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Admit nothing. Explain nothing.

December 30, 2011 by · Leave a Comment

Richard (Rick) Mills, Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

Mayer Amschel Bauer Rothschild, founder of the International Banking House of Rothschild said:

“Let me issue and control a nation’s money and I care not who writes the laws.”

The Rothschild brothers, already laying the foundation for the Federal Reserve Act, wrote the following to New York associates in 1863:

“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”

In 1906, Senator Nelson Aldrich – known as the “General Manager of the Nation” because of his impact on national politics and position on the Senate Finance Committee – sold his interest in the Rhode Island street railway system to the New York, New Haven and Hartford Railroad, whose president was J. P. Morgan’s loyal ally, Charles Sanger Mellen.

Aldrich co-authored the Payne-Aldrich Tariff Act of 1909 which removed restrictive import duties on fine art. This enabled Americans to bring in very expensive European artworks that became the foundation of many leading museums.

By 1906 the annual rate of US capital formation was running at $5 billion. This rapid expansion went hand in hand with the creation of enormous industrial and financial monopolies. By 1904, more than 1,800 companies had been consolidated into 93 corporations, a financial consolidation led by J Pierpont Morgan.

A few historians believe that J.P. Morgan published rumors that the Knickerbocker Trust Company (in the ten years up to 1907, trust companies had increased three and a half times, to $1.4bn, compared with state banks, which had doubled to $1.8bn. The Knickerbocker Trust was the third largest Trust in New York with $65mn in deposits and 18,000 depositors – Robert F Bruner and Sean D Carr, The panic of 1907) was insolvent, the widely spread rumors were followed by the *National Bank of Commerce announcing it would stop accepting checks for the Trust Company which triggered a run of depositors demanding their funds back – thus precipitating the Panic of 1907.

* The National Bank of Commerce was the principal correspondent bank for bank clearings in the area southwest of Chicago and St. Louis. Because of this role, Commerce was at one point among the 20 largest banks in the United States, as measured by assets. Wikipedia

The Knickerbocker’s collapse caused banks and trust companies to hoard their funds. No loans were made, stocks slumped to their lowest level since December 1900 (the stock market fell 50%) and the crisis spread to the Trust Company of America.

In the Wednesday, October 23, edition of the New York Times was a headline describing the Trust Company of America, the second largest trust company in New York City, as the current “sore point” in the panic. JP Morgan summoned the Secretary of the US Treasury, George B Cortelyou, to New York. On being assured that the Trust Company of America was solvent with Federal backing, JP Morgan gathered together the presidents of all the key banks and organized an immediate $3 million loan to Trust Company.

J Pierpont Morgan had made his reputation and that of his bank. At this time Morgan started to slowly disengage from the day to day activities of his firm preferring to concentrate on his passion for touring Europe, collecting art and literature and sitting on the boards of charitable organizations.

“All this trouble could be averted if we appointed a committee of six or seven public-spirited men like J.P. Morgan to handle the affairs of our country.” Woodrow Wilson talking about The Troubles of 1907

The Panic of 1907 led to the passage of the Aldrich–Vreeland Act in 1908, this act established the National Monetary Commission – sponsored and headed by Senator Aldrich.

On the night of November 22, 1910 a delegation of the nation’s leading financiers, led by Senator Nelson Aldrich, left New Jersey for a very secret ten day meeting on Jekyll Island, Georgia.

Aldrich had previously led the members of the National Monetary Commission on a two year banking tour of Europe. He had yet to write a report regarding the trip, nor had he yet offered any plans for banking reforms.

“Despite my views about the value to society of greater publicity for the affairs of corporations, there was an occasion near the close of 1910, when I was as secretive, indeed, as furtive, as any conspirator. . . . Since it would have been fatal to Senator Aldrich’s plan to have it known that he was calling on anybody from Wall Street to help him in preparing his bill, precautions were taken that would have delighted the heart of James Stillman.” Frank Vanderlip, the Saturday Evening Post, February 9, 1935

Accompanying Senator Aldrich to Jekyll Island were:

  • Frank Vanderlip, president of the National City Bank of New York, associated with the Rockefellers
  • Henry P. Davison, senior partner of J.P. Morgan Company, regarded as Morgan’s personal emissary
  • Charles D. Norton, president of the Morgan dominated First National Bank of New York
  • Col. Edward House, who would later become President Woodrow Wilson’s closest adviser and founder of the Council on Foreign Relations
  • Benjamin Strong, a lieutenant of J.P. Morgan
  • Paul Warburg, a recent immigrant from Germany who had joined the banking house of Kuhn, Loeb and Company, New York directed the proceedings and wrote the primary features of what would be called the Aldrich Plan. Warburg would later write that “The matter of a uniform discount rate (interest rate) was discussed and settled at Jekyll Island”

After the Jekyll Island visit the National Monetary Commission “wrote” the Aldrich Plan which formed the basis for the Federal Reserve system.

“In 1912 the National Monetary Association, under the chairmanship of the late Senator Nelson W. Aldrich, made a report and presented a vicious bill called the National Reserve Association bill. This bill is usually spoken of as the Aldrich bill. Senator Aldrich did not write the Aldrich bill. He was the tool, if not the accomplice, of the European bankers who for nearly twenty years had been scheming to set up a central bank in this Country and who in 1912 has spent and were continuing to spend vast sums of money to accomplish their purpose.”Congressman Louis T. McFadden on the Federal Reserve Corporation: Remarks in Congress, 1934

After several failed attempts to push the Federal Reserve Act through Congress, a group of bankers funded and staffed Woodrow Wilson’s campaign for President. He had committed to sign a slightly different version of the Federal Reserve Act than Aldrich’s Plan.

