Gold World News Flash |
- Special GSR Gold Nugget: Richard Daughty (Mogambo Guru) & Chris Waltzek
- Jim?s Mailbox
- Merkel plea to save Europe as contagion hits Iberia
- Bear Stearns: The 'Immaculate Calamity'
- Why are people buying silver and gold?
- Is the IMF’s Gold Really There?
- Gold Update 6:30PM EST
- Interview: Ross Beaty’s 100 Year Energy Plan
- Bob Moriarty: Collapse as Certain as Time and the Tides
- Gold Heats Up As Athens Burns
- The Innovations Issue, The End of Moore’s Law, A Nod to the iPad, The Postal Service’
- Hourly Action In Gold From Trader Dan
- Inflation and Bailouts Go Hand in Hand
- In The News Today
- More On Why The Fed Needs Audited
- Another Mysterious IMF Gold Sale
- Interview with Ted Butler
- GDX and GDXJ: Key Tactics!
- Gold Will Emerge as the Only Safe Haven
- EU Creates Money Out of Thin Air to Float Greece... NATO Generals' Medal Madness?
- How to Lock in a 339% Profit in Less Than a Year
- LGMR: Gold-in-Dollars Hits 1-Week Low as Euro Sinks on Athens Riot
- Silver Question 10:20AM EST
- How Belgian Debt, Italian Anarchy and Greek Profligacy Led to Economic Chaos in Europe
- Nuukfjord Announces 2010 Exploration Program for Greenland Gold Exploration
- Silver’s Sharp Selloff No Cause for Concern
- Yesterday, the Lemmings Discovered the Law of Gravity
- The Subprime Rhyme with U.S. Debt Debacle
- Senate Votes to Allow Financial Collapse
- Another mysterious IMF gold sale - plugging the London leaks?
- Inflation Up, Stocks Down
- How Gold ETFs Stack Up Against the Price of Gold Itself
- Notable Moves: VXX Surges, VGK Plunges
- Gold Seeker Closing Report: Gold and Silver End Mixed
- Volatility in the Police State
- Markets Flip Between Greed and Fear
- Jim's Mailbox
- The Castle Keep is Under Siege
- Freddie Mac Lifts Its Leg on the U.S. Taxpayer - Again
- A Conversation with Jean Turmel
- Investing 101- Bull Market or Bubble? How to Know the Difference
- Greece Economic Depression Resulting in INFLATION NOT DEFLATION Surge
- European Gold Bull Party
- The CDS Traders' Verdict Is In - UK In Deep Shit... As Are France And Deutschland
- Jim Rickards: Gold, Silver, and a May 11 Meeting to Discuss Global Currency Issues
- An Even Better Trade of the Decade, Part III
- Greek Riots Escalate, Branch Of Finance Ministry Set On Fire
- The Dollar's Ascent Has Not Been Able to Break the Back of Gold's Rally
- Top Recipient of Political Cash from BP, Goldman Sachs, Defense Contractors AND Healthcare Giants: Barack Obama
| Special GSR Gold Nugget: Richard Daughty (Mogambo Guru) & Chris Waltzek Posted: 05 May 2010 07:00 PM PDT Special GSR Gold Nugget: Richard Daughty (Mogambo Guru) & Chris Waltzek
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| Posted: 05 May 2010 06:50 PM PDT View the original post at jsmineset.com... May 05, 2010 07:55 PM Buffett Says GM Rescue May Mean U.S. Can't Say No to States CIGA Eric Future policy decisions will be shaped by the choices already made. Save me or face the consequences of inaction. The Greek drama provides a glimpse as to the nature of those consequences. Warren Buffett, chairman of Berkshire Hathaway Inc., said the U.S. would probably feel compelled to rescue a state facing default after the government committed $700 billion to bail out financial firms and automakers. "It would be hard in the end for the federal government to turn away a state having extreme financial difficulty when they've gone to General Motors and other entities and saved them" Source: bloomberg.com More… Retail data: Consumers ‘took a breather’ in April CIGA Eric April figures benefited from relatively easy comparisons to April 2009, when consumers also cut their spending. More concerning trends is contraction in ...
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| Merkel plea to save Europe as contagion hits Iberia Posted: 05 May 2010 06:50 PM PDT May 05, 2010 12:53 PM - Europe's debt markets are flashing danger signals after spreads on Iberian debt reached the highest level since the launch of the euro. Read the full article at the Telegraph......
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| Bear Stearns: The 'Immaculate Calamity' Posted: 05 May 2010 06:21 PM PDT
From The Daily Capitalist The Financial Crisis Inquiry Commission (FCIC) had the former execs of Bear Stearns under the hot lights on Wednesday. It seems it wasn't their fault, they said. Which caused Chairperson Phil Angelides to quip that the whole thing must have been an "immaculate calamity." Great line and it's been going around the blogosphere like a virus. Here is what the executives said:
In other words, insanely high leverage (up to 42:1), large holdings of MBS, poor risk management, and overnight borrowing from the repo market ($50 to $60 billion) had nothing to do with their collapse. They did nothing wrong and were the victims of a conspiracy of evil traders who seized upon their temporary lack of liquidity and sent them over the edge when investors irrationally lost confidence. Talking about an alternate universe, these folks should be sent to St. Helena to think about cause and effect for a while. Jimmy Cayne would probably just play bridge there. It is rather interesting that a couple little books came out in 2001 and 2004 that turned all conventional risk models Wall Street were using on their head. Unfortunately no one read them. At least no one interested in believing that their methods of risk analysis may be wrong even though they had failed Wall Street time and time again. These books were, Fooled By Randomness: The Hidden Role of Chance in the Markets and Life (2001) by Nassim Nicholas Taleb (based on the work of Benoit Mandelbrot) and The (Mis)Behavior of Markets (2004), a brilliant introduction to fractal financial analysis by Mandelbrot. Taleb's Black Swan came out in 2007; it was too late for that book to do any good. Had these Bear executives picked their heads up from the herd, maybe they wouldn't have stumbled. But they didn't. Somehow mortgages where the borrower's FICA score was 500, with a 3% down payment, and liar loan documents, were wrapped up into AAA securities. The premise was, that since housing prices hadn't fallen since the Great Depression, they wouldn't ever crash. My problem is that the same people who got us into the mess in the first place are still running the farm. They have not changed their investment or risk methodologies to account for the crash and its causes. Worse, most of them were bailed out. This only reinforces bad behavior. Regardless of what the financial reform bill does, the government has set a precedent that they will backstop Wall Street and the innocent will pay for the incompetent. And everyone on Wall Street knows that. Moral hazard. Let me make myself clear: neither Bear Stearns nor Lehman nor greed caused the boom and bust. Only the Fed can do that. Money flows into opportunity and a lot of money, a lot of easy money, will mask risk with rising prices and cause malinvestment. The big problem is that when the Fed starts the next business cycle, investors will be encouraged to take even more risks because of the bailouts. If Congress wishes to reform Wall Street, then we should let them fail. The cure is worse than the disease.
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| Why are people buying silver and gold? Posted: 05 May 2010 06:11 PM PDT (& Will the real Fear Mongers please stand up?) Silver Stock Report by Jason Hommel, May 5th, 2010 Many people today are cashing out their CD's to buy silver and gold. Why? The obvious. The CD's pay next to zero interest, and gold and silver continue to head up by 20-30% per year. Most of our gold and silver buying customers have completely lost faith in the government's ability to "run" the economy, but more than that, there is a real fear of the government today, that it will turn dramatically totalitarian and that we will lose nearly all of our freedom. The best time to own gold is when the government starts taking more of your money. Silver and gold ownership prevents government from confiscating your wealth through inflation, and more and more people see the inflationary threat of massive $2+ trillion deficits, which are being met by printing more money. A typical first time customer comes into our coin shop at the JH MINT, and says, "Hey this place lo...
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| Is the IMF’s Gold Really There? Posted: 05 May 2010 06:11 PM PDT FGMR - Free Gold Money Report May 5, 2010 – Much has been made over the gold purportedly owned and controlled by the IMF. There are many unanswered questions about this gold’s true status, and more to the point, whether this gold is really nothing more than phantom bookkeeping entries. Instead of owning gold, the IMF may just own claims to the portion of the “Gold & Gold Receivables” that was ‘paid’ to the IMF as subscriptions for membership by the countries that joined the IMF. In other words, through their central banks, countries have given a claim to the IMF for the gold reserves they have in their vault, if any, and the gold they have removed from the vault to loan to bullion banks as a fundamental tool of the gold price suppression scheme so thoroughly and painstakingly documented by GATA since its founding more than ten years ago. So does the IMF really own gold? Or does is only own claims to gold, some or all of which has...
