s not the gold price rising in the dollar it’s the dollar falling in terms of gold.  Likewise other currencies are not rising against the dollar, the dollar is falling against them.

    To get a clearer picture of what is really happening in the gold price one has to look at the gold price in the euro or the Swiss Franc.   That will reflect demand and supply better.   We have and will see the gold price rise in the euro for fundamental reasons but for accuracy’s sake we have to relegate the dollar price of gold to second or third place, because that’s more about the dollar than about gold.

    Gold as part of the global monetary system

    Today we read that the shareholders of the Bank of Italy, the Italian banks want to use the gold held by the central bank to shore up their balance sheets.   The Bank of Italy has gold reserves of 2451.8 metric tonnes (68.6% of their foreign exchange reserves) at the moment.   As shareholders assets, by including these reserves at market value, Italian banks look a lot healthier.   Yes, this is a touch of ‘cooking’ the books, but it recognizes the fact that gold has a monetary value, recognized in the monetary world.   In inter-nation currency transactions gold is being used to secure loans.   It has a de facto role in the monetary system that is getting harder and harder to avoid.

    Could gold be confiscated?

    Of course gold will never be confiscated for the same reasons it was in 1933 [money supply expansion].   Its role today can be as collateral for international transactions, as we see it being used now.   In a global world it is the only real monetary asset that bypasses nations to be global money that is truly mobile.   Should a nation find itself in trouble, much like these Italian banks, then gold sits there waiting to shore up balance sheets and serve as collateral for international currency swaps for nations with questionable creditworthiness.   Will the dollar fall into that category once the Yuan is a truly international currency?   Certainly holding gold will bypass that eventuality.   Even in the hands of the U.S. government its citizen’s gold could give the dollar a golden hue.

    In China it is understood by all that all assets of the nation including citizen’s gold is the property of the state.   In the U.S. citizens are allowed the privilege of owning gold and don’t have the right.   How small a step to confiscating the huge tonnage of citizen’s gold wherever it is.

    news.goldseek.com, 1 March 2011

  • Turkish People Have 5,000 Tons of Hoarded Gold, Dunya Reports

    Turkish People Have 5,000 Tons of Hoarded Gold, Dunya Reports

    By Ercan Ersoy – Dec 2, 2010 8:18 AM GMT+0100

    Turkish people keep about 5,000 tons of gold jewelry ‘hoarded under pillows’, Dunya reported, citing Osman Sarac, head of the Istanbul Gold Exchange.

    The amount is increasing as Turks see the metal as a savings tool because of rising global gold prices, he said, according to the newspaper.

    Trade volume on the Istanbul Gold Exchange is expected to rise to 150 tons in 2011 from 120 tons this year, he said.

    To contact the reporter on this story: Ercan Ersoy in Istanbul eersoy@bloomberg.net.

    To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.

    via Turkish People Have 5,000 Tons of Hoarded Gold, Dunya Reports – Bloomberg.

  • Poor Richard’s Report

    Poor Richard’s Report

    Poor Richard’s Report

    Over 300,001 readers
    My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institutional clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

    Prepare for the Worst it is Survival Time !

    Dear and Faithful Readers;
    This will be my last Poor Richard’s Report that will concern the US stock markets and investments for at least one year. I might, from time to time, make a comment or two on current events on a personal basis, but my financial advice is here and now.
    There are two main reasons. The first is that everything as we know it is going down a rat hole because of our past excesses. We must all share the blame. The second is that I have been elected Secretary of the Willimantic Rotary Club of Connecticut. That is a demanding office that requires a lot of learning and paperwork. It is a one-year office, but after the learning period comes Vice President and President after that. Those are the easy jobs, because then one is in a position of authority to delegate responsibilities.
    Before all the bubbles had burst we were in euphoric stock markets. Price to earnings ratios (PE’s) went to all time highs. We were placing bets because it was going to go up. We did not pay attention to earnings, sales, and debt ratios.
    Now the bubbles are still bursting, we have a credit crunch, and we are now putting our faith in two brilliant men, one of which does not believe in paying taxes. Our President is only as good as the people surrounding him. That is why former presidents did not want “yes” persons surrounding him. Some wanted both sides in order to decide.

