Gold World News Flash |
- Hourly Action In Gold From Trader Dan
- In The News Today
- Carmel Daniele: Gold Will Rise and Sky Won't Fall
- Uncertainty Reigns Supreme
- The Gold & Silver Precious Metals Correction
- Euro Crisis to Set One World Currency?.. SEC to Rule All Trades All the Time
- Great News for Your Grandkids About Debt
- Hidden Secrets Of US Stock's & Gold's, Bull & Bear Markets - (Video)
- Another Dubai Company Defaults
- Gold: Professor Wrong Says "Don't Buy" Again
- Why Should You Buy Silver and Gold?
- Finally, Precious Metals ETFs I Can Safely Recommend
- Six Impossible Things
- Misconceptions about Gold
- Gold Daily Chart: The Handle Continues to Form
- Gold Seeker Weekly Wrap-Up: Gold and Silver Gain Over 3% and 4% on the Week
- Bond Market Recap for Friday
- Wall Street Journal features GATA consultant Edwin Vieira
- Dollar Primed for Collapse by End June: Charts
- One Out Of Every Ten U.S. Banks Is Now On The FDIC's Problem List – Do You Know If Your Bank Is Safe?
- Europe: A Continent Of Lies And Broken Promises; How The EU Elite Got It Wrong On The Euro
- Guest Post: Asian Gas Market Starting To Heat Up
- Carmel Daniele: Gold Will Rise and Sky Won’t Fall
- Once the Gold Price Pierces $1,218, 'Twill Race, for $1,250, the Last High, and Then Proceed to $1,300
- Mining Stocks and The General Stock Market – Rising or Declining Together?
- A Quick Post Script To Mr. Jeffrey Sachs
- FRIDAY Market Excerpts
- Precious Metal Protection from Frightening New Creatures
- Three Arguments Against a Euro Collapse
- Chart of the day: Another huge reason to own gold
- Meet the junior mining stocks China is targeting now
- World Gold Council: Global gold demand is soaring
- How Ron Paul could help repeal Obamacare...
- To Get Rich is Glorious
- Eric Sprott: A Busted Formula
- The Importance of Credit as Macroeconomic Variable
- The U.S. Government Bond Bubble
- Attempt To Topkill Stock-EUR Correlation Suffers Massive Failure, Resulting Sewage Floods Permabullish Pundits
- BoE’s Posen: US needs to wake up to fiscal problems
- BoE's Posen: US needs to wake up to fiscal problems
- Stocks retreat as Fitch downgrades Spain’s debt
- Stocks retreat as Fitch downgrades Spain's debt
- Mining Stocks and The General Stock Market - Rising or Declining Together?
- ECRI Leading Indicators Dip Again; Is a Double-Dip Recession Coming?
- Madoff-Like Celebrity Financial Adviser Scams $30M, Collared Hiding in his Closet
- Consumers Not Doing Their Part in the Recovery
- Hugh Hendry Warns To "Prepare For Hyperinflation"
- Spanish Debt Yields Drop With the Downgrade
- Inside the European Banking House of Cards
| Hourly Action In Gold From Trader Dan Posted: 28 May 2010 06:38 PM PDT View the original post at jsmineset.com... May 28, 2010 10:02 AM Dear CIGAs, Fitch's downgrade of Spain pushed the equity markets over the cliff after yesterday's big relief rally on the news that the Chinese were going to stay with the Euro (what did people think they were going to say? "Oh yes – we are going to dump all of our Euro denominated debt tomorrow morning.") I am not particular sure why equities faded on this news as did the Euro since everyone and their mother expected it already, so to me it is not "news". Still, it perhaps served to bring suspicions concerning the remainder of the PIIGS's financial footing to the forefront of short-sighted traders' minds once again. Once the equities went down, so did everything else except the Dollar and the bond market. That includes gold which while it held fairly well considering the widespread algorithm selling across the commodity futures market, could not get through $1,220, which is a resistance level that must be taken out t...
