joseph insight 2013-03

7/28/2019 Joseph Insight 2013-03

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In This Issue

News and Analysis 1

Italian Voters Revolt 1

Ireland Pioneers a StealthDebt-Fix 4

Your Wealth is Now BeingTransferred 4

Successful Print-EraInvesting 5

China 8

Weather 8

Investment Themes 9

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Welcome to this Issue of Joseph Insight!

My 2013 Economic Forecast is now available both in MP3 and video, witha full slide deck.

Our top conference of the year, the Marketplace Christianity National Con-ference is coming April 25-27th. If you are a reformer in your sphere of lifethis conference is a must-attend. Our keynote speaker this year will beChuck Ripka, who led over 100 people to the Lord while a banker. Dozens

of leaders who are representing Christ in profound ways will share their sto-ries, including Phillip Chang, CEO of Yogurt Land, Michael Stephens, theStarbucks Prophet.

Every Blessing, Bob Fraser

NEWS ANDANALYSIS

Italian Voters Revolt

Maybe you were watching the stock market on Feb 25

th

the Dow jumped80 points, and then proceeded to fall 300 points:

This same dramaticrotation appeared inevery market: stocks,bonds, and currencies.

The issue of coursewas the Italian elec-tions. Italian voters re-

jected the existing polit-ical powers, and reject-

ed austerity.

The main winner was comedian BeppeGrillo, whose campaign was marked byprofanity-laden tirades against the estab-lishment.

His positions are nothing short of idioticHere is a brief rundown of Grillonomicsfrom JP Morgan:

March2013

027
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The election left Italy with a fragmented govern-ment unable to form a coalition. FromCNN:

This is a case of gridlock, said James Walston of the

American University of Rome. Nothing could be worse

for Europe.

International concern is high that Italy -- the third-largest

economy in the eurozone and the eighth-biggest in the

world -- could face fresh elections if no coalition

government can be formed.

In any case, a weak government would probably struggle

to push through the tough reforms many observers feel

are needed to get the economy back on track.

Symbolizing Italians' own unhappiness with austerity and

their political leaders, a quarter of the vote in the lower

house went to the anti-establishment Five Star protest

movement led by comedian Beppe Grillo, who has said he

won't join forces with any established political parties.

A bloc led by Mario Monti, the former head of a

technocrat government that steered Italy through the

worst of the eurozone crisis last year, trailed badly in

fourth place.

Markets reacted negatively to the uncertainty Tuesday,

with fears about the eurozone crisis coming once more to

the fore after months during which confidence had

grown.

Italian interest rates spiked up, reflecting the freshuncertainty in Italy:

The Italian vote highlights the tension inherent inthe Europeans current approach to fixing theiproblems. The austerity measures are causinggreat economic hardship on the populace of south-ern Europe; unemployment is over 20% and theeconomy is slowing.

The Danger of Civil Unrest

It does not seem possible that Europe can continuethis approach and avoid civil unrest. Famed inves-tor George Soros said this: I am terribly concernedabout the euro potentially destroying the EU. Thereis a real danger that the solution to the financiaproblem creates a really profound political prob-lem.

Historically, high unemployment and especiallyyouth unemployment are the breeding grounds ofcivil unrest. Today unemployment in southern Eu-rope is over 20% and youth unemployment is over50%. How long can they endure before frustrationboils over?

Soros believes as I do that the Euro itself is bound

to break up the European Union. He says it maytake generations but would result in a tragedy oflost political freedom and economic prosperity.(Article)

Austerity Cannot Fix the Problems in Europe

The austerity approach does nothing to fix the un-derlying problems in the Eurozone: the imbalancescreated by the Euro as well as over-regulation and
http://www.cnn.com/2013/02/26/world/europe/italy-election/index.htmlhttp://www.cnn.com/2013/02/26/world/europe/italy-election/index.htmlhttp://www.cnn.com/2013/02/26/world/europe/italy-election/index.htmlhttp://openeuropeblog.blogspot.com/2013/02/george-soros-euro-is-bound-to-break-up.htmlhttp://openeuropeblog.blogspot.com/2013/02/george-soros-euro-is-bound-to-break-up.htmlhttp://openeuropeblog.blogspot.com/2013/02/george-soros-euro-is-bound-to-break-up.htmlhttp://openeuropeblog.blogspot.com/2013/02/george-soros-euro-is-bound-to-break-up.htmlhttp://www.cnn.com/2013/02/26/world/europe/italy-election/index.html


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beaurocracy, which I have written about extensive-ly.

