Tainted Meat Joins the Stench of Political and Financial Corruption

“Wall Street had been doing business with pieces of paper; and now someone asked for a dollar, and it was discovered that the dollar had been mislaid.  It was an experience for which the captains of industry were not entirely prepared; they had forgotten the public.  It was like some great convulsion of nature, which made mockery of all the powers of men, and left the beholder dazed and terrified.   In Wall Street men stood as if in a valley, and saw far above them the starting of an avalanche; they stood fascinated with horror, and watched it gathering headway; saw the clouds of dust rising up, and heard the roar of it swelling, and realized it was only a matter of time before it swept them to their destruction...

But it is difficult to get a man to understand something when his salary depends upon him not understanding it."

Upton Sinclair, The Moneychangers


"You are a den of vipers and thieves. I intend to rout you out, and by the grace of the eternal God, I will rout you out."

Andrew Jackson

It was discovered that in all that blizzard of corruption, and the paper that covered it up, that the very basis of the value of things had been 'mislaid.' And then the deluge came.

If you listen to the reasoning of 'free market' types, and their paid mouthpieces and demagogues, this kind of thing could not happen, because companies, being rational and focused on the long term, would not allow tainted meat with their name on it to be sold into the markets.

They would not risk the lawsuits, and damage to their reputations. It is a similar argument that holds that financial markets need only light regulations because people will manage their own behaviour for the ultimate good, with almost perfect rational and altruistic self-constraint.

But alas, we know this is not true, as anyone who ever travels on a major highway can tell you. People and their tendencies to greed and careless stupidity require a certain association of people in a society for their common good, to take on not only large tasks with common and broad benefits to the pubic, but also in order for the majority to protect themselves from criminals, cheats, sociopaths, and plain old ignorant selfishness. This is why we establish police and fire departments, and have health laws, for example.

Government is never perfect. But its occasional flaws and corruption are no reason to do away with it. The power of government must be held in balance, but so must the power of private wickedness.

If you bother to look into the history of certain types of laws,  especially those designed to protect the public, and the often long progressive efforts of many dedicated souls to achieve them, from civil rights to basic food safety to voting rights to consumer protections against financial fraud, you can see what they have accomplished, and how their effectiveness must be upheld and occasionally renewed, since the corrupting power of easy money respects few if any boundaries.

Goodness may occasionally falter, but evil never sleeps.  And as many are now discovering, telling the truth becomes a subversive act, in times of general deceit.   Notice the patterns of smears and dehumanization of certain types of people.  This is how it begins.

And so it seems that every other generation forgets the lessons learned by their grandparents, and casts off their protections in fits of foolishness fuelled by the sweet words and slogans of the pampered princes of easy money, and their puppets, who will say and do anything for power and position.

Those who forget history are doomed to repeat it, and this is surely the story of the last thirty years, especially in the area of financial regulation, and the political standards of oaths and stewardship.

Recall of nearly 9 million pounds of meat not fully inspected
By Greg Botelho and Janet DiGiacomo, CNN
February 9, 2014

(CNN) -- Some 8.7 million pounds of meat from a Northern California company have been recalled because they came from "diseased and unsound" animals that weren't properly inspected, a federal agency announced Saturday.

The recall affecting Rancho Feeding Corporation products -- as detailed by the U.S. Department of Agriculture's Food Safety and Inspection Service -- marks a significant expansion of one announced January 13, when just over 40,000 pounds of the company's products were recalled.

According to the U.S. agency, Rancho Feeding "processed diseased and unsound animals and carried out these activities without the benefit or full benefit of federal inspection."

"Thus, the products are adulterated, because they are unsound, unwholesome or otherwise are unfit for human food and must be removed from commerce," the FSIS reported. The Petaluma company made the recall...

The FSIS recall notice indicates a "reasonable probability" that consumption could result in "serious, adverse health consequences or death."

Attempts to contact the Rancho Feeding Corporation for comment were unsuccesful Saturday and Sunday.

A wide range of products are listed in the recall, including beef carcasses and various parts such as heads, cheeks, lips, livers, feet and tongues in boxes of 20 pounds and bigger. Forty-pound boxes of veal bones and 60-pound boxes of veal trim are included as well...

Read the entire news article here.

Report of 'Intense Investigation' Into London Death of JPM VP

It will be interesting to see if this 'intense investigation' actually reveals anything of substance.

It might have been something inadvertent, or a suicide.  There was a suicide of another prominent financier in London just two days earlier there as well.  Perhaps it is a contagion.

Or just more collateral damage from the financialised, predatory economic environment I like to call The Hunger Games. 

And may the odds be ever in your favor.

Suspicious Death of JPMorgan Vice President, Gabriel Magee, Under Investigation in London
By Pam Martens
February 9, 2014

London Police have confirmed that an official investigation is underway into the death of a 39-year old JPMorgan Vice President whose body was found on the 9th floor rooftop of a JPMorgan building in Canary Wharf two weeks ago.

The news reports at the time of the incident of Gabriel (Gabe) Magee’s “non suspicious” death by “suicide” resulting from his reported leap from the 33rd level rooftop of JPMorgan’s European headquarters building in London have turned out to be every bit as reliable as CEO Jamie Dimon’s initial response to press reports on the London Whale trading scandal in 2012 as a “tempest in a teapot.”