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| Posted: 28 May 2010 06:38 PM PDT View the original post at jsmineset.com... May 28, 2010 10:09 AM Dear CIGAs, David Rosenburg, an investment analyst out of Toronto, was featured on Bloomberg today until he made a gold price prediction of $3000 which he classified as most likely too conservative. The interviewer made the mistake of asking him why. His answer was immediate and surgical. You should have heard their attempt to flush him. All you could hear was David, David, David, as they tried to shut him up. Well done David. Mid Day Thoughts Spain’s was debt downgraded by Fitch. The euro’s fall was decelerated by intervention stepping up slightly below 1.23. All interventions fail. Large US Fed swaps were utilized in this action. Jim Sinclair's Commentary Let me see, have we heard from Moody’s, Fitch and the IMF recently on this problem state? Bankruptcy talk spreads among Calif. muni officials By Jim Christie Jim Christie – Thu May 27, 4:51 pm ET SAN FRANCISCO (Reuters) – Tw...
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| Carmel Daniele: Gold Will Rise and Sky Won't Fall Posted: 28 May 2010 06:37 PM PDT Source: Brian Sylvester and Karen Roche of The Gold Report 05/28/2010 London-based CD Capital Founder Carmel Daniele has seen these sorts of market jitters before, and insists there is little to worry about in this exclusive interview with The Gold Report. "Most people sell in May and go away. It happens every year," she says. The self-assured Daniele launched the CD Private Equity Natural Resources Fund in 2006 to tap into what she calls a commodity super-cycle. She says that despite a recent dip in the copper price, the super-cycle is in good form, and she envisages gold nearing $2,000 within 12 months. She also recommends you take advantage with some promising junior gold plays in Colombia. The Gold Report: You started your namesake CD Private Equity Natural Resources Fund in 2006 to take advantage of the commodity super-cycle, which you believe could last more than 20 years. Copper, often considered a barometer of global economic health, fell from about $3.60 p...
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| Posted: 28 May 2010 06:37 PM PDT [FONT=Arial,Helvetica,sans-serif][COLOR=#000000][FONT=Arial][COLOR=#000000]John Browne - Senior Market Strategist, Euro Pacific Capital. [/COLOR][/COLOR][/FONT] Just a few weeks ago, most financial analysts continued to insist that the road to recovery stretched far into the future. Now, uncertainty has returned with a vengeance and the stock market has booked its first official 10% correction since this tenuous 'bull' market began in the spring of 2009. In recent days, markets have shown signs of life - but nascent rallies have been quickly smothered. I believe there are five fundamental reasons for this persistent uncertainty. First, the world's second most held currency, the euro, is threatened with possible extinction. The massive $750 billion bailout package for Greece will not cure Greece's dependence on entitlements, and will likely only buy time until a debt restructuring. The world is looking to major nations such as the United States, Germany, and even...
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| The Gold & Silver Precious Metals Correction Posted: 28 May 2010 06:37 PM PDT It’s been an exciting week for traders as volatility levels are through the roof and the broad market is moving up and down like a yoyo. You cannot take your eyes off the screen if you have a large amount of money invested as you can quickly find yourself with a large profit or loss in the matter of minutes…. Although we have seen stocks jump around the past few days precious metals have held strong with very little volatility. This is because of the economic fears looming for the US and other countries of possible financial collapse. This fear is helping to boost gold and silver prices because they are seen as the safe haven. Also we are seeing money move in the US dollar because the country is still seen as a leader in many ways helping to boost the US dollar. Below are a couple charts on Gold and Silver ETF’s showing the end of last years rally and the correction in prices which are now looking to setting up for another leg higher. GLD &...
