Central Bankers

A New Russian Winter, or the Calm before the Storm?

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Some weeks ago, before Xmas, I floated the proposition that “The West” might be about to shoot itself in the head, heart, AND foot, just to make sure.

My reasoning was that Russia, might be about to demand payment in Rubles for their gas and oil and other things, which would effectively shoot the west in the aforementioned organs, as they sought to ratchet up pressure on President Vladimir Putin.

The U.S. through its monetary influences and power in International Organisations – the World Bank, the IMF, BIS, Federal Reserve, and of course the ECB, Bank of England, U.N. and Bank of Japan etc, is waging a war against Russia, in a vain attempt at defending and extending its influence in the middle-eastern region, and throughout the near east, ostensibly to protect itself from the rise of China and a resurgent Russia. (more of which later)

The beginnings of this madness began with the end of the Soviet Union. The west in NATO, and through European organisations made agreements with the Soviets, to not encroach into former soviet countries, yet many of those countries, in order to avoid the risk of re-colonisation, chose to join the North Atlantic Treaty Organisation (NATO) and/or the European Union. (E.U.). This was also of course to strengthen the U.S’s Federal Reserve backed monetary system, which as I’ve mentioned numerous times is now no longer backed by physical precious metals.

Of course, when the U.S., under its attempt to extend its influence in the region, encouraged the western larger part of Ukraine to throw off its recently elected leader as it were, to rub Putin’s nose in it, and incurred the wrath of the Crimean Russians, and the Russian speaking ethnic Russians east of the Dneiper River, it essentially wandered into Russia’s back-yard, and that was the straw that broke the camel’s back.

The Crimeans, who are predominately ethnically Russian, were backed into a corner, as the new western backed government in Kiev, made the Russian language illegal.

Imagine if you were a Welsh speaking Welsh person, and the incoming British government, made your language illegal? Or Irish? or Highland Scottish and they tried to make Gaelic illegal?

You’d be pretty PO’d too…

The Crimeans, who felt Russian, spoke Russian, and historically WERE Russian – If we remember our history – Balaclava, near to Sevastopol, on the western coast of Crimea, is where the British Light Brigade, charged the Russian guns, to such detrimental effect, in 1854, and it is remembered in the rousing poem by Alfred, Lord Tennyson. So, a hundred and fifty years ago, this part of the world, was as Russian as it surely is today.

The President, of Russia, kept a low profile recently, and even disappeared from view for ten days, prompting mass media speculation by western media about his health. Of course, when he reappeared, the President issued a wry smile, and joked about “gossip”.

But behind the scenes, the Russian bear is fighting back against the Dollar hegemony. Of course the war of words is being ratcheted up as American military conduct war games in Estonia, this week-end, a former Soviet satellite nation, and right next to the Russian mainland.

Guyane Chichakyan a journalist for RT, posed an interesting question to one of the U.S. government’s PR spokespersons today (Saturday) when she asked Jeff Rathke of the U.S. State Department: Why was it that when Russia conducted military exercises on their own soil, it was supposedly raising tensions, but when Americans conducted military exercises several thousand miles away from home on Russia’s borders, it was in the guise of international peace and security.

The PR guy nearly choked on his reply, denying that they had ever said such a thing, to which, RT showed a clip of Jen Psaki of the U.S. State Department, on August 14th, 2014, doing just that, when referring to events in Ukraine and close to the Ukrainian border. As I mentioned some months ago, the next world war has already begun as a war of words, and for people’s hearts and minds. Every channel, both public and private will be used. It will in all inevitability end in a military war, though perhaps not on such a full-scale as the last one in 1939.

But perhaps also the anti-U.S. state of mind is gathering steam… As I mentioned some weeks ago, Britain applied to become a founding member of the AIIB (Asian Infrastructure Investment Bank) the alternative to the U.S. dominated World Bank and IMF, and we hear from the New York Times, that now Germany, France and Italy wish to join in defiance of U.S.’s (cough) “requests”.

Perhaps the dollar’s end as a major world currency is finally coming to an end, as a result of the mass Q.E. exercise of recent years.

It is time we all engaged our brains.

And then last week, I read this… http://russia-insider.com/en/2015/03/19/4696 which discusses just that.

If a shooting war does begin in earnest, money – hold in your hands money – will allow you to survive the inevitable inflation that will ensue, and the grey market will offer up far more than the government enforced, and controlled ones. If you value your freedoms, liberties, and the health and well-being of your family and friends, I strongly suggest you begin preparing – if you haven’t already.

Gold and Silver coins and widely accepted silver and gold ingots of widely known mints will prove to be good ways to secure your own future “essentials”. And Bitcoin, and other [Alt-coins] will enable international transactions. You can begin your own FREE collection of these precious [Alt-coins], when you set up an account by merely supplying an e-mail address.

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Revenge on the Bankers (Part II)

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My day began on Friday with news that England & Scotland had renewed their Marriage vows, though not before David Cameron had blubbered like an errant husband, saying – “LOOK! I can change”, just so we wouldn’t have to have this discussion again, anytime soon.

And then later the post came, and the Book, safely packaged arriving in a bubble-wrap envelope. Great, I had been beginning to worry that it hadn’t been sent, or that somehow the post office had lost my address. But I needn’t have been concerned.

It’s the new Bill Bonner book “Hormegeddon”, and I hastily tore open the package, read the accompanying letter, and then settled down with a quickly made cuppa to digest Bill Bonner’s wit, erudition, and learning from over 40years as a trained economist. The pearls of wisdom if you like.

A synopsis of the opening chapter is not about to follow, but the basis of the book is that a little of something can be beneficial, but when you get a whole lot of it, it eventually ends badly. Like receiving a glass of water, or a whole ocean full… And Bill has applied this insight to social systems, politicians, and economics in his own inimitable style.

Some time ago now, I wrote about taking revenge on the Banksters, who having used fractional reserve banking, have increased their control of the economy, and the productive assets of a nation, by allowing them to create currency out of thin air, to give to those on the inside, which allows the Central Bankers and the owners of those printing presses, to buy assets at knock-down prices, in an economic bust, which they themselves have engineered.

By not having currency tied to any particular asset class, making the currency of every major economy, purely paper based and thus essentially valueless, they have got to the point where one suspects, the analogy in Hormegeddon is about to befall us.

If the value of money was tied to any commodity, and that commodity went up in price, the population as a whole would know instantly, that price inflation was taking place.