    WE ARE DEFINITELY HEADING TOWARDS SOCIALISM WHICH MEANS WE ARE LOWERING OUR STANDARDS. EXPECT MORE GOVERNMENT INTERVENTION INTERFERRING IN OUR DAILY LIVES.
    The stimulus money does not produce continuous jobs. The majority of the jobs are one time shots. I believe the Government should have given the public the trillions of dollars to pay down debts of high usury rates that are actually legal extortion. Senator Dodd – where were you?
    As the general public gets squeezed tighter and tighter on meeting payments on a declining home value, they will sell the highest price stock they have to meet payments. This also means real estate is dead as we know it. Transactions can be done between individuals outside the banking system – that is why one sees so many for sale signs “by owner”.
    When I write that we are lowering our standards I really mean it. This has to do not only with what is a normal PE ratio, but a general slowing down of business. This in turn means lower sales, which entails lower debt coverage. This can lead to a spate of bankruptcies brought on by bond defaults. This can be a hazard for all types of funds because the fund managers have no idea where the “next shoe will fall”.
    Municipal debt is also suspect because the voters keep rejecting budgets until they are at the bare minimum. California is right now (July 9, 2009) on an IOU that many banks will not honor. Money can be made or lost by a change in the credit rating of a bond.
    Corporations will have a hard time competing with government debt for their debt offerings. This is happening world wide. Corporations that will be able to borrow will be paying high rates. This can force lesser companies to sink to the bottom.
    One relatively safe place is the 10 year Treasury. It is yielding a paltry 3.50% area. The core deflation rate is 1/1/2% so combine the two you come up with a real 5% rate of return. With the real economy sinking even further in the months ahead these bonds could yield even less; that means to you, savvy purchaser, higher prices. Govt. bonds at this printing are under owned. That is a real positive.
    The “professionals” are telling you not to stay in cash. What they mean is that they need you to buy their junk. Cash is king. Here is an ideal tale. Huntington Hartford was the chairman of the Great Atlantic and Tea Company in the 1920’s. Starting in 1928, I believe, he started selling his A&P grocery stores property and leasing them back. Everyone laughed. Then in around 1932 he started buying them back for pennies on the dollar. Cash will be king.
    Even if we throw out every politician that will be running for reelection in 2010 it will still take a few years to level the playing field.
    The SEC could pay a “finders fee” for successful whistle blowers. If that was the case, the SEC could not have ignored Bernie Madoff. That would make everyone squeaky-clean overnight.
    Bring back the short sale rule.
    Bring money market funds under bank supervision. They are really unregulated banks.
    Separate brokerage and banks, but have them able to competein an equitable manner, and have the rules revisitewd by the Congress every 7 to 10 uyears. The Investment Company Act of 1940 should be abolished. That law was passed to protect the nascent mutual fund industry. Now it is a baby gorilla without diapers.
    The best idea I have read and written about is having a short term trading penality of 80% gradually working down to zero after a holding period of 5 years and one day. That has the potential of leveling the playing field overnight. It would be like the Navy Seabees of World War II fame.
    The bureaucrats in Washington are so scared of emails that they now communicate with little pieces of paper crumbled up in their pockets that have no meaning except to the person reading it.
    The preferred I have mentioned in previous letters is still attractive at current prices because the income is 85% tax free and we are going to be taxed to “kingdom come”. Do not believe our President, but watch what he does. “Tricky Dick” Nixon will now be “Outrageous Obama”.
    The Canadians never fell for our sub prime crap, so they have a pretty good system. Sure they are hurting, but they are pro business. To qualify for citizenship you must have money, investments, and a job. Oh, by the way, you must also be able to speak English. Their universal health care system is falling apart and if we go on one they surely will reverse theirs because their citizens will have nowhere to go when sick.
    The comparison with the great depression of the 1930s is really ominous. The problem then was that the Federal Reserve was leaderless. The real man who was really in charge of the Federal Reserve was the President of the NY Federal Bank of New York, who died in 1928. It is often said he would have raised margin rates. Back then margin rates were 10%. Today margin rates are 10% for Government bonds and certain commodities. The reason for the 10% rate was that there was little movement. If the government really wanted to restore confidence back into the world markets and restore leadership and respect worldwide all they have to do is raise margin rates to realistic levels and raise taxes on short term trading while at the same time reward long term holders with no taxes.
    These exchanges were formed on the theory that they would benefit individual businesses not promoting speculation.
    When our systems were developed it was understood that short term speculators were needed to balance the market place, but excessive use and over indulgence are fatal flaws.
    Only a veto-proof Congress can pass these laws today. They can and should take control and pass these consumer protection laws (that is us, dear reader) and if the President vetoes these laws, then they override it. These votes should be bipartisan.
    During my years with Smith Barney they decided that it was very important to hire someone who knew what was going on in Washington. One analyst remarked that “if I knew the FDA was doing that , I would not have recommended the stock..” Good idea, but wrong people. They rubbed management the wrong way including some of our clients. The last person was Kevin Philips who used to be a speech writer and political advisor for Richard Nixon. He was very good, but way out of the main stream. So we dropped that idea, but continued to muddle through on our own.
    My point is that one has to be aware whyat is going on in Washington D.C. in order even think of investing successfully.
    Then there is an outside phenomenon to be aware of. It is called EL NINO. It occurs when a warm-water current in the southern part of the Pacific Ocean every so often changes its pattern. It is like if the Gulf Stream stopped flowing north for a year. Our weather patterns in the northern Atlantic region would change drastically. It is speculated that Magellan was able to sail around the world because El Niño had calmed the waters at the southern tip of South America. The economic consequences can be awesome. The anchovies swim in these waters, and when they are hard to find, or the catch for year dwindles because the current moved too far out to sea, the price of anchovies rises. Anchovies are not only food that is added to all kinds of feed, but they have certain chemicals that are an important source in basic manufacturing materials. So if the price of anchovies goes up because of scarcity, then we will have an honest inflation problem in a slowing economy.
    To summarize bluntly – we are in the eye of a perfect storm. The price to earnings ratios will continue to drop over the next year or so until the sellers stop selling. The problem is that there is nothing to bring back the buys at this time.
    My recommendation is to sell stocks. Buy the Canada Fund (CDE-NYSE -$11-$12 area) it is a closed end fund that owns Gold and Silver bars held in one of Canada’s largest banks. I would buy the Spider Gold Exchange Traded Fund (GLD- NYSE – $90 area). It sells for 1/10th the price of gold. The reason for gold is that I believe paper currencies will soon become worthless unless we move back to some form of a gold standard. The UBS bank in Switzerland estimates that if the US went back on the gold standard the price of gold would go to over $6,000 an ounce. Wise investors should hedge their accounts just in case paper currencies falter.
    AMERCO $2.125 preferred (AO NYSE $22 area) can be bought below its call price of $25.00
    85% of the dividend is tax-free. That is an 8.68% tax-free return.
    I also favor certain securities in Canada because if their business friendly attitude and their bankers are smarter than the average banker. They were not greedy, and thought things through like Peyton Patterson’s New Alliance Bank (NAL – NYSE- $12 area) and avoided the sub prime and most of securitization mess. Most of these Canadian stocks don’t qualify for hedge fund shenanigans so they can qualify for long term holdings in my opinion. These securities can provide an investor with positive surprises over time. Newalta Corp (Nasdaq- NWLFT-$4.5 area) or (Tor NAL $ 5.15 Canadian) is a fine mid size company.
    US Government Bonds are under-owned by the institutions and I would buy the 10-year or shorter, depending on the size of the funds you have.
    I would hold on to plenty of cash, because as Huntington Hartford discovered along with Joe Kennedy, when the bottom hits, cash is king.
    This is my last major letter for at least a year because I dislike writing negative letters and the markets have to take their due course. We are like a giant oil supertanker that takes 20 miles to change course in the open ocean.
    I will be available for private free consultations at the addresses listed below. My mission is to help you protect your funds – not misuse them. It is better to be fore warned – than blindsided.
    Keep the faith.
    Cheerio!!!

