Net Asset Value of Certain Precious Metal Trusts and Funds

It will be interesting to see if this is a rounded intermediate correction and consolidation followed by a resumption of the fundamental trend and a new breakout higher, as we had seen in May-August last year.

More on this tonight.

Despite the Miss on Expectations Today's US 4Q GDP Number Was Still a Puffball

I just did not have the time or energy to do the work analyzing today's US GDP estimate for the 4Q10.  The drop in stocks and spike higher in metals had me squaring off accounts between the usual non-financial chores. 

For me the 'tell' that something was dodgy was the unusualy lower chain deflator which is used to calculate the 'real' GDP by removing the inflationary effect. .3% versus 1.5% expected and 2.1% prior. For every tick lower on the deflator the headline GDP growth number rises.

John Williams of ShadowStats did his usual excellent job of dissecting the corpus of the BEA's work and I am grateful for this excerpt. His site is a must read.

You may wish to take the time to read some of the free reports, on how the US government numbers are 'adjusted' over time, and his hyperinflation report which is quite interesting. I still do not agree, preferring to stay with my stagflation forecast which has long been my expected outcome. But I am keeping an open mind to both the deflationary and hyperinflationary outcomes.

Bear in mind that the UK had showed a contraction for the same period, a much more credible representation of the numbers. And so the talking heads would say that the UK suffered from the weather, and was mired in snow. Yes, and the US economy is mired in self-serving scoundrels and craven nincompoops.

GDP Estimate Was of Unusually Poor Quality.

This morning’s "advance" estimate of annualized 3.17% real (inflation-adjusted) GDP growth was nonsensical, even though it was somewhat shy of consensus. Most of the reporting was based on guesses; hard data simply are not available this early. Consider that more than the total reported fourth-quarter growth was accounted for by a narrowing of the trade deficit. The Bureau of Economic Analysis (BEA) indicated that 3.44 percentage points of growth was generated by an improved net export account. That estimate, however, was based on just the two months of available data (October and November) for the quarter. December’s data will not be available until February.

As noted in Commentary No. 345, the relative improvement suggested in the trade deficit for the fourth-quarter (based on the October and November reporting) could have added 1.3 annualized (0.3 quarterly) percentage points to fourth-quarter real GDP growth, but not 3.44 percentage points. That differential required extremely optimistic assumptions on the part of the BEA as to the December trade results. Accordingly, the upcoming trade release will be particularly interesting in terms of its implications for GDP revisions.

Separately, after quarters of a significant inventory build-up, a reduced pace of relative inventory increase reduced the reported real fourth-quarter GDP growth rate by 3.70 percentage points. Inventories at this point in time are even less reliable than the trade data. Nonetheless, inventory build-up still accounted for half the annual average GDP growth in 2010.

Also, despite the 30% annualized (8% quarterly) quarter-to-quarter contraction in housing starts, residential investment rose at a 3.4% annualized pace.

The point here is that reported 3.17% annualized growth, with the regular +/- 3.0% 95% confidence interval, along with such unusually large swings in unreliable components, should not be taken as a serious or meaningful measure of quarterly economic growth. I believe that realistic growth would have been flat-to-minus and eventually that should prove out in long-range revisions.

Where early GDP reporting generally is of extremely poor quality, some catch-up should be seen in the annual benchmark revisions due for release on July 29th. At that time — as will be seen with the payroll employment reporting due for revision a week from now — the revisions to prior economic growth generally will be to the downside, showing a more-protracted and deeper economic contraction in place than officially is recognized at present.

With quarterly weakness in the housing starts and in new orders for durable goods, the indications remain in place for a re-intensifying economic downturn, as discussed inSpecial Commentary No. 342.

"Advance" Guesstimate on Fourth-Quarter 2010 GDP Was Unusually Flimsy.

The opening comments covered several unusual issues with the current GDP report. A more traditional problem lies in how inflation was handled. On a one-to-one basis, the lower the inflation rate used to deflate the GDP, the higher will be the real or inflation-adjusted GDP growth rate. Annualized GDP inflation — the GDP Implicit Price Deflator — was reported showing annualized inflation of 0.3% in the fourth-quarter, down from 2.0% in the third, while annualized CPI inflation rose to 2.6% in the fourth-quarter, up from 1.5% in the third.

And some practitioner of economic auterism will snarkily say, "But har har and tut tut. You obviously do not understand that the deflator has nothing to do with inflation, although it purports to perform the function of taking out the inflationary effect. The deflator is merely what we say it is."