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| Euro Crisis to Set One World Currency?.. SEC to Rule All Trades All the Time Posted: 28 May 2010 06:37 PM PDT Friday, May 28, 2010 – by Staff Report Is Europe heading for a meltdown? ... This financial crisis is worse than the sub-prime crash of 2008 because the sums are so much bigger and it is governments that are in dire straits. Edmund Conway explains the dangers. Mervyn King, the Bank of England Governor, summed it up best: "Dealing with a banking crisis was difficult enough," he said the other week, "but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there's no backstop." In other words, were this a computer game, the politicians would be down to their last life. Any mistake now and it really is Game Over. Or to pick a slightly more traditional game, it is rather like a session of pass-the-parcel which is fast approaching the end of the line. – UK Telegraph Dominant Social Theme: The wise men of Brussels and the courageous citizens of the EU will muddle...
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| Great News for Your Grandkids About Debt Posted: 28 May 2010 06:37 PM PDT By Dr. Steve Sjuggerud Friday, May 28, 2010 "Good News for the Grandchildren" was the title of David Einhorn's speech on Wednesday at the Ira Sohn Conference in New York. I was there. "Are you worried that we are passing our debt on to future generations?" Einhorn began… "Well you need not worry. Our generation – not our grandchildren's – will have to deal with the consequences." Einhorn is worth listening to… Einhorn's investment success has made his hedge-fund customers wealthy. He's earned them more than 20% per year compounded, after fees. Einhorn famously revealed that Allied Capital was defrauding the government. He wrote a great book about his six-year battle with Allied, called Fooling Some of the People All of the Time. All value investors should read it. (He first publicly stated Allied was defrauding the government at the 2002 Ira Sohn Conference.) Einhorn also "almost made it to the final table" at the World Series of ...
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| Hidden Secrets Of US Stock's & Gold's, Bull & Bear Markets - (Video) Posted: 28 May 2010 06:37 PM PDT Investmentscore.com: Investment Scoring and Timing Newsletter Currently Specializing In Silver Things are not always as they appear. Pay attention as this video gets right to the point and it moves quickly. Most people seem to think that the market is linear but looking beneath the surface paints a very different picture. If you find our message helpful and straight forward please spread this message to your friends and family. This video is our opinion and not our advice. We also have a more comprehensive editorial on this same topic which can be found here....
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| Another Dubai Company Defaults Posted: 28 May 2010 06:37 PM PDT I wouldn't read a thing into yesterday's gold price action in any market on Planet Earth on Thursday. Volume was monstrous... but roll-overs and switches from the June contract into August and later months accounted for most of it...as Thursday was the last trading day in the May contract before first notice day for June delivery... which is today. Gold's highs and lows... such as they were... are not worth mentioning. Silver's price activity was, as usual, a little more 'volatile'. The price rose about 30 cents into the London silver fix around noon local time. Then it sold off about 15 cents... with the New York low [$18.16 spot] coming shortly after Comex trading began. Then silver had a decent rally for about ninety minutes... rising to its high of the day [$18.59 spot] before being sold off a hair into the close. Volume in silver trading yesterday was also very low once all the roll-overs and spreads were removed. Below is the dollar chart for the ...
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| Gold: Professor Wrong Says "Don't Buy" Again Posted: 28 May 2010 06:37 PM PDT by Adrian Ash BullionVault Thursday, 27 May 2010 Phew! That was a close call from our tenured contrarian indicator... YIKES! FOR ONE awful moment just then, I thought maybe the top was in. "Gold has become the favored hedge against financial and monetary uncertainty," said Niall Ferguson, Harvard's financial history professor, on Monday. "It's certainly a time-tested way of coping with really turbulent markets." Oh cripes! Niall Ferguson – our tenured contrarian indicator – now says gold is a proven defense against investment stress. It's taken 11 years and 356% gains in gold, but he's finally got it. That's the top. Sell! Oh, hold on – "A lot of the upside is already there," Ferguson went on, live by video-link to the Wall Street Journal. "The time to buy was in 1999, not 2010..." Phew! As you were, then, bloody-minded gold buyers. And as you relax, safe in the knowledge that Professor Wrong still says you shouldn't buy, let's remind ourselves ...
