Gold Daily and Silver Weekly Charts - Cap, Cap, Cap - Bullion Banks Go Long?

Intraday commentary on the stock market here.

And on the coming collateral crisis here.

Central Banks Act With 'New Boldness'

Gold Sees Bullion Banks Go Long - Macleod

Fuel In Place for Rally in the Gold Futures

SP 500 and NDX Futures Daily Charts - Rally Tuesday, But With a Late Day Fizzle

Amount of Dollar GDP Added For Each Additional Dollar of US Federal Debt

The line represents each dollar of GDP added for each incremental dollar of Federal Debt.

I would suggest that someone look into why the velocity of debt is now running into the law of diminishing returns.  The big slide started with Reagonomics and the 'supply side' theory based on the second chart.

It might have something to do with a corrupt financial system, the myth of efficient markets and globalization,  tax cuts for the wealthy and unfunded wars, and the largely stagnating median wage.

However one wishes to slice it, it might be difficult to make up in volume what is taken away by a crippled financial system that keeps sweeping the productivity gains and national wealth up to the one percent where it is used for largely non-productive monopolization of resources, political corruption, unfunded endless wars, and fraud.

Coming Collateral Crisis: Re-Hypothecation To the Point of Exhaustion or Destruction

If you think that the global banking system has somehow been 'cleaned up' and made more stable since the financial collapse precipitated by the mispricing of Collateralized Debt Obligations and the fraud of the housing bubble you may be mistaken. 

The next financial crisis will most likely expose an even greater Ponzi scheme of leveraged ownership of mispriced collateral in general, that has been 'rehypothecated' many times over, to the point of worthlessness.

Miles Franklin
If I May...
By Bill Holter
May 28, 2013

"I’d like to connect a few dots for you. We had a couple of pieces of news come out on Friday that were strange. One piece did not even seem credible because of size and the other one seemed odd because of the lack of size. Here is what we learned and if this is true THE biggest financial news of the 21st century. Europe announced that they may crack down on the Shadow Banking System. Basically, assets of all sorts that are “deposited” within the system are routinely “re” lent out by the custodian. This “re lending” of assets is called rehypothecation. The scheme has gone on for years and has been abused to the tune of the same asset being lent out 10 times, 50 times or even 100 times over. Legal? Well no, but everyone does it and “it’s the way business gets done all the time”…plus the regulators turn a blind eye to …party on dudes!

Before I talk about the ramifications of the above, another, seemingly unimportant/unconnected piece of news hit the tape. 3 men were arrested in Hong Kong and in their possession were $500 million worth of “fraudulent” letters of credit, letters of guarantee and proof of funds; these were supposedly issued by HSBC and Standard Charter. A 4th man arrested was not named, only that he is 55 years old. Which coincidentally is the same age as Barry Cheung who sits (sat until his resignations this past week) on the boards of several government agencies, he was chairman of HKMEX and has very close ties to the CEO of Hong Kong, Mr. CY Leung. The investigation and arrests are tied to the HKMEX (metals exchange) that closed a week ago Friday and claimed that all open contracts would be settled in cash…not metal.

OK, so these guys got arrested and had in their possession $500 million fraudulent “collateral.” Is this ALL of the fraudulent collateral? Did they have more Do others possess or have pledged fraudulent collateral? How much? Where and to whom has it been pledged? How many times over has it been pledged? …And then out of nowhere, Europe decides to rein in the Shadow Banking System that is purported to be $80 TRILLION (with a capital “T”)! Do you see any connection here? I’ll make it easy for you, “collateral” is the common denominator.

I also want to mention that “collateral” is what makes the financial world turn. Everything runs on “credit,” if you have “collateral” then you can obtain credit. The problem now, that is being exposed, is that no one knows anymore if collateral is real or even “who’s” collateral it is anymore since it has been lent out so many times. Now, to add even more fuel to the fire, it turns out that some of the so called “collateral” is not and was not even real to begin with! Funds in the trillions of dollars have been lent and now it seems as if the collateral backing many loans may not be real. …And Europe is now considering pulling the plug on shadow banking? How many “assets” will banks and brokers have to sell to keep their capital ratios adequate? Do they even have enough real assets to sell to cover the collateral that turns out to be fake or has been lent out 10 times over (not to mention 100 times over). I might also ask the question, “What happens to the markets?” What will happen to the stock markets, bond markets, and real estate markets, ALL MARKETS if banks are forced into liquidation to cover for fraudulent or many times pledged collateral...

