SP 500 and NDX Futures Daily Charts - War? What Us Worry?

Here are two news items worth remembering when the next financial crisis hits:

Hedge Fund Leverage Hits All Time High

Algorithms Driving Over Half of London Metals Trading

I believe the Fed still controls the margin requirements for stock as the Big Daddy of US financial regulators, teaching all by its example.

The Bloomberg trotted out Jeremy Siegel who spotted a bubble in bonds, a bear market in commodities, and a stock market that is going to keep going higher, finishing the year on the Dow between 16,000 and 17,000.

The stock market is in a bubble driven by the Fed's peculiar approach to expanding the money supply, the general laxity of financial regulations, and an invasive kleptocracy that has distorted the money side of the real economy almost without exception.

There is another financial crisis coming, and this one is going to be even more impressive than the last. And like the last heroes who 'saved the world,' Messrs. Greenspan, Rubin, and Summers, the current hero Bernanke will be remembered as a banker of the last age, in much the same manner as the hopelessly out of touch French Generals who commanded the Maginot Line.

Even In a Time of Vanity and Greed

"Gentleness is everywhere in daily life, a sign that faith rules through ordinary things...

Even in a time of elephantine vanity and greed, one never has to look far to see the campfires of gentle people. Lacking any other purpose in life, it would be good enough to live for their sake."

Garrison Keillor

I know this is hard to remember, especially with all the ugly selfishness that is so evident these days. And because of the increase in wickedness, among people in high places who provide bad examples, the love of many will falter and grow cold.

It is never really between them and you, but between you and yourself, between you and your God. It is how you rise above, and become human.

It is fine and necessary to look after your wealth in order to fill the needs of your family. But random acts of kindness will make a difference in your life and in theirs.

No act of kindness is wasted.  You store them in your heart, and these are the only things that you will take with you when the day is done.  You will remember them, and you will be remembered for them, if not in this life, then in the next.

You have a choice. Essere umano. To be human.  Be a light to the world.



Thanks to Lambert Strether for this.

Flowers grow, even amongst the desolation of empires, and other passing follies.

Gold Daily and Silver Weekly Chart - The Metal Bears Advance To Stalingrad - How Are the Mighty Fallen

“To understand reality is not the same as to know about outward events. It is to perceive the essential nature of things.

The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential. But on the other hand, knowledge of an apparently trivial detail quite often makes it possible to see into the depths of things.

And so the wise man will seek to acquire the best possible knowledge about events, but always without becoming dependent upon this knowledge.

To recognize the significant in the factual is wisdom.”

Dietrich Bonhoeffer

The bullion supply lines for this recent market operation seem a bit overextended and ill equipped for the ferocious waves of physical buying that have been reported, especially in Asia.

This from UBS:

"On the physical front, strong appetite out of Asia continues. Our index of physical flows to India continues to indicate very strong demand coming in, at least five times the average over the last 12 months.

Premiums in India are now quite high, particularly for the 0.9995 purity kilo bar, the more popular product, amid extremely limited supplies at the moment."

The bullion bears are drawing a line in the sand for gold at 1480.   The physical drawdowns are going to eat them alive if they try to hold the easy ground they gained by heavy selling in quiet market periods. 

And so I think that level will fall, and they will fall back to the real test which will be in the area of 1580 when gold takes on the longer term downtrend.  And they will continue to have their easy victories, while sowing the seeds of their own downfall. 

And for our modern financial speculators, who think that price is the value,  rather than the other way around, welcome to the winter of your discontent.  There are going to be some very punishing lessons in the fundamentals of supply and demand given out,  and of the limits of the will to power and fraud.   And given time they will be haunted and hunted, and reviled beyond their ability to conceive it.

That is the underlying story of the last financial crisis, and sadly, little has changed.  One thing I will give the financiers, they often persevere in their greed and folly until achieving, at last, their own shame and remarkable self-destruction.  That is the heroic commitment of the mad to a foolish and unworthy end.   It is a sickness unto death. We have seen such downfalls in our day, again and again and again.  They would be as gods; and in their madness they never learn to avoid plunging into the abyss.

Think about those who have shown this tendency. Bernie Madoff, the Enron Boys, the London Whale. How can one explain such unaccountable madness, and yet account for it in their economic models?

 And in truth, there are times when a sector that promises power becomes the playground of the psychopaths and the morally ambivalent. And there would be tragedy, except that they fall not from heights of greatness, but from monumental and foolish pride.  And so they lie, scorned and unpitied.

