Financiers Offer Terms to the Rest of World in the Currency Wars

Anglo-American financiers to the Rest of World: We've a Gun to Our Heads, Better Surrender.

"To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world."

Destroy the world economy by trashing the global reserve currency? Yes we can.

I hate to make light of this because it does offer a useful vignette of the deployment of opposing lines and basic strategies in the currency war, at least from one perspective. Several years ago I forecast that the Bankers would make the world an 'offer they cannot refuse,' or at least that the Bankers think that they cannot refuse. Hank Paulson made such an offer to the US Congress, and now it appears that the financiers are extending a similar type of offer to the rest of the world.

And quiet flows the Don.

Financial Times
Why America is going to win the global currency battle
By Martin Wolf
October 12 2010 22:30

Currencies dominated this year’s annual meetings of the International Monetary Fund. More precisely, two currencies did: the dollar and the renminbi, the former because it was deemed too weak and the latter because it was deemed too inflexible. But, behind the squabbles, lies a huge challenge: how best to manage the global economic adjustment.

In his foreword to the new World Economic Outlook, Olivier Blanchard, the IMF’s economic counsellor, states: “Achieving a ‘strong, balanced and sustained world recovery’ – to quote from the goal set in Pittsburgh by the G20 – was never going to be easy ... It requires two fundamental and difficult economic rebalancing acts.”

The first is internal rebalancing – a return to reliance on private demand in advanced countries and retrenchment of the fiscal deficits that opened in the crisis. The second is external rebalancing – greater reliance on net exports by the US and some other advanced countries and on domestic demand by some emerging countries, notably China. Unfortunately, concludes, Professor Blanchard, “these two rebalancing acts are taking place too slowly”.

We can consider this rebalancing on two dimensions. First, the erstwhile high-spending, high-deficit advanced countries need to de-leverage their private sectors on the journey to what Mohamed El-Erian of Pimco, the investment company, called “the new normal”, in his Per Jacobsson lecture. Second, the real exchange rates of economies with robust external positions, strong investment opportunities, or both, need to appreciate, while expansion of domestic demand offsets the consequent drag from net exports.

Aggressive monetary policy by reserve-issuing advanced countries, particularly the US, is an element in both processes. The cries of pain now heard around the world, as markets push currencies up against the dollar, partly reflect the uneven impact of US policy. Still more, they reflect the stubborn unwillingness to accept the needed changes, with each capital recipient trying to deflect the unwanted adjustment elsewhere.

To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world.

If you wish to understand how aggressive US policy might become, read a recent speech by William Dudley, president of the Federal Reserve Bank of New York. He notes that “in recent quarters the pace of growth has been disappointing even relative to our modest expectations at the start of the year”. Behind this lies deleveraging by US households, in particular. So what can monetary policy do about it? His answer is that “very low interest rates can help smooth the adjustment process by supporting asset valuations, including making housing more affordable and by allowing some borrowers to reduce debt interest payments. Beyond this ... to the extent that monetary policy can ‘cut off the tail’ of the distribution of potential adverse economic outcomes ... it can help encourage those households and businesses with money to spend to do so”.

Above all, today’s low and falling inflation is potentially calamitous. At worst, the economy might succumb to debt-deflation. US yields and inflation are already following the path of Japan’s in the 1990s (see chart). The Fed wants to stop this trend. That is why another round of quantitative easing seems imminent.

In short, US policymakers will do whatever is required to avoid deflation. Indeed, the Fed will keep going until the US is satisfactorily reflated. What that effort does to the rest of the world is not its concern.

The global consequences are evident: the policy will raise prices of long-term assets and encourage capital to flow into countries with less expansionary monetary policies (such as Switzerland) or higher returns (such as emerging economies). This is what is happening. The Washington-based Institute for International Finance forecasts net inflows of capital from abroad into emerging economies of more than $800bn in 2010 and 2011. It also forecasts massive intervention by recipients of this capital, albeit at a falling rate (see chart).