My point is this, the tide is going out and it looks like EVERYONE is naked and no one has drawers on. Margin debt for stocks are at an all-time high, shorts by hedge funds in gold are at an all-time high, printing by central banks are at an all-time high, yields on sovereign bonds (even the deadbeats like Spain and Italy) were recently compressed to all-time lows and are now rising…and the real economies across the globe are beginning to contract again. The “inflection point” has apparently arrived and fraud everywhere you look is being uncovered. In a system that runs on debt, “collateral” is the foundation. What are the ramifications when “collateral” is questioned and turns out to be nothing more than a piece of paper with no value whatsoever? Everything that has derived value from this initial capital …is worth nothing...

Read the entire article here.

Rising Margin, Negative Guidance, Madness of Crowds

Early this morning one of my compadre's asked me, 'Is there some reason for this rally?'

And I answered, somewhat glibly, 'Yes, it's rally Tuesday.'

Stocks will have rallied 20 Tuesdays in a row in the US if they rally again today.

And that is as good an answer as any, although the already rallying market 'got some jets' when the Consumer Confidence number came out better than expected at 10 AM.

The Conference Board confidence number is highly correlated, as a lagging variable, to the stock market price. In other words, consumer confidence follows the market, and not the other way around.  It is less a reason for a stock rally than an excuse.   Rising stocks tend to give some people a good feeling about the economic outlook.  And don't think for a minute that the financial planners do not know this.

The underpinnings of this marvelous rally are not substantial to say the least, despite the usual assurances of economists that this is not a stock bubble. Or that there is no bond bubble which is a real howler given the Fed's steady non-market-priced buying of billions of bonds each month.   I suppose that is why the Primary Dealers had to take down 65% of today's two year auction.  Let's not notice the man behind the curtain so we can feel 'confident.'

Bubble or not, new era or not, QE or not, at some point price reverts to the mean, to the fundamental and sustainable market equilibrium, every time.  And it will do so despite the hubris of the modern monetary theorists, from Bernanke to Krugman to Mosler.   Reality is not whatever we say it is, even if one is able to persuade a large number of people to believe it, for a time.

If this falsehood is held in place long enough, even by force, the reversion will occur in extremis through a collapse of the currency.  This is what we saw in the fall of the old Soviet Union.

Here is an interview with Jim Grant that I found to be interesting.   I do find his belief in the efficiency of markets to be curious, if not obtuse, when he says that there can be no manipulation in gold because otherwise everyone would know it.

People have a remarkable ability not to see things when their paycheck depends on their not seeing it.  And a belief in the system remains stubborn amongst those who have basically honest hearts.  They cannot believe in a perfidy so great amongst people sworn to uphold the public interest. 

How else would you explain the fact that so few saw the housing bubble, the widespread fraud in the credit markets, and the mispriced risks and co-dependencies of the insolvent in the financial system that so recently caused world markets to collapse?

The release of gold into the markets by western central banks, through both overt sales and leasing to bullion banks, is beyond all doubt, except for the opaquely hidden details and the refusal to admit them to audit.  And the odd positions in the futures markets are knowable, but also shrouded behind a stonewall of regulatory intransigence. But otherwise he raises a number of excellent things to think about.

All things will be revealed with time.

And here below are two charts that someone sent my way which I found to be disconcerting.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.   Until this is done, neither stimulus nor austerity will have any lasting, meaningful, and positive effect.

Remembering the 60th Anniversary of the Death of Django Reinhardt

Django Reinhardt died on May 16, 1953, in Fontainebleau, France. He was 43.

Edith Piaf et Django Reinhardt