And to that I say, yes, and it also has nothing to do with reality, but rather the desire to make black appear white, and hell seem a heaven.

David Rosenberg: Herbert Hoover Obama

I receive an automatic email from Dave Rosenberg of Canadian firm Gluskin Sheff every morning. He is always informed and clever, but occasionally he just makes my day. You can receive his e-letter by registering here.

HERBERT OBAMA?

A long-standing colleague and reader sent this off to me yesterday and it blew
me away. Read on:

Obama’s State of the Union:

“Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again.”

Herbert Hoover, May 1st 1930, US Chamber of Commerce Meeting:

“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover.”

Obama’s State of the Union:

“Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger today. Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last
year.”

Herbert Hoover, October 22, 1932, campaign speech in Detroit:

“It can be demonstrated that the tide has turned and that the gigantic forces of depression are today in retreat. Our measures and policies have demonstrated their effectiveness. They have preserved the American people from certain chaos. They have preserved a final fortress of stability in the world.”

Obama’s State of the Union:

“But now that the worst of the recession is over...”

Herbert Hoover, June 1930, to a delegation requesting a public works project:

“Gentlemen, you have come sixty days too late. The depression is over.”

Obama’s State of the Union:

“The steps we’ve taken over the last two years may have broken the back of this recession…”

Herbert Hoover, State of the Union, December 6, 1932:

“The unprecedented emergency measures enacted and policies adopted undoubtedly saved the country from economic disaster…”

As I mentioned the other day, the only difference I can find between Hoover and Obama is that Herbert Hoover, the Great Engineer, had many impressive accomplishments in the private sector before becoming President. And he still screwed it up. lol. Even Sir Isaac Newton, who could develop a calculus to take the measure of the universe and plot the orbits of the planets, could not plumb the depths and mysteries of a massive financial fraud. I think the strength of such frauds is their incredible size supported only by deceptive simplicity. The scientific mind boggles at such brazen rapacity.

The World Is Waiting For The Sunrise: A Practical Guide to the Re-Monetization of Silver

Here is an excerpt from a longer discussion presented by my friend Hugo Salinas-Price in London today.

Although the proper title of the presentation is 'A Discussion of Precious Metals As Money,' I tend to call it 'A Practical Guide and Rationale For The Re-Monetization of Silver.' You can read the presentation here. I present an important excerpt, part III, below.

For my own part, I do not favor a return to a formal gold or silver standard at this time. I do not prefer it because I do not wish the developed and dominant nations to monopolize and formally set the price of these metals as they have been doing informally, given the unstable, opaque, and dare I say conflicted, nature of their financial systems. Any monetary system requires some measure of transparency and honesty and these are sadly lacking in the modern financial system.

Rather, I think it would serve the purpose to have a trusted coin available with the sanction of the State, at a floating price, to serve in parallel with whatever fiat currency regimes that may be locally in place. 

Thus one could call it the re-monetization of silver, but not the imposition of a formal gold or silver standard. This has two striking benefits: the flexibility to informally devalue or strengthen the national fiat currency, with a sound and safe way to store individual wealth and promote savings and the accumulation of capital for productive investments.  A progressive country might even treat the gain (or loss) of the bullion coin's value as a non-taxable item, providing some remedy to the people if the central bank indulges in printing money and quantitative easing.

This is similar to that which we have today, except that the coin would provide a reliable and practical means of obtaining and storing wealth for the individual, far superior to the ad hoc system of precious metals ownership in place today that is greatly abused by naked short selling and paper leverage, the same taint of the banks which has devastated the global financial system. 

I would look for keen opposition to this by the Anglo-American banking cartel and their friends in central government, since this proposal is inimical to the domination of others through the absolute control of a paper money system and the process of confiscating wealth in the form of inflation, fees, and frauds.  However, I think the zenith of their power is already passing, and because of their foolish and reckless excesses the tide history is about to roll over them.  Most of those close to the system will never even see it coming. Such is the way of long cycle changes.

I believe this proposal offers a unique opportunity to whatever country first steps forward to take it, and provide a universally acceptable metal coin with a floating value that can be used for public and private transactions in their country, as well as private transactions in other regions of the world. After all, one of the primary currencies in young America was the Spanish Dollar, the silver eight reales coin, the source of the phrase, 'pieces of eight.'