Recipients of the capital inflow, be they advanced or emerging countries, face uncomfortable choices: let the exchange rate appreciate, so impairing external competitiveness; intervene in currency markets, so accumulating unwanted dollars, threatening domestic monetary stability and impairing external competitiveness; or curb the capital inflow, via taxes and controls. Historically, governments have chosen combinations of all three. That will be the case this time, too.

Naturally, one could imagine an opposite course. Indeed, China objects to the huge US fiscal deficits and unconventional monetary policies. China is also determined to keep inflation down at home and limit the appreciation of its currency. The implication of this policy is clear: adjustments in real exchange rates should occur via falling US domestic prices. China wants to impose a deflationary adjustment on the US, just as Germany is doing to Greece. This is not going to happen. Nor would it be in China’s interest if it did. As a creditor, it would enjoy an increase in the real value of its claims on the US. But US deflation would threaten a world slump.

Prof Blanchard is clearly right: the adjustments ahead are going to be very difficult; and they have also hardly begun. Instead of co-operation on adjustment of exchange rates and the external account, the US is seeking to impose its will, via the printing press. The US is going to win this war, one way or the other: it will either inflate the rest of the world or force their nominal exchange rates up against the dollar. Unfortunately, the impact will also be higgledy piggledy, with the less protected economies (such as Brazil or South Africa) forced to adjust and others, protected by exchange controls (such as China), able to manage the adjustment better.

It would be far better for everybody to seek a co-operative outcome. (Co-operative outomce is code for 'obey our will and give obesiance to the financiers' - Jesse).  Maybe the leaders of the group of 20 will even be able to use their “mutual assessment process” to achieve just that. Their November summit in Seoul is the opportunity. Of the need there can be no doubt. Of the will, the doubts are many. In the worst of the crisis, leaders hung together. Now, the Fed is about to hang them all separately....

The theme for the next ten years is self-sufficiency.

Gold and Silver, and SP 500 and NDX December Futures Daily Charts

"As a dog returns to its vomit, so the Fed returns to its folly." Prov 26:11

Financial Times
Fed tilts to more monetary easing
By James Politi in Washington and Robin Harding in St Louis
October 12 2010 19:15

The likelihood that the US will soon launch a fresh burst of “quantitative easing” has increased, as minutes from the Federal Reserve’s latest meeting revealed that officials were nearing an agreement on the need for additional monetary stimulus. The official record from the September 21 gathering of the federal open market committee, which sets interest rates, showed that “many” officials thought a new round of monetary easing might be necessary to breathe life into the sluggish US recovery...

Net Asset Value of Certain Precious Metal Trusts and Funds

The gold premiums are highly contracted.

This could be the result of arbitrage hedging which we have discussed in the past. Essentially one could buy the futures and sell short PHYS and pocket any premium differential.

Traditionally it had been a sign of a lack of 'exuberance' in the specs over the future price moves.

The premiums tended to expand during speculative public buying AND short squeezes in the unit trusts.

Over Ten Million Served

...since February of 2008.

Thank you for your patronage.

SP 500 and NDX December Futures and Gold Daily Charts

Selling in the London and NY paper markets is being met by determined buying. Today was another record high close as the bear raid was 'stuffed.'

The equity markets are being managed higher on thin volumes led by the SP 500 futures.

Columbus Day (US) and Thanksgiving Day (Canada)

As a reminder Monday 11 October 2010 is Columbus Day in the US and the bond markets and banks will be closed, although the stock market will be open. It is not a settlement day for stocks however.

It is also Thanksgiving Day in Canada, and the equity markets and other financial markets will be closed. This may lead to thin trading in some of the mining and oil stocks.

Robert Reich: Aftershock

US Dollar: Long Term Trend and Triffin's Dilemma

AEIR
Triffin’s Dilemma, Reserve Currencies, and Gold
By Walker Todd

Nearly 50 years ago, Yale University economist Robert Triffin identified the inevitable future deterioration of the dollar in his book, Gold and the Dollar Crisis: The Future of Convertibility (1960). Essentially, Triffin argued, under the Bretton Woods system in which the U.S. dollar was the world’s principal reserve currency (instead of gold, for example), the United States had to incur large trade deficits in order to provide the rest of the world with the liquidity required for functioning of the global trading system.

