Duke U. Study Suggests The Fed Consistently Leaked Non-Public Information to Select Insiders

This excerpt from a Duke University study is just in from my friend Professor Anthony Sanders at George Mason University, who writes at Confounded Interest.

In reading the paper I did not necessarily get the sense that this was a nefarious form of communication.  More like the kind of collegial exchanges of information that are so common to the revolving door nature of our modern financial regime.  There are two sets of rules, and two methods of handling things.  And insiders never speak ill of the actions of other insiders.

This is the 'money shot' from the abstract of the paper which is tracks the distribution of stock market gains over the FOMC information cycle:

"High return weeks do not line up with public information releases from the Federal Reserve or with the frequency of speeches by Fed officials.

Systematic informal communication of Federal Reserve officials with the media and the financial sector is a more plausible information transmission mechanism. We discuss the social costs and benefits of this method of communication."

And in related news, the Congress has just used its power to block an investigation of its own insider trading.  Again.

Remember this blog post from 2011?  Credibility Trap: US Congressmen and Their Staffs Regularly Engage In Insider Trading

It is hard to escape the credibility trap as a plausible explanation for the lack of serious financial reform and transparency in a system that has been shown to be plagued with a lack of sound regulatory oversight, price manipulation, and corruption in almost every major market.

I would certainly hope that there is a different explanation for what appears to be systematic insider trading since at least 1994.

Here is what Tony has to say about this Duke University paper at his blog:

Fed Consistently Leaked Non-Public Information to Selected Insiders

Researchers at Duke University and the University of California at Berkeley point to quantitative evidence that The Fed consistently leaks non-public information about its meetings, driving an investment pattern that has led to market gains.

Here is the paper: 292092121-Stock-Returns-Over-The-FOMC-Cycle

Here are stock returns over the FOMC cycles. Notice anything unusal?

And here are the 5 day returns with bootstrapped confidence bands.

Gold Daily and Silver Weekly Charts - QE Bunga Bunga with the ECB - Deliverable Gold Leveraged 325:1

"A nation's economic salvation does not lie in the amount of money its rich inhabitants can squander recklessly.   A nation's economic salvation lies in the amount of money its inhabitants can save and invest after providing themselves with all the necessaries and all the reasonable comforts of life."

B. C. Forbes


"Ordinarily, the financial risk in a market, and hence the risk to the economy at large, is limited because the assets traded are finite. There are only so many houses, mortgages, shares of stock, bushels of corn or barrels of oil [or bars of gold and silver] in which to invest.

But a synthetic instrument has no real assets. It is simply a bet on the performance of the assets it references. That means the number of synthetic instruments is limitless, and so is the risk they present to the economy. Synthetic structures referencing high-risk mortgages garnered hefty fees for Goldman Sachs and other investment banks. They assumed an ever-larger share of the financial markets, and contributed greatly to the severity of the crisis by magnifying the amount of risk in the system.

Increasingly, synthetics became bets made by people who had no interest in the referenced assets. Synthetics became the chips in a giant casino, one that created no economic growth even when it thrived, and then helped throttle the economy when the casino collapsed."

Senator Carl Levin

If the Fed, the Congress, and the professional enablers and courtiers to the power of money understood these simple, yet profound truths of the economics of a stable and sustainable society, we might hope to enjoy the long awaited recovery, and peace and prosperity, that has eluded so many in the West for far too long.

Gold was slammed lower with the London PM fix and the opening of trading in New York this morning, down to test the 1050 level on the spot price.

Silver managed to hold on to the 14 handle.

The CME precious metals director will be leaving effective December 11.

Tomorrow Mario Draghi and the ECB may reveal some stimulus plans for the Euro area. They are likely not to be stimulative of the real economy, but favorable to the financial sector. If it is something in the QE line of recreational monetary drugs, it will be interesting to watch them do it, given the predominance of negative yields in the tonier Euro area bonds.

