28 February 2013

Gold Daily and Silver Weekly Charts

Intraday commentary on gold and stocks here.

I like the 'risk on/risk off' chart cited there which comes from Barry Ritholtz.

I think it speaks to action in the gold and stock markets.

As for gold and silver, we seem to be getting the post-expiration test of the market which I had suggested we might see.

I am not sure how they will fare vis à vis the sequester. I do think that stocks and the metals may be inversely correlated once again in a risk off environment.

Today I started setting the criteria by which I might take positions in the badly beaten down precious metals mining sector. The funds have been having too much of their own way there, but it does not seem that we are done with that yet. But I have created a short list, and am refining some 'tough' target prices. Obviously that list is evolving with the market and economic outlook. But for now they are below this market.

Bullion is still my preferred vehicle, but I think once we get past whatever big bump in the road is coming, we may see smoother seas more amenable for a longer term chartist such as myself.

Sequestration Is Coming. Now What?

SP 500 and NDX Futures Daily Charts - Rally Sequestered

Stocks started cranking higher on a 'better than expected' Chicago PMI and Unemployment Claims, and a so-so first revision of 4Q GDP that went slightly positive, but below consensus, but with a big jump in the deflator.

The Dow Jones Industrial Averaga, aka the Rubes' Index, was hovering just below new all time highs.

Rally rally, until the afternoon when the impasse in the Congress made traders shaky, and took stocks into the red.

After the bell Groupon gave CEO Andrew Mason the boot.

Let's see how the sequester plays out and how they buy and sell around the news.

Intraday commentary and a 'crash warning' here.

FWIW, stocks are trading like commodities here, and thinly. So there are a range of non-reality based possibilities, until and unless the music stops. I am somewhat coyly skeptical in my trading here, with a more 'value-based bias' as much as one can in the fog of currency war and control fraud.

Sequestration Is Coming, Now What?

Chris Martenson: A Steep Stock Market Decline Is Coming - Ritholtz On Risk On/Risk Off

'Life is a school of probabilities.'

Walter Bagehot

...and the tuition is paid in their miscalculation, especially through unintended consequences.

I had this from Adam Taggart this morning.  This is in no way an endorsement of Chris' conclusion, since I am loathe to make predictions rather than forecasts.  But I respect his work, so I thought I would pass it along to see how it plays out.

Quite a bit of his analysis is correct and I cite him often.  I find this market to be 'thinly bought' with steady rises on fairly cynical buying, with declines that are steep and sharp.  

The fundamentals are very wobbly both in US but especially in Europe.  China is unstable and Japan is in transition.  Political leadership is bad to say the least.

So I would say that the right trigger event to a market correction is something that I can see playing out.  However I would add the caveat that the nature of the trigger event will shape that correction, especially in the inter-market relationships and actions.  This includes type of event and location.

Chris' scenario works well with a supply/price shock in energy, or a new sovereign financial failure in Europe.

It does not play out as well with a US based trigger event, a trade war, or some stronger erosion with confidence in the dollar reserve currency system, or a civil dislocation.  Odds-wise Europe and China are better bets for the locus of the next crisis than the US.

Will the next crisis spring from a private financial occurrence like a bank failure, or a sovereign failure?  Will the unholy Trinity of Fed-Banks-Government falter?  Or will it be more political than financial, although the two are remarkably intertwined in this corporatist world of ours.

Note the time frame which is reasonably broad enough to encompass any number of events.  I would add another month or two, although I would expect that the signs of trouble would be pretty apparent by August, even to the extent of a bubble like environment more obvious than today.

And of course we cannot dismiss the possibility that nothing dramatic will happen, and things will stumble along as they have been, from small crisis to ray of hope, and back.  But with increasing levels of background hysteria as I have said we would see.  This could get a bit ugly before it is over.

I do think the monied interests are looting, on a somewhat wider than normal scale, and some recent market action is the buying up of lifeboats at artificially low prices by given the appearance of normalcy. But really, who can say what will happen?  In a market where stocks trade on their own supply and demand like commodities, rather than their underying fundamentals, the very act of betting against such manipulation creates the opportunity for insiders to manipulate even more. And this applies to all financial paper assets, including highly leveraged paper commodities with serious real world consequences, as we had seen in Enron's egregious manipulation of the energy markets.

I am not faulting Chris' analysis in any way.  I am just loath to stick myself to a forecast of a less probable event, given the wide number of variables that can take the storm in this direction or that.   With regard to the intensity of the storm,  as the unknown aphorist once said:
"Great designs have linear consequences.  Bad designs have exponential consequences." 

Have I given you enough possibilities to effectively make no firm prediction, thereby stressing the need for portfolio diversity and flexibility? I hope so.  I would rather make money than be 'right,' except for the longest term wager of all, which too many neglect.

However I am on alert, and will try to get to know what to watch, and then watch it.

I have lost quite a bit of money underestimating the willingness of frightened men in positions of power to engage in financial shenanigans, outright fraud, and seemingly irrational support for the rationally unsustainable. And I hope never to forget that lesson.  Fiat is a powerful drug.

But there will be no sustained recovery until the financial system is reformed, and so we will continue on in a state of fragility, as so eloquently expounded upon by Taleb.

La voilà.

"Chris Martenson is issuing an official warning of a major stock market correction within the next few months. He's only done this once before in 2008.

He's seeing a convergence of both technical and fundamental data that are flashing oversized risks to the downside for asset prices, despite the Federal Reserve's money printing mania which is showing signs of hitting diminishing returns.

He expects the fall in equity prices to happen within the May-September window.

This downdraft will be characterized by lots of volatility, formed by market routs and Fed-inspired rescues, alternating until some form of bottom is reached. Along the way there will likely be a flight for "safety" into the dollar and Treasury paper, but only during the first stage of this crisis.