Of course, when you have a tie to any commodity it has to be agreed which commodity.

At various times throughout history, different commodities have been used.

In early history, people stored whatever they had an excess of. The arable farmer stored grain, that was in excess of his needs, and he traded some with the farmer who had Dairy cows, and other livestock.

The hunter stored furs, and traded some for grain when he found a farmer with excess grain.

Of course the problem for many of these commodities was that they were perishable, and so deteriorated in damp or poor conditions.

People realised that a more permanent medium was needed, so that excesses built up in the good years could be traded for things in the lean years.

This was the start of money. Money is really just savings converted into a form that is more useful.

No savings? No money. No problem.

Of course when some people learned about metals, and began making tools like swords, tips for arrows, belt buckles, stirrups for the better control of horses, and adornments. People began to realise the value of these metals as a store of wealth. And the most precious of those metals were silver and Gold.

These two metals were found in many places in tiny amounts, but also didn’t deteriorate. Gold mined in the 5th Century BC, will still resemble Gold mined last year. And Silver whilst it may have lost some of its shine, will still weigh almost exactly what it did a hundred, or thousand years ago.

Gold, of course, retains its lustre long after it is mined and refined, and even mixed with silver, copper and other metals still retains its size shape, weight and colour. This together with its shine, made it desirable, and thus when in the 6th Century BC, as populations were growing in what is now modern day Turkey, people used this strange metal – called “Electrum” – a mixture of these, in the earliest coins.

By the early middle ages, merchants who travelled in their business were prone to being accosted and their money robbed, which made the carrying of these precious metals dangerous. The Goldsmith realised that if he stored the merchant’s gold and gave the merchant a gold receipt, the merchant could transfer that gold to another by merely signing over some of that wealth, and thus the check was born, and the Gold receipt could be used to pay for things. Thus the Bank note was born.

Later the Goldsmiths began lending money and charging interest, and thus Banks were born. As the economy grew, so did the power of the Goldsmiths, now called Bankers, and as more and more people kept their wealth in the vaults of the Bank, the Bankers realised they could lend out more than they had in storage, and thus fractional reserve banking was born.

As the economy boomed during the 16th to 20th centuries as first the Spanish, the Portuguese, then later the Dutch, French and British began their pursuit of global empires, Banks provided capital for these explorers, and got their pound of flesh, whether the trip was a success or not, though the borrower frequently had to pledge their home, or other chattels.

Over the 250 years since Nathan Mayer Rothschild, sent his five sons to London, Paris, Frankfurt, Naples and Vienna to found the Rothschild empire, things have only gotten bigger.

These sons founded a Rothschild Bank in each of these cities, a truly international Banking system, that allowed the Rothschilds to benefit from local contacts, and to play each country off against the others, when they came to blows, as they had a tendency to do in old Europe.

President Lincoln, was a man who refused to do business with these Rothschilds, who demanded large interest rates to fund the civil war, and for his sins was shot when he began printing the nation’s currency.

Slowly over several generations, these Banker’s wealth and power over the economy grew, especially when they got together and formed Central Banks and colluded with other Central Banks – the largest of these – the ECB, PBoC, BoJ, Fed, and the Central Bank of Central Banks – the BIS (Bank of International Settlements) based as it is in Basel, Switzerland, home of the notoriously secretive Banking fraternity.

Since 1913, the Fed in particular, has exerted greater control over the world, as the printing presses of the United States were used to fund wars, and the military industrial complex. And the savings of the Chinese, Russians, Indians, Brazilians and other developing nations were used to prop up the dollar further extending this power.

Is this all coming to an End?

A slow start to controlling these Bankers in America was taken a few days ago, on 17th September, as a Bill was passed in the U.S. House of Representatives.

Congressman Paul Broun – U.S. Republican, promoted the Bill H.R. 24, the Federal Reserve Transparency Act (Audit the Fed), which passed in the U.S. House of Representatives with strong bipartisan support. H.R. 24 has over 220 co-sponsors and passed overwhelmingly by a 333-92 margin. Broun, released the following statement after the Bill passed…

“Today’s passage of the Audit the Fed bill brings us one step closer towards bringing much-needed transparency to our nation’s monetary policy. For the past 100 years, the Federal Reserve, a quasi-government agency, has acted under a veil of secrecy – controlling our monetary policy and thus, our economy…

While in recent years, the Fed has been granted a greater role in overseeing the regulation of our financial system, current law specifically prohibits audits of the Federal Reserve’s deliberations, decisions, or actions on monetary policy. This lack of accountability and transparency has led to grievous consequences – and it must end.”

In reality, the Fed is a private organisation with its only shareholders, the 6 or so Banking Families who sneaked out of New York in November 1910 to an (at the time) unknown location to create the organisation, that would strangle the U.S. economy several times over the next 100+ years.

Along the way, the Fed has relieved lots of people of their gold, and is alleged to be responsible for the deaths of various Presidents, and others who threatened their little racket.

We have all heard of the depression that occurred commencing in 1929. In order for the U.S. President to commit to the works that would help get the economy working again, he had to spend money he didn’t have, and the only people who could print or produce the money in America at the time was the FED.

However, the credit of the U.S. was not quite as good as it has been over the last 40+ years, and so the Fed forced the President to confiscate the gold and silver of the nation at a fixed price ($25.00/troy oz) and then re-value it when they had almost 7,000 tons to $35.00 an ounce, which with the other 13,000 tons of Gold they took from overrun Europeans, stood the test of time, until 1971, when Nixon ended the Bretton Woods agreement unilaterally.

So, to get to the meat of this piece, one day soon, this power of the Bankers will come to an end – probably VERY badly.

WHY? How? The Internet!

The Internet has changed dozens of industries in the 40years since DARPA (Defence Advanced Research Projects Agency) funded the first basic research into computer communications.

Amazon, Google, Apple, Microsoft, HP, Dell, E-bay, Netflix, MySpace, Facebook, Alibaba et-al. The Internet and these Tech giants have revolutionised whole industries, and the business models that worked before the Internet, have had to be revised, now that potential customers, can meet with potential suppliers electronically. This process is given the grand title of “disintermediation” and it is worrying the Bankers.