Soros, in a Dutch TV interview said the austerityprogram was counter-productive and cannot suc-ceed. He said it is leading Europe into a long-lasting depression. It is indeed.

Raising Taxes Cuts Tax RevenuesIn the last few months I have been writing abouthow tax increases actually reduce tax revenues.Here is the latest proof point from Greece: Greekofficials recently doubled property taxes and madebig hikes in income taxes. The result? Tax reve-nues have fallen by 16% from a year earlier(article).

Austerity Slows the Economy

Austerity means reducing government expendi-tures, which is good in the long-term, but in theshort-term slows all economic activity. These chartsshow the economies in Europe continuing to slip:

Austerity Increases Government Debt

As austerity slows the economy, the slower econ-omy means less taxes collected, and greater gov-ernment spending on safety net programs like

welfare and unemployment. This is why govern-ment debt soars in bad times.

It is also creating a debt-trap in many nations asituation where debt becomes too large to realisti-cally be paid back. A debt-to-GDP ratio over 100%is considered unsustainable:

These official debt-to-GDP figures are high indeed

But as high as they are, they are also understatedFor example, Spain does not count the debt of itsregions or its guarantees to its banks and othebusinesses, which add another $350B, making itstrue debt-to-GDP ratio closer to 110%.

When debt grows faster than the economy, it cangrow to where it cannot be paid back a debtrap. Greece, Italy, Portugal and Ireland are closeto such a debt trap, if not already in it.

Europe Rethinks Austerity, which Means

Europe is already rethinking its austerity approachto the economic crisis.

France to pause austerity, cut spending nexyear instead (Reuters)

G-20 to Consider Slowing Pace of Budget Cuts(WSJ)

The politicians understand that they cannot stay inpower on an austerity platform. The harder theypush toward austerity, the more likely the peoplewill revolt, as they just have in Italy.

As Europe gets closer to abandoning austeritythere is only one other solution: you guessed it the universal solution for all that ails, the perfececonomic panacea money printing.
http://www.zerohedge.com/news/2013-02-07/greek-tax-hikes-backfire-tax-revenues-plunge-16http://www.zerohedge.com/news/2013-02-07/greek-tax-hikes-backfire-tax-revenues-plunge-16http://www.zerohedge.com/news/2013-02-07/greek-tax-hikes-backfire-tax-revenues-plunge-16http://www.reuters.com/article/2013/02/23/us-france-budget-idUSBRE91M07T20130223http://www.reuters.com/article/2013/02/23/us-france-budget-idUSBRE91M07T20130223http://www.reuters.com/article/2013/02/23/us-france-budget-idUSBRE91M07T20130223http://online.wsj.com/article/SB10001424127887323478004578304311743141072.html?mod=ITP_pageone_3http://online.wsj.com/article/SB10001424127887323478004578304311743141072.html?mod=ITP_pageone_3http://online.wsj.com/article/SB10001424127887323478004578304311743141072.html?mod=ITP_pageone_3http://online.wsj.com/article/SB10001424127887323478004578304311743141072.html?mod=ITP_pageone_3http://www.reuters.com/article/2013/02/23/us-france-budget-idUSBRE91M07T20130223http://www.zerohedge.com/news/2013-02-07/greek-tax-hikes-backfire-tax-revenues-plunge-16


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Ireland Pioneers a Stealth Debt-Fix

Last month, a momentous event took place in Eu-ropes financial landscape. It will probably prove tobe one of the most important events of 2013 and aharbinger of what is to come, though it was barelyreported in the financial press. It was engineered atthe hands of the Irish. Ahhh, those clever Irish! But first a little background.

In 2010 the insanely overleveraged Irish banks hadlosses of 100B, endangering the entire nation. Atthe insistence of the EU, the Irish governmentagreed to bail out the banks, borrowing 67.5Bfrom the EU another 17.5 billion from its pensionand cash accounts. Angered, the Irish people threwout that government at the next election.

Since then there have been many calls to repudiate

the debt simply not pay it back. But this would beproblematic for the EU. When the nations agreed tothe Euro, they all agreed that the European CentralBank (ECB) would never able to finance the debt ofindividual nations. Germany in particular wantedassurance that the notoriously profligate southernEuropean nations would never be able to printmoney to finance their government debts at theexpense of the other European nations, especiallyGermany.

