What Is Happening With Gold: Russian Economist Mikhail Khazin - Of Volatility and Collars

There are some interesting observations contained in this excerpt of a recent interview with Russian economist Mikhail Khazin.   He is not speaking on behalf of the Russian government, so we must take his opinions as we may from a private individual observing things from a different corner of the world.

 Here is a bio of Mr. Khazin.

I found some particular interest in his views on the price of gold, and the approach of Russia and China in buying physical gold on the world markets, without attempting to break the leverage of the paper gold markets directly. 

This would of course lead to increasing volatility in the price of precious metals until a market break provides the opportunity for the paper and physical market to converge.  Mr. Khazin believe this will be triggered by the bursting of the next financial bubble. 

Whether this scenario should actually come about is a matter of some speculation.  I do not know what Russia and China will do, and how the West might respond. So we should look carefully at the accumulation of gold by Russia and China, and the general buying patterns of other central banks as well.

One might expect the speculative exchanges to take some steps to protect themselves from increasing volatility, such as establishing trading collars or limits, in the price of gold and silver.  Oh my.

This is just a brief portion of an interview covering a number of topics. You may read the entire interview here.

 

"It had been clear to many economists for a long time that the role of gold in the world will grow and, most likely, will return to its position as a single measure of value. In particular, we wrote about the current crisis back in 2004 in our book The Decline of the Dollar Empire and the End of the Pax Americana. There's a whole chapter devoted to the role of gold and its manipulation.

However, Russian economic leaders close to the IMF ignored this position at the time. This only began to change in the last couple of years. China has been serious about gold for almost the entire last decade and is now actively preparing for a potential transition to a 'gold standard,' at least in economic relations between the so-called 'currency zones' which, in our opinion, will emerge after the single world dollar system falls apart.

But Russia and China cannot stop these manipulations, because the price of paper gold is determined on the speculative dollar markets. They can’t provide 'leverage' that would be comparable to that of major U.S. banks that have access to an unlimited issuing resource. The only thing they can do is increase the gap between the price of 'paper' and 'physical' gold by constantly buying the latter on the world markets.

Of course, this increases the instability in the global gold market and creates potential losses for the main 'gold dealers' who work with the Federal Reserve on leasing programs, but the degree of imbalances has not reached a critical value yet. It seems to me that the sharp rise in gold prices will start after the burst of the next 'bubble' in the US stock market.

With regard to the potential price of gold, as I wrote back in the early 2000's, it is determined by a 'fork,' the lower limit of which is the gold price in 1980, when it had its local peak after the dollar was decoupled from gold (USA default) in August 1971, and the upper limit of which is the purchasing power of the dollar in the early twentieth century, when gold was actual money. Today this 'fork' (in current dollars) is seen somewhere at the level of $ 4,500 - $ 15,000 per Troy ounce."

Gold Daily and Silver Weekly Charts - When the Operation of the Machine Becomes So Odious

"This is the contempt in which they hold the majority of American people and the political process: the common people are easily led fools, and everyone else who is smart enough to know better has their price. And they would beggar every middle class voter in the US before they will voluntarily give up one dime of their ill-gotten gains."

Simon Johnson

Congress is crafting a bipartisan deal to allow retiree benefits to be cut. 

"A measure that would for the first time allow the benefits of current retirees to be severely cut is set to be attached to a massive spending bill, part of an effort to save some of the nation’s most distressed pension plans.

The rule would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets."

As you may recall, Congress responded to business lobbying by allowing their pension plans to make outrageously optimistic assumptions about future returns, so the corporations could divert more of their money from pension contributions to short term profits.  

 

Now that corporate profits are at record levels, someone has to take up the slack and that must be the elderly.  Let's just rewrite the contracts after the fact, and take the money from them.  

In a conversation today some were tut-tutting this decision.  But after all, someone has to tighten their belts in hard times.  It certainly can't be the privileged class, so it may as well be the pensioners.

I hope people are so sanguine when the Banks come to seize their assets to make up their derivatives losses, which emboldened they will almost certainly do.  First they come for the pensions, and then they come for the savings deposits and IRAs.  It is a sign of the times.

Speaking of a sign of the times, the Manhattan based 2nd US District Court of Appeals knocked my socks off today, with a ruling that basically overturns 80 years of securities principles, and probably does more to erode the 14th amendment than Citizens United.

