The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick
David: Kevin, we have a couple of things that we want to cover today. Enough time has passed, I think we can look at the Middle East a little bit more carefully, and begin to see what some of the ramifications are for what has been happening in Egypt, Tunisia, and now in Bahrain, Yemen, Libya, and elsewhere in the Middle East. There are some things that are beginning to gel there, in terms of new and future realities.
Kevin: There is a complete structural realignment politically, as well as economically, isn’t there?
David: Yes, and we would be remiss not to discuss a little bit of what happens to the markets and the world in the context of the Japanese tragedy, because, at least for our U.S. audience, it is particularly relevant beyond the facts and figures, what it will cost to rebuild. There is a direct impact to our treasury market. There is a direct impact to the U.S. dollar, and we want to look at both Japan and the Middle East, again, not just as regional issues, but as domestic issues for us, particularly sensitive to the dollar and the treasury market.
Before we do that, we have my brother, who has been gracious enough to join us and answer a few questions relating to his experience during the tsunami tragedy in Banda Aceh, Indonesia, in 2004.
Kevin: David, the terrible events that are occurring in Japan right now, and our hearts really go out to the Japanese and those people who are involved in the search, really bring to mind, back in 2004, the tsunami that hit Banda Aceh. It was a terrible occurrence, but your family, especially Scott, has direct experience with what it is like right after a tsunami.
David: My younger brother was there, and we have asked him to join us for a couple of minutes today. The tsunami took place on December 24th, they allowed the first people in on December 26th, and he was on one of the first planes in.
Kevin: In fact, he was one of the first foreigners allowed in, even before the military came in.
David: Correct, and what I am interested in is this. Right now all we have are aerial views and a few anecdotal stories, but in the days that followed the Indonesian catastrophe, where hundreds of thousands of people were found to be dead in the aftermath, when we look at what is happening in Japan, it is actually very easy for us to shift gears into an economic and financial analysis. What is the bottom line? How is this going to impact the financial markets?
The reality is, in all sensitivity to the people who are there, and the real impact, culturally and economically, socially, what was taking place in the days after the catastrophe? We are right there now in Japan. Scott, you showed up a few days after the tsunami, maybe you can give us just a little insight. How did you get in there? What were you doing over there in the first place? When you were there, what were you seeing, what were you feeling? What were the people going through?
Scott: It is good to be with you this morning, Dave and Kevin. I appreciate being on the show. As you know, I was living in Bali. I had been volunteering over there, working in a children’s home. The disaster happened on the 24th of December and we were just moved by our hearts. We said, “Hey, we are here. We don’t know that much, we are not doctors, but let’s see if we can get up there, and see if we can help.” Certainly, in a situation where everything has been wiped out, anything would help. We were fortunate enough to be flown in by the military on the 26th of December.
The scene, when I remember, and it is funny, all of this kind of came back on Friday, seeing the aerial footage of Japan, there is a very different scene happening on the ground. We were met with people just walking around in the streets. They didn’t know where to go. Their homes had been destroyed. For all they knew, they had lost all of their family members. Their livelihood, their businesses, had been completely wiped out.
Then you have the other individuals who are still hanging on to some semblance of hope, hoping to find somebody. They don’t know where their father is, they don’t know where their brother, their spouse, or their children are. They have been to the schools, they have been to the workplace, and there is this frantic panic of, “Where are they? Are they alive? Are they lost? Are they going to be found on the beach? Are they going to be found in a car? Under a pile of mud or rubble?”
I saw the footage on Friday of the water moving in. Some estimates say it can move up to 620 mph. Others said the wave impact is around 500 mph, the speed of a jumbo jet, basically. That, in and of itself, is enough to absolutely destroy cities, people, everything. The scene that we saw in Banda Aceh was of telephone poles twisted around each other, cars wrapped around them, trees broken in half. I mean, just complete and total destruction, the worst of what you would imagine a war scene looking like, and that it is very similar to what happened in Japan. The human element in that is that we just were not made to withstand that kind of intensity. You have the water, you have all of the debris, and as you saw in the footage of the debris, and houses, and boats, that weigh who knows how many tons, being carried like a featherweight on top of the water. The human factor, the human element in that, is a grim one.
David: This is what we have to process through in the next couple of weeks. The original estimates on Friday were that there were several hundred people who were missing. Then through the weekend it was several thousand, and then in one town alone, 10,000 people were missing. We are watching a multiplication effect happen there. What do people go through when they are faced with this kind of stress and strain?