An intense investigation is now underway into the details of exactly how Magee died and why his death was so quickly labeled “non suspicious.” An upcoming Coroner’s inquest will reveal the details of that investigation.

It’s becoming clear that when JPMorgan tells us “nothing to see here, move along,” that’s the precise time we need to bring in the blood hounds and law enforcement with the guts to get past this global behemoth’s army of lawyers who have a penchant for taking over investigations and producing their own milquetoast reports of what happened...

Read the entire story here.

Gold Daily and Silver Weekly Charts - Non-Farm Payrolls Fizzle, Precious Metals Held in Check

Today was an exceptionally interesting day, with a lot of things going on from the very start.

The premiere event was the US Non-Farm Payrolls Report, which pretty much sucked out loud, coming in with an underestimated 113,000 jobs versus a 175,000 expected. This was mitigated a bit by the 'private jobs' added of 142,000 which was closer to estimates. And it could make some feel good because it was in 'government jobs' that much of the shortfall occurred.

I didn't see how much play was given to the complete revision of all the employment numbers going back as far as I normally look. They even revised the CES Birth-Death model which is a plug, or imaginary jobs, if you prefer. How do you revise stuff you pretty much swagged (made up) in the first place?

So anyway, I was cranky off the get go, because I had to go and manually revise my spreadsheets everywhere, in addition to making minor corrections on the graphs for the first report of a new year. So I did not get a chance to do any serious analysis of the changes that the revisions made. I'll try to get to that later next week unless I find someone who does a good job of describing the effects that I can simply show to you. Why do extra work?

But then someone passed around a nice textbook description of how bullion banks work, and it prompted me to write something that I had been thinking about, but wasn't quite ready to do. That was put up intraday here. I hope it is of some value to you, if in no other way than to help you order the things you would like to know.

I probably said far too much in an attempt to be even-handed, and circumspect, in trying not to colour a particular situation with the broader brush of revulsion against a tendency of the TBTF Banks, some of whom are bullion banks as well, to misprice risk.  And of their one percent owners who promote abhorrent social policies and predatory 'capitalism' through fine sounding economic rubbish.

It would probably be better for those who are trying to defend their particular groups against unjust attacks to not attempt to justify the broader financial landscape which they might inhabit, because this financial system is so profoundly fouled that it will be like trying to clean the Augean stables.

Some days one might become discouraged at how the United States of Amnesia so quickly forgets the lessons, not from history, but from just a few years ago. This applies to both foreign policy and financial chicanery. It really is amazing at times.

Remember we are in a currency war, almost a kind of new cold war at times, and great changes are occurring in the international currency structures. In times like these, some hysteria is not uncommon,. There is propaganda, and sometimes not very subtle if you have a discerning eye for it, even in some seemingly petty and unrelated things.  And the deceitful are emboldened because they think they are operating with official sanction, and indeed sometimes it seems as though they are.

What, for example, was the Bank of England thinking when it turned a blind eye to trading desks actively gaming the foreign exchange markets to the point of cheating their customers? Is this some professional courtesy, or a sense of perverted noblesse oblige that entitles an entire financial class to an innovative seigniorage that exploits the difference between earning paper wealth and the ease by which one can steal it, if you are in the know.

What a world.  This too shall pass.

Have a pleasant evening.

 

SP 500 and NDX Futures Daily Charts - Crushing the Bears On NFP Day

I know some might object to referring to today's trading as 'technical' but I think that is exactly what it was.

By technical I mean that those in the know saw the market structure of positions, to which they have an advantageous view, looked at the buying and selling pressures, saw a short term opportunity to profit, and then jammed the futures up hard after the Non-Farm Payrolls number came out. They ran the stops, and handed out some serious pain to traders who were positioned bearishly.

They can do this in the absence of a consensus of more organic selling volume, as opposed to computer gamesmanship. In a light volume market, dominated by the hot money traders, they can almost write their names in the snow with the tape. I showed a picture of it at the time, but a while ago when AG Eliot Spitzer was taking on Wall Street, they made a nice picture of a hand 'giving him the finger' using the 5 minute SP futures. You can't make this stuff up.  If you want to be a short term trader, you need to understand and respect that. In the intraday trade, fundamentals don't mean squat, unless they are driving the herd to do something in force.

That is not how it always is, at least not to this degree. But with computers dominating the course of the intraday trade and regulators held at bay, its taken on a larger footprint than what might ordinarily might be expected.

The bad news is that in the face of some exogenous bad news, I would think this market is set up to melt down. That is because it is a snarky, in your face 'professional market,' not based on value but on bullshit, on short term money muscle and market gamesmanship.

Does this strike you as improbable? Talk to me after the next crash, when the economic sages are running around waving their hands saying, 'what happened, what happened?'

And by the way, this is not sour grapes from a bear. I have 'no' short position and no stock positions for that matter. I just think this is one hell of a way to allocate capital and revive the real economy. It is a disgrace, and a shame.

Have a pleasant weekend.

Investment and Insurance: Prospective Risk and Return in Various Precious Metal Investments

To buy, or not to buy? Allocated, unallocated, or exchange-traded, derivative, or nothing? That is the question.

"Simply, antifragility is defined as a convex response to a stressor or source of harm (for some range of variation), leading to a positive sensitivity to increase in volatility (or variability, stress, dispersion of outcomes, or uncertainty, what is grouped under the designation "disorder cluster").

