Thin premiums, but positively so.
25 April 2013
Net Asset Value Premiums of Certain Precious Metal Trusts and Funds
Thin premiums, but positively so.
Reinventing Bretton Woods: Global Finance In Transition - Currency Wars - Exorbitant Privilege
When Nixon arbitrarily shut the 'gold window' in 1971 the world entered a reserve currency system of purely fiat dollars, often called Bretton Woods II.
There are a number of theories that suggest that such a system is not sustainable, for many of the same reasons that the euro is not sustainable.
And as some have remarked, the control of a currency by a small group of men operating in private is an exorbitant privilege.
But putting that aside, the BRICs in particular are not happy with the existing arrangement which has been slowly falling apart for some time as the Federal Reserve imposes its domestic needs and policy on what is intended to be the rest of the world's currency. It finds itself in much the same position as is Germany in the EU.
I have addressed this many times before, suggesting that the eventual outcome may be a reconstituted SDR-like instrument based upon a broader basket of currencies and the inclusion of gold and perhaps silver as well.
The Anglo-American banking cartel are fighting this at every turn, because as we know to control the world's currency brings remarkable power. I suspect quite of bit of the hysterical antagonism against gold and silver is tied up in this. And an ardent desire to 'cover up' some of their past shenanigans. Germany should put pictures of its gold on milk cartons.
This may be used as a reason to propose a one world government, that will be similar in composition to the European Union and controlled by a few elite politicians and their bureaucrats.
We are eyewitness to one of the great events of economic history, and if anything it is remarkable how few economists and politicians understand what is happening. They are firmly embedded in their theory, and too often are willfully blind.
Let us free markets from regulation, the Banks from restraint of law, and the money creation process from the bindings of oversight and transparency, and we will reach new pinnacles of prosperity.
I find that a well educated layman with a grounding in history and the practical side of finance and business has a better understanding of what is going on than the great bulk of theoreticians whose models are heading quickly towards the dustbin. I just read a strikingly good letter from my friend Hugo Salinas-Price, that proposes a basic model for regulating international trade.
And I told him it would get nowhere, even though it was probably directionally correct, and about as good a start as many I have seen. The status quo and their hounds would rise up against it, because they are not ready to accept change.
They will produce many weighty and learned papers that 'prove' that it is wrong. And they will twist and torture the data to serve their ends no matter what the data may actually say. The Rogoff-Reinhart scandal is not an outlier in what is a generally disgraced profession. But these are signs of the times, where there is little downside and enormous profits for deceit in the obsessive pursuit of money and power, at least for the exorbitantly privileged.
Money is power, and those who love power above all seek to control any and all changes to its structure, for their own ends.
Global Finance in Transition conference to take place in Istanbul
On May 7-8, 2013, Istanbul (Turkey) will host the Global Finance in Transition conference. The event is organized by the Central Bank of the Republic of Turkey jointly with the Reinventing Bretton Woods Committee and the Russian Ministry of Finance.
Representatives of G20 finance ministries and central banks, international organizations, research institutions and businesses will take part in the conference. Head of Turkey's Central Bank Erdem Basci, Deputy Minister of Finance of Russia Sergei Storchak and Executive Director for the Reinventing Bretton Woods Committee Marc Uzan will give the opening remarks at the conference.
Five panel discussions are planned as part of the event. They will cover the international financial architecture, in particular, changes in the flow of global investments, local bond markets and growth in emerging economies, incentives and determinants of investment and other issues.
In addition it is expected that new instruments and incentives for making the global financial system safer will be suggested during the forum.
You may visit the conference web site by clicking here.
Related:
Currency Wars Part II
Currency Wars
Russia Stockpiling Gold Likely For a New Trading Currency
Devaluing the Dollar, Against What?
What Will the World Reserve Currency Become?
This is the lesser known entry in the private contest that spurred Shelley to write his famous Ozymandias.
"In Egypt's sandy silence, all alone,
Stands a gigantic Leg, which far off throws
The only shadow that the Desert knows:
I am great Ozymandias, saith the stone,
The King of Kings; this mighty City shows
The wonders of my hand. — The City's gone,
Nought but the Leg remaining to disclose
The site of this forgotten Babylon.
We wonder, and some hunter may express
Wonder like ours, when through the wilderness
Where London stood, holding the wolf in chase,
He meets some fragment huge, and stops to guess
What powerful but unrecorded race,
Once dwelt in that annihilated place."
Horace Smith, Ozymandias, 1818
24 April 2013
Gold Daily and Silver Weekly Charts - Comex Option Expiration Tomorrow
"If you shut up truth and bury it under the ground, it will but grow, and gather to itself such explosive power that the day it bursts through it will knock down everything that stands in its way."
Émile Zola
Tomorrow is Comex Option Expiration for gold and silver.
On Friday the US will release its advance number for Q1 GDP growth. Estimates are around 3 percent with a range of from 2.8 to 3.2.
I would not wish to hazard a guess on the number as they are quite fluffy and it appeals that they will become increasingly so when the addition of 'intangibles' is done a little later this year.
Watch employment and the median wage for a better indication, with and eye to corporate revenues, but not earnings which are often accounting fictions.
The shareholders of Barrick have rejected the Executive Compensation plan in what has been described as a 'tumultuous meeting.' Good for them.
