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Two Safe Ways to Profit From the "Alibaba Shockwave Effect"

In the mid-1990s, I was fortunate to meet and start working with an Upstate New York money manager named Anthony M. Gallea.

The relationship began when I attended and wrote stories about some of the investment seminars he periodically held for prospective and existing clients. He then became a “source” for some of the investment stories I periodically wrote for Gannett Newspapers. And we ultimately collaborated on a pretty successful book about “Contrarian Investing” that was published by Prentice Hall.

Along the way, Tony shared some pretty important snippets of investing wisdom…

  • Gold

  • The Secret Return to the "Gold Standard" Although it happened more than 40 years ago, many Americans still rue the day back in 1971 when U.S. President Richard M. Nixon effectively took this country off the so-called "gold standard."

    Under a true gold standard, paper notes are "convertible" into pre-determined, fixed quantities of the "yellow metal."

    What actually happened back in 1971 was that President Nixon - facing huge budget and trade deficits, and a plunging dollar - enacted a series of economic moves, including the unilateral cancellation of the direct convertibility of the U.S. dollar into gold.

    By slamming the "gold window" shut, Nixon also brought down the curtain on the existing Bretton Woods system of global financial exchange.

    The fallout was immediate, creating a situation that financial historians still refer to as the "Nixon Shock."

    Proponents of the gold standard say the real damage is still being wrought: That decision four decades ago led directly to the uncertainty, volatility and irresponsibility that we see in the U.S. economy and global financial markets today.

    Whether you agree or not is a topic for another time.

    But what I'm here to tell you today is that the world's central banks have quietly - almost secretly - returned the world to a new version of the gold standard.

    Back in 2010, the world's central banks became net buyers of gold for the first time since 1988. Buying ramped last year and net purchases exceeded 455 metric tons (tonnes). That was the largest net purchase since 1964.

    But the world's central bankers will handily eclipse the 2011 totals here in 2012: They will purchase a projected 493 metric tons this year as they expand reserves to diversify away from the U.S. dollar and protect their countries' economies against inflation, Thomson Reuters GFMS said.

    And GFMS said you can expect central banks "to remain a significant gold buyer for some time to come."

    Real Asset Returns Editor Peter Krauth told me he completely agrees with that assessment.

    As Peter explained: "You can see their thinking, Bill ... you can see them saying: "We have enough of all these fiat currencies in our bank reserves - now we want something that's going to counter those holdings, that's a valuable asset and that has all the right fundamentals in place.' And that asset is gold."

    We're seeing the results of this "new gold standard" in the marketplace...

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  • How Helicopter Ben Helps Jobs and, Inadvertently, Gold Prices The world's central bank leaders continue to spike the monetary punch bowl, with investors imbibing on gold once again.

    This flurry of gold buying prompts many curious investors and doubting media to ask me two questions: 1) How can demand for gold and gold stocks continue; and 2) How high can gold prices go?

    To answer these questions, we need to look at the intentions behind the economic and political decision-making across several developed countries, analyze the causes, the effects, and the possible ramifications.

    For example, one of the most debated topics today is America's ongoing unemployment situation.

    Job loss has affected the lives and pocketbooks of millions of Americans and our friends and families, culminating to a center-stage position in the election this year. All eyes turn to President Barack Obama and Mitt Romney to explain how each intends to create jobs.

    During the two years following the Great Recession, Americans lost jobs at a similar rate to the employment losses during the Great Depression and in Finland after 1991. But two years after the crisis, U.S. employment losses stopped and reversed direction.

    Compare this to the situations in Norway, Spain, Finland and Sweden, each of which had prolonged unemployment.

    After Norway's financial crisis in 1987, it took 8.5 years to return to the country's employment peak. It took 13 years for Spain's employment to return to its 1997 peak. For Finland and Sweden, it took more than 17 years following their 1991 peaks.

    Although the job losses in the U.S. don't seem as dismal, "Helicopter" Ben Bernanke wants to avoid Europe's and Japan's catastrophic situations.

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  • If You're Investing in Gold, Singapore Just Became More Important to You Singapore recently made a huge step forward in establishing itself as one of the biggest players in the global market for investing in gold.

    The Asian city's government repealed a 7% tax on gold and silver effective Oct.1. Now investors can store their gold in Singapore without costly value-added taxes.

    Singapore hopes the move will help the region morph into a precious metals trading market like London and Zurich.