But, if a nation were to borrow from the ECB, thennot repay, in essence the ECB financed the deficit

a huge issue in Europe. The door would beopened for the financing of all debts, at the ex-pense of the fiscally responsible nations.

The Irish knew they could not afford to repay thenumbers were too big, and the Irish people too an-gry; most the European elite knew they could notrepay; but not repaying would violate one of theprimary tenets of the EU itself and would enragethe German people who already feel like they arethe ones paying for everyone elses largesse andfoolishness.

The Irish came up with a very clever solution onethat may be a road-map for the other debt-trappednations of Europe.

I vividly remember years ago a venture capitalisttold me with a sadistic grin, I am happy to let acompany set the price of my investment so long asI can set the terms. Terms are more important thanprice. I have never forgotten it.

And so the Irish have in essence done the sameThey will repay, but on their own terms. They haveagreed to pay the debts, but not over 10 years atan 8% interest rate (the previous deal), but over 25-40 years at a 3% rate (FT, Bloomberg). It seemsinnocuous enough, doesnt it? But consider this oneimportant factor in the equation: inflation. At 5%inflation, in 34 years (the average maturity of thenew deal) a Euro would be worth only 18% of itsoriginal value. At a 10% inflation rate, it would beworth only 3% of its original value.

Ireland plans to let inflation pay their debts.

And the ECB has given it the nod. The ECB hastacitly consented to this approach. ECB PresidentMario Draghi said the ECB governing Council hadtaken note of the deal.

The Bottom Line

Watch for the other PIIGS nations to follow suit,delaying their repayments. Everyone will deny thait is monetary financing, because the debts will infact be repaid, even if they are repaid in Euros thatare worth much less.

And watch for the EU to engineer inflation, whichwill allow the debtor nations to escape their debttrap.

Your Wealth is Now Being Trans-ferred

Deposit your money in a bank, collect interest, andin a few years you are ahead, right? Not exactly

In the world of yesterday, you invested your moneyand you got a return, dependent on your risk:
http://www.ft.com/intl/cms/s/0/a4564eae-713a-11e2-9d5c-00144feab49a.html#axzz2MOdb9tYHhttp://www.ft.com/intl/cms/s/0/a4564eae-713a-11e2-9d5c-00144feab49a.html#axzz2MOdb9tYHhttp://www.ft.com/intl/cms/s/0/a4564eae-713a-11e2-9d5c-00144feab49a.html#axzz2MOdb9tYHhttp://www.bloomberg.com/news/2013-02-08/ireland-was-right-to-force-ecb-s-hand-on-debt-relief-plan.htmlhttp://www.bloomberg.com/news/2013-02-08/ireland-was-right-to-force-ecb-s-hand-on-debt-relief-plan.htmlhttp://www.bloomberg.com/news/2013-02-08/ireland-was-right-to-force-ecb-s-hand-on-debt-relief-plan.htmlhttp://www.ft.com/intl/cms/s/0/a4564eae-713a-11e2-9d5c-00144feab49a.html#axzz2MOdb9tYH


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In the past investors could be assured that mostinvestments would have a positive return.

But inflation complicates the picture. If you areearning 3% interest, but inflation is 6%, then thereal interest rate is negative 3% because in ac-tuality you are losing money. Due to inflation, youare being repaid in dollars that are worth 6% less

each year. This is called negative real rates.

Unless interest rates are manipulated, they will al-ways exceed the rate of inflation. In the 1970swhen inflation exceeded 10%, interest rates wereeven higher, so investors still had a positive return.

However, we have entered a completely new phasemany call financial repression. Interest rates arebeing held below the rate of inflation, making nega-tive returns the norm. Fed Chairman Ben Bernankehas engineered this system by quantitative easing(QE), which, simply put, is creating mouse-clickmoney and buying government bonds. It has artifi-cially driven down interest rates. Here our invest-ment landscape today:

Negative real returns mean investors are losing tril-lions of dollars. It is engineered wealth-destructionon a massive scale.

Our wealth is being transferred to others. To whomexactly? To the issuers of those investments: pri-marily the government, which issues cash andbonds; and secondarily to large corporations thatcan issue investment grade debt.

Currently official inflation is in the 2% per yearrange. But it is actually much higher. Anyone whoshops for groceries of fills their gas tank can tellinflation is higher than 2%. In fact, if we were tocalculate inflation the way the government calculat-

ed it in 1980, inflation is actually about 10% accord-ing toShadowstats(see the blue line below):

This means that any investment earning below10%, which is nearly the entire investment land-scape, is actually losing money.