How are the mighty fallen, stripped of the accoutrements of their war. And there are many more, and greater yet, to come.   And they scorn the simple prescription that would save them:  need little, want less, and love more.

But let's not get ahead of ourselves, and let the markets show us what is really happening.  The biggest changes are not events but processes, with many twists, and the turning of the tide is only knowable in retrospect.

Here is a recent chart linked to below that purportedly compares housing and gold as a hedge against inflation.

Gold Versus Housing As An Inflation Hedge

The scales are utterly misleading. If you wish to compare two things over the same period of time a percentage increase is much more effective than splitting it across two unrelated nominal scales on opposite sides of the chart.

Housing on the left scale went up on the chart 2x, and gold on the right has gone up 6x at least.   

The chartist *could* be trying to show that housing, as the major measure of inflation, was not closely followed by gold.  But that does not come out in the commentary, and is a bit off the wall, since housing was not a major measure of general inflation.  Housing was a secular phenomenon, a flat out bubble marked by significant fraud and highly leveraged mispricing of risks.

The central banks were net selling gold into the first part of the chart.  As you may recall the period of 1999 to 2002 was the infamous "Brown's Bottom."  They turned to net purchasing around 2006, and now there are shortages of bullion. 

And I don't see the government subsidizing and promoting the purchase of gold as they had been doing with housing, at least not directly.  However, the US financial system is doing a pretty good job of incenting the world to buy gold by creating negative real interest rates of return on the dollar, and allowing the bullion banks to game the metals markets.  But I think that has hardly run its course.

As you may have heard today,  JP Morgan and their derivatives diva Blythe Masters are under scrutiny for gaming the energy markets, among other things.   I am convinced that the scandals that keep coming out are still just the tip of the iceberg.   As Jeffery Sachs said, Wall Street has become a pathological environment, and it is so 'in your face' that is hard to miss.  Unless your paycheck depends upon not seeing it.

The G20 has its conference on Reinventing Bretton Woods next week. I do not expect anything dramatic to come out of it. This process of change is going to move slowly.

See you Sunday evening.

This is what quite a bit of the non-English speaking world thinks is happening.   And they are getting mad as hell about it. 

There is change in the wind, and before it's over, it may be blowing a hurricane.

SP 500 and NDX Futures Daily Charts - Jobs Report Runs Stocks to the Top of Trend, Gap Down VIX

Stocks are really straining to the upside here and running against the top of the trend.

The reaction to the Jobs Report today was very overdone.

But let's allow the market to take its course, and not try to get in front of it.

I think Wall Street is getting desperate to hand this hot potato off.

Greg Palast: Introducing Obama's New Commerce Secretary Penny Pritzker

This contains some interesting background on then State Senator Obama and his sudden entrance into the national spotlight.

Billionaire Bankster Breaks into Obama's Cabinet
By Greg Palast
May 2, 2013

You made fun of me when I suggested that President Barack Obama would nominate a confessed bank scammer, a loan-sharking mortgage predator, to his cabinet. But thar she blows!

Today, Obama has named Penny Pritzker Secretary of Commerce. As the President says, It's a milestone: the first female fraudster to hold that post. No longer will criminal bankers have to lobby the administration - because now they'll have one of their own in the Cabinet.

The following is taken from the Chapter, "Penny's from Heaven?" you'll find in my bestseller, Billionaires & Ballot Bandits.

"We never heard of this guy Barack Obama until 2004. Less than three years before taking the presidency, he was in the Illinois state senate, a swamp of scammers, backhanders, and party machine tools - not a stellar launch pad for the White House. And then, one day, state Sen. Barack Obama was visited by his fairy godmother. Her name is Penny Pritzker.

Pritzker's net worth is listed in Forbes as $1.8 billion, which is one hell of a heavy magic wand in the world of politics. Her wand would have been heavier, and her net worth higher, except that in 2001, the federal government fined her and her family $460 million for the predatory, deceitful, racist tactics and practices of Superior, the bank-and-loan-shark operation she ran on the South Side of Chicago.

Superior was the first of the deregulated go-go banks to go bust - at the time, the costliest failure ever. US taxpayers lost nearly half a billion dollars. Superior's depositors lost millions and poor folk in Sen. Obama's South Side district lost their homes.

Penny did not like paying $460 million. No, not one bit. What she needed was someone to give her Hope and Change. She hoped someone would change the banking regulators and the Commerce Department so she could get away with this crap.