Likewise fragility is defined as a concave sensitivity to stressors, leading a negative sensitivity to increase in volatility. The relation between fragility, convexity, and sensitivity to disorder is mathematical, obtained by theorem, not derived from empirical data mining or some historical narrative. It is a priori".

Nassim Taleb, Mathematical Definition, Mapping, and Detection of (Anti)Fragility

Yes, there is a certain fiendish humour as Taleb introduces this quotation with 'simply' and then goes on to use enough jargon to make the layperson's eye glaze over.

But what Taleb is describing here is a fundamental that many have forgotten. It is the corollary to his more famous observation about 'black swans' and 'tail risks.'

What Taleb is basically saying is that a system or investment that is designed to accommodate infrequent but outsized and somewhat unpredictable risks performs one way he calls anti-fragile. And other systems and investments are designed so that they perform well under 'normal conditions' but tend to underperform, and often badly, during the unexpected.

Here is my own picture of Taleb's concept of how investments react.  It might not be exactly what Taleb himself has in mind, but it something that fits certain other types of information systems in a prior occupation, and how I remember it for my own purposes:

If you want to grossly oversimplify this principle, and remember it as a saying, pick the right tool for the right job, and remember that nothing comes for free. I used this in describing tradeoffs in very complex products and networks, and while it may sound tritely obvious, it worked with a lot of upper level executives.

But what is the job itself? Well, the application defines it of course. But one must also take performance criteria into account, and with performance there are environmental conditions and variabilities. Would you like to have a network that can function for your casual use in your home, or a high performance network that can survive arctic cold and desert heat?

Don't laugh. we used to drop networks into some of the more out of the way and volatile places around the world, put electronic equipment in explosive environments, and met application criteria that had many other product groups running out of the room screaming for momma. It was our particular competitive edge. It only comes with experience, confidence, and a fanatical understanding of the odds and how they can mount against you.

But you don't want to waste money and over engineer something either. That is a good way to go broke. One needs to understand expected performance, and the risk profiles for just about anything that is not merely incidental.

And if there is anything that I wish you to remember from this blog, after all these years, it is the deadly trap of undisclosed risks and the tendency of some to understate those risks for their own short term advantages. And how other people will go along with them for the sake of position, power, and prestige. In a nutshell, this is the story of our recent financial crises.

It is far too complicated to get into this afternoon, but lets just say that a number of mathematicians and industry analysts, among them Taleb, Mandelbrot, Tavakoli, William Black, Yves Smith et al., saw that there was significant undisclosed risk in the system because models (Black-Scholes for example) greatly simplified the risks, and assumed distributions of variability that were not real world realistic.And even worse, in many cases the risks were actively hidden, and even more despicable in the worst of them, purposeful.

There was a movement in finance to force normal distributions onto data that did not really justify it. In order to achieve this, the risk models made certain assumptions, and thereby 'flattened' reality in order to fit the model. What one ended up with was a mis-estimation of the risk probabilities. And so we saw 'once in a hundred year events' happening with alarming frequency, despite the best efforts of the financial planners to smooth them over with piles of bailout money.

Here is a picture of what such a discrepancy might look like:

So the financial system designer likes the normal distribution and makes their operational plans based on that. But why is this? Are they diabolical fiends? Do they enjoy screwing up?

No, they are ordinary people for the most part, but following orders. And the orders are sometimes to take the faux normal approach because it costs less to implement, allows for greater leverage, and fattens profits, at least in the short term. Watering the cattle, cutting a corner,  putting lipstick on a pig. 

Careerism's second law is if you are wrong with everyone else, no one can blame you. And so many financial myths have thereby obtained extended lives, because they provided a fig leaf for someone's self serving ends and moral trembling.  This is in some ways the story behind the failure of our regulatory systems, often staffed by good people but who are underpaid, overworked, and subject to extraordinary political pressure to turn a blind eye to which otherwise might provoke their action.  Especially where there is a lack of complete certainty, which is all too often the case in real life.  The rationalizations are venerable, with their roots in the Garden of Eden.

So what is the punch line?   If you are buying an investment as a safe haven, something that will perform well in a difficult and somewhat unpredictable circumstance, you may wish to take your money into something that is highly transparent, robust made to endure the unexpected, given to few assumptions, and perhaps even strongly guaranteed.

And if you are not, if you wish to invest in something with a decent return, but in your own estimation performs adequately for your time horizons and expectations, then pick the product in which you have confidence, provided it meets your needs and possesses some advantages in features and price.

These principles can be applied to the pros and cons of certain types of gold and silver investments.   And those pros and cons are ALWAYS going to be affected by how you perceive the risks, and how that investment fits into your plans.  This is a given.  And this is why I would never give anyone specific advice, because I am not a financial advisor and do not have the knowledge of their own particular situation, their goals and time horizons.

I will use myself as an example.   I tend to gravitate a portion of my portfolio into very transparent and 'safe' gold and silver investments, where I have a very high confidence in them based on audits, ownerships, and so forth.  There is not much about them I do not know and have to assume.  Yes there are the high improbable outliers like a meteor hitting the earth and bringing on Mad Max and cyclist cannibals, and so one might drop a dime or two on arms and infrastructure just for grins, but by and large I think we can ignore them for now.

