31 August 2012

Gold Daily and Silver Weekly Charts - How Sweet It Is

If gold can take out this next level of trend resistance and stick it, the yearly high is in sight.

One might be emotionally prepared for a retest of the downtrend resistance that was just surpassed.

SP 500 and NDX Futures Daily Charts - Much Ado About Bernanke

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

I trimmed my sails in to the long weekend.

Sprott silver continues to underperform a bit in premium compared to Sprott gold.

30 August 2012

Simon Johnson On the Quiet Coup d'Etat in the Anglo-American Financial System

This is a reprise of an interview with MIT economist Simon Johnson which was posted here in February, 2009.

Have we heeded Simon Johnson's warning? Has he proven to be prescient? Is crony capitalism and the kleptocracy becoming bolder, more aggressive, ever more demanding?
"I think I'm signaling something a little bit shocking to Americans, and to myself, actually. Which is the situation we find ourselves in at this moment, this week, is very strongly reminiscent of the situations we've seen many times in other places.

But they're places we don't like to think of ourselves as being similar to. They're emerging markets. It's Russia or Indonesia or a Thailand type situation, or Korea. That's not comfortable. America is different. America is special. America is rich. And, yet, we've somehow find ourselves in the grip of the same sort of crisis and the same sort of oligarchs...

But, exactly what you said, it's a small group with a lot of power. A lot of wealth. They don't necessarily - they're not necessarily always the names, the household names that spring to mind, in this kind of context. But they are the people who could pull the strings. Who have the influence. Who call the shots...

...the signs that I see this week, the body language, the words, the op-eds, the testimony, the way they're treated by certain Congressional committees, it makes me feel very worried.

I have this feeling in my stomach that I felt in other countries, much poorer countries, countries that were headed into really difficult economic situation. When there's a small group of people who got you into a disaster, and who were still powerful. Disaster even made them more powerful. And you know you need to come in and break that power. And you can't. You're stuck....

The powerful people are the insiders. They're the CEOs of these banks. They're the people who run these banks. They're the people who pay themselves the massive bonuses at the end of the last year. Now, those bonuses are not the essence of the problem, but they are a symptom of an arrogance, and a feeling of invincibility, that tells you a lot about the culture of those organizations, and the attitudes of the people who lead them...

But it really shows you the arrogance, and I think these people think that they've won. They think it's over. They think it's won. They think that we're going to pay out ten or 20 percent of GDP to basically make them whole. It's astonishing....

...these people are throughout the system of government. They are very much at the forefront of the Treasury. The Treasury is apparently calling the shots on their economic policies.

This is a decisive moment. Either you break the power or we're stuck for a long time with this arrangement."

Bill Moyer's Journal - Interview with Simon Johnson, February, 2009.

Johnson also wrote a piece in the Atlantic Magazine titled The Quiet Coup. It may be worth re-reading.
Here is the introduction to this in The Fall of the American Republic: The Quiet Coup d'Etat in August 2010.

"I am not so optimistic that this reform is possible, because there has in fact been a soft coup d'etat in the US, which now exists in a state of crony corporatism that wields enormous influence over the media and within the government.

Let's be clear about this, the oligarchs are flush with victory, and feel that they are firmly in control, able to subvert and direct any popular movement to the support of their own fascist ends and unslakable will to power.

This is the contempt in which they hold the majority of American people and the political process: the common people are easily led fools, and everyone else who is smart enough to know better has their price. And they would beggar every middle class voter in the US before they will voluntarily give up one dime of their ill gotten gains.

But my model says that the oligarchs will continue to press their advantages, being flushed with victory, until they provoke a strong reaction that frightens everyone, like a wake up call, and the tide then turns to genuine reform."

As far as I can tell, we are right on track for a very bad time of it. And you might be surprised at how far a belief in exceptionalism and arrogant superiority can go before it finally ends, or more likely, falls.

Gold Daily and Silver Weekly Charts - Sleepy August, But Here Come the Winds of September

Tomorrow marks the end of sleepy August, one of the lightest trading months in recent memory.

Benny speaks at Jackson Hole, but he is unlikely to say anything new.

The real action starts in September and October, as the US election intensifies along with the European crisis and several key events and decisions. I suspect next year will be most interesting.

The average person is lulled to sleep. When they wake up into the end of the year, they might not like what they see, and the position which they are in.

SP 500 and NDX Futures Daily Charts - An End to Sleepy August

Tomorrow is the end of the month, and so we say goodby to sleepy August and its lackluster trade.

Benny speaks at Jackson Hole tomorrow. I doubt he announces anything new, but he may flap his jaw a bit ahead of the three day holiday weekend in the States.

29 August 2012

Chris Hedges: The Tinder of Revolutionary Movements

"I have three precious things, which I hold fast and prize.

The first is gentleness; the second is frugality; the third is humility, which keeps me from putting myself before others. Be gentle, and you can be bold; be frugal, and you can be liberal; avoid putting yourself before others, and you can become a leader among men.

But in the present day men cast off gentleness, and are all for being bold; they spurn frugality, and retain only extravagance; they discard humility, and aim only at being first.

Therefore they shall surely perish.

Gentleness brings victory to him who attacks, and safety to him who defends. Those whom Heaven would save, it fences round with gentleness."

Lao Tzu

"A revolution is coming: a revolution which will be peaceful if we are wise enough; compassionate if we care enough; successful if we are fortunate enough. But a revolution which is coming whether we will it or not. We can affect its character; we cannot alter its inevitability."