Scott: As I mentioned earlier, there is a hopelessness. I think there is an initial stage, and we are very much in the initial stage right now, where you are numb emotionally. You do not exactly know how to respond to a loss of this proportion, whether it is personally, or extended, to some degree, with other relatives, not immediate family. I remember there was a very numb feeling. You saw grieving, you saw mourning, but more than anything, you just saw confusion.
Your whole life, you go to work, you have your routine, and in a moment, it all changes, and not just in minor ways. Their entire world is flipped upside down. I think trying to navigate the hopelessness, trying to navigate the emotional state of being numb, how you cope with it, you are just in shock. They are emotionally in shock, and I think that will carry on for weeks, and even months, before they are able to gather pieces together and try to make some sense of existing with that.
David: What do you think leadership looks like in that environment?
Scott: Leaders arise in those kinds of situations, and I am not talking in a political sense, I am talking on the ground. You see human character. In the tragedy in Banda Aceh, it was one of the few things that was absolutely amazing about the human spirit. You see individuals rise to the occasion, you see them being able to digest and cope with what is going on, and they just go into action. What is your game plan? You help the first person in front of you. After that, the next person in front of you. Without any thought, without being paralyzed emotionally, you just go forward. It is really, really amazing, looking back, and I know they are experiencing the same thing in Japan, whether it is the military, or volunteer agencies, or civilians who are there, the human spirit is built such that we do rise up and we are able to battle with these kinds of situations. It is a tragic, tragic situation, but you can see, and always find some good in that, and I think that was the good that we found.
David: Scott, you spent about five days there in Banda Aceh. I am wondering if there is any one picture or event or experience that has stuck with you, one that is either nightmarish, or particularly hopeful, but one that does describe what it was on the ground, what you saw there.
Scott: Dave, the first day we were there, the first night, the hospital in Banda Aceh was destroyed, collapsed in the earthquake, and any semblance of any staff people that were alive got wiped out in the tsunami that followed. We were in a makeshift hospital at an old military base, just trying to create some sort of triage system, some semblance of order. People just started flowing into the hospitals.
The first night we were there, I was with 36 people who died. Most of those people who died were actually drowning from the mud and the water in their lungs. A very similar situation in Japan, they talk about the mud that gets stirred up and when you are under water you inhale that, and that is the kind of stuff that has to be drained out of your lungs. There has to be certain medical procedures that take place, otherwise we just were not made to live with that in there.
Friday of this last week, I got together with my wife, and it was interesting how some of those old stories or scenes resurfaced, they re-emerged. There was a scene where a father had come in with his five-year-old daughter. The father had lost his wife. They had lost their kids. It was just the two of them left, father and daughter. We did everything we could to help the father, but he was drowning. The fluid in his lungs was suffocating him. I remember the five-year-old girl hanging onto the last concrete thing in her life for security. They had lost their home, they had lost their possessions, they had lost everything. I remember when he died, she was laying on her father’s chest and just saying, “Come back, Daddy, come back.”
It was a tough one. We needed to move the bodies out, we had a place where we were moving all the dead bodies. We gave her a few minutes just to be alone with him. I remember that we took the father out and we placed a sheet over him and took him to a special area, and when we had come back the little girl was gone. I remember asking all the staff where this little girl had gone and they said she was walking around, confused, not saying anything, she had stopped crying, and we just saw her walk out of the hospital and disappear out on the streets.
That was something I will never forget. I just remember being very moved, very broken. I think that was closest that I could connect emotionally, with the loss that little girl experienced, and then of course, through hundreds and thousands of families and individuals. I know that is a very similar situation in Japan, so my heart goes out to those individuals and that kind of loss.
David: The things that we will spend most of the day talking about relate to the treasury market, the dollar, the Middle East, Japan and the implications into the financial markets, but we just did not want to go past what really is an important element in this, which is the human element – people impacted, lives impacted, families impacted, a culture impacted. So certainly, our hearts go out to them, and with a unique perspective, not from the CNBC or helicopter camera view, but you having seen some of that tragedy yourself and rubbed shoulders with it, I thought we would ask you a couple of questions.
Scott: Thank you, Dave. Thanks, Kevin.
Kevin: Thanks for joining us.
Scott: I appreciate it.