In 1913, Senator Aldrich pushed the Federal Reserve Act through Congress just before Christmas when much of Congress was on vacation. When elected president Woodrow Wilson passed the FED.

“Our secret expedition to Jekyll Island was the occasion of the actual conception of what eventually became the Federal Reserve System. The essential points of the Aldrich Plan were all contained in the Federal Reserve Act as it was passed.” Frank Vanderlip, autobiography, From Farmboy to Financier

“I have unwittingly ruined my country.” Woodrow Wilson later said referring to the FED

“We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it.” Congressman Louis T. McFadden in 1932

The Federal Reserve Bank (FED) is a privately owned company that controls, and profits immensely by printing money through the US Treasury and regulating its value.

“Some [most] people think the Federal Reserve Banks are U.S. government institutions. They are not … they are private credit monopolies which prey upon the people of the U.S. for the benefit of themselves and their foreign and domestic swindlers, and rich and predatory money lenders. The sack of the United States by the Fed is the greatest crime in history. Every effort has been made by the Fed to conceal its powers, but the truth is the Fed has usurped the government. It controls everything here and it controls all our foreign relations. It makes and breaks governments at will.” Congressional Record 12595-12603 — Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years) June 10, 1932

“… we conclude that the [Federal] Reserve Banks are not federal … but are independent, privately owned and locally controlled corporations … without day-to-day direction from the federal government.” 9th Circuit Court in Lewis vs. United States, 680 F. 2d 1239 June 24, 1982

The FED began with approximately 300 people, or banks, that became owners (stockholders purchased stock at $100 per share) of the Federal Reserve Banking System. The Fed is privately owned – 100% of its shareholders are private banks, the stock is not publicly traded and none of its stock is owned by the US government.

The FED banking system collects billions of dollars in interest annually and distributes the profits to its shareholders.

The US Congress gave the FED the right to print money at no interest to the FED. The FED creates money from nothing, loans it out through banks and charges interest. The FED also buys government debt with money from nothing, and charges U.S. taxpayers interest.

The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed’s operating expenses plus a guaranteed 6% return to its banker shareholders.

Reuters reported on October 3 2008:

“The U.S. Federal Reserve gained a key tactical tool from the $700 billion financial rescue package signed into law on Friday that will help it channel funds into parched credit markets. Tucked into the 451-page bill is a provision that lets the Fed pay interest on the reserves banks are required to hold at the central bank.”

So in addition to the FED’s banker shareholders receiving a guaranteed 6%, banks also now get interest from the taxpayers on their 10 percent “reserves.”

The reserve requirement set by the Federal Reserve is 10 percent – ie the ABC Fractional Bank has a billion dollars stashed at the FED, that’s its reserve and its paid interest on it. That billion dollars can be fanned into ten times that sum in loans – $1,000,000,000 in reserves becomes $10,000,000,000 in loans.

The absolute amount of bank loans and leases outstanding was $6.80 trillion September 14, 2011. Ten percent of that is $680 billion. US taxpayers will be paying interest to the banks on at least $680 billion worth of reserves – so banks can accumulate interest from borrowers on ten times that sum in loans.

The FED is the only for profit corporation in America that is exempt from both federal and state taxes.

The FED’s books are not open to the public, nor Congress apparently:

A first ever GAO (Government Accountability Office) semi-audit of the US Federal Reserve was recently carried out and a report was issued in July of 2011. What the audit revealed was incredible: between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments by giving them…

US$16,000,000,000,000.00 – that’s 16 TRILLION dollars.

The GDP of the United States is $14.12 trillion, the entire national debt of the United States government spanning its 200 plus year history is $14.5 trillion.

The GAO report also determined that the Fed lacks a comprehensive system to deal with conflicts of interest:

  • The CEO of JP Morgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed
  • JP Morgan Chase served as one of the clearing banks for the Fed’s emergency lending programs
  • On Sept. 19, 2008, William Dudley – now the New York Fed president – was granted a conflict of interest waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds.
  • The Fed outsourced the operations of their emergency lending programs to private contractors ie JP Morgan Chase, Morgan Stanley, and Wells Fargo. These firms received trillions of dollars in Fed loans at near zero interest rates
  • Two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts

The IRS was restarted within months of the FED’s inception. The roots of the IRS go back to the Civil War when President Lincoln and Congress, in 1862, created the position of commissioner of Internal Revenue (The position of Commissioner exists today as the head of the Internal Revenue Service) and enacted an income tax (the initial rate was 3% on income over $800, which exempted most wage-earners) to help pay war expenses. In 1872, seven years after the war, lawmakers allowed the temporary Civil War income tax to expire.

Congress enacted a flat rate Federal income tax in 1894, but the Supreme Court ruled it unconstitutional the following year because it was a direct tax not apportioned according to the population of each state.

Senator Aldrich was instrumental in the re-structuring of the American financial system through a federal income tax amendment, the 16th – he had originally opposed an income tax as communistic a decade before. The 16th Amendment gave Congress the authority to tax the income of individuals without regard to the population of each State:

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”


In 1906 David Graham Phillips wrote a series of articles published in Cosmopolitan claiming that politicians were receiving huge payments from large corporation to argue their case in the Senate. Phillips claimed that the main figures in this scandal was Aldrich and Arthur P. Gorman of Maryland.

David Graham Phillips was murdered on 23rd January, 1911. Two months later Aldrich resigned from Congress.

Sir Josiah Stamp, president of the Rothschild Bank of England and the second richest man in Britain in the 1920s, said the following in 1927 at the University of Texas:

“The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin. Bankers own the Earth. Take it away from them but leave them the power to create money, and with a flick of a pen, they will create enough money to buy it back again. Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. But if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.”

