17 May 2013

Gold Daily and Silver Weekly Charts - Curiouser and Curiouser


"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it."

Sir Eddie George, Bank of England, September 1999


"The wicked encourage and give themselves the license to attempt and commit all manner of transgressions, seeing that the fruit which injustice yields is soon ripe, and offers itself easily to the gatherer’s hand. Whereas punishment comes late, lagging long behind the pleasure of enjoyment."

Plutarch
I think we saw another such period of 'staring into the abyss,' and the Western central banks have reacted, and that reaction has continued, most likely to an excess. And this is yet another one of their many policy errors. But as Brad DeLong said, Bernanke decides what the market is. And for now it is useless to challenge the power of the central banks to set value at will.

I have some more serious thoughts on what has been happening in the markets, and what these things might imply.  I think that the official picture of what is going on is not what is happening, and that for some reason we are being misled. 

I hate to engage in speculation, but that is required by the nature of how these things are now.   I do like to form a 'model' or strawman on which to hang additional data I collect to see if it hangs together, or implies something else.  .

One thing I am sure of is that this is not your father's market correction in the metals, or rally in the stock market for that matter.  This has semi-official hands all over it, and something significant happened late last year, and it is behind what is going on.

There is also not much doubt that China and Russia could shed more light on this, as well as the other central banks, and a few of the bullion banks, but they will not be talking until it is in their own good time.

No one I have read or spoken to really knows what the heck is going on. They don't.  They might wish you to believe that they are somehow 'connected' and have special knowledge but that is a what it is. 

But even the guys who would ordinarily be in the know at least to some extent do not know what is going on. And they are getting concerned.  And that bothers me. There is something out of the ordinary going on.

That is what is tipping me over to think that this is something fairly significant.  When I see water running up hill, it doesn't take a whole lot of effort to realize that something is not quite right with the contextual backdrop being presented.

I think the shit hit the fan late last year, and everything that has happened since then has been a reaction to that.  I do think there will be a bank/market holiday, of perhaps three days, and I am looking for any little things that suggest when that might be.   Then we can work back from there.

Thanks to you who send in information to me.  It does help.  Facts are always welcome.  The more one can assemble, the better our understanding can become.

For some unrelated but light diversion, after the charts there is an interesting interview between Max Keiser and John Butler that I have included below.

Check the intraday commentary below the charting posts.

Have a pleasant weekend.







SP 500 and NDX Futures Daily Charts - Invincible


Stocks are now quite overbought short term.

Complacency is predominant, and momentum has a life of its own.





Paper Gold, Metal Gold - When Worlds Diverge


"Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole. If price discovery is compromised by manipulation, then we will all be gradually impoverished and the economy will be imbalanced and unstable."

London Banker, Lies, Damn Lies, and Libor

There are a number of ways to account for it, but this divergence between 'market prices' and real world supply and demand fundamentals is at the heart of a problem that is called 'the mispricing of risk.'  

That same sort of mispricing of risk is what led to the recent financial crisis, as the values placed on Collateralized Debt Obligations began to plummet from their artificially high levels, abetted by a credit bubble caused by the Fed policies, control frauds, and lax regulation.  The mispricing of risk was also at the heart of the LIBOR rigging scandal, and the gaming of the energy markets by both Enron and more recently JPM, as it is alleged.  These paper games always have real world consequences, and they are rarely beneficial except for a few.

While there are some differences between the gold and silver ETFs that purport to own specific amount of gold, and tracking products that own no shares or none of the underlying commodity, there is little doubt in my mind that the pricing mechanisms of the US and UK markets, at the least, have become perversely detached from real world fundamentals once again.

Such detachment is inherently unstable, and increases systemic fragility.

This includes not only the metals markets, but other commodities, stocks, and certainly bonds as well.  The divergence is justified with the notion that the central bank and its associates makes of the market what they will.  Perhaps we should start calling this 'Crowley-nomics' after England's 'the whole of the law is do what thou will' bad boy.

People do not like to stand up and say so when this sort of divergence happens, because rising markets tend to make such warnings look foolish. And economists can find a rationalization for almost anything in the manner of lawyers and other breeds of sophists.

These things run on momentum and bad behavior by some fairly powerful institutions and individuals. And there is a great deal of money to be made in the meanwhile, and a status quo to be protected.  Timing is problematic when trying to determine when a somewhat opaque control fraud is going to be forced to unwind.  They can remain pathological longer than you can remain solvent, to borrow a phrasing.