Crowd-funding is replacing the traditional role of Banks providing start-up capital; Electronic Stock-brokers are allowing people to trade the markets from home, or wherever their smart-phone happens to be; Digital Money and electronic payments systems initially made Bankers’ life simple, they didn’t even need the printing presses so much, but now with Crypto-currencies, people can trade value without even using their banks – all through the power of the Internet.

The most widely known of these new fangled currencies is Bitcoin, but there are around 80 of these currencies, and their value and power are growing with every passing day. And you can receive FREE Crypto-currencies daily, including Bitcoin from Qoinpro.

Bitcoin is currently valued at over $400, and its two smaller siblings – Litecoin and Feathercoin (which you also receive from Qoinpro) are like Silver and Copper to Bitcoin’s Gold or Britain’s Pounds, shillings and Pence.

Gold and Silver too are not being forgotten in this new world, as organisations are now trading Bitcoins for Silver and Gold making the banking industry all but superfluous in its historical sense. Only the Bullion Vault holders, are doing well, and who are increasingly based in the Far-East as several new vaults have opened there, and just 18months after their opening, they’re almost full to capacity.

As both of these precious metals fall to interim lows, those on the inside of the precious metals markets, are saying that now, as the economy is supposedly on the mend, is exactly the right time to be accumulating.

Many miners too are haemorrhaging as the metal price falls due to paper derivatives being used to manipulate the metal price, but many can’t continue to operate at these levels.

Only the industrial metals miners are keeping supplies coming. Because their precious metals are a by-product of their operation, the price is almost irrelevant to them, as whatever they get is in addition to their industrial mineral operations, but most of the majors who produce the bulk of the metals will either have to cease trading, or close down operations or both.

This is ultimately leading to a supply crunch – particularly in silver.

Silver is both a precious metal and an industrial metal, and demand is soaring.

Every Chinese, Korean and Japanese made i-Phone, Samsung Galaxy, Notepad, Tablet, PC, Nokia, LG, Sony, Toshiba, Canon camera, Nikon, Lumix, Panasonic, MAZDA, Toyota, or British made Ford, Jaguar, Land Rover, or German made BMW, Mini, Mercedes, Audi, or VW… In fact almost every vehicle in the world which is increasingly carrying increasing amounts of electrical and electronic equipment uses silver.

Imagine – China produces 9 million vehicles per year, Britain at its peak produces almost 2million vehicles, and then there’s America, Brazil, France, Italy, Australia, and India as well as all the other smaller nations who build vehicles including Russia and the former Soviet States.

Silver is used in them all. And with digital payments using crypto, how long can the Banks hold out before the system implodes again?

One way to get these Crypto currencies is Qoinpro, who are giving them away free, and will become a coin exchange in the fullness of time charging a small transaction fee as people use their crypto-currencies.

And as for precious metals. China holds just 1% of its $4trillion worth of reserves in Gold. Many believe they will need to have upto 40% of their reserves in Gold. At just 10% that equals $400,000,000,000 worth of Gold at current prices ($1250.00/oz) which would be the equivalent of 320 million troy ounces, or 9,953.11 metric tonnes.

As a result, I believe China will not stop buying Gold until it has around 10,000 metric tonnes.

In 2009, when they last announced their Gold holdings in April, they had just over 1,000 metric tonnes.

Given that they have been buying in increasing amounts and in 2013, that was circa 2,000 metric tonnes, the price longer term is likely to go a lot higher, once their ambitions become more widely known.

And silver which historically has been 1/16th the price of Gold, will likely return to its historical norm.

But perhaps even more, as silver comes out of the ground at just 9:1 it is not outside the bounds of possibility that silver will reach this dizzy height.

The Coming Battle

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As events in Ukraine spiral out of control, it is possible that in the absence of a thawing of relations between Russia and the U.S., over the Ukraine, a new cold war could be about to emerge.

Particularly as the Ukraine, gets its gas from Russia, and currently owes the Russian Gas Giant – Gazprom over $2.2 BILLION in unpaid bills.

However, all this turbulence in eastern Ukraine, with Russian defenders of their cultural identity, that have stormed Local and Regional government offices, will possibly force Putin’s hand to defend these ethnic Russians which could draw in western forces to defend its supported government in the west of Ukraine.

For Ukraine whose currency has depreciated in value by 27%, since the troubles began, this could spell disaster for the country and its people. The gas bought from Russia was purchased at the highly advantageous gas prices that Gazprom gave to former CIS/Soviet states.

As Gazprom increased its prices to above market rates to Ukraine, to reflect the risk of failure to pay, and to recoup lost income, it is obvious that naturally Ukraine would be upset. Wouldn’t anyone if their energy bill went up 300%? And this has implications for Ukrainian industry, already not as well developed or efficient as their western counterparts.

Aleksey Miller – CEO of Gazprom, Russia’s biggest energy supplier, which in different circumstances would be a huge investment opportunity, suggested that Russia should abandon the Dollar and use the Euro for the international sale of GAS.

Even Christine Lagarde, Managing Director of the IMF, weighed in on the subject of Ukraine, by admitting in an interview on 2nd April, that the problems in Ukraine could affect the global economy.

Of course the Soviet state, went through its own internal challenges in the late 80s, as the commodities prices fell.  Russian tanks and soldiers were embroiled in Afghanistan, and the Soviets spent more than they earned,  the end result was the end of the Soviet Empire.

Are there parallels today for the U.S. empire? I suspect so – only their printing press has saved them. But will Chinese Gold cause the U.S. empire to collapse? We shall see…

As American and other nation’s troops are stationed in the Far East to – as Hilary Clinton put it – pivot Washington to the Far East, which drew the statement from a senior Chinese military figure, that “Chinese containment” was not possible.

As the raw materials of life have become more important, both Russia and China have used different strategies to achieve similar results.

Russia and the Global Metals Supply Chain

Both Russia and China have large land-masses, and the potential for commodities production. Russia is an important commodities giant. and Russian output is critical to the global supply chain for many items.

Russia is a major producer and exporter of oil, natural gas, ores, refined metals and industrial minerals. According to a recent analysis by the British firm Roskill, the extractive, energy and chemical sectors are vital to the Russian economy and accounted for an estimated 80% of Russian export revenues in 2013.

It’s important to recognise though, that Russia’s commodities are important on several levels. Russia is more than a major producer and exporter of energy and materials; Russia is an important player within Western supply and product chains. So, targeting Russian companies has the potential to provide blow back on Western businesses and economies.