The rejection, which occurred at Barrick’s annual general meeting on Wednesday, was a direct challenge to a board that last year agreed to pay US$17-million to co-chairman John Thornton, which included a staggering US$11.9-million signing bonus — an unprecedented payout in Corporate Canada.Speaking of hubris, the Republicans in the House of Representatives are attempting to establish priorities in the event of a US sovereign debt default this summer.
Barrick founder Peter Munk was defiant during the meeting, defending his company’s decision to bring on Mr. Thornton, who was a former president at Goldman Sachs.
Democrats are calling this the 'Pay China First Act' because of the manner in which it prioritizes interest payments to foreign holders of US bonds over veterans, soldiers, students and the military.
I would hope that Congressional salaries and expense reimbursements, perks and allowances are at the very bottom of the list. And I think clawbacks are not a bad idea as well.
This absurd talk about an artificially contrived sovereign US debt default may be one of the areas in which I could certainly find common ground with the Modern Monetary theorists. This is all posturing, reckless economic baby talk.
SP 500 and NDX Futures Daily Charts
Durable goods came in a bit light today, but since those numbers are marked by high month to month volatility it is usually good to ignore them and watch only the trends.
Of more concern is the general weakness in the revenues of reporting companies. Earnings less so because they are often accounting fictions.
GDP on Friday is expected to come in around 3 percent with a range of 2.8 to 3.2.
Even the Innocent Were Knowingly Imprisoned and Tortured So As Not to Embarrass the Powerful
"Now, in a sworn declaration obtained exclusively by Truthout, Col. Lawrence Wilkerson, who was chief of staff to former Secretary of State Colin Powell during George W. Bush's first term in office, said Bush, Cheney, and Rumsfeld knew the "vast majority" of prisoners captured in the so-called War on Terror were innocent and the administration refused to set them free once those facts were established because of the political repercussions that would have ensued...
Wilkerson said he "made a personal choice to come forward and discuss the abuses that occurred because knowledge that I served in an Administration that tortured and abused those it detained at the facilities at Guantánamo Bay and elsewhere and indefinitely detained the innocent for political reasons has marked a low point in my professional career and I wish to make the record clear on what occurred."
"I am also extremely concerned that the Armed Forces of the United States, where I spent 31 years of my professional life, were deeply involved in these tragic mistakes. I am willing to testify in person regarding the content of this declaration, should that be necessary," he added..."
Truthout, Ex-Bush Official Willing to Testify Bush, Cheney Knew Gitmo Prisoners Innocent
"As they have dared, so shall I dare. Dare to tell the truth, as I have pledged to tell it, in full, since the normal channels of justice have failed to do so. My duty is to speak out; I do not wish to be an accomplice in this travesty. My nights would otherwise be haunted by the spectre of the innocent man, far away, suffering the most horrible of tortures for a crime he did not commit...
At this solemn moment, in the presence of this tribunal which is the representative of human justice, before you, gentlemen of the jury, who are the very incarnation of the country, before the whole of France, before the whole world, I swear that Dreyfus is innocent.
By my forty years of work, by the authority that this toil may have given me, I swear that Dreyfus is innocent. By all I have now, by the name I have made for myself, by my works which have helped for the expansion of French literature, I swear that Dreyfus is innocent.
May all that melt away, may my works perish if Dreyfus be not innocent! He is innocent.
All seems against me — the two Chambers, the civil authority, the most widely-circulated journals, the public opinion which they have poisoned.
And I have for me only an ideal of truth and justice. But I am quite calm; I shall conquer. I was determined that my country should not remain the victim of lies and injustice.
I may be condemned here. The day will come when France will thank me for having helped to save her honor."
Émile Zola
“You may choose to look the other way, but you can never say again that you did not know.”
William Wilberforce, Speech in the House of Commons, 1791
23 April 2013
Gold Daily and Silver Weekly Charts
Gold hit an important overhead resistance level and back off of it today, although it did hold its ground.
Silver is hanging on the 23 dollar level.
Intraday commentary on the rating agencies here.
AAPL reports after the bell.
GDP Advance number for the 1Q on Friday.
SP 500 and NDX Futures Daily Charts - Intraday Tweet Flash Crash
Intraday commentary on the twitter inspired flash crash here.
The market is rising on thin volume and skittish positions.
The volatility index, which is a measure of risk perception, is trending back towards complacency.
RealNews: Debunking the Rogoff Reinhart Public Debt Report
It appears that it was more than a simple Excel coding mistake.
And it is a bit of a scandal, really.
Here are the authors of that report which was used to make the case for austerity.
Carmen M. Reinhart is the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics. She was previously professor of economics at the University of Maryland.
Kenneth S. Rogoff is the Thomas D. Cabot Professor of Public Policy and professor of economics at Harvard University.
Plunge In the SP 500 Futures Caused by a Fake Twitter Report About 'White House Explosions'
I imagine that swing triggered more than a few stops.
When I glanced over at my market screens, which are almost always on while I am reading and writing, I almost spit out my coffee.
Eh bien, tant pis!
But the almost instantaneous evaporation of market liquidity does highlight the precariously soufflé like nature of the US equity markets: rising high on fluff, with thin volume and less substance than appearances may suggest.
Virtually unrestrained high frequency electronic trading without specialists is a gun with a hair trigger, in the hands of those with a reckless disregard for the consequences as long as they are making easy money.
Be aware of the nature of the beast. The flow of momentum is easy and smooth, until it stops. And then comes the dawn of where we are, and what we have become. I have seen several people utterly ruined in such a volatile trading environment where risk is wantonly mispriced.