It is an epic transfer of wealth, from investors togovernments. And it is the way the debts will berepaid, as the Irish debt deal indicates.

Successful Print-Era Investing

As part of The Feds QE program, in 2013 the USFederal reserve will create money and buy fully75% of all 30-year bonds issued by the US Treas-ury (Article).

We are entering into the final stage of the debt Su-percycle a stage that will be characterized by ris-ing interest rates and inflation and if interest ratesare manipulated, plummeting currencies.

Ultimately, the last resort will be money-printing. Iis the only politically viable solution to the financiacrisis.

But money-printing comes with a steep price tagselective inflation. By selective, I mean that asseprices and commodity prices will rise. Here you can

see the effect of the Bernanke-Fed era on com-modities:
http://www.shadowstats.com/alternate_data/inflation-chartshttp://www.shadowstats.com/alternate_data/inflation-chartshttp://www.shadowstats.com/alternate_data/inflation-chartshttp://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Documents/TBAC_Discussion_Charts_Feb_2013.pdfhttp://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Documents/TBAC_Discussion_Charts_Feb_2013.pdfhttp://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Documents/TBAC_Discussion_Charts_Feb_2013.pdfhttp://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Documents/TBAC_Discussion_Charts_Feb_2013.pdfhttp://www.shadowstats.com/alternate_data/inflation-charts


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But that doesnt mean we have to be the victim.There are a number of investments that will workwell in this environment. Simple math tells us thatwhen money in being printed, it will be worth pro-portionally less. But it also means that anything thatcannot be printed will be worth proportionally more!

Some things that cannot be printed are: goodbusinesses, housing, precious metals, and manyother things as well.

Housing

I continue to steer people toward US residentialreal estate. In recent news, new home sales wereup 15% in January (article). Foreclosures are drop-ping:

And prices have fallen into a reasonable range. TheUS housing market has fallen 35% on average andis now in its historical price range when adjusted forinflation:

It is time to buy bargain-priced housing, especially ican qualify for todays 3% 30-year fixed rate mort-gages. That is basically free money.

Mortgages

I have stumbled across an even richer vein thantraditional real estate investing defaulted mort

gages. I have even started a small investment firmto capitalize on this opportunity.

Banks have been inundated with bad loans. Whenbanks accumulate too many bad loans, they arepenalized by bank regulators, and are commonlyforced to liquidate these loans. Because there arefew buyers, these loans can be bought for pennieson the dollar.

For example, we were able to purchase one loanworth $109,000 for only $20,000 and there wasenough equity in the home to fully cover the mort-

gage. We purchased another $91,000 note fo$6,500. This note had $21,000 in equity when webought it, but since then the home has risen$22,000 in value, giving us $43,000 in equity. Infact, this investment is structured in such a way thawe are capturing 100% of the increase in the valueof this $300,000 home with only a $6,500 invest-ment. And our only maximum potential loss on thisinvestment is our $6,500 investment. It is the kindof risk-reward profile that comes along once otwice in a lifetime.

It is a shining example of what I have said foryears: every crisis is an opportunity. You just haveto have eyes to see it.

Precious Metals

Gold and silver cannot be printed, and will continueto be great investments, until the print-era comesto an end. But gold and silver are heart-breakersdue to their extreme volatility, as recent price actionhas proven! Hopefully you have followed my advice
http://www.cepro.com/article/new_home_sales_jump_156_percent_in_january/http://www.cepro.com/article/new_home_sales_jump_156_percent_in_january/http://www.cepro.com/article/new_home_sales_jump_156_percent_in_january/http://www.cepro.com/article/new_home_sales_jump_156_percent_in_january/


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in timing investment in gold and silver. My timingrecommendations have been spot-on the last fewyears, and I certainly hope my blessed streak con-tinues! I told investors to take profits at the be-ginning of December, and hopefully you did.

But the recent price action in gold and silver do notmean they are finished. I laugh when I read the

headlines. It happens every time gold goes into along correction!