With the inclusion of modern technology to promote confidence and inhibit counterfeiting with some elementary testing equipment, some fortunate country could establish itself as the first nation to introduce a hard alternative currency for itself and for the world, in the face of a failing post-Bretton Woods monetary system, to the benefit of their people.

I do not expect the US or the UK to be this innovator, and in fact to stubbornly resist it for the reason cited above. Rather it is more likely to be some emerging economic power such as Mexico, India, Venezuela, Russia or China.  Or perhaps even a confederation of countries or US states acting for the benefit of their people in the face of the powerful banking lobby centered in Washington and New York.

I see this as important now because of an abiding belief that the US dollar reserve currency and international trading regime is highly unstable and too likely to collapse because of a loss of confidence under the weight of pernicious financial corruption. Obama's failure to reform has sealed its fate, and I think we are beyond the point of no return.

I also see great peril in the west with regard to the principle of the private ownership of property, a deficiency created by the very banking system that rose to power on the canard of deregulation and free markets, which has been used as a guise by which to plunder the wealth of the nation. The large scale seizure of property through a highly questionable and fraudulently based foreclosure process may be a portent of things to come. Savings held as electronic digits are much easier to control, debase, defraud, and devalue. 

And I think confidence in the financial markets and assets are at all time lows among the people, despite the aggressive public relations campaign to the contrary being conducted by the bankers and their demimonde in the corporations, central banks, and central governments.

Thus there is an obvious need for a store of wealth that is universal, liquid, portable, and not as subject to the whims of the shadow banking system and the financial plutocracy.  This could happen in the existing system if naked shorting were banned and the regulators would perform their sworn duties to the people, but that appears to be unlikely, and all too easily corruptible. A

Alan Greenspan has said that to the extent that a fiat currency and credit system acts with measured restraint, 'acts like gold,' it can be sustained with an orderly growth and stable prices. And if all good boys and girls act with perfect rational honesty and lack of overly selfish interest and misbehaviour, markets will be naturally efficient and require no regulation.

That is the very point of this. They have not, they do not, and they can not do so in the future, because of the tendency towards corruptibility that a pure fiat system offers to the politicians, insiders, and financial engineers. Abuse of power, as in a dictatorship, is maintained only to the extent that they can extinguish and suppress the alternatives, and even the knowledge that other choices exist. The strength of a broad democracy lies in transparency and relatively independent alternatives, a refuge if you will from the vagaries of human error and venality.

So a convenient and widespread bullion coin appears to be a good alternative. Admittedly it would not be a panacea. There are none. Every system requires work. But some systems are easier to maintain, more robust, less susceptible to failure, and just better than others.

The question in my mind is not so much 'will it happen?' as it is 'who will be the first?' To me it would be the ultimate irony if such a move to promote economic freedom came from a non-Western country.

The World is indeed in the winter of its financial discontent, and 'waiting for the sunrise.'

The World Is Waiting For The Sunrise:
Part III of a four part presentation
By Hugo Salinas-Price
The Cheviot Sound Money Conference
Guildhall, London, England
27 January 2011

Since ancient times one of the most important activities which any State exclusively reserved to itself was the minting of the nation’s money.  In our age we have seen that modern banking systems have completely usurped this fundamental function of the State. Had the banking systems of the world fulfilled this function correctly, we should not be pondering monetary matters.

The fact is that the banking systems of the world have one and all followed the same banking rule book, which they altered when the rules proved an impediment to increased profits, and they have managed to expand themselves into total bankruptcy. Not only that, but having taken over the power of issuing money – of zero quality – they have arrogated unto themselves as if by a natural, God-given right the function of being the central promoters of growth and prosperity.

Thus have the money-lenders promoted themselves into a ruling plutocracy. We are now witnessing the inevitable downfall of these plutocracies which have not been interested in the welfare of their nations, but first, second and last in their own enrichment and power. Thus the plutocrats have bankrupted themselves out of greed and irresponsibility.

We have shown how the Treasury of the UK can have a silver coin minted, and how it can endow that coin with a monetary value. Please notice that we are not assigning this task to the Bank of England. The Bank of England is a Central Bank, a financial institution which regulates banking in the UK. Among other responsibilities, it is in charge of monetary policy, which means that the creation, maintenance and increase or decrease in the amount of fiat money circulating in the UK is within its authorized sphere of action.

The historic development of banking all over the world has led to the present situation, where all money is the exclusive preserve of banking systems and their Central Banks and where, in fact, there is only one kind of money in the world, fiat money.