    Richard C De Graff
    256 Ashford Road
    RER Eastford Ct 06242
    860-522-7171 Main Office
    800-821-6665 Watts
    860-315-7413 Home/Office
    rdegraff@coburnfinancial.com

    This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

    Poor Richard’s Report

    Over 300,001 readers
    My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institutional clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.

    Prepare for the Worst it is Survival Time !

    Dear and Faithful Readers;
    This will be my last Poor Richard’s Report that will concern the US stock markets and investments for at least one year. I might, from time to time, make a comment or two on current events on a personal basis, but my financial advice is here and now.
    There are two main reasons. The first is that everything as we know it is going down a rat hole because of our past excesses. We must all share the blame. The second is that I have been elected Secretary of the Willimantic Rotary Club of Connecticut. That is a demanding office that requires a lot of learning and paperwork. It is a one-year office, but after the learning period comes Vice President and President after that. Those are the easy jobs, because then one is in a position of authority to delegate responsibilities.
    Before all the bubbles had burst we were in euphoric stock markets. Price to earnings ratios (PE’s) went to all time highs. We were placing bets because it was going to go up. We did not pay attention to earnings, sales, and debt ratios.
    Now the bubbles are still bursting, we have a credit crunch, and we are now putting our faith in two brilliant men, one of which does not believe in paying taxes. Our President is only as good as the people surrounding him. That is why former presidents did not want “yes” persons surrounding him. Some wanted both sides in order to decide.