The Federal Reserve was conceived and given birth by an unholy alliance of American and British bankers. The FED buys U.S. debt with money printed from nothing, then charges U.S. taxpayers interest. The US government pushed through the federal income tax amendment, restarted an income tax on Americans to pay the interest to the FED and reorganized the IRS to collect the monies – the interest – “owed” to the FED from its citizens.

Since the Fed’s creation in 1913 the dollar has lost more than 96% of its value.

Undoubtedly the greatest achievement of the FED has been to transform America from being the world’s foremost creditor nation to the world’s largest debtor nation.

Aldrich’s motto, when questioned about his activities and the reasoning behind them, was to “Admit nothing. Explain nothing.”

“Let me issue and control a nation’s money and I care not who writes the laws.” should be on every thinking person’s radar screen. Is it on yours?

If not, maybe it should be.

Richard (Rick) Mills

[email protected]


If you’re interested in learning more about the junior resource sector, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.


Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.



Canadian Juniors Are Playing For Results

December 30, 2011 by · Leave a Comment

Richard (Rick) Mills,

As a general rule, the most successful man in life is the man who has the best information

It’s a fact in the mining world that most discoveries are made by a) junior mining companies and b) old time individual prospectors.

It’s hard to invest in a prospector, fortunately if you want to invest in a potential discovery or the building of something of value – be in on the discovery of a mineral deposit and be there as the company moves it down the development path towards a mine – there are quality junior companies to choose from, there are opportunities to back excellent management teams with your investment money.

Juniors, not majors, own the worlds future mines and juniors are the ones most adept at finding these future mines. They already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.

But what do you need to know, and do, before investing in the junior resource sector? How do you pick a junior that you are happy to own for the long term while management builds value?

The first thing you need to know is juniors are risky, and that managing that risk is your number one job. Your priorities are:

  • Know yourself
  • Identify a dominant global long-term theme
  • Know the different development stages of a junior
  • Know who you are invested with and the story
  • Have a sound money and risk management plan in place

Your Risk Profile – know thyself 

Some people invest in early startups solely because of the management team in place, others invest for the potential of what a property might host, some will wait until after a discovery is made and invest as drilling progresses and resources are built thus reducing their risk. Yet others will wait till money is raised, permits in place, the mine is being built and cash flow is just over the horizon.

You pay less per share because there is more risk, or you pay more because there is less risk – more risk should mean a bigger payday, less risk less of a pay day. Only you can decide the level of risk you can tolerate versus anticipated profit you expect to make and only you know how much patience you have to sit while developments, the story, plays out.

Discipline is necessary to stick to the investment plan you have formulated – are you going to let volatility shake you out of your position? Run to the hot tips, chase after momentum and churn your portfolio?

Determining your investment risk profile is the first step an investor should take. Only you can determine how much risk, how much volatility you can stomach – you need to know the level of risk you are comfortable with and if you can exercise the necessary patience and discipline it takes to be a successful investor in this sector.

Risk profiles run the gauntlet from ultra conservative to speculative and everything in between.

Conservative: A low tolerance for volatility, no risk, most want their portfolio to provide them with an inflation adjusted income stream to pay living expenses.

Moderate: A majority of investors would fit into this middle of the road category. Many are seeking good returns for retirement and or college funding. Willing to take on some risk.

*Aggressive/Speculative: High tolerance for volatility, risk. Can handle significant fluctuations in the value of their investment. Usually have income from other sources or are young enough to continue working and recoup losses. These types of portfolios have little or no annual income yields but have the potential for very high capital gains.

*This author invests almost entirely in speculative investments – get in early behind great management teams with outstanding projects, step back and let them go to work building, creating something of value. My timeline for a pay off can be out two to three years from the initial investment date. To earn the truly great rewards, one must be invested early behind experienced competent management teams – you need to be ahead of the herd.

A Thematic Approach – Following the trend is often the best path to profits

When looking for an investment the approach taken should involve studying global long term dominant trends – reading, watching and listening (the internet is a do it yourself investors greatest tool) will give you all the facts as to what’s going on in the world. Then study the different sectors in order to select the one that is going to match up well with what you think is the soon to be overriding theme. This is top down investing.

The second part of your search for the dominant investment is a bottom up approach. This is where you find individual companies in the specific sector you have chosen to invest in. Pick the company you want to invest in based on the quality of its management team and your risk profile – what stage is the company in?

If you’ve done your homework all the necessary ingredients for a potentially successful investment – one that’s tailored specifically to your risk, patience and discipline levels – should be in place.

Stage and risk

Greenfield (GF) – early stage exploration – the most upside (and by far the greatest risk) comes from buying a junior when they are exploring and make an initial discovery. Great drill assay results can send a juniors share price skyrocketing. The reverse can also be true. Junior explorers, the greenfield plays, are the riskiest plays by far. Strike out on assay results and it could be goodbye to a share price rise for a very long time – till the company finds another project they can work on. If you’re buying into this kind of play make sure the company has another fallback project in its portfolio.

Post Discovery Resource Definition (PDRD) – these companies have already found something, the share price has settled back after the initial discovery (never chase a company whose share price has already exploded, the share price has had its run, for now the moneys been made. I try and enter after the excitement has died down and the share price has settled back) and the company is going in to see what they have and hopefully produce a 43-101 compliant resource estimate and build upon it. The risk has been greatly reduced, the waiting time for a discovery non-existent and the reward very nice considering the much lower amount of risk.

Nearer term producers (NTP) – those further down the development path towards a mine. Because these companies are well advanced along the development path a lot of the guesswork about grade, size, costs and metallurgy have been taken out of the equation for us. They have done sufficient work to give investors a certain level of confidence that their project will successfully move towards being a mine.