There will be a reckoning no doubt, and they always take their shenanigans a step too far.  But try not to jump in front of their boots as they have their way in the short term, since it would seem they operate with semi-official sanctions, and plenty of easy money.

My suspicion is that some portion of this market operation we are seeing today is tied to making a point in the ongoing debate about the suitability of precious metals as reserve assets, and their inclusion in the new reserve currency. There is quite a bit of tension abroad amongst the financial groupings of nations, which I have referred to as 'the currency wars.' Perhaps the model of nations is misleading. It may resemble competing crime families amongst oligarchies more closely.

I do also think that some entity or entities were deeply in trouble on the wrong side of some trades that caused the monetary authorities to 'stare into the abyss' once again. Only time will reveal the truth.

But I agree with David, that there will be a 'closing of the gap' between paper and reality once again, most likely triggered by some 'black swan event' that simply no one could see coming.  Except those that the financiers have worked so hard to silence and discredit. 

And then there will be a thunderclap of convergences, and a recognition that we have been led down the same garden path by the irresponsibles once again. 

This is the continuing story of the will to power and the rule of law,  and the rights of individuals to protection of property and liberty against the incursions of powerful moneyed interests.  In history this is marked by an ebb and flow of lessons learned and forgotten.

Related: A Bull Market In Physical Metal - Maguire

Paper gold, Metal gold – When Worlds Diverge

The price of gold is going down. That is what the charts, newspapers and pundits are all saying. What I think they are deliberately not saying is that the value and desirability, as opposed to the price of gold, is going up and will go up further.

Make no sense?  Well I think it does if you remember there are two types of ‘gold’ for sale. One is metal, the other is paper. It is paper gold that is being dumped not the metal. The metal is being bought at a fair old rate. But because there is so much paper gold around and the major sellers and market makers in paper gold prefer metal and paper to be confused, even thought to be identical (their trade depends on this confusion), no one seems to be pointing out the very different dynamic happening in paper and  metal gold.

Paper gold is being sold. And those selling it are the likes of Soros Fund Management LLC and BlackRock Inc. As Bloomberg reports today,
Filings showed Soros Fund Management LLC and BlackRock Inc. (BLK) were among funds that cut stakes in the SPDR Gold Trust, the biggest gold ETP, in the first quarter.
Does that say Soros and BlackRock no longer want gold? No it does not. It says they don’t want paper gold. They don’t want paper claims of gold. For those that don’t know ETPs (Exchange Traded Products) are very similar to ETF’s (Exchange Traded Funds) and both a paper claims on something rather than the thing itself.

If you buy a gold tracking ETP you are NOT buying gold.  If you by an ETF based on bank shares, for example, you do not own any bank shares. In both cases you own a piece of paper which says it will match the price of the gold or bank shares. It is these paper claims that big players seem to be selling as fast as they can without it looking like they are going for the exit. In fact, I think that is exactly what they are doing.

The fact is there is a vast pyramid of paper claims on gold which dwarfs the amount of actual gold available. Since the trade in gold ETFs took off we have been living in a fiat gold world. There are as many claims on gold as there are bits of paper on which to print them. And this fact confuses a great deal of the punditry about gold as a safe haven.

In the Bloomberg piece we find Mr. James Moore, an analyst at FastMarkets Ltd. in London saying,
The reasons for holding safe-haven assets have abated…Investors are looking again at stronger growth assets.”
I think he is wrong. 180 degrees wrong. I think the reason Soros and BlackRock are selling paper gold is because they know paper claims are not safe. Bits of paper with the word gold printed on them are not gold themselves and their claims in the metal are not safe. I suspect we will find they have sold paper and bought metal.

I think Soros and BlackRock have sold paper gold because, contrary to Moore, the reasons for holding safe haven assets have not abated but are getting stronger. I am not saying ‘buy gold’. I do not offer investing advice. I am not saying gold will save you. I am also not saying that people are not looking for higher yielding investments. Because they are. They are caught in a nasty trap of really needing yield in a world they can also see is getting more volatile and less safe. What is a thrusting city boy to do? Answer, invest other people’s money in risk and keep quiet about what you are investing in yourself.

