As the editor of the Silver Bear Cafe, I spend most of my time researching current events. I explore the markets, the economic war that is being waged on the middle class, precious metals, the Federal Reserve, energy, and how to go about surviving financially. In this weekly column I will attempt to condense the week's events and examine how the news might affect your pocketbook. JSB

Financial Markets

The classic example of animals serving as sentinels is the canary in the coal mine. Well into the 20th century, coal miners in the United States, as well as England, brought canaries into coal mines as an early-warning signal for the presence toxic gases including methane and carbon monoxide. The birds, being more sensitive, would, upon being introduce to the deadly gases, drop dead. This would signal the miners and they would then have a chance to escape and/or put on protective respirators before being stricken by the gas.

I believe that the U.S. Treasury (bond) market is the "canary-in-the-coal-mine" for the world economy. Japan's Central Bank has already thrown a devastating wrench into the gears, and the bursting of the U.S. Treasury Bond bubble has start and its end has become just a matter of time, Everyone, everywhere will be affected. As I have mentioned, in this commentary, many times in the the past several months, keeping your eye on short-term T-Bond rates might be the key to your investment strategies. When the world wakes up some morning, in the near future, and realizes that the dollar and US Treasuries were not the safe haven that they had been led to believe they were, a magnificent "game changer" will take place.

From Michael Lombardi:

While some are calling the recent plunge in the bond market a buying opportunity, some major problems still persist.

Fitch Ratings recently provided a credit rating for the U.S. economy, keeping the rating at AAA—prime investment grade—but remaining pessimistic about the country's outlook. The credit rating firm reasoned that without cutting the budget deficit, the high national debt level will keep the country vulnerable. The firm said, "The outlook remains negative due to continuing uncertainty over the prospects for additional deficit-reduction measures necessary…over the medium to long term." (Source: "Fitch affirms U.S. AAA rating but outlook still negative," Reuters, June 28, 2013.)

Increasing national debt and the government's expenses are making the country's debt questionable, and the situation in U.S. bonds will be no different.

On top of all this, the Federal Reserve, which has provided the U.S. government with a line of credit by buying a significant amount of U.S. bonds, is becoming hesitant to buy any more. It has already hinted it will be slowing its U.S. bonds purchases later this year and will end its quantitative easing program by mid-2014.

If that does happen, a major buyer of U.S. bonds will be out of the market, and this departure—along with many other investors selling—will leave the bond market even more vulnerable.

I've been warning my readers about the risk of a bond market collapse for some time now. What does that mean for you? If the bond market continues to fall, it means interest rates are going up. Corporations that borrow heavily will see higher costs and lower profits.

One of my colleagues, George Leong, believes stocks will ultimately rise as investors leave the bond market and move into stocks. But from where I sit, I've never seen a stock market rise as interest rates rise. If you are invested in stocks, and I assume you are if you are reading Profit Confidential, my suggestion is to review each of your holdings to see how higher interest rates will affect them. I'd lower my exposure to companies sensitive to rate increases.

On the Economic War Front

A war is coming! A war is coming! Actually, I believe that the war "We the People" are currently beginning to recognize has been planned and fomented over the last one hundred years. It has certainly been accelerated, abbeted, and advanced by most members of the past four administrations. Although it has been kept, pretty much, out of sight, just below the surface, when it erupts, it will be percieved, by most onlookers, as a civil war. This perception, although false, is understandable, as both sides seem to be, primarily, made up of ordinary U.S. citizens. One side is (partially) made up of government employees; law enforcement and bureaucrats as well as representatives of the armed forces, all following orders given to them by their up-line supervisors, those in their respective "chains of command" (the devil made me do it). Each and every one of the participants in this group will also be "oath breakers". They will all be in abject violation of the oath they took to uphold the tenets and mandates of the United States Constitution, and their actions will be in complete disobedience of those tenets and mandates. Their actions will be absent any ethical or moral justification, rather the actions of mindless suckup mercenaries. For these reasons I will place these participants, for the sake of this message, in a catagory I will deem "the bad guys".

