Gold Daily and Silver Weekly Charts - Silver Manipulated, and a Silver Exchange Holiday

There has been some significant intraday commentary.  I wished to highlight the portion of it that deals with the disposition of the metals markets.

There was a remarkable admission on a major US television network that the silver market is being manipulated.

And having thought about this for some time, afterwards I put forth a possible scenario about what comes next given the inevitability of some event on the exchange, given the severe imbalance of claims to legitimate supply, which are estimated at 40, 50, and even 100:1.

I can envision a holiday for the American silver exchange and the forced settlement of all paper bullion claims for a set price, much lower than what will follow next.  This might include gold as well.

It is difficult for a manipulation scheme to come to any other end, given the length of time it has been in place and the size of the positions still being held by the untouchable Banks and Very Important People.  I imagine they will blame some defunct scapegoat, like a Bear Stearns.

If you do not think that this is possible, read the description.  It sounds very much like the sudden decline and fall of MF Global.

Knowledge grows when shared. If you enjoy these things, then you may wish to consider passing them to others.

Banker Fraud Is Undermining Confidence in the Markets

People forget, but there are times in history when the financial markets fall out of favor with investors because they lose confidence..

And they now have very good reasons to doubt just about anything that Wall Street says.

I think the low volumes indicate that the Wall Street wiseguys are pushing their luck.  Once trust is lost, it is difficult to get it back. 

And if justice long denied comes in a rush to Wall Street, hell may come with it.  History shows us that.

Telegraph
Bank forecasts futile now all trust has gone, says analyst
By Alistair Osborne
6:23PM BST 02 Jul 2012

Sandy Chen, bank analyst at Cenkos Securities, said it was pointless revising forecasts until Barclays came clean over what had gone on.

 “Analysts spend 99pc of their time crunching numbers, but underneath the complicated edifice of earnings forecasts lies a basic foundation of trust,” he said.

“In essence, the price movements in markets track the flow of conversation around one basic question – 'Do I trust them and their promised returns?’ Without the trust, nothing stands.”

Mr Chen said revelations that Barclays chief executive Bob Diamond had held talks in 2008 with the Bank of England over Libor simply clouded the issue further.

“The trust has been breached. Until the banks clear their names, we expect the markets for their shares and bonds will remain dysfunctional,” he said. “Without full management clarity, transparency and responsibility... we think forecast revisions are futile.” 

John C. Williams: The Federal Reserve's Brand of Modern Monetary Theory

I will comment more on this later but I thought it was interesting and probably quite important for future reference.

One point of contention for me has been this whole issue of the Fed paying interest on excess reserves, essentially incenting banks, if the rate is high enough, to cause banks to hoard reserves at the Fed rather than lend the money out to the real economy.

This point was argued quite vociferously some years ago during the first quantitative easing.  We were told by the New York Fed, as I recall, that this was not the case, and that the payment of interest on excess reserves was only a means for the Fed to manage rates at the zero bound, and did not affect the levels of reserves which are only an accounting identity, after all.

Williams seems to contradict this now.  But I have to give it an extra careful reading in this case.

However, some might look at his data and his reasoning and conclude that while the Fed's policies have been doing quite a bit to provide solvency to the banking system, it has not done well by the real economy.  The GDP and employment numbers seem to bear this out.

One might conclude that reducing the interest paid on reserves would cause the banks to make more loans to the real economy.  And yet not so long ago the NY Fed and several of their economists also argued against what seems like common sense that this was not the case, not at all.

So it might be important to pin the Fed down a bit on this now.  Their thinking could be evolving, or it might just be dissembling to suit the changing situation.   One might gather from what Mr. Williams is saying about rewriting established theory that they don't quite know what it is that they are doing, but instead are feeling their way along in uncharted waters.

This of course widens the risk of a policy error enormously.  Greenspan's Fed was replete with policy errors, but of course he was the gure, the infallible one.  And we should trust these same economists who lionized him now for what reason?

From my own perspective the Fed has spun what they are doing in so many different ways at different times that it is difficult to take what they are saying here at face value.

And that is another feature of the credibility trap.

I believe this speech by John C. Williams is significant, in the manner of Bernanke's famous printing press speech.  Deflation: Making Sure It Doesn't Happen Here. 

Let's give it a careful read and see if it provides any additional clues to what they are thinking, and what they might do next.

San Francisco Federal Reserve Bank
Monetary Policy, Money, and Inflation
John C. Williams, President and CEO
2 July 2012

Good morning. I’m very pleased to be in such eminent company, especially that of my former advisor at Stanford, John Taylor. And I’ll begin my presentation with a reference to another pathbreaking monetary theorist. Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” 1

We are currently engaged in a test of this proposition. Over the past four years, the Federal Reserve has more than tripled the monetary base, a key determinant of money supply.   Some commentators have sounded an alarm that this massive expansion of the monetary base will inexorably lead to high inflation, à la Friedman.

Despite these dire predictions, inflation in the United States has been the dog that didn’t bark. As Figure 1 shows, it has averaged less than 2 percent over the past four years. (Past performance is not an indicator of future success - Jesse)  What’s more, as the figure also shows, surveys of inflation expectations indicate that low inflation is anticipated for at least the next ten years.  (Did they anticipate the financial collapse? - Jesse)

In my remarks today, I will try to reconcile monetary theory with the recent performance of inflation. In my view, recent developments make a compelling case that traditional textbook views of the connections between monetary policy, money, and inflation are outdated and need to be revised. As always, my remarks represent my own views and not necessarily those of others in the Federal Reserve System.

I’ll start with two definitions. The monetary base is the sum of U.S. currency in circulation and bank reserves held at the Federal Reserve. Figure 2 shows the key components of the monetary base since 2007. Up until late 2008, it consisted mostly of currency, with a small amount of bank reserves held mostly to meet regulatory requirements. Since then, the monetary base has risen dramatically, primarily because of a $1.5 trillion increase in bank reserves. The money stock is a related concept. It is the total quantity of account balances at banks and other financial institutions that can easily be accessed to make payments. A standard measure of the money stock is M2, which includes currency, and certain deposit and money market accounts.

