28 March 2013

Gold Daily and Silver Weekly Charts

"Totalitarianism, however, does not so much promise an age of faith as an age of schizophrenia. A society becomes totalitarian when its structure becomes flagrantly artificial: that is, when its ruling class has lost its function but succeeds in clinging to power by force or fraud. Such a society, no matter how long it persists, can never afford to become either tolerant or intellectually stable...

Totalitarianism demands, in fact, the continuous alteration of the past, and in the long run probably demands a disbelief in the very existence of objective truth.

George Orwell
End of quarter today, and gold and silver were under pressure as the punters were pushing the SP 500 higher for that bright, shiny new high.

I took a counter bet to that into the weekend.

Intraday commentary here.

See you Sunday night.  Happy Easter.

SP 500 and NDX Futures Daily Charts - New All Time High for SP 500 at End of Quarter

These jokers really worked hard to squeeze out that new high, even on very light volume.

This is a monetary inflation rally.  

I would not get ahead of it, but when this market does turn for a correction the momentum players are going to be piling on in a big way.

Look at how far the SP 500 has come without a major correction.  That is how far it may fall.

But for now illusion holds the day.   Illusion is all one has, when reform and leadership fails.

'Clay stealing clay.'

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

As one may deduce from the Commitments of Traders, some of the Hedge Funds and a couple of the Banks are playing the short side of the metals.

And as you may recall, today is the end of the quarter, as the markets will be closed tomorrow for Good Friday.

My usual take is that they are slamming the metals to make their mark to market look better for purposes of enhancing their results, and bonuses.

As Bishop Lazarus of Cyprus was said to have observed of a thief absconding with a pot, 'clay stealing clay.'

Bloomberg TV has been running a little show called "Is the Gold Bull Run Over?" They trotted out that crusty prune Jeff Christian, who declared that 'gold will be flat to down for the next two years.'

Let's see how all that works out.

In the meanwhile, the metals are under pressure, and the SP 500 desperately reaches for a new high.

With regard to the funds, we see the somewhat unusual event of a negative premium on CEF, and pressure on the metals overall.

Have a happy and joyous Easter. I may post the charts later, but will otherwise see you Sunday evening.

Matières à Réflexion for Thursday, 28 March 2013

"In the century in which we live, the Democratic Party has received the support of the electorate only when the party, with absolute clarity, has been the champion of progressive and liberal policies and principles of government. The party has failed consistently when through political trading and chicanery it has fallen into the control of those interests, personal and financial, which think in terms of dollars instead of in terms of human values."

Franklin D. Roosevelt, 18 July 1940

Links For Today

Calm Gives Way to Tension As Cyprus Banks Reopen - NYT

Oligarchy Exists Inside Our Democracy - Walker

Speaking of Inequality - AngryBear

Why Won't Cyprus Obey Krugman? - EconoSpeak

Earthquake Tied to Disposal of Oil Extraction (Fracking) Wastewater

Is the ECB Misleading Us Over Who Is To Blame for the Eurozone Crisis? - Guardian

"Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country.

When you won, you divided the profits amongst you, and when you lost, you charged it to the bank...You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out."

Andrew Jackson, Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels

27 March 2013

Gold Daily and Silver Weekly Charts - Currency Wars

I have concluded that it is almost impossible to understand what is happening in the precious metal markets without understanding that the world is in a currency war,  And this includes how the currency war is being conducted, and why.

The US dollar reserve currency arrangement to support world trade was created in the waning days of World War II, with the demise of the gold standard and the ascendancy of the Pax Americana.  It is called the Bretton Woods System.  It evolved quite a bit since then, especially when Nixon closed the gold window in 1971 and declared the US dollar a purely fiat currency.  Since then the world has gotten by on what some have called Bretton Woods II.

After sixty years, it is fairly clear that the dollar trading regime has had a good run, but has now outlasted its effective life span. The nail in the coffin is the economic instability in the US, and the need for the Federal Reserve to go to ZIRP and print buckets of money to support their domestic policy needs.

While this makes sense for the US, it does not make sense for the rest of the world. This is similar to the reason why the Eurozone is failing. The ECB conducts monetary policy to suit the needs of a few core countries, and the periphery suffers. And that monetary policy is covering up the rot at the core I might add.