Consequently, another faction of "bad guys" will emerge from the bowels of the "know little, have less and not really give a shit" class. Those that have, absolutely, no idea or understanding of the means or motives of those who, so efficiently, agitated and precipitated the conflict. This group will have become desperate as a result of their circumstances. These circumstances will be wrought with dire shortages of most every needed provision. Ironically, these folks will be caught in the middle. They will, not only, be battling the Darkside (the other bad guys) against conscription, and internment, but, at the same time, be battling those of us who not only oppose the Darkside, but who will also use whatever force necessary to defend ourselves from desperados (read in: roaming bands of marauders). Although my stores and provisions are enough for me and mine, they won't be enough for everybody. Recent reports have also suggested that those stores and provisions may be subject to confiscation by the Darkside.

From Charles Hugh Smith:

The next American Revolution will not be an event, it will be a process. We naturally turn to the past for templates of the future, but history has a way of remaining remarkably unpredictable. Indeed, all the conventional long-range forecasts made in 1900, 1928, 1958, 1988 and 2000 missed virtually every key development--not just in the distant future, but just a few years out.

The point is that extrapolating the present into the future fails to capture sea changes and developments that completely disrupt the supposedly unchanging, permanent Status Quo. The idea that the next revolution will take a new form does not occur to conventional forecasters, who readily assume the next transition will follow past critical junctures: armed insurrection against the central authority (The first American Revolution, 1781), civil war (1861) or global war (1941).

I submit that the next American Revolution circa 2021-23 will not repeat or even echo these past transitions. What seems likely to me is the entire project of centralization that characterized the era 1941-2013 will slip into irrelevance as centralization increasingly yields diminishing returns.

Everything centralized, from the Federal Reserve to the Too Big To Fail Banks to Medicare to the National Security State depends on the Federal government being a Savior State that must ceaselessly expand its share of the national income and its raw power lest it implode. All Savior States have one, and only one trajectory-- they must ceaselessly expand and concentrate wealth and power or they will fail.

Precious Metals

I receive thirty or forty emails daily from readers. Most are complimentary. Some, from the terminally brain dead, are (understandably) downright rude. But a lot of the email has to do with my apparent obsession with the criminals at the Federal Reserve (we dedicate a whole forum to it). After having been directed to the following post, by a reader, I felt compelled to, once again, shed some more light on the subject (the Dark side is made up of vampires, and they don't like the light).

The Fed is America's central bank. Every country has its own. The following missive exhibits how, the vile and heinous thieves are transferring the wealth of America's middle class to the richest one percent of the population. This is because the richest one percent of the population is, in part, made up of the owners of the Federal Reserve. It has always been the primary purpose of the Fed. At this point I will try and illustrate how they are doing it.

Last week I took the occasion to delve into Jim Rickard's assessment of the apparent strengthening of the dollar as it related to the price of gold (in dollars). I like to use the the the comparison of the sun going down to the rise in the value of precious metals. Neither has ever happened. If you think either has ever happened, you are confused. The sun doesn't go down, the horizon moves up. The value of precious metals does not go up or down, the value of the dollar goes up or down.

Prior to 1964, American coined dollars, halves, quarters and dimes were ninety percent silver. In 1963 you could by a gallon of gas with a 1963 quarter. Today you can still by a gallon of gas with a 1963 quarter. The American Government was bribed into taking the precious metal out of the coinage in order to allow the Fed to more easily steal your wealth through the erosion of your buying power (inflation). If it wasn't for the Federal Reserve, the price of everything would continually go down, instead of up . The standard of life, for everyone, would get better, not worse. If the Dark Side hadn't debased the value of the coinage, a person working for $5.00 an hour would have the purchasing power of what amounts to $50.00 an hour today...twenty silver quarters = $5.00. Let's say a silver quarter is worth $2.50 today. If you worked eight hours a day, five days a week, fifty-two weeks a year, for $5.00 an hour, you would be making $9600.00 before taxes. But consider how much less you would be paying in taxes if you only made $9600.00 per year. Meanwhile, your income would have the purchasing power of over $96,000.00. We (the middle class) would be much better off, and all these stupid wars and stupid bailouts and parasitic thieves in government and the banking community would not be possible.