Gold's Decade-Long Bull Run Is Dead (Gart-man)

Why Gold Has Further To Fall (Forbes)

Is $1200 Gold Possible? (Seeking Alpha)

Gold loses glitter; prices likely to come downfurther

Gold Death Cross Signals Price Slump as So-ros Sells

Goldman Sachs Targets $1200 GOLD Price

I can promise you this: government currency mal-feasance has driven golds rise, and that malfea-sance is not yet complete. Gold is not finished untilits underlying fundamentals change, which theyhave not. Gold will rise again and probably quitesoon. See my full forecast in the InvestmentThemes section below.

Natural Gas

The more I study the natural gas boom in the USthe more I am astonished at the change of fortunesfor the US. A recent highly-regarded study of theBarnett shale formation in Texas made it clear justhow significant this new energy boom is. Here is anexcerpt from a story in theWall Street Journal:

U.S. natural-gas production will accelerate over the next

three decades, new research indicates, providing the

strongest evidence yet that the energy boom remaking

America will last for a generation.

The most exhaustive study to date of a key natural-gas

field in Texas, combined with related research under way

elsewhere, shows that U.S. shale-rock formations will

provide a growing source of moderately priced natural gas

through 2040, and decline only slowly after that. A report

on the Texas field, to be released Thursday, was reviewed

by The Wall Street Journal.

The research provides substantial evidence that there are

large quantities of gas available that can be drilled

profitably at a market price of $4 per million British

thermal units, a relatively small increase from the current

price of about $3.43.

The study, funded by the nonpartisan Alfred P. Sloan

Foundation and performed by the University of Texas

examined 15,000 wells drilled in the Barnett Shale

formation in northern Texas, mostly over the past decade

It is among the first to study the geology and economicsof shale drilling, a relatively recent development made

possible by hydraulic fracturing, or fracking, in which a

mixture of water, sand and chemicals is pumped at high

pressure into rocks to release gas.

Looking at data from actual wells rather than relying on

estimates and extrapolations, the study broadly confirms

conclusions by the energy industry and the U.S

government, which in December forecast rising gas

production.

"We are looking at multi, multi decades of growth," said

Scott Tinker, director of the Bureau of Economic Geologyat the university and a leader of the study.

This energy boom will remake the US as an energypowerhouse.

Natural gas is extremely inexpensive when com-pared to other fuels. When compared to the ener-gy-equivalent amount of gasoline, natural gas is 10times cheaper:
http://online.wsj.com/article/SB10001424127887323293704578330700203397128.htmlhttp://online.wsj.com/article/SB10001424127887323293704578330700203397128.htmlhttp://online.wsj.com/article/SB10001424127887323293704578330700203397128.htmlhttp://online.wsj.com/article/SB10001424127887323293704578330700203397128.html


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Because of its relative cost, companies that needcheap energy are moving to the US. Chemicalcompanies and plastics manufacturers that alsouse natural gas are building new facilities in the US.

Prices of natural gas are far higher in other coun-tries. In the chart below, the blue line on the bottomshows US natural gas prices, driven low by dra-

matic increases in production; the red line showsprices in the UK; and the black line shows prices inJapan, which is energy starved since turning offtheir nuclear power plants in the wake of the Fuku-shima disaster:

The US is set to be an exporter of natural gas in thenext few years. There will be thousands of invest-ment opportunities caused by this new energyboom. Keep youreyes peeled for them!

China

China and the US are the worlds economic growthengines today. The US economy is still growing,but at a slower pace, while Europe is still contract-ing:

Last month I wrote that China finally appeared to beemerging from its contraction, but that it could beoverstated due to seasonal adjustments. The latesnumbers show this was the case. Current PM

readings show China a near zero-growth level o50.4 (50 means zero growth).

Weather

The Potsdam Institute for Climate Impact Researchreleased a recent report studying climate extremesThey constructed a weather extremes index whichincludes data on temperatures, daily precipitationand the Palmer Drought Index. They discoveredthat 2012 broke the last record set in 1934, thepeak of the dust bowl:


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We may be looking at another such year of droughtand heat in 2013. NASAs long range forecast,which accurately forecasted last years heat and

drought, is forecasting similar for 2013, thoughmore focused on the central Midwest region, fromCanada down to Texas:

INVESTMENTTHEMES

Editors Note: In this section we review the investable megatrends weare currently following. While some of the text will be the same month-to-month because our long-term themes remain unchanged, we willupdate it monthly with our current outlook. Updates are shown under-lined.