Kevin: David, that is the very on-the-ground kind of feel that we get from John Scott, and as hard as it is to listen to that, it is important for us to understand just how the tragedy is playing out, person by person. But now, as we broaden the scale a little bit, and we start to look at the overall effect that Japan will have on the global markets, and what we should be expecting over the next few weeks, what can we say to that?
David: I think, Kevin, it is very important to remember the last major quake in Japan, the cost came in around 120 billion dollars to rebuild.
Kevin: That was Kobe, right?
David: Yes, and now if we move forward, this has greater implications, not only in being an earthquake, but also, the impact of the tsunami, itself. Now we will have to see over the next few weeks what the impact is from the nuclear reactors, because frankly, we do not know how long production will be shut down across Japan. This is an industrial giant, the third largest economy in the world after China, and China and Japan are jockeying for that second position, so to be shut down for any length of time, not only is there a cost to rebuild, but there is a cost associated with non-productivity.
I think you will see a significant impact to global gross domestic product, a decline by several percentage points, as a result of this. I think some have suggested that this could actually be a positive for Japan, but I would beg to differ. When you look at the classic broken window fallacy, you may put someone to work fixing broken windows, but it is nonproductive in nature, and you are not moving things forward, it is a little bit like dumping garbage on the ground and assuming that you are improving unemployment by then hiring people to go pick up that garbage. And it is not a particularly productive use of capital. My point is simply this. There will be multiple dimensions of cost, and if Kobe was 120, my guess is your all-in number on this particular tragedy is north of a trillion dollars.
Just to give you a preview of where the conversation goes today, it is a trillion that mirrors the kind of liquidity creation generated by the global central banks. What we have is one more stick on the fire of global inflation. Just in the last few days tens of billions of dollars is being provided to the markets to create stabilization.
Kevin: This is in a period of time when Portugal is being bailed out, when you are seeing the European Union coming up with ways of creating liquidity. Whether the Federal Reserve says they are going to have QE-I, II, III, IV, or V, we know that the only way that they can respond is printing money. David, there are unintended consequences, even politically. Angela Merkel has shut down all the nuclear reactors in Germany for a three-month period of time, and maybe that will be extended indefinitely.
David: Kevin, I was in Brussels on Friday when the group of leaders in Europe agreed to an indefinite bailout for Europe, that they were going to do it themselves, they did not need the IMF and the World Bank, per se, but it was going to be something that was spearheaded internally by the Europeans.
Kevin: Many experts are seeing this as the European Union saying, “We are not going to let this thing fail, whatever it costs.” That is also inflationary, isn’t it?
David: It is, because one of the primary tools that they have is money creation. There is no bill I cannot pay when I have machine to make the money for it. That is the place where Europe is, that is the place where Japan is, that is the place where America is today. Again, we do not want to minimize, today, the tragedy in Japan, but there is an impact into other markets, and this is where we begin to see negative feedback loops into the purely financial markets, as well as economic. This is, I think, a good point, to talk a little bit about the political and geopolitical happenings in the Middle East.
Kevin: We have talked about, through the last three years, the financial translating to the economic, translating to the political, and then the geopolitical. If you look at the Middle East right now, a lot of the motivation for these youth that are coming out and repelling anything that would be an authority over them, whether it is a dictator, or whether it is some sort of other regime, the real fuel to that fire, is it not inflation in food prices?
David: The events in the Middle East serve to illustrate one central premise, that excess liquidity created in the U.S., specifically by the Federal Reserve, has a direct impact on foreign central bank policies. In other words, when we expand our money supplies, they have to expand their money supplies, too, in lockstep. So we have seen monetary aggregates, globally, increasing right in lockstep with ours. The other thing it does is distort investment markets. Global investment markets are being distorted right now by a misallocation of capital, as a result of our central bank’s monetary policy, and that has consequences, too.
The last stage of that, and my final comment, is, ultimately, international political stability is impacted too, because the consequences of too much money ultimately, is that things cost more in local currency terms, and it does not matter if you have lots of money to spend, it does not matter if you have lots of money in the bank, it does not matter if you have lots of money coming in, in monthly or annual income, but where you have marginal income, where you have marginal bank accounts, where you have marginal resources to begin with, that marginal increase in cost as a consequence of expanded money supplies, is devastating.
