See Gerbino item @ www.321gold.com

Below is an excerpt on the gold and silver stocks.

The Mini Liquidity Crunch in the Precious Metal Mining Stocks

I believe the gold and silver mining stocks which are presently very undervalued against the high prices of gold and silver are currently experiencing a mini liquidity crunch (a distant cousin of a crisis) within the realm of gold and silver mining investors.

These investors have only so much inclination and money at their disposal to buy these mining stocks. But the supply of new mining deals, IPO’s, new financings and private placements have stretched and somewhat overwhelmed the buying power of this relatively small group of international players (individual investors and institutions with an appetite for mining stocks).

An exhaustion of capital allocated to this sector by these players has occurred and has also been diluted further because of the newly created family of associated asset classes like uranium, base metal and rare earth companies. It is simply a matter of a limited amount of money and too many companies. Until more players (and capital) come forth on this stage, this sector could languish at what appears to be excellent and undervalued stock prices. Only the best growth and value mining stories will do well until new players arrive with more capital to invest.

This Principle may also explain why U.S. Treasuries (1-5 year paper) is relatively very strong while it is paying so little interest. It could be because buyers of these bills and bonds can rely on being able to cash them in at a fixed value at maturity as opposed to not knowing what the price of IBM or a duplex apartment will be worth in another full scale crisis or sell off.

The Next Crisis

What will cause the next liquidity crisis is unknown, but the U.S. and Europe are being set up for one to occur because of the continued reliance of fiat money to bail out debtors, the banking system, and government deficits.

German, French and British banks have $1 trillion of exposure to Portugal, Ireland, Greece and Spain, the so-called PIGS. A large per cent of these loans are suspect and due to this a race to liquidity in Europe could start at any time.

After the 2008 crisis another stock market rally occurred, 2009-2011. This was because massive amounts of fiat money were injected into the U.S. economy by the Fed. From January 2008 to May 2011, the U.S. money supply has seen the greatest short-term increase in history, 41%.

Because of this, financial assets again will rise and eventually real estate will also rise probably very slowly (based more on supply and demand as opposed to the rampant speculation of the last pre-2008 decade).

Final Thoughts

The lesson to be learned is that the more money created the more severe the next liquidity crisis will be and that the more money created the less liquidity there will be for financial and real assets to withstand any sort of liquidation panic as the extra money cannot come close to the asset monetary value created by the circulation of that extra fiat money. This is the Gerbino Principle of Liquidity.

This phenomenon has been in plain sight for decades and our good friend Sir Arthur Conan Doyle said it best….

“There is nothing more illusive than an obvious fact.” -Sherlock Holmes.

These liquidity crises are disruptive and dangerous and are caused solely by fiat money which has caused major distortions in modern economies. End fiat money creation and you will end future liquidity crises that disrupt and cause havoc to modern economies.

###

Ken Gerbino