Unfortunately, Triffin wrote, U.S. trade deficits eventually would undermine the foreign exchange value of the dollar because foreign accounts would hold an increasing quantity of dollars. Restating Triffin's argument in contemporary terms, as the proportion of dollar claims held abroad versus U.S. gross domestic product (GDP) increases, the foreign exchange value of the dollar must decline if dollar interest rates do not increase at about the same rate as the foreign dollar claims.

Issuing the reserve currency gives domestic policy makers an advantage by making it easier to finance either domestic budget deficits or foreign trade deficits because there always is a ready bidders' market for any financing instruments from that issuer. Issuing the reserve currency enables the domestic population to consume more goods and services from whatever source than otherwise would be feasible. And issuing the reserve currency gives foreign policy officials of that nation the upper hand in determining multilateral approaches to either diplomacy or military action.

This last reason probably is why U.S. policy makers clung to the original Bretton Woods format for about 10 years beyond the point at which it still was viable, with the whole apparatus finally collapsing in August 1971.

Let us reconsider the effect of reserve currency issuance on domestic and foreign trade for a moment. Unless the issuing authorities can discover a way to allow their currency to depreciate more or less in proportion to the growing foreign trade deficits—by reducing interest rates or otherwise stimulating domestic inflation, for example—then a sustainable equilibrium becomes impossible.

Either the currency remains overvalued (good for the reserve currency status) and the trade deficits continue to increase, or the currency maintains fair external value (implicitly, a proportional devaluation, which is bad for the reserve currency status) and the trade deficits either stabilize or shrink. This latter proposition is what Professor Triffin was writing about in 1960, and it has been called Triffin's dilemma ever since.

Lewis Lehrman and John Mueller revived the discussion of Triffin's dilemma, without calling it that, in an article that appeared on December 15, 2008, in National Review Online. They suggested that the proper international reserve currency should be gold. I agree and wrote as much in a commentary, in the Christian Science Monitor, November 17, 2008.

Lehrman and Mueller argue correctly that no country willingly should volunteer for the reserve currency role. Such an endeavor necessarily leads to the same pattern of persistent overvaluation and trade deficits that plagued the United States since European currencies became generally convertible in 1959. Our abandonment of the international gold exchange standard in August 1971 accelerated and intensified our external deficits and the volatility of exchange rates.

Among advanced economies that were key members of the old Bretton Woods system, tolerating large amounts of external claims in their currencies always was a sore point because they wanted to avoid de facto reserve currency status and the curse (Triffin's dilemma) that accompanies it.

In the last two decades, roughly since the fall of the Berlin Wall in 1989, European countries have adopted the euro and allowed large external claims in euros to arise. The Japanese bubble of the 1980s finally burst and relieved the reserve currency pressure of large external claims there until the last couple of years. Recently prosperous nations like China, India, and Brazil linked their currencies to the dollar and managed exchange rates so as to avoid the accumulation of large external claims. Thus, none of the most likely candidates is volunteering for reserve currency status...

SP 500 and NDX December Futures Daily Charts

Wall Street is now starting to rally higher on bad economic news, pricing in a new round of monetary stimulus from the Fed. Unfortunately this is being done on thin volumes by cynical speculators, setting up possibly hazardous market conditions.

Gold Daily and Silver Weekly Projected Charts

The correction was brief and correlated to equities.

Tavakoli: Biggest Fraud in the History of the Capital Markets

Washington Post
'This is the biggest fraud in the history of the capital markets'
By Ezra Klein
10/8/2010

Janet Tavakoli is the founder and president of Tavakoli Structured Finance Inc. She sounded some of the earliest warnings on the structured finance market, leading the University of Chicago to profile her as a "Structured Success," and Business Week to call her "The Cassandra of Credit Derivatives." We spoke this afternoon about the turmoil in the housing market, and an edited transcript of our conversation follows.