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| Why Should You Buy Silver and Gold? Posted: 28 May 2010 06:37 PM PDT (Or should you hoard coffee, instead?!) Silver Stock Report by Kerri Roth. Edited by Jason Hommel, May 28th, 2010 Well, just imagine it's a Monday morning, the alarm clock is beeping at you, and you wake up looking toward a new start, the work week ahead. You vaguely notice that the radio is just static behind the beeping alarm, and not the normal ebb and flow of the local news people and their usual morning banter. That's strange, you think to yourself. You head to the kitchen for your usual cup of coffee, and grab the TV remote along the way. The coffee smells great and you think you may start to wake up as the aroma warmly drifts around you. You pour your coffee and sit down for a minute to see if you can catch a moment of the TV news before you head to the shower. The remote drifts from channel to channel, and something isn't quite right, few channels are coming in. Finally you get a major network and the news anchorwoman's face is lookin...
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| Finally, Precious Metals ETFs I Can Safely Recommend Posted: 28 May 2010 06:37 PM PDT By Chris Weber, editor, The Weber Global Opportunities Report Thursday, May 27, 2010 In all the years I've recommended owning precious metals, I've preferred people buy and store actual gold, silver, or platinum. But this is not always possible or convenient for at least some portion of people's money. That's why since the first gold exchange traded fund came out a few years ago, I spotlighted it. In the years since then, both good and bad things have happened. Take the bad first: There have been repeated rumors and warnings that the storage facilities for the ETFs do not contain all the metals that are supposed to be there. Second, these ETFs have been attacked by metals bulls for being able to use their metals to short them, or loan them out. The first ETF and the most popular is GLD. Aside from all the questions raised above, this is clearly more of a "tracker" ETF than a place where you can decide easily to buy and then claim physical gold. In fact, yo...
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| Posted: 28 May 2010 06:37 PM PDT Six Impossible Things Delta Force Reduce your Deficits! Pity the Greeks Should the US Bail Out European Banks? Italy at Last! Alice laughed. "There's no use trying," she said" One can't believe impossible things." "I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast." - From Through the Looking Glass by Lewis Carroll Economists and policy makers seem to want to believe impossible things in regards to the current debt crisis percolating throughout the world. And believing in them, they are adopting policies that will result in, well, tragedy. Today we address what passes for wisdom among the political crowd and see where we are headed, especially in Europe. I am reminded of the great line from the movie, The Princess Bride. Vizzini is the short bad guy who is trying to get away fro...
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| Posted: 28 May 2010 05:45 PM PDT
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| Gold Daily Chart: The Handle Continues to Form Posted: 28 May 2010 04:36 PM PDT | ||
| Gold Seeker Weekly Wrap-Up: Gold and Silver Gain Over 3% and 4% on the Week Posted: 28 May 2010 04:00 PM PDT Gold saw a gain of $2.75 at $1215.25 at around 5AM EST before it fell to see an over $10 loss at $1202.10 by late morning in New York, but it then spiked back higher in the last couple of hours of trade and ended with a loss of just 0.025%. Silver climbed almost 1% to $18.62 and fell to as low as $18.22 before it also bounced higher in late trade, but it still ended with a loss of 0.54%.