"The gates of hell are open night and day;
Smooth the descent, and easy is the way:
But to return, and view the cheerful skies,
In this the task and mighty labor lies."
Reprise from 2005: The Humpty Dumpty Economy
Here is a reprise of the long term economic forecast I issued in 2005 from my former site on Yahoo Geocities. I have shortened it a bit.
Please keep in mind that when I wrote this in 2005 the general attitude was rosy as the credit and stock market bubble was expanding.
I remember sounding my concern on various economic forums. And very nice people would say, 'What is he talking about, what does he want?'
What I was talking about then is what I am talking about almost daily now: reform.
We are still on track for another crisis, having learned almost nothing from the one in 2008. And they will keep at it until they hit the wall.
Forecast 2005: The Humpty Dumpty Economy
The current trend in the United States economy is not sustainable. This is a realization that will penetrate the national consciousness slowly and unevenly. Things rarely reach a turning point when we expect it.
A true sea change is slow to permeate the mentality of most people, because our experience is that what happened yesterday will happen again tomorrow, and a sea change occurs gradually and incrementally. We forget what happened even a few years ago. Predictions of a continuance of recent trends are the common currency of most rational pundits.
Although we cannot predict exactly what will happen this particular year because of the wide range of exogenous variables and the inherently unpredictable progression of change, there may be certain things to look for, certain wobbles and warnings in the economy, that may prove fortunate to the observant. This is more difficult than it sounds in practice, because usually and customarily fortune frequently favors the trend followers, and enriches those who blindly plunge forward in blissful ignorance, because by definition normal is what usually occurs.
However, and this is a historically common notion that has been nearly forgotten by our generation, we have the ability to act in such a way so as to make the improbable more likely to occur, to tempt fate by our actions.
For example, there is a certain probability of incurring an automobile accident in the normal course of our daily activities. High risk behaviors, such as speeding excessively or drinking, increase the likelihood of an accident. If one engages in high risk activity, and nothing unusual happens, we become emboldened and think that since we were able to drink moderately and drive last month, so we can drink and drive this month and thereafter. Perhaps next month we drink a little more for an indulgence, and again nothing happens.
This cycle continues until something changes our behavior, or simply ends when we literally hit the wall.
It would be my contention that the US is like such a driver, and we have been economically tempting fate with increasingly risky behaviors. We are persuaded that there is almost nothing we can do, almost nothing that can happen, that is beyond our immediate control. It is the propensity for people to increase and repeat what they have been doing over time, to tempt fate through repeated and increasingly risky behavior, and to forget the possibility of a sequence of unfortunate events if you will, that gives rise to memorable events in history.
Predicting the failure of a complex system is not easy. One can examine it as a whole, and determine that it will fail, and often calculate what must change in order to allow the system to function more reliably, but it is beyond our power to calculate exactly how it will fail, and consequently when it will fail. This does not invalidate the observation that the system will ultimately fail. It merely underscores unpredictability of timing a failure with the degrees of separation inherent in a calculation with a large number of exogenous variables.
It is not easy to predict exactly when a chronic DWI will demolish their automobile, but it remains relatively predictable to say that they will do so as long as they maintain their current mode of behavior.
The current economy of the United State is such a complex system. Since 1971 it has been a purely fiat currency, when Richard Nixon abandoned the gold standard and the Bretton Woods agreement, establishing the current monetary environment with the US dollar as the basis of world banking reserves.
There are many milestones in the progression of our current economy, and several turning points where we might have modified our behavior to change the probable progression of events. One of the underlying factors in this drama is the long tenure of Alan Greenspan (1) who, on September 1, 1971, became Chairman of the Council of Economic Advisors remaining in that position when President Ford was replaced by Jimmy Carter in January, 1977. He was later appointed to the Chairmanship of the Federal Reserve by Ronald Reagan on August 11, 1987.
With the great market break of October, 1987 Chairman Greenspan established his modus operandi of avoiding any economic pain by the generous applications of liquidity ahead of a crisis, and so it has been for his five terms as Fed Chairman: not acting alone, but in concert with ambitious politicians to debase the money supply of the United States to serve the purposes of power, even to the extent of allowing one of the greatest stock market bubbles since 1929 to imperil the financial system. (2) We now know that this is due to extreme risk aversion whenever the ability to forego problems presents itself, and shift the responsibility for the crisis somewhere else, preferring to clean the mess up after the fact rather than to take responsibility for it. (3)
This is an important point, because it indicates that the probability that the Fed will do anything proactive to attend to our current situation and avoid another bubble and subsequent collapse are so remote as to be almost improbable while Chairman Greenspan is in office. (Note: Bernanke has continued Greenspan's approach, stimulus to the Banks while eschewing serious financial reform.) We have also learned that the Fed has no credibility with regard to the recognition of bubbles, and their assertion that they cannot know when one exists or what to do about it when one does occur.
Therefore, we must look to some precipitating event to cause our increasing unstable financial system to hit the wall, some situation where events conspire to potentially change the existing equilibrium of the system, to such an extent that they cause the system to change course. These we will call tipping points.
