The Net Asset Values of Certain Precious Metals Funds and ETFs

The China Bubble and the Convergence of Oligarchies

This is an interesting story from a source that we will be consulting regularly for their news items and insightful analysis.

Regular readers of this blog will notice that we strike the same recurrent themes.

Some years ago Mr. Bill Gates traveled to China, and liked what he saw. This was the model of capitalism which he favored: a small but powerful elite centrally planning an economy peopled by semi-feudal serfs, and living large on the backs of the many.

With all deference to Jimmy Rogers, China is a bubble. The central government will grow increasingly repressive and manipulative as the people improve in education, health and material means. Propaganda will grow more sophisticated and remain as pervasive as it is today.

When the bubble bursts, the iron fist will be unveiled and there will be popular uprisings, and those who believe they are in elite positions now may then find themselves on the docks piled on their baggage waiting for the next ship to take them to safer destinations.

This is certainly nothing new. After the collapse of the first Federal Reserve credit bubble in the late 1920's, the West turned to Soviet Russia and the fascist countries of Italy and Germany for the answer to the 'failure' of Western free market capitalism. Hitler and Mussolini were heavily favored by Wall Street, having a firm hand to rein in the mob.

On the optimistic side, freedom wanes, but still and in remarkable ways, never seems to die.

The Daily Bell
Chinese bank announces bombshell
Issue 343 • Friday, July 10, 2009

Yesterday on their website, the People's Bank of China announced a shocker. New Chinese bank lending for June was 1.53 trillion yuan ($224 billion), double the lending in May. The total already for the year is an astounding 7.4 trillion yuan when the target for the entire year was 5 trillion.

Putting this in context, total lending this year so far has amounted to 25% of 2008 GDP. As I wrote earlier this week, Chinese regulators are getting concerned that this lending is going towards poor credit and bleeding into commodity market speculation.

As most know, bank lending is high powered monetary stimulus due to its high velocity. This is the key difference between fiscal stimulus vs. monetary stimulus. Actually, monetary stimulus will only work well if the banks receiving the funds lend them out. In the US, this is clearly not happening due to banks loan losses and caution over new lending (expanding balance sheet.) In China, this is not the case and new loans are flowing. - CNBC

Dominant Social Theme: China is heating up.

Free-Market Analysis: We've written about this before. China backed into "capitalism" about 30 years ago and the impetus for where it is now was increased by the problems with Tiananmen Square. The Chinese leaders are not interested in political theory at this point (if they ever were). Their currency is power and the way to maintain power is to create an apolitical system where citizens "can grow rich." Western systems work a good deal better than communist systems in this regard. And thus China has built a facade of a Western system.

Yes, it is really only an imitation of a Western system (from a political and big business perspective anyway) in our opinion, just as its banks are only imitations of Western banks and its stock markets are only imitations as well. In fact, to grow rich by investing in the Chinese stock market one apparently simply has to listen intently to the noises coming from the government as to what companies will grow and what companies will not. (And this is different from the US now in what way? - Jesse)

As far as the banks go, the system is probably even more basic than in the West. The central bank prints as much money as it can, and the commercial banks disseminate it. These banks may act as independent entities, but they still have a foot in state government as do many large companies in China.

It is all fairly well jury rigged. China has incorporated a façade of Westernism but to cast China as the world's financial engine is to understand how desperate the West has become. China's economy grows by 10 and 15 percent a year, and now appears be heating up even more. This is not normal growth but central banking generated growth. The same clique still runs China, but the economy has been supercharged by additional printing.

China is said to be turning inward now, as Western countries cannot afford to buy its products. But whether China will be able to maintain its growth by using its own huge population as a purchasing pool remains to be seen. What will certainly happen sooner or later is that the supercharged money being used by the Chinese will create the same boom-bust cycle as has happened elsewhere. Only when it ends in China after so many years, it will be the mother-of-all blow-offs.

Conclusion: It is difficult to see what Chinese leaders expect to happen once the bubble busts. Maybe they are gambling that they can control the unrest that will come in its wake. Maybe they assume the bubble will not bust for many years. (And this is different from the US now in what way? - Jesse)

But articles like the one excerpted above show us that sooner or later China's overheated and pseudo-Western economy will implode, and likely even more violently than Western economies ever have. And here's a thought: The Chinese in the meantime are said to be big buyers of gold on a government level and also personally. Perhaps what is going to eventually happen is better known in China than the West.