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| Posted: 28 May 2010 03:56 PM PDT Bondsquawk submits: U.S. Treasuries rallied across the curve, led by the front-end on Friday as economic data suggest that the recovery may stall and after the announcement of the Spain downgrade. The yield on the 2-Year declined 11 basis points to close the week at 0.77 percent. The 5-Year rallied as the yield tightened 10 basis points to 2.09 percent. The 10-Year closed at 3.29, a decrease of 7 basis points while the Long Bond declined 5 basis points to a yield of 4.21 percent. Complete Story »
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| Wall Street Journal features GATA consultant Edwin Vieira Posted: 28 May 2010 03:30 PM PDT 'Pieces of Eight': The Constitution and the Dollar By Seth Lipsky http://online.wsj.com/article/SB1000142405274870485200457525828269629710... Edwin Vieira Jr. escorts a visitor through his gray, clapboard home at the north end of the Shenandoah Valley, and into the woodworking shop. Laid out on a table is his latest project, a handcrafted doorframe, each joint precisely squared and fitted. Nearby, on the wall of the stairway leading to his study, is a copy of his real obsession: the U.S. Constitution. I've driven to Virginia from New York to visit Mr. Vieira, a retired chemist and a lawyer, because I've been reading his magisterial, 1,800-page book called "Pieces of Eight." It is a two-volume treatise on the monetary powers of the Constitution. Now out of print, it has become a kind of cult classic, selling on the Internet for hundreds of dollars a set. It addresses questions that, with the value of the dollar having collapsed to 1,200th of an ounce of gold, are suddenly timely. What is a dollar? How did it become our money of account? What powers in respect of money were given to the federal government in 1787? What disabilities, or prohibitions, are in the Constitution? How have we managed to get so far from the law as the Founders wrote it? And what can be done to bring us back from the brink? ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php The title of the book comes from the nickname for the coin the Founding Fathers were referring to when, in the Constitution, they twice used the word "dollars." Its definition was codified in the Coinage Act of 1792, which provided for minting gold and silver coins and defined a dollar as having "the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver." Mr. Vieira speaks for a school of thought -- it goes back to James Madison and Alexander Hamilton and comes together today in, among other places, the Foundation for the Advancement of Monetary Education -- that reckons that such dollars, and their free-market equivalent in gold, are the only constitutional money in America. Lately Vieira has been arguing for the establishment by the states of separate monetary systems. The authority to do so is in Article 1, Section 10, of the Constitution, which prohibits the states from making "any Thing but gold and silver Coin a Tender in Payment of Debts." "What are you going to do when the currency doesn't function anymore?" is one of the ways Mr. Vieira puts the issue to me as we tour his study, a trig garret crammed with such books as a multivolume set of the Colonial Records of Rhode Island, where Mr. Vieira, the son of a U.S. Navy physician, was brought up. "If you look at the hyperinflations of the 20th century -- Weimar Germany, Hungary, Argentina, Brazil, Uruguay, Bolivia -- in every one of those systems, there was, somewhere in the world, a first-class currency that they could use, directly or indirectly" when their own currency collapsed. "What happens now, when the Federal Reserve Note goes down -- what are we going to use?" He pauses and then asks, with a chuckle, "Are we going to stabilize the euro?" The Southern Poverty Law Center has criticized Mr. Vieira because of the importance he attaches to the Founders' concept of the militia. He and other sound-money activists are sometimes dismissed as cranks, given that the Supreme Court sustained paper money as legal tender in 1871 (Knox v. Lee). But with the value of the dollar now at a historic low and everyone from the communist Chinese to the United Nations fretting about the need for a new world reserve currency, he is starting to look less like a crank than a prophet. Mr. Vieira -- who holds degrees from Harvard (a B.A., an M.A., a Ph.D. in chemistry, and a doctorate of law) -- came to the cause of constitutional money via his legal work. He started at the National Right to Work Legal Defense Foundation, where he argued and won a famous Supreme Court case, Communications Workers of America v. Beck (1988). The opinion, written by Justice William Brennan and joined by justices across ideological lines, established the right of a nonunion member not to have the fees he paid to a union for representational services go to political activity he disapproves of. An earlier case drew Mr. Vieira into the money question. It involved the