    WE ARE DEFINITELY HEADING TOWARDS SOCIALISM WHICH MEANS WE ARE LOWERING OUR STANDARDS. EXPECT MORE GOVERNMENT INTERVENTION INTERFERRING IN OUR DAILY LIVES.
    The stimulus money does not produce continuous jobs. The majority of the jobs are one time shots. I believe the Government should have given the public the trillions of dollars to pay down debts of high usury rates that are actually legal extortion. Senator Dodd – where were you?
    As the general public gets squeezed tighter and tighter on meeting payments on a declining home value, they will sell the highest price stock they have to meet payments. This also means real estate is dead as we know it. Transactions can be done between individuals outside the banking system – that is why one sees so many for sale signs “by owner”.
    When I write that we are lowering our standards I really mean it. This has to do not only with what is a normal PE ratio, but a general slowing down of business. This in turn means lower sales, which entails lower debt coverage. This can lead to a spate of bankruptcies brought on by bond defaults. This can be a hazard for all types of funds because the fund managers have no idea where the “next shoe will fall”.
    Municipal debt is also suspect because the voters keep rejecting budgets until they are at the bare minimum. California is right now (July 9, 2009) on an IOU that many banks will not honor. Money can be made or lost by a change in the credit rating of a bond.
    Corporations will have a hard time competing with government debt for their debt offerings. This is happening world wide. Corporations that will be able to borrow will be paying high rates. This can force lesser companies to sink to the bottom.
    One relatively safe place is the 10 year Treasury. It is yielding a paltry 3.50% area. The core deflation rate is 1/1/2% so combine the two you come up with a real 5% rate of return. With the real economy sinking even further in the months ahead these bonds could yield even less; that means to you, savvy purchaser, higher prices. Govt. bonds at this printing are under owned. That is a real positive.
    The “professionals” are telling you not to stay in cash. What they mean is that they need you to buy their junk. Cash is king. Here is an ideal tale. Huntington Hartford was the chairman of the Great Atlantic and Tea Company in the 1920’s. Starting in 1928, I believe, he started selling his A&P grocery stores property and leasing them back. Everyone laughed. Then in around 1932 he started buying them back for pennies on the dollar. Cash will be king.
    Even if we throw out every politician that will be running for reelection in 2010 it will still take a few years to level the playing field.
    The SEC could pay a “finders fee” for successful whistle blowers. If that was the case, the SEC could not have ignored Bernie Madoff. That would make everyone squeaky-clean overnight.
    Bring back the short sale rule.
    Bring money market funds under bank supervision. They are really unregulated banks.
    Separate brokerage and banks, but have them able to competein an equitable manner, and have the rules revisitewd by the Congress every 7 to 10 uyears. The Investment Company Act of 1940 should be abolished. That law was passed to protect the nascent mutual fund industry. Now it is a baby gorilla without diapers.
    The best idea I have read and written about is having a short term trading penality of 80% gradually working down to zero after a holding period of 5 years and one day. That has the potential of leveling the playing field overnight. It would be like the Navy Seabees of World War II fame.
    The bureaucrats in Washington are so scared of emails that they now communicate with little pieces of paper crumbled up in their pockets that have no meaning except to the person reading it.
    The preferred I have mentioned in previous letters is still attractive at current prices because the income is 85% tax free and we are going to be taxed to “kingdom come”. Do not believe our President, but watch what he does. “Tricky Dick” Nixon will now be “Outrageous Obama”.
    The Canadians never fell for our sub prime crap, so they have a pretty good system. Sure they are hurting, but they are pro business. To qualify for citizenship you must have money, investments, and a job. Oh, by the way, you must also be able to speak English. Their universal health care system is falling apart and if we go on one they surely will reverse theirs because their citizens will have nowhere to go when sick.
    The comparison with the great depression of the 1930s is really ominous. The problem then was that the Federal Reserve was leaderless. The real man who was really in charge of the Federal Reserve was the President of the NY Federal Bank of New York, who died in 1928. It is often said he would have raised margin rates. Back then margin rates were 10%. Today margin rates are 10% for Government bonds and certain commodities. The reason for the 10% rate was that there was little movement. If the government really wanted to restore confidence back into the world markets and restore leadership and respect worldwide all they have to do is raise margin rates to realistic levels and raise taxes on short term trading while at the same time reward long term holders with no taxes.