The situation is similar with the dollar and world trade. The Anglo-American Banking cartel grew up around the US dollar reign, and is still very powerful, being supported by most of the systemically important international banks.

But all things come to an end, and the world is looking for a better solution to the world as it is now, not how it was sixty years ago. But change comes slowly and with difficulty.

I will be very surprised if gold and silver do not play a role in what is to come.

I did remark on this and also on bitcoin intraday. You can read it here.

Great changes are occurring, that cut across political and economic lines.  And these are manifesting as a 'currency war' that is much broader than a mere race to devalue and manipulate national currencies to support industrial trade policies.  Always keep that in mind.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Buying the Dip Into End of Quarter

Stocks sold off early on the realization that the debt and monetary crisis in Europe is hardly averted.

The austerity being enforced in Europe and the UK is very likely to drive those areas into an economic Depression.

But while Bernanke supplies the Banks with a fresh round of $85 billion per month, hope floats.

It is almost the end of the first quarter and the paint will be applied to the tape. I am sure they will take a few more serious runs at a new all time high on the SP 500. And our intermediate chart objective lies tantalizingly overhead.

And hard as it may be to believe, Alcoa will kick off a new earnings season in just a few weeks.

Market Shadows Newsletter: A Little Strategy, A Little Action

Currency Wars: Global Sustainable Currency Summit - Sept 26-28, Xi'an China: Bitcoin

The world is looking for a replacement for the outdated US dollar global reserve currency arrangement.

 The reasons for this are fairly obvious. How can the Fed independently conduct monetary policy to support domestic US needs for a global currency?

The Anglo-American banking cartel will fight this development at every turn, because control of the currency is power.

I trust that a basket of currencies anchored with gold and silver will be on the table.  The discussion of such an arrangement was circumvented by the US and UK.

The BRICs are not happy with the status quo.  As you may recall, they have recently discussed forming their own version of the World Bank.

A global fiat currency for the world, without fiscal and political union, is the euro experience writ large.

Currencies have a life cycle, and often a regional life and custom.   No money in the world has lasted for more than ten generation and achieved almost universal acceptance other than gold and silver.  It seems to be in their very nature, and in the nature of money.

About Bitcoin

As an aside, people ask me now and then to comment on Bitcoin.    I did look into it quite intensively over the Christmas holiday and was aware of it before then. 

The good news for Bitcoin is that is does have 'a flywheel' in the fairly transparent algorithm that expands the money supply in a reasonable predictive manner.  And from a technology standpoint it does have a coolness factor.

The Achilles heel is its inherent instability because of the manner in which it is sustained and exchanged.  The exchanges are a serious weakness because they are unregulated, opaque, and privately owned.   They rely heavily on the efficient markets hypothesis and on a few other articles of faith.

Liquidity and stability is the name of the game for money:  use and store of value.

It is almost predictable that the Bitcoin currency will have speculative booms and busts, because it has the nature of a Ponzi scheme with the greatest gains going to early adopters and promoters.

It does have its good points, but I am afraid I would defer on it unless a number of sovereigns were to adopt it and guarantee liquidity and exchangeability. Starting a new currency is not easily done. It must be based on something widely accepted and easily exchanged for a broad range of goods and services with a easily recognized unit of value.

But for now the early adopters and adherents do not wish to hear this, very much in the manner of an early stage Ponzi scheme.  You'll miss out, better get aboard, you're losing money!

Money is a funny thing.  So few people understand it.  It often takes on the nature of a belief system, a religion.  I recall the very heated and passionate inflation/deflation debates of not so long ago.

Welcome to the fog of currency war.

On the behalf of the organising committee, we cordially invite you to join the Global Sustainable Currency Summit (GSCS-2013), held during September 26-28, 2013 at the International Convention Center in Xi’an, China.

Due to the imbalances in global trade, countries and regions adopted different currency policies to develop and defend their economies, causing a serious international currency crisis - even currency wars and treasury collapses.