Here I should make an important point about something that often confuses the public. The worry is not that the Fed is literally printing too much currency. 2 The quantity of currency in circulation is entirely determined by demand from people and businesses. It’s not an independent decision of monetary policy and, on its own, it has no implications for inflation. (It is the money stock that concerns people, not the adjusted monetary base per se - Jesse)

The Federal Reserve meets demand for currency elastically. If people want to hold more of it, we freely exchange reserves for currency. If people want less, then we exchange it back. Of course, currency doesn’t pay interest. People hold it as a low-cost medium of exchange and a safe store of value. In fact, over the past four years, U.S. currency holdings have risen about 35 percent. This reflects low interest rates, which reduce the opportunity cost of holding currency. It’s also due to worries about the economy and the health of the banking system, both here and abroad. In fact, nearly two-thirds of U.S. currency is held outside our borders. 3  U.S. currency is widely seen as a safe haven. When a country is going through economic or political turmoil, people tend to convert some of their financial assets to U.S. currency. Such increased demand for U.S. currency is taking place in Europe today.

For monetary policy, the relevant metric is bank reserves. The Federal Reserve controls the quantity of bank reserves as it implements monetary policy. To keep things simple, I’ll start with what happens when the Fed doesn’t pay interest on reserves, which was the case until late 2008. I’ll return to the issue of interest on reserves toward the end of my talk.

Before interest on reserves, the opportunity cost for holding noninterest-bearing bank reserves was the nominal short-term interest rate, such as the federal funds rate. Demand for reserves is downward sloping. That is, when the federal funds rate is low, the reserves banks want to hold increases. Conventional monetary policy works by adjusting the amount of reserves so that the federal funds rate equals a target level at which supply and demand for reserves are in equilibrium. It is implemented by trading noninterest-bearing reserves for interest-bearing securities, typically short-term Treasury bills.

Normally, banks have a strong incentive to put reserves to work by lending them out. If a bank were suddenly to find itself with a million dollars in excess reserves in its account, it would quickly try to find a creditworthy borrower and earn a return. If the banking system as a whole found itself with excess reserves, then the system would increase the availability of credit in the economy, drive private-sector borrowing rates lower, and spur economic activity. Precisely this reasoning lies behind the classical monetary theories of multiple deposit creation and the money multiplier, which hold that an increase in the monetary base should lead to a proportional rise in the money stock.

Moreover, if the economy were operating at its potential, then if the banking system held excess reserves, too much “money” would chase too few goods, leading to higher inflation. Friedman’s maxim would be confirmed. Here’s the conundrum then: How could the Fed have tripled the monetary base since 2008 without the money stock ballooning, triggering big jumps in spending and inflation? What’s wrong with our tried-and-true theory?

A critical explanation is that banks would rather hold reserves safely at the Fed instead of lending them out in a struggling economy loaded with risk. The opportunity cost of holding reserves is low, while the risks in lending or investing in other assets seem high. Thus, at near-zero rates, demand for reserves can be extremely elastic. The same logic holds for households and businesses. Given the weak economy and heightened uncertainty, they are hoarding cash instead of spending it. In a nutshell, the money multiplier has broken down. 4

The numbers tell the story. Despite a 200 percent increase in the monetary base, measures of the money supply have grown only moderately. For example, M2 has increased only 28 percent over the past four years. 5  Figure 3 shows that the money multiplier—as measured by the ratio of M2 to the monetary base—plummeted in late 2008 and has not recovered since. Nominal spending has been even less responsive, increasing a mere 8 percent over the past four years. As a result, the ratio of nominal gross domestic product, which measures the total amount spent in the economy, to the monetary base fell even more precipitously, as the figure shows. This ratio also has not recovered, illustrating how profoundly the linkage between the monetary base and the economy has broken.

A natural question is, if those reserves aren’t circulating, why did the Fed boost them so dramatically in the first place? The most important reason has been a deliberate move to support financial markets and stimulate the economy.  By mid-December 2008, the Fed had lowered the federal funds rate essentially to zero. Yet the economy was still contracting very rapidly. Standard rules of thumb and a range of model simulations recommended setting the federal funds rate below zero starting in late 2008 or early 2009, something that was impossible to do. 6  

Instead, the Fed provided additional stimulus by purchasing longer-term securities, paid for by creating bank reserves. These purchases increased the demand for longer-term Treasuries and similar securities, which pushed up the prices of these assets, and thereby reduced longer-term interest rates. In turn, lower interest rates have improved financial conditions and helped stimulate real economic activity. 7 

The important point is that the additional stimulus to the economy from our asset purchases is primarily a result of lower interest rates, rather than a textbook process of reserve creation, leading to an increased money supply. It is through its effects on interest rates and other financial conditions that monetary policy affects the economy.

But, once the economy improves sufficiently, won’t banks start lending more actively, causing the historical money multiplier to reassert itself? And can’t the resulting huge increase in the money supply overheat the economy, leading to higher inflation? The answer to these questions is no, and the reason is a profound, but largely unappreciated change in the inner workings of monetary policy. 

The change is that the Fed now pays interest on reserves. The opportunity cost of holding reserves is now the difference between the federal funds rate and the interest rate on reserves. The Fed will likely raise the interest rate on reserves as it raises the target federal funds rate. 8 Therefore, for banks, reserves at the Fed are close substitutes for Treasury bills in terms of return and safety. A Fed exchange of bank reserves that pay interest for a T-bill that carries a very similar interest rate has virtually no effect on the economy. Instead, what matters for the economy is the level of interest rates, which are affected by monetary policy.

This means that the historical relationships between the amount of reserves, the money supply, and the economy are unlikely to hold in the future. If banks are happy to hold excess reserves as an interest-bearing asset, then the marginal money multiplier on those reserves can be close to zero. As a result, in a world where the Fed pays interest on bank reserves, traditional theories that tell of a mechanical link between reserves, money supply, and, ultimately, inflation are no longer valid. In particular, the world changes if the Fed is willing to pay a high enough interest rate on reserves. In that case, the quantity of reserves held by U.S. banks could be extremely large and have only small effects on, say, the money stock, bank lending, or inflation.

As I noted earlier, inflation and inflation expectations have been low for the past four years, despite the huge increase in the monetary base. Of course, if the economy improved markedly, inflationary pressures could build. Under such circumstances, the Federal Reserve would need to remove monetary accommodation to keep the economy from overheating and excessive inflation from emerging. It can do this in two ways: first, by raising the interest rate paid on reserves along with the target federal funds rate; and, second, by reducing its holdings of longer-term securities, which would reverse the effects of the asset purchase programs on interest rates.