Janet Yellen gave a rousing speech today to lay the groundwork for a Fed rate increase in December. It was so painful to watch that it roused me to catch up on some shows on my DVR. I almost feel sorry for her, having to clean up the messes in the real economy left by Greenspan and Bernanke.

There were no gold deliveries at The Bucket Shop yesterday. What a surprise. There were some more takes in silver however, and those are shown below.

The warehouses continued to show a slow leakage, with some actual buying and selling and using of bullion taking place in silver, but little to none in gold.

The potential claims or 'leverage' per ounce of registered gold has hit a new all time high of 325:1, despite a marked decline in the open interest.

I hear that the hedge funds and mo-mo players are at a 14 year historic short interest.

There was intraday commentary about some of the precious metal trusts and funds here.  One highlight is the marked decline in Western gold bullion inventories, a phenomenon not really seen with silver that has also experienced price declines over the same period.

When these jokers blow up the global markets again, and I am reasonably confident that they will, I hope that if they hold out their hands for another bail-in that someone slaps the cuffs on them.  I doubt it, but it is still a worthy aspiration.

Once again Hillary has sidestepped the questionable entanglements of the monetary sort which she maintains with Wall Street by citing their admiration and gratitude for her brave and decisive actions in the aftermath of 9/11. 

Non-Farm payrolls are on Friday.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Nearly Fearless, Into Uncharted Waters - Sustainability

The SP 500 stocks were trading somewhat weakly most of the day, on better than expected ADP employment number and other economic data that looks to provide the Fed with a fig leaf to raise rates this month.  And of course on energy market weakness.

The NDX was green much of the day, as techs are near the heart of the latest bubble valuations.  There is no good reason for it, other than 'stories' in tech carry more credibility with the gullible than pitches that are risibly unrealistic in more mundane areas of the economy.

And then Janet came out in a widely regarded speech today that strongly suggested that 'now is the time' for the Fed to increase rates.  Yellen:  Economy 'Ripe' For a Rate Increase

Nothing particularly new was said, or done, or learned, but stocks sold off a bit, and went out near the close.

Tomorrow the ECB may surprise us to some extent with QE.

Let's keep an eye on that.

Have a pleasant evening.

NAV Premiums of Certain Precious Metal Trusts and Funds - Another Gold Redemption

There was another gold redemption from the Sprott Physical Gold Trust of 16,467 troy ounces.

However one may wish to account for this, it is noteworthy that there have been no similar redemptions from the silver trust.

This is consistent with the overall experience of Western funds and trust which have been seeing the outflows of gold bullion for the past couple of years, but not of silver.

As you may recall, I have formed the hypothesis that the trading at the Comex in 'synthetic gold,' or highly leveraged paper gold claims, is creating a situation in which risk of a failure to deliver at current prices in the broader, global gold markets will be more likely to occur than in a well-managed and regulated market.

Or more bluntly, the price rigging of gold at The Bucket Shop is setting up the gold market for a severe dislocation when the artificial pricing scheme collapses.

I doubt it will be acknowledged as a 'fraud' since it involves systemically 'important' financial organizations and the acquiescence of bureaucrats caught up in a credibility trap.

The negative estimated cash balances on both Sprott funds continued to increase. One might assume that the Sprott funds have decided that now is not a good time to sell metal to raise funds.

Prior posting from the 27th of November 2015

Gold Daily and Silver Weekly Charts - Masters of the Universe Ascendant

"Think of gold as an irredeemable bond that pays no interest, but has no credit risk, where the issuer is God or the universe itself."

Charlie Morris, formerly of HSBC Global Asset Management

The economic news came in badly this morning, with the ISM Index coming in much lower than expected, following the path of the Chicago PMI.

The big tickle this month is the much anticipated Fed meeting at which they are expected to raise rates 25 basis points off zero.  There is no real economy reason for them to do this, with the US recovery wavering and parts of the world slipping into recessions with high unemployment.

But as we know, the Fed would like to get their rates off zero, so they can cut them again when their latest asset bubble collapses and we have another financial crisis.

Gold and silver had a bit of a relief rally today, as the US Dollar was off a bit.  It is still grossly overvalued to support a real economic recovery.