For example: Nickel is much more than a 5 cent piece in people’s pockets. Nickel is critical to manufacturing stainless steel and a lot more. Nickel prices have pulled back in recent years as supplies have had to adapt to lower global demand, but picked up in recent weeks as commodites prices turned around, and Indonesia, imposed restrictions on exporting raw ore.

One of Russia’s big players, Norilsk Nickel, extracts ore in Russia but refines its product in Finland. Overall, Russia is the world’s second-largest producer of nickel, after China. But since China consumes most of its nickel domestically, this leaves Russia as the world’s key “swing” supplier. In 2013, Russia accounted for 26% of global nickel cathode exports, or around 13% of total world consumption of nickel. Without Russian nickel, the world’s steel industry would be quickly disrupted and prices on international markets would rise, possibly steeply.

Cobalt: Although Cobalt is found in many African countries, Russia is an important supplier. Cobalt, is used in steel and alloys increasingly with military applications as it is used to harden steel based alloys for armour piercing shells, and military vehicles as armour re-inforcement.

Russia accounts for about 6% of global mine output of ore and 3% of global refined output. Most Russian cobalt production is related to Norilsk operations in Finland, where cobalt comes out of nickel production. At 6% and 3%, as noted, Russian cobalt numbers are relatively low overall, but the point is that if Western sanctions somehow choke off Norilsk operations in Finland, we’ll see the impact on global availability of refined cobalt which would only add to military hardware costs.

Vanadium: Russia is the world’s third-largest producer of vanadium – providing about 10% of the world’s supply. Vanadium is critical to hardening steel and other alloys and is a key element for the future of utility-scale storage batteries. If vanadium supply takes a hit, all manner of metal and energy projects could be disrupted. Though a small miner – American Vanadium – is about to commence mining operations in the U.S..

Tungsten: Russia is the world’s second-largest producer of tungsten (behind China) and accounted for about 6% of global supply in 2013. Don’t be fooled by that low raw number, though, because about 70% of global tungsten is a Chinese play. So that Russian 6% “global” statistic is really about 20% of what’s available to the world outside of China. Tungsten is critical to building machine tools as well as manufacturing drill bits. In essence, tungsten is used for requirements that call for hard, dense metals with high melting points. Europe is a major tungsten importer from Russia, and much European industry will have to scramble to make up for any loss due to sanctions.

Titanium: Russia is a large supplier of aerospace-grade titanium to both the U.S. and Europe, accounting for about 12% of imports. Two important buyers are Boeing and Airbus, whose operations could be slowed by lack of titanium supply, certainly in the short term. I’m guessing you can see a trend here?

Rare Earth metals may also be included in this list of essential resources that modern economies cannot do without and that are sourced, at least in part in the former Soviet Empire.

Will Russia Look More to the East?

I could go on with other energy and materials that come out of Russia, but you get the point. Western politicians may feel like they have to “do something” about Russia annexing Crimea. but they have to be careful to not bite the hand that feeds them.

For our purposes, on the investment front, one potential result of Western sanctions will be to give Russian leadership even more incentive to look east, toward Chinese markets. China is a major consumer of many raw materials and refined products and would likely be able to buy and use Russian materials that no longer move west.

Different commodities will move in different ways, of course; some more than others…

Is China’s growth story about to unravel?

David Stockman writer for the Daily Reckoning, says: China is in the greatest construction boom and credit bubble in recorded history. An entire nation of 1.4 billion has gone mad building, borrowing, speculating, scheming, cheating, lying and stealing.

The source of this demented outbreak is not a flaw in Chinese culture or character – nor even the kind of raw greed and gluttony that afflicts all peoples in the late stages of a financial bubble.

Instead, the cause is a kind of monetary madness with an oriental face. Chairman Mao was not entirely mistaken when he proclaimed that political power flows from the end of a gun barrel – he did subjugate a nation of one billion people based on that principle. But it was Deng Xiao Ping’s discovery that saved Mao’s tyrannical communist party regime from the calamity of his foolish post-revolution economic experiments.

Just in the nick of time, as China reeled from the Great Leap Forward, the famine death of 40-60 million people – depending on whose figures you use, and the mass psychosis of the Cultural Revolution, Mr. Deng learned that power could be maintained and extended from the end of a printing press – just as Western Bankers did 200+ years ago.  And that’s the heart of the so-called Chinese economic miracle. Its not about capitalism with a red accent, as the Wall Street and London gamblers have been braying for nearly two decades; its a monumental case of monetary and credit inflation that has no parallel.

Will Hutton who wrote “The Writing on the Wall.” (an ironic play on the Great Wall of China) suggested back in 2007, that the mixture of capitalism and political direction, would eventually lead to a collapse in China’s economy, when investments, and prices were centrally controlled, because the market mechanism of the free flow of information in markets – the price signal – and “Contract Law” is a requirement for all modern capitalist economies to function properly.

Perhaps our own politicians and Bankers would do well to remember that too, as they force Bullion Banks into manipulating currency prices by manipulation of interest rates, and precious metals prices, but I digress.

At the turn of the millennium, credit market debt outstanding in the US was about $27 trillion, and they’ve hardly been slouches in attempting to borrow their way to prosperity. Total credit market debt is now $59 trillion; so America has been burying itself in debt at nearly a 7% annual rate.

But America has been out-banked – to coin a phrase.  In 2000, China had about $1 trillion of credit market debt outstanding, but after a blistering pace of “borrow and build” for 14 years it now carries nearly $25 trillion. BUT, this stupendous 25X growth of debt occurred in the context of an economic system designed and run by elderly party apparatchiks who learned their economics, when Chairman Mao was still alive. That said, the country sent highly educated senior communist figures around the world to study other cultures, and political and economic systems, so it is possible they have learned something since then.

However, it is probable, that there is no legitimate banking system in China – just giant state banking bureaucracies which are run by party operatives and a modus operandi of parcelling out quotas for national credit growth from the top, and then water-falling them down a vast chain of command to the counties, townships and villages.

There have never been any legitimate financial prices in China – all interest rates and Foreign Exchange rates have been pegged and regulated to the decimal point; nor has there ever been any honest accounting either – loans have been perpetual options to extend and pretend. Even the Yuan was pegged to the dollar at 8 to the dollar, until an agreement to enter the World Trade Agreement meant they had to freely float their currency by 2015, and China  has allowed the Yuan to strengthen to circa RMB6.5:$1 – and is also behind their drive to collect as much gold as they can.

