SP 500 and NDX Futures Daily Charts - Trust Us

Stocks were under pressure much of the day.

There were more technical than fundamental reasons for the trades.

Stocks are at a key juncture.

 

The behavior of the Fed may be looked at by future historians as so bad as to be incompetent, rather than notorious, in the manner of the 'Greenspan defense.' 

 

After all, these are educated and responsible people.  How can they not be trusted?

Have a pleasant evening.

 

 

 

Even the Best Can Fall Victim To the 'Efficient Markets Hypothesis'

The preamble to this recent column by Ted Butler (subscription but worth it for his fine work in tracking the silver market) is a discussion of how 'gold loans' are not really proper loans, because the collateral gets reformatted and sold off.

What sparks the discussion is the recent talk and articles in Bloomberg about the Gold Forwards rates being negative, implying that it is difficult to obtain leased gold. Ted finds this kind of discussion frustrating apparently.   They disclose rates, but not the amount of ongoing transactions.

I should add that to me there is little substantial difference between leases and swaps in what these fellows are doing.  That seems to be largely a manner of terminology and choice of market venue when you boil the transaction down to the essentials.

Ted explains that when you loan a tool to your neighbor, you expect to get your tool back.  In the case of gold leasing, as Bloomberg points out, the gold gets reformatted and sold off to Asia.  So the gold leasing really does not make sense to Ted.

 

Now I would beg to differ at this point, because unlike your favorite power tool monetary objects are often considered to be 'fungible' and in a lease you may not expectto get the exact bars back necessarily.  You merely ask for the same quality, form and amount as I understand it.  If this is not the case, then Bloomberg has inadvertently disclosed a massive fraud.

You don't expect to get your bars back unless it is a custodial arrangement.  But as the German people have recently discovered, good luck with that.  You may get whatever the custodians at the Fed can find, because they have not merely stored the gold for you, but they have apparently utilized it.

Therefore, Ted's reasoning goes, because they do not make sense, gold leases do not exist in any appreciable size anymore. They were just a kind of fad perpetrated by JPM and some foolish miners some years ago.  That forward selling in the form of hedges blew up badly and miners like Barrick were forced to take sizable losses in a rising market.

At this point I would say the leases do not make sense, but not for the same reason Ted cites.  They do not make sense to me because they both misprice the counterparty risk AND the terms and other details of the leasing are not disclosed to all the interested parties.  The lenders who are central banks do not inform. the public who actually own their nation's gold.  Such leasing ought to be disclosed transparently and in real time.  

But this is not the case. The lengths to which the public must go to discover the extent of the leasing of their gold has been well documented by GATA for example.

The reason I find Ted's conclusion weak, and potentially harmful, is that it is obviously based on the 'efficient markets hypothesis.'   If something does not make economic sense, it ought not to exist in an efficient market, and therefore it does not exist except as some limited anomaly.  Gold leases don't make sense to me, so therefore they do not exist, or if they do, are not significant enough to be considered.

Economists used to joke that if you told an efficient markets guy that there was a ten dollar bill lying on the sidewalk, he would reply that 'there couldn't be, because if there was someone would pick it up.'

I have asked the fellows at GATA if they have any firm numbers on current gold loans out, primarily from central banks.  I know this is an ongoing quest because central banks are notoriously reticent to providing any such details of their activities. 

We know leasing exists, we know the rates, we just do not know the details of the size of the market and the extent of the deals.

I found this column to be of concern because Ted is a very well respected analyst.  I read his columns regularly and like him quite a bit.  So I do not wish this to seem to be overly critical.  And I realize that it might seem that I am trivializing his argument, but this is the heart of it. 

Ted has been quite vocal in asserting that JP Morgan et al. have been manipulating the silver market based on what he has seen at the Comex.

But I did want to take the time to point out that a) gold leasing is not like lending out a specific object and b) just because something does not make economic sense to you, does not mean it is not happening.   His argument is not based on any new data, but rather dismissive of something because there is no 'smoking gun' available, only circumstantial evidence. 

These markets and this financial system is all too often the story of all control frauds and bubbles, and misappropriation of others people's money and goods.  Lots of things don't make sense to the rational, honest mind anymore.   Many of the financial deals that cities, counties and nations engaged in that cost their people hundred of millions of dollars made no economic sense.  But there they are.

The efficient markets hypothesis has been used to justify an enormous amount of financial fraud and bad policy decisions over the past thirty years. It is the mother of frauds, from MF Global to Enron to Madoff to the Housing Bubble.

These are smart and important men.  They are far too rational and god-like, your betters, to do things that you would not even think of doing.  They are 'the System.'

Given the extent of the frauds and riggings, I am often tempted to think these days that if there is money to be made at it, if it is being conducted in secrecy, and if it involves other people's property, people who are relatively unheard and powerless, it probably does exist.  But I prefer to stick to the facts, even if it is a plodding and sometimes frustrating path.