    "It seems a little unfair to put a sales tax on what is essentially money. The removal of the GST on gold will allow Singapore to better compete with Hong Kong and other bullion trading centers in the region," Nick Trevethan, a senior commodity strategist at ANZ in Singapore told Reuters.

    Singapore currently controls roughly 2% of global gold demand and aims to grow that share to some 10% to 15% over the next five to 10 years.

    The market expansion is expected to increase global demand for gold and silver bars and coins in the fourth quarter of 2012. An influx of precious metal traders to Singapore is also expected, with more commodity offices and bullion storage facilities to follow.

    Anticipating the opportunity, JPMorgan Chase & Co. (NYSE: JPM) opened a precious metals vault in the city in 2010.

    "I think this is really going to change the landscape in Singapore," a gold dealer told Asia One Business. "A lot of companies will find the incentive to start operations in Singapore. This news is going to draw attention to Singapore as a safer place to park funds."

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  • Bill Gross, the Ring of Fire, and Gold Prices Thank Bill Gross for adding some muscle this week to the already strong rally for gold prices.

    That's because Gross, the Pacific Investment Management Co. (PIMCO) founder and co-chief investment officer, released his October 2012 investment outlook Tuesday that came with a warning for the U.S. and investors.

    Gross said that U.S. fiscal problems have put the country in a "Ring of Fire" that'll burn investors if they aren't protected by gold and real assets.

    Gross warned that recent studies have concluded that "[T]he U.S. balance sheet, its deficit and its "fiscal gap' is in flames and that its fire department is apparently asleep at the station house."

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  • Gold Prices Will Soar Past $2,500 As Central Banks Buy it Up With governments all over the planet buying up gold over the past five years, it's no wonder gold prices have risen 142% since 2008.

    Central banks bought 254.2 tons in the first half of 2012 and may add close to 500 tons for all of 2012, the World Gold Council said last month.

    According to the International Monetary Fund (IMF), Russia added 18.6 metric tons of gold in July. South Korea bought 16 tons -- a 30% increase. Kazakhstan increased their bullion reserves for a 12th consecutive month.

    Turkey, Ukraine and the Kyrgyz Republic also joined the party.

    And the buying continued in August, albeit at a more moderate pace, the IMF confirmed.

    "Gold prices continue to be underpinned by growing demand from central banks...we believe this trend is likely to ramp up once liquidity increases in global markets," Justin Harper, markets strategist at IG Markets, told MarketWatch.

    That means the cheap money policies by many of these same central banks, such as the Federal Reserve's recently announced QE3 program, will also help fuel the rise in gold prices.

    Combine that with skyrocketing demand from the private sector, and government hoarding could easily push the price of bullion as high as $2,500 in 2013.

    In fact, the rally could be similar to gold's big breakout move in 2007, when gold prices surged 60%, according to Citi FX Pro analyst Tom Fitzpatrick.

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  • All Signs Now Point to Gold With another syringe of quantitative easing being injected into the U.S. economy's bloodstream, Ben Bernanke is giving the markets their liquidity fix.

    The Federal Reserve's action reaffirmed the stance I've reiterated on several occasions that the governments across developed markets have no fiscal discipline, opting for ultra-easy monetary policies to stimulate growth instead.
    The government's liquidity shot promptly boosted gold prices and gold stocks, as investors sought the protection of the precious metal as a real store of value.

    In fact, since the beginning of 1984, as money supply has risen, so has the price of gold.

    The dollar declined due to the Fed's easing, which isn't surprising, given the fact that gold and the greenback are often inversely correlated, and increasing money supply generally causes the currency to fall in value.

    What's interesting is that currency decline was what Richard Nixon sought to avoid when he ended the gold standard in 1971 and announced that the country would no longer redeem its currency in gold.

    During his televised speech to the American public, Nixon translated in simple terms the "bugaboo" of devaluation, saying, "if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today."

    As you can see below, more than 40 years later, a dollar is worth only 17 cents.

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  • Gold Bugs Love It, But a New Gold Standard is Just a Dream –For Now Thanks largely to Ron Paul, the Republicans have suddenly become enamored of gold.

    And why not?...It is real money.

    These newly-born gold bugs have even gone so far as to include a call for a commission to examine a return to the gold standard in the party platform.

    Needless to say, we've come a long way since President Richard Nixon "closed the gold window" in 1971. Forty-one years, and a few financial disasters later, the debate has begun anew.

    But it begs the question: How would the gold standard work?

    What's more, what would the economic implications be, and is it likely to happen or is it all just a gold bug's dream?

    In ancient and medieval times the answers were quite a bit more simple. Since there was no real banking system, there was also no argument.