Kevin: If you think about long-term planning, and we have talked over and over about how important it is to look out on the horizon and plan long-term, these people out in the streets are hungry, and they are very short-term thinking. When your stomach is empty, you become a very short-term thinker, so some of the stability that has been built in through the region, and let’s take the Middle East as an example, we are seeing heads fall. Granted, they may be very evil people, they may have deserved to fall, but the stability that has been built into the system translates as political stability, and also, that is the stability of the dollar that we have seen since we have been off the gold standard.
David: We can explore that, as well, as we talk about oil today. What is interesting is that this is not limited to the Middle East, but that same trend can be seen throughout Asia, China, India, Indonesia, Africa, Latin America – frankly, in the rest of the developing world, we are seeing a similar response to a rise in the price of food.
It is not just a question of corrupt political regimes being overthrown with something that is more democratic, because this is the point to make. It is democratic only insofar as the majority of people are feeling pain and want it to end. A majority of people are giving voice to what is a very current threat, which is starvation. “I need something in my belly, and something that I can afford.” But that is not a democratic movement.
Kevin: David, you have used a term that I think hits the nail on the head. It is a term that refers to mob rule.
David: It is ochlocracy. If you want to simplify it, just call it mob-ocracy.
Kevin: That makes sense.
David: But mob-ocracy is not democracy. Democracy is institutionally supported, and behind the institutions is the rule of law. You have these things which have to be in place for there to be free and fair elections. Without that being in place, what you have is revolution, and an overthrow of one regime, without any real clarification or clarity on what the next regime will be, which is one of the reasons why tensions remain high, but we will get to that in a minute.
Kevin: David, the tensions in the region that you are talking about just happen to be in the most oil-rich region in the world, and we have this nuclear thing coming offline right now, with Japan, and Germany’s decision, and maybe many other countries. But you have resource-rich countries right now that have their heads getting chopped off, and you have this mob-ocracy that you are talking about. How does that affect oil?
David: If you do not have the same political stability in those countries, that have, to some degree, over the last 30 to 40 years, guaranteed a free flow of oil to Western Europe and America, then what you have is, really, economic destabilization, because one of your greatest input costs is now free to go wherever the market takes it, in light of the current fears in the marketplace. What are the fears? It depends. Country by country, do things get better, or worse, in Libya? Do things get better, or worse, in Bahrain? Do things get better, or worse, in Saudi Arabia? We have an unhinged oil price, and that is because some of the structures which we have counted on have begun to fail.
Kevin: That would bring me to the question, what do the changes in Tunisia and Egypt really signify?
David: Frankly, it is the end of all U.S. supported regimes, because what you have is guardian power which has been in place. We have been the guardian, the U.S. and our military. The idea that we would protect a country, and in return have some strategic interest, is now an illusion. In terms of our ability to protect, it is an illusion of U.S. power, which I think is now being more fully comprehended in the Middle East. The issue is simply this. With guardian power gone, as I mentioned a minute ago, the oil price is unhinged.
Kevin: The Saudi royal family was watching very closely how the United States responded with the Mubarak issue, and it is interesting, there seems to be, at least in their minds, an element of betrayal.
David: That is very true, Kevin. The betrayal was of the U.S./Egyptian relationship. If you look back over the years, we have taken care of their military. In the United States we have trained many of their leadership at West Point. We have done joint land and sea operations, practice ops, repeatedly, for years and years. It is like this. If you have hired a bodyguard, and that bodyguard is paid to protect you, what do you think about the bodyguard when he steps away and allows one of his other clients to take the bullet?
Kevin: That is not good for business when you are a bodyguard.
David: No, and that is essentially what we have been, that guardian power in the Middle East. The Saudi royal family, and others, have benefited from our U.S. military presence, and now they have to ask themselves some very difficult questions that relate specifically to U.S. loyalty, and the depth of U.S. commitment. If you had assumed that a 30 to 40-year relationship meant something, apparently you were wrong.
Kevin: Which is a very dangerous thing. Let me just clarify, David, as we talk about these things, we are not pro-Mubarak, we are not pro any particular regime, we are just looking from an objective point of view, at how the Middle East views the United States’ response.
David: Exactly, and sometimes the more important thing in terms of market analysis is, how the market responds to the data, not just what is the data. So we have to ask the question, if we are no longer that bodyguard, if we are no longer that guardian power, who does assume the role? I think what the Saudi royal family and anyone in the emirates would suggest at this point is, you cannot have alliances centered on one regime, so if it is the U.S. that you are dependent on, it is better to have diffuse dependencies, relying on three or four relationships, rather than one. This is something that is reflected in the business community. If 80% of your business revenue comes from one client…
Kevin: And you lose the client…
David: You are done. You are done.