We live in a world where the dominant paradigm is fiat money issued exclusively by a Central Bank and its related banking system. Humanity today knows of no other money but this!

If and when the Treasury of the UK, in obedience to the instructions of Parliament, proceeds to the minting of a one-ounce pure silver coin with no engraved value and issues a monetary quote for that coin, this will be a revolutionary event from the point of view of the bankers.

The prevailing paradigm of fiat money, and only fiat money, issued exclusively by the Central Bank and its related banking system will have been broken! The State, through the Treasury, will be creating true money.

This will be permanent money which will remain in circulation until it is so worn out that it has to be replaced, at Treasury expense, with new coinage; money that will never be at risk of disappearing due to a collapse of the banking system. Banking, the business of lending money, is a legitimate business subject to risks which all businesses must run. However, the creation of money is not and cannot be a legitimate function of banking: there is a conflict of interest involved in the union of the two functions. The present worldwide monetary and financial disarray is evident proof of this statement.

The rupture of a paradigm is a rare event; entrenched ideas are hard to dislodge. A fresh approach leads to new avenues of action and opens up new horizons which can resolve the total dead-end confronting the world. The system of fiat money issued by banking systems has exhausted itself and cannot offer real alternatives to progress, but only such aberrations as QE 2.

The first thing that will happen when the prevailing monetary paradigm is broken is that people will immediately begin to regard money in a different light: they will have an option, where there was previously no option at all. Britain would no doubt receive the monetization of a silver coin most enthusiastically. The demand for the coin would be enormous.

If the bankers are allowed to have their way, there will be no monetized silver coin. They will adamantly oppose it. They will be frightened to death of the preference which the British would surely give to the silver coin. They will allege that if the silver coin becomes a reality, Britain is doomed. The bankers are prisoners of their paradigm and can think in no other terms.

No one can foresee all the consequences of introducing a silver coin into circulation in parallel with paper and digital money. Churchill once said, “In politics, experimentation is revolution.” However, real silver money has been the rule in history, not the exception; thus a partial return to silver money as an option alongside paper and digital money is hardly an innovation or experimentation. In historic terms, what has been experimentation – and QE 2 is avowedly experimentation – has been global fiat money created by bankers who quite evidently have had no notion of what they were doing and did not know or did not care what the consequences of their actions would be. The British would experience the joy of holding real money in their hands and saving money that will surely be worth something in the years to come: money that cannot be devalued. Revolution, for the bankers who have not lived up to the trust placed in them; for the people, it heralds peace of mind and hope for a better future, not revolution.

Should not a proposition which offers something sure to be welcomed unquestioningly by hundreds of millions of individuals all over the world be worth considering, notwithstanding the objections of the bankrupt bankers? The deep-seated dread on the part of the bankers regarding the latent preference for silver (and gold) on the part of the population reveals a fundamental social instability which will have to be addressed at some point.

Politics implies tensions between sets of ideas. At some times, ideas that further social progress, prosperity and good husbandry are paramount; at other times, the prevailing ideas impede prosperity, breed apathy and promote profligacy.

There is now a potential tension between two conflicting ideas: the idea of the Welfare State, which is tottering on to its eventual collapse, and the idea of taking one’s welfare back into one’s own hands, which at present revolves around an unexpressed mute desire for savings of real, tangible money such as monetized silver. The monetization of a silver coin would provide a channel for that potential tension and create an enormous tide of savings in silver coins.

We believe that the undoubted desire of all peoples of the West - and of the East, as well - is to enjoy real money as the foundation of their economic efforts, and that this desire has been unexpressed and mute because no one has proposed a means of satisfying it. Silver money, which has ever been the money of the people, can become a reality that comes to life in parallel with the prevailing fiat money. Its further development and growth in importance can be only dimly sketched, but it comes to life pregnant with possibilities.

The creation of a silver coin with a stable monetary value, which can remain in permanent circulation in parallel with paper and digital money, would finally close the circuit that turns a worldwide desire into an actuality. The surge into silver money would be enormous. Should we fear what the people desire, or should we understand that desire and its justification, and open the way for it to express itself?

We also believe that the monetization of a silver coin by the method we have outlined – its various details are suggested but can be altered to suit – can become the irresistible objective of a political party that wishes to come to power; there is a silent desire for real money on the part of all people of the world and - the world is waiting for the sunrise!