Robert F. Kennedy

SP 500 and NDX Futures Daily Charts - Updated After the Close

Charts are a little early today but will be adjusted if anything significant happens into the close.

Note: charts have been updated. Apparently they dumped the futures to the opening price in the last half hour of trade. Very technically traded market. Pretty much infested by key punching day traders and computer algos.

Have a pleasant evening.

Gold Daily and Silver Weekly Charts

Charts are early this evening. They will be updated if there are any significant changes.

It's back to school time for the college bound, and final flings for the young ones.

As previously noted gold and silver bullion positions are hedged.

Have a pleasant evening.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

Silver premiums remain remarkably low when compared to gold.

Taibbi: The True Story of Mitt Romney and Bain Capital

For a related story read The Federal Bailout That Saved Mitt Romney also from Rolling Stone.

Greed and Debt: The True Story of Mitt Romney and Bain Capital
By Matt Taibbi
August 29, 2012

The great criticism of Mitt Romney, from both sides of the aisle, has always been that he doesn't stand for anything. He's a flip-flopper, they say, a lightweight, a cardboard opportunist who'll say anything to get elected.

The critics couldn't be more wrong. Mitt Romney is no tissue-paper man. He's closer to being a revolutionary, a backward-world version of Che or Trotsky, with tweezed nostrils instead of a beard, a half-Windsor instead of a leather jerkin. His legendary flip-flops aren't the lies of a bumbling opportunist – they're the confident prevarications of a man untroubled by misleading the nonbeliever in pursuit of a single, all-consuming goal. Romney has a vision, and he's trying for something big: We've just been too slow to sort out what it is, just as we've been slow to grasp the roots of the radical economic changes that have swept the country in the last generation.

The incredible untold story of the 2012 election so far is that Romney's run has been a shimmering pearl of perfect political hypocrisy, which he's somehow managed to keep hidden, even with thousands of cameras following his every move. And the drama of this rhetorical high-wire act was ratcheted up even further when Romney chose his running mate, Rep. Paul Ryan of Wisconsin – like himself, a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who'd be honored to tell Oliver Twist there's no more soup left. By selecting Ryan, Romney, the hard-charging, chameleonic champion of a disgraced-yet-defiant Wall Street, officially succeeded in moving the battle lines in the 2012 presidential race...

Read the rest here.

28 August 2012

Gold Daily and Silver Weekly Charts - Pausing, Pausing...

The pause at resistance continues. I have added a chart line to gold to help make it more visible.

I added some hedges to my bullion position today on the if/come of Bernanke and Draghi.

There was some intraday commentary on economics and the markets here.

Obama needs to do something to show he is serious about reform, even if he isn't. Geithner and Holder and a few of his key regulators are a significant impediment to his credibility as a leader of change and reform, but it is not likely that they will be replaced before the election. Obama is often careful to the point of timidity, caught in a web of indecision and conflicting priorities.

By the way, Obama's advisors are terrible, but Romney's are a cabal of neocons and neoliberals, in case you were looking for any comfort there. Comfort is an illusion without significant reform.

Will Le Charlatan Obama perform some grand gesture to rouse his long-suffering base now that the Wall Street donations well has been booked in this cycle? If he is going to do it, the time is at the end of the week, to take the edge off the other guy's convention rhetoric.

Let's see what happens.

SP 500 and NDX Futures Daily Charts - Waiting for Bernanke

The US equity market is waiting for either Bernanke or Draghi to sound the release of hot money.

Bernanke will be at Jackson Hole, and Draghi is skipping that soiree to continue his plans for bond purchases in Europe.

If Ben is going to do something, Jackson Hole is the place to say something to pave the way in the markets for it.

I will be surprised if he does anything, but it is certainly not impossible.

Without significant reform there will be no sustained recovery.

Neoliberalism: Rise of the Machine and the Ghost of Disgraced Professions Past

Miranda: O brave new world that has such people in it!

Prospero: 'Tis new, to thee.

The Tempest Act 5, scene 1

In my reading today I came across this relatively good description of Neoliberalism in economics excerpted below, and its implications for society.  The name for this school is often confusing to some, because it is a school of the right, more akin to political neoconservatism than anything commonly known as liberal.

Here is the schoolbook definition of neoliberalism in economics:
"Neoliberalism is a label for economic liberalizations, free trade, and open markets. Neoliberalism supports privatization of state-owned enterprises, deregulation of markets, and promotion of the private sector's role in society. In the 1980s, much of neoliberal theory was incorporated into mainstream economics."
I have to reiterate my own perspective that economics is not a physical science with rules generally tested by replicable experimentation on the macro level, but is at most a 'social science' that attempts to approximate a complex human reality, like sociology.

Microeconomics 'works' because it is less dependent on the human element, and involves itself with mechanical processes and pricing functions. By 'economics' I am discussing what is called macroeconomics, or the economics not of a discreet process or set of processes called a 'business' but of a broad economy with enormous sets of variables and processes that are far too complex to represent well mathematically.  They most often trim and crush reality to fit some compactly useful model, as in the manner of Nassim Taleb's Procrustean Bed.

When it ventures into the realm of public policy discussions, economics often resembles a belief system very much like a religion.   It is easily twisted to serve the desires and actions of its acolytes while conferring an aura of logic.  But there is almost always some 'leap of faith' made that spans the enormous gulf between the model, its assumptions, and reality.