Time for Caution

Systemic risks abound, especially in Europe andJapan, but also in the US and many other nations.Unstable debt dynamics and low yields make for adifficult investment environment. Conservative in-vestors who want to invest for the next 5-10 years

should exit the stock and bond markets, and moveinto hard assets, cash and hard currencies (not inthe US Dollar, the Euro or the British Pound), goldand other hard assets.

The Economy

Last month I called for a global recession in the firsthalf of 2013. However with congress acting to re-duce fiscal cliff impact from $660M to $250M, oueconomic outlook is significantly less dim; but withthe huge increase in marginal tax rates and theweakness in Europe continuing, we may yet see arecession.

Equities

I wrote in July the following: The bias now is cer-tainly to the upside, but it might be a bumpy ride. expect the markets to rise, but investors should re-main cautious as Europe continues to boil. In Oc-tober I shifted to a bearish bias pointing out thatseveral indicators were pointing to a short-termcorrection in the markets. Both calls proved fairlyaccurate. 2013 started off with a bang on the partiaresolution of the fiscal cliff.

Last month I pointed out the many sentiment indi-cators that were all warning the market was in adanger zone:

1. For the first time in years US investors put mon-

ey into the stock market (CNN), Which is a warn-ing sign, as retail investors are usually wrong ontiming, investing near market tops and selling nearmarket bottoms.

2. The NAAIM survey is a survey of investmenmanagers that also shows extreme optimism, anearly 100:
http://buzz.money.cnn.com/2013/01/17/stocks-funds-inflows/http://buzz.money.cnn.com/2013/01/17/stocks-funds-inflows/http://buzz.money.cnn.com/2013/01/17/stocks-funds-inflows/http://buzz.money.cnn.com/2013/01/17/stocks-funds-inflows/


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3. NYSE margin debt, which is investor borrowingsfor stock purchases, was also at a level of previ-ous tops.

4. The VIX is called the fear index which contin-ues to track near all-time lows:

5. The Bullish Percent Index also continues toshow extreme optimism, at levels indicative ofprevious market tops:

Adding to my thesis, corporate insiders -- execu-tives in the know about their companies, are

sellers versus buyers at a 12-to-1 ratio, the highestratio since January 2011. In the months after theratio was last at this level, the benchmark index re-treated as much as 19% from April to October of2011.

Gasoline prices north of $3.80/gallon have alsoserved to reverse the stock market in the past, and

again we find ourselves at that level. At first glancethis might seem like a silly indicator, but high gasprices can keep shoppers home:

The markets have been rising since November pri-marily on Bernankes QE. But as to be expectedwith such extreme optimism, we saw the firstweakness in the market last month.

Last month I wrote: Here is my forecast: the mar-ket will move up and/or sideways and choppy in atopping pattern; then by April or so we will see themarket roll over and drop. I will still stand by that

forecast for now.

The Chinese Shanghai index has bounced upstrongly after nearly two years of dropping, signal-ing investors view of the Chinese economy improv-ing. Last month the Shanghai took a break from itsmoonshot, but is still indicating it believes the Chi-nese economy is recovering. If the Chinese econ-omy does indeed rebound, this has huge positive


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implications for the world economy, and for com-modity prices:

In January I called for a long trade in JapaneseNikkei (ETF: NKY). The Japanese stocks will bene-fit from a weakened Yen and the global currencyprint-fest. That continues to be a good trade:

Gold and Silver

Gold and silver fluctuate between being commodi-ties and currencies. When governments are re-sponsible, they become commodities for use in

jewelry, electronics, etc. When governments areirresponsible, they become currencies. Gold andsilver are now firmly in the process of becomingcurrencies. They remain the best bet against gov-ernment fecklessness.

Gold and silver are your best defense against the

irresponsible monetary policies being madly pur-sued across the globe. Here are some of the fun-damental reasons Gold will rise:

1. Governments across the globe are pursuingmoney printing schemes to devalue their cur-rencies. Gold and silver cannot be printed andwill hold their value relative to all debasing cur-rencies.

2. Negative real interest rates. Today interesrates, after adjusting for inflation, are negativeThis means there is no incentive to hold cashand thus the relative cost of holding gold and sil-ver disappear. At the chart below shows, when-ever real rates are negative, gold and silver ris-es.

3. Inflation. Gold and silver are historically the besprotection against inflation. While governmeninflation statistics are reporting artificially low in-flation numbers, inflation actually quite high.

4. Uncertainty. Banking crises and sovereign debtcrises mean there are no safe places to storewealth. Gold and silver are the best way to storewealth and will benefit through most crises.