efforts of the owner of a property seized by Maryland in an eminent-domain proceeding to get paid in the gold or silver coin that states are permitted to make legal tender. Mr. Vieira, who speaks with a gentle voice most of the time, still shakes with indignation when he talks of the refusal of the courts even to consider the constitutional question. He eventually lost that case, but his research took him in the early 1980s to Washington to meet U.S. Rep. Ron Paul, R-Texas, who was part of a just-established United States Gold Commission. An aide suggested that Mr. Vieira submit his points to the commission in writing, and work began on what would become "Pieces of Eight." The finished book begins with a quote from Justice Stephen J. Field's dissent in a legal tender case, Dooley v. Smith (1871), warning that arguments in favor of legal tender paper currency "tend directly to break down the barriers which separate a government of limited powers from a government resting in the unrestrained will of Congress." Mr. Vieira believes the Federal Reserve is unconstitutional on, among other points, the same grounds that FDR's National Recovery Administration was found unconstitutional -- namely, that Congress had delegated too much of its own lawmaking responsibilities. He is less harsh toward Fed officials. "I don't basically attribute either greed, stupidity, or evil to these people," who are "caught up in this extraordinarily difficult position," he says. But Mr. Vieira believes that the federal government has gone way past what would have been red lines for the Founders -- and that we are now in a "race against time" over "which happens first, the crisis or the reform." He finds himself in an isolated spot. Those who want to secede from the Union don't call him, he says, because "I'm against secession." Nor do the paper money people, because "I point out that paper money is absolutely unconstitutional." The gold standard people don't call, "because I point out that the constitutional standard is silver." Mr. Vieira offers this hope. "We're in a better position than the Founding Fathers," he says, noting they faced stagflation, dissension from those loyal to England, devastation from war in large sections of the country, and regional jealousies. "And they came together in Philadelphia, and they worked out this document -- a work of practical genius." He considers it a wonder that, despite all the damage done to it over the years by politicians, "it's still with us and it contains the answers. It's right there." ----- Mr. Lipsky, founding editor of The New York Sun, is the author of "The Citizen's Constitution: An Annotated Guide" (Basic Books, 2009). Join GATA here: World Resource Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Coming Friday-Sunday, June 11-13, at the Dallas-Fort Worth Airport Marriot: The conference will explore the dangers and opportunities in today's bullion markets and the need for investors to diversify bullion holdings outside of bullion banking and commodities markets. Speakers will include David Morgan of Silver-Investor.com, Gold Anti-Trust Action Committee Chairman Bill Murphy, and Duncan Cameron and Philip Judge of Anglo Far-East Bullion Co. The earliest conference attendees on Saturday will be able to schedule one-on-one interviews for personal consultation with Anglo-Far East's experts on Sunday. To learn more about and register for the Anglo Far-East Bullion conference, please visit: http://www.anglofareast.com/seminar-registration/
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| Dollar Primed for Collapse by End June: Charts Posted: 28 May 2010 03:21 PM PDT The dollar's recent strength has been explained by most market analysts as a result of the euro weakness rather than any fundamental support for the greenback. In fact, a closer look at the dollar's chart - particularly the dollar index - suggests the currency may be primed for a collapse. The dramatic dollar index rise from $0.81 to $0.87 in recent weeks shows the chart's developed a dramatic and possibly dangerous parabolic trend. This trend has four important features.
The first is the way it captures an acceleration in behavior. The trend starts slowly and then gathers speed, rapidly moving up with increasing volatility. The second feature is the shape of the curved parabolic trend rise. This is not a true parabolic curve because as the trend accelerates the curve changes shape until it becomes vertical. It's the vertical section of the curve which is most useful because it provides a exact date when the trend will inevitably collapse. This type of trend line curve was first identified in the 1930's and it was mistakenly called a parabolic curve. We continue to use the name, even though it is not an accurate description. In the 1930's this was a rare behavior. In the last decade this curve has become increasingly common as volatility has increased in modern markets. This type of trend should not be confused with the parabolic Stop and Reverse indicator. 
