Goldman Sachs, Bank of America, UBS all issue warnings to investors on US economy

September 10, 2012

What we’ve been seeing in the stock market in recent weeks and months could very well be the ultimate example of “irrational exuberance.”

Investors have been chasing the stock market higher in anticipation of the Federal Reserve turning on the money pumps and debasing the US dollar.

How is it that investors have come to expect a positive outcome from that?

Well, volumes could be filled answering that question, but we’d like to report a more useful exercise for your time: three of the world’s largest financial institutions have issued warnings about the US economy which can only be taken as a signal to get out of the stock market and get into safe havens.

Goldman Sachs, Bank of America and UBS have all issued such warnings in recent weeks and investors best pay attention. When folks in the business of being cheerleaders for the stock market start waving red flags, it is time to head for the exits before things get REALLY ugly…probably after election day in November.

UBS economist Drew Matus warned on Bloomberg TV that there are signs that the US economy is headed for its worst long-term decline in 60 years:

Bank of America’s top economist, Ethan Harris, warns that current conditions are the equivalent of the “eye” of a hurricane. For those who don’t know, conditions are very calm and even serene inside the eye of the storm, but once it passes, the worst of the storm immediately rises up:

Finally, as if all that was not enough, Goldman Sachs chief US equity strategist, David Kostin, warns that the approaching “fiscal cliff” is a lot worse than investors realize and investors in the stock market are being set up for a nasty fall:

What all this suggests is that investors need safe havens and alternative investments for the future. Rare coins and precious metals fit that bill nicely, since they have historically moved independently of stocks and are not subject to many of the risks that negatively impact paper assets…


US Regulators Tell Banks to Prepare for Collapse

August 12, 2012

Here’s a news story that does anything BUT create confidence in the investment world.

US regulators have told America’s largest banks to prepare for a financial crisis to prevent a collapse because they won’t be able to count on government help next time there is a serious economic and financial crisis.

This is certainly no surprise given the US government’s fiscal condition, reduced credit rating and monetary policy at the apex of what it can do to attempt to blow wind into the economy’s sails as it is. But it is also a concern because, as JP Morgan Chase has shown recently, counting on these financial institutions to be responsible is a questionable policy.

Investors need to take their own action to prepare for a financial crisis. That means NOT depending on ANYONE’S promise to repay. Gold is an asset in its own right, completely independent of anyone’s promises. That’s why it has stood solid as a store of value and trusted medium of exchange for 5000 years…

U.S. banks told to make plans for preventing collapse

U.S. regulators directed five of the country’s biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help…



June 21, 2012

Today the financial markets were hit hard by the announcement that Moody’s Investors Service had downgraded its ratings of 15 major investment banks, including all of the world’s top 10 investment banks.

Household names like Bank of America, Citigroup, J.P. Morgan Chase, Goldman Sachs and Morgan Stanley were among the financial institutions downgraded because Moody’s sees them as vulnerable to downturns in global investment markets and the world economy.

It was no surprise the US stock markets took the news hard, falling over 2% on the day, but many investors are no doubt bewildered by gold’s reaction to the news, since the yellow metal fell as well.

Gold’s reaction was actually in keeping with its cyclical role in such crises. Often at the outset of a financial crisis, the price of gold will fall as investors use their gold holdings as a certain source of liquidity to cover losses in other parts of their portfolio. This is exactly what happened in 2008 when the US financial system nearly melted down. Gold fell at first, but eventually rebounded sharply and finished the year in positive territory, while the Dow was down 33% for the year.

We expect a similar reaction this time and recommend that our clients view current levels as exceptional buying opportunities for physical gold investments of all types.

Goldman Sachs: The Fed is about to restart the money pump

June 20, 2012

Goldman Sachs is a lot of things to a lot of people. The Wall Street firm is certainly not without controversy.

But one thing critics and fans alike will admit about Goldman Sachs is that the firm has insider knowledge of the Federal Reserve. That’s because for years there has been a revolving door between Goldman Sachs and the Treasury Department.

Employees go back and forth between the Wall Street firm and government service at the Treasury Department in general and the Federal Reserve in particular.

That’s why when Goldman Sachs makes a statement about Federal Reserve monetary policy, investors need to listen carefully.

This week Goldman Sachs has issued an advisory forecasting that the Federal Reserve will soon resume an accommodative monetary policy designed to spur economic activity. The method Goldman Sachs says the Fed will use to do this will be to go out in the open market and buy US Treasuries as well as US mortgage-backed securities, such as bonds issues by GNMA, FNMA and Freddie Mac.

The idea is to inject cash into the economy and attempt to keep interest rates on Treasury and mortgage-backed issues down.

It is a theory that looks good on paper, but one which has not really worked all that well in practice. The Fed has been priming its money pump over and over for some time now and yet the US economy has remained anemic.

These types of monetary policy moves are much more likely to undermine the value of the US dollar and create new bubbles than they are to actually stimulate real economic activity.

The world is already awash in dollars. Adding more dollars at this point should meet squarely with the law of diminishing returns. All injecting more dollars into the system will do at this point is further undermine the value of the existing dollars.

It is simple supply and demand at work. If the supply of an item is increased with no corresponding increase in demand for that item, the value of that item falls.

And make no mistake, there is no increasing demand for dollars. If there was, the Fed wouldn’t have to go out on the open market and buy US Treasuries in the first place. If demand for US Treasuries was already robust, the Fed would be seeking other means to stimulate economic activity.

No doubt the markets will cheer this move by the Fed because more money swashing around in the system over the short term means more money available to invest in the stock market. And low interest rates on Treasuries means that there is less competition for those stocks from what were formerly thought of as “risk-free” government bonds. (Is it any wonder why S&P downgraded the USA‘s credit rating 10 months ago?)

But the real play here is gold. Because gold will not only benefit from the low interest rate policies over the short-term, but, unlike stocks, will also benefit from the undermining of our dollar over the long-term.

Gold serves as a counterweight to the US dollar because the US dollar is the world’s reserve currency of choice and also because gold is priced in dollars. Any decrease in the value of the dollar is usually met with an increase in the price of gold.

This week, at least according to Goldman Sachs, the Federal Reserve is planting the seeds for rising gold prices down the road.

Get your gold now while the price is still low.