So far my forecasts for gold have been fairly good.

forecast gold would hit $1,360 by December 2010It handily beat my forecast, topping $1400. I alsoforecast gold would see its 2011 low in May, andthat this would be a good time to buy, which it in-deed turned out to be. In January, 2011 I forecasgold would hit at least $1900 by December 2011. Inmy August 2011 newsletter I said, I would not besurprised to see weakness this month, and on

August 23 gold hit my target or $1900 and I wrotein myblog postfor traders to take profits.
http://blog.josephinternational.org/2011/08/23/frasers-daily-find-8-23-11-gold-and-silver-update/http://blog.josephinternational.org/2011/08/23/frasers-daily-find-8-23-11-gold-and-silver-update/http://blog.josephinternational.org/2011/08/23/frasers-daily-find-8-23-11-gold-and-silver-update/http://blog.josephinternational.org/2011/08/23/frasers-daily-find-8-23-11-gold-and-silver-update/


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p 12 Joseph Insight

In 2012 I correctly called for a bottom in August,writing, it is time to buy this month. The seasonalweakness persists through (August). You shouldfinalize any purchases of precious metals by theend of the month. That proved accurate and bothgold and silver rocketed out of beautiful bases. Ifyou followed my advice, you should be sitting on150-200/oz. in profits:

I called for gold to hit 1850/oz in 2012 which provedslightly optimistic; though it came quite close, hitting$1798, though short of my target by $52.

In December I wrote, Short term investors shouldtake some of their profits in gold and silver by theend of this month. This weakness has happenedand I expect it to continue. Long term investorsshould just stay put, I think it is unlikely we will seegold drop below $1550-1525 in the near future. Theweakness in gold has continued as I thought. Ru-

mors abound regarding large hedge funds liquidat-ing their gold exposure because of getting crushedin their Apple, Inc. investments and selling gold tooffset their losses. Indeed hedge funds holdingGLD have dropped to a low:

When gold hit its low last month, trading volume sea record indicating investor capitulation a cleasign of a bottom:

This is probably the bottom for gold this yearthough it is too early to say for sure. Investors canstart accumulating at these lows, but the buyingopportunity is likely to persist for a few months:

Silver always moves in sympathy with gold, andany timing signals I give for gold will always applyto silver as well. Silver has had a great ride toosince 2001:

Silver has a major support zone at $26 and I doubtit will drop below that range in the near futureSilver is making a very nice base and is poised fosome nice gains in 2013, but I am not buying yet.

Gold miners (GDX) continue to show weaknessrelative to the metal:


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p 13 Joseph Insight

GDX is in a phase of extreme pessimismin fact, Ihave never seen it this low:

The markets are setting up for a great investing op-portunity sometime in the next few months. Lastmonth it hit the level of previous bounces (seechart). Speculative investors could nibble.

Gold will respond to any rumor of QE or moneyprinting schemes cooked up by the authorities torescue the world. We dont know when this will bebut you want to be invested beforehand.

For details on how to purchase precious metalsdownload my free Special Report on How to BuyGold and Silver.

Bonds / Interest Rates

In the long-term, interest rates are going up, due tosimple supply and demand. But in the short termand intermediate term, I expect interest rates toremain low due to the ongoing financial crisis and

stock market weakness. As I have said in earlierarticles, the US bond market will be the primarybeneficiary of the European economic crisis. I ex-pect bonds to remain strong for a while.

Currencies

In January I recommended shorting the Yen (asimple way to do this is buying YCS the UltrashortYen ETF). At the time YCS was at 45.75 and todayit is over 57, a 25% gain in just a month. The Yenwill suffer as the Japanese print yen and buy their

own debt to cover their massive deficit. I would notbuy YCS right now as it has moved so far so fast,but shorting the Yen will be a great trade for thenext 3-4 years:

The Euro and the US Dollar are racing each othertoward worthlessness. But it is difficult to short ei-ther of them, because shorting the Euro is essen-tially betting on the dollar; and shorting the dollar isessentially betting on the Euro. Investors need toexit positions in both the dollar and the Euro, andbe wary of all hidden dollar and Euro exposure.