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| Posted: 28 May 2010 03:03 PM PDT
Right now an increasing number of Americans are not paying their loans, and this is shredding the balance sheets of small and medium size banks all over the United States. In fact, during the first quarter of 2010, the total number of loans that are at least three months past due increased for the 16th consecutive quarter. 16 consecutive quarters? Once is a coincidence. Twice is a trend. Sixteen times in a row is a total nightmare. Is there anyone out there that is still convinced that the economy is getting better? If so, perhaps this will convince you otherwise.... There were 252 banks on the FDIC's "problem list" at the end of 2008. There were 702 banks on the FDIC's "problem list" at the end of 2009. Now there are 775 banks of the FDIC's "problem list". Are you starting to see a trend? Federal regulators have already closed 73 banks in 2010, more than double the number shut down at this time last year. The truth is that the U.S. banking system is coming apart like a 20 dollar suit. So is the FDIC worried? No, they insist that they have plenty of money to cover all of the banks that are going to fail. After all, the FDIC's deposit insurance fund now has negative 20.7 billion dollars in it, which represents a slight improvement from the end of 2009. Yes, you read that correctly. Negative 20.7 billion dollars. That should be enough to cover the hundreds of banks that are in the process of failing, right? Well, if not, the FDIC can just run out and ask the U.S. government for a big, juicy bailout. After all, can't the U.S. government borrow an endless amount of money with absolutely no consequences? Well, no. Debt always catches up with you sooner or later. In fact, the IMF is warning that that the gross public debt of the United States will hit 97 percent of GDP in 2011 and 110 percent of GDP in 2015. Meanwhile, the U.S. financial system continues to shrink even after the unprecedented amount of "stimulus money" that the U.S. government has been shoveling into the economy. The M3 money supply is now contracting at a frightening pace. In fact, the current rate of monetary contraction now matches the average rate of monetary contraction the U.S. experienced between 1929 and 1933. But don't worry. We aren't going into a Depression. Everything is going to be just fine. Just look deep into Obama's eyes and keep repeating the word "change" to yourself over and over. According to a report in The Telegraph, the M3 money supply declined from $14.2 trillion to $13.9 trillion in the first quarter of 2010. That represents an annual rate of contraction of 9.6 percent. In case you were wondering, that is a lot. Not only that, but the assets of institutional money market funds declined at a 37 percent annual rate. That was the sharpest drop ever. Yes, it is time for the alarm bells to start going off. The Telegraph recently quoted Professor Tim Congdon from International Monetary Research as saying the following about the deep problems that the U.S. is facing.... "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly." If banks continue to cut their lending, the M3 is going to continue to shrink. But as noted above, Americans are increasingly getting behind on their loans, so why should banks loan money to a bunch of deadbeats? Right now U.S. banks are increasingly tightening their lending standards, and this is making it much tougher to get a loan. In fact, in 2009 the biggest U.S. banks posted their sharpest decline in lending since 1942. But there is only one problem. The U.S. economy is completely and totally dependent on credit. Without easy credit, the entire U.S. economic machine is going to slowly grind to a halt. So what do you do? The reality is that we have one gigantic financial mess on our hands, and in many ways it is starting to look like the 1930s all over again. But perhaps someone out there has a way to get us out of this nightmare. Please feel free to leave a comment with your thoughts, opinions or solutions....