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| Posted: 05 May 2010 06:11 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here May 05, 2010 02:38 PM [B][B][B][B][/B][/B][/B][/B] My mother, wife and daughter are upset as they just keep hearing me say “I love it” to my computer. What they don’t know is I’m saying this after looking at the gold chart above. The overwhelming number of gold perma-bears, bears and weak-knee bulls will IMHO miss out yet again on the mother of all gold secular bull markets. In fact, I just received video of an infamous gold perm bear who was in the midst of spewing his usual crap when… (You’ll just have to watch what happened to him). Given we’re up against a major downtrend line on the U.S. Dollar Index and are overbought in the short-term, the U.S. Dollar is deserving of some profit-taking. I don’t think its bear market rally is done and we could get projections up to 92 so stay tuned. [url]http://www.grandich.com...
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| Interview: Ross Beaty’s 100 Year Energy Plan Posted: 05 May 2010 06:11 PM PDT [RIGHT] [/RIGHT] By Ron Hera May 5, 2010 ©2010 Hera Research, LLC Hera Research Monthly (HRM) is pleased to present the following exclusive interview with Ross J. Beaty, Chairman and CEO of Magma Energy Corp. (TSX:MXY). Mr. Beaty talks about green energy, geopolitical risk and peak oil and reveals the investment strategies of Lumina Capital Partners, LP. Mr. Beaty is a successful serial entrepreneur who has founded and run public resource companies for the past 25 years, including Pan American Silver Corp. (TSX:PAA, NASSAQ:PAAS), which he founded and grew into one of the world's leading silver producers with eight operating mines and market capitalization of more than $2.8 billion. Born in Vancouver, Canada in 1951, Mr. Beaty was educated at the Royal School of Mines, University of London, England, M.Sc., Distinction (Mineral Exploration) 1975 and the University of British Columbia, LL.B. (Law) 1979 and B.Sc. (Honours Geology) 1974. He has worked in more th...
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| Bob Moriarty: Collapse as Certain as Time and the Tides Posted: 05 May 2010 06:11 PM PDT Source: Karen Roche of The Gold Report 05/05/2010 Talking heads are waxing enthusiastic over signals that the recession is receding, but debris from the derivatives debacle won't go away without a total financial system collapse, according to 3 2 1 g o l d ... Welcome! founder Bob Moriarty in this exclusive Gold Report interview. "Nobody and nothing is going to stop it from happening. It is as absolute as the time and tides," he says. While folks are all hunkered down in their bunkers waiting for the apocalypse, though, he suggests investing any spare cash in resource stocks—a "slam dunk" now that they're cheaper than they've been in nearly a decade. The Gold Report: Moody's has downgraded Portugal debt, and recently S&P downgraded the Greek debt to the status of junk bonds. As a result, we see an increase in gold. Can you give us your perspective on what's happening here? Bob Moriarty: Most of the time tying news to gold going up or down is absolute rubbish,...
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| Posted: 05 May 2010 06:11 PM PDT [COLOR=#000000][FONT=Arial][COLOR=#000000]John Browne - Senior Market Strategist, Euro Pacific Capital.[/COLOR][/COLOR][/FONT] In the decades that preceded Greece's adoption of the euro in 2001 the country papered over its chronic inefficiency and lack of competitiveness with its northern neighbors through regular devaluations of its currency, the drachma. But as a prerequisite to join the Euro Zone, the dominant powers of the Continent, most notably Germany, required financial housecleaning and promises of fiscal discipline. When these goals were apparently met, the Greeks came aboard. With the benefit of hindsight it is now widely understood that Greece, in common with some other 'Club Med' countries, 'distorted' its financials (largely through accounting gimmickry dreamed up on Wall Street) in order to qualify for entry. No doubt the influx of more than 100 million citizens from these countries swelled the economic heft of the Euro Zone. But these benefits came with ...
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| The Innovations Issue, The End of Moore’s Law, A Nod to the iPad, The Postal Service’ Posted: 05 May 2010 06:11 PM PDT The 5 min. Forecast May 05, 2010 12:28 PM by Addison Wiggin & Ian Mathias [LIST] [*] One-on-one with the future… details of our Juan Enriquez interview [*] Has computer innovation reached a plateau? Industry guru declares death of Moore’s Law [*] Patrick Cox on tomorrow’s tech, happening today… paper batteries, printable electronics [*] Government blocks “creative destruction”… one reason the USPS is set to lose over $238 billion [/LIST] “We’re releasing the same energy from the sun that gets trapped in plants and converted over time into coal, gas and oil,” Juan Enriquez told us during an interview yesterday, “we’re just cutting out a few millennia in the process.” Welcome to “the future is catching up with you” issue of The 5. When we look back in the years ahead, it may well have been the tipping point… your most profitable 5 ever. Yesterday, as part of a new do...
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| Hourly Action In Gold From Trader Dan Posted: 05 May 2010 06:11 PM PDT View the original post at jsmineset.com... May 05, 2010 09:48 AM Dear CIGAs, Click chart to enlarge today's hourly action in Gold in PDF format with commentary from Trader Dan Norcini ...
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| Inflation and Bailouts Go Hand in Hand Posted: 05 May 2010 06:11 PM PDT View the original post at jsmineset.com... May 05, 2010 10:17 AM Dear CIGAs, Pick a financial fire and you can be sure the U.S. government will hose it down with gallons of money. AIG, General Motors, Chrysler, insolvent states, FDIC, Fannie, Freddie and all the banks are just a few of the blazes Uncle Sam has sprayed money on. Now, the Federal Reserve is printing up another $105 billion to send to Greece to help with its debt problem. Is the bailout cycle getting ready to take another turn bailing out the Banks? You know, the ones we were told had little exposure to sour European debt? Check out this article from Bloomberg last week: JPMorgan Chase & Co., the second- biggest U.S. bank by assets, has a larger exposure than any of its peers to Portugal, Italy,Ireland, Greece and Spain, according to Wells Fargo & Co. JPMorgan's exposure to the five so-called PIIGS countries is $36.3 billion, equating to 28 percent of the firm's Tier-1 capital, a mea...
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| Posted: 05 May 2010 06:11 PM PDT View the original post at jsmineset.com... May 05, 2010 10:23 AM Jim Sinclair’s Commentary The demand for gold only increases worldwide as currency after currency falls. Before 8am in my most recent travels through Dubai I could see very long lines of clients waiting at a very long counter of gold bullion seller stores. Forget the silly article many of you asked about that said if there were no problems gold would be lower. Duh! That writer is clearly a brain surgeon. Commercial banks buy gold to meet demands Dealers claim regional banks are stockpiling gold for clients who want their deposits saved in the yellow metal. By Shahsank Shekhar Published Wednesday, May 05, 2010 Commercial banks are buying gold to meet the demand of clients who want their deposits saved in gold, commodity dealers said. With the currencies in the GCC pegged to the volatile US dollar, local banks have all the more reasons to buy gold, local gold dealers emphasised. On the other ha...
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| More On Why The Fed Needs Audited Posted: 05 May 2010 06:11 PM PDT Market Ticker - Karl Denninger View original article May 05, 2010 09:35 AM and why Chris Dodd, among others, don't want it to happen. [INDENT]Ostensibly, the QE program was designed as the first leg in a two-step process to remove the bad paper from the banks balance sheets and then dump it on Fannie Mae and Freddie Mac as discreetly as possible. So far, Bernanke has been relatively successful in convincing people that he was buying the assets to increase lending, which was clearly never the objective. Quantitative Easing was a fraud from the get-go. [/INDENT]No kidding. Not only that, but QE was blatantly unlawful as far as I can determine, as I've laid out more times than I can count. But you can't really expect the Congress, which put in place Fannie and Freddie, left them alone despite documented accounting fraud, had one of their number literally sleep with a former executive, and which still cowers when their arm approaches to take these folks on, can you? Well, actuall...