Pritzker introduced Obama, the neophyte state senator, to the Ladies Who Lunch (that's really what they call themselves) on Chicago's Gold Coast. Obama got lunch, gold and better - an introduction to Robert Rubin. Rubin is a former Secretary of the Treasury, former chairman of Goldman Sachs and former co-chairman of Citibank. Even atheists recognized Rubin as the Supreme Deity of Wall Street.

Rubin opened the doors to finance industry vaults for Obama. Extraordinarily for a Democrat, Obama in 2008 raised three times as much from bankers as his Republican opponent...

Read the rest here.

Gold Daily and Silver Weekly Charts - Gold Is Flowing From West to East - Stench of Wall Street

Intraday commentary on the Chinese gold rush and the ongoing currency war here.  It might be well to read this if you have not so already.   What the People's Daily Online has to say about the Chinese market for physical gold is stunning.

It correlates heavily with the gold and silver market action and represents a kind of summary of what I think might be going on.

Stocks are in a bubble. A lot of the stock market action is reminiscent of the tech bubble with overtones of the housing bubble.

Europe is in trouble. Draghi is considering negative interest rates to force the Banks to lend. 

Bernanke and company are papering over problems with their exorbitant privilege. 

Non-Farm Payrolls tomorrow.

"I think that the public is utterly disgusted, of course, and that is a major start. There’s going to be a massive backlash. But some thought, and I thought at the beginning, that Obama was going to bring in control, that’s essentially what he promised, but he actually essentially brought in Wall Street to do the clean up.

Perhaps the next government, or perhaps the next crash, it’s hard to say. But what one does feel is that the extent of abuse, the stench of it, is reaching such a high level that we’re not in an equilibrium, political or social, right now."

Jeffrey Sachs: Banking Abuses 'Can't Get More In Your Face' - Wall Street Journal

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

Non-Farm Payrolls tomorrow.

Modern Economics: Mario Draghi, Medieval Barber

People forget that in terms of science, economics is still very much in its infancy despite the pretensions of economists otherwise.   They are often wrong, but rarely in doubt.

And too often despite what could be described as best intentions they prove to be l'enfant terrible.



Thanks to Washington's Blog for reminding me of this old SNL skit.


Meanwhile in the States thanks to the advances of Keynesianism and the deft use of liquidity,
the Princeton School assured that there were no more cures attempted through bloodletting.  

Currency Wars: Chinese Gold Rush and American Pravda

Sometimes there is a juxtaposition of stories that is just too striking.

Here is a piece that appeared today in the People's Daily Online.  It presents some interesting information on the buying of gold in China during the most recent fluctuation in price.

As I seem to recall, China holds so many US dollars that if they tried to convert them into gold and silver, they couldn't.  Well, not at anything near today's prices.  And their bond selling would certainly stress the Fed's Balance Sheet. 

Those in the know who were able to position themselves for such a move could make quite a bit of money out of it, especially if they could keep it quiet.  But if some major insiders were to demand their metal from the hypothecation schemes of the bullion banks it would create some short term traffic jams and delivery problems.  High leverage makes for a tough and often volatile unwind.  

One might even see a few bullion banks with major outflows from their bullion storage as servile managers and brokers leak the word, over cocktails and canapés, to favored customers with significant financial deposits at the firm overall.  As Jeff Sachs says, that is the way it is these days on Wall St.

And with the right finesse, it could be used to recapitalize some Banks who were positioned with leverage in derivatives.  It has a similar feel to the two step operation that FDR used in recapitalizing the Banks by revaluing gold against the dollar after taking it from the public.  It was public money then and within the purview of the state; it is private property now, at least to the extent that it has not been 'bailed in' and rehypothecated away.

As for the second story, the G20 conference on Global Finance in Transition and Reinventing Bretton Woods begins next week.  And the discussion of replacements for the US dollar reserve system, which is so near and dear to the Anglo-American banking cartel, are high on the topics to be discussed.  The BRICs are growing increasingly unhappy with the financial status quo, and the exorbitant privilege of a single country controlling the world's reserve currency and thereby having the ability to promote their domestic ends with it.

They would like to replace the existing international trade regime with something more broadly based on a basket of currencies and precious metals like gold and silver.  How do we know this?  Because they have said so.  And the dollar mouthpieces will object, pointing to the metals' recent volatility.

As George Orwell once remarked 'we have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men.'

And before one unctuously dismisses the news in the People's Daily as statist messaging,  which by the way I am sure it often is, here is an interesting piece on the craven and tarnished performance of the corporate media, Our American Pravda.  It is a bit uneven, but an interesting read nonetheless.

