Europe and the New World Order; Gold Has Bottomed!

By Victor Sperandeo with the Curmudgeon

Europe and QE -another failed money printing con job?

After politically forcing the Judges of Europe ("The European Court of Justice") to approve the illegal¹ purchase of European Sovereign Debt, ECB President Mario Draghi announced on Thursday that the ECB would purchase 60 Billion Euro’s worth of bonds each month, through at least Sept 2016. That's a total of at least €1.1 Trillion!

¹ ECB bond purchases are clearly not permitted in the original E.U. Treaty (The MAASTRICHT Treaty, February 1992). Here's a direct quote from the Treaty:

21.1. In accordance with Article 104 of this Treaty, overdrafts or any other type of credit facility with the ECB or with the national central banks in favor of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.

Jens Weidmann, the head of Germany's central bank, said he believed such a bond-buying program would be equivalent to direct financing of Eurozone national governments, which is expressly prohibited by the European Union's founding Maastricht treaty as noted above.

[OK, so now we have established that EU laws are worthless if politicians don't like them and it interferes with their power and agenda. This is also true in the U.S. as per President (King) Obama policies of usurping Congress.]

A great deal of information is being written on the ECB's QE, so as not to be redundant let's discuss something off the beaten path. We agree with what many have written: "QE hasn't worked in Japan and other than the 3rd quarter of 2014 in the U.S." GDP was reported as +5% (annual rate) in that quarter, which cannot be attributed to QE because one quarter out of 24 proves nothing.

Curmudgeon Note: QE can only stimulate an economy if the bank reserves created by central bank bond purchases actually go into the real economy and money velocity increases. If those reserves sit idle at the Fed or in bank accounts, there's no effect on the economy. I maintain that a large amount of the money created by central banks has flowed into stocks, bonds and perhaps real estate speculation. But not the real economy!

The problem, to quote Professors J.F. Villaverde University of PA and Lee Ohanian of UCLA:

"Europe began adopting high-tax, high-spending high-regulation and competition-restricting polices that depressed the incentives to hire new workers to invest in new plants and equipment and to take risks to start new business."

That's the reason nations are struggling these days! One might logically ask: "Why is the EU so important to its leaders to maintain?"

In January 2010, I predicted that the European Union would fail and break-up. I didn't put a date on this event as governments are too powerful to time such events. It was academic, in that I portrayed the EU concept as flawed and destined to fail. For example, Greek's and German's have different lifestyles, work ethics and goals. The powers that be know this, but it was subordinate to "The New World Order," i.e. a model of government whereby the world is run by a commission of unelected philosopher-kings.

Thereby, if the EU fails, so will the creation of a New World Order (NWO). It seems the "troika" heads will do anything to make the NWO stay alive - including bypassing the laws they created for the EU.

The NWO was first mentioned by a U.S. President - George Bush Sr. in a speech on September 11, 1991. Also in the same year, David Rockefeller said in Baden-Baden, Germany:

"We are grateful to the Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries."

From a 1971 best-selling book "None Dare Call It Conspiracy" by Gary Allen and Larry Abraham:

"If one understands that socialism is not a share-the-wealth program, but is in reality a method to CONSOLIDATE AND CONTROL the wealth, then the seeming paradox of the super-rich men promoting socialism becomes no paradox at all."

So understand this is why stocks go up with global central banks in charge...the end game is power and money towards world control. Sounds like a conspiracy, but sadly I can't find another conclusion. When governments use zero short term interest rates and bond buying for 6+ years as a "cure" for their economies, but median incomes keep dropping, growth is very low, and "deflation'' is the trend (or feared) why keep doing QE unless the central banks want stock price to rise?

Scratch your head at the curve ball Martin Wolf of the FT throws when he sites "chronic demand deficiency syndrome" as the problem which is creating deflation. That, in turn, is the excuse for the EU's new QE.

So stable prices or small price increases are bad for people/consumers?

Governments are duplicitous in their use of propaganda to talk about "rising prices" as being unimportant, as they say the focus should be on the "core rate" of inflation (actual inflation less food and energy). When government does not want to say actual inflation is too high, they use the "core rate" if it's lower to say inflation is not a problem. Therefore, more QE is OK because inflation is low.

What if the core rate is higher than the actual reported inflation rate² (with food and energy included)? Than the actual inflation rate is cited as an indicator of deflation, which is again used to justify more QE. It's a game of heads QE wins and tails you lose (more QE).

²Last year, the U.S. CPI was +0.75%, while the core rate was +1.6%. That discrepancy was due to falling energy and agricultural commodity prices. Note the S&P Goldman Sachs Commodity Index (which is heavily weighted to energy) was -33.87% in 2014. The Bloomberg Commodity Index was
-19.01% last year.

Gold, Gold, You are Making Me Old!

Gold has bottomed in my view. Let me say in full disclosure: I am an investor in gold and have been for a long time ... I have not sold any gold since 1992 and have bought it along the way since.

Curmudgeon Note: I have also been long gold bullion, futures and mining stocks for a very long time. However, in 1984 and early 1985 I was short gold futures and made money on those trades. I firmly believe that gold is the best investment one can make in these uncertain times, especially with financial assets being so overvalued.

Gold is not only an inflation hedge, but a chaos hedge as well. Before gold was permitted to be held as an investment, the leading gold mining stock - Homestake Mining went from $8.5 in 1929 to $68 by 1936. That rise occurred while the CPI declined 20+% in the early 1930's.

From a fundamental point of view, with interest rates being charged on bank deposits in some countries (e.g. Switzerland), you can own gold as real money without a debit.

I think that the continued display of monetary recklessness, when something obviously is not working, is like driving drunk and having more to drink because you haven’t had an accident yet!

Technically, gold made a closing low (bear market bottom) on 11/6/14 at $1142.4 and tested that low on 11/28/14 touching $1141.5 only to close near the highs of the day's trading range ($88 dollars on the day).

A change of the major trend is not only not making new lows, it is making new rally highs. In that end gold rallied from above the 10/21/14 highs of $1251.7 and the 12/9/14 $1241.3 rally highs, by closing at $1296 on 1/23/15.

Gold has been by far the strongest "commodity" in the face of a crash in oil prices and a huge rally in the U.S. dollar (the Euro has declined from a 2014 high of 1.40 in March to 1.12 last Friday, and it seems headed lower).

This Sunday's election in Greece is very important for the direction of gold prices. A vote for the Syriza party is bullish for gold.

Reuters News Flash:

A radical left-wing party vowing to end Greece's painful austerity program won a historic victory in Sunday's parliamentary elections, setting up a showdown with the country's international creditors that could shake the Eurozone.

"The verdict of the Greek people ends, beyond any doubt, the vicious circle of austerity in our country," Tsipras told a crowd of rapturous flag-waving supporters.

Syriza appeared just shy of the majority that would allow it to govern alone. With 97.6 percent of polling stations counted, Syriza had 36.4 percent — and 149 of parliament's 300 seats — versus 27.8 percent for Prime Minister Antonis Samaras' conservatives.

The issue is the Syriza party's demand for debt forgiveness or they will leave the EU. This could be the end of the EU if Spain follows Greece's lead with an election later in the year.

I suggest a 5% -10% allocation in only physical gold and preferably U.S. gold minted coins, no paper gold (ETFs or gold mining stocks/mutual funds). Here's an English proverb worth pondering: "When we have gold we are in fear; when we have none we are in danger."

Till next time...

The Curmudgeon
ajwdct@sbumail.com

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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