Kevin: David, I think this is a good time to, just in brief form, explain how this affects the dollar. Going back to 1945, we have had a relationship with the Middle East, as a superpower, going back to Franklin Roosevelt, meeting with the Saudi royal family, and we have provided this bodyguard protection that you are talking about, with a few commitments back from the Saudi royal family and OPEC. Why don’t you explain, if you would, what those commitments are, and how, if we lose those commitments, it would affect the U.S. currency.
David: The dollar element came into play in the late 1970s and early 1980s, when we locked up the oil market, and it has, since that time, been traded exclusively in dollars.
Kevin: This was about the time that the dollar went off the gold standard in 1971.
David: And we were moving toward an utter crisis in the dollar. By the time we got to 1978 it required central bank intervention by about four foreign central banks just to stabilize our currency, and one of the things that helped prop us up at that point, in the 1978 to 1980 period, was the oil play, the petro-dollars, and the fact that those now were going to be held in the pockets of every major power in the world, because they needed oil, and if they needed oil, and it traded in dollars, dollars were a necessity.
Kevin: So we were the bodyguard to the regimes. We bought their oil at a certain stabilized price, and they turned around and put those dollars back into our system, which is a system that we have talked about before. It is deficit spending, making sure that your partners have surpluses that just come back.
David: Yes, starting even further back, not the 1980s, not the 1960s, not the 1950s, if you go back to Standard Oil in the 1930s, we began to expand our reach into the Middle East very significantly, and very geostrategically, in the 1930s. That moved forward into the 1940s and 1950s, when we solidified our position in the Middle East.
U.S. foreign policy has been, in many regards, directed toward preserving preferential access to Middle Eastern oil. It has additionally protected Israeli interests in the region, but the U.S. military has been deeply integrated into the Middle East, and now has been shown to be impotent. We have other power players benefiting from the U.S. support, and they, too have to question to what degree we offer protection to them, and to what degree does this alliance or economic relationship still warrant centrality?
Kevin: Now you have new superpower competition, because back when those agreements were reached, China was not an up-and-coming superpower, or a Russian-China alliance, same type of thing. Is the overthrowing of the Tunisian and Egyptian governments a repudiation of U.S. foreign policy?
David: I think this is particularly important, because while our leadership may bring out the pom-poms and say, “Hey, we are all for democratic regime change,” the reality is, we have been the supporters of non-democratic regimes for decades.
Kevin: What just changed?
David: I do not know what changed.
Kevin: Is it hungry people? Is it an administration, really, that does not have a grand strategy?
David: It is an administration that lives off of buzz words and clichés, unfortunately, which is anything but a grand strategy. It is a series of small, micro-overreactions to current events, and unfortunately, it is not done in a very careful, thought-out, or contextual way.
Kevin: I know you can name anything, even bad things, but the inability to act has been really on the minds of the people who we talked about, the leadership in the Middle East. We are watching the United States’ inability to act. Whether we take one side or another, it seems that we cannot really clarify why we are taking any side at all. I have read some reports, and I know you have, too, written from European think tanks, that are looking at the United States and saying, “Wow, look at the indecision.” The Obama administration is calling it the straddle. The straddle means you step on one side, and you step on the other, but you do not really do anything.
David: In an investment thesis, you can do that. If you do not know the direction of a market, you might be long on one side, and short on the other, and you are just straddling the universe, indecisively. Are you expecting growth in the market, or decline? Well, you have made your bets equally on both sides.
Kevin: I’m long and I’m short.
David: Right, and kind of neutral. So, yes, we have become neutral, but I think it is not just this administration, it was the past administration, as well. Not that we did not react to issues in the Middle East, or engage in a war in the Middle East, we certainly did react, but it was not with a grand strategy in mind. I think one of the things that we now have to face is that our primary trade partners that have been conducting business in dollars, and have been taking those reserve dollars, those foreign account surpluses and putting them into treasuries, will now be taking their currency reserves and putting them other places.
Kevin: David, I am going to ask you a pointed question, and I want to know if you can take a stand on this. We have warned, for decades, of the danger of the dollar not being considered the only currency that oil is traded in. It has helped us keep the reserve currency status worldwide, even after taking our currency off of the gold standard. Do you foresee a time soon, when these people that we were supposed to be the bodyguard for, who made sure that oil was sold in dollars, start to sell oil in other currencies in a big way?