    Kings coined money with gold, silver, or copper, and the people accepted the money at a price based on its metal content. The idea of taking paper instead would have been thought of as sheer madness.

    Only in China, an isolated and stable society, was paper money used during the Song Dynasty of the 10th through 13th centuries, but even there the Mongol invasion and fall of the Song regime caused the paper money system to collapse.

    Paper money backed by gold only became possible once modern banking got going in Europe in the 16th and 17th centuries.

    In fact, the British Gold Standard was devised in 1717 by no less than Isaac Newton, then Master of the Mint. Other countries soon joined Britain in linking their currencies to gold, including the United States from 1878 until its abandonment in 1933.

    Of course, countries claimed to be on a gold standard under the Bretton Woods Agreement from 1944-71, but gold was only exchangeable between governments. Indeed, holding gold was prohibited in the U.S. for private individuals.

    But inevitably, the Bretton Woods monetary system itself became manipulated and collapsed in inflation.

    That brings us to today....

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  • Gold Prices Rise as All Signs Point to More Stimulus Gold prices were on the rise again today (Wednesday) as the market digests the recent spate of global economic data that could warrant more stimulus measures - and send metals prices soaring.

    China reported last Friday that its July consumer price index (CPI) rose to 1.8% from the previous year, representing its lowest jump since January 2010. Industrial production declined to 9.2% from June's 9.5% thanks to slowing growth in heavy industrial production. Retail sales fell to 13.1% from June's 13.7%.

    There's more: July exports increased 1% from the previous year, while imports rose 4.7%, exemplifying a weak external demand, but also a slowdown in Chinese investment.

    As if this wasn't enough news to fuel a little action in the gold markets, Japan continued the trend on Monday with news that its economic growth in the second quarter had slowed down more than anticipated.

    Also triggering stimulus speculation was news out of Europe that the Eurozone's economies contracted in the second quarter. The European Union's statistics office said yesterday (Tuesday) that six countries were in recessions.

    "It looks like the gold market will continue to be held up by the sentiment of expected central-bank stimulation," Marex Spectron Group said in a report Tuesday. "The downside risk is limited."

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  • What the Last Roman Emperor Would Tell President Obama Today Over the course of 700 years, the ancient Roman Empire grew from a small republic to one that stretched from London to Baghdad at its peak.

    As one of the world's first true superpowers, the Empire's achievements included the world's first standing professional army, economic prowess, intellectual growth and governance principles that are commonly regarded as the basis for modern society.

    But it is also remembered for its spectacular collapse in less than a century under the weight of bad debt, an overextension of the Empire, a collapse of morals that led to a deluded and self-absorbed political elite and reckless public spending that far outweighed collections.

    Given the parallels to our situation, I can only imagine what Romulus Augustus, widely considered to be the last of the Roman Emperors, would tell President Barack Obama today about how to prevent the wholesale destruction of our own "Empire."

    But it would probably go like this...

    Cara praeses Obama, (Dear President Obama)

    Like mine, your world is changing fast. No doubt it's very different from the one you thought you'd inherited. Your success will depend on new thinking and an eye to the future taken from lessons of the past.

    I wouldn't be offended if you have never heard of me.

    I oversaw the dying days of what you know as the Classic Western Roman Empire. My fall in September 476 marked the end of centuries of greatness and the fall of ancient Rome.

    Some historians consider my departure as the beginning of the Middle Ages. I understand the nature of collapse: how it begins, how it progresses, and where it all ends.

    As a historical footnote to a once great empire, here's my advice to you, Mr. President.

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  • Keep a Close Eye on Gold Prices Next Week The U.S. Federal Reserve is about to give a huge boost to gold prices, and the first push could come as soon as next week.

    The parade of dismal economic reports both here and abroad has stoked hopes that more stimulus, in the form of a third round of quantitative easing, is imminent. A clear signal of when we can expect QE3 could come at next week's two-day Federal Open Market Committee (FOMC) meeting that starts July 31.

    An increasing number of Federal Reserve officials are convinced the central bank must expand its stimulus operation immediately amid the recent spate of glum data signaling economic growth has hit a roadblock. Several members will push for urgent action, although some may move to delay a decision until September.

    Fed Chairman Ben Bernanke told Congress last week that a fresh round of quantitative easing is an option the FOMC is mulling to try and lower the elevated unemployment level.

    "We are committed to ensuring, or at least doing all we can to ensure, that we continue to make progress on unemployment," Bernanke said just last week.