But for the most part a failure in the financial system that could be adverse to one's wealth seems a little more likely.  And so a part of my portfolio is in reasonably secure investments that will benefit somewhat from disorder and provide a small premium on return or at least weather the situation well.

And other parts of my portfolio are in investments that are more fragile as Taleb would say.  But they provide a nicer short term return with less expense.  And there is nothing wrong with this.  Not at all.

By the way, and I hate to even bring it up, but gold and silver themselves suit slightly different purposes. Silver is less 'anti-fragile' than gold in dire circumstances, generally.  But it offers some juicy upside in certain circumstances in compensation. And there are always special situations to consider, and for this one might read Richard Russell or Ted Butler among others, who track imbalances and trends that could provide opportunities or risks.

I do not consider gold better than silver; they are different.   And I own both, and invest speculatively in both, at varying intensities depending on the changing context of the markets.  What is better, a hammer or a screwdriver?  It depends on what you wish to do with them.

I would certainly buy some other financial instrument or stock I consider less robust for a quick flip or outsized return.  The miners would fall into this sort of category.  I am sure some of my bank accounts would as well, depending on how high the risks,  And physical property is notoriously non-portable if you decide to take up roots and go to another place.

So, as far as unallocated gold goes, there is nothing inherently wrong with it.   It is a very nice way to own gold with a reduction in expenses.  I am sure not all providers of such a service are equally reliable, and their representatives would do well to discuss their own advantages, guarantees and superior performance as would any provider of products when faced with less reliable competitors.

I will say that deriding critics as loons and charlatans, and referring to a portion of your prospective clients and client influencer base in a generally derogatory manner with a pejorative nickname promulgated by economists who hate precious metals on principle, is probably not a high profile technique in the salesperson's handbook for success.  Answer with facts.  Once you descend to name calling you have lost.  Just a word to the wise, and enough said about that.

Know why you are buying what you are buying, and how it fits into your overall scheme, and what assumptions you are using.  And do not be afraid to have contingency plans and change them if new data comes your way. 

I know it is hard, especially in times of currency wars, because the first victim in all war is the truth.   But don't go off the deep end either, and waste your money on over complex plans or put all your eggs in an improbable basket.  It's your call, and perhaps you need a professional to help sort out exactly what your priorities are. 

I keep a spreadsheet, and on it there is a summary of all my assets, and it fits them into a simple risk portfolio so I can see how they are distributed by risk and by total value.  Since the prices of things change, you have to be aware of how that affects your overall portfolio. I have to say that physical bullion has taken a much larger place in my overall profile since 2000.  But that is fine, I just need to be aware of not letting it become a risk, and to balance it as required.

Would I personally buy GLD as 'insurance' against a systemic failure?  Hell no.  Maybe as a flip investment on a technical trade.  Would I buy some physical trust with strong outside auditing and redemption features that were practically available?  Probably, because it covers a bit of both insurance and investment.  But it lacks the leverage of a small cap miner just for example. But it does not nearly have the risk.

Yes it is 'that simple.'  Which is to say, it can be simple to understand but hard to implement. But you have to start somewhere, and if you start all wrong, it gets worse as you go.  Some parts of my portfolio are for insurance, and other parts are for investment.  They serve different purposes.  I had the damnedest time trying to convince a broker at a white shoe firm who was managing my stock options portfolio of this.  He thought I was schizoid.  He only thought in terms of good stocks and great stocks.  So I got rid of him, as he was too focused on his own goals, even when he feigned altruistic concern for my money.

And sad to say, for most people, their major task is just getting by day to day.  And so the pros and cons of various investment techniques is so much hoohah because their most ambitious aspiration is to stay out of debt, especially usurious and fee laden debts, while putting a little bit aside.  And this is why I spend quite a bit of time writing about these abuses, because I am not only a caterer to the elite, but to our little community which has a range of wonderful souls in it.

As always, the devil is in the details, but it helps if you know the lay of the land, and where you think you are heading, and why.  And of course, you adjust for changing circumstances as they occur.

Snowden Interview on German Television

This interview was shown in Germany on the world's second largest publicly funded broadcast network, ARD.

The interviewer notes that President Obama has said that Snowden has been charged with three felonies. The President went on to say, "if you, Edward Snowden, believe in what you did, you should come back to America and appear before the court with your lawyer and make your case."

To this in the interview Snowden replies, "It’s interesting because he mentions three felonies. What he doesn’t say is that the crimes that he’s charged me with are crimes that don’t allow me to make my case; they don’t allow me to defend myself in an open court to the public and convince a jury that what I did was to their benefit.

The Espionage Act … was never intended to prosecute journalistic sources, people who are informing the newspapers about information that is in the public interest. It was intended for people who are selling documents in secret to foreign governments, who are bombing bridges, who are sabotaging communications, not for people who are serving the public good. So it’s,

I would say illustrative, that the president would choose to say that someone should face the music when he knows that the music is a show trial."

David Simon: America As a Horror Show

"There are two Americas - separate, unequal, and no longer even acknowledging each other except on the barest cultural terms. In the one nation, new millionaires are minted every day. In the other, human beings no longer necessary to our economy, to our society, are being devalued and destroyed."