SP Futures Hourly Chart

I think that most would agree that the US equity futures have put in some kind of a top, both in the short and intermediate term which is not shown here.

The question now is, 'Are they in the process of putting in some kind of bottom, or is the trend of the decline merely moderating?'

I have highlighted with horizontal lines a few levels of support and resistance that most traders are watching carefully.

It was not bullish that Alcoa was unable to hold its gains today from its 'good news.'

Goldman Sachs reports next week. That may give some spark to the financial sector, but Goldman is really a 'one-off.' One off what I am not quite sure, but whatever it is I think it says much more about them and their secret trading software and access to information than the economy or anything else.

SP Weekly Chart Updated and Some General Thoughts on Trading and Markets

Today we will take a look at the longer term SP 500 weekly price chart, updating the weekly chart which we published on March 23, 2009.

The rally, although sharp, is well within the bounds of expectations for a rally from a major market bottom off a steep decline. It was more than a technical bounce, but has not yet signalled a 'new bull market' despite the optimism of the Wall Street salespeople. Insiders are still diversifying from equities in record numbers, and the "investment banks" (if we can still speak of such an animal in their traditional commercial bank halloween costume) are spending more time 'gaming' the market than investing in the real economy for the longer term.

The target we set for the rally to the neckline around 960 'worked' which tends to validate it, for now, as a proper neckline.

If in fact this neckline holds, and the SP breaks down through key support, the chart formation sets up an objective of 360 on the weekly SP cash chart.

Here is the SP weekly chart update:



Keep in mind that the chart formation is long term, not immediate, and it must be validated further by a breakdown through key support. If, for example, the Federal Reserve decided to monetize even more aggressively than it has been doing, then it would be likely that the neckline would be broken to the upside, and we have a target showing where we think that will go.

Think of these charts as a 'map' to help us see where we have been, the most likely path, and the terrain, the lay of the land. Charts are not firmly predictive, only probabilistic. Those who make contrary claims for their system have always been shown to be exaggerated and highly selective in their result recording and reporting.

Too often "successful" traders merely exploit weaknesses and minor informational or systemic advantages or inefficiencies in the market and in essence place a 'tax' on the other market participants, usually the naive and inexperienced.

Sorry, but that is the way that it is. This even includes some of the 'too big to fail' boys who have no business exploiting the markets which need to function as efficient capital allocation mechanisms.

There is a tendency to seek to gain unfair advantage. The notion of good and rational markets that can self-regulate with participants who voluntarily obey the rules should be an obvious howler to anyone who has recently driven on a major highway. It is a fallen world, and regulation and enforcement are a sine qua non, and always in need of refreshment and improvement as are all things temporal.

Here is the original March chart.



Some traders are better than others, and some much better. The vast majority of people are in no position to trade, and have no temperament for it, and should leave it alone. They are investors, and enjoy a diversity of lifestyle. Trading is a profession, and needs to be respected as such.

The average person who is even in decent physical condition would hardly think to step into the boxing ring with the world heavyweight champion. And yet this same person thinks nothing of placing leveraged wagers in markets dominated by professionals who do little else for a living, heavily influenced even own the rules boards and help to pick the referees and pay their salaries.
So, what next?

The outlook is rather gloomy for the SP 500 in real terms, decidedly. There is no recovery in the real economy, merely fakes and the push and pull of 'flation. The Federal Reserve and the Obama Economic team are not even beginning to address the issues that will create a sustainable recovery, and are just doing the same thing that has failed before. The recovery from the 2003 market lows was nothing more than a monetary credit bubble, glossed up with statistical and accounting frauds. This is just more of the same, to a more extreme, even more cynically corrupt, degree.

So what next?

Gold still looks like a winning place as a store of value in times of corruption, decline and deception, although nothing is certain.



When the time comes and the economy appears to improve it is likely that silver will decidedly outperform gold on a percentage basis. Silver as well as gold are being heavily manipulated by a few banks who have enormous short positions. If they are ever forced to cover these there will be stretchers taking them out of the pits. But do not hold your breath, remembering who owns the casino, and the casino management. Still, all financial frauds and ponzi schemes come to their inevitable messy end. Bernie Madoff may merely not have as much company in prison as he deserves.