In thinking of exit strategy, the nature of the monetary policy problem the Fed will face is no different than in past recoveries when the Fed needed to “take away the punch bowl.” Of course, getting the timing just right to engineer a soft landing with low inflation is always difficult. This time, it will be especially challenging, given the extraordinary depth and duration of the recession and recovery. The Federal Reserve is prepared to meet this challenge when that time comes. Thank you.

End Notes

1. Friedman (1970), p. 24.

2. Technically, the Bureau of Engraving and Printing prints paper currency. The Federal Reserve is responsible for processing and distributing currency to the banking system. The Federal Reserve also distributes coins, which are distinct from paper currency, to the banking system, but the amount of coins in circulation is comparatively small.

3. See Goldberg (2010).

4. For a discussion of this, see Williams (2011a).

5. Similarly, an alternative measure of the money stock, MZM, increased 26 percent over the past four years.

6. See Chung et al. (2011) and Rudebusch (2010).

7. See Williams (2011b) for details.

8. For details on the Fed’s planned exit strategy, see the minutes for the June 2011 FOMC meeting (Board of Governors 2011).

SP 500 and NDX Futures Daily Charts

Weaker than expected economic numbers put a damper on the US equity markets, but the usual late day rally brought the numbers back into the green.

There is a national holiday in the States on Wednesday.

There is intraday commentary on the quality of these markets.

 

Why Do Bankers' Seem to be Uniquely Immune to Punishment? - Silver Exchange Holiday

"The global economy has yet to overcome the legacies of the financial crisis to achieve balanced, self-sustaining growth. In different ways, vicious cycles are hindering the transition for both the advanced and emerging market economies...

Markets do not perceive the crisis to be over. Concerns about the banking sector’s vulnerability continue to depress equity valuations and raise spreads in debt markets. Official support has provided only a partial reprieve."

Bank for International Settlements, 82nd Annual Report, 24 June 2012

It is all about the credibility trap. Thank you very much.

A credibilty trap is a situation where the regulatory, political and informational functions of a society have been thoroughly taken in by a corrupting influence and a fraud so that one cannot even begin to discuss the situation honestly without implicating, at least incidentally, a broad swath of the power structure and the status quo who at least tolerated it, if not profited directly from it. Who will reform the reformers?

It is difficult to discuss a particular problem in any sort of specifics without at least reviewing some of the facts and causes in a open manner. But when the problem involves a fraud, that discussion can become rather difficult if those leading the discussion are too close to the situation.

So we have these myths about vaporizing money, and magical thinking about how things just happen without any human intelligence or activity behind them. It just seemed to have happened as a series of unfortunate events. Who could have known?

But on a larger note, we are all to blame aren't we? So let's just move on.

In thinking about this manipulation issue further, and the events of the past few weeks, it would not surprise me overmuch if some day in the not too distant future we wake up to the news that the CFTC, the SEC, the Justice Department, the FSA, and the Banks have agreed to a settlement in some major market, perhaps the metals market, as a result of an official investigation. There will be record fines, and the regulators will claim victory.

The existing contracts for the related asset or assets, on the exchanges and in unallocated and perhaps even 'allocated' accounts, and perhaps even a big ETF, will all be force settled for a pre-determined price in dollars, and that the banks will agree not to manipulate the markets anymore, without admitting any guilt.

And of course after a one or two day holiday, the price of that underlying asset, perhaps bullion, will be revalued significantly higher.  And there will be definite winners and losers because of this forced repricing in resolving this 'problem.'

The assets will not be overtly confiscated, so much as paper claims and storage receipts dismissed, and the system 'reset.' But word may have leaked out, and ownership of assets will have passed to informed hands prior to the event.

No, that could not happen, right? Well, it is pretty much what happened in the case of MF Global, except this would be on a larger scale.

Salon
Bankers constantly lying, defrauding; most still not in jail
By Alex Pareene
2 July 2012

Barclays, JPMorgan and the rest of the megabanks reach new heights in malfeasance, suffer few consequences

Has there ever been a better time to be a disastrously inept banker? Well, probably — over the course of human civilization it’s almost always been a pretty good time to be a banker — but today’s finance titans seem uniquely immune to punishment of any sort.

Remember how JPMorgan Chase accidentally lost $2 billion in a “hedge”-slash-huge stupid bet placed by a guy in the Chief Investment Office? Funny story, it will actually end up being closer to $6 billion, or maybe like $9 billion — who can be sure, math is pretty complicated, it’s all imaginary money anyway — as the bank attempts to extricate itself from the insanely complex losing trade made by the office that is supposed to manage the bank’s risk.

Funnier story: Remember when Mr. Jamie Dimon, the head of JPMorgan Chase and the World’s Sagest Banker, was asked to sit before the Senate Banking Committee and be repeatedly complimented and praised? And remember how he kept mentioning “claw-backs,” the weird bank term for taking bonuses away from people who screw up? Turns out Ina Drew, the former head of the Chief Investment Office — the one who lost somewhere between more money than you’ll ever see in your entire life and more money than God has ever seen in His entire life — will not have any of her money clawed back...

Read the rest here.

Credibility Trap: Silver and Financial Markets Are Manipulated, But So What?

"The world is now five years on from the outbreak of the financial crisis, yet the global economy is still unbalanced and seemingly becoming more so as interacting weaknesses continue to amplify each other. The goals of balanced growth, balanced economic policies and a safe financial system still elude us.

In advanced economies at the centre of the financial crisis, high debt loads continue to drag down recovery; monetary and fiscal policies still lack a comprehensive solution to short-term needs and long-term dangers; and despite the international progress on regulation, the condition of the financial sector still poses a threat to stability.

From time to time, encouraging signs raise hopes – but they are quickly dashed, delivering another blow to the confidence of consumers and investors."

Bank for International Settlements, Breaking the Vicious Cycle, 82nd Annual Report, 24 June 2012

Someone sent this video show below to me in response to the things I have written earlier today.

I find the whole clip absolutely remarkable when viewed from an objective, or at least a non-American and non-financial industry, point of view. The exceptionalism and denial in this discussion as it unfolds is surprising to watch, and the groups chastises Europe while dismissing the corruption in the Anglo-American banking system that significantly contributed to the crisis.

Normally we do not hear such relatively open talk until the late stages of an unfolding financial collapse when hiding the reality of what is happening becomes pointless.

