There Will Be No Updates Until Monday - Update Fri Nov 2

There will be no updates until Monday, perhaps as late as Wednesday.

Thank you for your concern but I am fine, just out of pocket as they say.

Please do not email until I start posting again.

Bought some additional gold positions on Friday afternoon for my balanced hedge.

Otherwise just catching up on reading, and counting blessings.

"Lead, Kindly Light, amidst th'encircling gloom,
Lead Thou me on!
The night is dark, and I am far from home,
Lead Thou me on!
Keep Thou my feet; I do not ask to see
The distant scene; one step enough for me."

J. H. Newman

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts

The US equity markets were closed today but the electronic futures markets were open from yesterday at 6 PM until 9:15 AM today.

The volumes were very light as one would expect.

The US equity markets will be closed as well tomorrow.

The gold and silver futures were also open, which enabled a calcuation of a spot price off the front month. The volumes were so light I am not going to bother with chart updates until tomorrow.

Have a pleasant evening.

Greg Palast: Billionaires and Ballot Bandits

Greg Palast on the Koch Brothers, Karl Rove, and their buddies.

US Equity and Option Markets Are Closed

US Equity and Options Markets are closed today because of the oncoming hurricane. The NYSE is closing for the first time in 27 years.

Bond markets are open, but will close early around noon.

The Holland and Battery Park Tunnels will be closing this afternoon, and the bridges will be closing when the winds intensify.  

No man is an island, but Manhattan is.

There are blizzard warnings going up on the lee side of the storm, as the moisture of the hurricane meets the Canadian cold front.

This is likely to be a multi-day event.

My meteorologist friend said that the hurricane may present a new record low pressure reading for this area when it makes landfall in New Jersey, most likely a little to the north of the Atlantic City area.

Millions of people may lose power, and some of them for seven to ten days.

If you are in this area, make any last preparations if you must, but be prepared to stay in your home and 'hunker down' for the next two days. Listen to any public advisories, and if requested to evacuate follow instructions.

NYC to Close Schools, Subways, and Orders Evacuations - CME Closes Trading Floor

"New York City has issued a mandatory evacuation of Zone A, which includes CME Group's NYMEX World Headquarters and New York trading floor. As a result, the New York trading floor will be closed on Monday, October 29. We will open all of our electronic markets at their regularly scheduled times on CME Globex and CME ClearPort, our online electronic platforms."

As the northeastern US braces for landfall of Hurricane Sandy tomorrow, high tides and a storm surge expected to run from 5 to 9 feet has caused the bottleneck low-lying areas in the New York boroughs to be evacuated.

A storm surge and tide combination of over 8 feet will breach the seawall in Battery Park.

NYC schools and the subway system will also be closed tomorrow.

Atlantic City casinos have closed for the first time in their history.

Widespread power outages are expected to affect over ten million people.

The storm is expected to make landfall tomorrow in central New Jersey. Although there is a possibility that the storm will not follow the predicted path, the probability of a turn west is growing greater by the hour.

The most powerful winds and waves in a counterclockwise rotating storm are in the right quadrant.

There is no existential uncertainty involved here. Take precautions and keep yourself and your family protected. Listen to advisories and updates. Stay safe.

It will be interesting to see if this impacts any of the NYSE trading tomorrow. The NYMEX is closing floor trading for the day. I hope the floor brokers bring their galoshes.

Lord Bichard: Old People Need To Work For Their Pensions (Even If They Already Have)

"Among all the emotions, the rich have the least talent for love. It is possible to love one's dog, dress or duck-shooting hat, but a human being presents a more difficult problem.

The rich might wish to experience feelings of affection, but it is almost impossible to chip away the enamel of their narcissism. They take up all the space in all the mirrors in the house. Their children, who represent the most present and therefore the most annoying claim on their attention, usually receive the brunt of their irritation.

Lewis H. Lapham

In response to Baron Bichard's proposal that old people be required to do community service or lose their pensions, Robert Oxley of the Tax Payers Alliance said, "it's a bit rich from a civil servant who was able to retire early to lecture us on working during retirement."

In related news, Baron Bichard has been selected as first recipient of the Dolores Jane Umbridge Award for a lifetime achievement in bureaucratic vindictiveness and petty hypocrisy.

Does anyone else notice a trend here amongst the self-righteous elite of the English speaking peoples? What's mine is mine, and what's yours is mine as well, but I might allow you to keep a bit if you fall in and toe the line.

Guardian UK
On Pensions, Listen to the Technocrats
By Richard Seymour
26 October 2012

Retired people should work for their pensions, says Lord Bichard. The fact that pensioners already have worked for their pension, by definition, doesn't detain him. Pensioners are a "negative burden" on the state, who need to be "incentivised" into doing jobs that young people could do for a wage.

The interesting thing about Bichard is that he isn't some rabid Tory. He is a cross-bench peer, a technocratic former senior civil servant who worked closely with the last Labour government. His suggestion was raised in the context of discussions between politicians, bureaucrats and Bank of England experts on the state's response to demographic change.

And while his specific proposals may have been off-centre, they point to a consensus among policy-making elites. In general, the consensus is that British capitalism will find its way out of crisis and restore global competitiveness by squeezing more work out of the labour force. In terms of pensions, the consensus is that people will have to work longer, for less.

Part of the rationale for this consensus is that the "old age dependency ratio" is going to change dramatically, with a growing elderly population relative to the working-age population. By 2051, just under a quarter of the population will be over 65.

According to a simplistic inference, pensions would therefore have to be paid for by raising taxes on the working population. However, labour migration counteracts this tendency, meaning that the "economic support ratio", the ratio of the working population to the dependent population, will either remain static or any fall will be compensated for by increased productivity. The demographic rationale is therefore a red herring.

Madam Undersecretary Dolores Jane Umbridge

The real issue is how the growing pensions system will be managed. The orthodoxy among civil servants and politicians alike is that salvation lies with "thrift" and private sector provision. This means relying on a costly complex of financial entities to provide coverage, while grinding down public pensions.

This explains the Tories' introduction of the workplace pensions scheme. The result will be inequality and greater poverty in old age.

Bichard admits that forcing pensioners to work will be hard to sell to the public. But then, as he puts it, "so was tuition fees". There is a lesson in governance here.

Senior civil servants and technocrats formulate many of the policies or underlying policy goals that governments try to gain public support for. Formally neutral as far as the party system is concerned, they are the permanent administration of the country...

Read the entire article here.

Charles Ferguson: Behind Every Great Con Artist Is a Man Like Glenn Hubbard

Here is a piece by Charles Ferguson, the documentary film maker who produced Inside Job, with an essay that was re-posted by Capitalism Without Failure.  He apparently does not think well of Glenn Hubbard, and I think he might be right.

In Hubbard's defense, Timmy is almost as big of a douche. And I do not think that Hubbard is nearly as dangerously reckless an advisor as John Bolton, who is Mitt's man at foreign policy.