When the Anglo-American media does get inexplicably involved in something, other than the real news and the trivial diversions they so enjoy, and even when they are inexplicably silent in the manner of the dog that does not bark,  one suspects that the moneyed classes see an opportunity for profit in it, and the public interests be damned.  Their designated role is to keep quiet and 'bail-in.'

As the fiatscos of relativistic monetary theory like to say, a currency is all consensus.  Money is what we say it is, is worth whatever we say it is, and goes wherever we command it to go.   And fiat means never having to say your are wrong, if you have enough power on your side to bend truth to will.

Even if you do not believe that there is a currency war, quite a bit of the rest of the world does -- and they are holding a lot of votes. 

Perhaps currency war is a misnomer.  At times this appears less like a conventional difference of intentions among nations, and more like the internecine power struggles amongst competing crime families that often do not cleanly divide themselves by political boundaries.  So the common person, mark, and pawn is often given to ask, 'is our side on my side?'

What this all means for us is interesting times, and never a dull moment.  Change is in the wind.

Enjoy

Shanghai Daily
Housewives' gold rush keeps price from falling
By Wang Yanlin
08:21, May 02, 2013

A "TUSSLE" to determine gold prices has connected two groups of people who could hardly be more different - Wall Street moguls and Chinese housewives, with the latter turning out to have the edge.

According to Voice of China radio program, one of this year's most popular phrases may be "Chinese housewives" - as a major force which reportedly spent 100 billion yuan (US$16 billion) over the past two weeks purchasing 300 tons of gold and thus helping to sustain gold prices at US$1,468 an ounce.

The Chinese gold rush has prevented short selling, where gold is sold and then bought back when prices fall. The practice was seen as a possible bid to shore up the US dollar - gold is often regarded as a means of safeguarding wealth against a weak dollar - and to maintain stable interest rates in the US...

Some critics said the fall in gold prices was a well-planned scheme drawn up by investment bankers to bolster the US economy, as two days before the price slump, Goldman Sachs released a research note saying gold's prospects for the year had eroded and recommending investors to sell short.

Before Goldman Sachs, investment banks including Barclays, Societe Generale and Deutsche also projected gold had ended its 12-year bullish performance. Societe Generale even predicted an outright crash, saying "gold may have had its last hurrah."

On April 13, China National Gold Group, the country's biggest gold producer, slashed the bullion price from 313 yuan per gram to 298.5 yuan per gram, the lowest level in two years.

This triggered the enthusiasm of Chinese shoppers, who swarmed into jewelry shops desperate to get their hands on a bargain. In most Chinese cities, gold bars were selling like hot cakes and some even reported empty inventory during the May Day holiday...

The number of Chinese gold buyers and the money they spent caught out those investment bankers who had bet on prices continuing to fall.

"A large rebound in gold prices is unlikely barring an unexpected sharp turn in the US recovery," analysts at Goldman Sachs had written in its research note.

But to their disappointment, gold prices rose by more than 10 percent yesterday compared with that on April 16...

Read the entire story here.

Related: Currency Wars

Gold Daily and Silver Weekly Charts - Benny's Theme: Flirtin' With Disaster

"All frauds, like the wall daubed with untempered mortar, with which men think to buttress up an edifice, always tend to the decay of what they are devised to support."

Richard Whately

Well, as we have come to expect, the FOMC day was marked by an early bear raid and comic shenanigans in the precious metals markets.

We might get more of the same around the Non-Farm Payrolls Report on Friday. In itself,  the Jobs Report should be a real knee-slapper of  slack jobs growth and the ever disappearing unemployed.

The Fed dispelled any illusions about ending QE early in their statement today. The chill passing over the economy has quite a bit to do with it. But the Fed will keep doing what they are doing until something improves or breaks, because they are locked into an obsessive compulsive box by the credibility trap of their own past policy failures and conflicts of interests.

So expect another bubble and crisis.

ADP employment numbers came up short, and that impinges on expectations for the Non-Farm Payrolls report on Friday.

National ISM was aenemic, but not quite a contraction.  But it was enough to show that 'The Recovery' is no recovery.

Intraday commentary about the Fed statement here and the bubble environment caused in part by the Fed here. Please be sure to listen to Jeff Sachs entire speech and the Q&A session here, and recall that he was speaking to a conference at the Philadelphia Fed.  Every time I listen to it I am astonished that it did not get a wider exposure, and nary a mention in the mainstream media.  Sachs is no outsider, and hardly a starry eyed reformer.    The venal stupidity of those in command is frightening even to longer term stalwarts.