Ezra Klein: What’s happening here? Why are we suddenly faced with a crisis that wasn’t apparent two weeks ago?

Janet Tavakoli: This is the biggest fraud in the history of the capital markets. And it’s not something that happened last week. It happened when these loans were originated, in some cases years ago. Loans have representations and warranties that have to be met. In the past, you had a certain period of time, 60 to 90 days, where you sort through these loans and, if they’re bad, you kick them back. If the documentation wasn’t correct, you’d kick it back. If you found the incomes of the buyers had been overstated, or the houses had been appraised at twice their worth, you’d kick it back. But that didn’t happen here. And it turned out there were loan files that were missing required documentation. Part of putting the deal together is that the securitization professional, and in this case that’s banks like Goldman Sachs and JP Morgan, has to watch for this stuff. It’s called perfecting the security interest, and it’s not optional.

EK: And how much danger are the banks themselves in?

JT: When we had the financial crisis, the first thing the banks did was run to Congress and ask for accounting relief. They asked to be able to avoid pricing this stuff at the price where people would buy them. So no one can tell you the size of the hole in these balance sheets. We’ve thrown a lot of money at it. TARP was just the tip of the iceberg. We’ve given them guarantees on debts, low-cost funding from the Fed. But a lot of these mortgages just cannot be saved. Had we acknowledged this problem in 2005, we could’ve cleaned it up for a few hundred billion dollars. But we didn’t. Banks were lying and committing fraud, and our regulators were covering them and so a bad problem has become a hellacious one.

EK: My understanding is that this now pits the banks against the investors they sold these products too. The investors are going to court to argue that the products were flawed and the banks need to take them back.

JT: Many investors now are waking up to the fact that they were defrauded. Even sophisticated investors. If you did your due diligence but material information was withheld, you can recover. It’ll be a case-by-by-case basis.

EK: Given that our financial system is still fragile, isn’t that a disaster for the economy? Will credit freeze again?

JT: I disagree. In order to make the financial system healthy, we need to recognize the extent of our losses and begin facing the fraud. Then the market will be trustworthy again and people will start to participate.

EK: It sounds almost like you’re saying we still need to go through the end of our financial crisis.

JT: Yes, but I wouldn’t say crisis. This can be done with a resolution trust corporation, the way we cleaned up the S&Ls. The system got back on its feet faster because we grappled with the problems. The shareholders would be wiped out and the debt holders would have to take a discount on their debt and they’d get a debt-for-equity swap. Instead we poured TARP money into a pit and meanwhile the banks are paying huge bonuses to some people who should be made accountable for fraud. The financial crisis was a product of our irrational reaction, which protected crony capitalism rather than capitalism. In capitalism, the shareholders who took the risk would be wiped out and the debt holders would take a discount but banking would go on.

Non-Farm Payrolls: US Economy Doing a Great Imitation of a Developing Double Dip

The September Non-Farm Payrolls report was not good news.

This is a remarkably unnatural US economic recovery, with gold, silver, and other key commodities soaring in price, the near end of the Treasury curve hitting record low interest rates, and stocks steadily rallying as employment slumps and the median wage continues to decline.

The US is a Potemkin Village economy with the appearance of prosperity hiding the rot of fraud,  oligarchy, and political corruption.

As monetary power and wealth is increasingly concentrated in fewer hands, the robust organic nature of the economy and the middle class continues to deteriorate.

This is what is happening, and monetary policy cannot affect it.   The change must come from the source, which is in political and financial reform.   And the powerful status quo is dead set against it.



The long term trend of employment has not yet turned lower which would make the second dip 'official' from our point of view. But the prognosis does not look good.

Federal Reserve Issues 'Cease and Desist' Order for HSBC North America

What could a TBTF bank possibly do to deserve an official reprimand from their friends at the Fed? Bank Secrecy Act and Anti-Money Laundering (BSA/AML) related it appears, protecting flows of secrets and cash.