2nd US District Court of Appeals Issues the Equivalent of the Dred Scott Decision for US Securities Markets

Here is the money shot in the decision that overturned the insider trading convictions of the infamous ring involving SAC and what looked like an organized conspiracy to violate securities laws. 

"Although the government might like the law to be different, nothing in the law requires a symmetry of information in the nation's securities markets."

Barrington Parker, 2nd U.S. Circuit of Appeals Judge

And I will wager that if you have not seen this here and a few other places in the blogosphere, you would not even understand what the heck was going on.   The mainstream news stories made it seem like the conviction was overturned on insufficient evidence.

 

Well technically it was.  Especially if you maintain the perspective of a servile tool of the corporate media.   To paraphrase Mario Savio, would you ever imagine a manager in a firm making a statement that is in contradiction to his board of directors?

In its attempt to give a get out of jail card to some of the particularly well-connected, the appeals court has set a precedent that is noxious and repugnant to the Constitution, particularly the 14th amendment.  Its willingness to torture the law should make us wary of what other things that the crony capitalists have in mind with regard to overturning bank reform and confiscating assets.

If this stands, there is no excuse for any foreign investor to complain when they are robbed blind by the US markets.  At least those in the US can make the case that getting all their money away from the US banks is an onerous task.   The character of this government is being writ large for all to see.

Other than this, I just don't have the words. The stench coming out of New York and Washington is getting so bad I can't breathe, whether it is from being water-boarded, or slammed to the ground and choked to death for a cigarette, or being robbed blind by white collar criminals who have friends in high places.  Don't bother to do anything.  Sit back and relax.  They will come for you and yours too, sooner or later.

To paraphrase Martin Luther King, never forget, everything they do will be 'legal.'

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Spinning Wheel

"What goes up must come down

spinning wheel got to go round

Talking about your troubles it's a crying sin

Ride a painted pony

Let the spinning wheel spin

You got no money, and you, you got no home

Spinning wheel, spinning all alone

Talking about your troubles and you, you never learn

Ride a painted pony

let the spinning wheel turn."

Blood Sweat and Tears, Spinning Wheel

The spectacular ramp in stocks failed badly, and they went out mostly unchanged after yesterday's big drop.

The song says it all.

Have a pleasant evening.

 

 

 

US 2nd District Court of Appeals Issues the Economic Equivalent of the Dred Scott Decision

SEC. 20A. (a) PRIVATE RIGHTS OF ACTION BASED ON CONTEMPORANEOUS TRADING.

Any person who violates any provision of this title or the rules or regulations thereunder by purchasing or selling a security while in possession of material, non-public information shall be liable in an action in any court of competent jurisdiction to any person who, contemporaneously with the purchase or sale of securities that is the subject of such violation, has purchased (where such violation is based on a sale of securities) or sold (where such violation is based on a purchase of securities) securities of the same class.

Securities and Exchange Act of 1934

In their zeal to exonerate some Wall Street wiseguys associated with the infamous insider trading ring involving SAC Capital, the sophists on the 2nd US Court of Appeals, located in lower Manhattan near Wall Street, just issued the equivalent of the Dred Scott decision for US markets.

"Although the government might like the law to be different, nothing in the law requires a symmetry of information in the nation's securities markets."

Barrington Parker, 2nd U.S. Circuit of Appeals Judge

Are you kidding me?  Equal protection under the law?   Who says we have to do that? We can do whatever we want, and just try and stop us.  We own the lawmakers and we own the courts.

Symmetry of information, also known as a 'level playing field,' is the cornerstone and underlying principle of US Securities laws since 1933.

"Information symmetry is a condition in which all relevant information is known to all parties involved. For example, in the stock market, stock information has a full public disclosure, and all investors are in the same position to share information."

"In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure in the worst case. Examples of this problem are adverse selection, moral hazard, and information monopoly."

Is this the point where the pigmen take the masks off and say, 'what the hell, we really are just robbing and cheating you. So what are you going to do about it?  We own the system, and can have our sophists rationalize just about anything.'

Some judicial propeller head was encouraged to put themselves into super-literalist, laser-beam mode, and twist the letter of the law hard enough to find a reason for excusing some particularly blatant insider trading, and the substance of the law be damned.

As long as the exchanging of favors is sufficiently soft and undocumented, and not the explicit exchange of cash, videotaped and posted to Youtube, it's all good.  Cry havoc, and let slip the dogs of financial fraud on the general public.