What really "knocks one's socks off" is the general admission and conclusion beginning around minute 9 of this video that the banks are manipulating the financial and commodity markets, with silver specifically mentioned. And the panel accepts it as 'oh well, that's the banking system.' That's just the way things are and if you don't like it, well then tough luck for you.

I am sure these are all very nice people, but they are so deeply involved with the financial system that they have lost their perspective. And that is a general problem with some of the professions like economics and financial reporting. Perhaps this is why we seem to be getting the best information on this from non-financial sources, with a few notable exceptions.

This is a fine example of the credibility trap. The truth is so damaging to oneself as a member of a particular status quo that it can rarely be admitted, and if admitted, cannot be taken seriously. After all, the game is rigged, and everyone knows. Well at least everyone who counts, but for anyone who says it before its time they are ridiculed, shunned, and dismissed.

As I have said, at least CNBC is willing occasionally to entertain such discussions, as opposed to the extended infomercials and streaming agitprop carried in the guise of reporting on some of the other corporate news channels.

After a long discussion of how the private sector must suffer further, a somewhat eccentric but interesting review of the European postwar economies, and some additional economic babytalk, the group segways to JPM's upcoming earnings report and the London Banking scandal.

I particularly enjoyed Chris Whalen's description of JPM's CIO as a 'rogue hedge fund in London.' He knows better. And the dismissal of the LIBOR scandal as business as usual, which Mervyn King recently described as 'a culture of deceit,' is truly interesting. Does such self-serving hypocrisy have any limits, to not even bother to feign surprise?

I do not wish to pick on Chris, but he is a smart and generally well-educated fellow, a graduate of Villanova, but he is still a creature of the system, a former employee of the NY Fed and Bear Stearns, and captive to a cultural mind set, perhaps without even realizing it, that is apparent to an outsider.

Whalen: None of its [JPM's CIO losses] are acceptable, but see the whole point is Jamie got entangled in the media. (He got caught lying and gambling with customer money - Jesse) If this had just been a reported loss with a lot of other numbers we wouldn't be talking about it. It's a trivial number in the grand scheme of things.

Sorkin: What may be less trivial is this situation, this scandal involving LIBOR.

Whalen: Ah well, welcome to the banking industry. Come on, uh, you know... (wink wink, nod nod)

Sorkin: You hear about these things...

Whalen: Foreign exchange, Libor...

Sorkin: You used to think these were conspiracy theories. Right? You hear this about people manipulating LIBOR, you hear about people manipulating the silver market, and you'd say...

Michelle: And they are!

Sorkin: And they are!

And that, ladies and gentlemen, is the credibility trap in action, during the late stage decline and failure of a thoroughly rotten economic status quo.

The FT's Martin Wolf Shoots the 'Naturally Efficient Markets' Hypothesis in the Head

In the absence of effective regulatory oversight and objective restraint, the financial insiders rigged the market, not incidentally, but systemically and flagrantly over a long period of time.

Market manipulation is no obscure theory, not some secular transgression committed on the periphery by rogue traders, but a pervasive feature of the Anglo-American banking system that stubbornly resists reform through the accumulated power of a credibility trap.

A credibilty trap is a situation where the regulatory, political and informational functions of a society have been thoroughly taken in by a corrupting influence and a fraud so that one cannot even begin to discuss the situation honestly without implicating, at least incidentally, a broad swath of the power structure and the status quo who at least tolerated it, if not profited directly from it. Who will reform the reformers?

As I had hoped, the exposure of the LIBOR fixing scandal is proving to be a watershed moment, even though the common person outside the City of London hardly understands the implications of it yet.  It may not gain traction without another collapse, in times such as these, but it is an irrefutable landmark.

I think in time even the true believers in unrestrained markets, and so often the haters of all government, might find their faith in the natural goodness of those modern ubermensch, the financial corporations, to be shaken.

It was always a silly notion, that left to themselves people who are fraught with flaws and foibles and motivated by personal gain would act with perfect altruistic rationality like some sort of benign demi-gods. In prior days when educated people had learned history and philosophy and thereby some practical wisdom, as well as more marketable skills, the purveyors of such nonsense would have been laughed out of the room when proposing such an outlandish theory.

But change is hard to do. And we have several decades of the free-market follies running at a higher tide then normal now, with the utopian notion that we must knock down or cripple all the laws regulating the markets in order to be free. Free of the government, but naked and defenseless against private rapaciousness and the organized plunder of increasingly powerful supra-national corporations.

Their philosophy has been tried and found not only to be wanting, but barking mad. The problem with madness is that it is often unemcumbered by doubts and self-restraint, even as it falls into the abyss.

Martin Wolf's primary contribution to this is not some new and valuable insight, but rather the voice of a respected name, a 'serious person, who notes somewhat drily that the emperor is naked and we need to do something about it before he attacks the women and children in his ravings.

I chafe a bit at Mr. Wolf's somewhat unambitious prescription, that banks should be encouraged to charge higher fees, so they would not be so tempted to steal from their customers and the public, to fund their extravagant lifestyles. It does often appear to be a somewhat one-sided arrangement. Some US Banks Now Require Customers to Pay ALL Legal Fees in Disputes Regardless of Outcome.

I seem to recall a long period of time during which investment and utility banking were separate, and the incomes and lifestyles of the utility bankers were modest, more in keeping with an electric utility worker than a financial potentate.

Perhaps we should look to what went wrong with the banking and financial system, and re-learn the lessons of the past.

But do not expect this obvious thing to come easily. For as Robert F. Kennedy once observed, "About one fifth of the people are against everything, all the time." And the monied interests seem to have about one fifth of the people wrapped around their little fingers and whipped into a self-destructive hysteria these days.

But it seems as though the Allies are about to cross the Rhine, and the kings of Wall Street are huddling in their bunkers and ratholes, planning their final counterattack, moving divisions of hardened mercenaries and true believers to their defense, even as their enablers and sycophants in the Congress and the media start slipping slowly away.

This too shall pass, but not without causing further damage in the process. These are tricky and unscrupulous boys, and they have co-opted quite a bit of the system. But they have reached and surpassed their zenith, and their power begins to wane.  And so now it is time to leave.

It is always the hubris, and overreach, a step too far.

"My interpretation of the Libor scandal is the obvious one: banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with.