 

GATA was kind enough to provide this link to more recent news below.  What do you think they mean by 'actively managing their gold reserves?'   Moving the bars around and dusting them off?

 

If the world 'leasing' troubles you, think about OTC swaps.

 

Related:  Central Banks More Actively Managing Their Gold Reserves

Ted Butler's column of Nov 19 - Popular Misconceptions

"Gold loans are fraudulent through and through, because the real owners don’t get the proceeds when the sale is made and the collateral ends up with an unrelated third party who has no obligation to return the metal. But because they appeared to work for a while, otherwise intelligent people overlooked the obvious fraud and collected the benefits while they were available. Today, those tracking gold loans report the amounts of these loans outstanding are down 95% from levels at the peak around the year 2000. For me, I can’t figure out how even 5% of these loans could still be in existence.

That’s why I’m skeptical about all the talk of GOFO and gold lending as who in their right mind would ever loan or borrow metal under the circumstances I’ve described? There are few, if any, documented instances of specific loans and the parties involved or to the purpose of these loans. I suppose it might make sense to be a borrower if one intends to default on the loan, but that’s hardly legitimate. Likewise, I suppose a central bank might lease metal if there was an illegitimate intent to depress prices, but that couldn’t be discerned from GOFO rates.

Therefore, I think all the articles and commentary about GOFO are still goofy and unproductive. It seems akin to some deep debate by religious philosophers during medieval times about how many angels can dance on the head of a pin. I’m not trying to be insulting, because I believe there is a negative side to the current discussion about gold loans and lending rates that would be eliminated if the discussion ended once and for all. There is somewhat of a common denominator in the debate over gold lending in that most reporting on GOFO appear to be staunch believers in the ongoing gold and silver price manipulation. It is also well-known that those who insist that there is an ongoing manipulation in silver and gold (like me), are considered to be fringe conspiracy theorists. I think that is somewhat earned because so many who believe in manipulation tend to espouse other conspiracy theories (definitely not me). "

Efficient Markets Driven By Symmetrically Available Information - Algorithmic!

"What a piece of work is a man, how noble in reason, how

infinite in faculties, in form and moving how express and

admirable, in action how like an angel, in apprehension how like

a god! the beauty of the world, the paragon of animals."

William Shakespeare, Hamlet

Who could turn a blind eye to such obvious market abuses?   They must hate us for our efficient markets and deliberate, data-based price discovery.

 

Oh yeah, the active December delivery month is right around the corner, and their cupboards, while not necessarily bare, are packed with IOUs.  And gold is threatening to break out at a key resistance level. 

 

So volatility is not unexpected.   What is disturbing, however, is the blatant price manipulation and running of stops by big players acting with impunity, with the implicit endorsement of the exchange and regulators who can see nothing, and know nothing.

 

And both China and Russia are buying gold.  And the Western banks do not like it, because it seems like a threat to the supremacy of the Dollar.

 

So let's blame the Swiss.  Swiss Gold Poll Shows 47% Nein

"Then, of course, some 'technical levels' got triggered.”

 

Send in the clowns, with drones.

Gold Daily and Silver Weekly Charts - Close But No Cigar

Gold took an early run at breaking out, but then was held at the overhead resistance and 'psychologically important' 1200 level.  We'll have to see if gold can rise above resistance and break fee, and change this downtrend of lower highs and lower lows.

Someone asked me to comment on the notion that price manipulation is not possible in large markets like the precious metals.  I cannot believe that this canard is being taken seriously again at this late date.

 

I hope you realize that when someone says that given supply and demand there can be no price manipulation in the metals markets they are citing the 'efficient market theory' as the basis for their disbelief.

 

That is not to say that this proves that there is manipulation. There are plenty of other indications of that. But it does not mean that there can not be market manipulation.  Prices are set at the margins, and given leverage and favorable regulatory climates prices and demand/supply can become seriously disconnected.

Markets can get out of sorts with value for a long time, and years in some cases of bubbles, if enough energy and effort is put into it.  And especially in times of lax regulation and lack of transparency, there can be widespread price manipulation for a number of reasons.

 

Do we really have memories that are this selective and short term? 

 

Have a pleasant evening.

 

 

SP 500 and NDX Futures Daily Charts

Janet and her Merry Pranksters are hitting some high notes.

The best explanation I have for this rally is the continuing weakness in the yen, strengthening the dollar, and therefore US dollar paper assets.

It was interesting today that the precious metals moved UP with stocks. This suggests the possibility that the stock market rally is in a late stage for this move right here and now.

 

Almost time for another wash and rinse.

Have a pleasant evening.

 

 

 

NAV Premiums of Certain Precious Metal Trusts and Funds - Ukraine Admits Its Gold Is Gone

Cash level in the Sprott Silver Trust has dropped below the $2 million mark. This is historically low.