I think it will take another financial crisis, and even more scandals and revelations.  And I will be surprised if there are any lack of any of them, despite the war on whistleblowers and the muzzling of the media.

And speaking of modern money, it appears that the whizkids are short about $11.2 Trillion in money good collateral.   I can only think of one form of money that bears no counterparty risk.

Benny's Theme

SP 500 and NDX Futures Charts - Fed Flops, Payrolls Cometh

Another fun filled day on Wall Street, aka Pig Alley.

Matt Taibbi notes that TBTF Takes Another Body Blow.

Is the Fed Setting Up the Mother of All Shorts?

The timing may be tricky, but such severe distortions in valuation as shown in the chart below can often set up special opportunities for investment profits when the eventual reversion to the mean, or norm, occurs.

I think it may be more difficult to trade on these sorts of sweeping macro changes now because of the pervasive corruption and insider operations in the markets which prey on the mispricing of risk and the calculated asymmetry of information.  I am comparing this to my own investment decisions on behalf of my family in the early 1980s, that pre-HFT period when the customers' man still thanked you for your order, when it became obvious to most informed observers that Volcker's interest rate policy had peaked at twenty percent, and the long decline in rates had begun. I remember a colleague coming in to my laboratory and writing the date and rate on my chalkboard, and he was right. For the astute longer term investor, those were the days of zero coupons, high grade and high paying annuities, longer term Treasuries, and high quality dividend DRIPs.

Look at the difficulty one has had investing in the precious metals markets from 2000 until now. I have viewed it as a similar broad macro trend, and consequent bull market, that is so apparent that it has bordered on an IQ test rather than an investment decision.  It does however cross the path of the central banks and their policy enhancement apparatus, so it is not quite so benignly tolerated as dealing in fraudulent paper, the times being what they are. The Fed did not say so much back then, but they did not prevaricate and intervene so broadly and frequently either. If the Fed ultimately does cease to be as an institution, its decline and failure will be marked by the Chairmanship of Alan Greenspan.

But for long term investors I think riding this macro trend will still be possible when the tide turns and change comes. And I think I will wait for it, because to be early is to be wrong. And these days trading early is measured in microseconds. And so it is best to wait for positions to be right, and then sit tight.

Chart courtesy of Ralph Dillon at Global Financial Data. The views expressed above about it are my own.

Fed Open Market Committee Statement for May 2013 - Audacious Oligarchy

"The planter, the farmer, the mechanic, and the laborer all know that their success depends upon their own industry and economy, and that they must not expect to become suddenly rich by the fruits of their toil. Yet these classes of society form the great body of the people of the United States; they are the bone and sinew of the country--men who love liberty and desire nothing but equal rights and equal laws, and who, moreover, hold the great mass of our national wealth, although it is distributed in moderate amounts among the millions of freemen who possess it.

But with overwhelming numbers and wealth on their side they are in constant danger of losing their fair influence in the Government, and with difficulty maintain their just rights against the incessant efforts daily made to encroach upon them. The mischief springs from the power which the moneyed interest derives from a paper currency which they are able to control, from the multitude of corporations with exclusive privileges which they have succeeded in obtaining in the different States, and which are employed altogether for their benefit..."

Andrew Jackson, Farewell Address

The Fed, as suggested, had nothing new to say, except perhaps to scale back to near zero any speculation that the Fed will be returning to a normal monetary environment anytime within the next year or so.

I am anticipating an increase in special Fed programs and even more extraordinary action before a cessation. 

And there will continue to be the use of secrecy, deception, and 'perception management' which will make any and all reform but a thin veneer.

The idea that the Fed would terminate QE sometime later this year is laughable, almost as funny as the notion that the Fed is making objective scientific judgements about specific policy actions based on solid economic data.  The Fed, by its own self-rationalizing admissions, cannot find the bubbles emanating from its collective bottom, even with both hands.

In this statement the Fed seems to point a finger at the political class, and rightfully so.  But keep in mind that the Fed are among the most powerful of the regulators, and are heavily involved in promoting policy and advocacy in favor of the banking system as it is.  The Fed is at the heart of the problem, and every bubble and financial crisis we have seen for the past thirty years.  

Their willful hypocrisy makes one cringe.