Once a bottom is reached -- he expects anywhere from 40% to 60% lower than the current ~1500 level on the S&P 500 -- the process will begin to be dominated by rising government borrowing which will cause interest rates to begin to rise.

When that happens, expect capital to flee the paper market for hard assets. In particular, that's when the upwards price revolution in the gold and silver markets will kick into high gear."

Warning: Stocks Likely to Crater From Here

In a related vein, Barry Ritholtz has posted this very illustrative 'risk-on, risk-off' chart. As the 'risk-on' phase continues, the pricing of risk becomes increasing divergent from reality.

I would like to add the obvious that gold tends to move inverse to this, except when 'risk on' is being fomented by a general increase in liquidity that is causing most asset prices to rise. Then we have that odd phenomenon when gold and stocks move in a correlated manner. And similarly, when there is a general liquidation gold falls with stocks.

Gold often moves most strongly higher in a 'risk off' trade not driven by panic selling of everything, and moves lower in a 'risk on' trade driven by a mispricing of risk. I know that this may seem like thin beer, but it is what it is, and it explains why gold acts as a safe haven, but sometimes does not. Bonds have exhibited similarly odd behaviour.

As for stocks, it depends on the character of the market and the nature of the trigger event, to say whether we might have a crash, or just one hell of a correction, within some longer term trend.

So in other words, not all selling, like risk, is of the same character. You have to know the market behind the price, especially when price is used to mislead. If markets were rational and efficient, Wall Street would not have to cheat so much to win so often. Much financial innovation is merely engaged in the increasingly elaborate mispricing of risk in the service of fraudulent outcomes.
“Financial operations do not lend themselves to innovation. What is recurrently so described and celebrated is, without exception, a small variation on an established design ... The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.”

John Kenneth Galbraith
Politicians, like financiers, can make great personal progress towards power and wealth during new eras of innovation like supply side economics, privatization, globalization, and deregulation. What is particularly damaging is when the government, through monetary actions and/or regulatory inaction, extend and pretend if you will, supports this divergence between the promise, the risk, and the reality for its own ends.

The resulting reversion to the norm can have the impact of a thunderclap. So government becomes complicit in the control fraud which it abets, perhaps for certain policy ends, so that finally only those without conscience can abide it. And that is the genesis of the credibility trap, and the ascent of the careerists, and white collar sociopaths.
"All the truth of my position came flashing on me; and its disappointments, dangers, disgraces, consequences of all kinds, rushed in in such a multitude that I was borne down by them and had to struggle for every breath I drew."

Charles Dickens

27 February 2013

Here Is Something To Think About With Regard to Money

Here is something to think about as the Fed continues to expand its Balance Sheet by buying Treasury (and mortgage debt), with an emphasis on systemic limitations that become a little more apparent at the ZIRP boundary where organic money growth is stultified.

As you may recall, the Fed refunds all profit it makes, that is revenue in excess of expenses, back to the US Treasury. And that includes all the interest collected on the bonds its holds.

So as the Fed buys Treasury debt, and holds it to expiration, it refunds all of the interest payments back to the Treasury, less their expenses.

As long as there is at least one Primary Dealer available to make a market in Treasury debt, the Fed, which is technically prohibited from buying the bonds directly from the Treasury, there is a fairly strong measure of control over both the interest paid and the amount of debt which can be issued.

As a thought experiment, what would it be like if the Fed expressed a willingness to buy ALL outstanding Treasury debt at a set schedule of prices?  What are the limiting factors?  What happens to the debt payments of the Treasury?

Now what would happen if the Bank of England or the European Central Bank stated the same policy for all the relevant sovereign debt?  Would it be the same?  Or why would it be different? 

At the end of the day, the value of a fiat currency is intimately involved in confidence in the mature judgement and trustworthiness of the parties involved in its issuance. 

This is why, although it was superficially 'clever,'  the platinum coin was such a dodgy idea to resolve what was essentially a financing disagreement.

As I have said, at the end of the day, the only limiting factor on the Fed and the Treasury is the value at market of the currency, especially with regard to international transactions.

Isn't fiat currency grand?

Here are two very simple models of currency supply 'management.' The 'considerations' could be thought of as degrees of freedom.

I could have added a significant amount of detail to both pictures, but I wanted to capture the 'essence' of the system in each.  

In the Tripartite Market System the level of debt issuance and its price takes the agreement of at least three parties:  the Treasury, the Fed, and the Debt Market as represented by the Primary Dealer.  In this system it is the level of debt issuance that is managed, and the prices paid for it.

In the Unilateral System the Treasury determines the level of dollar issuance according to its needs.

I *think* one can contrive a non-debt based system that involves more than one party, and does not necessarily require a non-governmental party to be directly involved.

Technically the existing arrangement between the Congress and the President is a two party system.  The Congress authorizes expenditures and the President ratifies, enacts, and adminsters them. 

The 'debt ceiling' arrangement in which Congress refuses to 'pay' by deferring to finance its own previously authorized expenditures is a bit of an anomaly and a symptom of dysfunction.

Gold Daily and Silver Weekly Charts

"It’s easier to dismiss something not quite fully understood, and I think that’s behind much of the recent negativity towards the COT as an analytical tool."

Ted Butler, Butler Research, 27 February 2013

Today was 'risk on' for stocks and therefore we had a pullback in the precious metals sector.

The pigmen are feeling pretty cocky about things. And fear of the sequester is diminishing.

SP 500 and NDX Futures Daily Charts - Down the Corporatist Rabbit Hole

"And this last enactment [affirmation of Voting Rights in 2006], not a single vote in the Senate against it. And the House is pretty much the same.

Now, I don’t think that’s attributable to the fact that it is so much clearer now that we need this. I think it is attributable, very likely attributable, to a phenomenon that is called perpetuation of racial entitlement.