Economics is only as good as its assumptions, which may in fact be terribly distorted with each step towards a more general application from a simple a priori observation that sounds self-evident at first.  Economics is a veritable cornucopia of non sequiturs encased in obscurantist terminology.

People are reasoning, therefore in their actions they act reasonably. And in the mass of financial transactions that is the market, these rational actors and their actions impute a natural rationality to the market that makes it efficient. Therefore the law of supply and demand and the perfect clearing price of the market, which are central tenets of market efficiency, are not to be interfered with by outside forces, like regulation and government.

And what makes this believable is that this can be true, if people are as good and perfectly wise and uniform in their actions as angels; but they are not, not a one of them, but especially those who are drawn to making their money from money, and especially from speculation in the markets.  This type of activity attracts people from the tails of human behaviour, like most sources of wealth and power.

This assertion  of natural market efficiency sounds good, especially when it is delivered by academics in nice suits with lots of degrees and titles, backed by a multimillion dollar PR campaign that contains well crafted, thinly disguised appeals to more visceral emotions. 

But it is a theory that is easily shown to be founded in fantasy to anyone who has driven on a crowded multi-lane highway in rush hour.

And a corollary to this is that the system grades or objectively and perfectly evaluates people on their merits. If one suffers some misfortune or fails to rise 'to the top' of the heap, then this is an objective judgement on them and their value, their character, their worthiness as a human being.   And some would say that this speaks to their status as a fully valued member of that society, to have rights and to vote, to receive food and vital medical attention, and to have families and to procreate.

Because the system is perfectly efficient and rewards the best, the most successful are sanctified by it. I am wealthy, therefore I am among the elect, whether it is marked by an aristocratic title or an enormous bank account.  I am above all the rest, and this proves my value, and provides all the things which are stuffed into my hollowed being.

One can certainly and legitimately use economics, among other things, to support their particular policy arguments to estimate effects. But the listeners should accept this with plenty of skepticism, because the proofs are largely based on statistics, or statistically based models, that are filled with often unspoken assumptions, questionable estimates, and too often critical omissions, both conscious or inadvertent.

But to take an economic model out of its place, and put it above the discussion as policy maker in the manner of a computing machine which spits out the ultimate solutions, to capitalize 'Market' as a type of god on earth, to put that false idol as an unfettered decision-making machine above the individuals of a society and the rule of law, is inhuman, and a tyranny of the anti-human.

Economics is a tool, in some implementations better than others, but overall not a particularly reliable one.  It is better in 'explaining' than predicting; its explanations are more often rationalizations founded in its malleability and lack of rigor.

The elevation of macroeconomics today reminds one of the perversions of the discoveries in biology that led to the theories of eugenics and the race worship, the mythology of the blood that motivated much of the social thinking and many serious political movements at the beginnings of the twentieth century.   It was when the intelligentsia and the professions, the doctors and lawyers, threw in their lot with the financial and industrial elite that European society began to quickly fall apart.
"I believe that if a canvass of the entire civilized world were put to the vote in this matter, the proposition that it is desirable that the better sort of people should intermarry and have plentiful children, and that the inferior sort of people should abstain from multiplication, would be carried by an overwhelming majority...

Indeed, Mr. Galton has drawn up certain definite proposals. He has suggested that "noble families" should collect "fine specimens of humanity" around them, employing these fine specimens in menial occupations of a light and comfortable sort, that will leave a sufficient portion of their energies free for the multiplication of their superior type."

Source: H.G. Wells, Mankind in the Making
People forget that a whole range of intellectuals and popular thinkers, from George Bernard Shaw to H.G. Wells and a large measure of the economic, professional and political aristocracy of the day, embraced the notion of the natural superiority of certain human types, and the scientific necessity of encouraging their proliferation, and the dominance of the untermensch as not only their right but their obligation.

The medical profession disgraced itself, amongst the first of those in Germany, with their willingness and devotion to implement euthanasia based on these 'scientific principles.' And the elite in the West broadly looked at this movement with quiet compliance and even admiration for the will to make these 'hard decisions.'  It was only when the definition of the master race became increasingly narrow and their methods madly brutal that they recoiled in horror.  But by then it was too late, although many adherents to the basic principles remained sympathetic in England and America.

Science serves at its best, but it does not rule well, except to blind the heart and the mind to madness.

And one might look at these people from the past with revulsion and wonder, but the self-proclaimed ruling class of the West is doing the same thing today, largely by financial means for now. Their rhetoric and reasoning is filled with it, a sense of the obligation of their natural superiority. And if they steal from you, it is a privilege. And if a little of their spoils trickles down, you should be grateful.

There are plenty of believers in the ascendancy of a new master class, as long as they think they are a part of it. You may see them and their ideas on display this week from Brussels and Berlin, to Tampa and Jackson Hole. And they are not members of learning organizations, but protectors and promoters of the status quo.
"There is a lack of critical assessment of the past. But you have to understand that the current ruling elite is actually the old ruling elite. So they are incapable of a self-critical approach to the past."

Ryszard Kapuscinski
If one wishes to have an oligarchy or even a dictatorship based on power and unscrupulous behaviour in which the 'superior,' as one may choose to define them, use the weak as servants and prey, then decide to do so and say it, and hope the people will support it.

