Gold Daily and Silver Weekly Charts - Curiouser and Curiouser

“Anything that has more upside than downside from random events (or certain shocks) is antifragile;  the reverse is fragile.” 

Nassim Taleb, Antifragile

Gold and silver continued to rally today, even as the Dollar took back quite a bit of its recent loss after the Fed did what everyone expected them to do, which is nothing.  Keep in mind that the Dollar DX index is antiquated, and potentially misleading since it is so heavily weighted to the old order currencies.

Currencies are under closer examination now, because we are in a period of change that some have called 'the currency wars.'  Sometimes analysts will narrow that definition down to just the competitive devaluations that governments engage in to help to boost exports and curb imports to their faltering domestic economies.

But it is much more than that.  They are missing the bigger picture because it is the kind of change that occurs over long periods of time.  One day they will look up and see it, and surprise.  Who could have seen it coming?

Gold is the king of currencies, the crème de la crème of monetary vehicles.  If you have an ancient gold coin now, even if it is not of collectible merit, its value is still sustained as bullion after all these years, no matter what country or ruler may have happened to have issued it.  And the same is true for silver.

That is because physical precious metals have no counterparty risk.  No paper currency may make that claim, since they exist on either the strength of a promise, or the force of a threat.  And as the promises erode, the application of force often increases.

It is the international force of wills that is causing the currency wars.  Some wish to uphold the existing regime, the dollar as the reserve currency, whether it makes sense or not.  That is because money is power.  There is little that is noble in this effort.  It is the greed of the merchants and the will to power that they serve.  And the rest of the world has grown weary of it.

Others would aspire to grow the power of the Anglo-American empire at any cost, most of it to be paid by other people.  It is an old story, one of the oldest.  Pride and the will to power, and from them spring jealousy and greed.  Enough is never enough for some.

There was overnight commentary about gold, and some recent controversy about the supplies of gold in London and New York. You might take the time to read Deriding the Theory of Gold Tightness at the Comex.

What goes around comes around.  And what is coming around the corner may be enlightening.

Have a pleasant weekend.

Related:  How Many Gold Bars Are Left In the London Vaults

Fragility: What Has the Watchers Worried In the US Debt Markets

As you know I am on the lookout for a 'trigger event' that might spark another financial crisis, given the composition of the economy and the financial markets. 

In the last financial crisis 2008, it was the failure of the two Bear Stearns hedge funds that exposed the grossly mispriced risks in mortgage backed financial assets, and the generally flawed nature of the market's collateralized debt obligations.  This led to a cascade of failures in fraudulently priced assets, and resulted in increasingly large institutional failures, including the collapse of Lehman Brothers.

One can draw some parallels with the financial crisis before that, which was the gross mispricing of risk and inflated values of internet-related tech companies that had grown to obviously epic proportions by 2000. A failure of several key tech bellwethers to make their numbers, and some negative results in the economy, showed the flaws in the underlying assumptions in what was clearly an asset bubble. And once the selling started, it was Katy-bar-the-door.

 

The failure of two relatively minor hedge funds was not a great event. The failure of a tech bellwether to make its quarterly numbers is not either. But their interconnectedness to the other portions of the world markets through the financial institutions on Wall Street, and more importantly, the fragile nature of the entire pyramid scheme of fraudulently constructed and mispriced risk of financial assets, caused an inherently shaky system to fall apart.  What was most shocking was how quickly it happened once the dominos started falling.

The debt market in the US, with its deep ties to private equities, is probably not a trigger event, the fuse itself.  But it well might serve as the powder keg that will transmit the effects of some more individual event throughout the world's markets and economies.

The gross mispricing of risks in financial paper, again, and the lack of reform in the financial system along with excessive leverage and mispricing of risk, the fragility of long distorted markets if you will, has certainly risen to impressive levels again.

 

It is a familiar template of recklessness, fraud, and  then reckoning.  Afterward there is the usual attempt to blame the government officials which have been corrupted, and the people who have been duped and swindled.  Quite often some scapegoat will be found to be demonized.

 

I am thinking that this time the problem will arise overseas, with the failure of some major financial institutions there.  Perhaps Greece will provide the spark.  Or the Ukraine, or Mideast, or something yet unforeseen.  The failure of some major European bank certainly has historical precedent.

 

And if we do experience another crisis, do not be surprised if the moguls of finance come to the Congress through their proxies again, with a sheet of paper in hand demanding hundreds of billions of dollars, or else.

Last time it was a bail-out, which was the printing of money by the Fed to monetize the banking losses and shift them to the public.  This time they are thinking of something more direct, talking about a bail-in.   What if they eliminated cash, and started utilizing and redploying financial assets like savings and pensions.   The uber-wealthy already have their wealth parked in hard income-producing assets and offshore tax havens.  Who would stop them?

Like war, there will be an end to this kleptocratic economy of bubble economics and financial crises when the costs are borne by those responsible for it, and who so far are benefitting from it, enormously.

 

Tell us why you think it might be different this time.   What has really changed?  From what I can tell, it has not only stayed the same for the most part under the cosmetics of change, and significant portions of the financial landscape have gotten decidedly more dangerous, larger, and more leveraged.

 

Wall Street On Parade

Here Is What’s Fraying Nerves Among the Financial Stability Folks at Treasury

By Pam Martens and Russ Martens

June 10, 2015

On Monday, Richard Berner worried aloud at the Brookings Institution about what’s troubling the smartest guys in the room about today’s markets.

Berner is the Director of the Office of Financial Research (OFR) at the Treasury Department. That’s the agency created under the Dodd-Frank financial reform legislation to, according to their web site, “shine a light in the dark corners of the financial system to see where risks are going, assess how much of a threat they might pose,” and, ideally, provide the analysis to the folks sitting on the Financial Stability Oversight Council in time to prevent another 2008-style financial collapse on Wall Street.

Two notable concerns stood out in Berner’s talk. First was a concern about liquidity in bond markets evaporating rapidly for reasons they don’t yet “sufficiently understand.”

...Another major concern are the bond mutual funds and ETFs that have mushroomed since the 2008 crisis and are stuffed full of illiquid assets or assets which might become illiquid in a financial panic.

Read the entire article here.

The Financial System Remains Fragile and At Risk Due To Lack of Meaningful Reform

Read this, and remember when the next financial crisis comes, and the officials and academics say, 'who could have seen it coming?'

Both JP Morgan and Citigroup are at the top of the list of banks posing a high contagion risk.

Why don't those who have been charged with the task of regulating and reforming this in the aftermath of the financial collapse of 2008 fix the system? 

 

Why do the Banks and their courtiers on K Street resist reform so strongly? 

Because short term profits and hot money are trumping public interest, sound reason, and even common sense.

Interconnected Banks Pose Greatest Threat to U.S. Financial System

By Pam Martens and Russ Martens

February 17, 2015

Last Thursday, the Office of Financial Research (OFR), part of the Federal boondoggle created under the Dodd-Frank financial reform legislation in 2010 to foster the illusion that the government was reining in risk on Wall Street, released a new study showing almost unfathomable levels of systemic and interconnected risk among the too-big-to-fail banks that cratered the U.S. financial system in 2008 and has left our economy still struggling to right itself.

Authored by Meraj Allahrakha, Paul Glasserman, and H. Peyton Young, the report reconfirms to Americans that nothing significant has been accomplished in the last six years to prevent casino capitalism on Wall Street from crashing our financial system and the U.S. economy again. The report found that five U.S. banks had high contagion index values — Citigroup, JPMorgan, Morgan Stanley, Bank of America, and Goldman Sachs...

Read the entire article here.