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| Another Mysterious IMF Gold Sale Posted: 05 May 2010 06:11 PM PDT From the Far East open... and up until an hour after London opened yesterday... about eleven hours in all, the gold price was down less than five bucks. This was against the backdrop of a relentlessly rising dollar. But around 9:30 a.m. in London, gold caught a bid, which continued into New York trading until shortly before 9:00 a.m. Eastern time when the price went vertical to its high of the day at $1,193.30 spot. Then the U.S. bullion banks pulled their bids. There was a brief moment of stability at the London p.m. gold fix... but then the tech funds once again found themselves selling into a vacuum.. and the price fell like a stone. By the time the smoke cleared... and despite a dollar that was up well over 100 basis points at one time... gold was only down a bit over ten bucks. The low of the day [$1,166.20 spot] was at the close of Comex trading. And now for silver. As Ted Butler keeps harping on... and he's absolutely right... silver is at ground z...
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| Posted: 05 May 2010 06:11 PM PDT Years ago, Jimmy Stewart played the lead in a movie titled, Mr. Smith Goes to Washington. In this case, it was Mr. Butler goes to Washington. Who did you meet with? A: I met with the senior staff responsible for regulatory matters for about an hour and a half. Q: Was the Chairman of the CFTC, Gary Gensler there? A: He stopped by to introduce himself and chat briefly. Q: What, in a nutshell was discussed? A: Basically my long-held premise of a manipulation in COMEX silver via the documented concentrated short position. They asked an awful lot of on-the-money questions, to which I replied directly. Q: Did you have reason to believe they agreed with your arguments? A: Since they didn’t offer any challenges to what I said, and their follow up questions didn’t seem argumentative in the...
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| Posted: 05 May 2010 06:11 PM PDT Stewart Thomson email: [EMAIL="s2p3t4@sympatico.ca"]s2p3t4@sympatico.ca[/EMAIL] May 4, 2010 1. The worst investors I know are, right now, the most terrified that gold stocks are going to crash. The best investors I know are engaged in a huge transfer of assets from booked wins on junior oils, into junior golds. 2. What is the actual reasoning behind a gold stocks meltdown? The clear answer is: None. Many analysts are honed in now on the short term charts, trying to figure out “the next move”. That’s a major error, one that this time may go down in history as one of the great market blunders of all time. The gold market is at least flirting with going parabolic. 3. Use the monthly charts of GDX for your big picture, the weekly charts to plan your buy and sell points, and the daily and 60 minute charts to execute on those points with market action. 4. Here they are: GDX Monthly Chart Big Bull Picture The 55-56 HSR (horizont...
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| Gold Will Emerge as the Only Safe Haven Posted: 05 May 2010 06:11 PM PDT Jordan Roy-Byrne, CMT In the wake of continuing global financial turmoil, we hear quite a bit about “safe havens.” Ask someone today and they’d tell you that the US Treasuries are a safe haven and probably Gold also. On a day-to-day basis, certainly the US Dollar and US Treasuries are safe havens. The financial media loves to point that out while noting big single day losses in Gold. In today’s world, it seems that few people are aware of Gold’s status as a safe haven for 5,000 years or even only for the last ten years. For a few years at a time or longer, precious metals and Treasury Bonds together can act as safe-havens at the same time. According to John Murphy, during the Depression the only two assets to rise were gold stocks and Treasury Bonds. Remember the price of Gold was fixed. Interestingly, we have seen the same correlation since 1999. Both Treasuries and Gold have moved higher. Note that during the last two recessio...
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| EU Creates Money Out of Thin Air to Float Greece... NATO Generals' Medal Madness? Posted: 05 May 2010 06:11 PM PDT EU Creates Money Out of Thin Air to Float Greece Wednesday, May 05, 2010 – by Staff Report Trichet May Rewrite ECB Rule Book to Tame Greek Risk ... European Central Bank President Jean- Claude Trichet, who capitulated on a January pledge not to relax lending rules for the sake of one country, may have to sacrifice more principles to prevent Greece from bringing down the euro. Trichet yesterday diluted rules for the second time in a month to guarantee the ECB will keep taking Greek government bonds as collateral for loans. The central bank may have to extend that to other nations, renew a program of lending unlimited cash to banks for a year, and even start buying government debt if the 110 billion-euro ($146 billion) bailout plan for Greece fails to stem the euro's slide, economists said. "Rather you break the rule book than the euro area," said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. "We're far from bein...
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| How to Lock in a 339% Profit in Less Than a Year Posted: 05 May 2010 06:11 PM PDT By Dr. Steve Sjuggerud Wednesday, May 5, 2010 Matt Badiali's readers just locked in an astounding 339% profit on Jinshan Gold Mines earlier this week… It's a stock he recommended less than a year ago. As of last week, his S&A Resource Report recommended list had a total of four stocks he'd held for less than a year that were up over 150%. How can you rack up such enormous gains? Matt explained it to me yesterday, as he sat in my office… "The other mining stock analysts out there set price targets for their recommendations – and once the stock hits their price target, they get out. The thing is… you need to have the courage to stay in there when you're right." Dr. Richard Smith was in my office at the same time, and he fully agreed. Richard has a PhD in math and has made a business of helping investors determine the optimal time to sell to maximize your returns. He said: "Staying with your winners is the real key. You just get a few big trad...
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| LGMR: Gold-in-Dollars Hits 1-Week Low as Euro Sinks on Athens Riot Posted: 05 May 2010 06:11 PM PDT London Gold Market Report from Adrian Ash BullionVault 09:30 ET, Weds 5 May Gold-in-Dollars Hits 1-Week Low as Euro Sinks on Athens Riot THE PRICE OF GOLD in US Dollars fell hard as the New York opening drew near on Wednesday, falling to a 1-week low as European shares, non-US currencies and global commodities extended yesterday's plunge. Three people were reported killed in an Athens bank fire, set ablaze amid a Greek general strike. Marchers protested against the government's "austerity" budget, needed to seal a €110bn bail-out by the European Union and IMF. "Petrol bombs were thrown at police," says the BBC, "who responded with pepper spray, tear gas and stun grenades." US crude oil contracts dropped through $80 per barrel, while the Euro currency sank further below $1.30 – a level first broken on the way up in Nov. 2005. Back then, the gold price in Dollars traded at $460 an ounce. Today it slid 1.1% to $1160 an ounce, but held near fresh all-ti...
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| Posted: 05 May 2010 06:11 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here May 05, 2010 06:25 AM What should you do with silver around $17? Feel alone with being long silver here around $17 (not me)? [url]http://www.grandich.com/[/url] grandich.com...
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| How Belgian Debt, Italian Anarchy and Greek Profligacy Led to Economic Chaos in Europe Posted: 05 May 2010 06:04 PM PDT Edward Harrison submits: I am going to describe the beginnings of the Euro from a German point of view. I apologize if this post seems unduly harsh. It is meant to give you a more caricaturised view of the breakdown in the eurozone which dominates the German press. It may help explain why the Euro is a union that served political purposes like cohesion instead of economic ones. Once upon a time, the Germans were embroiled in two devastating world wars which brought with them horrific loss of life, and a destruction of German productive capacity and its currency. The Second World War saw every major German city from Dresden and Hamburg to Cologne, Munich, Frankfurt, and Berlin crushed by carpet bombing. The country was destroyed and the people were traumatized. Complete Story »
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| Nuukfjord Announces 2010 Exploration Program for Greenland Gold Exploration Posted: 05 May 2010 06:04 PM PDT May 5, 2010, Vancouver, British Columbia - Nuukfjord Gold Ltd (TSX:NUU) is pleased to announce an aggressive drilling and surface exploration program, targeting the Company's numerous gold prospects along the Nuukfjord Archean Greenstone Belt. Nuukfjord is planning to drill between 4,000 and 5,000 meters, with field work expected to commence in June.
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| Silver’s Sharp Selloff No Cause for Concern Posted: 05 May 2010 06:01 PM PDT Silver quotes have come back down to earth with a thud, so perhaps it's time to review our outlook, which was, and still is, quite bullish for both the intermediate and long-term. The Comex July contract has shed a hefty 10 percent of its value since Tuesday, settling at 17.51 yesterday after peaking just two days earlier at 18.89.
