Gold Daily and Silver Weekly Charts - Distorted Markets, Financial Sophistry, and Moral Hazard

There was intraday commentary here that included an interesting perspective from the audacious one percent and their enablers.

And there was another about the current state of political discussion in Britain, a recent awkwardly stated reflection by the Prime Minister that may have revealed the mindset of their powerful, and its possible relationship with the continuum of politics and 'statism' here.

Oddly enough, both seem to have some implications for another question that was raised by a reader who shared this from another site. It was in reference to a posting earlier this week at Le Café that showed that the number of potential claims on actual available gold at the Comex was back to a record high.  

 

And it is further related to a familiar theme about the relationship between a thing masquerading as a market, The Bucket Shop on the Hudson, and THE marketplace for precious metals in Asia and the Mideast.  And the potential longer damages implicit in their protracted divergences.

"It is not meaningful that there are 107.7 claims per registered ounce. you should consider that the ratio between paper SPY and real SPY is infinity.

You are making the fundamentally flawed assumption that you need a physical commodity to determine price. You do not.

It doesn’t matter how many physical ounces there are per claim. It can be 1 or 1000 or 107.7 or infinity and it simply doesn’t matter.

The purpose of commodity markets is not to trade commodities, it is to determine price. There are zero SPY physical contracts and the market works just fine.>

I was a commodities broker and part of the test is to ask the function of commodity markets. Every commodity broker understands you don’t need a physical product.

It’s not a broken system, it’s existed in one form or another for a longer time than currency in any form. But to use it you have to understand it and you do not.

Everyone who owns physical gold or silver bought it with paper. There is no difference, they are fungible. The only difference is the price you are willing to take or to give. Physical and paper are exactly the same.

Saying that financial markets are manipulated is about as meaningful as saying the sun rises in the East. Well, duh?"

What this person is saying is that price really has nothing to do with actual supply and actual demand for a physical thing.   And much worse, they seem to have a remarkable disregard for risk and leverage.  I was originally going to ignore this since it smelled like teen spirit.  But when they came back and announced their expertise, how could I resist using this as an occasion of some education.

Futures are derivatives, bets. They are wagers that are indicative of where professionals think that price is going, should be going, given a set of known and unknown factors with certain assumptions and other factors, including fraud and gaming the system with bluffs, etc.

These types of futures markets began as a means for people who actually used and supplied things like commodities to factor in the risk in the 'future' and to essentially spread the risk around.

The 'futures market' is not the market.   No derivatives market is the market.  It is a reflection of THE market, and that reflection or representation varies in its quality and efficiency from market to market and over time.   This is why we have rules and regulations and enforcement.

A derivatives market is a creature of risk arbitrage, and leverage, and it is a reliable indicator of price to the extent that risk is correctly perceived and priced, leverage managed, and these exchanges are REGULATED against the short term gaming that speculators are often wont to do. 

I really do not blame the guy who thinks these things in his statements above since he knows what he has been taught, and what the financiers think these days are distorted by moral hazard.

The notion that the paper markets can set prices as they will without regard to risk or leverage is a not uncommon assumption held by those in the pursuit of unearned wealth.  That is why we have market crises and crashes.

This willfulness of paper is at the heart of some interpretations of Modern Monetary Theory that enthrones the principle of fiat in determining value above all other considerations, including the willingness of actors in the physical marketplace to accept it at a stated value.  At its worst it is a reflection of a kind of statism.

This flawed assumption of the extensible power of fiat is the basis of every black market and currency crisis in history. 

Commodities are different than stocks, because a stock is itself a derivative wager, a share in the future profits, dividends, and losses of a company.   How can any broker fail to know that?  Pretty basic stuff.   That is the difference between buying bullion and a mining stock.  A futures contract is a promise to buy and sell a thing at some future date.  It is not the thing itself, but it is based on the promise that you CAN do what you say you do.

Like the famous short seller Daniel Drew once said, 'He who sells what isn't his'n, must buy it back, or go to prison.'   But it is not always just a matter price to someone who might really wish to have the thing with they think they are purchasing.

I understand the mindset.  I really do.  It is the same mindset that Kyle Bass calls out in his video below about the Comex about why he chose to take delivery of his gold out of a sense of fiduciary responsibility. 

Commodities are by definition a real thing, and are not totally fungible with paper money at any and all times at a set price.  I think this is the MF Global school of thought, and it is fraught with injustice and moral hazard.  And it is nonsense to think that paper can paper over any and all action or any excess, except in a nation of willful thugs acting in a web of lies that come crashing down periodically.

If you believe in the pricing of things without reference to supply, demand, time, and risk, I invite you to go for a very long and solitary walk into the Sahara Desert, with only the price of a couple of gallons of water and a hotel room in New York in paper dollars in your pocket. 

Enjoy the refreshing and thirst quenching crunch of paper and your comfortable bed of sand.

It is a broken system in which these types of wagers can set price without reference to a realistic set of expectations based on supply, demand, leverage, and risks.  This is where bubbles are born and frauds dwell.