    These exchanges were formed on the theory that they would benefit individual businesses not promoting speculation.
    When our systems were developed it was understood that short term speculators were needed to balance the market place, but excessive use and over indulgence are fatal flaws.
    Only a veto-proof Congress can pass these laws today. They can and should take control and pass these consumer protection laws (that is us, dear reader) and if the President vetoes these laws, then they override it. These votes should be bipartisan.
    During my years with Smith Barney they decided that it was very important to hire someone who knew what was going on in Washington. One analyst remarked that “if I knew the FDA was doing that , I would not have recommended the stock..” Good idea, but wrong people. They rubbed management the wrong way including some of our clients. The last person was Kevin Philips who used to be a speech writer and political advisor for Richard Nixon. He was very good, but way out of the main stream. So we dropped that idea, but continued to muddle through on our own.
    My point is that one has to be aware whyat is going on in Washington D.C. in order even think of investing successfully.
    Then there is an outside phenomenon to be aware of. It is called EL NINO. It occurs when a warm-water current in the southern part of the Pacific Ocean every so often changes its pattern. It is like if the Gulf Stream stopped flowing north for a year. Our weather patterns in the northern Atlantic region would change drastically. It is speculated that Magellan was able to sail around the world because El Niño had calmed the waters at the southern tip of South America. The economic consequences can be awesome. The anchovies swim in these waters, and when they are hard to find, or the catch for year dwindles because the current moved too far out to sea, the price of anchovies rises. Anchovies are not only food that is added to all kinds of feed, but they have certain chemicals that are an important source in basic manufacturing materials. So if the price of anchovies goes up because of scarcity, then we will have an honest inflation problem in a slowing economy.
    To summarize bluntly – we are in the eye of a perfect storm. The price to earnings ratios will continue to drop over the next year or so until the sellers stop selling. The problem is that there is nothing to bring back the buys at this time.
    My recommendation is to sell stocks. Buy the Canada Fund (CDE-NYSE -$11-$12 area) it is a closed end fund that owns Gold and Silver bars held in one of Canada’s largest banks. I would buy the Spider Gold Exchange Traded Fund (GLD- NYSE – $90 area). It sells for 1/10th the price of gold. The reason for gold is that I believe paper currencies will soon become worthless unless we move back to some form of a gold standard. The UBS bank in Switzerland estimates that if the US went back on the gold standard the price of gold would go to over $6,000 an ounce. Wise investors should hedge their accounts just in case paper currencies falter.
    AMERCO $2.125 preferred (AO NYSE $22 area) can be bought below its call price of $25.00
    85% of the dividend is tax-free. That is an 8.68% tax-free return.
    I also favor certain securities in Canada because if their business friendly attitude and their bankers are smarter than the average banker. They were not greedy, and thought things through like Peyton Patterson’s New Alliance Bank (NAL – NYSE- $12 area) and avoided the sub prime and most of securitization mess. Most of these Canadian stocks don’t qualify for hedge fund shenanigans so they can qualify for long term holdings in my opinion. These securities can provide an investor with positive surprises over time. Newalta Corp (Nasdaq- NWLFT-$4.5 area) or (Tor NAL $ 5.15 Canadian) is a fine mid size company.
    US Government Bonds are under-owned by the institutions and I would buy the 10-year or shorter, depending on the size of the funds you have.
    I would hold on to plenty of cash, because as Huntington Hartford discovered along with Joe Kennedy, when the bottom hits, cash is king.
    This is my last major letter for at least a year because I dislike writing negative letters and the markets have to take their due course. We are like a giant oil supertanker that takes 20 miles to change course in the open ocean.
    I will be available for private free consultations at the addresses listed below. My mission is to help you protect your funds – not misuse them. It is better to be fore warned – than blindsided.
    Keep the faith.
    Cheerio!!!