I hope it is not related to HSBC's position as the primary custodian for GLD and helping to 'start of the gold rush' back in 2009 by kicking out all the small fry to make room for more unemcumbered and leaseable London-ready bullion.

"WHEREAS, the Federal Reserve Bank of Chicago (the “Reserve Bank”) reviewed and
assessed the effectiveness of HNAH’s corporate governance and compliance risk management
practices, policies, and internal controls, and identified deficiencies..."

Press Release
Federal Reserve
Release Date: October 7, 2010

The Federal Reserve Board on Thursday announced the issuance of a consent Cease and Desist Order between HSBC North America Holdings, Inc. (HNAH), New York, New York, a registered bank holding company, and the Federal Reserve Board. The order requires HNAH to take corrective action to improve its firmwide compliance risk-management program, including its anti-money laundering compliance risk management.

Concurrent with the Federal Reserve Board's enforcement action, the Office of the Comptroller of the Currency announced Thursday the issuance of a Cease and Desist Order against HSBC Bank USA, N.A., McLean, Virginia, for violating the Bank Secrecy Act and its underlying regulations.

A copy of the Board's order is attached.

Attachment (pdf)

SP 500 and NDX December Futures Daily Charts

There is not a lot of doubt in my mind that this action in the US stock indices is indicative of bubble liquidity, but unfortunately underpinned by weak, cynical hands and thin volumes, and unrelated to economic fundamentals. Some of this is the effect of the upcoming November elections.

You will know the economy is improving when the median wage and employment start increasing. There is no evidence of this yet. Jobs creation remains below the level of population growth.

The Fed created a monetary bubble in 2004-07 which resulted in a bull market in stocks, and spawned a massive housing bubble and bank fraud overhang, the latter of which remains unremediated and a serious impediment to genuine economic growth.

Any serious exogenous event can now lead to a significant correction without direct Fed intervention of a scale much greater than their current POMO activity. Fraud and insider dealing is pervasive, and the Congress is largely under the influence of the banks and corporations because of the existing process of campaign financing.

Gold Daily Chart

Gold corrected back to trend as we noted it might the other day, and said we were taking profits in gold and silver on the short term trades only.

This consolidation was predictable given the extension above trend. Long ago we said we expected gold to move to 1375 and consolidate after the breakout from the handle in the cup formation. This is of a common pattern. We may have already seen this consolidation off the spike up.

Gold will remain in a bull market until the fundamentals change in the real economy with regard to honest stores of value. If you do not understand this by now you may not do so until it is too obvious to do anything about it.

Gold Chart: A Time and Price Projection

It is important to keep in mind that this is a trend projection.

An exogenous event or a change in environment such as a liquidity crisis and equity market crash will test and can certainly alter this trend. As traders we must be mindful of what the market tells us.

As you may recall, I like to use these kind of charts as indications of the progress of a market, rather than hard and fast rules.

For example, the correction we see today in gold is to be expected as we ran well above trend over the past few days. Is this the consolidation we have been expecting around 1375? Very possibly.  That objective was set months ago and is more an indicative target than a hard buy or sell stop.   After a breakout from a cup and handle, price almost always gets ahead of itself and undergoes a consolidative correction.  So, there we may now be.

The equity market SP 500 December futures appear to be hesitating ahead of tomorrow's Non-Farm Payrolls report.  It was at the top of a short term trend channel at 1163 with its lower bound at 1136.  The breakdown of the NDX yesterday was indicative.  That range in the futures is 2025 to 1965.   A break of trend in the SP futures will set up a test of big support at 1120.  The Feds seem to be all over these markets, so I prefer to play it tight, light, and short term until we see a confirmed change in trend.

It is the relationship of the current price to the chart that is most important, with time as a factor.

Gold Daily Chart

Gold and Silver Daily Charts

Gold broke out of its trend channel today on the same monetary euphoria that seemed to drive US equities.