These circumstances have led us to promote the establishment of an international mechanism to create a global currency by organizing the GSCS-2013 summit with leading economists and policy makers as international platform for the analyses of the failures of actual and past currency systems, discussion and resolution of the international currency crisis and for the determination of future needs of all nations and the world trade by defining a global solution with a Global Currency G, based on the Global Money Charter for Sustainable Development, as announced at the Rio+20 Summit.

GSCS-2013 aims to discuss and resolve the international currency crisis/currency wars and establish an international mechanism to create a global currency to create an even level playing field for everyone.

It will bring together economists, university professors, Nobel Price laureates, industry leaders, legislators and senior officers from governments, the United Nations, Regional Economic Zones, and financial institutions. Attendees will get an opportunity to meet world-class economists and bankers benefiting from their analysis and solution presentations, and also learn about the major trends of the currency markets.

We would like to invite you to be part of GSCS-2013 and actively join this historical event in the field of global currency policy. You will experience unforgettable encounters and have a wonderful travel to the cradle of the first coins and the origin of the Silk Road in China.
Read the details here.

Matières à Réflexion For Wednesday March 27th

Loveliest of trees, the cherry now
Is hung with bloom along the bough,
And stands about the woodland ride
Wearing white for Eastertide.

A. E. Housman

Having dutifully reported the breakdown in the 'links list' gadget to Google once again (it's a daily thing), I have decided to post a few links in this manner.

I may add some items to this list as the day goes on.

Links For Today

Lawsuit Challenges Constitutionality of the No-Fly List

Cyprus Readies Capital Controls, Hires Extra Security

Bank of Cyprus CEO and Board Sacked At Request of ECB, EU, and IMF

The Morality Brigade - Reich

Mario Draghi’s Economic Ideology Revealed

Excessive Healthcare Costs and the War on Social Security - Baker

Argentina and Cyprus Collapses: Gold and Silver Protects - Tekoa da Silva

Prosecutors Look at JP Morgan's Actions in Madoff Case

Europeans Planted Seeds of Crisis in Cyprus

Rethinking Bernanke's and the Fed's Powers

Europe's Flesh Eaters Now Threaten to Devour Us All

Russia and South Africa Setting Up OPEC-like Platinum Cartel

Free Trade and Unrestricted Capital Flow: How Billionaires Destroy the Rest of Us - Yves

The London Whale, Cyprus, and Washington - Baker

Historic Section of Berlin Wall Demolished for Condos

Are The BRICS Tossing One Through The United States' Window?

The Corporate Predator State - Vanden Heuvel

Cyprus Shows Your Savings Will Be Stolen - Market Oracle

Written Off Student Debt Doesn't Mean It's Gone - Practical Dad

Market Shadows Newsletter - A Little Strategy, A Little Action

Despite a dark and remnant fed winter, the tomb is empty, the glory of life is resilient, and death is overthrown.

The profound comes cloaked in simplicity.

26 March 2013

Gold Daily and Silver Weekly Charts - Day After Expiry, And It's Risk On

"Even great men bow before the Sun; it melts hubris into humility."

Dejan Stojanovic

"In vain I had at heart to find
The center and the end of space.
Beneath some burning, unknown gaze
I feel my very wings unpinned...

And give my name to the abyss
Which waits to claim me as its own.”

Charles Baudelaire, Lament of Icarus

"But, what creates the most intense surprise,
His soul looks out through renovated eyes."

John Keats, Ode to Apollo

It was risk on today as Wall Street shook off any fears as it smells a new high on the SP 500.

Protect yourselves.

SP 500 and NDX Futures Daily Charts - It's Risk On and Breaking Out the 'New Highs' Caps

Traders are pushing the SP 500 towards new all time highs.

As they said today on Bloomberg, 'Things are good for the private sector.' Well, private corporations at least.

Cyprus? Unemployment? Meh.

Who Is Above the Law? There Is At Least a Partial Official List

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed."

Unanimous Declaration of the Thirteen United States of America, 4 July 1776

As you may have noticed, Google is trying to sort out its software that allows me to post links under Matières à Réflexion.

Sorry if this inconveniences you, but these things happen, particularly when programmers improve something, and in the process break something else.  Google are generally quite good about fixing this if one can catch their attention.  Normally I work around it, put in some temporary fix, but this week I am caught up in other matters pertaining to the holiest week in the Christian and Jewish tradition.