    Richard C De Graff
    256 Ashford Road
    RER Eastford Ct 06242
    860-522-7171 Main Office
    800-821-6665 Watts
    860-315-7413 Home/Office
    rdegraff@coburnfinancial.com

    This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

  • Poor Richard’s Report

    Poor Richard’s Report

    Poor Richard’s Report

    Over 300,000 readers
    My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institution clients.

    A CASE FOR GOLD
    Hi:
    I have been trying to write this market letter for over a week now. My problem is that I want to keep it simple and right to the point without causing a panic or looking foolish. Tough Job!
    So here goes my fourth and hopefully my last try.
    We have been experimenting with fiat currency since August 15, 1971 when President Nixon took us off the gold standard. This allowed politicians and financiers to create all sorts of funds without any solid backing except the US Dollar. So, four decades later the world economies are awash in dollar debts that have become tainted to say the least. We are in a horse race that has come up lame. The problem is that some of the other thoroughbreds play by their own rules.
    The major players have suffered huge losses that they have not been accustomed to for a very long time. It is the major players that carry monstrous debt and it has trickled down to you and me. The whole world is tapped out as far as standing in a banking line for credit.
    Cadbury (The British Chocolate Company) came to the bond market the same time the British government did. Cadbury got the better rate. Microsoft (NASDAQ –MSFT) will probably do better than the US Government Bond offerings since MSFT is a true AAA rated security. When corporations can borrow money at a cheaper rate than their governments something is very wrong.
    We are in a worldwide recession, which means business is slow and unemployment is rising. This also means people’s spending habits are changing.
    We are in, I believe, a topping out process of a major bear market rally. The second leg down could bring blood in the streets. It could start as a major corporation fails to pay its interest on a semi annual debt payment. When business slows down this could hurt their debt coverage and put it in jeopardy because their interest payments estimates might have been based upon higher sales and earnings.
    There are as few as five corporations that have debt rated AAA (Highest, or best rating). This fact means that with a slow economy, many corporations will not be able to pay their debt payments. Wall Street watches dividends, I watch bonds. Bonds come first, then Preferred stock followed by common stock. Bonds are considered safer than common stocks, so when a bond defaults it could send shock waves throughout the world.
    This could cause a collapse of stocks as mutual funds will just sell- hit the bid- and currencies falter and precious metals rise. Especially gold.
    I have noticed that when the dollar weakens gold rises. I believe that central bankers sell our debt and then convert our dollars into gold bullion.
    Going back to some form of the gold standard will put a break on government spending by any government. Too much spending will make that currency worthless. Either way it is a tough choice.
    UBS (a Swiss Bank) estimates that if the US went back on the gold standard, gold would go to $6,000 an ounce. Add in China and Japan and we are looking at $9,000 and ounce. Gold is presently selling at a little under $900.
    We can buy the Spider Gold Trust (NYSE-GLD-$90) that trades at 1/10 the price of gold. It trades dollar for dollar with the price of regular gold. If gold trades down GLD will trade down. If gold trades up the GLD will trade up. All you pay is NYSE commission. No fancy management fees and all that garbage. You can sell anytime and receive a check in three days after the sale. This can be your personal hedge. You do not need a lot of money for personal protection. Buying too much would be a speculation, which could sink you, if it happens. There are no sure things in this world, as we sure are learning now, so don’t be foolish.
    If you have any problems, please do not hesitate to get in touch with me.

    Richard C De Graff
    256 Ashford Road
    RER Eastford Ct 06242
    860-522-7171 Main Office
    800-821-6665 Watts
    860-315-7413 Home/Office
    rdegraff@coburnfinancial.com

    This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.