It’s been written about. Whenever a society adopts racial entitlements, it is very difficult to get out of them through the normal political processes.

Antonin Scalia, Speaking About the 1965 Voting Rights Act, Feb 27, 2013

I just don't have the words.

We had a big up day in the kleptocracy today, for the usual made up reasons.

It was higher because the markets are beginning to lose their fear of 'the sequester.' And of course, there is a surfeit of hot money in the financial sector that is chasing paper assets, pushing them around the plate.

26 February 2013

Gold Daily and Silver Weekly Charts - Pop Go the Weasels

Gold and silver got legs when Bernanke confirmed that the FOMC was just talking about ending QE. And I think we knew that.

But apparently the metals market didn't right? I think this rally has everything to do with the end to this brazenly artificial paper selling into the options expiration yesterday.

So what next?

Gold is approaching a 50 percent retracement of this big waterfall decline that was driven by the funds. While I feel comfortable in buying long term straight up bullion in moments of such extreme oversold weakness, I am not quite confident yet in taking more longs into a trade just yet.

The sequester is dead ahead, and with the markets this wild and loosely regulatred, it is hard to have conviction using any kind of leverage.

The long term prospects for precious metals remain unchanged, perhaps slightly better given the lack of serious reform in the real economy and the broken financial system.  


SP 500 and NDX Futures Daily Charts - Bernanke Bounce

Housing was rosy this morning, and perhaps deceptively so.

Bernanke calmed the markets and gave the bulls some cajones to by the dip.

Some dip.

The sequester looms large. A lot of bets are on that they will kick the can down the road again.

I'm not willing to take that bet at this time. I am too uncertain here about the short term in this phony market, after this big spike in the VIX. So I have taken a lot of money off the table.


Moyers and Wolff: Capitalism Has 'Hit the Fan'

"Even as President Obama’s talking points champion the middle class and condemn how our economy caters to the very rich, modern American capitalism is a story of continued inequality and hardship.

Even a modest increase in the minimum wage — as suggested by the president — faces opposition from those who seem to show allegiance first and foremost to America’s wealthy and powerful."

Bill Moyers, Taming Capitalism Run Wild

A symphony of greed.

I would lay the failure of capitalism, or more properly the lapse of market capitalism into crony capitalism and corporatism, at altar of the triumvirate of the false gods of modern economics: globalization, fiat currencies, and naturally efficient markets.

And of course the fact that it is no longer socially unacceptable to be a lying, cheating conman, as long as you are sucessful at it. Greed is good, and so the achievement of wealth by any means available, as long as you beat the system and don't get indicted, is the epitome of human achievement and worth.

The most insidious trend is the adoption of the 'just-world hypothesis' and a Darwinian rationalization in blaming the victims for the outcome of this flawed set of policies and sanctifying of success.

This will very possibly result in yet another century of turmoil, degradation, and blood.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

Premium are back to a more 'normal' profile than they have been during the concerted selling by the funds, but are still modest by historical measures.

It was nice to see gold take out 1600 and silver 29.00. The rest of the week will tell the tale.

These round prices were around the 'max pain' figures for options expiration, so it is no surprise that this is where we ended up for expiration.


Goldman, Banking, Washington, and Business Ethics: Cultural Observations from Two Smiths

"I'm a very firm believer that a liar is a cheat and a thief and a crook. I don't like liars. I never lie. I always told my own child, "If you murder somebody, tell me. I'll help you hide the body. But don't you lie to me."

"We don't pay taxes. Only the little people pay taxes."

Leona Helmsley

"There is not a more perilous or immoral habit of mind than the sanctifying of success.”

Lord Acton

I wish that C-Span would permit their videos to be 'embeddable.'

Greg's talk is excellent, and thanks to C-Span the video quality is good.

Greg Smith Speaking At Stanford on His Experience at Goldman and Reasons for the Corrosive Decline in Business Ethics

Speaking of excellent essays on corruption, Yves Smith has written a wonderful piece titled, Jack Lew’s Grotesque Citi Employment Deal and the Institutionalization of Corruption.

Corruption, facilitated by the credibility trap, is the biggest problem facing the West today. That is the real subsidy, the most debilitating entitlement.

It is the belief of the elite that the power of their office is an achievement that rewards them with the right to lie, cheat and steal, both for themselves and their friends.

Although it is most important to understand that they would be shocked and insulted if one uses those words, lie, cheat and steal, to describe what they are doing.  They view themselves as exceptionally hard working, as obligated by their natural gifts and superiority.

Through a long indoctrination that starts sometimes in their families, but is most often affirmed in their elite schools and with their circle of privileged friends, they learn to rationalize selective moral behaviour not as immoral but as 'the entitlement of success.'  And they are supported by a horde of morally ambivalent enablers who will tell them whatever they wish to hear.

There are one set of rules for themselves and their friends, and another set of rules for the rest.

Few who actually do evil consciously choose to be evil.  They rationalize what they do in any number of ways, but the deceit often hinges on their own natural superiority, and the objectification and denigration of the other.  We are makers, and they are takers. Although many may work hard, they see their own work as having special value and merit, while the actions of the others are inconsequential and unworthy.

Given enough time, their rationalizations become an ideology, desensitized to the meaning and significance of others outside their own select group.  This supremacy of ideology empties their souls, and opens the door to mass privation and even murder, although rarely done by their own hands.

This is what Glenn Greenwald calls 'justice for some.' Or even earlier what George Orwell captured in the slogan, 'Some animals are more equal than others.'

And just to be clear on this, with regard to the Anglo-American political situation, the tragedy is not that just some are corrupted, which is always the case. The tragedy is that the Democrats and the Labour Party learned that they could become as servilely corrupted by Big Money as the Republicans and the Conservative Party, while maintaining the illusion of serving their traditional political base.