In the meanwhile, Golem XIV has a post that reminds us that there are some entities, and people, who are literally above the law. And he even provides a partial list, not including well connected individuals not otherwise associated with or operating under the cover of a systemically important bank.

The problem with selective justice, even if it is for what might otherwise be considered good intentions, is that it presents an enormous moral hazard, and tempts those who might otherwise be restrained by the law to excess. And by their example they teach the rest of the people lawlessness.

And this is the danger of the credibility trap in which we find ourselves today. Quis custodiet ipsos custodes?

Twilight of Justice
By Golem XIV
March 26, 2013

Back in December of 2012, when it was proved in U.S. court that billions of dollars of drug money had been laundered through HSBC and yet somehow it was also found that HSBC was NOT guilty of laundering and neither was anyone in the bank, there was an outcry.

In America Massachusetts Senator Elizabeth Warren, when she was grilling federal bank regulators at a Senate Banking Committee hearing, said
“No one individual went to trial, no individual was banned from banking and there was no hearing to consider shutting down HSBC’s activities here in the United States.
Which did seem outrageous at the time given that, for example, according to Senate and Justice department reports, HSBC had,
…failed to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical US dollars from HSBC Mexico from at least 2006 to 2009.
And that,
HSBC’s Mexico bank had a branch in the Cayman Islands that had no offices or staff, but held 50,000 client accounts and $2.1 billion in 2008.
Who in the bank knew about this? Evidence uncovered by investigations into HSBC’s activities revealed,
senior bank officials were complicit in the illegal activity.”
The Question
No wonder then, that Senator Warren was driven to ask,
So … what does it take? How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this?”
What indeed.

In the UK it was noted that during the time the laundering was going on, the chief executive of HSBC in 2003 who then became its chairman in 2006, was Lord Green, who is now the UK trade minister. So obviously no great concern to get to any truth about HSBC, in the hierarchy of the UK establishment.

Warren’s question, ‘What does it take?’ was finally answered by U.S. Attorney General Eric Holder in March 2013, when he told the U.S. Judiciary Committee that the Justice department had decided not to pursue any criminal prosecution of HSBC because ,
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,”
The U.S. Justice Department felt it could not criminally prosecute the bank because a criminal conviction would mean the bank would lose its license to bank in the US which would kill it  and a whole range of other institutions, which the bank relies on to buy its debts and its investment products would be prohibited from doing so as soon as the bank was deemed to be criminal.

So the official answer to Senator Warren’s question, according to the mighty U.S. Justice Department, is that ,yes, HSBC had laundered, but it was simply too big to prosecute. The bank and its senior staff were and are untouchable. They could be fined but not criminally prosecuted. The real answer to Senator Warren’s question, “What does it take…?” is … that she asked the wrong question.
This isn’t about lack of proof or the complexities of financial crimes or showing who knew or proving actual intent. It is not about proof or criminality at all. It is about there being a new category of  financial entity which our law makers and prosecutors have decided for us, is above the law. They are called  G-SIFIs, Globally, Systemically Important Financial Institutions or G-SIBs, Globally Systemically Important Banks.

I think  we have not yet thought through the immense consequences of the decision that has been made for us, that G-SIFIs are above the law.  But I think we need to make a start.

The List

We all know the HSBC isn’t the only bank too large to prosecute. There is in fact a list.

The list is decided upon by the FSB. It is updated every year.

The FBS (Financial Stability Board) is a new international body. It is made of representatives from the central bank, financial regulator and Treasury from each of the 25 member nations plus representatives from:

The Bank for International Settlements (BIS), the ECB, the European Commission, the IMF, OECD and World Bank, plus representatives from the Basel Committee on Banking Supervision (part of the BIS), the Committee on the Global Financial System (another part of the BIS), the Committee on Payment and Settlement Systems (another part of the BIS), the International Association of Insurance Supervisors, the International Accounting Standards Board, and the International Organization of Securities Commissions.

Guess which institutions provide the membership for ALL of the above international bodies? Yes, you got it – the big banks. And how many Central banks can you think of that are staffed or even headed by people formerly from one of the Big Banks?
You tell me who is really staffs the FSB and whose world view and interests the FSB actually represents?