Yes, if you were able to time the market and buy the bottom in stocks, and pick the right ones, and hold on until the top, and then take your profits, and not been caught in the plunging decline of 2007, you have some remarkable gains and I wish you well. You are also gambling. As long as you realize this, and manage your money accordingly, you may keep some or even a good portion of your gain.

Reminder: Reverse Splits in the Triple Leverered Financial ETFs After the Close Today

For all you big money playas.

DIREXION SHARES ETF TRUST

Direxion Daily Financial Bull 3X Shares
Direxion Daily Financial Bear 3X Shares

Supplement dated June 26, 2009

The Board of Trustees of Direxion Shares ETF Trust has approved reverse splits of the issued and outstanding shares of both the Direxion Daily Financial Bull 3X Shares (FAS)(“Financial Bull Fund”) and Direxion Daily Financial Bear 3X Shares (FAZ) (“Financial Bear Fund”).

After the close of the markets on July 8, 2009 (the “Record Date”), the Financial Bull Fund will effect a one for five reverse split of its issued and outstanding shares and the Financial Bear Fund will effect a one for ten reverse split of its issued and outstanding shares. As a result of these reverse splits, every five shares of the Financial Bull Fund will be exchanged for one share and every ten shares of the Financial Bear Fund will be exchanged for one share.

Accordingly, the number of the Financial Bull Fund and Financial Bear Fund’s issued and outstanding shares will decrease by approximately 80% and 90%, respectively. In addition, the per share net asset value (“NAV”) and next day’s opening market price of each the Financial Bull Fund and the Financial Bear Fund will be approximately five-times higher and ten-times higher, respectively. Shareholders of record on the Record Date will participate in the reverse splits. Shares of the Financial Bull and Financial Bear Funds will begin trading on NYSE Arca, Inc. (“NYSE Arca”) on a split-adjusted basis on Thursday, July 9, 2009 (the “Effective Date”).

The next day’s opening market value of the Financial Bull and Financial Bear Funds’ issued and outstanding shares, and thus a shareholder’s investment value, will not be affected by the reverse splits.

John Merriwether to Close Hedge Fund After Heavy Losses

The markets are brutal indeed for speculation, with a few predatory institutions, well supplied with freshly minted central bank liquidity, preying the markets with high frequency programs designed to manipulate prices, squeezing the leverage out of funds and speculators.

The marvel is not that a professional like John Merriwether has failed again, although less spectacularly this time as compared to the great flameout that was LTCM.

The marvel is that people, including the wealthy and presumably sophisticated, continue to give their funds to gamblers and ponzi dealers.

Even more amazing how the people continue to allow their economies to be so thoroughly distorted and perverted by the corrupting influence of a relatively few but powerful market participants from the financial sector.

"While boasting of our noble deeds we're careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery." Horace Greeley

The banks must be restrained, and the markets reformed, and balance restored to the economy before a sustained recovery can be achieved.

A good first step would be an independent audit of the Federal Reserve. And a second would be aggregate position limits on all commodities and traded financial instruments with disclosure. A third would be the aggressive abolition of naked shorting.


Bloomberg
Meriwether Said to Shut Hedge Fund; London Chief Plans Startup
By Katherine Burton and Saijel Kishan
July 7, 2009 21:41 EDT

July 8 (Bloomberg) -- John Meriwether plans to shut the hedge fund he started after the collapse of his Long-Term Capital Management LP in 1998 roiled global markets, according to a person familiar with the matter.

Long-Term Capital lost more than 90 percent of its $4.8 billion of assets in the weeks following Russia’s currency devaluation and bond default. The Federal Reserve orchestrated a $3.6 billion bailout by the fund’s 14 banks to calm fears that the firm’s lenders and trading partners would be dragged down.

The decline of Meriwether’s current firm, JWM Partners LLC, played out over months, with its main fund losing 44 percent from September 2007 to February 2009. The Relative Value Opportunity II fund, which sought to profit from price differences among related bonds, returned an average of 1.46 percent a year since it began trading Nov. 30, 1999. The Credit Suisse/Tremont Hedge Fixed-Income Arbitrage Index gained 2.4 percent a year in the same period.