And it has rewarded them very well in terms of extraordinarily well-funded political power, and almost unbelievable personal enrichment afterwards.  

In such a climate of corruption,  political discourse loses the vitality of ideas and compromise for the general good, and take on the character of competing gangs and crime families, engaged in aggressive schemes and protracted turf wars, tottering from one pitched battle and crisis to another.
"A credibility trap is a condition wherein the financial, 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 problems of that system 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 the impulse to reform within the power structure is susceptible to various forms of soft blackmail and coercion by the system that maintains and rewards.

And so a failed policy and its support system become self-sustaining, long after it is seen by objective observers to have failed. In its failure it is counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for the thought leaders 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 painfully obvious hypocrisy.

And you know how I feel about this.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

The problem which the modern world has not yet grappled is how to react to the rise of a global elite, which considers itself the children of a power which is above national restraints, and a law unto themselves.

Their success has been propelled by the dominance of Anglo-American financialization, and the rise of oligarchies in Russia, China, Latin America, and India.  Countervailing power has been co-opted and subsumed.  Any opposition has become marginalized and isolated.

The new oligarchs are supported by their fiat currencies, which together the increase of insubstantial 'cashlessness' in wealth,  provides the ability to define and allocate value at will

They have a penchant towards globalization and deregulation to support selective justice, to the extreme detriment of local rule, and individual choice and freedom.   Above all, they are a law unto themselves, above what they consider subhuman restraint.  Übermenschen.

“Our light-speed, globally connected economy has led to the rise of a new super-elite that consists, to a notable degree, of first- and second-generation wealth. Its members are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition—and many of them, as a result, have an ambivalent attitude toward those of us who didn't succeed so spectacularly. Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today's super-rich are increasingly a nation unto themselves...

A multibillion-dollar bailout and Wall Street’s swift, subsequent reinstatement of gargantuan bonuses have inspired a narrative of parasitic bankers and other elites rigging the game for their own benefit. And this, in turn, has led to wider—and not unreasonable—fears that we are living in not merely a plutonomy, but a plutocracy, in which the rich display outsize political influence, narrowly self-interested motives, and a casual indifference to anyone outside their own rarefied economic bubble."

Chrystia Freeland, The Rise of the New Global Elite

Of course this tendency is not new in history, as it is a facet of the human heart, and the empires of the past. But the scope of it is something rarely seen before this. And it is supported by technologies for mass action and control that seem terrifyingly powerful and new.

And as hard as it may be to believe, this too shall pass. But as always, we have some work to do in our own time.

“The mills of God grind slowly, yet they grind exceeding small;
Though with patience He stands waiting, with exactness He grinds all.”

Henry Wadsworth Longfellow

25 February 2013

Gold Daily And Silver Weekly Charts - Comex Option Expiration - Goldfinger

Gold and Silver had decent bounces off deeply oversold levels on this Comex expiration.

Stocks slumped hard, largely on renewed recognition that the sequester and Europe are still a problem.

There was really nothing new said, as VIX spiked, but the bubble in stocks had simply run its course for now as the last of the big caps reported their earnings.

What next? Keep an eye on the sequester in the US and on Europe in general. There are some signs of a growing problem in greatly overpriced Chinese real estate.

I am looking at this bounce to see how gold handles the 50 percent retracement level of this big waterfall decline, which was stage managed by the funds and probably the bullion banks.

Will this be a v-bottom, a multiply tested bottom, or no bottom at all?

The metals bears have come far and fast, and are paying little attention to their ability to supply the market at these prices.  This is an expedition of opportunity, intended to set up a wash and rinse.  But there are a lot of buyers out there, and they are seeking actual bullion and not a paper promise. 

The levels of open interest on the Comex during this decline, as well as who was doing the selling, were remarkably significant.  And likely to be ignored by the market 'regulators.'

SP 500 and NDX Futures Daily Charts - Risk Off, Bubble Down, Berlusconi-style

This was the worst daily sell off in US equities since last November.

The spokesmodels were blaming this on 'The Three B's: Berlusconi, Bernanke, and Boehner.'

That is of course a thin film to cover what really happened today, which is that the bubble rally of the past two months or so, led by the relentless buying of the SP futures and the market manipulation of the big funds, let some air out today as big cap earnings drew to a close.

As it turns out Mr. Boehner had absolutely nothing new to say, except to repeat the same rhetoric about no more tax revenues including the closing of loopholes.   He took a hard line on any tax increases.  Eric Cantor echoed the same thing.

And Bernanke will say very little tomorrow, unless he makes a serious policy statement mistake.

But the surprise that Berlusconi garnered more votes than expected, by appealing to the anti-austerity forces, cautioned many that their optimism of a new anschluss in Europe may not happen quite so easily and broadly. It does not matter that Berlusconi is a star of the opera buffa genre of Italian politics.  And it certainly did not justify this volatile of a sell off, except that stocks had run quite too far and therefore the underpinnings of the markets were inherently unstable.

Let's see if the bubble in financial assets will take a bigger pause, is done, or is merely taking profits in advance of another leg up.  Keep an eye on Europe. 

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds - Afternoon Update

Rather modest still by historical measures.

This has been updated at 3:00 PM in the second chart below.

As a reminder, today is the Comex option expiration.   As you may recall, I think the real test of the metals will come tomorrow and the next two days afterward, as the US dallies on the edge once again.

One has to wonder if the manipulation of the precious metal markets by the funds in this particular leg of the market could be much more obvious.

Well it is a 'risk off' day as there is a renewed recognition of the ongoing troubles in Europe, as exemplified by the Italian elections. As if.

And as you may have heard, there is some concern about a collapsing real estate market in China.

Not to be left out of the nuttiness factor, the erstwhile Speaker of the House, Mr. Boehner, has called for a Press Conference just after the NY markets close.  One might suspect he will be discussing the Sequestration.  Wouldn't you like to know what he is going to say?  Don't you think that some market insiders do?  It is a full service kleptocracy for those who are willing to pay.