I struggle with trying to figure out why we, as a Nation, have allowed this to happen here. Is it because the bulk of the population has been (intentionally) reduced to a bunch of apathetic mush-minded sheeple? I am obsessed with the Federal Reserve (the money changers) because they are the root of all evil in this country. We must strike the root.

From Michael Noonan:

The price of gold and silver are closer to a bottom than a top. The QE-Infinity is closer to a top and will collapse under its own "goldless" weight. The PM holders are on the correct side of history. Understand that it has been one of the bigger world scams played by the central bankers, the illuminati who believed themselves untouchable, beyond the scope of comprehension by the non-banking world.

Stop buying into the scheme of the moneychangers. Their time has come, and it is but a matter of time. They are playing with everyone's mind, doing everything possible to destroy the gold/silver markets, committing self-destruction in the process. They are making every attempt to discredit the barbaric metal that cannot be eaten, that pays no dividends, but somehow survives as the most reliable measure of accepted value.

The moneychangers are dragging the faux decline for as long as they can, hoping to wear down the resolve of PM holders. Ask yourself, are you selling your holdings of either gold or silver has price has declined? Will you sell out if gold goes to $1100, silver to $18? If not, then what difference does the current price of gold of silver make? If you are not going to sell, then let the central bankers crush the price as much as they can!

The paper holders are trapped and desperate to extricate themselves, at greater and greater losses. This is the best gift PM buyers and holders could want. Stackers keep stacking. Back up the truck and keep on loading. This is no longer a game of finesse. It is all about the paper rats and central bankers, [not sure if there is a distinction to be made], caught golden[less] handed, cheating everyone possible who believed in the system. The system is breaking down, collapsing under it own misdoings.

Never lose sight of common sense. Price typically drops due to a lack of demand, an oversupply, or a combination of both. Do you believe there is a lack of demand? [The acknowledged world-wide demand being at its highest.] There surely is no oversupply, yet price is at its lowest in almost three years. Logic tells you how the current forces of supply and demand are dysfunctional. They have been replaced by the false supply forces of central bankers. The longer central planners destabilize the natural forces of the market, the greater the ultimate reaction will be in the opposite direction.

Energy

I was listening to the local news last night. Actually I was simply overhearing it since I put absolutely no stock or store in the mainstream media's version of any city, state, national or international events or its interpretation of how those events might relate to what is really going on. Some part of me must have been tuned in, however, as I heard some commentator equate the strengthening U.S. Dollar to a strong American economy. This evaluation is simply untrue and an obvious part of the propaganda campaign that the mainstream media is trying to force down our throats. Anyone with any knowledge of economics knows that the strength of the dollar is a relative assessment and is a comparison to the strength of a basket of other currencies that are measured against it.

This propaganda (tripe) is being put forth in relation to all aspects of the economy. Take for example energy. How many times, recently, have you heard that America's energy dependence is over, and that, as a result of shale oil and gas discoveries, that America will soon be an net exporter of oil and natural gas, rather than an importer? More tripe. Simply untrue.

As is reported by Andrew McKay this week, in the following post, we are drilling more and more wells, and doing, exponentially more damage to the environment, just to try and stay in the same place.

From Andrew McKay:

Within the fields of harvest and fisheries management catch per unit effort (CPUE) is one method that is used to determine the health of a biological resource. The underlying assumption is that as a population declines it becomes harder to catch and therefore CPUE decreases.

Effort can be measured in a number of ways. In fisheries this unit of effort could be vessels in a fishery, days fished, hours fished, number of tows or sets in a season or any number of other units of measurement. Theoretically these should all show similar results.