Of course you cannot get around the fact that the price of gold is going down. Which would seem to make my argument ridiculous. But it doesn’t. The confusion is that the price and value of Gold backed ETF’s not only ‘tracks’ the value of gold but impinges heavily on it. ETF’s are sold as a way of ‘tracking’ the value of a kind of share or commodity of ‘getting exposure to it’. But the whole family of Exchange Traded products has become so large, in some cases much larger than the size of the underlying market they are just supposed to be passively tracking, that they are not longer just tracking they are having a decisive  influence upon it.

Thus as people sell gold ETF paper, that is causing the price of not only paper gold but metal gold to decline as well. And what I think this is doing is creating a buyers paradise – if you have the pockets to take the risk. With one hand you sell paper claims on gold, let people confuse paper and metal and talk about how the price and desire for ‘gold’ is declining, and then with the other hand buy the metal.

End result the amount of paper gold declines but along side that decline some people sell real gold which you buy. You end up, if the game holds together, being able to buy real metal as the price declines, knowing that the price of paper and metal will diverge, at some point, rather drastically.

While Soros and BlackRock have been selling paper gold China, Russia, India and Iran have all been buying it. Last year alone (2012) China bought more than 500 tons of gold which is more than the ECB owns.

I continue to believe as I have for several years now that China and Russia along with India, Japan, Venezuela and Iran are looking seriously at sharing a new reserve currency and have planned to be able to advertise it as being significantly backed by gold. In that article I linked to a series of articles I have written looking at various aspects of the idea. I think the idea looks more and more likely.

For those who wish I have written about ETFs as being the Next accident waiting to happen and a part two in which I looked at the inherent instabilities of the ETF markets just waiting to blossom, especially as they grow larger than the market they are ‘tracking’.

Originally posted today at Golem XIV by David Malone, author of Debt Generation.


16 May 2013

BBC: Bankers: Risking It All - Part II


If you live in the UK you may watch this online here.

Otherwise you may watch it below.

Here is a link to Part 1 - Fixing the System





As a Reminder, the Fed Is NOT Printing Money


“So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard? And the answer is: I don't think so, because we're acting as though we were there.

So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we've behaved as though there are, indeed, real reserves underneath the system."

Alan Greenspan, 20 July 2005

Yes that's right. The Fed is NOT printing money.

It is 'retiring Treasuries' and 'issuing Reserves.'

And everyone knows that Reserves are benign, if not almost meaningless accounting entities. 

Banks just like to collect them.  Like Pokémon cards.

So implies the AngryBear amongst others.

And Mark Dow shows that there is zero correlation between the Fed printing money and the money supply.  And so 'deal with it.'  Hey rube, you obviously don't understand the difference between 'liquidity' and 'credit.'

I thought it was cute that the study went back to 1986, long before the Fed had to resort to  Quantitative Easing, and expanding its Balance Sheet as they are doing today. 

And they are doing it on a continuing basis, and not as an unusual action with regard to secular and isolated liquidity problems.  Unless you want to count chronic insolvency as a liquidity problem.

And the Fed purchases of Treasury debt at non-market prices is just dandy as long as it passes through the hot little hands of the likes of a friendly bank like JPM, who take their vig and then some.

And this chart shown below, printed courtesy of the St. Louis Fed, is just an illusion, so don't look at it.  Seriously.  Don't look at it. Knowledge is bad.  As a reminder, there are two scales on that chart, and the Adjusted Monetary Base uses the lesser scale.

As a reminder:
"In economics, the monetary base (also base money, money base, high-powered money, reserve money), is defined as the sum of currency circulating in the public and commercial banks' reserves with the central bank."
Hey, the Monetary Base includes reserves that the Banks are keeping safe at the central bank.  And the monetary base is the foundation for that leveraged expansion of debt money that is characteristic of a fractional reserve banking system.   What's up with that.  Does the Fed need to get out the liquid paper and correct that?

Here is a link to 'Money Supply: A Primer."

I recall that not long ago, Alan Blinder suggested that the Fed might alter the interest it pays on Reserves in order to stimulate more lending.  But he is just being a party pooper and doesn't understand banking. Or the difference between liquidity and credit.
"The nation's biggest banks have been nursed by the Federal Reserve way too long, former Federal Reserve Vice Chairman Alan S. Blinder said Thursday as he kicked off the tour for his new book, After The Music Stopped: The Financial Crisis, The Response and the Work Ahead.

