Commodity Distortion

by | Feb 2, 2009 | Multi Currency Investing

There are some interesting commodity distortions in the market now.

The major global economic tension we have been tracking is the battle between inflation (government spending) and deflation (economic contraction).

US government spending versus US economic contraction are the bellwethers we use to gain at least a murky view of the global economy and its economic shrinking (deflation) versus global governmental borrowing to stop that shrinkage (inflationary).

We have been seeing  a dead heat, if the 14 trillion dollar US economy shrinks 15%.  15% of the 14 trillion is a 2.1 trillion drawback.

If the US government borrows and spends 2 trillion (it does not have) there is a balance…about two trillion each for inflation and deflation.

A New York Times headline last week suggests that this 15% estimate for shrinkage is not far from wrong . The article said:

U.S. Economy Contracted at 3.8% Annual Pace in Fourth Quarter

Though the Commerce Department’s preliminary figure for gross
domestic product in the fourth quarter of 2008 showed the greatest decline in more than 26 years, economists had forecast much worse.

However another article shows how te US government may spend way more than two trillion. It said:

As the Obama administration prepares its strategy to rescue the nation’s banks by buying or guaranteeing troubled assets on their books, it confronts one central problem: How should they be valued?

Not just billions, but hundreds of billions of taxpayer dollars are at stake.

The Treasury secretary, Timothy F. Geithner, is expected to announce details of the new plan within weeks. Administration and Congressional officials say it will give the government flexibility to buy some bad assets and guarantee others in an effort to have a broad impact but still tailor the aid for different institutions.

But getting this right will not be easy. The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.

The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.

The bond analyzed by S.& P. is just one of thousands that the government might buy or guarantee should it go forward with setting up a “bad bank” that would acquire $1 trillion or more of toxic assets from banks.

Uncle Sam may spend another extra trillion in just this one area alone.

This continues to lean me towards believing we’ll see inflation. If so the best investments will be commodities, stocks and real estate.

Recent lessons that looked at my portfolio show that I am loaded up on real estate.

This is because real estate investing is fun for me.

However we always look for value… in any investment and our friend Michael Cheken just pointed out gold distortions that may create some special value in the yellow metal at this time.  He wrote:

Clearly, there are currently a number of factors affecting the  precious metals market. Rather than have everyone sit around, scratch their heads and wonder, we wanted to give you our view on the current supply situation and our take on
the falling prices.

Have You Noticed That …

• Precious metals prices are falling, and

• When you call dealers, there is little to no merchandise available, and

• Everyone of them cites brisk investor demand, and

• There are countless announcements from mints worldwide that they cannot
keep up with demand?  What is going on and how can we help with your  precious metals needs?

Precious Metals Supplies

There is NO worldwide shortage of precious metals. The problem IS
a worldwide shortage of precious metals in forms that investors pre-
fer. The mints and the refiners have not been able to keep up with in-
vestor demand all year long. De-mand from investors has been ex-
tremely brisk all year. As a result, coins and smaller denomination
bars are very difficult to find.

When we can find them for clients they come with extremely high premiums versus that which we have become accustomed.

Many investors are paying what- ever is required to get product  now. However, if and or when the mints and refiners are capable of supplying adequate product, the premiums will most certainly fall back to earth.

Precious Metals Prices are Falling!?!?   Yes, but they are falling for a different
reason. Prices are down due to the tandem effect of hedge fund liquidations
and investor liquidations … both of which are in response to the still unfolding
credit crisis. Precious metals prices are falling simultaneously with blue chip stocks and anything else that investors can sell to raise short-term cash.

For the hedge funds, it is the result of closeout selling. As Lehman Brothers and
other brokerages failed, they caused the failure of a number of hedge funds that
were subsequently forced to liquidate assets, regardless of asset class. Yes, many
of them held precious metals.

For the individual investor or small business owner it was a question of generating cash themselves for short term financing requirements, or shut

When Will It End?

When will the DOW and precious metals stop falling together as if they were correlated asset classes? It seems that the answer to this question is the
same as the answer to the following question … when will banks and
lenders begin lending funds once again at reasonably attractive rates?

So, What Is The Solution?

We believe that Perth Mint Certificates (PMCs) are uniquely qualified to help
weather this situation. The Perth Mint can settle your unallocated trades by
purchasing large bullion bars (which are still readily available). The premiums for these metals have not increased as a result of the scarcity currently experienced in the investor grade coin and bar markets. Product is available now.

And, if we are correct in our belief that the Fed’s solution to the credit crisis (flooding the banks with massive amounts of cash newly created out of thin air) will lead to inflation, tangible assets such as gold, silver and platinum should all benefit nicely. Simply put, it should take more diluted dollars to buy the same
ounce in the future.

The Perth Mint Certificate, (PMC) is a Long-Term, SAFE Holdings of Precious Metals.

The Perth Mint Certificate, (PMC) is a reliable, secure and flexible precious metals
program available to global investors seeking discreet alternative investments. Ownership of certificates conveys all the benefits of precious metals ownership without the transport and security problems associated with physical bullion. The Perth Mint Certificate is easy to purchase and simple to liquidate. It is the
only metals storage program that is  government-guaranteed and includes Gold,

Silver and Platinum.

PMC is S.A.F.E.


• The World’s only government-guaranteed program of its type.

• Since 1899, The Perth Mint has provided safe storage of precious metals.

• All precious metals are insured by Lloyds’s of London at The Perth
Mint’s expense.

So secure, the PMC is permitted in Individual Retirement Accounts
Michael Checkan, President


• Low minimum purchase requirements.

• NO storage fees for unallocated (unsegregated) precious metals.

• Low certificate fees – U.S. $50.00 per certificate.


• No pre-determined transaction size, other than the minimum purchase

• Investors have the option of holding all the major precious metals –
Gold, Silver and Platinum in either coin or bullion form.


• Overseas relationship is with a government vault, not a foreign bank.

• The document is registered to the owner and it is referenced by client
name and Certificate number.

• The Perth Mint’s records utilize code numbers to ensure client
confidentiality and security.

Michael Checkan is at Asset Strategies International, Inc.
1700 Rockville Pike,
Suite 400
Rockville, MD 20852

Tel: 301.881.8600
800.831.0007 (U.S. & Canada)



I am not a big gold and silver investor… nor do I invest in a lot of shares… because I like investing in real estate.

This is a personal decision and does not mean that commodities and shares are not good investments and at times are not the best asset class.

Contrasts and distortions that create value always capture my attention.  Right now when I see inflation headed up and gold prices down… I am intrigued.

The liquidity problems that cause dumping of gold along with the abnormal premiums on small denomination coins and inflation potential suggest  that commodities and gold are good investments on their way down.

Beware of small denomination bars and coins… but look at other avenues for investing in gold silver and platinum.

Until next message may all you investments be golden!


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Future 2009 courses

May 29-31  JGAM Global Asset Strategy Seminar

June 12-14 Shamanic Mingo Tour
June 16-17 Imbabura Real Estate Tour
June 18-21 Ecuador Coastal Real Estate Tour

July 3-6     Ecuador Import Export Expedition
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July 24-26 IBEZ North Carolina

Sept. 17-21 Ecuador Spanish Course
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Oct. 21-24 Ecuador Import Export Expedition

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Nov. 11-14 Ecuador Coastal Real Estate Tour