But it seems particularly hypocritical and cheap to set up a god of economic science which is elevated to speak these same words as an inspired dictum from above, but which is in reality a false idol carrying the calculated whisperings of its high priests, and then expect the people to bow to it forever without any eventual reaction. 

The Tyranny of Neoliberalism

Unapologetic in its implementation of austerity measures that cause massive amounts of human hardship and suffering, neoliberal capitalism consolidates class power on the backs of young people, workers, and others marginalized by class, race, and ethnicity. Neoliberal capitalism appears to no longer need the legitimacy garnered through its false claim to democratic ideals such as free speech, individual liberty, or justice—however tepid these appeals have always been(cf. Glenn Greenwald - Jesse)

In the absence of alternative social visions to market-driven values and the increasing separation of global corporate power from national politics, neoliberalism has wrested itself free of any regulatory controls while at the same time removing economics from any consideration of social costs, ethics, or social responsibility. Such a disposition is evident in the fact that neoliberalism's only imperatives are profits and growing investments in global power structures unmoored from any form of accountable, democratic governance.

The devastating fallout of neoliberal capitalism's reorganization of society, the destruction of communities and impoverishment of individuals and families, now becomes its most embraced mode of expression as it is championed, ironically, as the only viable route to economic stability.

In this widely accepted, yet dystopian world view, collective misfortune is no longer interpreted as a sign of failing governance or the tawdry willingness of politicians to serve corporate interests, but attributed to the character flaws of individuals and defined chiefly as a matter of personal responsibility. In fact, government-provided social protections are viewed as pathological. Matters of life and death are removed from traditional modes of democratic governance and made subject to the sovereignty of the market.  (Don't feed the 'losers' or the undesirables - isolate and then euthanise them, indirectly at first - Jesse)

In this new age of biocapital, or what Eric Cazdyn calls "bioeconomics," "all ideals are at the mercy of a larger economic logic" —one that unapologetically generates policies that "trample over millions of people if necessary." Neoliberalism's defining ideologies, values, and policies harness all institutions, social practices, and modes of thought to the demands of corporations and the needs of the warfare state. They are as narrowly self-serving as they are destructive.  (The individuals, even in their millions, must die if not for the good of the state or the race, then for the good of the market and corporate profits.  - Jesse)

As collective responsibility is privatized, politics loses its social and democratic character, and the formative culture necessary for the production of engaged critical agents is gravely undermined. An utterly reduced form of agency is now embodied in the figure of the isolated automaton, who is driven by self-interest and eschews any responsibility for the other.

As Stuart J. Murray points out, neoliberalism's totalizing discourse of privatization, commodification, deregulation, and hyper-individualism "co-opts and eviscerates the language of the common good." The ascendancy of neoliberal ideology also manifests in an ongoing assault on democratic public spheres, public goods, and any viable notion of equality and social justice.

As corporate power is consolidated into fewer and fewer hands, ideological and structural reforms are implemented to transfer wealth and income into the hands of a ruling financial and corporate elite.  This concentration of power is all the more alarming since both Canada and the United States have experienced unprecedented growth in wealth concentration and income inequality since the 1970s.

Henry Giroux, Days of Rage: The Quebec Student Protest Movement

27 August 2012

Gold Daily and Silver Weekly Charts - A Pause at Resistance, Now Support

Both gold and silver were held up at resistance, which is now acting as some support.

SP 500 and NDX Futures Daily Charts - Quiet Day

The market is holding its breath waiting to see what Zimbabwe Ben will say at Jackson Hole on Friday.

Stocks have diverged significantly higher from commodities and the euro. Something's going to change to restore the correlations.

Many the Wonders, But Nothing Stranger Than Man - Sophocles

"What a piece of work is a man, how noble in reason, how infinite in faculties, in form and moving how express and admirable, in action how like an angel, in apprehension how like a god! the beauty of the world, the paragon of animals...

William Shakespeare, Hamlet

Men and women are such varied instruments, with far-ranging highs and lows, capable of remarkable, heart-breaking beauty and, with the same voice and hands and mind, unspeakable ugliness and petty squalor.

A mass of contradictions. Love and hate, held by a narrow seam. Heirs to the everlasting, born astride a grave. Dust that moves the eternal mind.

"What is man that you are mindful of him, the son of man that you care for him?"

Psalm 8:4

25 August 2012

Sophie Scholl: The Final Days - The Trial and Death of Die Weiße Rose

The Nazi movement was not a uniquely German event; it is a uniquely human event, and such a movement remains so to this day.

When human beings, for whatever reason and rationale, decide that it is expedient and necessary to put aside their principles and their conscience, and in the pain of their humanity make themselves into beasts, then the will to power and its madness is unleashed upon them, their children, and the world. No one, no people, is safe from this awful tragedy.

I have heard it argued that The White Rose movement was in the wrong, because they did in fact violate the laws of Nazi Germany. They did, clearly, but for the sake of their conscience. I had become interested in them because of the profound influence which the writings of John Henry Newman had on Sophie Scholl and her fiance Fritz Hartnagel, with regard to the necessity and primacy of individual conscience.

It has also been argued that they were foolish, because they were not successful. Success is everything in our world, and it is measured by the material and in the short term.

They could have stayed in University, found good jobs, and adapted themselves to the reality of their society, paying lip service to their principles. Go along to get along. Again, only if they were able to still their own conscience and cast themselves along with the mob into madness and the abyss.