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  • While Banks Crumble, The Next Leg Up For Gold Prices Draws Near Something's afoot in the world of high stakes finance.

    The Basel Committee for Bank Supervision (BCBS) is about to decide something crucial to bankers, sovereign nations, and gold investors alike.

    As part of the Bank of International Settlements (BIS), the BCBS is reviewing the upcoming new Basel III rules. That may sound arcane to you but I promise it's not.

    Though rarely discussed in the mainstream press, the all-important Bank of International Settlements is essentially a global central bank to the world's central banks.

    Its goal is ostensibly to provide global stability to the monetary and financial systems.

    And in a surprise twist that only a few years ago would have been considered preposterous, the BCBS is entertaining whether gold should qualify as a full-fledged Tier 1 capital asset.

    Currently, the precious metal is relinquished to a Tier 3 status, deserving no more than a 50% weighting at that.

    Here's why that distinction is important and potentially astonishing.

    Achieving Tier 1 status would credit gold with the recognition it's been denied ever since Nixon closed the gold window on August 15, 1971.

    In essence, it would mark the official recognition that gold is real money.

    But that's not the only reason gold is gaining respect. Other factors are brewing that will set the stage for the next leg up in gold prices.

    As Banks Teeter, Gold Gains Respect

    One of them is the crumbling state of world's banks. Once unwavering, the trust in these financial ivory towers is precarious at best.

    In the last couple of months alone, Greek depositors have withdrawn billions of euros in deposits, as the fear of a "Grexit" looms large.

    Not to be outdone, Spain banks have been emasculated by the Iberian nation's own bursting real estate bubble. After denying for weeks that a bailout would be required, officials finally caved to a "Spailout", giving Spain's banking system a 100 billion euro rescue package.

    This phenomenon is not exclusive to the Eurozone either.

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  • Gold Prices: Begging for QE3 The Fed's Operation Twist announcement Wednesday slammed gold prices, and the yellow metal fell 2.5% Thursday.

    Gold for August delivery ended last week down 3.8% to about $1,570 an ounce, well below its 2011 high of $1,920.30.

    Before the two-day FOMC meeting, gold was up 4% year-to-date. Gold rose at the beginning of the week on hopes that the Fed would announce accommodative moves.

    In the last round of easy-money moves back in January, gold rallied as high as 15% as investors flocked to the asset for protection. Since then, gold has dropped numerous times from a lack of additional news of more easing.

    Gold was once again disappointed last week when the Fed said it would keep twisting, and the lack of a more aggressive maneuver failed to give a needed gold rally.

    "To get gold really moving, you need a definite QE3," Sterling Smith, commodity analyst with Citi Institutional Client Group, told Kitco News. "Operation Twist is not nearly the food for a gold bull that outright QE is."

    Gold Prices and Operation Twist

    On Wednesday morning, the Fed announced the extension of its long-term government bond holdings by $267 billion to decrease borrowing costs while selling an equal figure of short-term securities to keep its $2.9 trillion balance sheet.

    While scheduled to end this month, the Fed extended the Operation Twist program until the end of the year.

    Operation Twist is derived from a Federal Reserve program that "twists" the yield curve or sells short-term securities from its holdings and buys longer-term ones in an effort to drive down longer-term yields.

    Market watchers had been mixed about this happening.

    Barclay's Capital saw Operation Twist as "the most likely outcome," saying it would provide additional time for the Fed to sift through and mull soft data that is "payback" from the additional warm winter hiring or a potentially lengthier prolonged slowdown, reported Kitco.

    But since Operation Twist was considered the least the Fed could do, markets had priced it in already.

    Jeffrey Wright, managing director and research analyst with Global Hunter Securities, said to Kitco he expected limited gains for gold on the heels of the "Twist," possibly to the $1,650 range, as the market has already been adding in the possibility for Fed action.

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  • Silver Prices: Market Loses $90 Million to Ponzi Scheme Silver prices this week dipped after U.S. Federal Reserve Chairman Ben Bernanke failed to confirm that more economic stimulus is on the way. Silver prices hovered below $29 an ounce Friday.

    Meanwhile, millions of dollars that would have been invested in physical silver it turns out were instead held in a $90 million Ponzi scheme orchestrated in South Carolina.

    The Commodity Futures Trading Commission (CTFC) reported Thursday it charged Ronnie Gene Wilson and Atlantic Bullion & Coin, Inc., both of Easley, S.C., with offering contracts on silver sales, but never actually purchasing any metal.