Bernanke testifies tomorrow.  It might be more effectively revealing if given under oath in front of a grand jury, rather than to his as yet unnamed co-conspirators in Congress.  Yeah, snarky. I know.  But true, don't you think?

How can such a brainy macher hope to fig leaf himself in the future with 'the CEO defense?'  Yes, it worked for Greenspan, but he was a disciple of Ayn Rand and so his plea of insanity had more substance.

22 February 2013

On the 70th Anniversary of the Execution of Sophie Scholl, 22 February 1943

"Many people think of our times as being the last before the end of the world. The evidence of horror all around us makes this seem possible.

But isn't that an idea of only minor importance? Doesn't every human being, no matter which era he lives in, always have to reckon with being accountable to God at any moment? Can I know whether I'll be alive tomorrow morning?

A bomb could destroy all of us tonight. And then my guilt would not be one bit less than if I perished together with the earth and the stars.”

Sophie Scholl

"Love does not make you weak, because it is the source of all strength, but it makes you see the nothingness of the illusory strength on which you depended before you knew it."

Léon Bloy

As you know, I have been commemorating the anniversary of Die Weiße Rose, the Munich Students Movement, and the series of leaflets which they produced and distributed in Nazi Germany as a statement of conscience during the height of the reign of terror.

I do not think it is possible for any one of us to genuinely appreciate the courage it takes to do something like this. And I hope that we never do come to understand such an extraordinary vocation to the same degree.  But each one of us is called to act, in our own way, and in our own time.

“The real damage is done by those millions who want to 'get by.'   The ordinary men who just want to be left in peace. Those who don’t want their lives disturbed by anything bigger than themselves. Those with no sides and no causes. Those who won’t take measure of their own strength, for fear of antagonizing their own weakness. Those who don’t like to make waves—or enemies.

Those for whom freedom, honour, truth, and principles are only literature. Those who live small, love small, die small. It’s the reductionist approach to life: if you keep it small, you’ll keep it under control. If you don’t make any noise, the bogeyman won’t find you.

But it’s all an illusion, because they die too, those people who roll up their spirits into tiny little balls so as to be safe. Safe?! From what? Life is always on the edge of death; narrow streets lead to the same place as wide avenues, and a little candle burns itself out just like a flaming torch does. I choose my own way to burn.”

Sophie Scholl

What is surprising is not that we are called to do so much, but rather, so little.  Love and be grateful to God, treat people as you would like to be treated with respect, kindness, and forgiveness.  Do not lie or steal or cheat,  do not be proud and look down on your fellow creatures, and act with honor and respect for the gifts of His creation. And when we fail through weakness, we are readily forgiven. 'Can you not watch with me, for even one hour?'

But all too often we bargain away our souls, rebelling from even these slight and reasonable requests-- and for so little.

The White Rose
Second Leaflet
Munich, 1942

We will not be silent.

It is impossible to engage in intellectual discourse with National Socialist philosophy, for if there were such an entity, one would have to try by means of analysis and discussion either to prove its validity or to combat it. In actuality, however, we face a totally different situation.

At its very inception this movement depended on the deception and betrayal of one's fellow man; even at that time it was inwardly corrupt and could support itself only by constant lies. After all, Hitler states in an early edition of "his" book (a book written in the worst German I have ever read, in spite of the fact that it has been elevated to the position of the Bible in this nation of poets and thinkers): "It is unbelievable, to what extent one must betray a people in order to rule it."

If at the start this cancerous growth in the nation was not particularly noticeable, it was only because there were still enough forces at work that operated for the good, so that it was kept under control. As it grew larger, however, and finally in an ultimate spurt of growth attained ruling power, the tumor broke open, as it were, and infected the whole body.

The greater part of its former opponents went into hiding. The German intellectuals fled to their cellars, there, like plants struggling in the dark, away from light and sun, gradually to choke to death.

Now the end is at hand. Now it is our task to find one another again, to spread information from person to person, to keep a steady purpose, and to allow ourselves no rest until the last man is persuaded of the urgent need of his struggle against this system. When thus a wave of unrest goes through the land, when "it is in the air," when many join the cause, then in a great final effort this system can be shaken off.

After all, an end in terror is preferable to terror without end.

We are not in a position to draw up a final judgment about the meaning of our history. But if this catastrophe can be used to further the public welfare, it will be only by virtue of the fact that we are cleansed by suffering; that we yearn for the light in the midst of deepest night, summon our strength, and finally help in shaking off the yoke which weighs on our world.

We do not want to discuss here the question of the Jews, nor do we want in this leaflet to compose a defense or apology. No, only by way of example do we want to cite the fact that since the conquest of Poland three hundred thousand Jews have been murdered in this country in the most bestial way.

Here we see the most frightful crime against human dignity, a crime that is unparalleled in the whole of history. For Jews, too, are human beings - no matter what position we take with respect to the Jewish question - and a crime of this dimension has been perpetrated against human beings.

Someone may say that the Jews deserve their fate. This assertion would be a monstrous impertinence; but let us assume that someone said this - what position has he then taken toward the fact that the entire Polish aristocratic youth is being annihilated? (May God grant that this program has not yet fully achieved its aim as yet!)

All male offspring of the houses of the nobility between the ages of fifteen and twenty were transported to concentration camps in Germany and sentenced to forced labor, and all the girls of this age group were sent to Norway, into the bordellos of the SS!

Why tell you these things, since you are fully aware of them - or if not of these, then of other equally grave crimes committed by this frightful sub- humanity? Because here we touch on a problem which involves us deeply and forces us all to take thought.

Why do German people behave so apathetically in the face of all these abominable crimes, crimes so unworthy of the human race? Hardly anyone thinks about that.