Then consider, they are the ones who decided who is above the law.

28 banks are officially above the law and WILL NOT be criminally prosecuted no matter what they do. Remember that’s not me saying this. It is the U.S. Department of Justice saying it.

Not only 28 banks but all their senior executives, chairman/woman and board members. It would be very difficult to find a senior person in a bank to be criminally guilty but yet not find the institution guilty. So we could compile a list of people who are now, at least as concerns any financial and professional actions, also above the law. They can do things you would go to goal for. How does that feel?

Oh, by the way, this year, in April, we will see the announcement of another list, this time of Globally Systemically Important Insurers (G-SIIs). They too will be above the Law.

Assets Above the Law

When we say a bank is above the law, not only should we remember that this means specific people are above the law (at least in how they make money) but we should also remember that this also means the assets in those banks are above the law. This means if a banks does things which are illegal but lucrative – such as laundering money in order to get the use of those laundered billions to then use them as, lets say, capital to underpin loans or for speculating, for example, and by doing those illegal things it makes out sized profits for its shareholders and staff, that money, those profits are also above the law.

Since the bank and its senior staff are above the law and breaking the law is profitable, a) no one has an interest to say no, b) shareholders and staff will directly benefit from breaking the law. They will make more money by participating in law breaking or by investing in a bank which is law breaking. They will, in fact have an interest making sure it continues.

Two questions. Whose wealth are we talking about and how much?

Second question first. Is this a big problem?

Read the rest here.


A Message From the Banking and Brokerage System

"At this late stage in the history of American capitalism I'm not sure I know how much testimony still needs to be presented to establish the relation between profit and theft."

Lewis H. Lapham

"In an oligarchy, private ownership is merely a concept, subject to interpretation and confiscation."

Jesse, Trustee to Seize and Liquidate Even the 'Stored' Customer Gold and Silver Bullion From MF Global

No comment about the bank notice below is necessary for those who understand what this means. And if one does not understand it at this point, no comment is sufficient.

Paper currency held in a bank is not a 'risk free' asset. To the contrary, it is like walking around with a very large and willfully powerful counterparty that has one hand in your pocket.  And in troubled times, a 'warehouse receipt' or a line item on a bank account statement held in another country is little more than another piece of paper.

And in the case of 'digital money' they do not even have to have a hand in your pocket.  They hold everything, all your savings, up front, and you have to apply for your money at a window, where they determine how much you may have.  And that window can be closed anytime at will.

They take your wealth, pay you almost nothing for it, and then offer you protection, with limits, from themselves.

The deregulation of banks and the overturn of Glass-Steagall was intended to create a license to steal, by design.  Hundreds of millions were spent in a decade long effort lobbying for it. These were the protections that were given to us, and fought for by our fathers and grandfathers.  And we squandered away that wisdom, having unlearned the lessons of the past.

This is predatory financial capitalism and modern monetary theory unrestrained by the rule of law and transparency.  This is the lesson from Cyprus, and of MF Global.  And it is no different in the US or UK, except in the matter of time and degree.    None are safe where there is no justice for all.

And the financial sociopaths and their enablers have no limit to their greed,  no sense of boundaries, and certainly no shame.  

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

25 March 2013

Gold Daily and Silver Weekly Charts - Correlated to Comex Option Expiration Manipulation

Gold and silver are capped or go lower if stocks goes up. But they do the same thing if stocks go down.

I think it is fair to say that the precious metals are correlated to manipulation.

As a reminder we had another Comex option expiration today.

Meanwhile, Insider Buying of Gold Mining Stocks Surges to Multi-Year High

SP 500 and NDX Futures Daily Charts - Bail In Jitters

Futures were soaring overnight on the news of a Cyprus deal.

When the Dutch finance minister said this morning NY time that Cyprus could be a 'template' for further bank bailouts in the Eurozone stocks plummeted. He later amended that statement but the damage was done.

So what next. Cyprus is still not settled, and the Eurozone banks, especially those in the UK, are deeply troubled.

But the US equity market has ADHD and may forget all this tomorrow in the face of fresh domestic news about housing and consumption.