The Federal Reserve, says Blinder, should stop paying interest to banks for their overnight deposits and should move to charge them for parking money. He says if the Fed set negative interest rates for overnight deposits – in effect charging a fee – banks would have to figure out better ways to make money and one obvious alternative would be to lend more to customers."
Yes I understand these are not 'excess' reserves which is an 'accounting designation' created by the Fed.  It is the Fed that sets the aggregate level of reserve requirements, or the lack thereof, in its role of banking regulator.   And it has quite a bit to say about the quality of the collateral that be used as reserves.  Such as cash, aka liquidity to those ascending masters of finance.  And as I recall they set margin requirements on the equity markets.  But perhaps they no longer do that. 

But this statement by Blinder somewhat 'blows a big hole' in the arguments of those who occasionally come out and lecture us that when the Fed 'creates money' (or liquidity if you prefer) and buys Treasury and Agency Debt from the Banks at non-market rates, it is not really creating money.  It is a benignly useless action.  It simply gives the banks 'cheap liquidity' that they can choose to use as they wish.  I wish they would buy some useless paper from me at non-market rates.  I accept all major forms of payment.

The Banks hold this liquidity, and use it to prop up their zombie Balance Sheets.  I don't think the virtual dollars are sequentially numbered and marked.  So they may also use it, and more properly the vig obtained therein,  and pay themselves bonuses from their leveraged up gambling.  Oh I forgot, Dodd-Frank changed that.  Except for 'hedging.' 
"While banks cannot control the overall level of excess reserves, there are a several ways they can reduce the level of excess reserves on their own individual balance sheets. They can lend excess reserves to other banks in the federal funds market, they can lend them to consumers or businesses, or they can purchase securities. Each of these outlets has been constrained for various reasons since the recession."

Cleveland Fed, The Federal Reserve's Influence Over Excess Reserves
Keep in mind that my argument here is not the true nature of excess reserves, but rather, is the Fed 'printing money' by expanding its Balance Sheet.

Normally the Fed does not have to print money.  The members of the Federal Reserve Banks do that for themselves under their charters with the consent and oversight of the Fed, and subject to the prevailing capital requirements. 

But when the real economy falters, as typified in the recent collapse and the continuing plunge of the velocity of money indicators, the Fed picks up the ball and prints money for the benefit of the economy.  They use this to 'lower interest rates,' except in a liquidity trap which is like pushing a rope. 

I think what some of these helpful pundits are trying to say is that the Fed is not 'printing money' so that it is becoming an inflationary problem.  They are giving that 'money' to the Banks, and they hold it for safekeeping.  And for their gambling stash. And for credit cards and food stamp distributions and other fee generating activities.  And for loans to pay dividends, and fund share buybacks, and the occasional industrial activity.

And among other things it involves the payments on excess reserves that they are giving to the Banks to sit on that money.  And the gaming of the financial markets to which they turn a blind eye.  And the enormous abuses in the financial system which have still not been reformed.

And keep in mind that the purpose of my writing this is not to argue about 'excess reserves' but rather with regard to the question of whether the Fed is 'printing money.'  Yes they are.  The quibble is what is being done with that money, which the Fed is providing in its function as the lender of last resort by buying Treasuries, and sometimes dodgy paper at non-market prices, and providing a subsidy to the Banks in the process. 

That the Banks are NOT getting that money to the real economy in sufficient amounts is another matter perhaps.  There is a difference between liquidity and risk. 

And I think that there is a strong indication that the interest rate policy mechanism of the Fed has broken down because Banks, or at least those holding those Reserves, are not making the bulk of their profits from conventional lending any longer. 

They are making their profits through various forms of private investment and the many permutations of prop trading.  And their lending preferences tend towards further financialization of the economy.  This is the downside of the lack of serious reform.

Click on the subject link 'Excess Reserves' below for more on these Tales from the Vienna Woods (the play, not the waltz) from our financial sophisticates, and sophists, who like to argue what the meaning of is, is.    And there are some related articles and essays at the end that might be useful.

Or just start by clicking here.



Foreign Banks Hold Most Excess Reserves at the Fed - WSJ

Why Are Banks Holding So Many Excess Reserves - NY Fed

Gold Daily and Silver Weekly Charts


"Buying gold and silver is a vote of 'no confidence' on the financial system and the Fed."

If that is true, and considering that Bernanke is the Pelé of printing money, how could you NOT?

It's pretty clear how the BRICS are trying to cast their vote.

And how the Banks and their associates are trying to stuff the ballot box with paper.