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The Great Asset Grab Part 2 - What's the Score?

In a Marketwatch article this morning, Caroline Henshaw provided a tally of the score in the Great Asset Grab between the East and West (see http://www.marketwatch.com/story/asia-millionaires-outnumber-now-us-peers-2012-06-19).  While the Asia Pacific region gained 1.6% and the US lost 1.1%, the US is still a contender when counting assets.  The score?  Asia has 3.37 million people with investable assets in excess of $1 million while the US has 3.35 million.  The overall wealth pool fell to $42 trillion (from the $45 trillion I referenced in my previous posts) and is split as follows:

North America - $11.4 trillion

Asia Pacific - $10.7 trillion

Europe (including Russia) - $10.1 trillion

All others (South America, India, etc) - $9.8 trillion

As all hope for a New World Order fades these are the numbers to keep an eye on as nations create alliances that offer the greatest advantage to them on a go-forward basis.

In a recent Inflation/Deflation debate between Jim Rickards and Harry Dent, Rickards proposed that a one world currency/ one world government is still on the table.  He sees the mechanism for this to be the IMF and the currency to be the IMF's special drawing rights.  I hold out little hope for the success of such a plan, even if TPTB are still trying (halfheartedly) to implement it.  Here are my reasons:

1) SDRs are unfamiliar.  To date they have only been used three times in very limited quantities, most recently for approx $200 billion in 2008.

2) SDRs represent a claim on all member nation assets.  As such, successful implementation would require wealthy nations to support profligate nations (and we've all seen how successfully this is going over in Europe!)

3)  The IMF has had little success raising core capital.  At the G-20, the IMF announced that it had successfully raised $456 billion (with a measly and hardly ratable commitment of $43 billion coming from China)  http://www.marketwatch.com/story/germany-to-allow-europe-funds-to-buy-debt-reports-2012-06-19-1410372

4)  While the IMF could take this core capital and use fractional reserve banking to lever it up, it is difficult to imagine China and Russia agreeing to participate in such a scheme when push comes to shove, no matter what noises they make in order to get along right now.

5)  As Chris Duane so astutely pointed out in his most recent interview with Kerry Lutz, national memory is long and strong.  Just as Europe remembers WW2 and Germany is leary of any alliance with Russia because Russia still remembers WW2, too, Michael Cembalest in his most recent Eye on the Market states:

'Any discussion of China’s engagement with the world needs to factor in China’s troubled relations with the West during
the 19th century. Kissinger (Cembalest had dinner with H.K.) spoke about the impact this era continues to have on China’s political consciousness, which you can grasp by looking at some data and charts: opium imported into China which addicted up to 25% of its adult population, the exodus of Chinese silver to England and India to pay for it, and the collapse in China’s trade surplus. The Chinese Imperial
Commissioner sent a letter to Queen Victoria asking her to cease the opium trade, which was banned in China in 1729 and again
in 1836. Britain ignored the request. After a Chinese blockade of opium ships, the British invaded in 1840, and easily defeated
the Chinese. China was forced to sign the Treaty of Nanking, one of the more one-sided treaties in history. The opium trade then
doubled, leading to another war (and Chinese defeat) 20 years later. The Opium Wars played a large part in the collapse of the
Qing Dynasty and subsequent occupation by foreign powers. This is not seen as ancient history in China.'

What does this mean for you?

Today the Fed extended Operation Twist, which as I pointed out in a post I wrote two days ago, is a sanitized operation, meaning they sell bonds they have that are short-dated and buy bonds they want that are long-dated.  Because this results in no balance sheet expansion, it is not inflationary.  For this reason, PMs as measured by the market may go down as recession hits.  Likewise, many people in Europe and even in the United States will get flushed out of their metals (as austerity hits Europe and those persons unemployed for more than 99 weeks in the US sell anything they can lay their hands on simply to eat).  Additionally, market traders may pile in to drive prices down so they can pick them up cheaper.  (When I speak of people being flushed out of metals, it is these people of whom I speak, not readers of DTOM who know better!!!)

As recession hits, if assets get cheaper this is simply a huge buying opportunity.

How low could metals go and should you wait?  Chris says "I'd rather be seven years too early than one year too late." and I agree.   The election in November, the need to increase the debt limit again this fall, and the fiscal cliff are all reasons to be buying while others are selling.  Dollar cost average in if you like, but don't go into 2013 sitting on piles and piles of cash.  There is a reason why major changes happen immediately after an election cycle...it is easier to get stuff done when the pesky electorate is powerless to stop you (ex. Obamacare)

I welcome all questions and comments.  In keeping with the memory of Bob Chapman...I answer every one.


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