The fiction of Climate Science

Phil Jones, the head of the Climactic Research Unit at the University of East Anglia, indicated last Tuesday that he will relinquish his post while the U.K. school conducts an investigation into allegations of scientific and professional misconduct.

Jones' announcement comes as he and his allies, who published some of the foundational data used to support the claim that global warming exists, have been pummeled by waves of criticism. As CBSNews.com reported last week, the leaked files show that prominent scientists were so wedded to theories of man-made global warming that they ridiculed dissenters who asked for copies of their data, plotted how to keep researchers who reached different conclusions from publishing, and concealed apparently buggy computer code from being disclosed under the Freedom of Information law. Read: Fallout over "ClimateGate" data leak Grows

Why the climatologists get it wrong.

Many of you are too young to remember, but in 1975 our government pushed "the coming ice age."

Random House dutifully printed "THE WEATHER CONSPIRACY … coming of the New Ice Age." This may be the only book ever written by 18 authors. All 18 lived just a short sled ride from Washington, D.C. Newsweek fell in line and did a cover issue warning us of global cooling on April 28, 1975. And The New York Times, Aug. 14, 1976, reported "many signs that Earth may be headed for another ice age..."

"The Christian Science Monitor observed that armadillos were retreating south from Nebraska to escape the "global cooling" in its Aug. 27, 1974 issue."

"That armadillo caveat seems reminiscent of today's tales of polar bears drowning due to glaciers disappearing."

Read: The Fiction of Climate Science

Is Gold a bubble?

In recent months the price of gold has soared, prompting a number of media pundits- who can no longer dismiss gold as a barbaric relic of the past, to dismiss it's role as a safe haven currency and instead have resorted to calling this unique asset class a bubble.

So is gold a new bubble much like the tech stock craze of the late 1990's and the real estate mania that swept the nation in the early 2000's? Before pondering this statement, it is probably best to humorously keep in mind that the very same economists (and govt figureheads) who failed to see a bubble in tech stocks and 'flatly denied' a bubble in residential real estate, now seem to have it all figured out with the shiny metal - and for that matter, most commodities in general.

Here are some facts about Gold which may aid us in our quest for an answer to this question.

1). The precious metals market - despite recent interest, is DWARFED by the market for paper equities / stocks and real estate. Indeed, gold is BY FAR, the most under-owned asset class asset in the US today. In fact, gold ownership- prior to 1971, was illegal in the US. It's truly remarkable that even most natural born Americans don't understand the important role of gold (and silver) with respect to monetary history here in the US.

2). Part of gold's popularity has been born out of the paper market for gold thru Exchange Traded Funds (ETF), and or Gold certificate programs. As many are about to find out, owning a piece of paper stating you own gold, is not the same as physically owning the metal. Particular interest should be paid to the recent irregularities in the publication of the gold ETF - "GLD’s bar list from Sept. 25 – Oct.14 where the length of the bar list went from 1,381 pages to under 200 pages and then back up to 800 or so pages." Whatever you may believe, this finding creates a huge potential flash point for the price of gold in the future.

3). Recent purchases of Gold by foreign central banks (think China and India) at these prices have created a paradigm shift in how the world views gold. Many global central banks in the last few decades were net sellers of gold; huge purchases by emerging economies, are a vote of no confidence in paper money - who may be seeking to diversify out of paper currencies - chiefly if they are over weighted in US dollars and they are beginning to question it's reserve currency status.

4). Reports on irregular physical gold settlements on the global market. "Specifically, these settlements involved the inter mediation of at least one Central Bank [The Bank of England] to resolve allocated settlements on behalf of J.P. Morgan and Deutsche Bank – who DID NOT have the gold bullion that they had sold short and were contracted to deliver." These reports would certainly serve to strengthen GATA's claim that the price of gold has been artificially suppressed for years.

5). Barrick Gold - the second largest North American producer has sought to unwind it's maligned Hedge Book position on Gold. The hedge book bet was the source of extreme distaste to shareholders who wanted exposure to the gold price, and was itself a VERY strange bet for a gold miner.

6). Central bankers around the globe have been attempting to inflate away a global downturn by printing paper money ad infinitum. Because of this, gold's value has increased against ALL major currencies. Gold's meteoric rise could be considered the un-intended consequence of loose global monetary policy- a policy that is extremely unlikely to change in the near term.

7). Investor apprehension! For years, many individual investors have remained apprehensive to purchase gold at $400, $500, or even $700 an ounce, as the mainstream financial community decries the metals market as 'too volatile'. A strange if not compelling comparison would be the (volatile) precious metals market and the market for US financial stocks last fall- where the price of Bear Stearns and a number of other financial institutions evaporated overnight. It simply doesn't get any more volatile than that, and gold being a tangible asset, can NEVER go to zero. Best think about that the next time your financial planner tells you to stay away from the metals market.

All told, if you invested in gold in late 1999 at approximately $260 per ounce, you multiplied your wealth by almost 500%. For all the talk about the recent rally in the DOW, it is still below the highs reached a decade ago, and because it is priced in US dollars, investors have LOST significant purchasing power for their faith in these same markets. Despite a MASSIVE govt sponsored campaign to revive the housing market (tax credits, artificial interest rates) prices have either remained flat or continue to decline on a national level.