The later stage companies (those doing feasibility studies, permitting and money raising) can have an excellent entry point for investors – they often enter a quiet period when they are doing the advanced studies and raising money to go into production. They often base (a flat share price) for quite a while through this period – possibly a good time for accumulation of their shares if you believe in the story. After the money is raised for production investors can see they are going mining – cash flow is just over the horizon – and the share price will often break out of its trading range.


Everything about a company flows from management – the ability to find a project or have projects or joint ventures (JV) offered to the company, development of the project in a timely efficient manner, financings done at a higher and higher share price, control over the share structure along with  management interests aligned with shareholder interest. 

The most successful management teams have three complementary but very different sides. The first side of the team is the people who can find the quality projects and who have the technical expertise to explore, develop and advance them. But a good all round junior isn’t comprised of only these people – there has to be more.

The second side of a successful team are the members who have the ability to make deals for projects, go into the board room and sell the story to the institutional investor and raise the money needed for acquisitions, exploration and development.

The third side of the team are the people with the ability to tell the story to retail investors.

Officers of the company make up side one and side two, they should be experienced business persons, geologists, mining engineers, lawyers and accountants. The president and or the chief executive officer should be the public face and voice of the company. They do not have to be geologists or engineers, they do have to be smart businessmen and strong salesmen or women who can make the best deal possible on acquisitions and go out and sell their company to the different brokerage houses who can than raise the needed money from their own clients to acquire, explore and hopefully advance the company’s projects.

Do not make the mistake of thinking side one and side two management can do side three. Giving dog & pony shows to a group of brokers and mining analysts, an institution or group of high net worth individuals, being on TV and doing interviews is a much different skill set than running a promo campaign to retail investors and actually picking up a phone and talking to them all day.

Make sure the company you are interested in has all three skill sets.

Money and Risk Management

All successful speculations start with extensive due diligence – identifying the overriding dominant global theme, picking the company’s that match your particular risk/timeline profile and then weeding out the weak based on the quality of management. Once your investigation is done you need an investment plan.

A systematic approach to risk management must be used to protect your investment capital. You have to be sure you’re clear on your objectives and set guidelines for yourself – you need to follow the plan you’ve laid out.

The plan could be:

  • How much to invest
  • Buying your shares, usually in three tranches
  • Map out a rough timeline for the company to reach important milestones
  • Plan your exit strategy – which milestone, and subsequent market strength do you exit on

To follow a plan you need to develop and master two traits:

  • Discipline
  • Patience

The best returns come to those who:

  • Learn their investment profile – know yourself
  • Ride long term dominant global trends
  • Pick their own investments – knowledge is power
  • Put together a sound plan knowing themselves and their chosen investment
  • Have discipline
  • Show patience
  • Learn from their mistakes


The bottom line is to be patient with your chosen management teams. If a company’s goals for its projects are being met and management is increasing shareholder value while successfully telling their story then your patience will be rewarded.

You need the confidence that stems from having a thorough understanding of the reasoning behind your investment and the story management is painting. Have the patience and discipline to watch and monitor and not jump ship to play the latest flavor of the month or hot tip – it’s best to ignore the cheerleaders.

Discipline yourself to ride out the minor ‘ups and downs’, they are part of the game – the true reward is to recognize potential, buy a stock for pennies and sell it for dollars, never being shaken out of your position because of short term volatility and noise.

Not everyone needs to be, nor should be involved in the junior resource sector. But if your investment profile fits then perhaps this sector could be on your radar screen.

Have you got a few good junior company’s on your radar screen?

If not, maybe you should.

Richard (Rick) Mills
[email protected]

If you’re interested in learning more about the junior resource sector, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership and our AOTH newsletter are free. No credit card or personal information is asked for.


Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.



Should Gold Investors Worry About Euro Currency Weakness?

December 30, 2011 by · Leave a Comment

By Eric McWhinnie, Wall St. Cheat Sheet

On Thursday, Italy sold 7.02 billion euros of longer-dated bonds in the country’s final debt sale of the year.  Although the yield on the 10-year bond decreased to 6.98 percent from November’s 7.56 percent, there is still plenty of concern weighing on the euro.  The struggling euro has given a boost to the U.S. dollar, which has weakened gold prices.

Italy had aimed to raise 8.5 billion euros in today’s auction of longer-term debt, which came one day after the Treasury auctioned 9 billion euros in shorter-term bills at a 3.251 percent rate — about half the rate from the previous auction on November 25.  Boris Schlossberg, director of currency research at GFT explained,  “Overall today’s Italian auction data show that the world’s third-largest bond market remains under stress but may be slowly receding from the panic levels recorded in November,” However, after the auction, the yield on the 10-year climbed above 7 percent.  With investors staying cautious on the euro, the U.S. dollar continues to be the safe-haven of choice.  On Wednesday, the euro sank to a fresh 15-month low against the dollar, and a new 10-year low against the yen.  Currently, the euro continues to trade below $1.30.

Don’t Miss: Congress Loves These Safe-Haven Stocks.

With the euro having the largest weighting in the dollar index, it has been a strong week for the dollar.  The dollar index has held above support at 79.50, and currently trades near 80.50.  As a result, commodities and precious metals have seen a sharp pullback.  Gold is on pace for its sixth consecutive session loss, while silver has declined about 10 percent in only a week.

As the euro zone continues to experience a credit crunch, the ECB will receive more pressure to cut interest rates and offer wide scale monetary easing.  Both actions will benefit gold and silver.  The dire situation in Europe can be seen by the M3 money supply in the euro zone, which is a general measure of cash in the economy.  The annual rate of growth was 2 percent in November, down from 2.6 percent in October.  Expectations were about 2.5 percent growth.  Reuters reports, “The three-month moving average of M3 growth remains well below the ECB’s reference rate of 4.5 percent, above which the bank sees dangers to medium-term price stability.  Economists said the figures made it more likely the ECB would look to offer the struggling economy more support by cutting interest rates further from their current record low of 1 percent.”  Even though the ECB claims it will not print money to solve its problems, history and data tells us that it is just a matter of time before they do print.