Charles Ferguson: Standing Behind Every Great Con Artist is Someone Like Glenn Hubbard

Mitt Romney has a credibility problem. He changes his beliefs like laundry (abortion, medical insurance, whether Bin Laden was worth killing, attacking Iran), refuses to disclose his tax returns, and won't explain how he could possibly pay for the tax cuts he proposes. But there is another scandal in Romney's campaign -- namely Glenn Hubbard, Romney's chief economic advisor, who was chairman of the Council of Economic Advisors under George W. Bush, and is now Dean of Columbia Business School.

I interviewed Hubbard for my documentary film Inside Job, and analyzed his record again for my book Predator Nation. The film interview became famous because Hubbard blew his cool after I interrogated him about his conflicts of interest: "This isn't a deposition, sir. I was polite enough to give you time, foolishly I now see, but you have three more minutes. Give it your best shot."  

But the really important thing about Hubbard isn't his personality; it's that as an economist and an advisor, he is a total, unmitigated disaster.

First, Hubbard has an abysmal track record in economic policy, including the very issues that Romney has made the pillar of his presidential campaign. Second, like Romney, Hubbard refuses to disclose critical information about his income, conflicts of interest, and paid advocacy activities. Third, both in public statements and in my personal experience, Hubbard has been evasive, misleading, and even dishonest when discussing both policy issues and his own conflicts of interest. 

And last but not least, those conflicts of interest are huge: Hubbard has long advocated policies that Wall Street loves, often without disclosing that he is, in fact, highly paid by Wall Street.

Let's start with tax cuts, since Romney claims that he can cut tax rates sharply without increasing the deficit, and without benefiting the rich. Mr. Romney claims that tax cuts will be fully paid for by closing loopholes and deductions, and will not add to the deficit; Hubbard has publicly supported Romney's claims. Interestingly, Mr. Hubbard has quite a record on this very issue. Shortly after becoming chairman of the Council of Economic Advisors in 2001, he spearheaded the Bush administration's tax cuts, and he said lots about them.

How did that work out? First, we now know that over half of the benefits of the Bush-Hubbard tax cuts went to the top 1 percent of the population. In part to benefit the wealthy, the tax cuts were also structured to reward investment in financial assets, rather than either consumer spending or real capital investment. As a result, the tax cuts caused huge budget deficits, yet did little to stimulate growth or job creation: there were basically no new jobs created during the Bush administration, despite adding trillions to the national debt.

That is not, however, what Hubbard said would happen. On August 22, 2001, he published anarticle in the Wall Street Journal entitled "Tax Cuts Won't Hurt the Surplus." Oops. In the article, also, Hubbard predicts that his tax cuts would preserve the Clinton budget surpluses by causing GNP to grow 0.3 percent per year faster.

Hubbard also co-authored an article with William Dudley, then the chief economist of Goldman Sachs, entitled "How Capital Markets Enhance Economic Performance and Job Creation." It was published by the Goldman Sachs Global Markets Institute in 2004, just as the housing bubble was getting seriously crazy.

Read the rest of this at Capitalism Without Failure here.

Credibility Trap: Moyers And Barofsky on Failed Reform and Another Financial Crisis

The Bullet or the Bribe

This is the second part of the Moyers interview with Neil Barofsky.

BILL MOYERS: I thought, at the time, this was an incestuous orgy going on there, between inside players at Washington and inside players at Wall Street. Is that too strong?

NEIL BAROFSKY: It's probably not too strong. It's the fact that their ideology matches up. And look, one of the reasons why their ideology matches up is they all come from the same small handful of institutions. And the people I was dealing with on a daily basis came from the same financial institutions that helped cause the financial crisis and were the most generous recipients of bailouts, Goldman Sachs, Bear Sterns, which, of course, had been adopted by J.P. Morgan Chase. Goldman Sachs, Goldman Sachs, it seemed like every time I turned around, I bumped into someone from Goldman Sachs.

Which is not to single them out. But they all bring that ideology with them, when they come to Washington. It's not like somebody hits them in the head with a magic wand and they give back everything that they've learned and believed in their years of Wall Street. And they bring that ideology with them. And even those who don't come from a specific bank, when you surround yourself, create an echo chamber of likeminded people, it's not terribly surprising that the government policy looks a lot like what the Wall Street institutions themselves would have most desired.

And I think the other side effect of that is that people who are outside of that bubble, people who don't have that background, people like myself as a federal prosecutor or Elizabeth Warren, who was the chair of the Congressional Oversight Panel and before that a Harvard professor, that our views, our criticisms, our contrary positions were discounted, mocked, ridiculed, insulted, cursed at, at times. Because there was no-- we didn't have the pedigree in their world to have a meaningful contribution. So what happens is that there's no new ideas that creep in. And you get this very uniform, very non-diverse approach to the problems of finance.

BILL MOYERS: It was puzzling to outsiders like me that you had TARP money being used to concentrate further the size of these banks.

NEIL BAROFSKY: And the granddaddy of all those transactions, Bank of America acquiring Merrill Lynch. And the important thing to remember here is this is not banks gone wild, banks taking the money and saying, "Party time, we're going to consolidate." They did this with the encouragement of the government. And in Bank of America, a little bit with a gun to the head to complete that transaction.

This was the government policy created by the architects, Ben Bernanke who is chair of Federal Reserve, Tim Geithner, who was then the president of the New York Fed before becoming Treasury Secretary, and Hank Paulson. Their solution originally was to further concentrate the industry, to make the too big to fail banks bigger.

The theory was you take a healthier bank and mix it up with a failing bank and you get something somewhere in between, which is better overall for the system. Which may have had some validity in the very, very short term, but has put us on a path, I believe, to being even more dangerous. Because you have institutions now that are just monstrous in size, over $2 trillion in assets by certain measures, close to $4 trillion by other measures. Terrifying. The idea that any of these institutions could ever be allowed to fail is pure fantasy, at this point.

BILL MOYERS: Are you suggesting that we could have another crash?

NEIL BAROFSKY: I think it's inevitable. I mean, I don't think how you can look at all the incentives that were in place going up to 2008 and see that in many ways they've only gotten worse and come to any other conclusion.

BILL MOYERS: What do you mean incentives in place?

NEIL BAROFSKY: So in a normal functioning capitalist utopia, where, you know, most markets are that don't have this too big to fail, this presumption of government bailout if a firm like a Citigroup amasses massive amounts of risk. And in so doing, they keep razor-thin capital to absorb potential losses, which basically means they're just borrowing tons and tons of money.

And not have a lot of their own money at stake, but it's mostly borrowed money. And it is very opaque. It's not very transparent about how they're running their business. You would expect that creditors, people lending them money, counterparties, those on the other sides of their transactions would either stay away or really exact a premium. But the presumption of bailout changes that on its head and actually makes it go in the other direction. So it removes the incentive of the other market participants to impose what's known as market discipline. Because that's ideally in a capitalist society what happens is that the lenders and creditors and counterparties say, "Hey, we're not going to do business with you unless you clean house, slim down, be more transparent."

But when there's a presumption of bailout, that disappears. Because all those other market players can feel safe in the presumption that if anything goes bad at Citigroup, Uncle Sam is going to come in and make their bets whole.