David Simon

Gold Daily and Silver Weekly Charts - Word for the Day: Rehypothecation

"The commercial world is very frequently put into confusion by the bankruptcy of merchants that assumed the splendour of wealth, only to obtain the privilege of trading with the stock of other men, and of contracting debts which nothing but lucky casualties could enable them to pay; till after having supported their appearance a while by tumultuary magnificence of boundless traffic, they sink at once, and drag down into poverty those whom their equipages had induced to trust them."

Samuel Johnson, Rambler #189, January 7, 1752

This is not a technically precise description of rehypothecation, but the terminology has been simplified a bit for the sake of understanding by the lay person.  But the risks described herein are real, and need to be understood.

I thought of this when I read a question that a reader had about how fractional reserve bullion banking works.  Like so many other things financial, it can seem almost foolproof on paper.  Somewhat like the efficient markets hypothesis, or the trickle down, supply side, recovery boogie woogie.

But one might ask, how is it that occasionally things in bullion banking seem to go awry, so that even the great monetary power and experience of the Governor of the Bank of England might find himself 'staring into the abyss.' 

Where are the risks in this, and in any other type of fractional assets arrangement?

And that brings us to our word for the day:

Rehypothecation: The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients. Clients who permit rehypothecation of their collateral may be compensated either through a lower cost of borrowing or a rebate on fees.

An example of rehypothecation might be used in any fractional asset system. One example might be a bullion bank, or mint, that offers the sale and storage of unallocated gold and silver.  You may buy the bullion from them, but you agree to leave it there in an unallocated pool of assets.

The advantage for the customer is that they are given a significant break on storage fees for not demanding the delivery of specific bullion.  

It does not even have to be a bank or mint, but a larger dealer in metal.  Any entity that offers unallocated bullion storage can use that unallocated bullion to smooth the delivery process to retail and wholesale customers that prefer to take delivery of their bullion.  For the sake of clarity I will refer to the bank, mint or dealer offering unallocated storage as Dealer.

As in the case of the more familiar commercial banking, the 'deposit' of the customer, with cash left 'on deposit,' makes them a creditor of the bank.  The return which the customer receives for this loan of their asset is interest, or some other value such as a reduction in fees.  In the old days they used to even kick in toasters and TVs, but those were other times when deposits seems to matter more.

In the case of metals, typically the unallocated bullion is rehypothecated by the dealer to some degree.  It is often used as a classic 'float' in support of their own operations.

It is a way for the dealer to obtain short term bullion to supply their day to day transactions with people to whom they take and deliver bullion in various forms, such as delivering title of a certain amount of refined gold in return for the delivery of intermediate stage material, in the form of doré bars from a mine for example.  And generally the dealer would receive some fees in return for this service to the miner. 

The reason that the dealer might not charge the unallocated owner a storage fee is because the customer has agreed, even if in the fine print, to allow that entity to use their bullion as collateral in unspecified third party transactions.

 The customer has deposited their asset to the dealer, in return for some form of reimbursement.  And in turn the dealer may rehypothecate, or use, that asset for their own purposes.

The same asset can be rehypothecated many times, so that a single ounce of gold and silver, or any piece of property, may be encumbered by a chain of ownership claims, some of them downstream from the original dealer.   Practices may vary, but rehypothecation has become commonplace in our modern financial system.  Leverage pays off well when it works.

This is all very well and good, as long as the different parties in the chain do not overdo the leverage, or number of claims, applied towards that particular asset.  And of course if there are no untoward counterparty risks or failures in the chain, or disruptions in expected supplies either in terms of availability or price.  If that happens we can see a domino like effect.

So when you are given a nice textbook example of how fractional ownership of anything works, keep in mind that there is never a free lunch. If you are receiving some sort of benefit for keeping your assets at a particular place, chances are quite decent that they are being utilized for the advantage of someone else.

And if there is a disruption somewhere in the markets, and  the chain of rehypothecation is broken, difficulties may most certainly arise.  Often a dealer will be in a position to offer some sort of guarantee, as in the case of FDIC insurance for monetary bank deposits.  Results may vary.

Although I have not discussed it, it is also possible that an asset held specifically without any prior agreement for reuse, such as the case of allocated bullion being held through a broker, might be subject to cross claims of ownership, as in the sad case of MF Global.  In that case the customers had to lawyer up against other counterparties and wait for some sort of settlement.  This does not happen very often, but it can and does as we have seen.

Sometimes the leverage in a vehicle is not always easily seen.  Is GLD fractional?  Does all their gold hold clear title to some specified percentage of an investment unit?  I don't know.  How much 'leverage' is there in a particular bullion bank at any given time?  We have seen them occasionally seen them get 'over their skis' as in the case of Scotia Mocatta some time ago, but it is hard to tell because audited results are not frequently available.   We know they are running floats, unless they are otherworldly saints, or just fools.  The question is, how much?

I wonder under what auspices central banks lend out the gold of their people to bullion banks?  Do they realize that their gold is being rehypothecated, often by third parties?  Have they ever agreed to it?  Do the central banks even have to disclose such arrangements?  What oversight is there from the civil authorities?

And what happens if the central bank asks for the return of their bullion, and it was not there?  One can only wonder. Perhaps Germany offers a contemporary example of how to manage such a situation.

Speaking of the movement of bullion, there was a whopping warrant issued by JPM on 109,856 ounces of gold bullion in its storage yesterday, adjusting it over to the registered (deliverable) category.  And there was a lesser amount of 11,056 adjusted over to registered at Scotia Mocatta.