If you would like to receive more professional analysis on equity miners and other precious metal investments, we invite you to try our premium service free for 14 days.

To contact the reporter on this story: Eric McWhinnie at [email protected]

To contact the editor responsible for this story: Damien Hoffman at [email protected]

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Mind the Leverage… It might KILL your wallet…

December 30, 2011 by · Leave a Comment

By Willem Weytjens, Profitimes

In this article I will show you why it’s wise to be careful with leveraged products, such as Proshares Ultra ETF’s and Direxion 3x ETF etc… as they migh KILL your portfolio!

Proshares states on its website:

Each Short or Ultra ProShares ETF seeks a return that is either 3x, 2x, -1x, -2x or -3x of the return of an index or other benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their ProShares holdings consistent with their strategies, as frequently as daily.

While I like those products for a short term trade, I will never hold them for a long time. Let me explain why…

Imagine you have an asset class with a price today of $100. To keep it simple, let’s also assume that the 2x Long ETF also trades at $100 today.
From the table below, you can see that if the asset is going in one direction without a lot of volatility, you may actually gain more on the leveraged ETF than initially expected. While the Asset class rose from $100 to $110 (+10%), the Leveraged Long ETF gained +20.89%, although we expected it to be +20% (2 times the % increase of the asset class). This is a favorable situation.

However, imagine we get a situation that works against us. We own a 2x Short ETF, and the market keeps rising.
In this case, we are lucky as well, because we will “only” loose ($100-$82.42)/$100=17.58%, while we would expect a loss of -20%.

The two tables above show us that we might get a favorable situation with leveraged ETF’s when volatility is very low.

But what happens when volatility is very high, as it has been recently?
Let’s assume again we have an asset class which is priced at $100, and a leveraged Short ETF which is also priced at $100 today.
If the volatility is very high, we might end up loosing a lot of money, as we can see from the table below:

Even though the asset class ended up just where it began (at $100), our 2x Short ETF has lost 7.94%!

The same would be true if we have a 2x Long ETF:

Even though the asset class ended up just where it began (at $100), we would have lost money with the Leveraged Long ETF…

To give you an example, let’s have a look at the Silver price, the 2x Leveraged Long Silver ETF (Ticker: AGQ) and the 2x Leveraged Short Silver ETF (Ticker: ZSL).
In the chart below, I set the initial value of each at $100, starting at 01.01.2011.

The candlestick chart is the Silver price, the Green line is AGQ and the purple line is ZSL.

As we can see, silver lost 12.25% this year.

One would expect to have gained 2 x 12.25%=25.50% with ZSL this year, right?
WRONG! ZSL lost 59.75% this year!

One would expect to have lost 2 x 12.25% = -25.50% with AGQ this year, right?
WRONG AGAIN! AGQ lost 46.79% this year!

Oh, and by the way, it also happens with the -1x ETF’s, even though they DON’T leverage the price…

Let’s have a look at the SP500 vs Proshares Short SP500 (Ticker: SH) since 01.01.2011.
While the SP500 gained 0.43% since the beginning of the year, SH lost 8.21%!
The correlation may be high, but it’s not PERFECT!

That’s why you have to mind the leverage products! Buy them to do a short trade, don’t buy them to Buy & Hold, unless you would expect price to keep going in one direction, and then still…

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Bonds About To Plunge? Implications For Stocks and PM’s

December 30, 2011 by · Leave a Comment

By Willem Weytjens,

Are Bonds about to plunge? And if so (or if not), what are the implications for stocks and precious metals?

Let’s have a look at TLT, which is the iShares Barclays 20+ Year Treasury Bond Fund.

Back in 2008, at the climax of the financial crisis, TLT was very stretched above the 200MA, and the RSI was very oversold on a weekly basis.
Recently, we had a similar situation, although right now, RSI is not oversold anymore but instead is forming negative divergence, as it sets lower highs and lower lows on the weekly chart, while price recently set a potential double top.

When we look at TLT until 2010, we can see that price retraced exactly back to the 50% Fibonacci Level, where it found strong support.
This level also happend to be a level where the long term trend line came in…

If bonds would top here, that would likely be caused by investors rushing out of this (perceived) risk-free asset class, and into more risky assets like stocks.

That would probably involve a more sustainable (or at least more sustainable as perceived by the market participants) way out of this Euro Crisis, which has been making headlines in recent months, causing investors to rush out of risky assets and into bonds.

We can see from the Commitment Of Traders (COT) reports that Commercials (usually seen as the “Smart Money”) have taken on HUGE long positions in the EURO, while Speculators (usually seen as the “Dumb Money”) have taken on HUGE Short positions:

However, Commercials have deep pockets and can stand the dips (which they usually keep buying)…

If bonds haven’t topped yet, we can expect a potential top around 132 for TLT, based on Fibonacci Retracement levels.
If it would top there, and retrace 50% of its move, it should drop towards 92.5, where once again, the long term uptrend support line comes in…

A continued rise of Bonds would probably mean more worries about the Euro Crisis.
In the EURO chart, we can notice a potential Head & Shoulders pattern, which could send the EURO as low as 1.15 if the pattern holds…

However, on a short term daily basis, the Euro shows (weak) signs of Positive Divergence.
On the other hand, it also seems to be stuck in a bear flag (very short term).

If the MACD would fall below the low of last week, this would probably lead to a further decline in the EURO, meaning we should keep an eye on the Head & Shoulders pattern…

I keep finding it fascinating to look at the similarities between now and 2008, as the SP500 still hasn’t broken that 200MA and heavy resistance at 1265-1280… Once it does, I think we would see new highs pretty soon.