As I noted intraday, the 1550-1555 pivot area is proving to be quite a problem for bully, with six attempts in a row having failed to take it out.

So let's see what tomorrow brings. I did lighten up on the volatility I had bought on Friday during the lows today, but kept some bought 'on the cheap' on the open euphoria.

This is a swinging market. And Benny is the guy in the black and white houndstooth suitcoat.

SP 500 Futures Intraday - Buy the Rumour Sell the News Pop n' Flop?

The bulls are having quite a bit of trouble with the pivotal area of 1550-1555.
Today makes the sixth try. Perhaps they can take it by the end of the day.

As you know our intermediate target has been 1565 to 1570 since mid-January.
Let's see if they can take that price level and hold it for more than a day.

If not they may have to back up to big support at 1525 to 1530.

IF a 'significant' event triggers a selloff then we are looking into the 1400's at least with a 'must hold' at 1450.  Look at the turmoil that a relatively symbolic event like Cyprus was able to stir.

This is what I would call a 'fluffy' market.

I would not bet on that just yet. The Fed continues to ply their cronies at the Banks and Funds with $80+ Billion of easy money per month.

It is a bubble, but bubbles are notorious bear-busters since they have an internal logic of their own.

I think gold is fundamentally undervalued relative to the financial and currency risks, but values are not very relevant to the kleptocracy at this time of papier-mâché economies, except as a rival to their control frauds and a reflection of their general perfidy.

In that sense Cyprus was a watershed event, despite its seeming insignificance, as the MF Global style confiscations of the oligarchs become official government policy.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

Interesting outperformance of the Sprott Gold Fund albeit with razor thin margins on the others, with Sprott Silver showing a little life.

The Gold/Silver ratio is back above 55 as you will notice.

I did take the opportunity to buy some volatility on the initial exuberance for the Cyprus deal.

I have not yet gone into the miners, and hold bullion for the long term only here.

I do not care for these markets as they are quite artificial and more like a meringue, with the consistency of sugary whipped egg whites, than a foundation for future recovery and prosperity.

How the Banks Gambled Away Your Child's Future

For tickets for this event in Manchester see: How the Banks Gambled Away Your Child's Future

Also read what Rowan Bosworth-Davies has to say at Rowan's Blog.

24 March 2013

It's Risk Back On as Sources Cite Draft Deal on Cyprus - Heavy Losses for Large Depositors

The futures are rallying on this news.

I find it interesting that gold is also higher with stocks.

Now that is a bit different.

It *could* just be a correlation with the euro rally.

Let's see if this lasts.

Postscript: Here are some details of the arrangement.
Cyprus and EU agree on draft proposal to rescue banks
BRUSSELS | Sun Mar 24, 2013 8:05pm EDT

(Reuters) - Cyprus, the European Union and the International Monetary Fund have agreed a new plan to resolve the island's bank and finance a rescue of the country, an EU official said early on Monday.

The proposal, which will now be presented to euro zone finance ministers for discussion, will involve setting up a "good bank" and a "bad bank" and will mean that Popular Bank of Cyprus, known as Laiki, will effectively be shut down.

Deposits below 100,000 euros in Laiki will be transferred to Bank of Cyprus. Deposits above 100,000 euros, which under EU law are not insured, will be frozen and will be used to resolve debt. It remains unclear how large the writedown on those funds will be.

The EU spokesman said there would be no "levy" imposed on any Cypriot banks, with the package requiring a full "bail-in" of uninsured depositors, which is likely to mean heavy losses for those with large holdings in Laiki and potentially Bank of Cyprus, where many Russians hold bank accounts.

(Reporting by Annika Breidthardt and Jan Strupczewski; Writing by Luke Baker)

22 March 2013

Sheila Bair with Bill Moyers: Big Banks' Greed and Impunity

Gold Daily and Silver Weekly Charts

There is some optimism about a Sunday offer from the ECB that will make the Cyprus situation moot.

Let's see what happens.

SP 500 and NDX Futures Daily Charts - Optimism On ECB Action

In the short term it is all about Cyprus.

See you Sunday evening.