So now the total deliverable category is back up to 616,519 ounces, which is a good thing, since one might have wondered how they were going to fulfill those contracts that have already stood for delivery.  I expect that they will be posting the drawdowns in the foreseeable future.

Also at Scotia there was a withdrawal of 40,395 ounces of gold from the warehouse altogether.  All the transactions and totals are included in the report below.

As a reminder, tomorrow is a Non-Farm Payrolls day, and shenanigans are often in fashion.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Non-Farm Payrolls Tomorrow

Tomorrow is the Big Jobs Day.

I am sure that The Recovery™ proceeds, at least for some.

Yves had a good piece on the labor situation in the US.  I like her work quite a bit and always take the time to hear what she has to say.

As for tomorrow, let's see what happens.  Your guess is as good as mine.

Have a pleasant evening.

 

61 Tonnes of Gold Bullion Flow Out of Western ETFs and Exchanges In January 2014

“Gold is a possession and not a promise.”

William Rees-Mogg, The Times 12 Dec 1979

Here is the data for gold bullion outflows from ETFs and Exchanges in January of this year.

As you can see, it is a more general phenomenon than some have implied in their remarks about the Sprott redemptions and its discount to NAV the other day.

And this was in a month of generally rising prices for gold. 

So the trend continues.  There were 942 Tonnes that left the Western repositories in 2013. 

Gold is moving from West to East.  What does it mean?

And what is left is all that prowling paper, empty of value, looking for more wealth to devour.

The bankers' boys say not to worry.  But do not ask to see what remains behind the central banks doors.

Trust, and believe, for the good of the system. Our system, the one that keeps us rich.

If you open your eyes, you'll spoil everything.

Dead bankers and hollowed vaults.

Such goings on.  My, my, my.

Gold Daily and Silver Weekly Charts - Cap Cap, Gold, But Pop Goes Silver

An Erosion of Confidence

Precious metal prices jumped as stock prices took a dive this morning, but both were shoved back closer to 'the norm' by the end of the day.

Silver held up most of its gains, pushing up against resistance at 20. Gold is bumping its head rather hard against 1260.

The bullion boys were adjusting storage for delivery today, taking the total amount of deliverable ounces back up to the 496,000 level.   There was a little anomaly at Brink's that I have highlighted in blue, whereby about 523 ounces appeared courtesy of the adjustment fairies.  A drop in the bucket, as overall 56,306 ounces of bullion were warranted to the registered stash.

The goal is obviously to muddle through the February delivery period, looking for the calmer waters of non-active March.  As for the big sucking sound of bullion flowing from West to East, that can will be kicked down the road, until the road falls off el cliffo, apparently.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Prop Job

Equities looked like they were going to fall off the ledge today, but light selling met determined propping.

Non-farm payrolls at the end of the week.

The VIX remains rather elevated, so I would not say that stocks are in the clear yet.

Twitter and Pandora are getting spanked after hours, earnings report wise.

I own no equities now, and have assumed a very defensive investment position, but no short positions.  

Update On Joanie: And Thank You for Your Thoughts and Prayers

As you may recall late last year I asked you to remember a young girl named Joanie in your prayers, and many of you responded.  I received several hundred emails about this, and have discussed other situations that people responding have themselves.

Joan has a childhood osteosarcoma cancer. I do not know her or her family personally, except that her father is a visitor at Le Café and we had conversed on and off over the years.  He was very kind in remembering my wife in her own continuing struggle with cancer. I have never met them.

If you can do it, please try to remember Joan, and others like her and their families, many of whom suffer in silence, who struggle each day with burdens that we might find to be almost unimaginable.

Someone said to me, 'we all have our Joanies.' And yes unfortunately I think we do, at one time or another, some more than others.   But as the saying of Louis de Montfort goes, De Maria Nunquam Satis, 'Of Mary, there is never enough.'

And of love, there is never enough, for one who has accepted God's will.  Do not wait for God to send misfortune to your family personally, because there is much of it out there already. For all its absurdities, life is no joke. It takes a special love to care for the troubles of another. 

All in all, a faithful life is a cross, and not a featherbed.  And the more we do, the more it seems how little we have done.  But when you occasionally reach the clear air of a summit, amid the daily routine of life, a life of dying to yourself in part through caring for others in love, you can see a glimpse of the brightness of the day.

"For whosoever will save their life shall lose it; but whosoever shall give over their life for my sake, and the good news, shall save it."

Here is a brief message from Joan's eldest sister Leigh, who helps their good father and cares for her in the absence of their mother who has lately gone to God.

So if you wish to do something that is possible for anyone to do, that costs you little or nothing, read these words below, and then pray for someone in need.  Yes, we all want to be rich, to lead carefree lives, to be untroubled, to live la dolce vita.  And that is not possible, not in this world, except in our vain imaginings, and the distractions of transient pleasures that leave us unfulfilled, and wanting more.   But it is possible to respond to God's will, and pray, and thereby to discover a lasting joy, of which there is no equal.

And so include yourself in that prayer, if you would be wise. For none of us is good, except as we are made so by that which we love, and that to which we aspire. It is what makes us fully human, if our minds be so inclined to it.

"St. Jude's just recently performed scans that showed her disease has stabilized - no growth since the last scans on any of the tumors that have spread throughout her body (her bones, lungs and brain). This is wonderful to hear - it means we get more time with our sweet Joan.