As my colleague John Kay, has frequently point out, such behaviour, which might seem to be the logical consequence of profit-maximisation, is incompatible with the survival of a sophisticated market economy. Without trust in the probity of those one deals with a host of potentially profitable long-term arrangements will collapse. This is particularly true in banking, Trust is not an optional extra in banking, it is, as the salience of the word “credit” to this industry implies, of the essence.  ('credo, credere,' and all that - Jesse)

It is difficult to know how to restore not just the reality, but the perception, of trustworthiness, to this industry. But part of the answer must be a separation of the self-interested trading culture of today’s investment banking from the service-oriented culture of old-fashioned commercial banking. That has always seemed to me to be a strong argument for the ring-fencing of retail from investment banking that the ICB proposed...

The banking industry performs a set of vital public functions – the provision of credit and the management of money. But its culture is not that of service-oriented utilities, but rather of huge entities acting solely for their own purposes.

A full retail ring-fence, which separates the investment banking from the retail banking, (colloquially known as Glass-Steagall - Jesse)  plus much higher capital requirements, would be a good start. This combination would, I believe, see the disappearance of much unnecessary trading activity. Good riddance, I would say. But the UK would also have to accept that the present charging model for retail banking – free, if in credit – is also one of the reasons for the endless series of scandals. The model is broken, in the current low-interest rate environment. Banks must be encouraged to charge open fees for service, rather than make money by covert means...

Read the rest here.

That Most Dangerous Time in the History of a Great Nation

Someone reminded me of this passage from an old history book today. It was a memory of days gone by for me, when I studied Roman history for a whimsical second major in Classics as a bright eyed undergraduate.

People have been comparing the US to the Roman Empire in decline since at least the 1950's. It was a favorite meme of my mother, child as she was of the Great Depression and the Second World War.  And yet we sometimes look back now to that early postwar period as 'the good old days.'

Unstable times bring great risks. A.H. Beesley wrote this history shortly after the First World War, when the flower of Europe had been lost in the trenches and the British Empire was staggered.  Most people are not aware of the foundation of the Roman Republic with the overthrow of the monarchy around 500 BC, and the four hundred year period of the popular consuls, with their own decline, the third servile revolt of Spartacus, and the rise of the princeps, clever politicians and powerful generals, epitomized finally by the dictator, Julius Caesar.

Beesley asks the rhetorical question in 1921 that a Roman citizen might have asked in 70 BC, 'The hour for reform was surely come. Who was to be the man?'

And so, seemingly, here we are again.

Universal degeneracy of the Government, and decay of the nation

Everywhere Rome was failing in her duties as mistress of the
civilised world. Her own internal degeneracy was faithfully reflected
in the abnegation of her imperial duties. When in any country the
small-farmer class is being squeezed off the land; when its labourers
are slaves or serfs; when huge tracts are kept waste to minister to
pleasure; when the shibboleth of art is on every man's lips, but ideas
of true beauty in very few men's souls; when the business-sharper is
the greatest man in the city, and lords it even in the law courts;
when class-magistrates, bidding for high office, deal out justice
according to the rank of the criminal; when exchanges are turned into
great gambling-houses, and senators and men of title are the chief
gamblers; when, in short, 'corruption is universal, when there is
increasing audacity, increasing greed, increasing fraud, increasing
impurity, and these are fed by increasing indulgence and ostentation;
when a considerable number of trials in the courts of law bring out
the fact that the country in general is now regarded as a prey, upon
which any number of vultures, scenting it from afar, may safely
light and securely gorge themselves; when the foul tribe is amply
replenished by its congeners at home, and foreign invaders find any
number of men, bearing good names, ready to assist them in
robberies far more cruel and sweeping than those of the footpad or
burglar'--when such is the tone of society, and such the idols before
which it bends, a nation must be fast going down hill.

A more repulsive picture can hardly be imagined. A mob, a moneyed
class, and an aristocracy almost equally worthless, hating each other,
and hated by the rest of the world; Italians bitterly jealous of
Romans, and only in better plight than the provinces beyond the sea;
more miserable than either, swarms of slaves beginning to brood
over revenge as a solace to their sufferings; the land going out of
cultivation; native industry swamped by slave-grown imports; the
population decreasing; the army degenerating; wars waged as a
speculation, but only against the weak; provinces subjected to
organized pillage; in the metropolis childish superstition, whole sale
luxury, and monstrous vice.

The hour for reform was surely come. Who was to be the man?

A.H. Beesley, The Gracchi Marius and Sulla, 1921

Lords of Finance: The Bankers Who Broke the World

Liaquat Ahamed, author of Lords of Finance, The Bankers Who Broke the World, discusses the parallels between the Great Depression and the Financial Crisis of today at The American Academy of Berlin.

I concur heartily with Mr. Ahamed on the primary causes of the bubble and collapse, especially with regard to the enormous policy errors of the Greenspan Fed.

But I always find it annoying that the conscious, widespread fraud that was promoted by Wall Street, both in 1929 and in the most recent crisis, is rarely discussed as the major corrupting influence that distorted both economic and monetary policy and the real economy.

I cannot speak to the 1920s, but there is little doubt in my mind that there was a concerted effort to game and corrupt the financial system that gained a major momentum in the 1990s, and that culminated in the financial collapse and economic malaise and instability that is plaguing the world today.

One needs look at the actions of Messrs. Greenspan, Rubin, and Weil, and the political administrations during Clinton and Bush and Obama, to begin to penetrate the veil of secrecy.

The only mania and madness of the people was in trusting the words of demagogues and conmen, and their associated supporters and enablers. And even today people continue to mouth their false slogans and fatal prescriptions.

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

Weekend Reading: You Are Called To a Great Undertaking

“Evil has no substance of its own, but is only the defect, excess, perversion, or corruption of that which has substance.”

J. H. Newman

“We are slow to master the great truth that even now Christ is, as it were, walking among us, and by His hand, or eye, or voice, bidding us to follow Him. We do not understand that His call is a thing that takes place now. We think it took place in the Apostles' days, but we do not believe in it; we do not look for it in our own case.

There is an inward world, which none see but those who belong to it.

God beholds you. He calls you by your name. He sees you and understands you as He made you. He knows what is in you, all your peculiar feelings and thoughts, your dispositions and likings, your strengths and your weaknesses. He views you in your day of rejoicing and in your day of sorrow. He sympathizes in your hopes and your temptations. He interests Himself in all your anxieties and remembrances, all the risings and fallings of your spirit.