Prior resistance is now support, so we would look for the top of the trend channel to provide some level of potential lift in the case of a consolidation or pullback around the 1325-1330 level. Breakouts from cup and handle formations can be violent, and it would not surprise this chartist to see that run to the first target of 1375 before gold consolidates properly. I would hope gold would take a more leisurely route higher to that second target of 1455 and beyond, our long term minimum objective for the cup and handle, since the big parabolic peaks are almost always followed by deep corrections.

This gold chart gave us a 'buy or die' signal at 1,156 which was an almost perfect 50% retracement of the big rally off the bottom. That buy signal now shifts to 'neutral' as we approach the intermediate objective of the breakout which is 1375 before a consolidation or a pullback. Keep in mind that the minimum measuring objective of 1450 was set in May 2010 although the details are periodically revised as new data is obtained from the chart. It has been a long road since then. Now things get a little more complicated.

Ben Davies' Interview on King World News is a credible hypothesis into what may be happening over the next two years or so. I always assume these large macro changes take time, but there are periods when they reach a tipping point or a sea change and the progress of such changes can accelerate significantly. The markets may be signaling such a major development.

One thing I am sure of is that as this situation plays out and as gold and silver rally higher, the reasons given by some as to why the precious metals should not be doing what they are doing, rising higher in price, will become increasingly strident, insistent, and at times unintentionally funny because they are so disconnected and inappropriate compared to reality.

It requires intelligence and maturity to realize when you are wrong, but it is a mark of character to be able to admit it, gather yourself together, and go forward again successfully, dealing with things as they are. Self-deception is a powerful ally to failure, and rationalization can be remarkably inventive and seemingly inexhaustible. Everyone is admittedly wrong sometimes, except for the deluded, the naive, the con-man, and the narcissist.

Silver is 'taking no prisoners' from the bear camp in its own powerful breakout that continues to extend beyond our expectations. I am of a mind to take some profits off the table for the short term trades, but I certainly would not get in front of this juggernaut just yet, or more seriously hedge the long term positions. That time may come, and the market will let us all know when.

The Guardians of the Realm

How's Your Confidence Now?

 

How About Now?

SP 500 and NDX December Futures Daily Charts

The ISM Services Index came in at 53.2 versus an expected 51.8 and it was off to the races with a day long short squeeze in US equities.

Tomorrow is the ADP report, with expectations of 18-20,000 jobs added in the private sector, a possible peek ahead at the big non-Farm Payrolls Report for September which carries expectations of flat jobs growth.

Personally I think the markets are starting to price in a QE2 stimulus and a whiff of inflation to go with it, with additional inspiration from the example of Japan, which is approaching a level of debt to GDP that generally begins to approach the threshold of hyperinflation to come.

However it develops, I doubt this will end well and remain very cautious of equities, leaving the day with a new small short position. We all have to be mindful of the Fed's ability to blow another asset bubble, more generally in equities. Difficult times to be an investor or a saver indeed.

Gold and Silver Daily Charts

SP 500 and NDX December Futures Daily Charts

Gold Daily Chart and a Comparison of the 2009 and 2010 Gold Rallies

If the 2010 gold rally lasts 98 calendar days, or approximately three months, that targets October 31.

If the 2010 gold rally results in a price increase of 27% that projects a target of $1,480.

St. Crispin's Day is 25 October.



The Battle of Agincourt

SP 500 and NDX December Futures Daily Charts

US Dollar Weekly Chart

The dollar appears to be headed lower to test the next level of support on the weekly chart. A target for the euro might be closer to the 150 level but probably not much higher, as foreign central banks continue to shift reserve from the dollar into other stores of wealth.

Gold Daily Chart

Another range day in which the Comex tested the limits of the large open interest in holders of October futures coming into the delivery process. The speculative shorts who got excited and jumped on at the bottom of the range got stuffed on the snapback rally later in the day.

Learning to wait for the moment when the odds are in your favor is the great lesson of trading. Life truly is a school of probability.

SP 500 and NDX December Futures Daily Chart

End of quarter. Book it, Dano.