Why think of such gloomy things on such a fine sunny day?

Because the time grows short, shorter for some of us, but with a definite end in sight. And the powers of this world are never at rest, but prowl like ravening wolves, seeking to devour us.

Do not look to the other fellow and what they may be doing, and spend your time judging others, the more harshly the better.   When I see a soul that is lost, it is the hardness of their heart that is telling.  First save yourselves, by putting your own hardened heart aside.

How do you know if you are saved? Because there is a love of love in your heart, that is unmistakable.

If you have the power to prophesy, if you hold your convictions with a hardness of steel, and engage in remarkable displays of devotion, but you have no love, you are nothing, you are lost.

The night approaches, and it is almost time to come home. So do not be left in the dark.

24 August 2012

Gold Daily and Silver Weekly Charts - Quiet Day of Consolidation

Gold and silver consolidated into overhead resistance today after the big run this week.

Intraday commentary on the NAV and on Why a Gold Crisis Looms.

See you Sunday evening.

SP 500 and NDX Futures Daily Charts

The market was light volume and lackluster today when a letter from Ben Bernanke to Darrell Issa was released that suggested a bias to ease 'depending on the data.'

This is nothing new of course, but the market players took it as an opportunity to rally.

There were also rumours and speculation that the ECB would take further action to subsidize rates in their soverigns' debt.

Next week is the end of the month and the Republican National Convention in Tampa.

See you Sunday evening.

Romney Tax Files: Converting Management Fees Into Carried Interest

When Gawker first published the Bain Capital tax return data I remember reading somewhere that one should not bother even looking at them because they are not relevant and won't tell you anything.

That struck me as odd at the time. How could someone just dismiss information like this as not even worth reading? Move on, don't look at them?

Well, apparently that is not the case. They seem to contain some nuggets of information suggesting that Romney was being particular aggressive (euphemism for engaging in extra-legal activity) in misstating not trivial income for the purpose of avoiding taxes.

One can only wonder what those undisclosed personal returns might contain.

I don't want to pick on Mitt in particular, although he is starting to look like a setup to make the other guy look good. And what he had done with his income from Bain is certainly open to interpretation as the author admits.

But rather, this speaks to the 'rule of law' issue and how there is a duality in the US, and some animals are more equal than others. And strangely enough, the barnyard hoots its approval.

"Private equity fund managers are compensated in two primary ways: management fees and carried interest. The management fee, traditionally two percent annually, is paid to the managers to cover overhead, salaries, and so forth. The carried interest, traditionally twenty percent, is a share of the profits from the underlying investments. My paper Two and Twenty described the typical arrangement.

Management fees are taxed at ordinary income rates; carried interest is often taxed at capital gains rates (around 15 percent - Jesse). I focused in the article on why the carried interest portion is better viewed like bonus compensation and should be taxed at ordinary income rates.

Current law on carried interest is already a sweetheart tax deal for private equity, but why not make it better? Private equity folks are not the type to walk past a twenty-dollar bill lying on the sidewalk.

In the 2000s it became common for private equity fund managers to “convert” their management fees into carried interest. There are many variations on the theme, but here’s how many deals worked: each year, before the annual management fee comes due, the fund manager waives the management fee in exchange for a priority allocation of future profits. There is minimal economic risk involved; as long as the fund, at some point, has a profitable quarter, the managers get paid. (If the managers don’t foresee any future profits, they won’t waive the fees, and they will take cash instead.)

In exchange for a minimal amount of economic risk, the tax benefit is enormous: the compensation is transformed from ordinary income (taxed at 35%) into capital gain (taxed at 15%). Because the management fees for a large private equity fund can be ten or twenty million per year, the tax dodge can literally save millions in taxes every year.

The problem is that it is not legal. Because the deals vary in their aggressiveness, there is some disagreement among practitioners about when it works and when it doesn’t. But in my opinion, and the opinion of many tax practitioners, the practices that were common in the private equity industry in the 2000s became very, very questionable, and it’s unlikely that they would have stood up in court.

Gawker today posted some Bain documents today showing that Bain, like many other PE firms, had engaged in this practice of converting management fees into capital gain. Unlike carried interest, which is unseemly but perfectly legal, Bain’s management fee conversions are not legal. If challenged in court, Bain would lose. The Bain partners, in my opinion, misreported their income if they reported these converted fees as capital gain instead of ordinary income."

Victor Fleischer, Romney’s Management Fee Conversions

Read the entire article here.

US Dollar Intermediate Term Chart

Because of the way in which it is constituted, the US Dollar DX Index is largely the 'inverse Euro' chart with some yen and pound and franc thrown in.

Because of that, and as I have noted previously, the index is becoming less meaningful as other currencies, which are not accounted for at all in the index, especially those from the BRICs, gain more importance to the world monetary system. 

And of course the Index represents no commodities including gold and silver.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds - Why A Gold Crisis Looms

It is a slow day today with the usual end of week profit taking. Even the monetary whack-a-mole, Zimbabwe Ben, popped his head out today to give a verbal goose to the markets.

I came across an article that addresses an interesting phenomenon that rarely gets an airing, except perhaps by those stalwarts in GATA.

"The World Gold Council recently released its second quarter statistics on gold “demand and supply trends”. For those not familiar with the WGC, it is an “industry trade group” composed of large-cap gold miners who love bankers.