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| Yesterday, the Lemmings Discovered the Law of Gravity Posted: 05 May 2010 05:52 PM PDT
The plaintive squeals of the dying mammals could be heard throughout the financial markets. European finance ministers must be depressed that their $140 billion bailout of Greece only bought them only 24 hours of grace in the eyes of investors. The European finance ministers might as well drown themselves in the seas of red on my screen. Only the Vix and British Petroleum (BP) are green. How perverse. Oil down $3.50! Boiiing! Silver off a buck! Kaboom! The ten year Treasury at 5.59%! Pow! It also looks like the oil spill in the Gulf of Mexico could make a sizeable dent in US Q2 GDP. You all know that I have been negative on equities for a while now (click here for my piece on buying cheap downside protection at http://www.madhedgefundtrader.com/March_18__2010.html ). The global nature of the sell off across all asset classes also came as no surprise (click here for that prediction at http://www.madhedgefundtrader.com/April_28__2010.html ). The flight to quality has given another shot of adrenaline to the dollar against my core shorts, the yen and the euro, both of which broke down to new lows for the year today. Most fascinating is that my April surprise came through too (click here for the report at http://www.madhedgefundtrader.com/March_11__2010.html ). The withdrawal of the Fed at the beginning of the quarter as the sole purchaser of real estate debt in the market, led not to a crash in bond prices, but a huge six point rally, sending yields into the dump. With the coming collapse of the Treasury market the new mantra among traders, it turns out everyone was short! Once again, Shanghai’s status as a canary in the coal mine for all global markets is reaffirmed (click here for the explanation at http://www.madhedgefundtrader.com/April_30__2010.html ). Where am I going to buy the dip first? Shanghai. The hedge fund managers who saw all of these complex moving pieces fitting together and positioned for it made multiple killings. Those who didn’t have joined their furry cousins at the bottom of the cliff. To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
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| The Subprime Rhyme with U.S. Debt Debacle Posted: 05 May 2010 05:50 PM PDT
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| Senate Votes to Allow Financial Collapse Posted: 05 May 2010 05:29 PM PDT Many historians believe that, among the cocktail of things that produced the Great Depression, the Smoot-Hawley tariffs figured highly. Conventional wisdom seems to hold that natural forces can cause recessions but only boneheaded policy can turn those into depressions. I don’t know if that is true, but I hope that we are not looking back in a few years and murmuring about the idiocy of the financial regulation bill of 2010. Yesterday the U.S. Senate voted amid much fanfare to ban taxpayer-funded bailouts of Wall Street firms. That also means, of course, that the Senate voted “if we had to do it all over again, we would have let all those banks collapse in 2008.” Complete Story »
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| Another mysterious IMF gold sale - plugging the London leaks? Posted: 05 May 2010 05:29 PM PDT
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| Posted: 05 May 2010 05:03 PM PDT We've opened earnings season with a market reaction more erratic than usual. Some stocks got pounded after missing earnings estimates by a hair. Other stocks drifted upward, despite nosebleed valuations and unimpressive earnings. Banks are making out like bandits...at least on paper. They simply post whatever earnings they feel like reporting, because loans and securities no longer have to be marked to market. So why not mark down bad loans at a glacial pace? Doesn't matter that they might be in non- performing status and aren't producing cash flow. Some banks have even lowered their credit-loss provisions because they feel they've adequately reserved for what will be the biggest credit loss cycle in history. Such banks may surprise to the downside next quarter if they re-accelerate their provisioning. Outside of the narrow, government-stimulated first-time homebuyers' segment, mortgage and house price fundamentals continue to plague the banks. Since banks are slow to foreclose, many homeowners who bought during the bubble have defaulted and have been living free of rent or mortgage payments. (I've seen credible estimates of a $100-$200 billion annualized bump in US consumer spending from "strategic" mortgage defaulters. This bump is temporary. When folks are finally evicted, they'll have to start paying rent somewhere). Cash flow will eventually fall short of the levels implied by loan marks on bank balance sheets. "No worries," say the bank stock bulls. "Banks can replace the cash flow from defaulted loans with Treasury securities that carry low minimum regulatory capital requirements." In other words, even if a bank is undercapitalized, it can buy Treasury bills and notes to create instant revenue. If it wants to roll the dice on interest rate risk, it can generate a whopping 3.7% yield in interest in 10-year Treasury notes, or 4.5% for 30-year bonds. But this type of activity never ends well. Today's yield curve and lending environment fosters unhealthy carry trades in government and agency securities. If rates rise significantly, those trades will blow up in spectacular fashion. And if yields rise, the Federal Reserve - our giant taxpayer-backed hedge fund - will book huge losses on its bond portfolio. By law, under such a scenario, Congress would have to appropriate money to keep the Fed solvent. Meanwhile, over in the stock market, risks are on the rise. A negative economic surprise in 2010 is likely to originate in Europe, where weak welfare states seek financial support from relatively stronger ones. Just yesterday, global stock markets tanked on fears that rescuing Greece will be easier said than done...coupled with the realization that Spain and Portugal might soon be looking for handouts. This story ain't over yet. Meanwhile, a potent new inflation could inflict a negative surprise for the US economy in 2010. Already we're seeing very high producer prices. The Wall Street Journal described this phenomenon in a recent article entitled "The High Cost of Raw Materials": "Data on producer prices released by the Bureau of Labor Statistics on Thursday shows how rapidly the pressure on corporate America is mounting. The producer-price index showed that crude goods such as iron ore, construction sand and pulp shot up 44.5% year-over-year, the fastest rate since 1974. Including energy and food costs, crude goods prices rose 33.4%." The ISM's Prices Paid Index is telling a similar story. On Monday, the ISM announced that its Prices Paid Index registered the largest year- over-year increase since the 1970s. Promoters of the world's crazy, unconventional monetary policies (usually bankers) like to blame rising prices on things like droughts, floods, OPEC, and labor unions. But when they do so, they fail to imagine what might happen to prices if the broad supply of money and credit were relatively fixed. If that were the case, it's likely that rising prices in one sector of the economy would have to be offset by falling prices in another. Demand typically falls in response to rising prices (depending on the "price elasticity" of demand). But when government deficits, easy money, and easy credit (rather than income and savings) drive demand, we could easily see persistently high consumer prices, even in a weak economy. For the past few years, I've written that we would see radical pro- inflation policies from central banks in response to the bursting credit bubble. And I've expected these policies to result in higher commodity and energy prices, rather than another credit boom. We're seeing more evidence that basic materials prices are soaring, which should squeeze margins in many manufacturing businesses. Even if the strongest-positioned businesses are able to pass through rising raw material costs to customers, the market eventually sniffs out this "inflationary" earnings growth, and lowers P/E ratios. Rising prices creeping into the CPI figures could be one of the many potential catalysts that lower the very high P/E ratios in today's stock market. Dan Amoss
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| How Gold ETFs Stack Up Against the Price of Gold Itself Posted: 05 May 2010 04:48 PM PDT Dan Pritch submits: With Greece burning (literally) and the eurozone under increasing pressure, volatility is spiking and investors are looking for alternatives to traditional equities. With every major government debasing their currency, it’s tough to find a particularly attractive currency at all (some cite Canada and Australia as being a bit more responsible, but no guarantees there). Therefore, the next best thing is the only true global currency – gold. While I’ve often struggled with why investors have bid up this otherwise practically useless metal, human behavior can’t be ignored – when panic sets in and questions over the true value of fiat currencies arise, gold spikes. As such, it’s worthwhile considering which gold investments are best, as there are many – with different underlying holdings, tax implications and more. Today, we’ll compare the gold bullion ETF GDX with two gold miner ETFs: Gold ETF (physical gold bullion) Summary: Complete Story »
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| Notable Moves: VXX Surges, VGK Plunges Posted: 05 May 2010 04:02 PM PDT ETF Database submits: Equity markets continued their slide in Wednesday trading as major indexes fell by more than 0.5%. Leading on the downside was the tech heavy Nasdaq, which fell close to 0.9%. This followed another poor day in Europe which saw all the major indexes down; France led the way, posting a loss of 1.4%. Additionally, commodity markets sunk as investors fled the euro for the relative safety of the dollar; oil finished the day down by close to 3.6%, below the crucial $80/bbl. mark. The main catalyst for today’s slide was arguably investors’ continued worries regarding the Greek bailout plan and the risk of a sovereign debt crisis spreading across Europe. Some fear that if the debt issue is not contained with Greece, it will spread across the continent to other weak European economies such as Spain and Portugal. Complete Story »
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| Gold Seeker Closing Report: Gold and Silver End Mixed Posted: 05 May 2010 04:00 PM PDT Gold chopped its way higher in Asia and London and saw a gain of $5.79 at $1173.89 by around 8:30AM EST before it fell to see an over $10 loss at as low as $1157.55 by around 9:30AM EST, but it then rose to a new session high of $1176.42 by late morning in New York and ended with a gain of 0.43%. Silver dropped 4.4% to as low as $17.055 in midmorning New York trade before it also climbed back higher, but it still closed with a loss of 1.74%.