Then you have the very real incentive for the executives at that institution to then pile on risk. Because they know that if the bets go well in the short term, they get paid. And they get paid very richly. But if it blows up and the risks go bad, no worry, the taxpayer's going to be on the other side of that bill.

That's what happened to Fannie Mae and Freddie Mac, before they collapsed. That's what happened to our biggest banks and global banks before they collapsed. And if you maintain that system, it is foolhardy to think that those incentives and pressures are not once again going to carry the day.

BILL MOYERS: At a conference a week or so ago, here in New York, you said playing ball for Wall Street has become a normal way of life, despite the panic of 2008. What does it mean, "playing ball for Wall Street"?

NEIL BAROFSKY: Well, what I saw when I was in Washington was this real pressure on myself, on other regulators to essentially keep their tone down. And I was told point blank by Assistant Secretary of the Treasury that, this is about in 2010.

And he said to me, he said, "Neil, you're a smart guy. You're a young guy. You're a talented guy. You got your whole future in front of you. You've got a young family that's starting out. But you're doing yourself real harm.” And the reason why you're doing yourself real harm is the harsh tone that I had towards the government as well as to Wall Street, based on what I was seeing down in Washington. And he told me that if I wanted to get a job out on the Street afterwards, it was going to really be hard for me.

BILL MOYERS: You mean on Wall Street?

NEIL BAROFSKY: Yes. And I explained to him that I wasn't really interested in that. And he said, "Well, maybe a judgeship. Maybe an appointment from the Obama administration for a federal judgeship." And I said, "Well, again, that would be great. But I don't really think that's going to happen with my criticisms." And he said it didn't have to be that way. "If all you do is soften your tone, be a little bit more upbeat, all this stuff can happen for you."

And that's what I meant by playing ball. I was essentially told, play ball, soften your tone, and all of these good things can happen to you. But if you stay harsh that was going to cause me real harm in those words.

BILL MOYERS: What made you able to say no to the temptation?

NEIL BAROFSKY: Well, I think part of it is the only job I ever wanted was to be a federal prosecutor.

BILL MOYERS: Send bad guys to jail?

NEIL BAROFSKY: It doesn't get much better than that. Really interesting, complicated work, and wear the white hat. So I didn't have those incentives that I think that were presented. And I think, look, you know, being trained in the U.S. Attorney’s Office for the Southern District of New York, I was trained to be a government employee and to take my oath of office very seriously.

But I wasn't really interested in their reindeer games. And I felt a real obligation and sense of duty to fulfill the oath that I took in Secretary Paulson's office on December 15th, 2008 to do the job that I was sent down there to do. But I wasn't really tempted with a big job on Wall Street. And frankly, if it meant getting a judgeship, compromising the job that I needed to do and was supposed to do, it just wasn't interesting to me.

But look, let me be very clear. I also have the fallback of I was a trial lawyer. I prosecuted a lot of big cases. And I knew that whatever happened, I could always go back and get a good job in New York, working at a law firm or doing legal work. So it gave me a degree of financial freedom even though I basically spent most of my career as a government employee and I didn’t have money. I didn't necessarily need to please anyone to be able to go back and still be able to feed my family.

BILL MOYERS: What happens to a political society, to a democracy, when we stifle or bribe or shoot the sheriff?

NEIL BAROFSKY: When I had my incident with the assistant secretary that my deputy, who had come down from-- who's another former federal prosecutor, who did narcotics work, said to me, Kevin Puvalowski. And he said to me, "Neil, you were just offered the bullet or the bribe, the gold or the lead."

And what he was referring to was a society just like that, which was Colombia, back in the day when Pablo Escobar and the drug kingpins really controlled society. And what he was referring to is that basically to corrupt society Escobar would go to a magistrate or a police officer, police chief, a politician, and say, "You have two choices. You can either take this giant pile of money and do my bidding. Or you can get the lead, a bullet in your head."

And Kevin was joking that I just received the Washington white collar equivalent of the gold or the lead. And it was funny, at the time, but that's kind of what happens in a society where the rewards and incentives are, again, nobody's getting shot in the head thank goodness. But it's a breakdown of the system.

And in some ways, it creates this false illusion that there are people out there looking out for the interest of taxpayers, the checks and balances that are built into the system are operational, when in fact they're not. And what you're going to see and what we are seeing is it'll be a breakdown of those governmental institutions. And you'll see governments that continue to have policies that feed the interests of -- and I don't want to get clichéd, but the one percent or the .1 percent -- to the detriment of everyone else.

BILL MOYERS: You make it clear in the book that the Obama administration fought against cutting down the size of these banks. And yet, in the second debate with Mitt Romney the president said, "We passed the toughest Wall Street reform since the Great Depression." As I hear you, it wasn't all that tough.

NEIL BAROFSKY: Well, that's a literally true statement. Because when you think of-- but it's a very low bar to clear. I mean, all of the regulatory reform since the Great Depression has been peeling back on those regulations. With really the big death knell happening in the end of the Clinton administration with, you know, a couple of bills, one that removed the last vestiges of the separation between commercial and investment banks.

BILL MOYERS: Glass-Steagall Act?

NEIL BAROFSKY: Glass-Steagall.

BILL MOYERS: It took down the wall between those two?

NEIL BAROFSKY: The last part of it. And then the second part by passing a bill that made it, essentially made derivatives out of bounds for regulation. So saying that it's the toughest is literally true. The problem is it hasn't been tough enough in where it most matters.

And again, you don't really have to take my word for it. You just look what the market has done. Based on the presumption of bailout, the banks get higher ratings from the credit rating agencies which means they can borrow money for less, because their debt is viewed by the credit rating agencies as being less risky. And they get these higher ratings on explicit presumption that the government will bail them out and make good on their debt.

So it didn't deliver the goods where it matters the most. Again, not saying that it doesn't have some good positive things for our system and for people. But it didn't deliver the most important thing that we need if we want to address the causes of the last crisis and help prevent the next one.

BILL MOYERS: What will it take to prevent the next one?

NEIL BAROFSKY: Got to break them up. I mean, it is not a simple thing to accomplish, necessarily. But it's a very simple solution. And what you see, I think, kind of amazingly, is how many more people have come to this view over the last year or so. It used to be a lonely perch that we sat on. Former special inspector generals, a couple of academics.

But now you have people like Sandy Weill, the architect of Citigroup. And sure, too little too late, after he made all of his money off creating these Frankenstein monsters. But even he now recognizes that we have to break up the banks. You have senior officials at the Federal Reserve recently coming out in favor of this. The vice chair of the FDIC, a very strong advocate for breaking up the banks. And you hear it a lot more in members of Congress-- that are supporting this notion. So to me, on the one hand, it's absolutely essential. If we really want to get to the point where we don't have to bailout a bank, we have to make it so that no bank is so systemically significant and large that its failure could bring down the system.

BILL MOYERS: Are they up to their old tricks?