He encompasses you round and bears you in His arms. He notes your very countenance, whether smiling or in tears. He looks tenderly upon you. He hears your voice, the beating of your heart, and your very breathing. You do not love yourself better than He loves you.

You cannot shrink from pain more than He dislikes your bearing it; and if He puts it on you, it is as you would put it on yourself, if you would be wise, for a greater good afterwards.

God has created me to do Him some definite service; He has committed some work to me which He has not committed to another. I have my mission -- I may never know it in this life but I shall be told it in the next.

I am a link in a chain, a bond of connection between persons. He has not created me for naught.

I shall do good, I shall do His work. I shall be an angel of peace, a preacher of truth in my own place while not intending it if I do but keep His commandments.

Therefore I will trust Him. Whatever I am, I can never be thrown away. If I am in sickness, my sickness may serve Him; in perplexity, my perplexity may serve Him. If I am in sorrow, my sorrow may serve Him.

He does nothing in vain. He knows what He is about.

He may take away my friends. He may throw me among strangers. He may make me feel desolate, make my spirits sink, hide my future from me -- still He knows what He is about.

Let us feel what we really are--sinners attempting great things. Let us simply obey God's will, whatever may come. He can turn all things to our eternal good. Easter day is preceded by the forty days of Lent, to show us that they only who sow in tears shall reap in joy.

Fear not that thy life shall come to an end, but rather that it shall never have had a beginning.

May the Lord support us all the day long, till the shades lengthen, and the evening comes, and the busy world is hushed, and the fever of life is over, and our work is done.

Then in His mercy may He give us safe lodging, and a holy rest, and peace at last.”

John Henry Newman

Gold Daily and Silver Weekly Charts - End of Quarter Rally After Steady Price Capping

The metals bears were stuffed today as it was risk on all the way.

Let's see how the next week closes now that the second quarter has been put to bed.

SP 500 and NDX Futures Daily Charts - End of Quarter And First Half 0f 2012

Quite a rally today based on the TARP like nature of the new bank bailout in Europe wherein the money is given directly to the banks and not their national sovereigns. Additionally there are signs that Europe may move to a Federal Reserve type structure.

Or it could just have been an excuse to run the market higher to make the end of quarter numbers look good.

US Consumer Spending and Confidence Fall to Lows of the Year

See you next week.

The US Supreme Court Upholds the Affordable Healthcare Act

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

European Leaders Agree to $120 Billion Pact To Promote Growth and Paint Tape To Quarter End

Do you think some word of this leaked out to the markets? Aren't some of those fellows Goldman alums? lol

The financiers and politicians do like to make a 'splash' especially when they have nothing real to say. And it does provide a nice excuse for the end of quarter stock market charade.

To put the amount in context, the Spanish banks alone need that entire amount to remain solvent.

So far it looks like nothing of great significance and the stock futures are lackluster in their reception. It is more of a 'stimulus plan' and a collection of things already on the table.

Kicking the can...

The equity futures are not impressed.

Dow Jones newswire

European Union leaders meeting Thursday were set to commit to a growth pact worth 120 billion euros ($149.8 billion), including a boost in the capital of the European Investment Bank of EUR10 billion, as well as finalizing a plan to strengthen the euro zone by year-end, according to a draft of their conclusions.

"It is crucial to boost the financing of the economy. EUR120 billion (equivalent to around 1% of EU [general Net Income]) are being mobilised for fast-acting growth measures," the draft said.

The agreement of a growth pact would represent a political victory for French President Francois Hollande who pushed the issue during his election campaign. He argued the growth pact was needed to offset a fiscal compact agreed in January which ratcheted up further austerity policies in Europe.

Still, despite the big headline numbers, the pact seems to provide little new real money and relies on ideas that have been circulating for some time about how to better deploy the EIB and EU budget funds. Many EU officials have said they don't expect the policies to produce a significant change in the economic outlook.

The draft also said that European Council President Herman Van Rompuy would be asked to report back in October and finalize by year-end his report, released Tuesday, on ideas for deepening integration within the euro zone.

Mr. Van Rompuy prepared the report with European Central Bank President Mario Draghi, European Commission President Jose Manuel Barroso and Luxembourg prime minister and head of the euro-zone finance ministers Jean Claude Juncker.

Gold Daily and Silver Weekly Charts - Sitting on the Metals and Painting the Tape Into the Close

Stocks were weak after the morning GDP report which was flat but a nice increase in the chain deflator from 1.7% to 2.0%.

They took a dive as the US Supreme Court upheld the Affordable Healthcare Act, contrary to expectations. Robert Reich called this one and I think his reasoning is substantially correct. There were a few more political angles in that one that he allowed, but it was good enough to trade.

The stocks rallied in late afternoon, driven by algo buying centered in the SP futures. It looked like a tape painting exercise for the end of the second quarter as I had cautioned. They have struck a level and will seek to hold it into Friday's close.

The wiseguys sat on the metals to lessen the damage to their results from their naked short positions while they drove up prices on stocks in their portfolios. 

Gee Jesse do you really think they would do that? says the man wearing the 'kick me' sign on his back.

Are you kidding me?  After the revelations we have had the past ten years, including the long term and cavalier fixing of LIBOR, one of the cornerstones of the western financial system?   How many shots do you wish to give these jokers at destroying the real economy?

Most traders' empathy, outlook, and interests end around their belly buttons. and their attention spans and planning horizons are shorter than that.  Sociopaths are considered insufficiently ruthless for the more sophisticated firms, who ripen them over time into utterly self absorbed narcissim, if not borderline psychosis.

This is why I always laugh when 'serious people' in the media and the Congress turn to traders and speculators for public policy advice when it comes to financial regulation.  Why not ask a grifter or a loan shark what they think? 

Tomorrow's trade will probably be choppy and with a light volume, as the adults leave early for a long weekend at the beaches. There is late breaking news that the European leaders have agreed to some bailout package of 120 Billion euros, but details are scarce.

See you Sunday evening. Go Italy!

SP 500 and NDX Futures Daily Charts - Apply Paint to Tape In Afternoon For End of Quarter

Stocks spent most of the day much lower as the equity market did not get the expected 'pop' from the overturn of the Affordable Healthcare Act. There is intraday commentary on that, but suffice to say that Robert Reich was one of the few who read the tea leaves on that one correctly.

