A top Chinese economist is urging his government to buy gold and U.S. land to hedge against a drop in its massive U.S. dollar holdings... "According to the laws of economics, there is no doubt that the dollar will fall," Li Lianzhong said. "So gold should be a better choice."
China has already increased its gold holdings to 1,054 tonnes from 600 tonnes in 2003. But at only 1.6% of total reserves, its gold stockpile is still far behind other countries... The U.S., Germany, and France all hold more than 70% of their total reserves in gold, according to the World Gold Council.
Buying gold won't be a problem for China, but the country is sure to get some resistance from the U.S. government when it tries to buy our land. We wonder what will happen when China realizes it's not allowed to spend its U.S. dollars how it wants...
The legendary Marty Whitman and his Third Avenue Funds released their second-quarter letter to investors recently. The value guru is getting way long Hong Kong real estate. As of April 30, 39% of the Third Avenue Value Fund is in common stocks of Hong Kong-based companies.
The two biggest positions, at 12.5% of the total portfolio each, are Cheung Kong – the holding company of Chinese billionaire Li Ka-shing – and Henderson Land Development. Both companies trade at huge discounts to net asset value and have over 40% insider ownership.
While Whitman is loading up on Hong Kong, he's bearish on the U.S. He eliminated his common-stock positions in St. Joe, Suncor, MGIC, and Radian.
The nearly $1 trillion in outstanding U.S. credit-card debt could be the next major crisis to roil the economy... Losses on U.S. credit cards rose above 10% of the total loans outstanding in May – a new high in the 20-year history of the Moody's Credit Card Index, and the sixth-consecutive monthly record. The mounting losses are forcing banks to bail out off-balance-sheet entities they use to package hundreds of billions of dollars of credit-card loans into securities.
Citigroup, Bank of America, JPMorgan Chase, and American Express all pumped billions of dollars into these securitization pools... The firms aren't obligated to support these pools when big losses hit, but they want to ensure investors continue buying these securities.
The worst-case scenario is if credit-card losses rise to a point where banks are forced to repay bondholders early... There is no possible way the banks could afford this payout without massive government loans.
Credit-card defaults and unemployment are highly correlated (see the chart published in today's Wall Street Journal below). People have a difficult time paying bills without a job – which is why the government is focusing so much attention on creating jobs... that and the fact that the public loves job creation.
Today's surprise announcement from the Labor Department shows unemployment is still rising. The latest weekly statistics came out today, and initial jobless claims for unemployment benefits rose 15,000 to 627,000 – a far cry from the expected 3,000 decline. Continuing claims – those drawn by workers for more than one week – rose 29,000 to 6,738,000, after dropping 126,000 the previous week.
New high: Addax Petroleum (AXC.TO).
In the mailbag... A math lesson: 115 billion barrels of oil is greater than 3.775 billion barrels of oil. What else can we clear up for you? feedback@stansberryresearch.com.
"You wrote: 'Iraq holds the greatest untapped oil resources in the world.' Not so, according to the April 2008 U.S. Geological Survey, which reassessed the Bakken Shale Formation (North Dakota and Montana) to have recoverable reserves of 3.775 billion barrels of oil. That 2008 study was requested by Sen. Byron Dorgan (D-N.D.) who stated, 'It is clear that the Bakken Formation contains a significant amount of oil – the question is, how much of that oil is recoverable using today's technology?'... I have excerpted the above information from an article by Pat Shannan in the June 29 issue of American Free Press, which also cites the Austin Chalk Formation of Texas and Louisiana as having another 1 billion barrels. The article is titled, America Has More Recoverable Oil Than Any Nation On Earth." – Paid-up subscriber David Martin
Goldsmith comment: Right now, you can't get oil from shale at any reasonable cost... But it only costs $2 a barrel to find and extract oil in Iraq. Plus, Iraq holds at least 115 billion barrels of oil reserves, and that number is based on 30-year-old data. Applying modern technology, experts expect to find closer to 215 billion barrels... Much more than the 3.775 billion barrels you quote above.
"Wow! An awful lot of nasty in today's letters! Do all these people live in the Midwest? We're sweltering for the first time this summer, and maybe they're not used to the heat. They need to chill (literally and figuratively!) I'm still happy with the work all of you do, including Mike Williams. I own both Tribune and Aleris bonds, as well as 6 others, and I'm definitely profiting overall!" – Paid-up subscriber Nancy
Regards,
Sean Goldsmith
Baltimore, Maryland
June 25, 2009