It is accepted as fact and put out of mind. The German people slumber on in their dull, stupid sleep and encourage these fascist criminals; they give them the opportunity to carry on their depredations; and of course they do so.

Is this a sign that the Germans are brutalized in their simplest human feelings, that no chord within them cries out at the sight of such deeds, that they have sunk into a fatal consciencelessness from which they will never, never awake?

It seems to be so, and will certainly be so, if the German does not at last start up out of his stupor, if he does not protest wherever and whenever he can against this clique of criminals, if he shows no sympathy for these hundreds of thousands of victims. He must evidence not only sympathy; no, much more: a sense of complicity in guilt.

For through his apathetic behavior he gives these evil men the opportunity to act as they do; he tolerates this "government" which has taken upon itself such an infinitely great burden of guilt; indeed, he himself is to blame for the fact that it came about at all...

Please make as many copies of this leaflet as you can and distribute them.

Thankfully few are called to the martyr's crown.  But we are all called to take up our cross and follow, each day, in each of our own small ways. That is all most of us can do-- be still, and faithful, and wait on the Lord in our calling. 

And above all do not add to or assist, in any way, the evil in the world, especially by condemning or harming those who stand up against its onslaught.  That is Pilate's sin, to ask 'What is truth' and turn away and lie, if only to ourselves, while looking truth in the face, for the sake of expediency. It is a sin against the Spirit, and one that will not be easily forgiven.

We may believe what we will.   But we will be held accountable for our beliefs.
"I was satisfied that I wasn't personally to blame and that I hadn't known about those things. I wasn't aware of the extent of the crimes. But one day I went past the memorial plaque which had been put up for Sophie Scholl in Franz Josef Strasse, and I saw that she was born the same year as me, and she was executed the same year I started working for Hitler. And at that moment I actually sensed that it was no excuse to be young, and that it would have been possible to find things out."

Traudl Junge,  Im toten Winkel - Hitler's Sekretärin
The saddest words in any language are those of irreparable regret, that come to haunt us in our last hours, 'If only...'

On 22 February 1943, Scholl, her brother Hans and their friend Christoph Probst were found guilty of treason and condemned to death. They were all beheaded by executioner Johann Reichhart in Munich's Stadelheim Prison only a few hours later, at 17:00 hrs. The execution was supervised by Walter Roemer, the enforcement chief of the Munich district court.

Prison officials, in later describing the scene, emphasized the courage with which she walked to her execution. Her last words were:
"How can we expect righteousness to prevail when there is hardly anyone willing to offer themselves up individually for a righteous cause?

Such a fine, sunny day, and I have to go."

The White Rose
Fourth Leaflet
Munich, 1942

We will not be silent.

"...It is the time of the harvest, and the reaper cuts into the ripe grain with wide strokes. Mourning takes up her abode in the country cottages, and there is no one to dry the tears of the mothers. Yet Hitler feeds those people whose most precious belongings he has stolen and whom he has driven to a meaningless death with lies.

Every word that comes from Hitler's mouth is a lie. When he says peace, he means war, and when he blasphemously uses the name of the Almighty, he means the power of evil, the fallen angel, Satan. His mouth is the foul maw of Hell, and his power is at bottom accursed. True, we must conduct a struggle against the Nazi terrorist state with rational means; but whoever today still doubts the reality, the existence of demonic powers, has failed by a wide margin to understand the metaphysical background of this war.

Behind the concrete, the visible events, behind all objective, logical considerations, we find the irrational element: The struggle against the demon, against the servants of the Antichrist.

Everywhere and always demonic powers lurk in the dark, waiting for the moment when man is weak; when of his own volition he leaves his place in Creation, as founded for him by God in freedom; when he yields to the force of evil, he separates himself from the powers of a higher order; and after voluntarily taking the first step, he is driven on to the next and the next at a furiously accelerating rate.

Everywhere, and at times of greatest trials, men have appeared, prophets and saints who cherished their freedom, who preached the One God and who with His help brought the people to a reversal of their downward course. Man is free, to be sure, but without the true God he is defenseless against the principle of evil. He is a like rudderless ship, at the mercy of the storm, an infant without his mother, a cloud dissolving into thin air..."

Please distribute this as widely as possible.

"Isn't it a riddle and awe-inspiring that things can be so beautiful, despite the horror? I've seen something wondrous peering through my joy in the beautiful, a sense of its creator...Only people can be truly ugly, because they have free will to separate themselves from this song of praise.

It often seems they will drown out this hymn with cannon thunder, curses, and blasphemy. But I have realized they will not succeed. And so I want to throw myself on the side of the victor.”

Sophie Scholl

Gold Daily and Silver Weekly Charts - Life During Wartime - Moody's Downgrades UK

After the bell Moody's tarnished sterling by downgrading UK debt from its treasured AAA rating. I suspect that this is in advance of fresh downgrades for Europe, and perhaps the US if the sequester rocks the corporatist boat. Spending cuts are for the little people.

The currency wars continue. I have intra-day commentary on Financial Dreadnoughts in Times of Currency Wars, among other things.

The idea of 'financial dreadnoughts' comes from an idea I had in about 2002, when I considered how I might wish to arrange things if I wanted to give the Fed and Treasury the latitude to act economically in the aftermath of a financial crisis while engaging in a currency war to support the Anglo-American petro-dollar.

I should add the significant caveat that incompetence, careerism, and corruption explain all the same things, much more simply, and with a certain experiential credibility. I hate to attribute to Machiavellian intent what can be attributed to unprincipled self-serving stupidity. And by the way in which these graspingly inept jokers have been blowing things up, in perfectly avoidable crisis after crisis, that might be a very good bet indeed.

Comex Option Expiration next week. I will be watching the action after expiration to try and get a better sense of where we are in this cycle of market monkey business.