“For many investors, John Meriwether is by now just another hedge-fund manager,” said Tammer Kamel, president of Toronto-based Iluka Consulting Group Ltd., which advises clients on investments in the private pools of capital. “LTCM’s infamy was a big story in 1998, but the events of 2008 might finally relegate LTCM and 1998 to footnote status.”

JWM Partners, based in Greenwich, Connecticut, managed about $1 billion at the beginning of 2008. Meriwether, 61, joins hedge-fund veterans Art Samberg, James Pallotta and William von Mueffling in closing funds this year. He didn’t return a telephone call and an e-mail seeking comment.

London Chief Departs

Adrian Eterovic, who ran the JWM Partners’ London office, plans to start his own fund, according to the person, who asked not to be named because the information is private.

Eterovic, 46, ran the quantitative strategies within JWM’s funds, according to the person. Eterovic registered Episteme Capital Partners (U.K.) LLP with the U.K.’s Financial Services Authority, according to the market regulator’s Web site. Calls to Episteme’s offices after business hours weren’t answered.

Long-Term Capital relied on borrowed money to enhance returns. The average leverage at the beginning of 1998 was about $28 for every $1 of net assets. JWM Partners was more conservative, aiming to produce returns of 15 percent a year and borrowing $15 or less for every dollar of net assets.

Before Long-Term Capital, Meriwether worked at Salomon Brothers, where he was vice chairman and built its proprietary trading desk. His team, with at least a half-dozen Ph.D’s, used computer models to make money from small price differences in related bonds. His group was responsible for as much as 60 percent of Salomon’s revenue in some years.

He lost his job at the firm following the 1991 government bond scandal. Regulators ruled that he’d failed to supervise traders who violated bond-auction rules.

India Puts Its Weight Behind Alternatives to the Dollar Reserve Currency

When an alternative to the dollar as reserve currency does occur will this be the most widely telegraphed "black swan surprise" in history?

We would agree that it appears to be an almost classic Prisoner's Dilemma

The exits are likely to be rather crowded when this one finally comes home to roost, unless the nations can agree to a longer term phased in approach. But even then, once the announcement is made, it is beyond all doubt the endgame for the dollar bubble.

The system has not crashed, it is crashing.


Bloomberg
India Joins Russia, China in Questioning U.S. Dollar Dominance
By Mark Deen and Isabelle Mas

July 3 (Bloomberg) -- Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.

“The major part of Indian reserves are in dollars -- that is something that’s a problem for us,” Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said in an interview today in Aix-en-Provence, France, where he was attending an economic conference.

Singh is preparing to join leaders from the Group of Eight industrialized nations -- the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia -- at a summit in Italy next week which is due to tackle the global economy. China and Brazil will also send representative to the G-8 summit.

As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.

“There should be a system to maintain the stability of the major reserve currencies,” Former Chinese Vice Premier Zeng Peiyan said in a speech in Beijing today, highlighting the nation’s concerns about a global financial system dominated by the dollar.

Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” said Zeng, who is now the head of a research center under the government’s top economic planning agency. The People’s Bank of China said June 26 that the International Monetary Fund should manage more of members’ reserves.

Russian Proposals

Russian President Dmitry Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the dollar’s future as a global reserve currency. Russia’s proposals for the Group of 20 major developed and developing nations summit in London in April included the creation of a supranational currency.

“We will resume” talks on the supranational currency proposal at the G-8 summit in L’Aquila on July 8-10, Medvedev aide Sergei Prikhodko told reporters in Moscow today.

Singh adviser Tendulkar said that big dollar holders face a “prisoner’s dilemma” in terms of managing their holdings. “That’s why I’m telling them to do this,” he said.

He also said that world currencies need to adjust to help unwind trade imbalances that have contributed to the global financial crisis.

“The major imbalances which led to the current situation, the current account surpluses and deficits, have to be addressed,” he said. “Currency adjustment is one thing that suggests itself.”

Emerging-Market Dependence

For all the complaints about the dollar, emerging markets such as India remain dependent on the currency of the U.S., the world’s largest economy and a $2.5 trillion export market. The IMF said June 30 that the share of dollars in global foreign- exchange reserves increased to 65 percent in the first three months of this year, the highest since 2007.