How much do these mining companies love bankers? So much that they allow the bankers to keep all the records for their sector, and pretty much do all of their of their promotion to the world. It is the WGC which elevated two private “consultancies” (of bankers) – GFMS and the CPM Group – to the status of quasi-official record-keepers for the entire global gold (and silver) industry.

It would be problematic at best for the gold industry to allow itself to be almost entirely represented by a “profession” now known only for its rampant fraud. However, given the known hatred of the banking community toward gold and silver, and their relentless attacks on both the bullion market and the miners themselves; it’s almost beyond comprehension that the world’s largest gold miners choose bankers as their spokesmen.

I’ve already exposed the devious/perverse manner in which these consultancies produce phony inventory numbers in the silver market. In the upside-down world of these “record-keepers”, when someone purchases an ounce of silver from a silver-ETF (and thus takes that ounce of silver off of the market), the CPM Group adds another ounce to total inventories.

In other words, if silver investors were to buy-up every ounce of silver currently available in the world (via silver-ETF’s), global silver inventories would supposedly double, while if silver-ETF holders were to sell all their holdings it would (apparently) collapse inventories..."

Jeff Nelson, Why a Gold Crisis Looms

Speaking of the available supply of silver, Ed Steer reports this morning that:
"Sprott's Physical Silver Trust reported receiving 320,000 ounces of silver yesterday...and still has over a bit over a million ounces left to be delivered from their latest offering. Since they got the first tranche on July 11th, they have received just under seven million ounces...and since they purchased a bit more than eight million ounces, they're just awaiting the balance...44 days [6+ weeks] since receiving the first shipment. It will be interesting to see how long it takes to get the rest. From this information it should be obvious that good delivery bars are not exactly laying around."

I doubt the concerns about manipulation in the markets will amount to anything until an actual crisis hits, and someone big defaults on either gold or silver and threatens to take down an exchange. And then the masters of the universe will run around waving their hands saying 'we have a problem, we have a problem,' and do something obtusely irrational and carelessly self-serving to try and fix it. You know, like TARP, or most corporate reorganizations for that matter.

(Inside the idiom reference. At a certain technical school in Cambridge Mass they used to refer to the case study crackheads up Mass Ave as the 'hand wavers' who, when things did not go as planned, only knew enough to recognize that they were in trouble, and run around waving their hands saying 'we have a problem, we have a problem.' And then, after a few stupid attempts at a quick fix and a cover up made things much worse, look for someone to fix it for them. In my own defense I was not formally enrolled at that particular tech school, I was merely a 'fellow traveler.' In other words, I had a girlfriend.)

Gold continues to command a higher premium than silver in the funds.

In a recent interview (JPM Is In Trouble) Bill Murphy made some allusions to a scandal brewing in the silver market that may burst upon the public before year end. One can only imagine. Bill is an optimist, which is one of his great strengths and supports. I am stoically skeptical, but long term hopeful, about anything approaching transparency, disclosure and reform. And the current trend in reform is not promising.

I provided an update to the NAV chart at 3:00 PM.

See you at the close.

Matt Taibbi and Eliot Spitzer Discuss Eric Holder's (and Obama's) Failure: Credibility Trap

The failure of Obama's Justice Department to engage in any systemic investigations and indictments of a thoroughly rotten and corrupt financial system that has laid waste to the real economy is an almost perfect example of the credibility trap.
A credibility trap is when the regulatory, political and/or informational functions of a society have been compromised by a corrupting influence and a fraud, so that they cannot address the situation without implicating, at least incidentally, a broad swath of the power structure. The status quo has at least tolerated the corruption and the fraud, if not profited directly from it, and most likely continues to do so. The power brokers have become susceptible to various forms of blackmail. And so a failed policy can become almost self-sustaining long after it is seen to have failed, and even become counterproductive, because admitting failure is not an option for those in power.
Another example is the blatant fraud, and principles not of productivity but of prey, that prevail on the financial asset exchanges and the monetary system, the stealing of customer funds, and the manipulation of commodity markets such as silver. And it expresses itself in the frivilous coarseness of spectacle, and careless brutality of decline.
"Happy Hunger Games. And may the odds be ever in your favor."
Normally a two party system or a balance of powers would correct such a situation, but if the fraud is pervasive and enduring enough, those remedies can lose their effectiveness since the fraud binds even seemingly diverse elements in its grasp. And therein lies the trap.

There is a general loss of honor, a disparagement of moral principles, the common welfare, and a sense of 'service.' People in power are creatures of the system, 'getting their ticket punched' in Washington, as resume builder on their way to an even more lucrative position back in the corrupt system where they can leverage their connections and knowledge of the system to further undermine the rule of law. Their guiding principles are self-referential greed and power.

After one of the most outrageous periods of widespread fraud in a major developed country, prosecutions for fraud are at twenty year lows.  Who expected this outcome from an election in which the theme was change and reform?

Here is a recent article, Why Can't Obama Bring Wall St to Justice, asking the broader question inferred by this video interview. Why?  And the answer is not to be found in making excuses and allowing him to hide behind the incompetency or disengagement defense so popular in American management circles.

And if you think that voting for the other guy in this case, the emotinally engaging but fatally flawed red v. blue paradigm, is going to provide a cure you are sadly mistaken. The other guy in this case is the poster child for most of the problems that face a nation under siege by a financial elite engaged in an economic, ideological, and political coup d'etat.

