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A Crisis in Worthwhile Opinions of Capitalism

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02/03/12 Baltimore, Maryland – The Financial Times has continued its series on ‘Capitalism in Crisis’ much longer than we expected. Longer than seems decent, actually. The crisis will be over before the series ends.

Each of the Davos-list celebrities to write on the subject basically ‘talks his own book.’ The politicians tell us that they can fix what is wrong with capitalism. The regulators want more regulations; do-gooders urge us to rely more on good works. The economists have their economic solutions. The entrepreneurs put their faith in can-do hustlers.

Bill Clinton used to be a sharp politician. Now, judging from his comments in the FT, he has moved rapidly from becoming an elder statesman to the kind of senility that affects aging world improvers. Try to figure out what this means:

“Governments, businesses and extra-governmental organizations [can] work together to share expertise and implement lasting solutions…

“What we need is innovation, imagination and commitment. The most effective global citizens will be those who succeed in merging their business and philanthropic missions to build a future of shared prosperity and shared responsibility.”

Those are words that could have been written by a dull-witted robot…or Thomas Friedman.

The words were empty; at least they were not stupid. But there were plenty of stupid words, too, in the series. A representative of Occupy London wrote to say that Friedrich Hayek had “helped us to find capitalism’s flaws.” Hayek pointed out that…Read more…

Banking on Your Phone

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02/03/12 Marco Island, Florida – America has lagged behind much of the world in terms of digital wallets. Elsewhere, people routinely use phones instead of credit cards. There are several reasons for this.

Partly, it is because North America saw mobile phones so early. When other regions finally rolled out mobile phones, infrastructures were more modern. The larger reason, however, is that there is so much at stake.

Right now, there are a limited number of players in the lucrative payment network world. Visa, MasterCard and American Express would like to move to your phone. They fear, however, that enabling electronic wallets in phones would allow aggressive young players onto their turf. PayPal, Amazon and Google are, in fact, financial networks, and they would love to do your banking.

So far, progress has been slow, but the emergence of Android is opening up new possibilities. Work is being done by the Mobile Payments Industry Workgroup that would establish standards. What we know for sure is that the established payment networks will do their best to keep out upstarts. We also know they will fail.

Part of the reason for this is political. Part is cultural.

The politics are that Wall Street and the major banks have never enjoyed lower public regard and support. Consumers sense that the bailout…Read more…

My Favorite Way to Own Silver

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02/03/12 Pittsburgh, Pennsylvania – My favorite way to own silver is the Sprott Physical Silver Trust (NYSE:PSLV). This is a product of the Eric Sprott group, of Toronto.

Units of this trust were trading well above $20 a few months ago. But today, even after silver’s January rally, the units are trading below $15. That’s a 25% decline, which is in sync with the drop in the price of silver.

This recommendation isn’t intended to focus on short-term moves. The idea is to build a solid silver position for the longer term. It’s your way of building a silver play for the next couple of years, by which time we should see very healthy gains.

The Sprott Physical Silver Trust is a closed-end trust that’s entirely focused on physical silver. The intent behind the trust is to invest in and hold substantially all of its assets in silver bullion. It provides a secure, convenient means for investors to hold silver without taking personal physical delivery. The trust does NOT speculate with regard to short-term changes in silver prices.

Specifically, the trust invests in unencumbered, fully allocated London Good Delivery (LGD) silver bars. That is, it owns real silver — the metallic kind that hurts when you drop it on your foot — and not paper promises from any counterparty. About 99.8% of the trust’s current net assets are invested in physical LGD silver bars.

The trust stores its silver at the Royal Canadian Mint, a “Crown corporation” located in Ottawa, Canada. The Mint is responsible…Read more…

Buying Gold in Uncertain Times

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02/03/12 Baltimore, Maryland – Dow down slightly yesterday. Oil falling further below $100. And gold still going up.

What is most interesting is the movement in the price of gold. It seems to be heading up again — almost no matter what else is happening.

So, let’s look at what might be going on…

If investors sensed a recovery…they would expect banks to lend more freely…people to shop more freely…and prices to rise.

This would raise consumer prices; the price of gold should go up.

But if the market sees growth and inflation ahead, why is oil slipping? And why is the Baltic Dry Index — which measures shipping prices — at a 25-year low? And how come last month’s employment figures were disappointing? And why aren’t stock market prices going up?

Most important, if the economy is really recovering, why is the 10-year note yielding only 1.82%? And what about the long bond? Shouldn’t it be trading at a yield higher than 3%?

And how come house prices fell over the last year…and the last month?

And how come incomes are falling?

Or, to look at it from the opposite point of view, how is it possible for a real recovery to take root in the hard, barren soil of falling house prices and slipping consumer earnings?

But if the economy is not improving…then there should be no increase in inflation…and no pressure on the price of gold, right?

Maybe investors don’t anticipate a recovery at all. Maybe they’re buying gold because they see the economy getting worse, not better. We associate a rise in the price of gold with inflation. But gold is much more…Read more…