Net Asset Value of Certain Precious Metal Trusts and Funds and the Odd Performance of PHYS

I am finding this contraction in the premiums of the gold-only trusts GTU and PHYS to be extremely interesting. Both followed an expansion of the fund's units and large sales of overallocations to the underwriters, providing liquidity not only to expand the trust but also to game the shares.

This expansion facilitates an arbitrage on the premium in which one sells the trust and buys GLD for example. And the holding of units by the underwriters assures a ready supply of shares for shorting, if one assumes that the big punters even bother with the nicety of borrowing shares.

While the premiums remain uniform it does not matter since the NAV will track the bullion holdings, but it does create a sort of retrograde phenomenon in which the funds will briefly underperform bullion due to the contraction of their premium, especially in the case of PHYS, from the lofty 8% to the lowly 2%. It will be interesting to see if this holds, or if the range of premium reasserts on a new leg up in bullion, and the 'kick' of a possible short squeeze.

In the past a contraction of the premiums was often a signal of bearish sentiment, that the speculators were not willing to pay a premium because they felt that the move was nearing a top. One also has to wonder if this is the case once again.

Who can say? As Robbie Burns once observed:

But, Mousie, thou art no thy lane,
In proving foresight may be vain;
The best-laid schemes o' mice an 'men
Gang aft agley,
An' lea'e us nought but grief an' pain,
For promis'd joy!

Still thou art blest, compar'd wi' me
The present only toucheth thee:
But, Och! I backward cast my e'e.
On prospects drear!
An' forward, tho' I canna see,
I guess an' fear!

If you are trading for the shorter term, one needs to be aware of things like premiums and arbitrage. If you are buying and holding as an investor short term fluctuations become much less of an issue as other things increase in importance. You have to understand why you are buying something and what your own objectives are with it, and then be guided by them.

As in the case of the trusts, there are 'premiums' on stocks and options for example, that are not so readily determined because the exact valuations are not so simple and explicit.

This is why trading for the shorter term is a highly specialized craft and is not suitable for any but a few who have the time and knowledge to attempt it. I have been at it for many years, and still learn new things almost every day, all too often the hard way.

You may wish to keep this in mind if and when Mr. Sprott introduces his Physical Silver Trust.

Here is what the NAVs looked like in early September 2010. One 'benefit' of the added liquidity is that the spreads on the Buy - Ask for these trusts has narrowed significantly.

For US Corporations the Whole of the Law Shall Be 'Do What Thou Wilt'

"So long as they incorporate, businesses will now be free to trade in or exploit slaves, employ mercenary armies to do dirty work for despots, perform genocides or operate torture prisons for a despot’s political opponents, or engage in piracy—all without civil liability to victims."

US Second Circuit Judge Pierre Leval

Is this some notorious decision in the manner of Dred Scott from an ugly and unenlightened past of robber barons and organized tyranny?  Yes, and no.

I have not yet read a contrary or comprehensive legal interpretation of this decision, or the actual majority court opinion, and will allow that the opinion from Judge Leval could be overstated in its reach and implications. And or course the corporations might still be subject to criminal prosecution, such as that administered occasionally by the federal government, almost always settled for cursory fines without admission of guilt. (Later: here is a decent description of opinion in support of the court).

“The principle of individual liability for violations of international law has been limited to natural persons — not ‘juridical’ persons such as corporations — because the moral responsibility for a crime so heinous and unbounded as to rise to the level of an ‘international crime’ has rested solely with the individual men and women who have perpetrated it,” Judge Jose Cabranes wrote on behalf of the majority."

The US court system has discovered that 'organizations' are incapable of committing misdeed heninous enough to rise to the level of international crimes.  You know, like crimes against humanity.  This does fit with a disturbing trend in the US whereby more power and wealth is being concentrated in corporations who can act with increasing advantage and anonymity vis-à-vis the individual. Barry Ritholz has framed it quite well in his piece: The Left Right Paradigm Is Over. 