As Glenn Greenwald recently put it:
"You can often, and I would say more often than not, in leading opinion-making elite circles, find an expressed renouncement or repudiation of that principle [of the rule of law]...All of these acts entail very aggressive and explicit arguments that the most powerful political and financial elites in our society should not be, and are not, subject to the rule of law because it is too disruptive, it is too divisive, it is more important that we should look forward, that we find ways to avoid repeating the problem...the rule of law is not that important of a value any longer...

The law is no respecter of persons, but the law is also a respecter of reality, meaning if it is too disruptive or divisive that it is actually in our common good, not the elite criminals, but in our common good, to exempt the most powerful from the consequences of their criminal acts, and that has become the template used in each of these instances."
And thanks to the apathy of the people and the gullibility of the badly used, self-proclaimed 'patriots' they are winning.
“The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least to neglect, persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments.”

Adam Smith
Such unsustainable social arrangements are backed by force and fraud. And as the fraud loses its power over time, force must increase, until there is an end in genuine reform, or evenutal self-destruction.

23 August 2012

Gold Daily and Silver Weekly Charts - Hard into Resistance

So far it has been a real lift for the metals, as they have both broken out of their short term capping and coiling patterns.

Now they have both reached intermediate, rather than short term, overhead resistance from trend lines.

I would not be surprised to see a little consolidation here and a few weak hands taking profits.

Bill Murphy Interview: JPM Is In Trouble (audio)

SP 500 and NDX Futures Daily Charts - Profit-Taking Down to Support

The SP futures closed at 1400 and the NDX futures at 1360.

We *might* have some more downside here even if this is a correction in this summer rally. 1385 or so might be a decent target.

Europe weighs on the market, but volumes remain light.

Earnings and Revenues are not coming in well, so it may be on the central banks to provide some joy juice to the markets. It is likely not to help the real economy however since the monetary transmission systems are on 'shift upward without producing anything of value.'

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds - And Again at 2 PM

Gold is still carrying a higher premium in the funds and trust than silver.

Notice how sharply gold and silver have moved after those weeks of tedious capping. And there is not a lot of doubt in my mind that it was conscious and purposeful.

I hope you were able to take advantage of this 'tell' as well as the absurd pinning action which we saw in the equity markets since the beginning of August, especially in the SP 500.

Sprott PSLV is continuing to add to silver inventory and drawing down the cash raised in their last unit offering.

There are still a number of ways to interpret this. I suspect that there is news-in-the-making being digested behind the scenes. War, QE, some major Euro development, take your pick.

Note:  I have included a second set of data from later today.

22 August 2012

CNBC's Heavy-Handed Advocacy For Wall Street Is Painfully Evident in This Neil Barofsky Interview

Heavy handed and amateurish performance by the 'journalists' was the name of the game in this interview which CNBC conducted with former TARP inspector general Neil Barofsky.

I think Barofsky was taken aback and kept off balance for much of the interview, and did not present some of the alternatives to TARP that could have been discussed in a more intelligent and less adversarial venue.  I would have thought a former federal prosecutor would have been tougher, but I think he came in expecting a rational discussion and not a tag team group takedown.

This performance represents the level of journalistic quality and objectivity of its parent NBC, which is one of the corporate arms of General Electric.   And such a disregard for any pretense to journalistic principles is no longer the exception.

Maybe I am missing something but it seems astonishing that a major financial network can feature a stock advisor who bragged on tape about how he used reporters for planting stories favorable to his market manipulation to cheat the public when he ran a hedge fund, and apparently sees nothing wrong with it, up to and including breaking the law.

How cynical can a people get? How blindly worshipful of 'success?'

This calls to mind the interview that CNBC had with the California Attorney General who had the presence of mind to just stop the interview and ask the 'journalist,' "Are you pimping for (State Street Bank) the defendant?"

There was a time indeed when the financial journalists were paid for pimping for Wall Street, as recounted in the Congressional testimony of A. Newton Plummer, who had kept a suitcase full of the canceled checks which he had delivered to almost every journalist on the Street. The pool operators of the 1920's paid financial journalists to run stories favorable to their market aims.

A. Newton Plummer subsequently wrote a book about it, and his testimony to the Congress, that had a very limited run. I picked up a copy during my research phase in the late 1990's.

So as you can see, the integrity of journalism in reporting financial news is not merely an idealistic and theoretical concern during periods of excess and subsequent change. It is one of the major elements of corruption and therefore of reform. And laws were put in place to ensure fairness and diversity in the news media. And they were much later knocked down during 'the great deregulation' when ideology and PR campaigns trumped experience once again.

Do people still go to journalism schools and subscribe to certain principles that we used to take for granted that would be put forward if not always upheld?

How are the mighty fallen.

Here is a link to the interview at the CNBC site in case there are problems with access to it here.

Note:  Business Insider also covered this interview.  Their story here includes some of the tweets which Barofsky sent after the show.

Gold Daily and Silver Weekly Charts - Rally Intensified on Fed's QE Statement

Gold and silver were rallying even as stocks were declining, when the Fed released its minutes from the most recent meeting this afternoon. The Fed is concerned about the lack of growth in the economy and signalled its willingness to invoke additional quantitative easing 'fairly soon.'

This intensified the rally in gold and silver and helped stocks to lose some of their early losses.