The fiscal actions of the Congress and the Whitehouse are a paleo-economic error in policy prompted by their almost slavish devotion to the monied interests, and held captive in the credibility trap.

It is little comfort that Europe is in a worse condition because of their inherently unsustainable and unwieldy structures. 

Federal Reserve Policy Statement for 1 May 2013

Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth.

Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.

The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

Jeff Sachs: The Movie

"But what it's led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it's very very unhealthy, I have waited for four years, five years now to see one figure on Wall Street speak in a moral language.

And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems."

Jeffrey Sachs

NAV Premiums of Certain Precious Metal Trusts and Funds

Thin and a surprisingly negative cast to the Central funds. O Canada!

Barrons notes that Slumping ETFs and Futures a Stark Contrast to Coin Sales.

Wall Street can create and manipulate paper shares, but they do not have the power to mint coins.

And when they looked there, the cupboard was bare.

Recall that this is an FOMC day, and so a hit on the metals has some tradition. Especially when the Fed is boxed into a corner.

And some of the key overseas trading areas are closed today, so the mice will play.

Let's see what happens with the Fed. We'll know this afternoon, a little while after the insiders are informed.

Gold Daily and Silver Weekly Charts - FOMC Rate Decision Tomorrow at 2:15

"God has numbered your reign.  You have been weighed, and found wanting."

The FOMC will issue its rate decision at 2:15 tomorrow.

I would expect some wording change to reflect the deteriorating macroeconomic outlook in the US, even if they do not admit it.

The Chicago PMI came in weak, showing a contraction. Tomorrow we get the national ISM number and I think that will show a slight contraction as well, a little light of 50. But its hard to say.

We will also get the latest ADP employment change number, although it seems to have little impact except during a Non-Farm Payrolls week and at the extremes of estimates.

ECB will make a rate decision of their own on Thursday.

AAPL cheered the equity markets today by announcing its intentions to issue a record amount of new debt, on the order of $17 billion, in order to 'pay dividends and buy back stock.'   They are doing this to avoid bringing back profits they have sequestered overseas to avoid paying taxes.

This is innovation, American style.

There are repeated rumours of a private run on the bullion banks from the ranks of the wealthy. Apparently they are pulling their bullion holdings out of even the 'allocated stores' of the banks and moving them to private storage facilities.

As you know, Ben Bernanke will be leaving the Fed soon, most likely to retreat back to Princeton and start writing his version of history, while taking a few spins through the revolving door.  The discussion of his possible successors makes one's skin crawl.  The economists are lining up to be considered for a chance at this largess of power and position, strutting their stuff like tarts on 11th Avenue.    A sign of the times perhaps that the job will go to some smarmy insider.  That is Obama's style.

Let's see what happens.

SP 500 and NDX Futures Daily Charts - NYSE Margin Debt Levels Back to Post-Crisis Highs

The SP made a new record high today as April draws to a close.  Sixth month in a row that the stock markets have turned in a gain.

Sell in May and go away.

The FOMC will make a decision about rates tomorrow at 2:15.

Chicago PMI came out with a contraction today. Most economic indicators are now showing a contraction except for stocks and 'confidence' which is led by the equity market.

Complacency rules. And it is dangerous.

And this in a thinly traded market. Seems like an almost certain recipe for disaster if the easy momentum trade turns lower on even some seemingly trivial event.

NYSE Member Firm Debit Balances In Margin Accounts (MARGDEBT).
John Mendelson

MARGDEBT, at the end of March 2013 (latest figures released) rose to $380 billion up 4% over February and just a hair below the all-time high of $381 billion as of July 31, 2007….a period some may recall.

I am often told in meetings that there is no speculation or notable leverage in the current market. I believe the March figure speaks for itself.

A chart of Margin Debt back to the end of 2006 is included.

But When She Got There, the Cupboard Was Bare...

Where is all the gold?

Old Mother Hubbard
Went to the cupboard,
To get the poor dog a bone;
But when she got there,
The cupboard was bare,
And so the poor dog had none.

Gold Daily and Silver Weekly Charts - Educators And the School of Probability

According to LeMetropole Café this word from UBS:

"Demand out of Asia was exceptional last week: Indian demand was the strongest we’ve seen in five years, while volumes and premiums on the Shanghai Gold Exchange reached record highs. This seemingly insatiable appetite is not necessarily limited to the region, though.

Reports of long queues, refinery capacities being maxed out, lead times being extended, stocks running out, and surging premiums are also evident. Retail buyers in Europe and the US have shown strong appetite, too.