Tipping Points
There are four major types of tipping points that we may confront in 2005 - 2010:
o Demand: a break in the level of consumption in the US caused by the
unwillingness or inability of households to incur further debt to support
consumption beyond real wage growth
o Supply: a major disruption in the supply of an essential commodity like
energy, food, or raw materials, or even the realization that a major
commodity is in shorter supply than expected, such as silver or oil.
o Monetary: an unwillingness of foreign central banks to continue to
monetize the US trade deficit and budget deficit through the recycling of
their trade surplus into US debt securities.
o Systemic failure: the failure of a major counter party that threatens the
US financial system, particularly in the hugely leveraged derivatives
market. This might also include a major political failure such as a terror
attack, assassination, war, scandal that impacts the perception of risk in
the financial markets and/or shakes the confidence of investors
precipitating a panic.
The First Horseman: a break in Demand
Housing market sales and foreclosures, consumer consumption andThe consumer is stretched so far that savings has been reduced to virtually zero,
confidence figures, payrolls and average wages, retail sales.
and the growth of new debt particularly in revolving credit and mortgages has
reached alarming levels. At some point the consumers may just run out of the
desire to keep assuming additional risk on their balance sheets. Since our GDP
is so heavily driven by consumer consumption at the moment, this in itself is
likely to trigger a serious decline in economic growth. It will not occur uniformly,
but from the lowest strata up of consumers by annual disposable income.
The Second Horseman: A break in Supply
The availability of key resources including energy, food, and metals.Although there is significant excess capacity in the global supply chain by sector,
especially in consumer goods, IT products, and financial services, there are in
fact some very tight supply situations in some key resources including crude oil,
natural gas, some foodstuffs, and industrial metals. These occur periodically when some
natural disaster or terror event disturbs the supply chain. In some cases these supply gaps are
the result of years of economic distortion and malinvestment.
The Third Horseman: A fatal break in Monetary System
The current monetary system is overly simplistic, historically unique, and unsustainable.The US runs unsustainable trade and budget deficits as a result of excessive
consumption with no savings, and some central banks and the Fed are
monetizing that debt into dollar financial assets. When it stops working a
major market dislocation is inevitable. The limiting factor on this is the
value of the dollar and central banks’ willingness to support and accept it.
The Fourth Horseman: Systemic Failure
Major counterparty failures will prevent the system from restarting smoothly...
________________________
Footnotes (renumbered from the original due to editing)
(1) One can hardly hold Alan Greenspan solely responsible for our current economic dilemma. In his book Six Crises, Richard Nixon asserts that the Fed had given the election to John F. Kennedy by tightening monetary policy in 1959 when he ran for election as the Republican candidate. In 1968 he appointed his aide Arthur Burns as Chairman of the Federal Reserve in order to ensure there was no repetition.
Burns provided stimulus so that inflation, which had been 2 percent or less for the 1960’s jumped to 6.2 percent in 1969. Although Fed tightening brought inflation down to 5.6 percent in 1970, Nixon pressured Burns and the spigots were opened in time for his re-election campaign in 1971, ensuring a boom and a bust in 1972-1974. It was Burns who had recommended Greenspan to the Council of Economic Advisors in 1971, in part because Greenspan has always been amenable to bending principle to political expediency.
In that sense Greenspan is more a symptom of the breakdown of the separation of powers and the rise of the imperial presidency that began with Johnson and reached its maturity under Nixon. Greenspan has been in place to serve whatever president has been in power since his accession to the Fed Chairmanship. This would not be a problem if he did not hold the trust, the power and responsibility to check an ambitious political regime from debasing the currency for its own short term purposes. This breakdown of the checks and balances is viewed by some as the inevitable temptation and result of a fiat currency.
(2) "As in the United States in the late 1920s and Japan in the late 1980s, the case for a central bank ultimately to burst that bubble becomes overwhelming," Lindsey added. "I recognize that there is a stock market bubble problem at this point…" Greenspan replied. FOMC minutes, September 24, 1996.
(3) ”Federal Reserve Chairman Alan Greenspan said Friday that Fed policy-makers could not have deflated the stock market bubble that emerged in the late 1990s without raising interest rates to such high levels that it would have pushed the United States into a severe recession... Greenspan, who famously warned in December 1996 that investors could be in the grips of "irrational exuberance," said it was very difficult for policy-makers to know when a stock market bubble was developing.” AP Washington August 30, 2002
S&P Says Its Claims to Honest Objectivity and Independence Were 'Puffery'
"There was a young man who had an aged father and mother who owned considerable property. The young man, being an only son, and believing that the old people had outlived their usefulness, killed them both. He was accused, tried and convicted of murder.
When the judge came to pass sentence upon him, he called on him to give any reason why the severest sentence should not be passed. The young man promptly replied that he hoped the court would be lenient because he was an orphan."
Abraham Lincoln
Puffery, for those unacquainted with the technical term, is a euphemism concocted by the legal profession. It means untruth in advertising.
"Puffery as a legal term refers to promotional statements and claims that express subjective rather than objective views, which no "reasonable person" would take literally. Puffery serves to "puff up" an exaggerated image of what is being described and is especially featured in testimonials."It is one thing to apply it to some advert on television, that it is puffery to say that this person thinks our detergent cleans best. It may be quite another thing to state that when a firm claims to offer objective and honest advice, which is why the customer is buying it in the first place, that is mere 'puffery.'
When the truth becomes tortured enough, the rationalizations for failure and even deception become increasingly bizarre.
There is the CEO defense: I wasn't really involved in the things for which I received huge sums of money.
There is the bureaucratic defense: We didn't know because we didn't see it.
And now we have the ratings agency defense: It can't be fraud, because everyone knows we are not objective and independent, even though we say we are and sell our services based on that claim.