Gold has stuck a close above the big resistance, and now needs to take out the trendlines around 1665 to get some legs.

Stocks are running on liquidity and hot money expectations, and not much else.

SP 500 and NDX Futures Daily Charts - Pop Goes the Fed

The Fed minutes caused the market to reverse its correction today as the Fed signalled its concern about the lack of growth in the economy, and its willingness to engage in additional quantitative easing 'fairly soon.'

Otherwise it is still a dull market.

Interviews with 'The New Economists' From Mindful Money

Mindful Money has published an eclectic collection of short interviews with those whom they describe as 'the new economists.'

These include Steve Keen, Unlearning Economics, Positive Money, Modern Monetary Mechanics, Pragmatic Capitalism, and a little known Café which they describe as:
An anonymous blogging site with a pleasant relaxed feel ("an oasis of civility in an increasingly uncivil world", the site includes images from the Café's signature dishes in the left margin), wry humour and a global readership. Jesse has a strong interest in reining in the banks and reforming economics and incorporates some stunning graphs into his blog posts.

However in a a recent, somewhat resigned post, he wrote: "I do not think the US is ready to insist on serious reform. It will take another crisis. The anti-regulatory slogans are too effectively ingrained in the public psyche. And self-deception is a powerfully addictive state of mind. Especially for those whose expansive lifestyles depend on it."

I don't feel as resigned as exasperated at times. But that is the nature of a sea change which happens slowly and quietly over a long interval until one suddenly notices it and, voilà.

Do not expect profundity and lengthy expositions of economic thought from yours truly, because after all it was a Q&A and I was able to give what I thought were plain answers that struck to the heart of the questions right 'off the cuff' as they say. We become lost in a fog of words, at a time when action is becoming ever more important on the individual level.

The menu of answers should surprise no regular patron of Le Café. But I see in reading it now that I did manage a quip or two to quicken the sauce of the dismal science.

Q. If you could travel back in time and change something in the financial world that would benefit society, what would it be?

A. I would help Alan Greenspan achieve a wonderfully rewarding career as a professional clarinetist.

And then I would skip forward ten years or so and stop the Bankers' campaign to repeal Glass Steagall.

You can read the entire interview here and the entire piece with links to the entire collection of interviews here.

21 August 2012

Gold Daily and Silver Weekly Charts - The Old Switcheroo

Gold and silver had a nice rally today, and ran up into hard resistance as one can see from the charts.

I published a note on the Net Asset Value Premiums today that shows that for the first time in my memory the premiums on gold versus silver had turned decisively in favor of gold.

This has occurred before, when a fund was expanding its size using a shelf offering for example. They sell units and raise cash to buy metals, and the size of their cash reserves go up and then down. This affects the NAV premium quite a bit.

Sprott's PSLV has recently completed a large expansion which showed up in the premiums in the end of July and August.   These expansions have caused PSLV to underperform SLV for the year to date. 

And in early August we saw the premiums at par in the Central Funds as well.  That might be a drag on effect as investor enthusiasm for silver become subdued.

But now gold is clearly edging out silver. I'm not sure why, but I suspect that if this trend continues and deepens then the market is pricing in some event as yet unforeseen, at least by us.

A change in monetary policy, war, a new trade regime? All these exogenous events are possible, in addition to endogenous factors such as a big official buyer or two in gold.

Let's see what happens.

SP 500 and NDX Futures Daily Charts

Stocks ran up to resistance around 1425, and then the buying seemed to fall apart for no reason.

Stocks gave up all their gains and ended the day with a slight loss.

For now this is just a pullback since stocks did not violate any key support.

After the bell Dell cut its forecasts. Even though the company is troubled, the economy is certainly not robust in the states.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds - The Oddest Thing

My net asset value premium indicator shows that gold is commanding a higher premium over NAV as compared to silver, for the first time that I can ever recall.

I do not remember seeing the premium on gold higher than the premium on silver, as shown in the Sprott precious metal funds. Ever.

At least not while the funds are not in the midst of implementing a shelf offering. Sprott silver (PSLV) recently completed a major buy and the premium there often lags in such a period of time.

When I saw the results my jaw dropped. I have checked and rechecked them. And my own estimates of their NAV track perfectly with their indicative intraday indicators, so I am fairly sure there is not an error in the fund calculations.

And as confirmation, the premium of the Central Gold Trust (GTU) is higher than the premium of the Central Fund of Canada (CEF), which is a mix of silver and gold. That is also strange.

In early August the premiums in the funds had pulled equal, but I tended to dismiss that as a drag on effect from the Sprott silver expansion. CEF and PSLV have some correlation in premiums with the larger PSLV being the price leader.

Something is a bit odd in this market.

Last week someone notified me of some unusual trading patterns in the gold funds. I have been keeping an eye on them, but never expected this.

Silver has a much higher beta than gold. If this continues, if the gold premium continues to exceed silver, it would suggest a clear signal that at least some market participants are pricing in an unusual financial event.

What that might be, I cannot say. I do not even know if it is positive or negative for the precious metals market or their related markets, except to speculate.

On one hand it could represent some manipulative action in the silver market, some unusual effort to cap its tendency to rally.

On another hand it might be a precursor to a dramatic market decline in equities, with a safe haven move into gold ahead of time.

And it could also merely be particular buying pressure from official sources in gold that has not yet spilled over into the silver market.

Take your pick. They are all equally defensible at this point, until we obtain more data.