The COT shows that as of Tuesday the hedge funds had deepened their short position in gold quite a bit in the combined futures/options categary, in preparation for a takedown. Next week's report should give us some idea of how things went into the expiration.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Damn the Sequester, Full Speed Ahead

Stocks managed to totter into the weekend while holding support.


And yes, a pun.

In watching the video below, Galton and Eugenics, I am reminded of some of the recent things which I have read, and the general current of policy talk, about the natural supremacy of the elite in Europe and America, and their entitlement to the spoils in return for their leadership through crisis.

See you Sunday evening.

The New York Fed's Primary Dealers, Liquidity, Monetary Policy, Excess Reserves and Financial Dreadnoughts in Times of Currency War

Someone asked me about Primary Dealers today.   I think it was in regard to liquidity concerns.

Cutting to the punchline, however one wishes to characterize and attribute it, the financial system is once again over-leveraged, over-concentrated, fraught with interconnected with counterparty risk, and fragile.

This is because of the policy failure of the Treasury and the Fed which could be characterized as extend and pretend without engaging in significant reforms and law enforcement in the aftermath of what might be best described as a control fraud. 

I also postulated years ago that when push came to shove, the Fed would gather around itself a few 'friendly banks' which would act on its behalf in private to enforce certain policy decisions in markets in which the Fed and Treasury do not wish to openly operate.  

It is hard to think of any other somewhat moral reason for the government to babysit and subsidize these very expensive and dangerous TBTF monstrosities, except as instruments of policy to provide some degree of freedom to shape events and responses. 

If you want to wage a currency war, you need to have some dreadnoughts packing serious financial throw-weight, and economic muscle.  Think of economic hitmen on steroids.   It may be Machiavellian,  counter-democratic, and expensive, but that is the dictate of strategy if you want to control things and wield power to do what you will, both at home and abroad. 

Is a corollary to the currency war a financial arms race and the construction of institutional behemoths?  I think it might be.  Or it could just be widespread ignorance and corruption amongst the ruling class which certainly is conceivable.  Or some of both.  Why do governments sometimes engage in corporatism?  Take your pick.

So putting that bit of editorial fuss and postulating out of the way, let's talk about some loosely related details of what Primary Dealers are all about.

The Fed uses Primary Dealers to manage monetary policy and its market in Treasury transactions,  first and foremost.   

These operations are both 'temporary' and 'permanent' transactions involving Treasuries, involving repos/reverse repos and purchases/sales respectively. 

I cannot stress enough that in a period of ZIRP, some things are not quite the same and do not carry the same significance as they might imply in 'normal times.'   I think the last chart show the Fed's Adjusted Monetary Base and Excess Reserves helps to illustrate this.

Although the analogy is a bit strained and far from perfect, I think what Bernanke has been doing with the Fed's monetary base and the excess reserves is roughly comparable to what had been done in 1933 with the removal from gold from private hands, and it revaluation afterwards in order to re-capitalize the banks with what was essentially seignorage.

They used gold instead of a platinum coin.  There is no need to confiscate gold when you are not on an external standard, the only constraint being the Fed's willingness to expand its balance sheet, and of course, the value at market of the bond and the dollar, which some conveniently forget when it suits them.

And the 'platinum coin' was a political rather than a monetary play. It is important to keep the two separate, although both are dysfunctional these days. Corruption ranges far and wide.

Certainly Bernanke and Paulsen/Geithner have been much less selective in spreading the wealth to banks, and never engaged in the sort of reforms and bank holiday that the FDR Administration had done.

The management of liquidity in the banking system with particular member banks, non-banks, and foreign entities is not relevant to the Primary Dealers list per se.

I am not sure why they wanted to know this, but since it has been some time I have written about them,  here is a current list of the Primary Dealers from the NY Fed.
"Primary dealers serve as trading counterparties of the New York Fed in its implementation of monetary policy.

This role includes the obligations to:
(i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee (FOMC); and

(ii) provide the New York Fed's trading desk with market information and analysis helpful in the formulation and implementation of monetary policy.
Primary dealers are also required to participate in all auctions of U.S. government debt and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account holders."

Here is some additional information about the nature of the Primary Dealer relationship with the NY Fed.

As one can easily see not all banks, including member banks of the Federal Reserve, and not only banks, are primary dealers.  For example, MF Global was removed from this list in October, 2011.

An institution is not required to be a Primary Dealer to borrow funds from the Fed's various lending facilities including the Discount Window. 

And being a Primary Dealer, or a member bank of the Federal Reserve for that matter, does not oblige a Bank to engage in money laundering or rigging LIBOR, or any other markets. That sort of activity is largely engaged at the discretion of the Bank.

There is a distinction therefore, between the management of monetary policy and the Treasury sales, and the Fed's other operations with banks including reserves, excess reserves, and discount lending among other things.  So one has to have some care about drawing broader conclusion from their activities.

With the advent of ZIRP, the role of excess reserves held at the Fed, and the payment of interest by the Fed to the banks on those reserves, has taken on an added importance in the management of monetary policy and system liquidity. 

In regard to foreign dollar transactions, the Fed typically arranges swap lines with foreign central banks,  as they did in the case of the dollar short squeeze we had seen in Europe for example.

At one time I kept detailed spreadsheets of most of the Fed's weekly operations.  I gave that up around the time of the financial crisis, when the Fed's activities became much more convoluted and even less transparent than they already had been.

Current List of Primary Dealers

Bank of Nova Scotia, New York Agency
BMO Capital Markets Corp.
BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Mizuho Securities USA Inc.
Morgan Stanley & Co. LLC
Nomura Securities International, Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
SG Americas Securities, LLC
UBS Securities LLC.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

Thin, especially the Sprott funds.

The disadvantage they have is that their floats and daily volumes are deep enough to allow them to be used for momentum trading and shorting in arb plays, as compared to other bullion vehicles. They also pay no dividends, and redemptions for bullion are minimal.