The purpose of information symmetry is to prevent certain market actors from engaging in control frauds. This principle taken to a perfect and natural ideal was a cornerstore of one of the great economic canards that justified deregulating the markets. 

"In finance, the efficient-market hypothesis asserts that financial markets are 'informationally efficient'. In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made."

And now they are dropping the pretext. Are they counting on most people not understanding what 'symmetry of information' means?   Are they counting on you doing nothing about this?

Information symmetry means that some analyst or CEO cannot tell his friends that they are going to give downward guidance in a week, so that they can all sell their stock and even short it ahead of the public.

It means that the most powerful players in the market cannot traffic in private knowledge, presenting two sorts of datastreams, one for the public and one for themselves.

It's a big club.  And you aren't in it.

I expect this decision to be reversed, because otherwise there can be no confidence in US markets any longer, and no one who is not an insider can no longer believe in their impartiality and honesty.  They are worse than any casino, because the dealer can signal some of the players when he has an ace in the hole.

The basis of the reversal will be the judgement that the 2nd Court has misapplied the principles in Dirks v SEC.   In this case the Supreme Court sought to exonerate the recipient of information from a whistleblower who wished to exposed a corporate fraud, and in doing so released information to Dirks, who while passing it on to the Wall Street Journal, also passed it on to clients who used it to sell their stock in advance of the fraud and stock sell off. 

This led to the establishment of 'The Dirks Test' by the SEC:

A standard used by the Securities and Exchange Commission (SEC) to determine whether someone who receives and acts on insider information (a tippee) is guilty of insider trading. The Dirks Test looks for two criteria

1. Whether the individual breached the company's trust
2. Whether the individual did so knowingly

Tippees can be found guilty of insider trading if they know or should know that the tipper has committed a breach of fiduciary duty.

I believe this is one of those cases where courts can and will argue about reasonableness. Is it more reasonable to expect a trader who is licensed under Securities Laws to know the difference between legitimate information and material non-public information, moreso than an unlicensed amateur?

 And I think that the 2nd District Court has overreached in declaring that the prosecution ought to demonstrate that the tipper received personal benefit, rather than violated fiduciary trust of the corporation, and that the tippees needed to know this fact, rather than understanding the difference, as a professional, between gossip, information, and material non-public information which provides them a trading advantage which has been obtained in some manner which most certainly involves the violation of fiduciary responsibility in the chain of communication.
 

The most rational response from the rest of the world will be to shun US markets, and take steps to prevent the contagion of this abuse of privilege.

The only law the moneyed interests recognize is 'Do what you will,' and just don't document the evidence of wrongdoing and post it on the internet for bragging rights.

This is the kind of situation where the locker room talk at the Country Club gets leaked out in public, and the Very Important People who do it are suddenly exposed for exactly who and what they really are, and what they really believe. 

 

And brother, its a brave new world if this decision stands. 

Gold Daily and Silver Weekly Charts - Somebody to Love

More!

"He who makes a beast of himself gets rid of the pain of being a man."

Samuel Johnson

 

The metals were held in place today, consolidating their recent gains at the top of the support and resistance channel.

 

I am sure that some day this protracted market manipulation and price rigging will collapse. 

 

And I am also sure that some day we will be offered an elaborate story of how the Western central bankers used our gold to hold the line on its price for the sake of the system.

 

After all, this is their mandate, to insure the integrity of the currency by hiding the effects of their malfeasance, while shamelessly printing bushel loads of hot money and handing it to their Banking friends so they can use it to game the system.

 

If this goes badly, I would have no doubt that some unwitting 'public servants' are going to get thrown to the wolves and under the bus.  Michael Hayden is getting slathered up with barbeque sauce, and no doubt will be offered as red meat, the torturer-in-chief, if it comes to it.  Finger lickin' good. 

 

The higher ups don't know anything about anything about nothing.  They barely know what day it is, or what their favorite magazines and newspapers might be.  Well, in a few cases we could believe it.

 

Like CEOs, and thoroughly modern managers,  they are paid astronomical sums of money, and hold tremendous power.  But when something goes wrong, they audaciously claim to have been walking around in an uninvolved, Alzheimer's like fog, oblivious to the workings of their own organizations, and unaware of their own decisions and directives. 

 

And if they know the right people, and the locations of enough of the bodies, they can make that story stick.

 

Being a card carrying member of the privileged class means never having to say I'm sorry, much less 'not guilty.'  Power is doing what you want when you want, and consequences are for everyone else.