Our flows indicate both strong demand for physical gold and growing difficulty in sourcing metal."

And apparently the Perth Mint Works Through Weekend Because of Surging Gold Demand.

As you may recall I showed a video interview with the head of the Hong Kong Precious Metals Exchange who said that their stores were exhausted by demand, and they were having to import gold from London and Switzerland.

This is hardly a sign of long liquidation caused by disenchantment with the precious metals.  Rather, it is the natural outcome of a bifurcation between the paper derivatives markets and the real world.  And such a divergence can be dangerous to the speculative trade if they fail to converge again as expected, no matter the size and power of the paper trade.

Just ask the laureates of Long Term Capital Management.  At the end of the day they were less Nobel in their risk management than misgiven in their assumptions, like the advisors of King Canute.  Fat tails are like tides in their relentless ability to make the experts all wet. And their backers get soaked.

This is what Walter Bagehot meant when he said, 'Life is a school of probability.'

I have been re-reading one of John Kenneth Galbraith's lesser known works, Economics in Perspective: A Critical History.

It struck me today, having audited a history of economics not all that long ago on the web, what a profound difference there is between a teacher and an educator.   It reminded me of some of the great minds which I have had occasion to stumble across in the long cycle of learning.

Even today when I am well past the pursuit of formal education (I went back for an advanced degree in a subject unrelated to any past studies at 40, and even that now seems ages ago), I still am jolted now and then by the education one can obtain from not only personal reading, but from friends and acquaintances, who impart knowledge without perhaps even realizing it and sometimes by example.

An educator (ex-ducare: to draw out from) brings the student along, gives them a model or a framework on which to hang the facts through which they are led by selective readings, draws out what is best in them, beyond even their own nascent ability to see their capabilities.  They are groomers of talent.  And they are able to impart knowledge, and the tools with which to increase it, and often in a wide ranging field of subjects.

Even an older work like Galbraith's,  intended for public consumption,  and which I am quite sure is out of favor and out of date among professionals, and has much to be taken issue with based on more current thoughts, provides a platform or a foil on which to assess new data, and to challenge according to one's own particular thought and inclinations.

An educator provides a lasting substance. An educator illuminates the subject, and the result is a kind of inner satisfaction in the developing mind that serves to provide a new view of things through renovated eyes.

Too many teachers on the other hand, merely provide endless lists of thoughts and a complexity of facts in a hodgepodge manner to be memorized, without providing much in the way of insight or lasting frameworks.  They exult over their own knowledge as compared to their students. They tend to exasperate, rather than inspire. Not because they are demanding, but because they are not quite able to impart knowledge, a deeper understanding of things.  They cannot give what they do not have.

I have known educators that were incredibly demanding, sometimes almost amazingly so.  I had one professor who I thought would break me in the rigor of his expectations.   He changed me for life by showing me what I could do when I put my mind to it using the right tools.  He would not settle for second best.

An educator brings the mind of the student flush up against the mind of genius, explaining without condescension or false complexity, exposing without imposing or overwhelming, and cultivating without judging and demanding except to bring the mind to full flower.  They impart a sense of the joy of learning, the ecstasy of understanding, and can bring people to a greatness and fulfillment that they might not otherwise have achieved.

This is the highest calling that I can imagine, if one has the gift for it, a gift which is honed over long years of practice, often through the hands of other educators.  After all, we stand on the shoulders of giants.

Effusive praise, and not intended for Galbraith per se, but for all those educators in my past of whom he reminds by his gentle, elegant style of coaxing one to learning.  I owe much to them,  most likely the better part of me, and certainly those things I might reflect on that have made me more human.

SP 500 and NDX Futures Daily Charts

Stocks rose today on a better than expected pending home sales number.

The volumes were remarkably thin.   You know what they say about shorting a thinly traded market -- don't.  But you may not wish to establish investment positions in them either.  Thin markets are often a prelude to volatility.

You know what I think about this market. Do not get in front of because the Fed is feeding the trade, and providing what is likely to be seen as a false sense of recovery and complacency that can turn on a dime, or stray bit of bad news.   But in the meanwhile it serves the more agile financial interests to keep it floating higher on a crest of easy liquidity.

The Irresponsibles: The Bubble In Financial Assets Paper and Bernanke's Policy Errors

Here is the failure of the Fed as monetary policy and regulator with greatly expanded portfolio in one picture assuming that one remembers that stocks have risen back to all time highs.