NEIL BAROFSKY: The banks? Sure. I mean, you know, so we had this regulatory reform of Dodd-Frank in 2010, which, you know, left them intact and inside. But it had all of these rules and all of these regulations that needed to follow. And right now it is hand to hand, trench warfare, combat with those lobbyists spending all that money on campaign contributions, on, you know, flooding the decision makers and the regulators with comment letters and endless meetings.

And pressuring members of Congress to put pressure on the regulators, to water down the rules, to basically get as much back to the good old days where they would have free reign to print money, take advantage of their too big to fail status, bully and push out the little guys, take advantage of consumers. And that's what all of these efforts area about are to preserve these very, very core profit streams that they had before.

And that's right now is where the battle is being waged. Not on TV, you know, not necessarily out in front, but behind the scenes where the next set of rules are being forged on what they're going to be able to do and how they're going to be able to do it...

Hurricane Sandy Latest Path Projection

Although the worst case scenario is not yet certain, all indications are that this storm should be taken seriously. Take the appropriate precautions and listen to any alerts from public emergency officials in case of evacuation.

Make provisions for power outages, disruptions to public water supplies, and flooding. Remove loose objects from outside your home. They can become projectiles in high winds.

Because of the counter-clockwise rotation of hurricanes the maximum wind and rain is encountered on the right side of the eye of the storm.

The models are still only calculating probabilities, but they tend to refine over time. The critical period will be when the storm is projected to turn northwestward on Monday.

The storm may gather additional energy as it tracks across the Gulf Stream before making its final approach to land.

Gold Daily And Silver Weekly Charts - Orwell's Final Warning

The endgame of deception continues.

Have a pleasant weekend.

See you Sunday evening.

Social Classes in 1984
The Theory and Practice of Oligarchical Collectivism
by Emmanuel Goldstein (George Orwell)

"...if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupefied by poverty would learn to think for themselves, become politically conscious and so depose the ruling oligarchy; therefore, in the long run, a hierarchical society is only possible on a basis of poverty and ignorance.

Given that large-scale, mechanised production could not be eliminated once invented, the Party arranges the destruction of surplus goods, before that makes the masses too comfortable, and hence, in the long run, too intelligent.

Hence perpetual war is always so planned as to eat up any surplus that might exist after meeting the bare needs of the population. It is a deliberate policy to keep even the favoured groups somewhere near the brink of hardship, because a general state of scarcity increases the importance of small privileges and thus magnifies the distinction between one group and another...

The essence of oligarchical rule is not father-to-son inheritance, but the persistence of a certain world-view and a certain way of life... A ruling group is a ruling group so long as it can nominate its successors...

Who wields power is not important, provided that the hierarchical structure remains always the same.”

The Socio-Political Continuum
By Jesse

A credibility trap is when the regulatory, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform or even honestly address the situation without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even relatively honest reformers within the power structure become susceptible to various forms of soft blackmail and coercion.

And so a failed policy and its support system become almost self-sustaining, long after it is seen by the people to have failed, and in failing become counterproductive.  Admitting failure is not an option for those who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a blatant hypocrisy.





Point Zero of Systemic Collapse
By Chris Hedges

"...We stand on the cusp of one of the bleakest periods in human history when the bright lights of a civilization blink out and we will descend for decades, if not centuries, into barbarity.

The elites have successfully convinced us that we no longer have the capacity to understand the revealed truths presented before us or to fight back against the chaos caused by economic and environmental catastrophe. As long as the mass of bewildered and frightened people, fed images that permit them to perpetually hallucinate, exist in this state of barbarism, they may periodically strike out with a blind fury against increased state repression, widespread poverty and food shortages.

But they will lack the ability and self-confidence to challenge in big and small ways the structures of control. The fantasy of widespread popular revolts and mass movements breaking the hegemony of the corporate state is just that – a fantasy."

SP 500 and NDX Futures Daily Charts - An Organized Hypocrisy

Markets were stunned in the overnight by weak reports by APPL and AMZN.

GDP came in much better than expected today, although I have to admit my expectations were in the less than 1 range along with quite a few economists.

I hear today that in response to Colin Powell's endorsement of Obama based largely on his foreign policy views, John McCain came out and denounced Colin Powell as 'he got us into Iraq.'

Well, if firefighters, police officers and other first responders can be defamed as parasites who do not hold 'real jobs' when it comes time to pay them, then I suppose that these same politicians can also rewrite history to take the responsibility for the war in Iraq away from Bush and Cheney. Why not, when whatever one chooses to believe is real.

It used to be that a politician had trouble changing their positions every four months, without being labeled as a 'flip-flopper' or a hypocrite. Now it seems to be a winning practice to change your positions, radically I might add, every four hours, depending on who you are speaking with and what they might wish to hear.  And the bigger and more astonishing the lie, the better they seem to like it.

I was discussing the markets a bit last night via email with the maven of finance, Yves Smith.

Today the words that I was reaching for finally came to me today when I was thinking along similar lines concerning the financial and political systems in general.

The US markets today are an organized hypocrisy.

You may recall the earlier use of this same label by Benjamin Disraeli in describing the government of the day. I think it applies rather well now.

We shall have to keep an eye on Hurricane Sandy as it works its way up the east coast of the US towards the left hand of the Anglo-American banking cartel.

Have a pleasant evening.

Net Asset Value Premiums of Certain Precious Metals Funds

Hurricane Sandy Track for the Next Five Days

We may wish to keep an eye on this one for any potential impact on trading for the early part of next week.

It will probably not maintain a broad hurricane intensity, but it looks to have some serious momentum behind it, with the tides of a full moon at its back.

I am sure most Northeasterners remember the 'Halloween' storm of last year.

There is some question on how and where Sandy will make landfall on Monday or Tuesday. It could bring several feet of snow with it to Pennsylvania, and heavy rains to the NYC metropolitan area.

It will probably not maintain hurricane status, dropping to a serious tropical storm.

More significantly, depending on the storm surge direction, NY traders may wish to bring their water wings with them to the pits. It could be much worse than Hurricane Irene in that regard.

I have added this chart below because it shows the track most clearly and makes the last leg into the shore much more visible.  The storm damage will depend on the path this takes.  It could conceivably be anywhere from Boston to Washington at this point.

It may move further out to sea but the models make this seem less likely. We will know more in another day or so. Get those generators ready.

I have to add that a week ago when I started tracking this storm when it was off the Yucatan Peninsula, the ONLY model that showed it taking its current track was the Canadian model. Every other major model showed the storm moving much further harmlessly out to sea. Score one for Canada on the weather front.

One of my son's friends from school is a serious meteorologist in training. He keeps us updated on the latest thinking in the emerging science. He does it because he loves it. Even when they were in high school he spent a great deal of time on it.

What is his incentive to do this? It is not the expectation of a solid six figure income. It is the joy of learning, the ecstasy of understanding. And he may well be rewarded for this, but that will be a benefit, not the primary objective.

In the days when people considered what they did for a living as a craft, in the manner of craftsman, this attitude towards one's vocation was not so uncommon as it might be today, when everything and everyone is considered just a transaction.