 

Or perhaps these titans of modern industry and the halls of moneyed power are at heart just good natured bumblers.  In a misguided but since belief destroy lives and crash economies, while pursuing insane ideological theories put forward by the vested interests, all the while stuffing their pockets,  and crushing dissent with the political skills of a Machiavelli and the ruthlessness of Al Capone.

 

The banality of banking.

 

They are just hapless and good natured bumblers.  And they love dogs and children.  Remember when Uncle Al accidentally dropped the Thanksgiving turkey?  Ho ho was that funny.  Bad on him. 

 

Let's see if gold can break out here without too many other gyrations or retests.

 

FOMC meeting next week.  Russian Central Bank meets on Thursday.

 

Have a pleasant evening.

 

 

 

SP 500 and NDX Futures Daily Charts - A Cold Shot Baby

There was quite a bit of talk today about the Sony hack attack, and gossipy emails about from a  director calling Angelina Jolie a 'spoiled brat.'   This was a major preoccupation today on Bloomberg TV. 

You couldn't trade baseball cards off the information that they provide.   Carla Hall on The Chew offers more balanced economic commentary.

Maybe if the same Hollywood artiste had written snarky emails about the homeless and the hungry, the ongoing collapse of the middle class, or the pervasive culture of fraud in high places, we might have heard about that.  Probably not.

Hey did you hear the one about the Wall Street Banker calling Malala a spoiled brat?   Malala.  Is she on Survivor?  Who does her clothes?

Well, at least they did not have to spend any time talking about serial perjury and gratuitous torture for its own sake.  Or the general chaos into which the Anglo-American empire is falling.  Or the serial policy failures of a Federal Reserve fully captured by the moneyed interests.

Cultural vacuity, bad paper, and financial fraud are our major exports.

 

To paraphrase that other black hole of banality Richard Nixon, We are all Kardashians now.

Stocks took a cold shot today, with a half hearted attempt to rally giving way to end of day selling.

If one looks at the retracement levels, this is just a minor correction back to support so far.

Let's see if we get a bounce that sticks here. I took the profits on my index shorts, and will have to think hard about getting back in on that.  Downsides are dodgy in the land of easy money and insatiable elitists.

Have a pleasant evening.

 

 

 

Rigging Justice: More Tales of the New Oligarchy and the Supreme Court

"The sad truth is that most evil is done by people who never make up their minds to be good or evil."

Hannah Arendt

"Those who have crossed

With direct eyes, to death's other Kingdom

Remember us - if at all - not as lost

Violent souls, but only

As the hollow men
The stuffed men."

T. S. Eliot

The power of Big Money is often ostentatious, heavy with sanctimonious ceremony and media envy, but sometimes it is even more powerfully subtle.

The Supreme Court has a limited docket, and apparently a penchant for choosing certain lawyers of repute to bring cases before them.

 So Big Money hires those lawyers.

The people tend to vote for the less repugnant of the choices that the two political parties in their elections.

So Big Money gets ahead of the curve and pre-selects the candidates from the two major parties.

How can you fail to win the debate when you frame the questions, pick the debaters, and control how it is reported and scored?

 

Where are the great minds, the outstanding leaders, the moral beacons?   Has greed overwhelmed all virtue, leaving only shallow passions and self-deceptions?  Have we become an audience of cynical voyeurs in a digital Colosseum?

 

We are becoming a nation of waiters, bankers, and corporate-sponsored intellectual bordellos.  We can commit despicable, even heinous acts, and think we can rationalize and lie our way out of almost anything.  Winning!

Death by cynicism and expediency in the latter days of Empire.

 

And justice, for some.

"The Reuters examination of the Supreme Court's docket, the most comprehensive ever, suggests that the justices essentially have added a new criterion to whether the court takes an appeal - one that goes beyond the merits of a case and extends to the merits of the lawyer who is bringing it. The results: a decided advantage for corporate America, and a growing insularity at the court.

Some legal experts contend that the reliance on a small cluster of specialists, most working on behalf of businesses, has turned the Supreme Court into an echo chamber - a place where an elite group of jurists embraces an elite group of lawyers who reinforce narrow views of how the law should be construed...

The court generally has a conservative, pro-business majority, but even one of its most liberal justices, Ruth Bader Ginsburg, accepts the corporate tilt of the specialist bar that dominates the docket."Business can pay for the best counsel money can buy. The average citizen cannot," Ginsburg said. "That's just a reality."

Read the entire story at Esquire here.