Leverage is a component of risk, but given the state of things, I feel the need to call it out separately since it seems to be fashionable now amongst 'market professionals' to believe that leverage is irrelevant to the point of infinity.   Maybe it is when you are playing with other people's money, and there are no consequences for your actions.

Such a self-referential system does not properly allocate capital for future investment in supply.  It does not inform the planners of changes in consumer interest, and the state of their own needs and conditions.  It does not give consumers the surety that they can actually obtain what they need and when they need it, and not be forced to accept some substitute at a dictated 'price.'

This sort of nonsense used to be relegated to the intraday antics, in which markets are just a voting machine, but you could rely on markets on the longer term to obtain some greater efficiency. The breakdown is that the grift has completely taken over, thanks to the policy errors of the Fed and the regulators.

The financial markets are an enabler, and not an end unto themselves.   And when they lose their proper place in the bigger scheme of economic things where the real markets and people exist, it is because of the moral hazards of an outsized and over-leveraged financial sector. 

It may take some time to catch up with us, but we know that at some point there will be hell to pay in the real world.   And there are those who simply do not care, who are sure they can just take their loot and blithely walk away, if they ever bother to think that far ahead.

How can we not see this lesson now, after all that we have seen and been through over the past twenty years?

We seem to be relearning that lesson about every seven or eight years, and then forgetting.  And until the consequences of their actions are visited on these infantile masters of the universe, I suspect we will have to keep relearning them because they are certainly not going to stop on their own.

 

This is the point of madness to which the sophists of finance have brought us, for any variety of motives.  I don't really care to discuss it any further with these sociopaths and willful fools at this late stage and after the carnage they have created.  It makes me sick to even think any longer about it and where it may be bringing us.

If you do not get this by now, then you probably will not 'get it' until you are searching in the rubble for your face after the next financial crisis. 

Have a pleasant weekend.

 

 

 

 

 

 

 

SP 500 and NDX Futures Daily Charts - The Economic Decline Toddles On

Empire Manufacturing, Industrial Production, and even Michigan Consumer Sentiment came in weakly this morning.

Stocks were trying to rally, but were just able to hold their ground into the weekend.

 

I get the feeling we are in store for an interesting convergence of appearance and reality later this year.

 

Have a pleasant weekend.

 

 

 

It Is a Brave New World In Britain

“The Party seeks power entirely for its own sake. We are not interested in the good of others; we are interested solely in power, pure power.

For, after all, how do we know that two and two make four? Or that the force of gravity works? Or that the past is unchangeable? If both the past and the external world exist only in the mind, and if the mind itself is controllable – what then?

Power is not a means; it is an end.”

George Orwell, 1984

The base assumption of all statists, of both the Left and the Right, is that the individual exists and acts at the tolerance of the State, and only so far as the discretion of the State permits.

The happiness of the individual is as nothing compared to the objectives of the State. The fate of the individual is as nothing compared to the power of the State. The will of the individual is as nothing compared to the will of the State.

Power, real power, is the ability to define:  to define what is wealth, what is value,  what is to be read, what is to be said, and at the last, what is acceptably human.   

 

The will to power is not bound by the past or by the law, because it is the past, and it is the law. 

 

It is beyond all moral contingencies.  And so for the State that truly understands its power, there can be no higher moral principle, and therefore no god but the State.

 

Power is the realization of pure discretion to shape reality as we wish.  And all participants in the State's reality act and eventually exist at the State's discretion.

 

The One Percenters' Tax Loopholes and Unindicted Frauds: Audacious Oligarchy

What set this conversation going is the 'carried interest' tax loophole that allows wealthy hedge fund manager to pay much lower taxes on what is really ordinary income.  

 

There are many more egregious loopholes readily available to the tax-lawyered-up wealthy, and you probably have not even heard of, or can imagine, most of them.

What interested me more about this is not so much the discussion of an obvious tax loophole, but the reactions of the participants, and the lack of self-awareness.

Ken Langone is the epitome of what is wrong with the one percent and their distorted view of reality. And Stephanie Ruhle is their cheerleader and hagiographer.  Erik Schatzker gets props for at least trying to inject some realism and balance into the discussion in the most polite way.  Well, he is a Canadian after all.

Anyone who can distill 'poor Angelo Mozilo' and 'Barney Frank did it' as the only lessons out of the carnage and suffering of the housing financial crisis with its rampant, largely unindicted fraud, brazenly committed by financial institutions and their enablers in ratings agencies, is living in an alternate universe.

And unfortunately that is the case.   The uber-wealthy often live in a bubble of delusion because few if any will ever tell them the truth, and if they do, they do not wish to hear it and shout them down or use their money and influence to shut them up.  

 

This is the well spring of hubris and overreach.  No one wants to tell the Emperor that he is naked.  No one can tell a Caligula that his horse is a poor choice for the Senate.  No one wants to explain to the powerful that they have gone too far, and that the times, they are a changin'.   They seem to have to get hit with reality in the face, and that is too bad for a lot of innocent bystanders.