The Fed Is Printing Money, But Where Is It Going? They Know But Will Not Say

[Robert McTeer] worked for the Federal Reserve for 36 years, including as president of the Federal Reserve Bank of Dallas from 1991–2005, where he was known for his plain, jargon-free public speaking and telling stories about growing up in rural Georgia. He has stated that one of his goals was "to translate economic sense into common sense".

As a member of the Federal Open Market Committee on the Federal Reserve, he was considered "dovish" on inflation and was one of the most consistent opponents of raising the federal funds rate in the late 1990s. He has stated that he does not believe in the NAIRU and Phillips curve.
Bob McTeer says with the provocative headline that The Fed Has Not Been Printing Boatloads of Money.  As you may recall, Mr. McTeer was a member of the Federal Reserve for 36 years
"What they fail to grasp is that their initial assumption that the Fed is printing boatloads of money simply isn’t true."
And yet one can look at the Fed's Adjusted Monetary Base, one of the few measures of money over which the Fed has a more direct measure of control, and we see this:

Although those who follow money already know it, the Fed is printing money but that money is going directly to the banks through their methods of purchasing assets from them, both Treasuries and Mortgage debt (which may be of dodgy pedigree).

We see that here in the expansion of Excess Reserves of the Banks.

But Bob McTeer knows Banking, and he knows where most of that QE money has been going.
"Asset purchases by the Fed normally lead to a multiple expansion of money since, at the margin, reserve requirements are only about 10 percent of deposits. The roughly $2 trillion of asset growth from before the financial crisis through QE2 was largely offset, however, by an expansion in excess bank reserves of $1.6 trillion. In other words, the banking system has been sterilizing or neutralizing the impact of the asset purchases on the money supply."
And he knows that this is a form of 'trickle down' approach, and is not stimulating the commercial economy. But it is helping to prop up a banking sector that has never really taken its losses by writing down bad debts, cutting salaries and jobs, and downsizing to a more historical size relative to the real economy.
"The good news is this is why we haven’t had an expansion of inflation or a collapse of the dollar. The bad news is that is also why the purchases have not stimulated economic activity more than they have. The effect seems to be limited to the downward pressure placed on interest rates.

The Fed’s asset purchases have been increasing bank reserves. The Fed adds Treasuries and Agency MBS’s to its assets and pays, in effect, by crediting the reserve accounts of the banking system. But that’s where it has been stopping."
The downward pressure on interest rates isn't doing much. And that is because the US is caught in a modern variation of a liquidity trap, where aggregate demand and organic economic activity has been laid so low by the shock of a massive financial collapse caused by a credit bubble that it cannot rise of its own accord, even with interest rates near zero.
It is true that the Monetary Base, which used to be considered high-powered money because it consists of currency outstanding plus the reserves of the banking system, expands with the expansion of bank reserves. But, with banks hoarding excess reserves as they have been, the Monetary Base has not had its historical impact on the public’s money supply. If one insists on calling the Monetary Base ‘money,’ then it is money that has gone only to the Treasury and the sellers of MBS’s. This has made the financing of our outsized deficit easier and cheaper.
So the good news is that the government is doing all right, and the banking system is in the pink, and even corporate profits are healthy, thanks to tax credits and accounting gimmicks.

The Monetary Base is still high powered money.  That has not changed.  What has changed is that the Fed is paying interest on those idle reserves.  And  the TBTF Banks are still operating like bucket shops using excess reserves and guaranteed deposits.  When they win they keep the winnings, and when they lose, the Fed absorbs their losses.

It is being directed to a powerful and largely unreformed Banking sector.  And that money is being used to fund Wall Street bonuses, speculation in paper assets to create new all time highs in the equity markets, a bond bubble,  the purchase of distressed assets like homes and farmland in huge rent-seeking blocks,  tax subsidies for private hedge funds,

But the real economy languishes.   And this trickle down approach and lack of reform is what is going to cause a serious bout of stagflation, which is a policy error of the first order.  Prices of key goods like healthcare, education, and food are rising with most of the profits flowing to the top one percent, and while wages remain relatively stagnant and jobs growth is aenemic.

But is Bob's major thesis, that there is no inflation problem because M2 growth is lagging so badly because its velocity has been declining?
"What they fail to grasp is that their initial assumption that the Fed is printing boatloads of money simply isn’t true. If it were true, I would join them in their dire predictions. But it simply isn’t true and hasn’t been true throughout this period.