This isn't all that far from that venerable Wall Street defenses so often trotted out after a stock bubble and fraud collapses: Well, no one made them give us their money and Everyone was doing it and Everyone knows the game is rigged.
These are tales from the schoolyard. This is the credibility trap.
WSJ
S&P Has Unusual Defense
By Jeanette Neumann
April 22, 2013, 3:00 p.m. ET
Standard & Poor's Ratings Services has long declared that its letter-grade ratings are independent and objective, part of a bid to allay concerns over its business model...
Now, lawyers defending the company against the Justice Department's recent civil lawsuit say that statements about independence and objectivity are "puffery" and were never meant to be taken at face value by investors...
The federal government says that the rating firm committed fraud when it allegedly misrepresented its ratings as independent and objective.
"Even if it's a viable legal argument, it's a pretty unattractive argument for S&P to be putting forward since they're basically in the business of charging clients for their reputation," said Samuel Buell, a law professor at Duke University and a former federal prosecutor. "What they're saying here is, 'When we're talking to investors about our own reputation, we're engaging in meaningless puffery.' "
Read the remarkable story here.
Goldman Closes Its Gold Short - Krugman Looks But Does Not See
As you may recall, Goldman's call to short gold set off the precipitous decline through long term support as paper gold was sold in size during the quiet trading hours.
And as gold fell through 1400 traders said Goldman was in the market buying physical bullion.
And now their short recommendation comes off.
That Goldman is called a Bank, with access to the Fed window, the subsidy of cheap government funding, and the protection of deposit insurance is a disgrace.
A footnote in history perhaps, but worth remembering.
"We have closed our recommendation to short COMEX Gold, as prices moved above the stop at $1,400/toz. We have exited the trade significantly below our original target of $1,450/toz, for a potential gain of 10.4%.
The move since initiation was surprisingly rapid, likely exacerbated by the break of well-flagged technical support levels.
Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane as well as our economists’ forecast for a reacceleration in US growth later this year."
The Land of the Blind
Paul Krugman said something absolutely remarkable today. Here is the quote:
"It’s true that few anticipated the severity of the 2008 crisis — but that wasn’t a deep failure of theory, it was a failure of observation. We actually had a pretty good understanding of bank runs; we just failed to notice that traditional banks were a much smaller share of the system than before, and that unregulated, unguaranteed shadow banks had become so important."
Paul Krugman, A Heart Breaking Work of Staggering Folly
Oh I see. You weren't wrong, you just weren't looking.
Are you kidding me? Your theory is fine, but your excuse is that you do not understand the fundamental structure of the system at the core of your work, for which you feel free to make policy recommendations?
So tell us, what other things aren't you looking at in the real world these days?
How about the widespread corruption in the banking and financial system, and the egregious manipulation in the markets? Don't you think that bears on the nature of the prescriptions which the economists are dispensing?
Economists are certainly the authors of 'heartbreaking works of staggering folly.' And in addition quite a few of them seem to have an underdeveloped sense of irony.
22 April 2013
Gold Daily and Silver Weekly Charts - Physical Buying in Asia - Irish Pension Accounts Get Cyprus'd
"If it's beautifully arranged on the plate, you know someone's fingers have been all over it."
Julia Child
Intraday commentary here.
Reggie Middleton warns that Irish Savers Have Just Been 'Cyprused'
"This is likely to be the biggest finacial story of the month, a story that's bigger than Cyprus, and a story that you're not going to see in American mainstream media - not by a long shot."It looks likewith retirees with Approved Retirement Fund accounts at the bank are getting wiped out along with the senior bondholders. Whatever is not covered by the 100,000 deposit guarantee is being 'bailed-in.'
With regard to the bullion market the Financial Times reports that:
"Asia is witnessing one of the strongest waves of physical gold buying in 30 years, with bargain hunters using the drop in prices to secure jewellery and gold bars."As a reminder the 25th is a Comex option expiration.
GDP on Friday. Company earnings and revenue results on the stock market are tending to be disappointing especially on the revenue number.
Net Asset Value Premiums of Certain Precious Metal Trusts and Funds - Record Asian Buying
The Gold/Silver Ratio is now around 61.
And still hardly anyone is talking about silver in this recent market takedown.
The last chart shows a YTD comparison of gold and silver. It shows what is meant when one says that 'silver is more volatile.' It tends to higher highs and lower lows as compared to gold.
And the Financial Times reports that:
"Asia is witnessing one of the strongest waves of physical gold buying in 30 years, with bargain hunters using the drop in prices to secure jewellery and gold bars."As I said last week, the only thing this nonsensical market operation has achieved is that gold is flowing from West to East. And the Germans may as well look for their gold in Asia, as in London and New York. And they will know, like so many others, what it is to have their wealth confiscated by the Banks. And they may as well 'wish upon a star' for reparation, for they will have been 'bailed-in.'
Big Commodity Trading Firms Took $250 Billion in Profit Since 2003
This sort of outsized profit obtained from gaming the system is a tax on the real economy.
The price distortions they create disrupt legitimate business, and harm the ability of the economy to produce and distribute key resources.
And it is a trade that goes deep and far, with nothing sacred. Witness the havoc that Enron was able to wreak on the energy markets, causing rolling brownouts, while the regulators turn a blind eye.
And as the Chairman of the multinational Nestlé recently observed, access to safe water is 'not a public right.' And the public sources of water should be privatized. And opened up to speculative excess no doubt.