Langone is a walking, squawking, self-delusional example of the credibility trap in action.  And he is certainly not alone.  He has a lot of brothers among the uber-wealthy, and kissing cousins in the Congress and politicians in general, and throughout the media, think tanks, and universities.

This is why there will not be any kind of meaningful internal reform until the people clip the wings of the moneyed interests from buying elections, and politicians, and the networks.

And this should be an object lesson to any people overseas who think that the terrible consequences they have suffered endured from the exports of fraudulent paper and practices of the Anglo-Americans over the past ten years have changed.

They have not.   And the utterly distorted, unrepentant, and unreformed world view of the unfortunately powerful one percent is the reason.  Why stop when you are winning...

 

Here is a link to the interview on Bloomberg in case the embedded version is not working for you.

Ken Langone On Bloomberg

Gold Daily and Silver Weekly Charts - The Money Shot - To Say 'No' - Dalio on Gold

"Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power as well.   Nothing from the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."

Tacitus, Agricola

I was interested to see that Greece may have agreed to 'privatize' their sea port and air port as a condition of reaching some agreement with their Euro/IMF creditors.   And even more interesting is the report that the Ukraine is said to have drawn up a long list of assets it too will be offering up for privatization, no doubt in grateful return for the protection of the US and its NATO allies, for the enrichment of a powerful few, and their sons and benefactors and servants. 

Money Shot: A money shot is an element of a film, video, broadcast, or print project that is disproportionately expensive to produce and/or is perceived as essential to the overall importance or revenue-generating potential of the work.

It is difficult to believe that the US and its corporate allies care anything about the Greek or Ukrainian people, their standards of living, their freedom, or their general welfare.  It is not even clear that they care about their own people in that way anymore.

 

They seem to be in it for the power and for the money, opportunities as they say, and not for the nation but for a favored few.  This overreach for profit and power of the corporatist state overseas and at home is the money shot. 

 

This is the reason that we see the Western leadership engaging in discretionary wars, and secret trade treaties, and paper asset bubbles, and rigging markets, private bailouts and public austerity, so that they can continue to enrich the one percent through an economic policy of  wealth transfer and plunder.

 

Gold and silver managed a decent rally up to overhead resistance today.  Since The Bucket Shop has not yet changed in any meaningful way we must patiently wait to see if there is any follow through.   Since the prices are apparently not connected to anything in particular, except for the whimsy of the most powerful and deep pocketed trading desk and their algos, anything is possible.

 

At the end of the day this is still just a game of Liar's Poker.  And they are very good at it.  Lying that is.

 

In that vein there were very few claim checks for bullion exchanged, and not much action in the warehouses. 

 

I have included the gold and silver warehouse inventories below.  

 

As a reminder there was overnight commentary about the near record number of potential claims per deliverable ounce of gold on the Comex here.

 

Below is a video  in which Ray Dalio, one of the biggest and most successful money managers in the world, discusses his views on gold at the Council on Foreign Relations.  Consider this an alternative view to some of the more banal, uninformed diatribes by the propeller heads. 

 

This is nothing new from Dalio, and I have cited his views here before.  His famous 'All Weather Fund' is thought to be holding about six billion dollars worth of gold.

Here is one of my favorite quotes from Ray Dalio on gold:

"Over the long run, the price of gold approximates the total amount of money in circulation divided by the size of the gold stock. If the market price of gold moves a long way from this level, it may indicate a buying or selling opportunity."

 

Have a pleasant evening.

 

 

 

 

 

 

SP 500 and NDX Futures Daily Charts - The Walking Dead

The PPI (Producer Price Index) this morning was shockingly negative. 

And so stocks rallied, on the basis that since we are seeing so many deflationary indications the Fed would not be raising rates anytime soon, and might even crack open the QE cookie jar again for a little more top down rainbow sprinkles of public money for the Banks and their speculations.

Again I would like to reiterate the Le Café view that the Fed never had any economically based intentions of raising rates at any time in the recent past.  

They would like to add a few basis points of upside for their own policy purposes, to get off ZIRP so that they can cut rates again in the future when The Recovery™ they and the government have been touting is exposed as a fraud.

And so our standing forecast of a symbolic raise of maybe fifty points, in two steps, is still in place unless we see some genuine signs of recovery, which we have certainly not seen yet.   And that will be the extent of their action until the next financial crisis comes, probably as a result of the collapse of this current financial asset bubble in stocks and bonds and Dollars.

It was almost funny to see a price manipulation hoax perpetrated on the stock of Avon today using the SEC website to propagate a phony takeover offer from a fake private equity firm.   Well, that is how things are in bubble land.  Our major exports are misery and fraud.  Buy first and ask valuation questions never if you can keep the momentum going.  Just look at Shake Shack.

Bloomberg TV has been slavering all over Kim Kardashian and her new phone app games all day.  I think the whole thing is emblematic of the banality of our culture and the one percent.  

 

Someone asked if I have nothing good to say about Bloomberg TV these days.   I do think Alix Steel's new haircut is really cute.   It frames her million dollar smile really well.

Have a pleasant evening.