David: I think that when you look at how much Europe stands to benefit from the turmoil in the Middle East, and the fact that all of the old relationships where we pretty much had a monopoly on them are being thrown into question, Europe can step in and play a much more significant role in the Middle East. Certainly you have seen Italy play that role in Libya, but there are other roles to play with individual emirates, even with the Saudi royal family, and it would be crazy for the Europeans not to jump all over this. If they do, then you will see a slow substitution of oil traded exclusively in dollars, for oil traded in euros.
Kevin: Which could be devastating to the long-term health of the U.S. dollar.
David: I think with what is happening in the Middle East right now, the real story is in the treasury market, and in the dollar market.
Kevin: So are you seeing the euro as the winner in this particular inaction of the United States? Let’s face it, six weeks ago, two months ago, we were starting to look at the euro as a currency that may not hold together. That seems to have changed.
David: And it is not to say that all the constituent parts within the EMU will remain as they are. We still may have a few of those countries get kicked out, or voluntarily leave. I think the commitment to the European project and the currency, the euro, is very intense, and you are seeing that right now.
I was in Brussels just this last week, and those in Brussels who were very, very adamant about punishing those who were not willing to play by the new set of European rules, and helping those to any extreme possible, whether it is a renegotiation of debt, extending terms, lowering rates – specifically, I have Greece in mind – handing out favors left, right, and center, if you are willing to play by the new set of European rules.
Given that the commitment is to survival, and the fact that there is this disturbance in geopolitical relationship between the U.S. and Middle Eastern countries right now, this does serve as a major support for the euro as a monetary unit, and that serves, ultimately, as a support for that as a political unit.
Kevin: Would you say the action word, or the operative word, right now, of the overall theme of this program, is inflation?
David: It is, Kevin. There is a group, Leap 20/20, which did an excellent review of this in their recent report, Report #52. In it they referred to what they called the fall of the petro-dollar wall, which they equate to being as significant as the fall of the Berlin Wall.
The Middle East is being restructured the way that Eastern Europe and Russia were restructured after the fall of the Berlin Wall. Relationships, a new paradigm, the way that countries view each other, the way they operate, themselves, the opportunities to invest, the growth trajectories from here, all of these things are changing rapidly, as we watch the fall of the petro-dollar wall.
Kevin: If I read that Leap 20/20 report right, they were saying one of the only almost-guaranteed hedges was gold.
David: True enough, Kevin, and I think what you are watching is a move away from the dollar and away from the acquisition of Treasuries, which has been natural up to this point, and have been bought, as we mentioned earlier, as sort of the quid pro quo for us being the guardian, or bodyguard, if you will, for the region. We think that is the story here, Kevin – the dollar and the Treasury market suffering yet another setback as a result of petro-dollar recycling, diminishing.
Kevin, just to summarize, looking at what is happening in Japan today, the fact is, they are one of the largest purchasers of U.S. Treasuries on the planet. That is impaired, at least temporarily, as they have other issues to attend to of a more immediate and urgent nature.
Kevin: And you have, of course, the Middle East, which is also a very large purchaser of Treasuries, which we just covered. That is being fractured at this point.
David: Kevin, I think what we are trying to say is that between the dollar and the Treasury markets, the world is about to see an upset of expectations in terms of stability. No one expected to see, and our intelligence in the Middle East was so weak that we did not anticipate, in the least, what happened in the Middle East, and of course, you cannot anticipate a natural disaster, but you have here two instances in which people were taken by surprise, and the status quo, quickly, was challenged.
Kevin, we are getting ready to see that on Wall Street again, and particularly, in the treasury and dollar markets. It is one of the reasons why we are seeing a greater appetite for gold in the international markets. As I mentioned, I spent some time in Brussels this last week, as well as Paris and Munich, Germany. It is interesting, the gold traders in Germany today are assuming that tomorrow we will see anywhere from 15%, to 20%, to even 30% premiums, on generic, bullion-oriented gold products.
Kevin: Because of a scarcity of supply.
David: A scarcity of supply, an overwhelming amount of demand. It is very easy to see how that would take place, in the context of a faltering dollar, and a faltering Treasury market, which have been the backstop for economic and financial security around the globe.