Of course not everyone and every job can rise to that level. But such regard for honest labor was considered an important ideal, and society honored those who honored it.

In our world today, everything is money, no matter how it is achieved, including theft and fraud and the exploitation of slave like labor.  Look who we choose as our role models, and our leaders.   The attitudes and mores of human society moves in cycles, and I think we are at the low ebb of this one.

Think about the implications of this, and then see why we are where we are today, in the teeth of a storm.

Gold Daily and Silver Weekly Charts

Another day of capping with some notable movement in some of the mining companies like AEM which soared nine percent today.

SP 500 and NDX Daily Charts

The selling is starting to look a bit overdone to the downside, but GDP on Friday may have some influence on the future direction.

Wall Street Back In Business, Largely Unreformed

“I have seen them, and they are a stiff-necked people. Now leave me alone so that my wrath may burn against them, that I may destroy them. Then I will make you into a great nation.” Ex 32

This brief video below is notable for an appearance by Yves Smith from Naked Capitalism. 

A credibility trap exists 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 hindering and implicating, at least incidentally, a broad swath of the power structure including themselves.

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.

The financiers will attempt to make the people an 'offer which they cannot refuse' again, as they did on the occasion of TARP, when they threatened to crash the economy.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained growth and recovery.

I do not see meaningful reform happening easily, given the intractable hysteria which is gripping those wealthy few who are eager to seize and hold power.  There is a portion of the public who think that whatever they believe must be true, whether the facts support it or not.   And this is a great heresy against reason, and an abuse of faith.  There will be no rapturous escape from judgement for this apostasy and lawlessness, except perhaps into madness.

There is an almost unbelievable tolerance of brazen bullying and deception, a sneering cyncism and disregard of any truth in people who say a thing one day, and then deny it and say a totally different thing on the next, without shame.  Love grows cold even among the faithful, and lies abound. 

This is the very epitome of the will to power. The western world and its leadership are at a crossroads. And the path ahead, if taken, means hardship, sorrow, and blood.

As for Germany's Gold, Things Are What We Say They Are

"Why wasn't the gold counted before this ?

Because it's very complicated and requires a big effort (so the americans say).   In fact the bars are lying around chaotically in the vaults of the US Fed, some of them at the far end of the walls."

Bild.de, Schützen Soldaten den Gold-Transport?


"In reality, it does not matter one bit whether the Federal Reserve Bank of New York actually has the German central bank’s gold, or whether the gold is pure.

As long as the Fed says it is there, it is as good as there for all practical purposes to which it might be put. It can be sold, leased out, used as collateral, employed to extinguish liabilities and counted as bank capital just the same whether it exists or not."

John Carney, CNBC, The Germans Are Coming For Their Gold


"'When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `to be master -- that's all.'"

Lewis Carroll, Through the Looking Glass

The American response is to arrogantly dismiss any concerns that the German people may have for the integrity, and even the existence, of a large portion of their national bullion reserves.

They believe that the German people will forget about this, and turn their minds to something else, and the audit can be explained away, delayed, and never done. It is too difficult, it is too expensive.

And these days, that is all the American financiers have to say to their own people to get anything they wish, to make any sacrifice that they may require of them. 

Oh, you wish to have decent preventitive medicial care?  You wish to have safe banks?  You wish to know what the M3 level of your own money supply may be?   I am sorry, it is too expensive.  Now run along and leave these complicated things to your betters.

If there was an audit done, as some might say, thirty years ago perhaps, then it ought to be easy to do another, if the gold has remained untouched. All one has to do is to verify what has been done.

And if it has not been done, then it is about time one should do it, given the value of the possessions which you are holding in trust for another. Unless of course you follow the modern financial management practices of MFGlobal and PFGBest.

Madness always makes sense,  to the mad.

I do not think that this will go away. When it comes to money, the German people are no fools.

"For decades, the Bundesbank has relied on written confirmation of its gold holdings in London, Paris and New York. According to the report from the German audit court, the last time Bundesbank officials physically inspected the central banks gold holdings was, well, never.

(It should be stated that the folks at FT Alphaville quote a report saying an inspection took place in 1979/1980.)

Interestingly enough, the Bundesbank is apparently quite happy with taking the word of other central bankers about the existence, location and size of its gold reserves. It put out the word that it disagrees with the Audit Court, which only has advisory power and cannot force the Bundesbank to follow its recommendations, about the need for inspections. Nonetheless, the Bundesbank is actually going to follow the recommendation that it verify the gold stocks. It also has plans to ship some 150 tons of gold back to Germany for a more “thorough examination.”

The Bundesbank is, of course, quite right in its opinion of the value of the examinations. In reality, it does not matter one bit whether the Federal Reserve Bank of New York actually has the German central bank’s gold or whether the gold is pure. As long as the Fed says it is there, it is as good as there for all practical purposes to which it might be put. It can be sold, leased out, used as collateral, employed to extinguish liabilities and counted as bank capital just the same whether it exists or not."

John Carney, CNBC, The Germans Are Coming For Their Gold

Who Was 'The Frenchman Who Cried'

Sometimes there are little things in history that pique my interest, and I look into them as time permits. Occasionally I like to put some of that information here in case anyone else might be interested in it.

Here is an iconic photograph that I have seen in any number of documentaries, generally identified as a Frenchman who weeps for his city as the Nazis march into Paris.

I have always been curious about this photo. I wondered where it came from and who this person was.  It has a certain tragic dignity about it.

And not to be too trivial, but I was struck by his suit, shirt and tie which are almost exactly the types of things I would wear to work in my 'corporate days.'  I wonder if he had cuffed trousers and suspenders.  Well I doubt I shall ever find out. He looks like a businessman certainly.

Here is what I have been able to discover.

It first appeared in print in Life Magazine in their 3 March 1941 issue on page 29.   This is the photo which I show above and not the more tightly cropped versions that are often used in documentaries.

The caption on the photo.  identifies it as "a Frenchman sheds tears of patriotic grief as the flags of his country's last regiments are exiled to Africa."

So obviously this is not a phot taken in 1940 in Paris, as the French regimental flags had been moved into the south of France in order to preserve them from the surrender.  The flags themselves were not taken to Africa until 1941.

Here is a more commonly available photograph of the same scene.  It is a moment frozen in time.

Marseille sous l'occupation by Lucien Gaillard says that this is a photo of Monsieur Jerôme Barzetti, taken in Marseilles on February 20, 1941.  This is quite some time after the Nazi entrance into Paris in June, 1940.

I have not been able to find out anything else about him and do not have a hard copy of this book.  He does look old enough to have fought in The Great War.  Is he even French, or an Italian émigré who had fled the tyranny of Mussolini?  Perhaps he was part of the Barzetti industrial family from Italy, and related to Federico who later founded Barzetti Pastries?  I cannot say.

I wonder how he fared, and if he was able to see the restoration of France and the end of the war.

The still photo itself is actually taken from newsreel footage that was much later used in a US war film directed by Frank Capra as Chapter III - Divide and Conquer of his series, "Why We Fight." This film was produced in 1943 and begins after the conquest of Poland, and includes the fall of Benelux and France.