At this point, she is pain free and only suffers minor symptoms of the chemo treatment (nausea, vomiting, appetite loss, fatigue etc.). She is an extremely happy and joyful girl who loves to read and play with toy horses - she could do this non-stop if you let her!

We are also delighted that her energy level is good and has stayed stable throughout the past month and a half, she is in no way bed bound, and loves to walk around the house and play with her new dog, Dixie!

We are humbled daily that Our Lord has given us such a marvelous gift of Joan in our lives.

St. Jude Children's' Research Hospital has been wonderful throughout this entire journey. We could not recommend it enough as a worthy cause to donate to. They have not asked for a penny throughout this past year and a half. We cannot express our thankfulness enough to the doctors and nurses who care for Joan daily.

Please, if we could humbly ask, keep praying for us and ask your readers to do this same. The only way to continue on this journey is with steady steps, embracing our crosses each day. Please pray that God will give us plentiful graces to continue on this slow journey to our heavenly home."

Related: Our Roman Adventure

Gold Daily and Silver Weekly Charts - Signs of the Times

"Ne respondeas stulto iuxta stultitiam suam ne efficiaris ei similis."

Prov 26:4

This is a Non-Farm Payrolls week, and it is a heavy delivery month, although as Rik Green notes the contracts standing are quite a bit less than at this time last year. Still, given the thin deliverables at these prices it should prove to be interesting.

Gold is moving from West to East, of this there is little doubt. Well, some can doubt it, but those who repeatedly deny it, or tend to dismiss it, may be saying more about themselves than they do about the market.

The more interesting question is what the markets are saying to us, and what the price, demand, and supply action are indicating with regard to the future, and the sustainability of certain noticeable trends.

The action on the Comex is interesting, but the real game is broader globally. There is a huge change underway, but unfolding slowly, in the international currency markets. If someone does not get this, then they really do not understand what is happening. There is no fault in that, because so few really understand money, and the lack of transparency is clouding, even moreso by the fog of war.

There was some movement of bullion into warehouse storage at HSBC yesterday, but otherwise little activity.  JPM seems to have the whip hand on the Comex and in the precious metals derivatives markets, but not so much in the physical markets which seem to be wiggling through the fingers of the bullion banks, and perhaps much to their dismay. 

As Ted Butler noted in his weekly review on Saturday:

"Quite literally, what JPMorgan does or doesn’t do determines the price of gold and silver. It’s easy to lose track of the big picture when one focuses on all the details. But when you step back a bit, JPMorgan is dominant in just about every detail."

Ted does an exceptionally good job of analyzing the Comex market, and I appreciate his efforts.  I do not need to agree with someone to gain significant benefit from what they have to say, provided their reasoning is based on some identifiable data and information.  Sources like this are a blessing.

I am rather reluctant to lay any wagers on JPM's motives based on this information however. It is not clear to me where their ultimate interests, as well as profits, may lie in this matter.  And for whom they may be acting, even as they seemingly take positions for their own accounts.

Unfortunately, this is the nature of the game, in times of currency wars.   Some of the TBTF Banks act as instruments of policy for their respective governments from time to time, and are certainly beholden to them.  Everything is not always as it may seem.  And so we must place our confidence where we can, and with some care.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Bounce. Dead Cat Or Something More?

Stocks caught a bounce today, but it had the appearance of bottom feeding after a stiff decline.

The factors that have been driving stocks lower have not changed. We might see some action off the Non-Farm Payrolls number on Friday, but for now the market is looking at the risks in the emerging markets, and the weakness in the larger economies such as the US and China.

In the short term the games will be played, and that is what we saw today. Let's see what happens the rest of the week before we get too worked up about this.

I did tell some of my friends to take their profits and flatten out at the end of 2013, as they had nice gains in bullish equities investments. Unless the Fed decides to put the pedal back to the monetary metal, I think the easy equity gains are done.

Have a pleasant evening.

 

NAV Premium of Certain Precious Metal Trust and Funds - 91,680 Ounces of Gold Out of Sprott

The premiums on PHYS and PSLV are back more to 'normal' levels now, although still hardly exuberant.  PSLV is at a slight premium, and PHYS is almost flat.

The deeper discounts on CEF and GTU are still there, but a bit thinner that they have been.

Since the last time I put out this chart, another 91,680 ounces of gold bullion have been redeemed from the Sprott Physical Gold Trust.

I can imagine someone rationalizing this redemption as an arbitrage deal because PHYS is selling at a slight discount to its NAV. However, given the 'friction' of the transaction, and the necessity of storing this amount of gold, it seems like a fairly small amount to be tempting for a mere arbitrage against the NAV discount, given the volumes of gold that are being taken out.

Although it is possible that PHYS has priced its redemption process too cheaply.  And there is no allowing for the desperation of a hedge fund that is willing to scrape for thin returns. This assumes they are not taking delivery to ship the gold to Asia for the premiums for physical paid there. If so, then it is not really arbitrage as I am using the term with regard to the discount to NAV, but the discount of paper to bullion.  And that is a general trend that is hard to miss.  But some do.

But one would think that playing the spread with paper and leverage, and betting that there would be a reversion to norms if the premiums fall to historically low discounts, would be a smoother and more scalable wager for any fund truly interested in paper profits. Here is a link to the distribution of PHYS premiums historically.