The Euro is in trouble. The idea was untenablefrom the beginning and I have predicted the demiseof the Euro since 2006. The Euro strips individuacountries of key financial policy levers: the ability tolower interest rates and the ability to devalue itscurrency. The only policies left are governmenspending and taxes. Several countries will defaulton their debts. Governments go bust when theyborrow in a currency they cannot print. Either theclub-med countries will leave the Euro to form anew weaker currency, or more likely, Germany wil
http://www.josephinternational.org/Publisher/File.aspx?id=1000028929http://www.josephinternational.org/Publisher/File.aspx?id=1000028929http://www.josephinternational.org/Publisher/File.aspx?id=1000028929http://www.josephinternational.org/Publisher/File.aspx?id=1000028929http://www.josephinternational.org/Publisher/File.aspx?id=1000028929


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p 14 Joseph Insight

leave the Euro to form a new, stronger currency.There is simply no alternative.

Europe is also very sick economically because ofits socialism. Its social contracts are unsustainabledue to the large amounts of retirees relative toworkers. This will create terrible hardship as gov-ernment programs are forced to be slashed just as

they are now in Greece.

The best way protect against the demise of the Eu-ro and the dollar is to buy well-managed currencies

Switzerland, Norway, Singapore, Brazil, Chile andSouth Korea are my top picks as well as the onlyunmanaged currencies: gold and silver. Secondarycurrencies that will also do better than the dollar orEuro, but also have some problems are: Canadian,

Australian, New Zealand dollars, and the ChineseYuan.

I am recommending the Franklin Templeton HardCurrency Fund (ICPHX) as a simple way to buyhard currencies and earn a 4% yield. Balanceyour exposure to this fund with the US dollar, whichmay continue to strengthen temporarily as the mar-kets unravel.

Oil and Energy

For years I have forecast higher oil prices based onincreasing oil demand, especially from China andIndia, and decreasingly supply, based on decreas-ing oil discoveries:

However, as of October 2012 I have changed myview. A revolution in oil extraction technologies isextending the life of old oilfields and unlocking mil-lions of barrels in non-traditional new fields. I ex-pect oil prices to remain in a trading range for thenext few years, barring war in the Middle East.

My favorite trade in oil is long Brent Crude andshort WTI crude. This trade is fairly market neutralbut will capitalize on the booming supply in the USas well as any turmoil in the Middle East, sinceMiddle East crude is priced on Brent, and US oil ispriced on WTI. As you can see in the chart belowthe spread between Brent and WTI continues towiden, and if it does, this trade will profit. To enterthe trade you can buy BNO and short equal dollaramount of USO.

Food and Agriculture

Food and agriculture are on a long-term, irreversi-ble megatrend higher, due to 1) global populationincreases; 2) the amount of farmland globally is de-creasing 1.5% per year due to development; 3)rampant money printing of paper currenciesdrives up commodity prices; 4) Increase in meaconsumption: as third-world nations are growingwealthier, they are consuming more meat per capi-ta. It takes eight pounds of grain to produce onepound of beef (though the ratio is much better fopork and chicken thanks Steve!):


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p 15 Joseph Insight

The easiest way to invest is rising food and agricul-ture prices is via stock symbol DBA or RJA, whichtracks the prices of as basket of agricultural com-modities; or MOO, which invests in shares of agri-cultural companies.

At this time I favor agricultural commodities (DBA)themselves over agricultural companies (MOO),

since any market correction will affect the compa-nies more than the commodities. I think agriculturalcommodity prices will be strong in the long term,but in the short term will probably not perform well.

Real Estate

In the May 2012 newsletter, I called real estateThe Opportunity of the Next Two Decades. I stat-ed, It is time now to get into a position to purchaseUS homes in the next few years. I do not think wehave seen the bottom yet, but that shouldnt stop

investors.

I expect housing, especially in the US, to rise be-cause: 1) the central banks of the world have com-mitted to an epic money-printing regime. They willcontinue to print money to bail out the banks andthe sovereign debtors. As the deleveraging com-pletes its course, excessive money-printing willcause asset prices to rise including real estate; 2)the easy-money policies are being directed at low-ering mortgage interest rates. For example, my sonis getting a first-time mortgage for 3.25%; 3) hous-

es are selling for 50% below replacement cost. Atsome point the inventory of homes will diminish andhousing will return to build-cost.

Make sure to focus on extreme value real estatethat can earn income. Measure any real estate pur-chases by dividing the annual rent potential (afterdeducting taxes and other costs) by the purchaseprice. If it is above 10%, then it might be a goodpurchase. If not, wait. In some areas (Kansas City!)this ratio is well over 10%.

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