And, at long last, we are in the precious metals active month of December!

We saw that rare animal, a 'delivery' of gold at The Bucket Shop warehouses, with Nova Scotia tossing up 36 contracts from their house account, to be taken mostly by the house accounts at HSBC and JPM.

Do you notice how the bullion banks seem to be shepherding the scarce deliverable bullion amongst their own house accounts?

And that is a far cry from silver, which saw one of the biggest one day deliveries last Friday, in case you did not notice from the delivery report posted here last night.

And we followed that up yesterday with some customers from ABN Amro, Goldman, and Merrill puking up their bullion, to be snatched up by the house accounts of HSBC, JPM, and Nova Scotia.

The deliverable gold in the warehouses continues on the low side at about 121,000 ounces available to be delivered at these prices.  This does not mean the Comex will default.  This does not pose any particular conundrums either.  It just fits the pattern of Comex as The Bucket Shop, with its gold trading being mostly paper trades settled in cash with little actual bullion involved, in sharp contrast to silver.

If a large customer actually stood for delivery of gold bullion and would not accept cash, I would expect JPM to cover them out of their own warehouse and house account as they did a few months ago.  It only takes a phone call or some key clicks to change the status of eligible bullion.  Some people are losing the sight of this.

There is significance in these low inventories, but not always what people would make of them.
What is of serious significance, and hard for the bullion bank apologists to deny, gold bullion has been flowing in large numbers from West to East for some time now, at least since 2007 but with a growing intensity since 2013.

I am fully convinced that unless the gold market is reformed at some point it will suffer a dislocation which will be blamed on 'foreign speculators' or some rogue traders in some Asian hothouse, something risible like that.

Non-farm Payrolls on Friday.  Let's see if the markets and the Fed get the numbers they would like, each for their own purposes.

I had a less than good-natured query regarding my discussing gold and silver.  And here is how I respond.

The reason I enjoy watching the precious metals here follows from my premise, based on both theory and observation,  that we are in an historic sea-change in the international monetary regime that has been in place since the end of WW II.  It was set in the Bretton Woods Agreement, and was then unilaterally revised by Richard Nixon in 1971 into a fiat dollar reserve currency regime which some call Bretton Woods II.

That change has been happening slowly but surely, picking up some steam in the late 1990's with the Asian and Russian currency crises.  The world's central banks became net buyers of gold around 2006, and the pace of the flow of gold and silver bullion from the West to the East gained considerably around 2013, and continues today.

Forgive me if I choose not to ignore these sorts of things.  Gold and silver have something to tell us about that, if we will just look at those markets and the flows of bullion with an open mind.

I know that it is fashionable these days, in the ascendancy of the self and personal will, to pick and choose and create our own realities, and facts to support them.  But, alas, history suggests that people who do so will ultimately be served a banquet of consequences.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Blue Skies, Unicorns, and Santa Claus Rallies

"Unhappy events abroad have retaught us two simple truths about the liberty of a democratic people.

The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power.

The second truth is that the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living.

Both lessons hit home.

Among us today a concentration of private power without equal in history is growing. This concentration is seriously impairing the economic effectiveness of private enterprise as a way of providing employment for labor and capital and as a way of assuring a more equitable distribution of income and earnings among the people of the nation as a whole."

Franklin D. Roosevelt, On Curbing Monopolies

The economic news was fairly awful this morning.

I doubt this will be enough to stay the hand of the Fed, since they wish to raise rates for their own policy purposes, and not to quell any growing pressure on wages from our imaginary full employment economy.   They would like to raise rates above zero to give themselves some room to move in cutting rates in the future when their current financial assets bubble breaks.

And so stocks were on a tear higher, with visions of Santa Claus bonuses dancing in fund managers' heads.

The VIX dropped as it was all good in the Pax Americana.

Stocks need to hit that higher high to keep this algo-driven wilding to the upside from turning into yet another 'wash and rinse.'

Non-Farm Payrolls on Friday.

Have a pleasant evening.