Will gold eventually reach bubble status? Perhaps-- but adjusted for inflation, the price of gold would need to be more than $2000 per ounce to reach the highs of the early 80's (this statement alone would imply gold is actually grossly undervalued!). This along with the fact that our (national) balance sheet has worsened exponentially since then, would suggest it will be quite some time before any talk of a bubble in the gold market can be taken reasonably seriously.

A pullback is almost assuredly in the cards (nothing goes up in a straight line) but when Central banks are buying at these prices, any pullback will only serve to create another buy opportunity for savvy investors.

Marc Faber Sees War Against an Invented Enemy and a Big Financial Bust

Faber: The way communism collapsed, capitalism will collapse.

Mish: I disagree on a technicality. Capitalism will not collapse, because we are not practicing capitalism. Instead, we are practicing a perverse blend of corporate fascism, socialism, corruption, and padding of the pockets for and by those running the country. Yes, that will collapse.

Faber: “No decent citizen should trust the Federal Reserve for one second. It’s very important that everyone own some gold because the government will make the dollar (in the long term) useless."

Mish: No decent citizen should trust any central bank anywhere. The problems go far beyond the Fed and in the long run all fiat currencies are worthless. Fiat currencies do not float, instead they all sink at varying rates.

Marc Faber Sees War Against an Invented Enemy and a Big Financial Bust

How much gold is at Fort Knox?

Predictably, now that the price of Gold has mushroomed, media cheerleaders are now claiming the US treasury has the largest gold hoard in the world. There are more than a few good reasons to question this claim.

1). It was purported that Nixon closed the gold window in 1971, to prevent a run on the nations gold reserves as both France and Switzerland weren't interested in accumulating more US dollars. Did Nixon really prevent a run on the nations gold, or were the gold reserves (much like England's) previously depleted during the guns and butter years of Vietnam and the LBJ days-- and the closing of the gold window was merely an attempt to conceal this fact? It should also be noted that after 1971, the 'petrodollar peg' was born, gold ownership became legal in the US and dollars were backed by black gold, rather than yellow gold. If the US treasury really did contain the world's most massive hoard of gold, this was a very peculiar move, as oil production in the US peaked in the 1970's and we became net importers. It would've made far more sense (and provided greater financial security) to just devalue the dollar against gold if we were really up to our ears in it. Oil production and output has typically been born out of countries that are somewhat volatile to western interests so the petrodollar peg left our currency at the mercy of foreigners who frequently didn't share our ideologies and vision.

2). There has been no independent audit of US gold reserves (Fort Knox) since at least the mid 1950's. Indeed a number of libertarian politicians (like Ron Paul) are seeking to pass legislation demanding that both the Federal Reserve and the gold in Fort Knox be audited. My bet is that if this were to occur, there will be a lot of red faces in Washington.

3). What qualifies as Gold - above ground / contracts / loaned out gold, appears to be the source of yet another Enron type accounting scandal. Barricks recent hedge book unwind, may just be the tip of the iceberg.

Uncle Sam sitting on a goldmine

Is there any gold inside Fort Knox, the world's most secure vault?

Cash for Clunkers MASSIVELY distorts GDP number

In yet another straw man attempt to wish away the much needed economic 'correction' in the US, the US Bureau of Economic Analysis (BEA) is busy cooking their books and spinning straw into gold with the latest read on the US GDP number.

Predictably, Wall Street accepted this number without skepticism late last week and rallied, before coming to it's senses on Friday and giving back most of the gains.

In dissecting this news, it appears that the large uptick in GDP (and the lynchipin of the claim that the recession is officially over) came from the US Cash for Clunkers program, which many honest economists are referring to as a "sugar high". The remainder appears to have come from yet more government 'invisible hand' economics, homeowner tax credits- and more indirectly, lower borrowing rates which only serve to drive most Americans deeper into debt.

Barry Ritzholtz, chief markting officer for Ritzholtz Research interrupts the party by adding:

The 1st question to ask about GDP is the degree of inorganic/artificial gains. As the above paras suggest, much of the improvement is where the government is spending, incentivizing, or bailing out various sectors: Autos, Residential RE, and Fed spending.

Big GDP Number; 3.5%

Chart of the Day: Cash for Clunkers MASSIVELY distorts GDP

Gold hits record on Indian Purchase!

It is the biggest single central bank purchase of gold made public in over 30 years.

Between October 19 and October 30 the Reserve Bank of India purchased $7.5 billion worth of gold, 200 metric tonnes.

"This is a sea change in the gold market on the central bank front, the whole equation has changed from central banks over a decade or two you're counting them as sellers, and now we're starting say maybe central banks are going to be buyers," said the author of "Ages of Gold", Timothy Green.

"And in terms of a gold producing country like Australia and other places, that is a very significant change."

He says the global financial crisis has made central banks rethink how they store wealth and hedge against inflation.

"In the biggest economic upheaval that we've seen since the 1930s, the word nowadays is security."


Gold hits record on Indian Purchase

Real Estate Price Plunge makes Homeownership Perilous Path

“We always talk about homeownership as being the American dream, but during the last decade people forgot it’s shelter and started thinking of it as a fast way to make or lose money,” said Retsinas. “The quicker we move back to seeing real estate as a place to live, a place to put down roots, the quicker the housing recovery will strengthen.”

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