If it doesn’t, look out below…

Chart courtesy stockcharts.com

Last but not least, let’s think about what will happen to Precious Metals if Bonds top here.

We can look at it in 2 ways:

* A top in bonds probably means investors become less risk-averse, meaning Gold could also sell-off (as it is often perceived as a hedge against turmoil)
* However, gold has rather acted as a risky asset lately and has already sold-off quite a lot, meaning investors could start to load up the truck as they see the recent dip as an opportunity to buy. However, if you don’t have truck, you need to apply for truck finance and buy you an own truck.

Let’s have a look at the TLT:GLD chart, which divides the price of TLT by the price of GLD.
We can see that during the last 7 years, TLT has severely underperformed Gold, as the ratio has declined substantially.

When we have a closer look, we can notice 5 times where the ratio showed signs of Negative Divergence.
Everytime this happened, it marked a top in the TLT:GLD ratio, meaning TLT started to underperform GLD soon thereafter (or equivalently, Gold started to outperform TLT). Will this time be any different?

Based on Sentiment in Gold (but especially Silver) and the recent decline, I would assume this time Gold is seen as a “risky” asset, and should thus profit from a top in TLT/Bonds, although the risk of further declines still exists.

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Insatiable US Debt and Other Jokes

December 30, 2011 by · Leave a Comment

The Daily Reckoning

Yesterday, the Dow dropped 139 points…with all 30 Dow stocks lower.

Gold lost $31. It seems to be heading towards $1,500…or maybe $1,400…or lower!

But don’t expect us to do any serious thinking this week. We’re celebrating 12 days of Christmas. And we’ve got 7 more to go.

The holidays don’t stop us from having an un-serious thought or two, however. For example, later in the week, we’re going to give you our predictions for 2012… You need to be prepared…in case the world doesn’t end on schedule. Who knows, maybe the Mayans miscalculated?

Here’s a prevue:

Stocks will go down. Gold will go down. The dollar will go up.

The US may be going broke, but perversely, people want dollars…and US Treasury debt. It’s the only thing they can count on. If the feds ever run out, they know they can depend on Ben Bernanke & his central banker friends to give them more.

Here’s the Bloomberg update:

The US government received record demand for its bonds in 2011, pushing longer-maturity Treasuries to their best performance since 1995 in a sign that President Barack Obama may have little difficulty financing a fourth consecutive year of $1 trillion budget deficits.

The Treasury Department attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold, the most since the government began releasing the data in 1992 during the George H. W. Bush administration. The US drew an all-time high bid-to-cover ratio of 9.07 for $30 billion of four-week bills it auctioned on Dec. 20 even though they pay zero percent interest.

While Standard & Poor’s stripped the US of its AAA credit rating on Aug. 5, Treasuries due in 10 years or more returned 25.6 percent this year. The spreading sovereign debt crisis in Europe and slower global growth are driving investors to the safety of US assets, helping to contain borrowing costs and making it cheaper as a percentage of gross domestic product to finance deficits than when the nation last had budget surpluses.

“If the last two weeks are any indication of how next year will start, there’s near-insatiable demand,” Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of 21 primary dealers that are required to bid at auctions, said in a Dec. 21 telephone interview. “We have a significantly shrinking supply of risk-free assets in the world and US Treasuries are one of the few left.”

Yeah, yeah…insatiable demand.

We’ve heard that before. In 1999 there was an insatiable demand for stocks. Remember, there were 70 million baby boomers preparing for retirement. What choice did they have? They had to buy stocks, right? Wrong…stocks went down in January 2000. In real terms, they’re considerably lower now — depending on how you adjust for inflation.

Then, in 2005, remember the insatiable demand for housing? More immigrants. More families getting richer. Everyone wanted to get on the housing ‘escalator’ before it was too late.

But in 2007 it turned out that investors were already satiated. They had enough housing…and housing debt.

And now, demand for US government debt is ‘insatiable.’


But wait? Aren’t we implying that US government debt is in a bubble. Doesn’t that suggest that it will soon go down?

Yes. Well…maybe. US government bonds are in a bubble…with the highest prices and lowest yields in more than a century. But bubbles do not necessarily blow up right away. It can take time for the pin to approach…

And Mr. Market is a pretty cunning old fellow. Our guess is that he will want to draw more of the world’s wealth into the US bond market…before blowing it up.

Does that mean you can safely buy US bonds in 2012? Not at all! Stay away…far away… Bubbles are always dangerous. And a bubble in the world’s reserve asset — US dollar-denominated debt — is the most dangerous ever. When it blows…penguins at the South Pole will have to cover their ears. Deaf people will complain about the noise. And the shock wave will knock down a large part of the entire world’s capital structure…

Beware, dear reader, beware…

Here’s how government really works. The insiders get richer; the outsiders get poorer. The New York Times has the story:

WASHINGTON — When Representative Ed Pastor was first elected to Congress two decades ago, he was comfortably ensconced in the middle class. Mr. Pastor, a Democrat from Arizona, held $100,000 or so in savings accounts in the mid-1990s and had a retirement pension, but like many Americans, he also owed the banks nearly as much in loans. Today, Mr. Pastor, a miner’s son and a former high school teacher, is a member of a not-so-exclusive club: Capitol Hill millionaires. That group has grown in recent years to include nearly half of all members of Congress — 250 in all — and the wealth gap between lawmakers and their constituents appears to be growing quickly, even as Congress debates unemployment benefits, possible cuts in food stamps and a “millionaire’s tax.”

Mr. Pastor buys a Powerball lottery ticket every weekend and says he does not consider himself rich. Indeed, within the halls of Congress, where the median net worth is $913,000 and climbing, he is not. He is a rank-and-file millionaire. But compared with the country at large, where the median net worth is $100,000 and has dropped significantly since 2004, he and most of his fellow lawmakers are true aristocrats.