Tendulkar said that the matter needs to be taken up in international talks, and that it emphasizes the need for those talks to go beyond the traditional G-8.

“They can meet if they want to,” he said. “The G-20 has a wider role, has representation of the countries that are likely to lead the recovery process.”

More Banks Fail in "Deepening Financial Crisis"

More green shoots for the fungus collection.

What if they gave a Great Depression but systematically rigged the statistics, manipulated the markets, inflated the currency, and were able to convince the majority that it was not all that bad?

Would it still be a Great Depression? Or a Great Delusion?

How angry would people be when they realized they had been fooled into making very destructive personal financial decisions based on this deception?

Would the perpetrators be able to claim immunity because they were performing a service to the government? This is one defense that Barrick Gold (and JP Morgan) used when they were initially sued for manipulating the price of gold in the New Orleans court case. Barrick Corp Drops Bombshell

"The conscious and intelligent manipulation of the organized habits and opinions of the [public] is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country." Edward Bernays

“It is the absolute right of the State to supervise the formation of public opinion...If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and military consequences of the lie.” Joseph Goebbels

Bloomberg
Seven U.S. Banks Seized in Busiest Year for Closures Since 1992
By Ari Levy and Flynn McRoberts

July 3 (Bloomberg) -- Six banks in Illinois and one in Texas were seized by regulators as the deepening financial crisis pushed the toll of failed U.S. lenders this year to 52, the most since 1992.

Twelve banks have failed this year in Illinois, the most of any state. The seven lenders seized yesterday, with total assets of $1.49 billion and deposits of $1.34 billion, were closed by state or federal regulators and the Federal Deposit Insurance Corp. was named receiver, according to statements from the FDIC. Buyers were named for each of the closed institutions.

The Illinois banks are affiliates of Peotone Bank & Trust Co., in Peotone, Illinois, about 45 miles (72 kilometers) south of Chicago. The failures resulted primarily because of soured loans and losses on investments in collateralized debt obligations, the FDIC said. Illinois, with an unemployment rate above the national average, was one of seven states to begin the fiscal year without a spending plan.

"The six failed Illinois banks are all controlled by one family and followed a similar business model that created concentrated exposure in each institution," the FDIC said. CDOs, which packaged bonds and loans into notes of varying risk and yield, lost money as real estate defaults soared.

Regulators this year have closed the most banks since the savings-and-loan crisis of the 1990s as lenders struggle with mounting losses on mortgages and commercial loans. The total for 2009 is more than double the 25 banks shuttered in 2008 and surpasses the 50 that were closed in 1993. The prior year there were 181 failures or government-assisted transactions.

FDIC Fund

The FDIC estimates yesterday's seizures will cost its insurance fund $314.3 million. The regulator imposed an emergency fee in May to raise $5.6 billion to rebuild the fund, which has deteriorated in the past 18 months. More assessments are possible, the FDIC said.

Illinois Governor Pat Quinn, a Democrat, refused to sign a budget because lawmakers failed to approve raising the income tax. In his original $53 billion budget proposal in March, the governor sought personal and corporate tax increases to help eliminate an $11.6 billion deficit and maintain state services.

Chicago is 280 miles from Detroit, home to General Motors Corp. and Chrysler LLC, which were forced into bankruptcy. Lear Corp., the Southfield, Michigan-based maker of automotive seats, announced plans yesterday to enter bankruptcy. The unemployment rate in Illinois was 10.1 percent in May, compared with 9.4 percent nationally.

A Mess

"This is a mess," said Jack Ablin, who oversees $60 billion as chief investment officer at Harris Private Bank in Chicago. "We're a manufacturing state and in the Midwest, so we're influenced by the autos."

In addition to CDOs, the failed banks were plagued by losses on commercial real estate loans. Founders Bank of Worth, the biggest of the Illinois banks seized yesterday, had $374 million in construction and commercial real estate loans as of March, accounting for 63 percent of the bank's net loans and leases, according to a regulatory report.

Millennium State Bank of Texas, the Dallas-based bank taken over yesterday, had $67.5 million in such loans, or 81 percent of its total loans.

"The common denominator for most of the bank failures so far has been troubled construction loans," said Matthew Anderson of Foresight Analytics, an Oakland, California-based real estate research firm. "There's no easy way out with defaulted construction loans in today's environment..."