As a very basic example of CPUE, if in the first year a vessel fishes 10 hours per day for the season and catches 4,500,000 kg of fish and in the second year still fishes 10 hours per day for the season and catches only 2,000,000 kg of fish the CPUE has dropped from 5000 kg/hr to 2778 kg/hr. A standardised CPUE would show a drop from maximum catch of 100 (the maximum of the data set) in the first year to 56 in the second year. A drop of almost half. All other things being equal this would give fisheries managers reason for concern as the effort has stayed the same while the catch has decreased. However, an increase or no change in catch can also sometimes mask an underlying problem. If in the second year the vessel fishes 15 hours per day for a season and still catches 4,500,000kg the CPUE drops to 3333 kg/hr. This is a standardised CPUE of 67. This represents an increase in effort for the same amount of catch.

There are a number of limitations to CPUE in fisheries management that largely come from fish stocks being highly mobile, impacted by a number of environmental conditions, disease and predation from other species. That being said, what if we applied the concept of CPUE to a non-biological resource such as oil? What if instead of catch per unit effort we calculate production per unit effort (PPUE)? This is exactly what I am proposing and what the rest of this post will address.

Production Per Unit Effort (PPUE)

In the case of oil these units of effort could be number of rigs, footage drilled or money invested. We can hypothesise that when peak oil occurs we would expect to see PPUE decline for all these factors. As rig numbers increased the amount of production would decrease, as footage drilled increased the amount of production would decrease and as the money invested increased the amount of production would decrease.

The Fed

I have, lately, been congratulated by the few associates that I retain, that are aware enough to understand, that I have been right, about the Federal Reserve, all along.

That, yes, they are a criminal organization that was originally founded in direct violation of the Constitution of the United States. And yes, that their actions are, and have always been traitorous, and that, yes, in an atmosphere, not absent of regulation, they would be considered "hanging offences".

Unfortunately, I am dismayed by the fact that these revelations by former naysayers could only be realized at the point of the Federal Reserve's eminent demise. This is a demise which will be accompanied by a disastrous collapse of the currency and the most painful economic reset the world has ever known.

From an excerpt of a famous quote of Bette Davis from in film, "All about Eve":

"Fasten your seat belts. It's going to be a bumpy night."

From Michael J. Kosares:

"Central banks sold a record amount of US Treasury debt last week and bond funds suffered the biggest investor withdrawals on record as global markets shuddered at the prospect of the US Federal Reserve ending its quantitiative easing program."

"People are throwing in the towel. It'll drag the market down lower over the course of the summer." Markus Rosgen, chief Asia equity strategist at Citigroup

If "people are throwing in the towel" as Mr. Rosgen suggests, Bernanke will find himself in an all-new conundrum quite the opposite of the one in which Alan Greenspan found himself in 2005.

For the Fed, the Treasury debt selling creates a twofold problem:

First, the supply of bonds in the open market will continue to drive up rates. When the goal is to keep rates down, it presents a new kind of conundrum - a Bernanke version the exact opposite of Greenspan's. Greenspan wanted higher rates. The market gave him lower rates by accelerating its purchases of Treasuries, thus the conundrum. Bernanke wants the exact opposite, that is, lower rates. The market is giving him higher rates by accelerating the sale of U.S. government debt - a conundrum opposite to the one Greenspan encountered. Then and now, the market pundits fret that the Fed is losing (has lost) control of interest rates.

Second, if the world is selling Treasuries, some entity will have to pony up with the purchases of newly-issued U.S. government debt. That entity is the Federal Reserve - the government's lender of last resort. The new Bernanke conundrum will force the Fed to continue its QE program until such time that other private and public sector buyers of U.S. debt materializes. Ironically, the stock market, like the bond market, might already be reacting to the new rate reality, while gold's sudden demise, if indeed caused by the so-called "paring down of quantitative easing," might have been false. If that is the case, a make-up rally could be in the offing.....in fact it might already have been launched.