Is it so really hard to understand that widespread corruption and fraud is not productive, and that no amount of austerity or even well-intentioned stimulus given to the corrupt financial system can fix this?
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.
20 April 2013
Fekete: Who Said the Hydra Would Take It Lying Down - A Failure Not of Knowledge, But Character
"Corruption is a tree, whose branches are
of an immeasurable length: they spread
Everywhere; and the dew that drops from thence
Hath infected some chairs and stools of authority."
Beaumont and Fletcher, The Honest Man's Fortune
“In the eyes of the empire builders men are not men, but instruments”
Napoleon Bonaparte
"When I despair, I remember that all through history the ways of truth and love have always won. There have been tyrants, and murderers, and for a time they can seem invincible, but in the end they always fall. Think of it-- always...
First they ignore you, then they laugh at you, then they fight you, then you win."
Mohandas K. Gandhi
In commodity trading contango is the situation where the difference is positive, that is, there is a premium placed on the futures contract. In backwardation, there is a negative difference, that is, one will pay more for gold for immediate delivery than you will for the futures contract, or a promise of delivery.
Contango is the normal condition in most commodities because of the time value of money or inflation. I think most are familiar with that concept. Think of it in terms of Net Present Value. If something will become more valuable in the future because of inflation, it will cost more than the same object if possession is taken today, less any organic growth and dividends.
This is always tied in with the risk free interest rate and the application of a risk factor. If you have not seen the video called Risk then you may wish to see it. Risk is just a calculation that estimates the probability that the underlying value of a thing will deviate from expectations without considering inflation, based on some change in fundamental valuation.
Now for some really good news. You can understand what Professor Fekete is saying without bothering about any of the theoretical. Academics like to think about this and Fekete is a deep thinker on the subject, and we are glad and grateful for his work. Theoretical work provides the planks and the plans out of which practical men like me build houses. But unless you have taken courses in Economics and Finance you probably are not as familiar with the mechanics of this.
But for most people it does not mean all that much because they do not care about the intellectual arguments and fine nuances of the professors because as non-specialists they lack the context to care or understand it. And academics like to argue the fine points of contention and sometimes with great passion like knights at a joust.
And unfortunately there is another class of academics who like complex and convoluted argument because it allows them to 'prove things,' that would otherwise be considered nonsense by anyone keeping an eye on the big picture, and especially matters of public policy. And they often bring shame on themselves and to their profession even if they may make quite impressive amounts of money in the process.
Also, and I am going to steer clear of discussing this, there is quite a bit of distortion introduced at the ZIRP event horizon, and one can get sucked into side arguments about this almost endlessly.
Instead you can think of basis as simply the divergence between the paper metal and physical metal markets with regard to price.
If there is a small and steady divergence, things are normal. If there is a large divergence where paper is worth more than physical, the expectations of future inflation are high and increasing. If there is a large divergence where the physical is more expensive than paper, then there is something odd going on.
That oddness can mean one of two things. First, it can be a signal of future deflation, and especially if the price of physical gold is dropping because of an excess of physical supply. Supply is key to watch as well as price, and people who do not study supply don't really know what they are talking about.
If there is a large divergence in which physical is more expensive than paper, and the supply of physical is tightening, then you have that oddest of conditions where the futures market is grossly miscalculating things as they are and may be. And this is what has just happened.
There are several reasons for this. One primary reason is that some market participants who are predominant in the futures markets are acting on hidden information. This again could be several things, but it almost certainly involves the willful distortion of the markets for personal gain. This may or may not be technically illegal.
Remember the case of the very obvious and willful distortion of the European bond market by Citi some years ago? As you may recall, the FSA got involved and Citi was fined for dumping a huge amount of bonds into a quiet trading period to knock down the price and run the stops, grabbing a quick profit.
The FSA did not charge them with market manipulation which is quite clearly what they did by any common sense judgement, but rather with failing to observe orderly markets, which is what one might think of as a misdemeanor. What they really did wrong was to grab their profits from the wrong people, other insiders. It is similar to what even more recently happened in the case of the London Whale.
So when some regulator stand up and says that nothing 'illegal' is being done, they may be saying the same thing as the FSA was saying. That is, of course these jokers are bloody well batting the price around, but since no one of serious power is complaining, we can't do anything about it, since it fails to meet some difficult to prove considerations of intent and conspiracy within the pathological environment of Wall Street.
So be that as it may, watching the divergence between paper and physical is paramount, while bearing in mind the lags. Markets are not quite uniform and instantaneous even in this age of marvels.
But there is little doubt in my mind that the recent antics in the metals markets were a price manipulation or a market operation with the intent to move the markets for some personal objective. It takes a willful effort not to see it that I could not undertake even if it was to my personal advantage. And I think when people haven't a leg to stand on they resort to name-calling and ridicule, because the facts are not their friends. And they need to keep their reputations in mind.
So in summary, a pre-meditated market operation used the futures market to knock down the price of gold and silver recently. This has resulted in greater buying of physical bullion across world markets, so this is not some localized event or prejudice by some domestic political group. To say so is pure jingoism and disgraceful, absurd and unworthy of anyone who wishes to be taken seriously.
The current physical shortage will be resolved But it will continue to worsen and become systemic if the distortions in the market, ie. an artificially low price, continues. At some point if not relieved there will be a market break and the paper market will lose all credibility and effect except where imposed by force.