Largely insulated from the country’s economic downturn since 2008, members of Congress — many of them among the “1 percenters” denounced by Occupy Wall Street protesters — have gotten much richer even as most of the country has become much poorer in the last six years, according to an analysis by The New York Times based on data from the Center for Responsive Politics, a nonprofit research group.

*** How do the insiders get rich? Here’s another story that provides part of the answer. The government gives “foreign aid” to poor countries. And then, it turns the ‘foreign’ aid into military aid…so the money goes into the pockets of Pentagon contractors…their lobbyists…and their pet politicians.

Two Thirds of US Foreign Aid is Really Military Aid
Monday, December 26, 2011
David Wallechinsky, Noel Brinkerhoff

When some Americans complain that foreign aid is wasting taxpayer money abroad that could be put to better use at home, they may not realize that today’s version of foreign aid isn’t what it used to be. Call it the Pentagon-zation of US foreign assistance.

Until a few years ago, the State Department was the leading US government agency when it came to doling out foreign aid. But beginning in the second term of George W. Bush’s presidency, and continuing through the Obama administration, the Department of Defense has surpassed the State Department in supporting foreign initiatives, most of which have been military oriented.

For the past two years, the Pentagon has been given $10 billion more than the State Department for foreign aid projects. With $17 billion, Defense officials plan for the coming year to invest in foreign military and police training, counter-drug assistance, counterterrorism activities and infrastructure projects, among other programs.

Among the expenditures included in the recently passed 2012 National Defense Authorization Act are $1.1 billion to the government of Pakistan for alleged counterinsurgency efforts and $415 million for two programs known euphemistically as the Combatant Commander Initiative Fund and the Commander Emergency Response Fund. Translated into everyday English, this means cash that can be handed out by US commanders.


Bill Bonner
for The Daily Reckoning

Insatiable US Debt and Other Jokes originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

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China gold exchange restrictions will cut risk, not appetite

December 30, 2011 by · Leave a Comment


By Chris Oliver
Friday, December 30, 3011


HONG KONG — China’s decision this week to channel all gold trading through Shanghai shouldn’t dampen mainland investors’ appetite for bullion, even as unauthorized trading platforms are forced to close, according to analysts.

Tightened oversight of the gold market, including a ban on bullion trading apart from that directed through the official exchanges in Shanghai, comes after a year of volatile price moves for gold and silver. Unauthorized trading platforms have proliferated along with the boom in precious metals

Analysts in Hong Kong said the move is likely an attempt to bolster investor safeguards rather than to discourage investment. Some investors had complained they’d been stopped out of gold positions on unregulated exchanges without proper notification.

“This clampdown is to try to avoid situations where the retail investors get burned because a particular exchange doesn’t play by conventional rules,” said Scotia Capital managing director Sunil Kashyap in Hong Kong.

Kashyap said that Chinese brokerages for the past eight months had been vocal in calling for tightened oversight of gold exchanges.

Upstart exchanges and trading platforms have sprung up across the country, many offering discount fees and lower margin requirements than those required by China’s two official trading platforms, the Shanghai Gold Exchange and the Shanghai Futures Exchange.

A statement posted Tuesday on the website of the People’s Bank of China cited irregular activities and evidence of illegal activity as reasons for the ban.

A Piper Jaffray sales trader, Andrew Sullivan, said the PBOC’s announcement coincides with the recent trend toward tightened government oversight of key sectors and institutions in the economy.

“Gold trading is part of its economy; what [the government] wants to try and do is formalize it, just as it has done with the banks and the exchanges,” Sullivan said in Hong Kong.

Mainland authorities, he added, were also concerned that gold investors don’t get caught out by dysfunctional markets when the popularity of precious metals is growing.

The announcement also comes as senior officials within the PBOC have called for increased gold holdings on the government’s balance sheet.

The PBOC’s research director, Zhang Jianhua, was cited as saying Monday that Beijing should use its foreign-exchange stockpile to buy gold as a hedge against inflation, adding to holdings as prices drop.

His comments, which were reported in a newsletter published by the central bank, gave no indication of what proportion of the nation’s $3.2 trillion forex reserve should be allocated to investments in bullion.

Scotia Capital’s Kashyap said unregulated exchanges had been popular with Chinese brokerages managing funds in remote regions of the country. He added these brokers would have little difficulty complying with the central bank’s directive.

* * *

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Rickards sees war with Iran, big price impact on oil and gold

December 30, 2011 by · Leave a Comment


11:20a ET Friday, December 30, 2011

Dear Friend of GATA and Gold:

Geopolitical analyst James G. Rickards tells King World News that war with Iran is probable, with predictably big consequences for the prices of oil and gold. An excerpt from the interview is posted at the King World News blog here:


Meanwhile, full audio of Tocqueville Gold Fund manager John Hathaway’s most recent interview with King World News has been posted here:


CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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‘Financial repression’ is gold price suppression

December 30, 2011 by · Leave a Comment


10:35p ET Thursday, December 29, 2011

Dear Friend of GATA and Gold:

Referring to Financial Times editor Gillian Tett’s December 22 column, “Ties Between Sovereigns and Banks Set to Deepen,” to which the GATA Dispatch called your attention the other night with the headline “Citing ‘Financial Repression,’ FT’s Gillian Tett Sounds Like Jim Rickards and Rob Kirby” (http://www.gata.org/node/10828), a friend asks:

“Is the message here that governments have determined that the only way to stay in power is:

“– To fund their excess through the banking system, at the expense of the private sector;

“– And to go along with the gold price suppression scheme so that the only alternative to that system is not attractive either?