Here is the relevant clip from this US War Department film.  Monsieur Barzetti makes his appearance at 54:50 in the film.  It is a war film after all so you might excuse the somewhat florid rhetoric at the end.

Some have speculated that Capra may have staged portions of his series and I would certainly allow for that.  But since the photo of our 'Frenchman who cried' appeared in 1941 in Life magazine,  it is almost certain that had been taken from the newsreel footage of the day, which was sold to various outlets and used to create informative 'short subjects' to be shown at movie theatres.

Capra must have used that same footage in the creation of his own war film two years later.



So now we know something about 'The Frenchman Who Cried."

Why should we even care about him, his risings and fallings, his perplexity and concerns, his fears and sorrows?

Because when the ocean's dry up, and the earth grows cold and dies, as the stars flicker and grow dim in the sky, and creation turns back into dust, Monsieur Barzetti's soul will continue on, vibrantly alive, and his tears will have long been wiped away, by kindly hands.

Gold Daily and Silver Weekly Charts - Hunger Games

FOMC announcement today was a big nothing as expected.

GDP is out on Friday.

Trump's "October Surprise" came out today, and was a delusional farce.

SP 500 and NDX Futures Daily Charts - FOMC A Big Nothing

The FOMC announcement was nothing new as expected.

If the Fed acts again I think it will be as a result of some crisis or event, and will be done with a better rationale. Bernanke is primarily supporting the big banks with the Fed's activities, and not much of his balance sheet expansion is flowing through to the real economy for a number of reasons, and I think by intent.

This is how the Fed is avoiding the problem of a general monetary inflation. The inflation the US is seeing is largely secular and structural.

Greg Smith of Goldman Fame Walks Into the Wall Street Lion's Den

Stephanie Ruhle keeps stepping on the interview, often changing direction and hijacking the discussion, peppering Smith with multiple questions, but it is interesting nonetheless. And she does manage to ask some good questions, often which she attempts to answer herself.  But that is the state of corporate advocacy journalism today.

As you watch this bear in mind that Goldman and other Wall Street firms have been acquiring mathematicians and physicists to concoct customised derivatives and algorithms that few others outside of a select group of quants can fully understand.

And remember the damage that Wall Street CDO's, that were specifically rigged against customers, had done to some of the major banks in Europe, who are not particularly unsophisticated although were perhaps too unsuspected of blatant fraud from name firms. And also let us not forget the cases of bribery of public officials and fund managers with money, sex, and drugs that have been disclosed, such we have seen in the case of Jefferson County, Alabama.

And then there is the ongoing front-running frauds that are the US equity and commodity markets with lax regulation, insider trading, and exchange enabled HFT computerized skimming and spoofing.

What I find almost astounding is that after one of the worst financial frauds in US history, Wall Street and its supporters are able to blithely act as though nothing had happened.   And that is because there has been no real reform and no one has been prosecuted.  That is what is known as 'moral hazard.' 

I found Naked Capitalism's take on this to be very interesting.  What Greg Smith Did Not Say and Some Guesses Why

I do think there is a point to be made in not doing business with Goldman at all.  But as Greg points out, if one wishes access to certain types of products and the broader financial markets, there is much less choice now than there was even four years ago.   And Wall Street has its hands in everyone's pockets, whether you do business with them or not, in this financialised economy. 

I don't think Greg Smith is a whistleblower per se, or even puts himself out there as such in the manner of revealing the details of some very specific illegal act.

At the end of the day, Greg Smith is raising the same category of concerns about the financial system as Occupy Wall Street has done, the same alarm and even revulsion with a culture that has turned predatory rather than constructive, about organizations and a society that are losing their moral bearings to the point of undermining their own rational self-interest with short-term greed.

And Mr. Smith is being derided and dismissed in much the same manner as many of the same people dismissed OWS.

The problem with Wall Street is the essential conflicts that were created by merging the functions of customer-serving banks, which are essentially utilities, with the most aggressive and even abusive of investment banks acting as hedge funds for their own books.  The repeal of Glass-Steagall was the watershed event, and it was the result of a massive lobbying effort that corrupted Washington with Wall Street money.

And when a speculative firm like the pre-IPO Goldman moved from a true partnership model, to publicly traded firms using other people's money and shifting liability to the corporation, Pandora's box was opened.  And this is a despicable lapse in stewardship by the intellectual, financial, and political leadership of the country for which they should be ashamed.

Gold Daily and Silver Weekly Charts

"After we came out of the church, we stood talking for some time together of Bishop Berkeley's ingenious sophistry to prove the nonexistence of matter, and that every thing in the universe is merely ideal.

I observed, that though we are satisfied his doctrine is not true, it is impossible to refute it.

I never shall forget the alacrity with which Johnson answered, striking his foot with mighty force against a large stone, till he rebounded from it--

"I refute it thus!"

Boswell, Life of Samuel Johnson

I have read all of Boswell's works about Samuel Johnson in my day.  I have visited a number of places which the famous pair of Boswell and Johnson frequented in London, and even in Edinburgh, during their trip to Scotland.   It was a multipurpose trip, since I visited the grave of Adam Smith and the Scotch whiskey museum there as well.  No sense limiting oneself.  Even the haggis and haddie were good.

Although Johnson's famous Mitre Tavern is no longer standing in London, the place where it had been is marked with a plaque, as these things there often are. 

Even mythical places like 221B Baker Street are marked with a plaque,  or at least it had been on some grotesque commercial building, until an enterprising fellow built a small Sherlock Holmes museum across the street and had the address moved.  I was there when the actor Jeremy Brett, or someone who could have been his twin, was there in his Holmesian gear to hand out his card as a consulting detective.  Now that's show business. There are often underemployed actors conducting marvelous themed walking tours around the town that I highly recommend. In terms of depth and quality of acting talent, London is to Hollywood what Maxim's is to McDonalds.

In addition to theatre, much of which seems to emanate from Parliament, I think plaques, pints, and dodgy financial instruments are the cottage industries that sustain the place. I used to buy my pocket calendar at The Economist every year. Do they even make such things these days? As Johnson said, "A man who is tired of London is tired of life."

And one can get a sense of Johnson's London by visiting Ye Olde Cheshire Cheese, rebuilt after the great fire of 1666. And I believe that it has remained largely untouched since then by the looks of it, except for electrification.  It is a nice place for a pint and steak and kidney pie, ever bangers and mash.  It's the pint really.  I remember going there with a friend from Philadelphia and at the bar he ordered a bottle of Rolling Rock. And at an outrageous price to boot. Really, there is no punishment worthy.

Although I have to admit, nothing can compare with a hand drawn stout in Dublin.  They serve it with a certain reverence.

One can still visit Johnson's house on Gough Square, and see where he compiled his famous dictonary.

And there is a statue of Johnson on the Strand near Fleet Street, outside of St. Clement Danes church. I recall walking down that way, showing some co-workers from tech support around.

A young American lady engineer went up and read the placard and remarked, "Oh he was a proctologist." I tried to maintain my composure, not very well I have to admit, and said, "Leslie, I believe it says that Dr. Johnson was a philologist."