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| Volatility in the Police State Posted: 05 May 2010 03:59 PM PDT The present volatility will be resolved by a decisive move to the downside. Yesterday, the Dow moved 225 points into negative territory. Was that decisive? No. Not in itself. But it looks like the top is in. If so, stocks should be going down...down...down... Maybe for a year...maybe for 5 years...maybe for another 10 years... Yes, dear reader...the stock market is now free to complete its rendezvous with destiny. Just where, exactly, will that rendezvous take place? Who knows? About 3,000 on the Dow is our guess. But it's just a guess. Stocks trade around 20 times earnings now...and the Dow is about 10 times the price of gold. Sometime in the future, you'll probably be able to buy Dow stocks at 5 times earnings and maybe only 1 times the price of gold. Three thousand seems like a likely target, because that would move stock prices down into the right range from a P/E standpoint...and we can easily imagine a gold price of $3,000. Why would stocks move down? First, because the bear market that began in January 2000 never fully expressed itself. It was distracted, first by the big flood of stimulus during and after the micro-recession of 2001...and then by the huge flood of stimulus following the crisis of '07-'09. Second, because the economy is in a Great Correction - a difficult time, with lagging earnings, slow growth, and high unemployment. Paul Volcker is the only financial authority associated with the government who has any credibility left. Here's what he says: "What we need is more saving, more industrial investment, and a stronger trade position. Our expansive and expensive program of entitlements simply must be brought under control. Our mortgage market must be rebuilt from the ground up." Volcker is talking about a Great Correction, which he describes in the same way we do: "a long period of economic adjustment:" "Not much of that can be done this year, or even next," Volcker said. "It is a challenge not just for this Congress and this administration, but for years ahead." Neither Tim Geithner nor Ben Bernanke seem to understand this. But the man on the street feels it. This from Charles Delvalle, who runs the research team for our family office: Floyd Norris points out that the Conference Board's economic survey, which dates back 4 decades, shows a curious change in future expectations. Since 1967, Americans have for the most part, remained more optimistic than pessimistic about their own futures. This was true even when their expectations for the overall economy were negative. But that optimism disappeared during the 2007-9 downturn. A majority of folks began to expect their own financial situation would get worse - versus those expecting better personal times ahead: "In April, the Conference Board reported this week, about one person in 10 expected his or her family's income to improve, while about one in six expected family income to go down. "...good times in recent years have produced less net optimism than in previous cycles, while bad times have brought more pessimism. "On its face, such a result would seem to indicate Americans are losing their optimism, but it may not be as simple as that. In this cycle, unlike earlier ones, many workers were forced to take pay cuts, at least on a temporary basis. So it became reasonable to expect lower income, even for some who did not expect to lose their jobs. "Still, the decline in expectations regarding their own incomes is another indication of how much this recession scared people - and that some of the fright remains." As we keep saying, this is not a typical post-war recession. So, it is no surprise that consumers and investors aren't acting like they usually do. This time it's different - really. This time people are beginning to doubt that old formula works. They know they can't continue to run up debt in their own accounts. And they doubt that the government can do it either. That's why gold is moving the way it is. Only a few months ago gold and the dollar were headed in opposite directions. Now they're moving together. When investors get worried, they move into gold AND the dollar. The next trend will be to move into gold and reject the dollar. But that trend may be far in the future. See the rest of our Las Vegas speech, below: And now, more thoughts...and the conclusion of our speech...in which we explain why GDP is a lie.... On the police state of things... On Saturday, we heard a speech by Judge Andrew Napolitano, no relation to the Attorney General. "The Patriot Act, pushed through Congress and signed into law by George W. Bush, probably did more damage to the US Constitution than any other legislation in modern times. It empowers the FBI to write its own warrants - something that has always been prohibited by the Constitution. "As a result of this law, two very diligent FBI agents went into a public library in New Jersey. They handed a warrant to the 86-year-old woman behind the desk. They wanted to know who was checking out what books. Of course, remember, this is a government-owned building, with books purchased by the government, sitting on government shelves. So, how bad could these books in a New Jersey public library be? "And I should tell you too that the law makes it a crime to tell anyone when you've gotten one of these warrants. You're not allowed to tell the person the warrant concerns. You're not allowed to tell your spouse. You can't even say anything when you're asked the question under oath, in court. "Well, these two agents go to the library and hand their warrant to the librarian, an 86-year-old woman. She looks at the warrant. She looks at the agents. And she says: 'Who the hell are you?' "Don't worry about it, lady,' says one of the agents. 'Just read the warrant.'" "I can't read it," says the lady, and she hands it over to her 78-year- old assistant. Another nice old lady. "Well, the agents decide to take these two women to court for a criminal violation of the Patriot Act. You may wonder how these two librarians posed a threat to the republic, but that's what the FBI did. And so these two ladies were in front of the court in New Jersey when the judge turned to the FBI and said: "If you pursue this case I will have to find your law unconstitutional." "So, the FBI wisely withdrew their case." And the final installment of our speech in Las Vegas...on why you can't engineer a genuine recovery...and why GDP is just a number...and why China will blow up... The problem with trying to engineer a 'recovery' is the same problem with all central planning - it substitutes the honest signals from the marketplace with imposters. For example, instead of getting the message that they need to conduct their business in a different way, the banks get the idea that the feds will always bail them out...and automakers - thanks to the Cash for Clunkers program - may get the idea that there is more demand than there really is...and everyone could get the idea that the economy is healthier than it really is, thanks to the feds $1.5 trillion deficits. The authorities are trying to force the economy back into the shape it was in before the crash. They're preventing it from taking a new, better shape....and preventing the correction from doing its work. A correction is supposed to cleanse out the mistakes from the 50-year credit expansion. But it's hard to do so when you don't know what is really going on. Markets - when they are allowed to do their work - are always in the process of discovering what assets are worth. They were doing a good job of it in the fall of 2008. They were discovering that the US had too many houses, and too many shopping malls, (the US has 10 times as much retail space per person as France...) We also had too many derivatives backed by real estate, and too many private equity deals based on too many optimistic assumptions about the future. [Anyway you look at it, we have, as Paul Volcker puts it, a "long period of economic adjustment" ahead of us. The feds are just getting in the way...and making it even longer.] The market was in the process of discovering what assets were worth when the feds stepped in. They stopped the process of discovery. Instead, they forced the market into a process of Price Hiding. Probably the most dramatic example of price hiding has been in the financial sector itself. There, the feds took away the risks of bad debt from the bankers and put it on the general public. The Fed bought the toxic loans, transferring hundreds of billions of losses from the banks' balance sheets onto the balance sheet of the Fed. The Fed also lent the banks money at near zero percent...and then the federal government borrowed it back. The banks were able to make profits without doing any work or taking any risks. No wonder they didn't lend money to private businesses or consumers. It was too much trouble. And they didn't have to. If you look at the latest figures from the Fed you will see that private credit is still falling. Commercial and industrial loans in March fell 16%. Asset backed commercial paper fell 20%. This correction, by the way, marks the first major reversal of commercial and consumer credit since WWII. And now the Treasury has the gall to tell the public that it made money from its 'investments' in the banking sector. If so, those were the most expensive profits in the history of finance. They cost the nation about $4 trillion in fiscal stimulus deficits - added to the national debt. And another $1.8 trillion worth of dodgy debt on the FED balance sheet. And about $6 trillion more worth of financial guarantees of various sorts. If the SEC wants to redeem itself, it should forget about the small fry. It should get off Fabulous Fab's case and go after the real frauds in this case...Ben Bernanke and Tim Geithner. That won't happen. But everything regresses to the mean. That's the work of a correction - to bring things back to normal, back in balance. First, the private sector is corrected. And then, the public sector. When something is out of balance on one end, you can be sure it's out of balance on the other side too. Americans consumed too much during the Bubble Epoch. Now, they need to save and produce more. But who was on the other side of this trade...? Let's begin by going back to the 