“If the Chinese, Indians, Japanese, and others buy into this power-preservation scheme, then it appears — as you have long said — there really is no true market left, and we’re all screwed, no? This is not particularly what I want to believe, but if that’s where we are, then I guess I need to deal with it.”

Your secretary/treasurer replied: “Yes, that’s how I construe the comments about ‘financial repression’ made by Rickards, Kirby, Tett, and others. It’s a matter of government’s making it impossible for investors to make money except in undertakings specifically approved and designed by the government itself, undertakings that get narrower and narrower as government intervention in markets grows more pervasive.

“Economic circumstances and markets will keep trying to find ways to assert themselves, and the different interests of some countries may cause them to act against the ‘financial repression’ other countries try to impose, what Rickards describes in his new book, “Currency Wars” (http://www.amazon.com/Currency-Wars-Making-Global-Portfolio/dp/159184449…), so there’s no assurance about how things will end up, just assurance of less democracy and more totalitarianism. That’s what GATA has been fighting all along.”

“Financial repression” was perhaps first foreseen by the British economist Peter Warburton in his 2001 essay “The Debasement of World Currency: It Is Inflation, But Not as We Know It” (http://www.gata.org/node/8303).

Warburton wrote: “What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities, or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, they seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.” [Emphasis added.]

That is, “financial repression.”

As the idea reached her this month, Tett wrote incisively: “To understand this, it is worth taking a look at a fascinating recent working paper by Carmen Reinhart and M. Belen Sbrancia, published by the Bank for International Settlements but drawing on earlier work for the International Monetary Fund. …

“… What Reinhart and Sbrancia argue is that if you want to understand how the West cut its debts during the last great bout of deleveraging — namely, after the Second World War — then do not just focus on austerity or growth. Instead, the crucial issue is that during that period, the state engineered a situation where the yields on government bonds were kept slightly below the prevailing rate of inflation for many years. This gap was not vast. But since asset managers and banks continued to buy those bonds at unfavorable prices, this implicit, subtle subsidy from investors helped the government to cut its debt pile over several years. Indeed, Reinhart and Sbrancia calculate that such ‘repression’ accounted for half of the post-Second World War fiscal adjustment in the U.S. and U.K., due to the magic of compounding.

“Now these days it is hard to imagine any Western government overtly calling for a second wave of such ‘repression.’ After all, as Kevin Warsh, a former Fed governor, recently pointed out, the drawback of financial repression is that it curbs private-sector investment and credit growth. And in any case it is a moot point whether such repression could even be implemented today, given the globalized nature of markets.

“Nevertheless, the political incentives to flirt with this concept are clear. After all, the beauty of a stealth subsidy is precisely that: It is too subtle for most voters to understand. It is also arguably a more equitable form of burden sharing, and thus less politically divisive, than, say, state spending cuts.

“Moreover, governments do not necessarily need to be ‘repressive’ to achieve the ‘repression’ trick. As the economist Alan Taylor observes, if investors are so terrified that they cannot see alternative investment choices, they may end up buying government bonds by default — even at unattractive prices. [Emphasis added.] Indeed, that is arguably what is already occurring today in the Treasuries market or the world of Japanese government bonds. And, perhaps, in the eurozone too. After all, when eurozone banks were given E442 billion of European Central Bank money two years ago, they used half of this to buy government bonds — without compulsion at all.

“Whatever you want to call it, then, the state and private-sector finance are becoming more entwined by the day. It is a profound irony of 21st-century ‘market’ capitalism. And in 2012 it will only deepen.”

Thus Tett, like Warburton long before her, expressed perfectly the rationale for the gold price suppression scheme even as she explained why there would be little point in questioning central bankers about their implementation of “public” policy. (“Now these days it is hard to imagine any Western government overtly calling for a second wave of such ‘repression.’”) In mainstream financial journalism it is simply taken for granted that the purposes and objectives of central banking are not to be learned from central banks themselves but rather from academics, market analysts, soothsayers, or whoever else might answer the telephone when a central banker won’t.

As a practical matter, this assumption of mainstream financial journalism is probably correct. But the world might begin to change, however slowly, if journalists tried putting the questions to central bankers in public settings anyway and reported their evasions or refusals to answer. Eventually investors and even the public might come to understand that great power, the power to control the prices of all capital, labor, goods, and services in the world — that is, the power to control the price of everything, absolute power — was being exercised in secret so that the world more easily might be expropriated, that democracy had been crushed, and that, as a mere high school graduate remarked a few years ago, “There are no markets anymore, only interventions.” (http://www.gata.org/node/6242.)

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

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Jim Sinclair: The depth of despair in the gold community

December 30, 2011 by · Leave a Comment


By Jim Sinclair
Thursday, December 29, 2011


Today was the first day when we got some good action in the gold price. It will be very interesting to see if sellers appear as they have during Asian hours. Just because the manipulators use the illiquid Asian hours to paint gold, do not assume that it reveals the nationality of the selling.

The gold market, as we all know, on a day-to-day basis is totally rigged. In fact, find a market anywhere that is not bullied by some young buck who considers himself the Master of the Universe.

Gold is coming up on a tight group of four very major support areas that will hold the price from which the next advance is to take place. We have reached a point in terms of the depth of despair in the gold community that was never reached in the 1968-1980 reactions.

That is all this is. Just another reaction in a gold price headed for Alf Field’s target of $4,500.

I imagine that when gold reacts off $2,100, the stampede to the bathtub with razor blades will be on again. Gold has in no way topped. The gold reaction per day in terms of percentage was nothing whatsoever. We have in no way reached the level called “thrilling with bullish bliss” common to a top. Every dollar we have won has been paid for in blood. All the short-of-gold wunderkin Masters of the Universe will have to be destroyed before gold is fully priced. The community, if you can still call it that, is in a psychotic episode that is soon to end.

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