I do not believe in naturally efficient markets. But at the same time, I do not believe that an inefficient market equilibrium can be maintained for long periods of time even with force and fraud. There are always consequences, and sometimes they are unintended.
I am not delving into motives here, although if this continues I think some of Dr. Fekete's suspicions become much more credible. For example, I do suspect quite strongly that the gold of Germany held in custody has been misappropriated, or hypothecated if you will. And if this was disclosed it would prove embarrassing to some very self-important people who will use the excuse of national interest to protect themselves as is the custom amongst the self-rationalizing kleptocracy.
And as an aside, I think that where Dr. Fekete says 'Bernanke' he is really citing a broader financerati, the status quo of the Anglo-American financial sector and their attendants. There is a currency war underway, and like other wars it is based on power and its distribution and abuse.
I don't think it is fruitful to argue too much where the resort to name-calling happens so quickly. Instead I prefer is to see what happens, and to continue to push for greater transparency which makes control frauds more difficult to execute. Opaqueness in markets is the servant of fraud, always and everywhere.
And for those who believe that the price of bullion is what they say it should be, then they should be ready and able to stand and deliver at those prices, in open markets, with greater disclosure of their positions.
A futures contract and an option are forms of derivatives. And as with any derivatives they are more susceptible to fraudulent misuse, and therefore require stricter regulation than markets for real goods. And any regulator who does not comprehend that should go find other work.
By the way, some in the media were spreading the rumour on Friday that Goldman Sachs was in the bullion market 'buying physical with both hands.' If and when that sort of thing comes out, it might prove to be their 'bridge too far' because then those they have betrayed (again) may turn on them as well who are yearning for reform in the markets.
If I have any concern at all it is that those who have held bullion legitimately will get mixed up in the repercussions against those who have gamed and looted the system for their own benefit, as Jeff Sachs has described it. The hypocrisy of the privileged often knows no bound or restraints of conscience. But when they stop and look at what they have done, some of them are appalled. And the great crowd of people may help them come to that self-examination. Then reform may begin.
Here are is the material from Dr. Fekete:
"Bernanke is trying to stop gold backwardation by selling unlimited amount of gold futures contracts through his stooges, the bullion banks. He is underwriting losses they are certain to suffer in due course. We can take it for granted that they haven’t got the gold to make delivery on their contracts. In fact, delivery of gold will be suspended under the force majeure clause. Short positions will have to be settled in cash, to be made available by the Fed’s printing presses. Gold futures trading will be a thing of the past.
Bernanke and columnist Paul Krugman, formerly his subaltern colleague at Princeton don’t understand that the issue is not the price of gold. The issue is backwardation or contango. In trying to wrestle the gold price to the ground the Fed makes “the last contango in Washington”* an accomplished fact.
From the frying pan into the fire
Ostensibly a lower gold price would solve the problem Bernanke has. Demoralized gold bugs would be forced out of their holdings through margin calls. Disillusioned investors would shun gold. This would make physical gold available to rescue the strapped gold futures market.
In fact, however, a lower gold price is making the problem more intractable, not less. The Fed is diving from the frying pan into the fire. This is the point missed by almost all observers and market analysts. They ignore the underlying flight into physical gold that continues unabated, in spite of (or, better still, because of) the panic in the paper gold market. The Fed’s intervention in bankrolling short interest is going to back-fire, for the following simple reason. The Fed’s strategy is inherently contradictory. A lower price for paper gold makes it easier, not harder, to demand delivery on maturing futures contracts.
(Note: the delivery process at the Comex is not free and efficient. The exchange can and does set redemption limits and other special situations without having to declare force majeure. A minor point but will tend to make one look elsewhere for shortages first. And if in fact there is a control fraud in price setting and the futures markets are the locus, then we would anticipate that the data coming from such a private source would be increasingly less reliable. - Jesse)
The more paper gold Bernanke sells, the lower the cost of acquiring physical gold in exchange for paper gold becomes. The price of the nearby futures contract will drop to hitherto unimaginable depths, relative to the cash price, making backwardation worse, not better. Ultimately this will make backwardation irreversible. Welcome to the world of permanent gold backwardation.
From what hole does the evil deflationary wind blow?
Academia and the financial press have utterly failed to recognize the relevance of gold backwardation as regards deflation. They might fret about hyperinflation as a result of unbridled money-printing (euphemism for the monetization of government debt). Yet the real danger is not on the inflationary but on the deflationary front as realized even by Krugman – while he is perfectly clueless on the question from what hole the evil deflationary wind blows (other than conservative wishful thinking).
Well, I can pinpoint the location of the hole to within yards for the benefit of Krugman. It is on Constitution Avenue, in Washington, D.C. The evil deflationary wind is blowing from the building of Federal Reserve Board.
If Bernanke thought that his attacks on the gold price would stem deflation, well, his efforts were counter-productive, to put it mildly. They have, in fact, made the flight into physical gold accelerate. Permanent backwardation of gold, and its concomitant, the re-invention of barter – the ultimate in deflation – will be the result.
There is no reason to fear that the Fed is pushing the world into hyper-inflation. In fighting the gold price the Fed unwittingly pushes the world into hyper-deflation.
All the same, it is destroying the dollar and the international monetary and payments system."
You may download and read the entire paper here.
Not that it matters but I do diverge a bit from Dr. Fekete's outcome of hyper deflation. And I do so carefully because of the respect I have for this thinking.