1920s. Back then, the USA was the industrial powerhouse of the world and its number one exporter. In those boom years, America had the largest trade SURPLUS on the planet. At the time, trade balances were settled in gold. So, the US built up the world's largest reserves - in gold. It still has them. But that pile of gold didn't keep the US from financial trouble. The stock market crashed in '29 and the following two years cut the US GDP in half. It took the stock market 27 years to recover. In the 1980s, Japan had the biggest trade surplus in the world. You remember Japan, Inc? It was such an export success story that people worried that the Japanese would take over the world. But in 1989, Japan, Inc. peaked out. Its stocks have been going down ever since - 20 years already. Now, it's China's turn. China has the world's largest trade surplus and its largest pile of reserves. (Unfortunately for China, after 1971, treasuries switched to using paper dollars for reserves. So China has one enormous pile of paper...not gold.) Thomas Friedman wrote that he wouldn't bet against a country with more than $2 trillion in reserves. But does this pile of paper money guarantee that China cannot fail? To the contrary, history tells us that China is most likely to fail - spectacularly - even though, over the longer run, like the US after the '30s, China may turn out to be a great success story. Everything regresses to the mean. Everything tends to go back to normal. Corrections are normal. They help things get back in balance. Now, here's the interesting thing. While Japan's government tried to prevent it, the Japanese private sector de-leveraged. Over a long period of adjustment - 20 years - the household, business and financial debt went down by about 40%, in GDP terms. And now, in the US, even though the government tries to hide prices and delay the correction, the private economy is still de-leveraging. The latest figures suggest that households took a little pause in the first quarter of this year. Savings actually went down as consumption went up. But if we continue to follow the Japanese example the de-leveraging should resume soon. We know from the Japanese history too - if we had any doubt about it - that price hiding doesn't work. First, they tried fiscal stimulus. That didn't do anything. The banks took the monetary stimulus and held onto it, just as US banks are doing now. Then, they tried fiscal stimulus. Now, this deserves a little discussion. Because Richard Koo among others argues that the fiscal stimulus did work in Japan. He points out that Japanese GDP did not drop significantly - thanks to massive doses of fiscal stimulus. And now, Paul Krugman and others are saying that fiscal stimulus has worked in the US too...because our GDP only went down less than 3% in what they call the Great Recession. Here is where we see the claptrap theories at work. Fab Finance turned the economic profession from historians and philosophers into mathematicians and engineers. Dozens of these fellows won Nobel Prizes for elaborate mathematical proof of what were essentially bogus or inconsequential ideas. And now they turn to GDP as proof that fiscal stimulus works, without bothering to think about what is really going on. GDP measures economic activity. Like everything else in modern finance, it is sensitive to quantity and completely ignorant about quality. To borrow from Oscar Wilde, it knows the price of everything but the value of nothing. Yet, here again, as the Soviet Union showed us, you can summon up all the GDP you want. Just divide the country at the Mississippi. Get half the population to dig a big hole in Tennessee...and get the other half of the population to fill it up. Imagine the trucks...the fuel...the machinery...the labor...the housing you'd need... GDP would go up. You'd have full employment. Modern economists would be content with themselves. They'd sit by the phone, waiting for the Nobel committee to call. But what would you really have? You'd have Japan! That's what the Japanese did. Well, not quite like that... They put people to work building roads and bridges...pouring concrete on a massive scale. Until then, Japan had the healthiest government finances in the world. Now, it has more government debt/GDP than any other nation - approaching 200%. And think about what really happened. Japan's population is getting older. These are people who lent the government money so that it would be safe. They wanted to be sure they'd have the money they needed when they retired. But where is that money? It has literally been poured into a hole in the ground. The savings of an entire generation have been turned into bridge abutments and canals - most of them unnecessary and many of them unwanted. That is what is happening in the US too. Except we don't have enough savings to finance our own holes in the ground. We're more like Greece. And like Greece, we will pay a high price when the final correction comes. Regards, Bill Bonner
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| Markets Flip Between Greed and Fear Posted: 05 May 2010 03:57 PM PDT The Pragmatic Capitalist submits: As the market complacently melted higher we continued to warn investors of the increasing three-headed risks in the market. The combination of China tightening, financial regulation and Greek sovereign debt continued to weigh over foreign markets, and U.S. investors just continued to live in their domestic bubble where nothing matters besides how many iPads Apple (AAPL) sells on any given day. Of course, that complacency is quickly catching up to investors. As a risk manager this is my primary goal here at the site – not always to highlight the next best opportunity, but to help you keep from getting your face ripped off. My first short positions in over two years were not implemented due to some crystal ball I have hidden away in my desk, but due to pure risk management. The environment of the last two months has been rife with complacency. Unfortunately, the situation is little improved across the globe as more government intervention proves to do little in helping matters. The situation has deteriorated in Europe over the course of the last 24 hours as spreads in European sovereigns continued to blow out today. My guess is that Trichet is in Berlin today having his Hank Paulson moment – down on one knee in front of a powerful woman (Merkel) begging for her to accept his proposal of “going nuclear”, i.e., buying bonds. I can only imagine how the German heads of the Bundesbank must be feeling right now. Disgusted is the only way they can feel. Do they try to save the EMU or do they potentially inflate themselves into an even larger mess while imposing harsh fiscal austerity measures on member nations that almost guarantee depression? There truly are no good answers here. Complete Story »
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| Posted: 05 May 2010 03:55 PM PDT Buffett Says GM Rescue May Mean U.S. Can't Say No to States Future policy decisions will be shaped by the choices already made. Save me or face the consequences of inaction. The Greek drama provides a glimpse as to the nature of those consequences. Warren Buffett, chairman of Berkshire Hathaway Inc., said the U.S. would probably feel compelled to rescue a state facing default after the government committed $700 billion to bail out financial firms and automakers. "It would be hard in the end for the federal government to turn away a state having extreme financial difficulty when they've gone to General Motors and other entities and saved them" Source: bloomberg.com
Retail data: Consumers 'took a breather' in April April figures benefited from relatively easy comparisons to April 2009, when consumers also cut their spending. More concerning trends is contraction in loan creation. Real estate and business loans subsector, which is much bigger than consumer, continues to contract. Breakdown of Total Bank Credit Growth: Year-over-Year Growth for Total Loans, Business Loans, Real Estate Loans, Home Equity Loans, Consumer Loans, and Cash Assets for Commercial Banks in the US: Source: news.yahoo.com
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| The Castle Keep is Under Siege Posted: 05 May 2010 03:50 PM PDT "The Australian market is in full correction mode," writes our colleague Greg Canavan at Sound Money. Sound Investments. "This is not surprising considering we have European debt worries, tax grabbing government policy, rising interest rates and the first signs of a slowdown in China going on all at once. At the open today [yesterday] the market was down nearly 100 points. This was the first real panic day I have seen for some time. My guess is that we saw some major international selling this morning as risk trades unwind." That sounds about right. Greg also effectively nailed his analysis of what it is an acceptable rate of return for mining companies and their shareholders. The heart of the issue is who gets to judge what an adequate return on capital is, the government or the risk-taking enterprise. Greg writes that:
That loss is about $16 billion in shareholder value and counting. And that does not include the loss of Australia's reputation as stable place to do business and make long-term plans. "If it is what appears to be, a significant tax increase, that's another competitive advantage for Canada," said Canadian Finance Minister Jim Flaherty. He implied that the tax change would favour more capital investment (and formation) in Canada and less in Australia. But let's not be dogmatic. The heart of the government's proposed power-sharing agreement is that Australia's resources belong to Australians and should be shared by all "stakeholders" not just all "shareholders." Treasurer Wayne Swan told the Australian Financial Review that the wealth generated by the last boom, "failed to capture for the taxpayer a fair share of the wealth generated from the community's mineral resources." Fair enough. That's pretty clear as an argument. Resources belong to everyone and the bounty of them should be spread around equally, or at least more "fairly" (whatever that precisely means). But let us offer a less dogmatic and heated definition of what constitutes a community's wealth. Australia's mineral resources don't make it rich. Its transparent legal system, fair tax system, competitive capital market, skilled workforce, and a general environment that creates the conditions for the private sector to thrive make it rich. When you start taking a sledgehammer to this institutional framework, you destroy a nation's wealth. If having stuff in the ground made a country rich, African nations would be the richest places on the planet. But for commodity rich countries, it's only when private capital and energy identify mineral deposits to develop economically that value is unlocked in exchange with buyers. A nation's real wealth is in being a good place for people to be free and create wealth and value and jobs. Easy-to-understand laws that don't change in mid-project attract capital, human and financial. And capital leads to more net national wealth. But maybe all that's too abstract. Stealing from the rich to give to the poor is always an easier sell in the court of the public opinion, especially since the rich are generally not likable. The miners counterattacked in Canberra yesterday by threatening to shelve or cancel billions of dollars in domestic projects. Maybe they're bluffing. Maybe not. Meanwhile, outside Australia, all the negative sentiment in the market stems from concerns about the "grave contagion effects" that the Greek crisis may spread to Portugal and Spain and lead to a general bankrupting of Europe. That would probably not be good news for the euro. It's okay news for the dollar, though. The greenback is benefitting from it's "I-may-be-bad-but -at-least-I'm-not-the-euro" status. Risk bets are unwinding globally and money is finding its way into, of all things, U.S. Treasury bonds. We move from the perverse to the absurd. This fits with our thesis that each stage of the GFC wipes out the most peripheral leveraged players while concentrating ever larger amounts of risk in a small number of asset classes, currencies, and institutions. It's like concentric rounds of failure are making their way inward toward the core of a financial system based on debt and fiat money. Bernanke better hope there is a lot of gold in the castle keep. As you're seeing in Greece, the big risk in markets where fiscal reality is forcing austerity measures or sharply higher interest rates is not really financial. If the castle keep is filled with nothing but unfulfillable promises to pay, the big risk in any given country is the temporary loss of social cohesion. People lose money. They lose pensions. They lose jobs. But most of all they lose confidence in markets AND governments. That is, historically, part of the end-game of a financial crisis. Bad debts from the previous credit boom are liquidated. But there is massive real fallout in the real economy, where real people have real bills they can no longer pay and institutions fail. How much of what's happening in Greece spreads to Australia depends on how much more stable global capital markets are now than they were a few years ago. And as we mentioned last weekend, the biggest threat to Australian prosperity by far is the pricking of the real estate bubble and its knock-on effects for commodity prices (which are falling). Gee. That is a lot of bad news. The upside is that some things (like gold we hope) are going to go up the worse the sovereign debt crisis gets. And in Australia, if the Rudd resource tax gets canned, you could have a chance to buy a lot of beaten down resource stocks on the cheap. You'd still have to deal with the China issue, though, and execute your financial escape plan. More on that tomorrow. Until then... Dan Denning
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| Freddie Mac Lifts Its Leg on the U.S. Taxpayer - Again Posted: 05 May 2010 03:44 PM PDT This quarter to the tune of $10.6 billion: WASHINGTON/NEW YORK, May 5 (Reuters) - Freddie Mac (FRE.N), the second-largest provider of U.S. residential mortgage funds, on Wednesday asked for an additional $10.6 billion in federal aid after it lost $8 billion in the first quarter...LINK.No problem, reflects Whirlybird Ben Bernanke and Tiny Brain Tim Geithner, just crank up the printing press and issue some more "I'll Never" IOU's to the dopes in China, Japan and the UK. Just consider this: the CEO, CFO and Sr. VP of Capital Markets each made $2.03 million, $1.14 million and $2.92 million respectively. Please note: that's money taken from your bank account and handed to these morons who are making seven figures in order to ask for billions each quarter, which is then used to pay the employees at FRE and subsidize the collapsing housing and mortgage industry. Fannie Mae, Freddie Mac, Ginnie Mae and the FHA are among the biggest wastes of wealth in the history of the planet...Since Fannie is quite a bit larger than Freddie, expect that FNM will soon announce demands for an even bigger hand-out from the Taxpayers...Got gold? I hope so because Banana Ben is on the verge of being forced to punch the button on his famous electronic printing press and gold will go parabolic in price. 
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| A Conversation with Jean Turmel Posted: 05 May 2010 03:31 PM PDT
On Wednesday afternoon, I had the pleasure to meet up again with Jean Turmel, president of Perseus Capital Inc., and former president of Financial Markets, Treasury and Investment Bank for the National Bank of Canada. Mr. Turmel is also the Chair of the Investment Committee at the Ontario Teachers' Pension Plan.
One thing Mr. Turmel wanted me to stress in my blog is that it's high time financial reforms introduce more transparency in the OTC market. Mr. Turmel thinks that if we had a clearinghouse for interest rate swaps, we would use that interest rate as the true discount rate because "it's a more accurate reflection of the market rate." I agreed but told him the big banks will fight tooth and nail against such reforms.
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| Investing 101- Bull Market or Bubble? How to Know the Difference Posted: 05 May 2010 01:53 PM PDT For investors, a "bubble" translates into a temporary head fake of financial success followed by a painful bearish plunge. We have all seen them. The most obvious recent examples include the Internet & tech stock bubbles that ...
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| Greece Economic Depression Resulting in INFLATION NOT DEFLATION Surge Posted: 05 May 2010 01:52 PM PDT |
| Posted: 05 May 2010 12:48 PM PDT
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| The CDS Traders' Verdict Is In - UK In Deep Shit... As Are France And Deutschland Posted: 05 May 2010 12:14 PM PDT
Portugal... Spain...Greece...these are all last week's news based on CDS trading patterns. Indeed, this week saw the biggest trade unwinds of all top 1000 CDS entities (including all corporates) precisely in these three names. As the PIIGS implosion is finally being appreciated by everyone and their grandmother, the "speculators" are booking massive profits: the net cover/rerisking in Portugal and Spain was a massive $500 million net notional unwinds in each in the week ended April 30. Also known as taking profits. Greece and Ireland were also in the top 5, so as we have repeatedly claimed, the market will no longer make the news in Club Med. So where will it? No surprise there - the UK, France and Germany. The smartest money in the world is now actively betting the core of the eurozone is where the next CDS blow up will take place. With a stunning $630 million, $558 million and $370 million in net notional derisking, France, UK and Germany are the top three most active recipients in negative bets in the prior week, not just in sovereigns but in all names. The greatest non-sovereign derisker in the last week? Goldman Sachs, with $175 million. Nuff said. Yet a tangent on the UK: last week the UK saw $443 million in net notional derisking. This week the number is even higher: $558 million. There is now over $1 billion in net risky bets made that the UK may not last. And Zero Hedge's outside bet to be the first core country to blow up, thanks to its massive PIIGS exposure, France, finally made the top spot in net derisking, with $629 million in net notional, or 189 contracts. The smart money is now massively betting that Europe's core is done for; as the PIIGS have demonstrated, the blow out in spreads for the core trifecta can not be far behind. Top 10 deriskers:
Top 10 reriskers:
All sovereign names:
Source: DTCC
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| Jim Rickards: Gold, Silver, and a May 11 Meeting to Discuss Global Currency Issues Posted: 05 May 2010 12:02 PM PDT |
| An Even Better Trade of the Decade, Part III Posted: 05 May 2010 11:00 AM PDT The final installment of our speech in Las Vegas…on why you can't engineer a genuine recovery…and why GDP is just a number…and why China will blow up… The problem with trying to engineer a 'recovery' is the same problem with all central planning – it substitutes the honest signals from the marketplace with imposters. For example, instead of getting the message that they need to conduct their business in a different way, the banks get the idea that the feds will always bail them out…and automakers – thanks to the Cash for Clunkers program – may get the idea that there is more demand than there really is…and everyone could get the idea that the economy is healthier than it really is, thanks to the feds $1.5 trillion deficits. The authorities are trying to force the economy back into the shape it was in before the crash. They're preventing it from taking a new, better shape…and preventing the correction from doing its work. A correction is supposed to cleanse out the mistakes from the 50-year credit expansion. But it's hard to do so when you don't know what is really going on. Markets – when they are allowed to do their work – are always in the process of discovering what assets are worth. They were doing a good job of it in the fall of 2008. They were discovering that the US had too many houses, and too many shopping malls, (the US has 10 times as much retail space per person as France…) We also had too many derivatives backed by real estate, and too many private equity deals based on too many optimistic assumptions about the future. [Anyway you look at it, we have, as Paul Volcker puts it, a "long period of economic adjustment" ahead of us. The feds are just getting in the way...and