However, in two short decades, China has erected a monumental Ponzi economy that is economically rotten to the core. And, needless to say, there is no system of financial discipline based on contract law. China’s GDP has grown by $10 trillion dollars during this century alone — that is, there has been a boom across the land that makes the California gold rush appear pastoral by comparison. Yet in all that frenzied prospecting there have been almost no mistakes, busted camps, empty pans or even personal bankruptcies. When something has occasionally gone wrong with an “investment” the prospectors have gathered in noisy crowds on the streets and pounded their pans for relief – a courtesy that the regime has invariably granted.

Since 2000 China has 1.5 billion tons of steel capacity, but “sell-through” demand of less than half that amount and, on-going demand for sheet steel to go into cars and appliances and rebar into replacement construction meaning the other half is produced merely to go into surplus storage – once the current pyramid building binge finally expires.

The same is true for its cement industry, ship-building, solar and aluminum industries – to say nothing of 70 million empty luxury apartments and vast stretches of over-built highways, fast rail, airports, shopping malls and new cities.

Will this ultimately lead to a price and economic collapse? Probably, but WHEN?

In short, the flip-side of the China’s giant credit bubble is the most massive malinvestment of real economic resources – labor, raw materials and capital goods – ever known.

Effectively, the country-side pig sties have been piled high with copper inventories and the urban neighborhoods with glass, cement and steel erections that can’t possibly earn an economic return, but all of which has become “collateral” for even more “loans” under the Chinese Pyramid scheme.

China has been on a wild tear heading straight for the economic edge of the planet – that is, monetary “Terrain Unknown” – based on the circular principle of borrowing, building and borrowing. In essence, it is a giant re-hypothecation scheme where every man’s “debt” become the next man’s “asset”.

Thus, local government’s have meager incomes, but vastly bloated debts based on stupendously over-valued inventories of land. Coal mine entrepreneurs face collapsing prices and revenues, but soaring double digit interest rates on shadow banking loans collateralized by over-valued coal reserves.  Shipyards have empty order books, but vast debts collateralized by soon to be idle construction bays. Speculators have collateralized massive stockpiles of copper and iron ore at prices that are already becoming ancient history.

Is this factored into China’s Plans for Empire, so that if – IF – a third world war begins, most of the materials will already have been purchased and produced, and once their currency is re-flated due to their large Gold holdings, they can buy what they need with the world’s strongest currency?

So China is on the cusp of the greatest margin call in history? Or the precipice of the biggest long term plan for global domination the world has ever seen?

Only the Chinese political class know the answer to that one.

But a Chinese market collapse would seriously affect all the world’s economies, and the Chinese have the biggest savings on the planet.

Cracks began showing in this edifice when a bank run began at Jiangsu Sheyang Rural Commerce Bank last month, as worried citizens clamoured for their money when a withdrawal for RMB200,000 (about $32,000) was refused at the Sheyang branch.

This was on the heels of the failure of several shadow banking institutions whereby several rural co-operatives and Farmer’s Credit Unions failed in recent months.

However, once asset values starting falling, these pyramids of debt will stand exposed to withering performance failures and melt-downs. Undoubtedly the regime will struggle to keep its printing press prosperity alive for another month or quarter, but the fractures are now gathering everywhere because the credit rampage has been too extreme and hideous. Maybe Zhejiang Xingrun Real Estate which went belly up last week was the final catalyst, but if not, there are thousands more to come. Like Mao’s gun barrel, the printing press has a “sell by” date, too.

Worryingly, a Chinese man was arrested for spreading rumours/information about these financial problems.

Of the more than US$562 million (RMB3.5 billion) that it owed to debtors, US$112 million was borrowed from 98 private parties with annual interest rates of up to 36%, according to recent revelations from Chinese media. Under that kind of pressure, the only surprise is that the default didn’t happen sooner. The company struggled to find capital for years; the chairman is suspected of borrowing up to US$38.6 million with “fake mortgages.”

But before Xingrun gets branded as China’s worst small, private homebuilder, it’s important to understand how it ended up in the mess in the first place, and what specific factors brought the operation down, or at least to the brink of collapse (local government officials insist it hasn’t officially defaulted yet).

Xingrun’s business in Fenghua, a county-level city that is part of Ningbo in a manufacturing belt on China’s east coast, ran into trouble through a renovation project starting in 2007, Chinese media pointed out. The company attempted, after securing government support and taking over for another distressed local property company, to build high-rise apartment blocks in a village called Changting. The project required the company to build homes for the original residents before the existing village could be torn down and the new buildings built. Construction was slated to start in the first half of 2012. Xingrun projected that it could pay off its debts within three years.

The project never got to the construction phase. In fact, the small village homes are still standing. Xingrun built the replacement homes for the villagers but there’s no sign of its main housing product, high-rises. Nothing has happened because the residents of the village have tangled the project and the company in a lawsuit that has stretched for years.

High risk is something no one seems willing to stomach these days – in stark contrast to just a year ago. That explains why Xingrun was unable to pay back its loans. But why has it come so close to keeling over now? Its troubles with the Changting project persisted for years but the company simply rolled over loans and borrowed at high rates from private lenders.

One problem for capital-strapped developers in the Ningbo area is that private lenders no longer want to lend to highly risky companies. In fact, they are calling in their loans. This is just one of the problems afflicting Xingrun. The value of property in some areas of Fenghua is decreasing and that trend has lowered confidence in developers’ ability to pay dizzyingly high interest rates.

Banks aren’t hot on lending to this kind of developer either. In the past, a developer such as Xingrun could ask the local branch of a commercial bank for more credit. The local branch would take that risk because loan officers there knew that, somewhere much higher up the chain, officials promoted the lending.

That support exists no longer. Now, when small developers beg local banks for credit, they will likely be turned away. Local bank managers are reportedly being told that they may lend to risky borrowers if they wish, but they will be held accountable.

High risk is something no one seems willing to stomach these days – in stark contrast to just a year ago.

Fenghua is a small town, and Xingrun’s reach beyond that area is limited. Analysts have come out strong in saying that such a default has little systemic risk. The bigger picture in the region, however, can’t be ignored.

Xingrun’s woes are still the woes of the local authorities. The default will add US$305 million (RMB1.9 billion) to Fenghua province’s non-performing loan portfolio, pushing up the rate of toxic assets to 5.27% and making it Zhejiang province’s most indebted government, according to calculations by The Economic Observer newspaper.