A similar understanding is the basis for my own longstanding forecast of stagflation, which may become severe. I am assuming that the same kind of phenomenon that Dr. Fekete thinks will take place in a rush to gold and away from dollars is being perpetrated now by the Fed in this policy error of bottling up printed money in bank reserves, hoping for a trickle down effect of cheap loans to the real economy based on artificially low interest rates.
Instead what they are doing is subsidizing financial corruption and devastating the middle class, especially amongst those who are not retiring on official government pensions, but on a lifetime of savings.
As an aside, I am not of the Austrian School of economics, but there are several of those who identify with it whom I have read. And I do consort with the other schools, because I am of that odd class of people who think for themselves. Schools have loads of baggage and old fights. And people like to think in black and white. Luckily I think the next financial collapse will discredit most of them again, and something new will come out of it that is a synthesize of the good in all of them.
I don't fear hyper deflation so much but I do think at some point they will have to reset the currency while knocking a few zeroes off in the process, as had occurred with the Russian rouble in the 1990's. And whether that is called a hyperinflation or a hyperdeflation matters little with regard to the consequences.
Like the financial crisis of 2008, this will not be a failure of knowledge, so much as a failure of character.
Related: Psy-Ops by Hugo Salinas-Price
19 April 2013
Gold Daily and Silver Weekly Charts - Gold Is Flowing From West to East
And still almost no one is talking about silver, the dog that doesn't bark.
Next Thursday the 25th is the option expiration on the Comex. The expiration in stocks today was quiet with even the financial news dominated by the hunt for the Boston bomber.
The US will release its Advanced GDP figure on Friday the 26th.
There is quite a bit of useful intraday material worth looking and listening to that has been added, and so I suggest you scroll down to see it.
Of particular interest may be the reports of severe bullion shortages in Hong Kong and Dubai. This tends to make a mock of the theory that owners of bullion suddenly lost interest and sold it. But a financial economist is just as good at rationalizing as they are bad at predicting, so I don't expect to see many retractions or apologies just yet, if ever. You might have to keep score in your head.
And there is the three part series on gold from the CBC. I found part three to be intriguing.
And finally if you have not heard Jeff Sachs talk to the conference on banking at the Philadelphia Fed I suggest that you do, because he puts forward a fairly blunt analysis about the state of reform on Wall Street and in the banking sector.
It is very hard to admit failure, especially in one's leaders. And even moreso when one is a creature of their status quo. Things must be getting bad when even long time manservants start jumping ship.
Don't ask if 'it' is over yet. These fellows have a reputation for recklessly doubling down until they hit the wall. And thanks to the system as it is, they may have the public tied to the bumper.
So they may have another go at it next week. As Rick James said, 'Cocaine is a hell of a drug.'
Have a pleasant weekend.
SP 500 and NDX Futures Daily Charts - Seems a Bit Skittish
The US will release its Advance GDP number for Q1 next Friday the 26th.
Bullion Shortage Reported in Dubai - When Pigmen Go Wild
This is related to the story about the shortage of bullion at the Hong Kong Exchange as reported on Bloomberg earlier today.
This was clearly not metals longs disgorging their bullion positions, but rather 'an orchestrated panic.' Even the speculative longs were forced in, as an examination of the action on the open interest shows.
And it is so brazen and clumsy that I doubt it was even the usual suspects gaming the markets for a quick buck. Although they just might be that arrogant, thinking they can do almost anything these days with impunity.
In order to make a big 'market operation' work you have to let the major players know, otherwise they complain about it as we saw in the London Whale and the Citi bond manipulation scandals. But the downside is that if you let too many greedy people know, the operation becomes harder to control, and it can get 'over its skis.'
Let's call this Imperial Overreach: When Pigmen Go Wild.
Still, it seems more likely that this was a quasi-political move as well as a commercial opportunity for plunder given the chiming in from the pampered pets, manservants, assorted spokesmodels, and Lord Haw-Haw's of the Anglo-American banking cartel on cue.
And I don't exactly expect that this means that it is over. You know what they say, 'in for a penny, in for a pound.' One would expect the Wall Street wiseguys and the City lords and barrow boys to run their last bluff until they hit the wall. That is how we will know it is the last.
Pigmen go whole hog on naked shorts and get slaughtered. And wouldn't that be a headline to remember.
Economic Times of India
Shortage of gold bars and coins in Dubai, says World Gold Council
By Sutanuka Ghosal, ET Bureau
19 Apr, 2013, 12.46PM IST
KOLKATA: World Gold Council, which has been tracking the global gold market pattern, has found that there is a shortage for bars and coins in Dubai which is creating a supply shortage.
Aram Shishmanian, CEO, World Gold Council: "It has become increasingly clear over the course of the past week that the fall in the gold price was triggered by speculative traders operating in the futures markets. Their short-term view of generating a trading profit is in stark contrast to the views of long term investors in gold, as evidenced by the massive wave of physical gold buying that began over the weekend and accelerated following Monday's further decline.
The surge in gold purchases is spanning markets from India and China to the US, Japan and Europe. Buyers are viewing this as an opportunity to purchase gold at prices not seen in the past couple of years."
The World Gold Council is uniquely positioned in the gold market to get immediate feedback on market patterns. "We are already seeing shortages for bars and coins in Dubai, while premiums in Mumbai are at $26/oz and $6 in Shanghai, indicating that buyers are willing to pay more than current spot prices for the metal..
Source: Economic Times of India
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