The decision in the US to grant corporations the rights of individuals does have deep roots. From the Supreme Court case of Santa Clara County v. Southern Pacific Railroad in 1886, the US Supreme Court ruled that a private corporation is a natural person under the US Constitution.

"The court does not wish to hear argument on the question whether the provision in the 14th Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does." US Supreme Court Chief Justice Morrison Waite

Justice William O Douglas wrote in 1949, "the Santa Clara case becomes one of the most momentous of all our decisions...Corporations were now armed with constitutional prerogatives."

How can the courts find that judicial constructs like corporations have the protections and privileges of the Bill of Right, but become strict constructionalistic and literal in allowing that they can engage policies and actions supporting and provoking the commission of heinous crimes such as murder and torture without any collective liability?  This was not the decision of some rogue sadist, but the cold and calculated corporate business decision in the pursuit of profit. Corporations implement policy decisions collectively all the time, often of a magnitude to engage the power of the entire organization, even if the actual decision to proceed rested within a small circle of decision makers. In principle they act as officers for the corporation.

And when it comes time for the prosecutions and investigations, managers from the CEO's on down don't know anything about the business, and have apparently been accepting their enormous paychecks for what seems to be benignly vacuous inertia in la dolce vita in absentia, on a pile of wiped emails and shredded documents.  Someone was obviously paying attention during the last international war crimes trials.

Maybe it will be good for the business recovery. I would imagine quite a few European, South American, and Asian companies seeking to reincorporate themselves in Delaware to achieve carte blanche against civil liabilities for increasingly uncivil acts.  It seems to have worked for Royal Dutch Shell.   After all, quite a few credit card companies relocated key operations to western states that encouraged the practice of interstate usury.  Debasement of the currency is not the only thing that the US seems to have underway and well in hand.

I wonder if the European Union will grant the same privilege to their own corporations, to advantage themselves at will on the American Public in acts of violence and torture? Would the US judiciary extend professional courtesy and acknowledge the EU's sovereign right to suspend the protections of the individual as long as the crimes were corporate?

Is BP incorporated in England or the States? Perhaps Mr. Clegg has a card to play here in adopting the US precedent of corporate sovereignty as long as they are inflicting sufficiently heinous damage on foreigners. There does seem to be some historical precedent for this approach with the East India company, for example. Destroying the vitality of the Gulf of Mexico seems heinous enough so that only an individual or two could possibly be liable.  And they are liable to be someone rather low on the corporate ladder, and very liable to be thrown under a bus for the corporate good.  I can imagine Tony Hayward playing the hapless and barely involved imbecile effectively on the witness stand.  And if the Skilling amnesia gambit fails, there is always the Kenny boy castle-to-save-the-king.

Is the United States the equivalent of a corporation?  Some executives from the former and even current US administrations might wish to keep this line of defense in mind.  That last sentence from Judge Leval's quote seems tailor made.

"...employ mercenary armies to do dirty work for despots, perform genocides or operate torture prisons for a despot’s political opponents, or engage in piracy—all without civil liability to victims."

As the saying from the 1930's goes, corporatism is fascism, and fascism is great for business. But Mussolini should have incorporated, and learned to delegate more effectively.

Court Exempts Corporations from Alien Tort Law

A federal appeals court has ruled US corporations can no longer be sued for human rights violations abroad under the longstanding Alien Tort Statute. Earlier this month, the Second US Circuit Court of Appeals ruled that Alien tort claims can only be brought against individuals, not corporations. The ruling dismissed a lawsuit accusing the oil giant Royal Dutch Shell of complicity in the murder and torture of Nigerian activists including Ken Saro-Wiwa.

In a separate opinion, Second Circuit Judge Pierre Leval criticized the ruling, writing, "The majority opinion deals a substantial blow to international law and its undertaking to protect fundamental human rights… So long as they incorporate, businesses will now be free to trade in or exploit slaves, employ mercenary armies to do dirty work for despots, perform genocides or operate torture prisons for a despot’s political opponents, or engage in piracy—all without civil liability to victims."

Democracy Now