The battering the miners have taken is remarkable. Some of them have attractive PE's and dividends that are catching my interest once again as long term holdings.

As a word of caution, relatively high dividend yields may be attractive but can also be a sign of other troubles depressing the stock price and inflating the yield, temporarily in some cases.

21 February 2013

Gold Daily and Silver Weekly Charts - Bounce

The metals bounced today.

There is still the possibility of a lower base forming, but it is probable than we are closer to a bottom than otherwise might be expected.

The artificiality of this selling was notable and unmistakable. If some regulator says that they cannot find price manipulation in these markets, then they really are not looking for it, just following orders.

Last week I said I thought the market would find a footing around 1550 to 1570 and that is still a good outlook. I think we might see a bottoming process into next week's option expiration, with the final tests in the days after expiry depending on how many new holders of futures their are from call options in the money.

Chris Powell of GATA put out a message today that is worth reading. What Then Must We Do?

We do not seem to be able to count on much these days. Such are the times of currency wars, and the craven silence of careerism. In the end, truth will out, and real wealth will remain.

SP 500 and NDX Daily Charts - Finding a Footing

The Philly Fed number came in much lower than expected.

There is no recovery. Capitalism has itself caught in the trap where the concentration of wealth and lag of growth in the median wage, relative to productivity, is strangling the 'virtuous cycle.'

I think the jawboning from the Fed was designed to dampen the growing bubble in financial assets.

Let's see if the correction is done. It seems to have strong support around 1490 in the futures.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

Premiums remain thin.

20 February 2013

Why So Many Russians Have Dashcams

You may have wondered why so many of those meteorite pictures were captured live by Russian dashcams.

Here is the reason why. Russian roadways are like some libertarian wet dream. Except the people seem rather lightly armed.

And I thought driving in Boston was bad.

I think equipping Wall Street traders with dashcams would be a great idea.

The footage could help the SEC and CFTC figure out what is really happening in the markets.

Or not.


Four Largest Banks Are Now Almost As Big As US GDP: Accounting Hides Risks - Taleb on Fragility

This is what happens when one allows the Banks to write their own reform rules in the aftermath of a financial crisis that was spiced with ideology, campaign contributions, and fraud.

JP Morgan, Wells Fargo, Citigroup, and Bank of America, and massively interlocked derivatives positions that are 'netted out' for accounting purposes, but which collapse in chain reaction effect when they encounter counter-party failure, frame this unhappy picture. That is the heart of 'too big to fail.'

And this does not include foreign based banks doing substantial business in the States, that also had to be supported by the Fed during the financial crisis. Or related firms like brokerages, faux banks like Goldman, and camp followers such as AIG and other non-bank financial sector corporations.

To Big To Fail still represents a serious risk to the financial system, and the failure to reform is clear policy error that is owned by the Fed, the Congress, and the Administration.

There will be no sustainable recovery until the Banks are restrained, the financial system is reformed, and balance is restored to the economy.

U.S. Banks Bigger Than GDP as Accounting Rift Masks Risk
By Yalman Onaran
Feb 19, 2013 7:01 PM ET

Warning: Banks in the U.S. are bigger than they appear.

That label, like a similar one on automobile side-view mirrors, might be required of the four largest U.S. lenders if Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., has his way. Applying stricter accounting standards for derivatives and off-balance-sheet assets would make the banks twice as big as they say they are -- or about the size of the U.S. economy -- according to data compiled by Bloomberg.

“Derivatives, like loans, carry risk,” Hoenig said in an interview. “To recognize those bets on the balance sheet would give a better picture of the risk exposures that are there.”

U.S. accounting rules allow banks to record a smaller portion of their derivatives than European peers and keep most mortgage-linked bonds off their books. That can underestimate the risks firms face and affect how much capital they need.

Using international standards for derivatives and consolidating mortgage securitizations, JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. would double in assets, while Citigroup Inc. would jump 60 percent, third- quarter data show. JPMorgan would swell to $4.5 trillion from $2.3 trillion, leapfrogging London-based HSBC Holdings Plc and Deutsche Bank AG, each with about $2.7 trillion.

JPMorgan, Bank of America and Citigroup would become the world’s three largest banks and Wells Fargo the sixth-biggest. Their combined assets of $14.7 trillion would equal 93 percent of U.S. gross domestic product last year, the data show. Total assets of the country’s banking system would be 170 percent of economic output, still lower than 326 percent for Germany.

U.S. accounting rules for netting derivatives allow banks to erase about $4 trillion in assets, the data show. The lenders also can remove from their books most mortgages they package into securities, trimming an additional $3 trillion.

Off-balance-sheet assets and derivatives were at the root of the 2008 financial crisis. Mortgage securitizations kept off the books came back to haunt banks forced to repurchase home loans sold to special investment vehicles. The government had to rescue American International Group Inc. with a bailout that ballooned to $182 billion after the insurer couldn’t pay banks on derivatives tied to those bonds....

Read the rest here.

Gold Daily And Silver Weekly Charts - Gold Target Price Reached Intraday

See the intrady commentary on the metals here.

See comments on the Fed's minutes, which shook the equity markets here.

I think those remarks and the subsequent price declines were more indicative of the overbought condition of stocks than any serious convictions on the part of the Fed to actually prematurely end their QE before the conditions in the real economy which they have cited are met.

If they taper the QE purchases, it will because they choose to do something else to stimulate the economy, rather than just prop up the banking sector's bad debts.

I am beginning to consider adding to long term metals positions since the price has hit the targets I set out last week.  I will give it another day to think about it. 

Copper took a pounding today on rumours that a fund was liquidating longs.

The precious metals, both gold and silver, are rather oversold, and the managed funds are holding what appear to be untenably large short position.