The Trust needs to do a secondary offering to get those cash levels up.

The discount on the Spicer Trusts and Funds continue to be around ten percent.

The Gold/Silver ratio is still elevated at about 73.6.

 

The Ukraine has apparently disclosed that its gold is 'gone.'

 

I first noted that it was being taken on a flight for safekeeping here.   If your gold is being held for safekeeping in New York or London you may as well wait for a picture postcard, because that is the only way you will be seeing it anytime soon.

 

The Western central banks do not care about gold anymore, in a pig's eye. 

 

 

Stock Valuations Outrunning Profits Growth - And the Band Played On

"We are still amazed by the chart [below], but it summarises the problem for those seeking to short stocks with fundamental weaknesses. In the last three years, the MSCI World Index has risen by 38% (11% per annum) whilst reported profits have risen by just 3% (that’s just 1% per annum!). As the events of last month attest, central bank actions–not profits–are driving equities forward."

Andrew Lapthorne, Societe General

This quote is in reference to the first chart below that shows stock prices are outrunning profit growth.   The second chart is the Shiller PE 10 Ratio for US stocks.

Beside the corrupting influence of Big Money on politics and academics, the other pervasive problem in our society is really quite banal, that is, mindlessly managing to the numbers.

Although incentives have always been an issue, in the last thirty years it has become quite fashionable in modern management theory to set a few relatively narrow metrics and judge the performance and rewards of a manager by them and them alone.

While this is not wrong in and of it self, such a philosophy provides a source of great mischief if the metrics are excessively narrow, and therefore obscure the bigger picture and the health of an organization, a company, or even a nation.

I think we are all familiar with how incentives badly designed can drive counter-productive, short term behavior that can actually be destructive of the values of an organization.  I cannot think of a better recent example, other than the widespread fraud and corruption on Wall Street, than the manner in which the Central Banks and their governments are managing The Recovery™.

If employment is a metric, let us foster an economy in which a large number of jobs are created, that are low paying and part time, in order to address the metric of unemployment.  Never mind that this ignores the real reason for concern, ie, the lack of jobs at living wages which will spur aggregate demand.   If unemployment is the only concern, why not just bring back indentured servitude and give everyone a job at below subsistence wages.  Not far off the Japan model at that.

If inflation is a metric, let us follow policies of money printing in order to raise the prices of goods.  Unfortunately this will have price inflation running ahead of the ability of the broad public to pay for the things that they need through wage and income growth.  

See, there is no deflation.  It doesn't matter to the model that the growth in prices is not only artificial, but is in fact increasing the misery of the people by diluting their already reduced incomes with which to purchase necessities.

Now, this would seem to insult common sense.  But in fact if you are a bureaucrat under pressure to please a powerful constituency, and are driven to pursue policies that really do not make sense by any reasonable estimation of 'the public good,' it is tempting to stand fast on your models, and insist that one cannot prove that you are not doing a good job of it. 

 

And it is all so easy to claim well intentioned ignorance, or a lack of relevancy to your responsibilities.  There were executives at Enron who were so incapable, who knew and did so little, that it was a marvel that they were not in nursing homes.

When pressed you can always use discredited theories and perception management to quell those who are calling out the contrariness, at times to the point of madness, of your policy actions.  Prove to me it is a bubble!  Prove to me that people are not just lazy, or incapable of doing useful work!  Prove to me that giving trillions to the Banks is not sound monetary policy.

 

What does it matter, if your bosses are happy, and the perks and prestige, and all important access to the halls of power, are ensured.  At times your conscience may be troubled by the thought that in some of your actions you may have gone too far, and committed acts that could be considered outside of the law.  But you have done it for the good of the system, after all. 

And in that you are above the law, a law maker, not a follower.  A bonus or promotion, or some other visible reward or recognition, may quiet your conscience and concerns.  You are only doing what must be done, as demanded by those who deserve to be followed and obeyed. 

 

You see the excesses, by the really bad ones, but you are not like them.  Some day when you have the power you will set things right, but you must stay within the system to obtain that power.  So you must steel yourself, and be practical, and do what must be done. 

 

And that is easier to do, when there is no metric for human misery and suffering.  The unfortunate are easy to ignore.  No one wishes to see them, or hear them.  And they have little power.

You work hard, and are only human after all.  And for this you are a very important person, well regarded in the Capitol.  You are making money for yourself and your friends, the people who really count.  You are a success!  And all is right with your world.

"When virtue is lost, benevolence appears, when benevolence is lost right conduct appears, when right conduct is lost, expediency appears. Expediency is the mere shadow of right and truth; it is the beginning of disorder."

Lao Tzu

 

No one sits down one day and decides, 'I shall become a monster, and do monstrous things.'

 

And the band played on.

h/t Zerohedge

Shiller PE Ratio