making it even longer.] The market was in the process of discovering what assets were worth when the feds stepped in. They stopped the process of discovery. Instead, they forced the market into a process of Price Hiding. Probably the most dramatic example of price hiding has been in the financial sector itself. There, the feds took away the risks of bad debt from the bankers and put it on the general public. The Fed bought the toxic loans, transferring hundreds of billions of losses from the banks' balance sheets onto the balance sheet of the Fed. The Fed also lent the banks money at near zero percent…and then the federal government borrowed it back. The banks were able to make profits without doing any work or taking any risks. No wonder they didn't lend money to private businesses or consumers. It was too much trouble. And they didn't have to. If you look at the latest figures from the Fed you will see that private credit is still falling. Commercial and industrial loans in March fell 16%. Asset backed commercial paper fell 20%. This correction, by the way, marks the first major reversal of commercial and consumer credit since WWII. And now the Treasury has the gall to tell the public that it made money from its 'investments' in the banking sector. If so, those were the most expensive profits in the history of finance. They cost the nation about $4 trillion in fiscal stimulus deficits – added to the national debt. And another $1.8 trillion worth of dodgy debt on the FED balance sheet. And about $6 trillion more worth of financial guarantees of various sorts. If the SEC wants to redeem itself, it should forget about the small fry. It should get off Fabulous Fab's case and go after the real frauds in this case…Ben Bernanke and Tim Geithner. That won't happen. But everything regresses to the mean. That's the work of a correction – to bring things back to normal, back in balance. First, the private sector is corrected. And then, the public sector. When something is out of balance on one end, you can be sure it's out of balance on the other side too. Americans consumed too much during the Bubble Epoch. Now, they need to save and produce more. But who was on the other side of this trade…? Let's begin by going back to the 1920s. Back then, the USA was the industrial powerhouse of the world and its number one exporter. In those boom years, America had the largest trade SURPLUS on the planet. At the time, trade balances were settled in gold. So, the US built up the world's largest reserves – in gold. It still has them. But that pile of gold didn't keep the US from financial trouble. The stock market crashed in '29 and the following two years cut the US GDP in half. It took the stock market 27 years to recover. In the 1980s, Japan had the biggest trade surplus in the world. You remember Japan, Inc? It was such an export success story that people worried that the Japanese would take over the world. But in 1989, Japan, Inc. peaked out. Its stocks have been going down ever since – 20 years already. Now, it's China's turn. China has the world's largest trade surplus and its largest pile of reserves. (Unfortunately for China, after 1971, treasuries switched to using paper dollars for reserves. So China has one enormous pile of paper…not gold.) Thomas Friedman wrote that he wouldn't bet against a country with more than $2 trillion in reserves. But does this pile of paper money guarantee that China cannot fail? To the contrary, history tells us that China is most likely to fail – spectacularly – even though, over the longer run, like the US after the '30s, China may turn out to be a great success story. Everything regresses to the mean. Everything tends to go back to normal. Corrections are normal. They help things get back in balance. Now, here's the interesting thing. While Japan's government tried to prevent it, the Japanese private sector de-leveraged. Over a long period of adjustment – 20 years – the household, business and financial debt went down by about 40%, in GDP terms. And now, in the US, even though the government tries to hide prices and delay the correction, the private economy is still de-leveraging. The latest figures suggest that households took a little pause in the first quarter of this year. Savings actually went down as consumption went up. But if we continue to follow the Japanese example the de-leveraging should resume soon. We know from the Japanese history too – if we had any doubt about it – that price hiding doesn't work. First, they tried fiscal stimulus. That didn't do anything. The banks took the monetary stimulus and held onto it, just as US banks are doing now. Then, they tried fiscal stimulus. Now, this deserves a little discussion. Because Richard Koo among others argues that the fiscal stimulus did work in Japan. He points out that Japanese GDP did not drop significantly – thanks to massive doses of fiscal stimulus. And now, Paul Krugman and others are saying that fiscal stimulus has worked in the US too…because our GDP only went down less than 3% in what they call the Great Recession. Here is where we see the claptrap theories at work. Fab Finance turned the economic profession from historians and philosophers into mathematicians and engineers. Dozens of these fellows won Nobel Prizes for elaborate mathematical proof of what were essentially bogus or inconsequential ideas. And now they turn to GDP as proof that fiscal stimulus works, without bothering to think about what is really going on. GDP measures economic activity. Like everything else in modern finance, it is sensitive to quantity and completely ignorant about quality. To borrow from Oscar Wilde, it knows the price of everything but the value of nothing. Yet, here again, as the Soviet Union showed us, you can summon up all the GDP you want. Just divide the country at the Mississippi. Get half the population to dig a big hole in Tennessee…and get the other half of the population to fill it up. Imagine the trucks…the fuel…the machinery…the labor…the housing you'd need… GDP would go up. You'd have full employment. Modern economists would be content with themselves. They'd sit by the phone, waiting for the Nobel committee to call. But what would you really have? You'd have Japan! That's what the Japanese did. Well, not quite like that… They put people to work building roads and bridges…pouring concrete on a massive scale. Until then, Japan had the healthiest government finances in the world. Now, it has more government debt/GDP than any other nation – approaching 200%.. And think about what really happened. Japan's population is getting older. These are people who lent the government money so that it would be safe. They wanted to be sure they'd have the money they needed when they retired. But where is that money? It has literally been poured into a hole in the ground. The savings of an entire generation have been turned into bridge abutments and canals – most of them unnecessary and many of them unwanted. That is what is happening in the US too. Except we don't have enough savings to finance our own holes in the ground. We're more like Greece. And like Greece, we will pay a high price when the final correction comes. Regards, Bill Bonner An Even Better Trade of the Decade, Part III originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day." Check out our new special report Investing in Offshore Oil
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| Greek Riots Escalate, Branch Of Finance Ministry Set On Fire Posted: 05 May 2010 10:58 AM PDT
Things are heating up again in Greece. Literally. After a firebomb at a Marfin branch earlier today was the cause of three tragic deaths, the latest building to succumb to rioting pyrotechnics is a branch of the Greek ministry of finance, reports Market News. We eagerly await for the Greek FinMin to announce that the docs burned down were the only copies of all sovereign lending agreements with foreign entities... all $300 billion of them. Perhaps now that Greece has lost all control is why the Greek president Karolos Papoulias just said that "The country is at the edge of the abyss." Luckily for the country, its riot police is not striking just yet. Which is more than one can say about Greek journalists: "Even Greek journalists were on strike, but they later went back to work in order to cover the riots." And that about explains all you need to know about Greece. From Market News:
All we know is that Lazard, which no way, no how is advising on a restructuring, is scrambling more furiously than the fine folks at Liberty 33 to come up with "imaginative solutions."
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| The Dollar's Ascent Has Not Been Able to Break the Back of Gold's Rally Posted: 05 May 2010 10:35 AM PDT Gold Price Close Today : 1174.60Change: 6.00 or 0.5%Silver Price Close Today : 17.511Change -30.7 cents or -1.7%Platinum Price Close Today: 1647.80Change: -30.80 or -1.8%Palladium Price Close Today:... This is a summary only. Visit GOLDPRICE.ORG for the full article, gold price charts in ounces grams and kilos in 23 national currencies, and more!
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| Posted: 05 May 2010 10:26 AM PDT
Politico reports:
Obama also had the most political contributions from Goldman Sachs in 2008 of all senators. And Goldman gave more to Obama than any other presidential candidate, and was Obama's second-largest contributor. In addition, Obama was the top congressional recipient of defense industry contributions for the 2008 election cycle. See this, this and this. Obama was also the top recipient of money from the healthcare giants in the presidential election.
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Greece, Europe's Achilles Heel continues to implode under its budget deficit and total debt burden sending a series of strengthening shock waves across Europe's credit and financial markets. Whilst many western economies bounce back from the Great Recession of 2008-2009, Greece's economic depression continues as the economy is set to contract by further 4% during 2010 which is much worse than the 2.5% contraction of 2009 and looks set continue contracting for several more years. Greek Unemployment is soaring to 12% this year up from 9.5% in 2009 and is set to continue higher to 13.5% in 2011.
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