Stocks were a bit weaker after the Q1 GDP came in flat, but few noted the chain deflation increased from 1.7% to 2.0% which is quite an increase with no effect on the real GDP.

The market rallied in the afternoon quite strongly and surprisingly. There is almost no doubt in my mind that this was end of quarter tape painting as I had said although there is late word that the European leaders may have reached some agreement on a 120 Billion euro package..

So where does that leave us? Still concerned about Europe. I expect heavy action tomorrow and a lot of cross currents, and more light volume shoving and pushing as the adults leave early to head out to the beaches.

US Supreme Court Upholds Affordable Healthcare Act

The vote is out and it is 5-4 in favor of the constitutionality of the US Healthcare Reform Act.

Chief Justice Roberts provided the 'swing vote' in viewing the individual mandate as a 'tax' rather than accepting the Commerce Clause justification which Reich had thought would carry.  Justice Kennedy dissented, staying with the Republican appointees on the bench.  I am sure Antonin Scalia will provide an entertaining dissenting opinion.

The expansion of Medicaid was held to be unconstitutional 5-4, based on the argument that the government cannot withold funding for the entire program from states that do not comply with the expansion. In essense, the Medicaid expansion was fine, it was the penalty that was deemed to be an unconnected intrusion on the States since the Court saw the expansion as 'separate' and not part of the original program.

I remind the reader that 'Obamacare' with its private sector 'mandate' is in reality a long-standing Republican proposal, originally conceived in the conservative Heritage Foundation think tank, to use the private sector to try to manage healthcare costs, rather than the 'single payer' option.  Prior to Obama the largest implmentation of this approach was achieved and lauded in Massachusetts by guess who.



As it evolved the law was considered a betrayal of Obama's base by the progressive voters who strongly favored the expansion of single payer.  This inhibits its acceptance by a broad swath of the public as it is a sort of awkward compromise, still containing some rather popular facets such as inclusion of older children, the striking down of predatory pricing, and the refunding for excess profits. In essence, the law seeks to turn the health care monopolies into managed utilities.

Robert Reich was very close in his prediction yesterday of how this would come out.  Roberts was concerned that another blatantly political ruling would undermine the credibility of his court and his legacy.

I should remind the read that this interaction between the Administration and a conservative Supreme Court is a remarkable replay of the 1930's, in which the Court, packed with the legacy of prior Republican administrations, repeatedly struck down elements of the New Deal.

I think the most reliable forecast is that rational discussion will continue to decrease, while polarized hysteria will dominate much of the commentary and most of the conversation.

All this is of most interest to us because of its significance on the inability to generate economic recovery. 

And in the short term it did not support the two day stocks rally and caused those gains to be sold off.  Since I agreed with Reich I had put on a big short hedge, and it has worked.  

This will passd quickly and Europe and the domestic economy will become the driving forces.  This being an election year most of the activity in the Congress for the rest of the year will be theater.

Why the Supreme Court Will Uphold the Constitutionality of Obamacare
By Robert Reich
Wednesday, June 27, 2012

Predictions are always hazardous when it comes to the economy, the weather, and the Supreme Court. I won’t get near the first two right now, but I’ll hazard a guess on what the Court is likely to decide tomorrow: It will uphold the constitutionality of the Affordable Care Act (Obamacare) by a vote of 6 to 3.

Three reasons for my confidence:

First, Chief Justice John Roberts is — or should be — concerned about the steadily-declining standing of the Court in the public’s mind, along with the growing perception that the justices decide according to partisan politics rather than according to legal principle. The 5-4 decision in Citizen’s United, for example, looked to all the world like a political rather than a legal outcome, with all five Republican appointees finding that restrictions on independent corporate expenditures violate the First Amendment, and all four Democratic appointees finding that such restrictions are reasonably necessary to avoid corruption or the appearance of corruption. Or consider the Court’s notorious decision in Bush v. Gore.

The Supreme Court can’t afford to lose public trust. It has no ability to impose its will on the other two branches of government: As Alexander Hamilton once noted, the Court has neither the purse (it can’t threaten to withhold funding from the other branches) or the sword (it can’t threaten police or military action). It has only the public’s trust in the Court’s own integrity and the logic of its decisions — both of which the public is now doubting, according to polls. As Chief Justice, Roberts has a particular responsibility to regain the public’s trust. Another 5-4 decision overturning a piece of legislation as important as Obamacare would further erode that trust.

It doesn’t matter that a significant portion of the public may not like Obamacare. The issue here is the role and institutional integrity of the Supreme Court, not the popularity of a particular piece of legislation. Indeed, what better way to show the Court’s impartiality than to affirm the constitutionality of legislation that may be unpopular but is within the authority of the other two branches to enact?

Second, Roberts can draw on a decision by a Republican-appointed and highly-respected conservative jurist, Judge Laurence Silberman, who found Obamacare to be constitutional when the issue came to the U.S. Court of Appeals for the D.C. Circuit. The judge’s logic was lucid and impeccable — so much so that Roberts will try to lure Justice Anthony Kennedy with it, to join Roberts and the four liberal justices, so that rather than another 5-4 split (this time on the side of the Democrats), the vote will be 6 to 3.

Third and finally, Roberts (and Kennedy) can find adequate Supreme Court precedent for the view that the Commerce Clause of the Constitution gives Congress and the President the power to regulate health care — given that heath-care coverage (or lack of coverage) in one state so obviously affects other states; that the market for health insurance is already national in many respects; and that other national laws governing insurance (Social Security and Medicare, for example) require virtually everyone to pay (in these cases, through mandatory contributions to the Social Security and Medicare trust funds).

Okay, so I’ve stuck my neck out. We’ll find out tomorrow how far.

Gold Daily and Silver Weekly Charts - More Criminal Manipulation in the News

There were two new developments in the ever unfolding crime drama known as the Anglo-American financial system.

Peter Madoff, brother to infamous Bernie and long time 'chief compliance officer' for the Madoff fund, is pleading guilty to the charge of 'falsifying documents.' As you may recall Harry Markopolos had attempted to call the fraudulent nature of the Madoff investment model to the attention of the regulators for years and was ignored, ridiculed, and threatened.

The bigger news of the day was the settlement with Barclays in the absolutely egregious fraud of fixing the LIBOR market rate. The Bank will pay a $450 million fine and incur no criminal penalties or trading sanctions.    The American CEO Bob Diamond says he will forgo his personal bonus as well.