The Fed has been stuffing its expanding Balance Sheet into the reserves of the Too Big To Fail Banks, where they and their Wall Street cronies use the funds to game the markets for financial paper and real goods.

If your goal is to support the one percent at all costs, then creating new bubbles in financial paper that they own makes perfect sense.    And as regulator the Fed promotes a lack of transparency, of financial secretiveness, of cronyism, and laissez-faire corruption that is deadly to healthy markets.

Reform is the only viable response.   And that is best measured by the levels of transparency and accountability.

But the public is no longer heard in the halls of a Congress and a White House dominated by special interest money. And so things become increasingly unsustainable.

"Based on the above data, how is the stock market fundamentally sound when earnings are collapsing? I guess the Federal Reserve is going to print profits for the S&P 500 companies.

Actually earnings are irrelevant when central banks all over the world including the Federal Reserve are juicing the markets with a sea of liquidity and where multiple expansion trumps real earnings or value."

Read the entire story at Minyanville here.

And from the RealNews:

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

Thin premiums.  Certainly no exuberance here.

Weekend Reading

"God beholds you individually, whoever you are. He calls you by your name. He sees you and understands you, as He made you. He knows what is in you, all your own peculiar feelings and thoughts, your dispositions and likings, your strength, your weakness.

He views you in your day of rejoicing, and your day of sorrow. He sympathises in your hopes and your temptations. He interests Himself in all your anxieties and remembrances, all the rising and failings of your spirit. He has numbered the very hairs of your head and the height of your stature.

He compasses you round and bears you in His arms; He takes you up and sets you down. He notes your very countenance, whether smiling or in tears, whether healthful or sickly. He looks tenderly upon your hands and your feet; He hears your voice, the beating of your heart, and your very breathing.

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

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

You are a link in a chain, a bond of connection between persons. He has not created you for naught. You shall do good, you shall do His work. You shall be an angel of peace, a preacher of truth in your own place while not intending it if you do but keep His commandments.

Therefore I will trust Him. Whatever I am, I can never be thrown away. If I am in sickness, my sickness may serve Him; in perplexity, my perplexity may serve Him. If I am in sorrow, my sorrow may serve Him. He does nothing in vain. He knows what He is about.

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

John Henry Newman

Matt Taibbi Discusses the Market Rigging in the Swaps and LIBOR Markets By the Banks

Derivatives and many real world calculations of risk and price are based on a relatively few published data, such as LIBOR.

Similarly, the 'spot' price of gold and silver is based in large part on the front month contract for gold and silver on the Comex. And those prices in turn have enormous leverage over the price of mining stocks.

Some have pointed to the 'physical market' in London for metals at the LBMA as the true price market for physical bullion, with their AM and PM 'price fix.'  And while it is true that the LBMA is a market dominated by insiders, with less disclosure than many exchanges,  it has come out that even on the LBMA the price is largely based on paper trading with leverage approaching 100 to 1. 

And LBMA is heavily interconnected with the Comex.

Since those making markets on the Comex in metal futures deliver a very small percentage of the actual gold and silver that is traded on paper, and much of that is settled for cash, the opportunity for price rigging is significant, hugely so.

And as in the case of other long running market schemes, like Bernie Madoff's, the stony silence and arrogant denials of any irregularities, despite very unusual trading activity in quiet hours and around key dates, is disconcerting considering the opaque nature of some unusually large market positions and significant circumstantial evidence with regard to motive and opportunity.

"All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings ­ in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation's GDP ­ are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it's increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.

If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above.

And those who are doing it can get away with it. Forget the Illuminati ­ this is the real thing, and it's no secret. You can stare right at it, anytime you want."

Matt Taibbi: Everything Is Rigged

Gold Daily and Silver Weekly Charts - Post-Expiration Gut Check - Taibbi: Everything Is Rigged

From last night's gold and silver commentary:

Today was option expiration on the Comex and it was quiet. After the recent bloodbath I cannot imagine it would be otherwise. If I were of a manipulative mind I would hit the metals again hard tomorrow."

So what next? There will not be any halt to QE for the forseeable future.

Gold and silver are lightly owned. When they break out and the common person becomes more aware of what is going on, there will be a huge shift in buying to the upside.

And those who manage the markets fear this.  They not only fear their loss of control, but also the exposure of their market antics and the widespread corruption in the system.  We are in a credibility trap, after all.

If you have not yet seen it, the most recent piece by Matt Taibbi, Everything Is Rigged, is worth reading.

Have a pleasant weekend. See you Sunday evening.