The latest estimates from the Fed’s H.6 Money Stock Measures show M2 growth actually declining since the Fed resumed significant asset purchases last fall. M2 growth in the three months ending in February was 4.6 percent; it was 6.5 percent in the previous six months and 6.8 percent over the previous 12 months. Even this moderate growth is muted by the average decline in M2 velocity of around 3 ½ percent in recent years, yielding a growth rate of nominal GDP of roughly 4 percent per year."

Given the slack state of the economy since the onset of the financial crisis, MZM and M2 growth has still been fairly substantial. So it is a bit disingenuous for Bob to zoom in on a relatively short time frame, from last fall.

Let's indulge him and take a look a variation of this graph using the measure of change Year Over Year in Billions.  This should make the changes easier to discern.

Yes, M2 and MZM are lagging in their rate of increase. But as every economist knows, there is a lag in the transmission of an expansion of the monetary base and the time in which that appears in the broader measures.  The Fed has written many papers on this lag.  And it is true, especially where the Velocity of Money is sluggish and declining, as has been the case of the US, where Velocity has been declining for many years, as hot money sought the high returns of paper asset speculation and gravitates towards certain sectors like tech start ups and housing that can be exploited.

And Bob knows this, and so does Bernanke. Why don't they do something about it?   Bernanke is under some constraints in speaking as the sitting FOMC Chairman, but his actions speak loudly.

Is Bob playing dumb from an ideological impairment like Greenspan, or merely being Socratic in his homespun Georgian manner? 

Why don't more economists push for a reform of the financial system, a return to a commercial, utilitarian banking sector, and an end to subsidies for Wall Street Banks?  Why do they bury their heads in the sand of singular causes like unlimited stimulus, obsessive austerity, mindless privitization and financializaitn, or the arcane details of broken models? 

Why was Volker left to stand alone, while an army of lobbyists undermines even the most modest attempts at reform?

It is all in the credibility trap.   Careerism.  And a lack of genuine leadership politically.

Who is willing to stand up and tell the Emperors of Wall Street and Washington that they are obscenely, bloatedly naked, and draining the life from the people? No one will say, J'accuse. 

And that is why Bernanke is going to probably leave after this term as Fed Chairman, as did Greenspan, before the next bubble bursts in stocks and bonds, and before the next economic downtur and deluge. 

So he can say that while he was in office, technically everything was fine and great progress had been made. And there will be consultancies, and speeches, and honorariums.

Who wants to be a whistle blower these days? Silence pays.

Die DreiGroschen Oper is a 1931 German musical film directed by G. W. Pabst. It was produced by Nero Film, Berlin.

Michael Hudson On The Financialization of Higher Education

Education, like healthcare and commercial banking, would be best treated as public utilties and not 'winner take all' businesses with extravagant executive salaries and arcane investments.

A strong vocational secondary educational effort would do wonders for those who are not inclined to college.

There is always room for private enterprise for those who wish something different, above and beyond.

But in those cases they ought not to be tax exempt unless there is some integral religious affiliation, or subsidized in any way with public funding, except to fund specific special programs and research.

If a private educational institution were to desire tax exempt status, it would have to comply with some strict regulation on management salaries and investments for example. If they wish to be businesses, let them be businesses.

Wall Street and their financiers can take any human endeavor and turn it into a parasitical racket. Wait until you see what they do with agriculture, energy, housing, elder care, and water if the people allow it.

This is the corrosiveness of paper money and crony capitalism.

21 March 2013

Gold Daily and Silver Weekly Charts - Flight to Safety

The divergence between stocks and the precious metals is still remarkable, but obviously tied to the risk trade.

The EU has given Cyprus a deadline of Monday.


The short term pivot for gold is 1620 but 1640 is more important resistance on a run at 1700.

For stocks the 1550 pivot on the June SP futures has been working.

SP 500 and NDX Futures Daily Charts - Risk Off

Oracle and Cyprus had stocks jittery today despite some 'better than expected' domestic US economic news.

The EU has set a deadline of Monday for Cyprus to resolve its impasse. So it looks like another Sunday evening showdown.