Add Fenghua’s problems to those of the The greater Ningbo Liberty Silver region. The area reportedly has at least six years of housing stock either sitting empty or under construction. The massive buildout will put small developers under great pressure to pay back loans, especially if private debtors are calling in high-interest loans. A slowdown in property prices won’t help either. Without a rescue from provincial-level banks, Fenghua won’t be the last local government stuck in a jam.

So what is The Coming Battle?

It will be between depositors (the people) and the Bankers when the next economic collapse occurs – far sooner than most people think.  Crypto-Currencies, do not rely on Banks to transfer value between individuals, or between people and businesses, and will increasingly mean the Banks wield less power over the economy, and the state, but this means that many governments will want to outlaw them. However, if you feel you want to find out a little more on the subject at Review Outlaw.

And, you can get some free currency – HERE.

Of course if you have spare capital, putting some of it into precious metals with no counter party risk – that is – hold in your hands metal… would be considered sound advice, and if you want to know where you can buy these wonderful metals – try HERE.

W.

Addendum: 12 April 2014

Since this piece was researched and written, the PBoC (People’s Bank of China) has agreed to provide RMB1,000,000,000,000 (1 Trillion – Renminbi/Yuan) about $153 Billion to provide increased infrastructure in rural communities, improving roads, agriculture and local amenities. So the end speculated on, won’t be happening soon; but someday the spending has to stop. (or not rise quite as much) to rein in inflation, which will probably now happen circa 2018-20.

The west too will probably make one last attempt to stave off the inevitable collapse, resulting in the final outburst of inflation. Bankers will be held to account by the people, and the result will not be pretty.

And the final analysis, will compare Precious Metals with the number of Dollars, Yen, Yuan, Pounds, and Euros in circulation.

Silver which is my favourite precious metal, is so oversold as to be the best buying opportunity for anyone with money to invest, and time to wait.

The above chart tells its own story. The MACD (Moving Average Convergence Divergence) shows when we can expect a turn in prices. When it’s high, the price turns down, and when it is low, the price turns up… You have been shown the future.

The below film, tells of  The Coming Battle.

And here’s more evidence of what’s likely to follow.

http://www.caseyresearch.com/meltdown

 “There are none so blind,

as those who will not see.”

What do YOU see?

The Financial Crisis – That’s Sooo Over – Isn’t It?

Posted on Updated on

That depends on who you ask.

If we look at the major market indicators:

House Prices at all time highs in London. (Being chased up by Chinese buyers apparently)
Stock & Commodities Markets
– Dow Jones Industrial Average – 16,572,
– FTSE 100 – 6,673,
– Gold down slightly over recent days to – 1292.72
– Silver ($/oz) – 19.97
– Brent Crude ($/bbl) – 106.57
– NYMEX Crude ($/bbl) – 101.02
– Copper ($/tonne) – 304.75

Looking at the above prices which were a snapshot on 4/4/14 – Friday lunch -time, you’d certainly think so.

Janet Yellen Fed Chair, has begun tapering – now we’re only getting $75billion QE this month, probably down another few billion next month, and lowering towards the Autumn, to zero. With employment numbers up on both sides of the Atlantic, in U.S., Euroland, and Britain.

David Cameron and George Osborne, as the two senior figures in the UK coalition are now walking around with a swagger as the next election looms just over 12months away, and the economy seems to be improving.

UK unemployment is lowering with figures heading to the 2 million mark again, and growth whilst subdued in the last month against the same month last year, probably owes more to the fact that this year, Easter is a month later, so the mini-boom that occurs as people begin sprucing up their homes which feeds through into the manufacturing sector with new kitchens and bathrooms: new electrical equipment, new plumbing, shower cubicles, flooring, furniture, kitchen cabinets, and taps getting installed.

And American Jobs seems to be improving too – albeit at variable rates. Today’s numbers though were below expectations.

But the structural mess the west has got itself into over the last twenty plus years, has not really been resolved, just as a new threat appears on the horizon.

For a few years recently, I worked in recruitment and employment services, and visited dozens of small and not so small employers selling our services, and the thing that stood out for me visiting the shop floors of engineering companies, and talking to warehouse managers, large and small, was the age range of the technical staff that worked there. They were all baby-boomers.

That’s right. These millers, maintenance fitters, service engineers, vertical borers, turners, technically skilled and semi-skilled staff were almost all without exception over 50.

They have accumulated decades of experience and wisdom, and time spent honing their skills. They have survived the countless recessions and financial booms over the time since the 1970s. They learned the basics in school in metalwork or woodwork classes. They went to Technical Colleges to do a HND, or OND in some engineering discipline or other, and learned technical drawing. They got their hands dirty messing about with things – tinkering if you will.

Many of today’s youngsters want to be TOWIE members, walk around in designer clothes, appear on X-Factor, Britain’s Got Talent, work in the Media, and Music, and be overnight successes as the 24/7 media channels focus on vox-pop issues, and makes “Celebs” of people who really shouldn’t be.

Their only real talent being for self publicity, and a willingness to make fools of themselves – on camera, and their personal lives become a mess as their rise to prominence and their fade to obscurity, wreak havoc with their self-esteem, and their relationships with those around them. But there’s only so much of that the viewing public can take.

In Britain, we are at last starting to offer apprenticeships to the young to learn skills that can’t be learned in the classroom – like turning up on time every time, as Woody Allen once observed which is 90% of success.

And keeping your nose clean (metaphorically speaking) at least until you know what you’re talking about – and even then, speaking out of turn can damage your chances of success.

But social commentary is not our beef. Political and Economic commentary is.

As the events in Ukraine of recent weeks seem to recede into the media background. And even the missing Malaysian Airlines flight MH370 seems to have gone quiet, as Australian Ships now search using SONAR technology, we need to look deeper at events worldwide, that will have an economic impact.

This morning we learn that Israel is sabre-rattling again, as Palestinians fire small rockets into that country, and the Palestinian leader discusses openly pursuing a “two-State” solution, outside the normal negotiation channels, as both the West-Bank developments, and the wall surrounding the Israeli state makes it almost impossible for ordinary Palestinians to make a living.

Of course if so few Palestinians have money to support their families, you have to ask: “Where are they getting the money for arms and munitions?”

And well you might.