She was not pleased with my amusement. But a year or two afterwards she married an extremely wealthy Silicon Valley entrepreneur, and sent us pictures of her home on some island.  And I went on to do this sort of thing, so who was the better off for all their classical education? (This is a true story, on my honor.)

Gold and silver were under pressure all day as Wall Street started gearing up for this weeks Treasury auctions, and the FOMC rate decision tomorrow at 2:15.

There is some speculation that the Bernank may increase the monthly buying of mortgage debt to 85 billion but I am not so confident about that, but it is possible.

Advance GDP for the Q3 is due out on Friday.

Don't take these jokers too seriously this week in other words.  As my old grade school teacher used to say,  'Babies must play.'

Oranges and lemons,
Say the bells of St. Clement's.

You owe me five farthings,
Say the bells of St. Martin's.

When will you pay me?
Say the bells of Old Bailey.

When I grow rich,
Say the bells of Shoreditch.

When will that be?
Say the bells of Stepney.

I do not know,
Says the great bell of Bow.

Here comes a candle to light you to bed,
And here comes a chopper to chop off your head!

And I'm surrounded by cement,
Say the bells of St. Clement.

SP 500 and NDX Futures Daily Charts - Winner Steal All Economics

Stocks took a bit of a dive today. That must mean that Obama did well in the debates last night.

FOMC tomorrow at 2:15.

Perhaps the wiseguys were just freeing up some cash to front run the Fed for the Treasury auctions this week.

Advance GDP for Q3 on Friday.

Currency Wars Part II

"All war is based on deception. Of all those close to the commander, none is more intimate than the secret agent; of all rewards none more liberal than those given to secret agents; of all matters none is more confidential than those relating to secret operations."

Sun Tzu


"Let Hercules himself do what he may,
The cat will mew, and dog will have his day."

William Shakespeare, Hamlet

There is a currency war underway.

The international trade clearing mechanisms are tottering. Countries are using their economic power, their banks and currencies, as a part of overall foreign as well as domestic policy.

This is a huge source of the tensions and problems which are are seeing both economically and militarily in the world today.

The current trade system based on the US dollar reserve currency is not sustainable. It has had a good long run, but like the euro it has reached the end of its rope. The US cannot continue to print enough money and increase its debt balance through trade any further. See Triffin Dilemma. Yes I am familiar with Eichengreen's counter argument.

And I am also aware of the already written and vetted proposals for a 'single world currency' with independent local governments,  an arrangement which is even more fallacious and ill founded than the euro.  Yes I know that there could be a series of agreements that could kick this down the road five or ten years.   But something has got to give.  The charade is getting a bit thin but the deception must go on.

I still think the only tenable solution, if one still wishes to cling to the notion of 'free trade' internationally, is an SDR based on a wider basket of currencies with a gold and silver component.  And I am of the opinion as you know that much of these international theatrics and sword hammering is just the 'negotiations' phase with regard to the composition of the new SDR, and the ownership of its maintenance.

There are some who would treat the dollar as an arm of the military strategy, but that becomes a bit dramatic, in the Dr. Strangelove sense, but is nevertheless a good source of Defense Department consulting fees for those who promote the idea.

And I would hope that it goes without saying that the currency war is intimately tied in with the oil/energy situation, via the petrodollar. If you are going to send your country into multiple preemptive wars, one might take the time to understand the reasons why they are doing it. It is about the oil, and the positioning for it.

The problem is that there is no mechanism in place to bring the disputing parties together for an expedient resolution, given their conflicting interests. And those interests run deep, particularly for the Anglo-American banking cartel in NY and London. The dollar is the basis of their power.

And so we are locked in a 'currency war,' a resolution of differences in interest by other, less destructive, means than war itself. After all, nine-tenths of diplomacy is economic, if money is power.

If this notion is alien to you, then one can sympathize, because it is like watching an opera in a foreign tongue without a libretto to help you to understand the action on the stage. To have such knowledge of the basic plotline might not only help your understanding, it could be good for your investment portfolio.  For in this currency war, your accounts and your savings are cannon fodder.

If you wish to read one pivotal post on the subject read the first part of this: Currency Wars.

If you click on the label 'currency wars' at the bottom of this post, it will bring up all the other posts here that touch on that subject, some admittedly only tangentially.

I think the currency war will intensify quite a bit before it resolves.  I have been tracking this since 1999.  It is the reason I first became interested in gold.  I went looking for something like it, and only gold really fit, and to a lesser extent silver.

Gold and silver are intimately involved in the unfolding currency war, because they take no sides, and have no counterparty risk.  No one can print them.  And this is why I think GATA is right, not because of the evidence they have, which is more substantial than one might suspect given obsessive secrecy and the disinformation campaigns, but because it is exactly what one would do if there was to be a currency war, and such things as gold and silver existed.   It is basic strategy of war:  seek to control the high ground.  And along with oil, gold and silver are strategic high ground in a currency war.  And the first victim in a war is the truth.

If one does not understand these things, and the scope of what is happening with the dollar and the euro, then the significance of the important things that are happening will be missed and dismissed.  People will connect the dots that they see and draw their pictures accordingly and they will be wrong. And what is particularly Machiavellian is that some of that is being done by intent.

And even with all sorts of technical trading knowledge, one will be in the dark, literally be fighting 'the last war,' in their understanding of what is happening in the world as it is today.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

GTU must be a difficult borrow, since it maintains a robust premium during an obviously calculated raid on the metals.  It is thinly floated as these things go, and there are no options on it that I can find.

Subsequently I am told there are no shares available for borrow by several brokers.  Whether this is a general condition everywhere I do not know.

The financial firms obtain a number of Sprott shares from the underwritings. This can be used for the borrow game, and are probably subject to leverage and naked shorting at that given the condition of the shorting and clearing in these equity markets.

More On the German Gold Reserves Controversy - Where Is the Gold?

"Another amusing incident arose from the fact that the Reichsbank maintained a not inconsiderable gold deposit in the Federal Reserve Bank in New York.  Strong was proud to be able to show us the vaults which were situated in the deepest cellar of the building and remarked:

'Now, Herr Schacht, you shall see where the Reichsbank gold is kept.'

While the staff looked for the hiding place of the Reichsbank gold we went through the vaults.We waited several minutes: at length we were told:

'Mr. Strong, we can't find the Reichsbank gold.'

Strong was flabbergasted but I comforted him. 'Never mind: I believe you when you say the gold is there. Even if it weren't you are good for its replacement.'"

Hjalmar Schacht, Autobiography: Confessions of 'The Old Wizard',  p.245

Is history rhyming once again?

One can only hope not so fully, as the central banker Schacht later became an integral part of a notoriously despicable regime after the fall of the Weimar Republic.

And if the gold is misplaced or otherwise preoccupied, is the Fed still 'good for it?' Perhaps not, in these times of rather tight and multiply allocated physical supply.

At least the German people are beginning to hold their politicians and bankers accountable, unlike their Western counterparts.