Financial Survival

In our on-going attempt to "let you know, in our opinion, how current events will affect your pocketbook", this one ranks right up there. Mr. Mehl brings to light the recent executive legislation that is intended to feloniously steal your retirement. Obama is like a stock broker I knew many years ago. His motto was: "I can take your worthless equity and turn it into valuable commissions almost overnight". In my 2004 missive, Paradise Lost, I attempted to map the progression of our economic melt down. The following is an excerpt from that rant:

Right before the stock market melts down, the real estate bubble will go kabloowie, Fannie and Freddy will go up in a puff of smoke, and the domestic banking system will come to a screeching halt. The Fed will mindlessly continue to keep the presses running for as long as they can, (after all, that's all they know how to do). The erosion of the buying power of dollars will accelerate exponentially. From an American economic standpoint, we will have arrived at "end game".

At the time I was astounded that Dick Cheney had been permitted to mastermind a series of events that would allow Haliburton (a company that he was a major stock holder in and former CEO of) through the illegal invasion of Iraq, the opportunity to steal sixty billion dollars (at the time a mind blowing amount) from the American tax payers. Then, much to my horror, Henry Paulson stepped up and blatantly fleeced the country out of another seven-hundred billion under the threat of martial law. Even more recently, Timothy Geithner has joined this heinous rogues gallery by posing as the Treasury Secretary, (based on his actions he surely can't be a "real" Treasury secretary, can he?) and stealing one-point-two trillion more. Now, Obama is plotting to administer the "greatest theft in the history of the universe". The collective value of middle class America's IRAs and 401Ks is in the tens of trillions.

You and everyone you know needs to be fully aware of what "our Government" is about to attempt. At some point the tyranny must be stopped, in the name of self defense. It should have been stopped eight years ago. Please do your part to wake up your neighbors.

From Graham Mehl:

One of the biggest concerns of savvy investors since the ongoing crisis began in 2008 has been the safety and longevity of the various types of retirement accounts and systems. Throwing gasoline on the flames have been the decisions rendered by courts of 'law' regarding the treatment of customer money in the case of the bankruptcy of several brokerage firms, most notably, MFGlobal. The susceptibility of bank deposits has already been firmly established in prior issues of this column. To our alarm and dismay it appears, at least on the surface, as though few are doing anything to prepare for such an eventuality.

Our hope in authoring this collaborative piece is that it will cause more people to assess matters as circumstances pertain to them, and then take proper evasive action. If you still believe in the system and that it exists for your benefit and protection then you may stop reading now.

The bail-in concept actually began to be implemented here in the United States before anywhere else. When a federal appellate court gave its stamp of approval in the Sentinel case, it gave the green light to the theft of customer funds whether they be segregated in a brokerage account (but held in street name) or held as deposits in a traditional banking arrangement. The quiet and subtle change in status from depositors to unsecured creditors that took place back in 2010 has been well documented in this column. The fact that, since the publishing of that seminal work on 4/12/2013, Japan, Britain, and the EU have officially adopted the bail-in doctrine should be very alarming, yet it is nearly uncovered by the lapdog media.

You must first realize that there are, present in our lives, enemies. You must then know who those enemies are and act accordingly.

Eliminate as much debt as possible, especially “variable rate” debt, such as credit cards and lines of credit. Interest rates will be rising, so the elimination of debt offers a “real return” of escaping rising rates by creditors.

Get some control over some fresh water.

If you are depending on Social Security, stop.

Follow the course opposite to custom and you will almost always do well...

Its not what you don't know that will screw you up, it's what you know that is wrong. The spin you hear from the mainstream media is intended to mislead you. Open your eyes and face the future. If you leave your head in the sand and ignore it, you are only leaving your butt exposed for the world to kick. This all may sound like gloom and doom, but when you get a handle on what is going to happen, you will have a future filled with opportunity. Fortune favors the Informed.

More next week...

May the Great Spirit be with you always,

Johnny Silver Bear
Chief cook and bottle washer, The Silver Bear Cafe

Disclaimer

All statements and expressions are the sole opinions of the editor and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. The staff of Silver Bear Cafe are not registered investment advisors and do not purport to offer personalized investment related advice. The publisher, editor, staff, or anyone associated with, or associated to the Silver Bear Cafe may own securities mentioned in this newsletter and may buy or sell securities without notice.