Last week unmarked cargo planes, arrived in a sand lashed airfield just a short 45minute drive away from Amman. One of many such touchdowns in Sunni controlled Jordan.

The plane, one of approximately 150+ such flights in both Turkey and Jordan since the Syrian crisis began in early 2013. was filled with military equipment, approximately 3,500 tonnes in total. And this was directly authorised by the American President.

This military hardware is supposed to go to anti-Assad moderate groups who are fighting to overthrow Basher Al-Assad, President of Syria after years of dominance by the Assad regime.

Of course, not all the groups fighting for their freedom, are what they claim to be. Some contain Al-Qaeda operatives, who use their time there to get much needed experience of military hardware, and divert some of that to fights in other parts of the region.

Of course the US. media channels are prone to hide these disturbing facts from most Americans, who like the British are distracted by the media equivalent of MUSAK – that inane music that used to be so common in lifts and public spaces where they didn’t want to play anything that would distract you from shopping and spending money.

Of course Israel has its own reasons for being paranoid – almost 70 years have elapsed since 1947, when they were granted the state of Israel under a UN charter, and they have had to defend their territory from their Islamic neighbours ever since, having fought several wars, particularly during the 60s and 70s when their newly enriched neighbours decided to launch attacks on Israel for their own political agendas.

In 1967 the six days war was fought as Jordan, Syria and Egypt prepared a sneak attack on Israel, who took the opportunity to get their revenge in first, and after six short days captured the high ground in the Golan Heights, pushed the Jordanians back to the Jordan River, and the Egyptians back across the Syniai peninsula. The Arabs were humiliated, and a fresh war in 1973 – the Ramadan War was their attempt to take their revenge.   The two wars helped push up oil prices already rising from increased demand, and it was this that was the major driver of the price rises that raged that winter of 73 and into 1974 pushing inflation to 26.9% in late 74 in the UK.  Then the Iranian revolution in 1979, when the Shah of Iran was ousted and chased overseas allowing Ayatollah Khomeini to return from exile in Paris, and the scene was set for 21% inflation the next year, as oil prices once more reacted and the west would again be mired in recession.

1970s revisited?

As the war in Iraq and Afghanistan comes to an end, and troops begin returning home to bases closer to home, those troops were keeping a lid on sectarian violence that goes back 1300 years.

These wars are similar in effect to the Vietnamese war where Americans lost 56,000 personnel, and spent countless billions of dollars on arms and equipment for their forces stationed there.

These American involved wars were both funded by a government able to buy goods and services essentially for FREE as the Central Bank – The FED, creates money out of thin air, and this allows America to throw its weight around in places it shouldn’t really be, and where it lacks the knowledge of the culture to make improvements in the country without first destroying much that was there already.

In the middle east, this lack of knowledge has cost it dear with rises in Terrorism. The Islamic world also suffers a schism, divided just as Christianity is into two major factions, but this divide began one day in 629 A.D. as the prophet Mohammed sat down to a lamb or goat dinner that would begin the split that has affected middle-eastern politics ever since.

The meal was poisoned, and while Mohammed tasted the poison and spat it out, he had already bitten off more than he should chew, and on his demise which was sudden, no one could agree on who should replace him.  The two views of Islam, one backward looking, one more progressive, became like Catholicism, and the Church of England who split apart when King Henry VIII decided he wanted a divorce in 1533, so he could father a child with yet another new bride who he married when it became obvious his bride-to-be was pregnant. (Divorce was a taboo of Catholicism)

The Islamic split though is the reason we may yet be plunged into another economic malaise.

The Shia population consists of about 70million Iranians, 22million Iraqis, 2million Lebanese, 4million Syrians, 10million Yemenis, and in the Arabian Peninsula populations of 700,000 Kuwaitis, half a million Bahrainis, 300k in Oman, 400k in UAE and another few hundred thousand dotted about the middle-east, with upto 11million in Turkey, 7million in Azerbaijan, and upto 30million in the hills of Afghanistan and Pakistan – between 145-160 million in total.

Many of those Shia side with their Palestinian brethren in the eastern Mediterranean, and the split I mentioned harks back to a time that Iran was called Persia, which many will remember ruled the Persian empire in the centuries around the time of the Holy Roman Empire and beyond.

Iran, according to Byron King a Harvard geologist, a former US Navy pilot, and Military intelligence officer with high military clearance, believes the real reason Iran wants a nuclear device is because its near neighbour the Kingdom of Saudi-Arabia dominates the region thanks to oil and American military support, and with Iran’s growing population of upwards of 88million, and one of the largest oil reserves in the world, Iran nurtures a yearning to return to its former glory days of the Persian Empire.

And, lest we forget, the Persians invented Chess, Algebra, traded with China and built the hanging gardens of Babylon, invented bricks and before the Islamic rules against alcohol – invented wine.

And as Iran recently launched its second naval vessel into the Caspian Sea as oil resources there become important, this is just repeating what they did 1500 years ago when they held off Roman armies.

Iran if you know your geography well, sits on one side of the Persian Gulf, where 40% of the world’s oil gets to market, and where 90% of the oil exported from the middle east passes through the narrowest point, at just 21 miles wide – the Straits of Hormuz.

But, what most people don’t know is that middle-eastern oil was first found in Iran in 1908, and Western oil majors swooped in to fuel Western growth and the war machine that would be so important in the war that was to come in Europe, so there is bitter resentment still.

On the other side of the Gulf is Saudi-Arabia, Oman, UAE, Qatar and both North and South Yemen who are mostly Sunni muslims.  Yemen covers the whole of the Southern Arabian peninsular to the Red Sea, across from which, sits the Horn of Africa, and the narrowest point known as Bab El-Mandeb – or “The Gates of Tears”.

These shia controlled nations have over the last 50 years surrounded Iran’s mortal enemy – the Kingdom of Saudi-Arabia, who helped fund Saddam Hussein for 8 years, during the Iran/Iraq War in the 1980s, in which Saddam launched Scud missiles into Iran, and gassed thousands of his Shia citizens.

To the west of the Saudi peninsula sits the Red Sea, facing Egypt, Sudan, South-Sudan, Ethiopia, Eritrea, and other hotbeds of unrest.

On the south of the Saudi peninsula -Yemen, has a particular section of the Shia population who are the Huthis. In a recent incident in the Indian Ocean, off the coast of Yemen, a US naval vessel stopped an arab Dhow – a small sailing ship with a broad trangular sail, and the sailors found not fish as might be expected from such a small vessel, but military hardware destined for Huthis, Al-Qaeda operatives now headquartered in Yemen.