Other banks were involved, but Barclays has settled. Barclays Pays 450m to End LIBOR Prove

Bart Chilton of the CFTC was on the news claiming victory for the regulators.

A read of the some of the emails discovered in the case shows that the manipulation was almost as blatant and obvious as placing food orders at a takeaway restaurant.

Ah hey old boy, our positions are up against it, so would you be a good chap and knock 50 basis points off LIBOR for us tomorrow morning please.

Anything for your my good man. Consider it done.

The Bloomberg TV crowd had fun with this story about Barclay's, with Matt Miller chuckling that the fine is 'only six weeks profits' for the Bank, and the market obviously doesn't take it seriously because 'look at the stock price.'  Barclay's stock finished the day down 3 cents.

Manipulating LIBOR is a BIG deal, one of the worst and most pervasive frauds to actually come to light since the widespread fraud in the CDO market.

That the firm faces no criminal charges, will not be barred from any markets, and is taking what the financial commentators dare to taunt openly as a minor fine is a disgrace.

And those who say that the markets should be without regulatory oversight and set the key interest rates without outside interference are living a romantic or ideological fantasy.

Do governments manage rates? Of course they do. That is a role of the Fed. They do it for policy decisions, and spend some time announcing and discussing those actions.

But this is not the same thing as private firms manipulating rates secretly for their private profit at the sake of other's losses. People who say they are equivalent are serial self-deceivers, and probably blinded by ideology.

Have no illusions. The fix is in, and often, in these markets. Those who scoff at such assertions as 'conspiracies' might bear both Madoff and Barclays in mind, not to mention Enron.

There will be more revelations of criminal conspiracies to defraud the public and the markets in the coming months.  But LIBOR is very significant.  It is a market touchstone.  And it was foul for a long time. 

SP 500 and NDX Futures Daily Charts

There are at least three major cross currents here.

First of course is Europe and the EU summit meant to speak to their sovereign debt crisis. There is much talk that Merkel will veto any action on Italy, Greece and Spain on behalf of Germany. Today Bloomberg TV was making the case that the EU skip the countries altogether and give the money directly to the Banks, so none is wasted. Nice sentiment if one is of the porcine clan. Personally I would just nationalize the banks, and take it from there with a forced restructuring based on their insolvency, and deal with the countries next.

Second is the US Supreme Court decision on the Healthcare Reform Bill. The court is expected to overturn at least a portion of the act, which may have a short term positive effect on equities.

And Third is the end of quarter and the painting of the tape by the funds to make their results (and bonuses) look better.

A consideration is the Fourth of July holiday in the States next week.

Gold Daily And Silver Weekly Charts - The Money Matrix - Sic Transit Gloria Mundi

As a reminder, today was the silver option expiration on the Comex.

The EU Summit meeting is on Thursday and Friday of this week, 28-29 June.

Next Wednesday is the US 4th of July holiday.  I would expect many punters would like to be leaving early this week if they can.

This is also the last week of the second quarter.

The US Supreme Court is expected to rule on Obamacare on Thursday, overturning at least a portion of it. This may provide a sellable rally.

Quite often the markets search for some level, and then try and let the junior traders hold it in light volumes, unless something happens.

With algos running we sometimes get some interesting intraday action but little in the way of progress.

This is a week that also brings some important metals events.

June 26 Comex July silver options expiry
June 26 Comex July copper options expiry
June 26 Comex July silver futures last trading day
June 27 Comex June gold futures last trading day
June 27 Comex June copper futures last trading day
June 27 Comex July miNY silver futures last trading day
June 29 Comex July silver futures first notice day
June 29 Comex July copper futures first notice day

I made an effort to describe a relatively simple model of the US banking system briefly and in relatively common terms in an intraday commentary today. Back Again To Money: Money Creation and the Banking System - A Forecast of Sorts

It is a 'barebones' version of the domestic money model I keep in my head, to help incorporate new events and interpret them within some greater context. It really is not so hard to do, if you put a little effort into it. I think you might find it helps to understand some of the things that are happening today.

The international money system adds a significant layer of complexity, but one thing at a time. I plan to write something on that in the future.

Basically gold and to a somewhat lesser extent silver, are annoying rivals to fiat money. In times of distress they are a haven for individuals in protecting their wealth, and a threat to the status quo banking system because they are fundamentally difficult to manage and to control since they do not rely on a promise.

Bullion banks and trading desks, with the likely cooperation of the government and the banking system itself, have created a leveraged paper market that surrounds gold and silver bullion like a large, opaque cocoon, many times the size of what is apparently owned itself.

At some point that reality will be revealed, and all hell will break loose as various groups seek to grab bullion ownership as fast as they can. It will make what happened at MF Global look like recess on the schoolyard.

This in a nutshell is the premise that GATA has put forward for some time, and it makes sense based on everything that I have seen.

The world financial system has been slowly and surely changing since the 1990's. In keeping with that change, central banks have turned from net sellers to net buyers of gold, particularly in the faster developing economies, a fact that should not be ignored since it is very likely a sign of things to come.

The international sovereign and banking debt crisis is hardly resolved, and while it is interesting beyond the norm to someone like myself, it also carries a tinge of concern, fear if you like, with it, because the safekeeping of productive wealth is essential to modern life with its predominant division of labor and production.

So we all strive to understand what is happening, and look for the important events and sort them from the trivial, to formulate our own responses to change as best we can. And it is not an easy task because of the fog of confusion and misdirection that surrounds even such a novelty as a currency war.

I told my son the other day that in my experience managing the disposition of water and energy are the principal tasks in maintaining a home, in addition to normal wear and tear, particularly of the childhood variety. It's always something.

Similarly, the principal problem today in managing personal wealth, besides obtaining it in the first place, is identifying and managing risk and return. Thanks to the central banks, returns are hard to come by. So risk looms larger, and mispriced counterparty risk in particular, because it can come like a thief in the night.

"O quam cito transit gloria mundi."

"How quickly pass the glories of the world."

Thomas à Kempis

Gold held closely is, in the recent words of the regulators, a 'riskless asset.' I might add silver is as well, although to a slightly lesser extent.

Proposed Bank Regulation Would Drive Gold Prices Higher - WashingtonBlog

Draw your own conclusions from all that. Diversity of portfolio is an insurance against improbable events.