    The CTFC maintains in a filing Thursday in U.S. District Court in South Carolina that Wilson and Atlantic Bullion & Coin violated the Commodity Exchange Act and CFTC regulations by operated a Ponzi scheme dating back over a decade and continuing through Feb. 29 of this year.
    Wilson and Atlantic Bullion & Coin fraudulently obtained at least $90.1 million from some 945 investors, the CTFC alleges.

    The CFTC received jurisdiction over the entities from Aug. 15, 2011, to Feb. 29. During that time, Wilson and Atlantic Bullion & Co are accused of deceptively obtaining at least $11.53 million from at least 237 investors in 16 states under contracts of sales to buy silver, without buying or delivering the white metal.

    According to the CTFC charges, Wilson and Atlantic Bullion issued fake account statements to unknowing investors who believed they had invested in silver.

    The CFTC is after compensation for scammed investors, a return of illegal gains, civil monetary penalties, trading and registration bars, and permanent injunctions against further violations of the federal commodities laws if successful in its suit.

    Cases like this are why choosing where to buy silver is a decision requiring research - which we've done for you in our special report, "How to Buy Silver."

    However you choose to buy physical silver, gold or other precious metals, the most important rule is to deal only with reputable dealers who have proven experience in the business and clearly stated policies and warranties - especially if you're purchasing by phone or online.

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  • Obamanomics: What You Can Expect if President Obama Wins the Election Now that we are left with a two-horse race for president, the markets are going to begin to handicap the November results.

    However, when the markets begin to handicap the race it will be about a lot more than just picking the eventual winner.

    Instead, everything will revolve around the policies and consequences that come along with the winner.

    The difference in approach promises to be stark with "Obamanomics" on the left and "Romneynomics" on the right.

    Each one comes with its own set of consequences, though.

    Today I'm going to look at "Obamanomics II," or the policies we will get if President Obama is re-elected.

    But those on the left shouldn't despair...In my next piece, it's Romney's turn.

    As for the horserace itself, it's too close to call, with neither side having much chance of winning a big victory.

    President Obama Has the Edge

    Even still at the moment, President Obama appears to be ahead. Apart from his modest lead in the polls, my former home state of Virginia appears to be swinging definitively toward the Democrats.

    Yes, Republican Bob McDonnell did win the Virginia governorship handily in 2009, but he was a very good candidate. Moreover, turnout in gubernatorial elections is normally low. Thus I believe the latest polls showing Obama with a 7% lead in Virginia are accurate, and without Virginia Romney has a very difficult path to the presidency.

    If we believe the presidential election will be close, then it follows that Congress and the Senate elections must be close, too.

    If Obama wins in November, the most likely outcome must be that the Democrats will hang on to the Senate, while the Republican House majority survives, albeit much smaller than at present.

    With this combination, the president's more extreme wishes (or those of his team) will be restrained. But as a newly re-elected figure he will nevertheless have more power to get what he wants than he does currently.

    Whatever the congressional numbers may be, the president's first task will be to face the "fiscal cliff" of January 2013, when the Bush tax cuts and temporary payroll tax cuts expire and automatic spending "sequestration" comes into effect.

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  • Gold Prices: How to Climb the "Golden Staircase' When U.K. subscriber John M. wrote in this week, he got right to the point.

    Asked John: "What's happening to gold prices? Why are they dropping?"

    For an answer, I speed-dialed Real Asset Returns Editor Peter Krauth - our resident expert on mining and precious metals.

    Peter is based in Canada, which keeps him close to the natural-resource companies that proliferate north of the border. He gave me a detailed and insightful answer to John M.'s question.

    And he recommended three ways to profit - including an ETF he says is perfect for first-time gold investors.

    To explain what's happened with the "yellow metal" - and to project where gold prices will go next - Peter invented a pricing theory that he christened the "Golden Staircase."

    "The bottom line, Bill, is that the price of gold has simply entered a consolidation phase - much like it has done numerous times since it entered this secular bull market back in 2001," he told me.

    Gold futures were at $1,662.40 an ounce yesterday - well off the yellow metal's high. Here's why.

    "If you think back, when gold hit its all-time high of $1,900 last August, we were in the midst of wild speculation that the U.S. government wouldn't resolve its debt-ceiling crisis," Peter explained. "A deal in Congress was reached in time, but Standard & Poor's went on to downgrade the nation's credit rating for the first time in history. Since then, there's been considerable apathy towards gold by the general investing public, pushing its price down about 13%. What's more, government-calculated inflation looks benign, taking away from gold's luster."

    And here's where it gets interesting.

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