But this seems to be viewing a phenomenon in isolation that I think it is more correctly seen as part of a general trend, that one is foolish to ignore.

As I have shown here repeatedly, there is a general scouring of enormous proportions of the physical gold bullion from most if not all of the Western trusts and funds at these prices as set by the Comex, which unfortunately is still a price maker for the physical trade despite its own shrinking physical basis.  That is the inconvenient reality that gold imposes on the financiers:  they cannot print it into existence, except as an apparition of paper, without genuine substance.

And there are none so blind as those whose paychecks depend on their willing ignorance.  It is unfortunate, but a fact of life.

So, let's see where this grand experiment goes. I have not been keeping an eye on the short interest in the PHYS, but I think the greater problem is the price of gold overall, which does not seem to be a market clearing price in terms of the actual commodity.   And as a result, the physical bullion is flowing towards markets paying fairer prices, and finding ownership in stronger hands.

But why argue about it, especially with those whose mindset is clearly fixed in one direction? Let the tide go out, and we will see what allocated and unallocated funds are naked.   And who, at the end of the day, is actually holding what gold, and with what encumbrances, cross claims, and counterparty risks.  

So in summary, some might say that gold is flowing out of Sprott because of its discount to NAV, which I point out is miniscule, and much more adeptly gamed through the usual paper games.

Rather, gold is flowing from financialised markets to cash basis markets, from highly leveraged schemes to the vaults of stronger hands flush with paper of less confident value, and put even more simply, from West to East.

This is what happens when once again we begin to see 'peak paper.'  Yes it certainly has not failed yet, and yes, the official measures may show little devaluation from inflation and mask the enormous leverage and undisclosed counterparty risk that is still in the system, après Crash.

 And to this I say, 'in time.' 

Not everyone is investing with a two month time horizon, as is de rigueur in the City and on the Wall Street these days, and passing around their hot potatoes of dodgy paper from hand to hand as quickly as possible, before the next bell rings.

NYSE Margin Debt - Take It to the Limit, One More Time

This gang of Merry Banksters made a 1929-like policy error, as they did in 2000 for the first crash, and then followed that up by blowing yet another asset bubble in mortgage debt, and crashed it all over again, almost taking down the world financial sysem.

And now they turn around and do it for a third time, with financial paper assets.  Will they keep going until the middle class and the real economy is beaten, like pulp into the ground, and a few jokers sitting on the top of the financial pyramid own nearly everything?

What are they thinking? Who are these guys, Mortimer and Randolph Duke?

Greenspan and Bernanke: Worst Federal Reserve Policy, ever.

Watch the margin debt story unfold here.

Let's see what happens next.

Related: NYSE Margin Debt Hits an All Time High

Gold Daily and Silver Weekly Charts - Baby It's Cold Outside

Gold caught a fairly obvious 'flight to safety' big this morning that was later pushed lower by the bullion bears, but still managing to close higher.

US equities were off about two percent across the board as the end of year paint bubble continued to get scraped off the tape.

There is also some element of a test of wills for Janet Yellen, who has now taken over the Fed's reins.  Wall Street has been known to throw a taper tantrum or two to see if the new 'Chair' will be as pliable as the former Chairman.  And few can live up to the servile hypocrisy of Greenspan, who never met a bubble he couldn't ignore.

Speaking of Chairman Bernanke, he has already announced a new post at the Brookings Institution.  He will no doubt be free to think weighty thoughts, write his book(s), and garner some large speaking fees.  At least he did not go to work directly for one of the Banks.

In the Comex inventories just shy of two tonnes came out of Scotia. Let's see if it turn up with Big Daddy Morgan, or just slips off into the sunset.

We are now in the February delivery month. Rik Green notes that the number of contracts standing for delivery there is substantially lower than February of last year, which was quite robust. The bullion available for deliveries at these prices is still quite thin compared to potential demand.

But without belaboring it, I think the trading emphasis in the bullion markets is joining its physical components and is heading east, leaving the Comex awash in less meaningful paper.

As a reminder, this is a Non-Farm Payrolls week once again, so we will have to see how the shenanigans are rolling, and keep another eye on any deliveries of bullion.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Busting Broncos

Stocks saw a merciless beatdown today, similar to the Superbowl game last night.

The impetus for stocks was a lower than expected PMI number from China, and a weak ISM Index number from the States this morning. With two of the largest economies in the world showing seeming signs of weakness, the untamed horses of this long bull market were quite subdued.

If you look at the charts below carefully, you will see that what has happened is that the long year end bubble from 2013 has now deflated. One can make a good case that the Fed saw this as desirable, a necessary outcome if only to avert the disaster of an uncontrolled deflating of the asset bubble.

But it is also possible that the wiseguys who pumped it up handed what they could over to mom and pop and their institutional representatives, and are now taking the money and running. The proverbial wash and rinse, which I have been suggested was overdue.  The pause that refreshes in a continuing asset inflation, if you will.

So what next? This is a non-farm payrolls week if you have not noticed, and earnings will keep coming in before and after the bell. It would be good to keep an eye on the emerging markets and their currencies because that is where an ongoing trend might originate.

 The central bankers stand ready to print, but the markets might have to overextend a bit to send that signal, and relief may come in some extraordinary manner.

Have a pleasant evening.