What has been hidden will be revealed, and what has been secret will be brought to light.

The Associated Press
Unease About Germany's Unchecked Gold Reserves
By Juergen Baetz
October 22, 2012

BERLIN (AP) — Germany’s central bank has failed to properly oversee the country’s massive gold reserves, which have been stored abroad since the Cold War in case of a Soviet invasion, independent auditors say.

The central bank must renegotiate its contracts to gain the right to inspect its gold bars, which are worth tens of billions of dollars and are stored in the United States, Britain and France, the Federal Auditors’ Office said in a report to lawmakers obtained by The Associated Press on Monday.

The report says the gold bars ‘‘have never been physically checked by the Bundesbank itself or other independent auditors regarding their authenticity or weight.’’ Instead, it relies on a ‘‘written confirmations by the storage sites.’’

Most of Germany’s gold reserves — some 3,400 tons worth an estimated $190 billion at current rates — have been kept in the vaults of the U.S. Federal Reserve, the Bank of France and the Bank of England since the postwar days, when Berlin worried about a possible land war with the Soviet bloc.

The auditors maintain that the central bank must be able to at least inspect samples of its gold bars in regular intervals to verify their book value.

The report acknowledges that such inspections might be logistically complicated, but it stresses that ‘‘this cannot discharge from the necessity to carry out an inventory.’’

The central bank said in a reaction to the report that was also sent to lawmakers Monday that it sees no reason for a physical inspection of the bars. ‘‘There is no doubt about the integrity of the foreign storage sites in this regard,’’ it stated.

The debate on most of the gold reserves being held by foreign authorities has caused some inevitable conspiracy theories questioning their very existence, but several German politicians have also voiced unease.

Philipp Missfelder, a leading lawmaker from Chancellor Angela Merkel’s center-right party, has asked the Bundesbank for the right to view the gold bars in Paris and London, but the central bank has denied the request, citing the lack of visitor rooms in those facilities, German daily Bild reported.

Given the growing political unease about the issue and the pressure from auditors, the central bank decided last month to repatriate some 50 tons of gold in each of the three coming years from New York to its headquarters in Frankfurt for ‘‘thorough examinations’’ regarding weight and quality, the report revealed.

An initiative backed by some German economists, industry leaders and a few lawmakers dubbed ‘‘bring home our gold’’ launched in May has attracted some 10,000 supporters online so far.

But Finance Minister Wolfgang Schaeuble and others maintain that there is no reason to worry.

‘‘I currently have no doubt about the stock and the storage of the gold reserves,’’ said Priska Hinz, the opposition Greens top lawmaker on the budget committee. ‘‘I do not doubt the reliability of the foreign central banks,’’ she told the AP.

Several passages of the auditors’ report were blackened out in the copy shared with lawmakers, citing the Bundesbank’s concerns that they could compromise secrets involving the central banks storing the gold.

The report said that the gold pile in London has fallen ‘‘below 500 tons’’ due to recent sales and repatriations, but it did not specify how much gold was held in the U.S. and in France. German media have widely reported that some 1,500 tons — almost half of the total reserves — are stored in New York.

GATA had this to day about that last paragraph concerning the decline in the amount of gold held in London for Germany.

"So despite the lack of official announcement, Germany lately has been selling gold from London -- perhaps as part of the secret "strategic activities" grudgingly acknowledged two years ago by the Bundesbank to GATA's friend, the German financial journalist Lars Schall.

The lack of announcement of the sale of the German gold in London suggests that the sale was actually part of a gold swap with another central bank -- like the New York Fed.

That is, the powerful implication here is that German gold in London was sold at the behest of the United States and in exchange Germany took title to United States gold vaulted in the United States -- or title to gold supposedly vaulted in the United States. This way the Bundesbank could continue to claim ownership of the same amount of gold without lying, at least not technically."

Gold Anti-Trust Action Committee, German gold report reveals secret sales that likely were part of swaps

Gold Daily and Silver Weekly Charts - Gold Tags the Handle Target of 30% - Germany's Gold

Last night gold broke down to tag our 30% correction objective (about 9 PM EST) which is just shy of 1710 spot, and then turned around and moved higher. Gold and silver were actually reasonably resilient most of today even as stocks moved lower led by the SP.

There was a rather interesting story in Der Spiegel today, reporting that a Federal Court has ordered the Bundesbank to undertake thorough audits of German gold, including the gold held in London and New York.  They may bring back 50 tonnes or so to verify it more closely.  Rechnungshof fordert Inventur der Goldreserven. Here is a translation courtesy of my friend Peter.

Der Spiegel
BundesbankRechnungshof demands inventory of the gold reserves
22 October 2012

Berlin - Germany's gold is safely kept in Central Bank vaults in Frankfurt am Main, New York, Paris and London. Apparently, nobody has verified that. The German General Accounting Office has now demanded a regular review and inventory of the huge gold reserves abroad by the Bundesbank.

The Auditors justified this in a report to the Budget Committee of the Bundestag on Monday citing the "high value of the gold reserves". The German gold reserves stored at other banks have never been audited by the Bundesbank itself, or by other independent auditors, that is, "physically tabulated and with their authenticity and weight verified." Indeed, numerous conspiracy theories abide on the topic -- the US gold reserves in Fort Knox were taken a long time ago.

The Bundesbank has, after the United States, the second largest gold reserves in the world. At the end of 2011 it was 3396 tons worth 133 billion euros. After the soaring of price of gold, it should be realistically even about 142 billion euros. The gold bars are kept by the Bundesbank in safes in Frankfurt am Main and three storage places abroad: at the US Federal Reserve (Fed) in New York, the French National Bank in Paris, and the Bank of England in London.

Bundesbank is retrieving tons of gold from New York

The Court of Auditors has to ascertain, on behalf of the Bundestag, whether the Bundesbank is precisely scrutinizing the gold it is storing abroad. It is controversial whether the practice by the Bundesbank for years is sufficient, to only rely on a written confirmation as to the gold bars by the foreign central banks.

The Court of Auditors therefore recommends that the Bundesbank negotiate a right to the physical examination of stocks with the three foreign banks. With the implementation of this recommendation the Bundesbank started according to the report. Also the bank has decided in the next three years to bring to Germany 50 tonnes of gold these from the Fed in New York, to make a detailed examination here. The report contains speculation in several passages. So is not clear from the paper, how much gold is exactly stored at which foreign Central Bank.

The bullion held at the Bundesbank headquarters consist of 82.857 bars, mostly stored in sealed containers with 50 bars each, which, according to the report, are kept in four separately sealed safes. A part of them (6183 ingot) are outsourced in the so-called gold Chamber being stored on open shelves in a separate safe. To secure the gold, according to the report: "The safes external shutter is double, the internal closures and the gold Chamber is under a triple lock. "

So what next? That's all anyone ever wants to know.

The handle target was touched in the overnight, but a few more tests to 'set it' would not be unlikely. And recall that a drop below that target is not a big deal, unless you are short term and highly leveraged, unless the spot price should happen to drop below the 50% correction level.

So let's see what happens.