This hardware wasn’t just a few rifles, and handguns, but military binoculars, sophisticated explosives, detonators, and both ground to ground rockets, and heat-seeking portable anti-aircraft missiles – Not the kind of stuff you find in a military hardware supplies’ shop. And the source of this booty? You guessed it – probably Iran.

So, why is Iran selling armes to rebel groups or giving them away?

Who is funding Al-Qaeda?

It is just possible, that to maintain its grip on the society, Iran needs a high oil price and fomenting unrest in the region, to heighten the perceived risks in the area, is one way to achieve that, or is it really just part of a master plan to unseat KSA from its dominance in the region.

And if Iran and the Kingdom of Saudi-Arabia DO go to war, the battle would embroil all who depend on middle-eastern oil to make their economies run, as the price of oil would spike on International markets.

If a new battle between the Sunnis and Shia erupts, the Arab Spring 2.0 will seem like a cakewalk, and the oil price could hit $200+/barrel.  Is this why Abu-Dhabi recently spent $17bn on anti-missile hardware? And UAE and Saudi-Arabia have also splurged on weapons and British Fighter Aircraft.

Is this the real reason America is pursuing shale oil and gas with such fervour?

Recent reports suggest that U.S. now holds the biggest energy reserves on the planet.

In the Bakken oil fields alone in north-western America, the US Geological Survey suggested there might be 500+ billion barrels of oil, and a more recent survey, suggests that there is even more oil buried beneath the already huge Bakken field.

This with the West Texas shale oil-field – the Eagle Ford basin, the Monterey shale in California, the Utica shale gas and liquids finds in Ohio, the Mississippi basin oil find and the shales in the North East – could add upto 2 Trillion barrels. Enough for 100 years, and the U.S. could already be the world’s biggest producer.

And as I’ve mentioned on a previous occasion, the U.S. intends liquifying some of these natural gas finds and exporting them at international prices.

Companies way ahead of the rest of the industry are – Cheniere Energy, (NYSE:LNG) who signed a 25 year deal with Centrica – owner of British Gas, to supply LNG and similar contracts with 4 others including Spain’s “Endesa Generacion S.A.” and Indonesia’s “PT Pertamina” from its Corpus Christie liquifaction plant, via its new export facility it is building in Sabine, Louisiana.

Together with Cameron LNG who obtained approval from the U.S. Department of Energy (DOE) to export up to 12 Mtpa, or approximately 1.7 Bcf per day, of domestically produced LNG to all current and future Free Trade Agreement countries and on February 11, 2014 received conditional authorization from the DOE to export LNG to non-Free Trade Agreement countries, including those in Europe and Asia. It should also be noted that the Panama Canal is being widened and due to open in 2015, to allow the huge LNG cargo ships that will be needed to carry all this oil and gas to China.

Cameron also has an application under review with the Federal Energy Regulatory Commission, the lead agency responsible permitting the new facilities. This new facility in Hackberry, Louisiana was an import terminal, but it is being specially adapted for export. This company therefore faces long-term growth as their facility sits alongside major pipelines from most of the major sources of Gas.

The completed liquefaction facility will comprise three liquefaction trains capable of exporting up to 12 million tonnes per annum (Mtpa), or approximately 1.7 billion cubic feet per day of liquefied natural gas. In addition, a new 21-mile natural gas pipeline, a compressor station and modifications to existing pipeline interconnections are proposed. Construction on the project is already underway, with the first LNG production in 2017, and full commercial operation in 2019.

The new and existing facilities will be wholly owned by Cameron LNG Holdings, LLC, a joint-venture with 50.2 per cent indirectly owned by Sempra Energy (NYSE: SRE) and the remaining owned by GDF SUEZ S.A. (GDF SUEZ), Japan LNG Investment, LLC (a joint venture entity that has been formed by subsidiaries of Nippon Yusen Kabushiki Kaisha (NYK) and Mitsubishi Corporation (Mitsubishi)) and Mitsui & Co., Ltd. (Mitsui) each owning a further 16.6 per cent.

Sempra Energy, based in San Diego, is a Fortune 500 energy services holding company with 2010 revenues of $9 billion. The Sempra Energy companies’ nearly 16,000 employees serve about 26 million consumers worldwide.

And if you’re wondering who is going to build this new facility – on March 17, 2014 Cameron LNG, LLC announced the joint venture between CB&I and Chiyoda International Corporation, a U.S. based wholly-owned subsidiary of Chiyoda, a Japanese Oil Services Major, had been awarded the contract valued at approximately $6 billion. – CB&I (NYSE: CBI) and Chiyoda Corporation (TSE: 6366; ISIN: JP3528600004) – I wonder what that contract will do to their bottom line?

Also, a recent off-shore find in an area called “Tubular Bells” basin in the Mississippi Canyon – Gulf of Mexico, has given Hess Corporation (NYSE:HES) an independent oil major a fillip.

The company estimates that the field will have a peak production of 40,000-45,000 boe/day. The field holds more than 120 million boe of reserves and possibly as much as 200 million barrels, according to Hess, but as these finds add to the US output, we may yet see oil prices level off (in the absence of Middle-Eastern turmoil), though it is likely that output will not begin for a year or so.

The prospects for these companies is all the more important if the disruption in the middle-east curtails output, or raises tensions there, as the value of the reserves and any output, will merely add to the bottom line of these American Corporations.

However, any prolonged rise in oil prices would raise the QE question again, and cause major problems for importing nations such as Japan, and Germany which does not have any major oil fields.

And if the price of oil rises, then it is inevitble that Gold and Silver will follow suit, whether China decides to announce its Gold reserve position this month or not. (See my last post)

If any more currency gets printed by the Fed, as a result of all this oil money sloshing around the world? Then you better get yourself some alternative currency, as thes crypto-currencies become more widely accepted, and for those who are interested in a new business that mines for currency, and makes an initial deposit, and daily top-ups into your account – with referral fees for any new members found, you can get details and membership for free by clicking —>> HERE.

W.

If you liked this post then please like it, post it to family or friends, or copy and paste, but remember the discussion of the above companies is not a recommendation to purchase. But merely to offer a starting point for your own research. Share prices can go down as well as up, and any investment may be at risk.