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| Europe: A Continent Of Lies And Broken Promises; How The EU Elite Got It Wrong On The Euro Posted: 28 May 2010 01:20 PM PDT
Openeurope.org.uk has put together a paper of the most blatant half-truths, propaganda, and outright lies, abused by Europe not only over the past month, but also over the past 10 years, for the entire duration of the now rapidly collapsing eurozone experiment. As the paper notes: "More than ten years since the euro was launched, and with the single currency facing its greatest ever crisis, the parameters have radically changed. Amid all the uncertainty, one thing has become painfully clear: the EU elite simply got it wrong on the euro." The authors demand for "a call for greater honesty about the future of European cooperation and a reminder of the urgent need to find a new model that is both politically and economically sustainable" is just as valid in Europe as it is in the US: any system based on lies and opacity is doomed to failure. Europe found this out the hard way. We will too unless somehow we restore the basic truths like transparency, honesty and integrity, instead of merely campaign promises and teleprompter soundbites. A sampling of the best quotes: THE DOZEN WORST BROKEN PROMISES AND RECKLESS PREDICTIONS “The Community shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project”. “We have a Treaty under which there is no possibility of paying to bailout states in difficulty”. “[Greek Prime Minister] Papandreou has said that he didn’t want one cent. The German government will not give one cent, anyway“. “The single currency, far from being an agent of continental style corporatism, is probably the greatest export vehicle of Anglo-Saxon economics. The euro has done more to enforce budgetary discipline, to promote privatisation and force through labour and product market liberalisation in the rest of Europe than any number of exhortations from the IMF, the OECD, or the editors of The Economist”. “The reality of the euro has exposed the absurdity of many anti-European scares while increasing the public thirst for information. Public opinion is already changing […] as people can see the success of the new currency on the mainland and the alarming fall in inward investment into Britain as international companies show an increasing reluctance to locate here”. “The euro has been a rock of stability, as illustrated by the contrasting fortunes of Iceland and Ireland. Joining the single currency would be a major step”. “We must enter the euro with a clean sheet on all the criteria”. “The thrust of the spirit and of the letter of the Treaty is that everything is done to construct the euro area as an optimum currency area. First by ensuring that it incorporates economies that have already proved being convergent in the fiscal field as well as in the monetary and financial fields”. “It is sometimes said that while the single monetary policy may be ‘right’ for the euro area as a whole, it is ‘wrong’ for many individual countries within the area. I disagree with this view. First, it overlooks the fact that within a single currency area adjustment can occur via prices and wages”. “Solidarity is possible, [and] will exist. A bailout is not possible and will not exist”. “I will defend European Central Bank’s independence under any circumstance and with all my strength”. “The euro is a protection shield against the crisis”.
“THE EURO WILL REMAIN STABLE AND EUROZONE COUNTRIES WILL BE PROTECTED FROM CRISES” What they said then “The euro is like a breastplate that will become more and more resistant. The stability of the currencies within its area is without question”. - Then Commissioner for Monetary Affairs, Yves Thibault de Silguy, 1998. “The decision to launch the single currency is the first step and marks the turning point for Europe, marks stability and growth and is crucial to high levels of growth and employment”. “The euro is a protection shield against the crisis”. “The people should note that the Euro will not only be just as stable as the D-Mark, but also a lot more capable”. “I am certain the success story of the Deutschmark will continue with the success of the euro”. “The euro area now represents a pole of stability for those countries participating in it by protecting them from speculation and financial turmoil. It is strengthening the internal market and contributing to the maintenance of healthy fundamental figures, fostering sustainable growth”. “The Maastricht treaty obliges the European Central Bank to pursue price stability and the ECB is more likely to overfulfil its treaty target than to ignore it. As long as this is the case, there is not the slightest danger of a break-up of the Eurozone […] On the contrary, I expect the Eurozone to be exceptionally stable in the long run […] Make no mistake, the Eurozone is here to stay”. “The euro area: How big will it be? My own prediction is that by the year 2002 the European monetary Union will include its current 11 members plus Greece (which is already committed to join), Sweden, Denmark, and Britain. By 2005, Slovenia, the Czech Republic, Poland, Hungary, and Estonia will also be in. And by 2010, assuming all goes well and the monetary union is prosperous, no country in Europe will want to, or be able to, afford to stay out. Thus, Slovakia, Croatia, Lithuania, Latvia, Romania, and Bulgaria will all join the monetary union”. What they say now “Euroland, burned down. A continent on the way to bankruptcy”. “We cannot allow the bankruptcy of a euro member State like Greece to turn into a second Lehman Brothers […] The consequences of a national bankruptcy would be incalculable. Greece is just as systemically important as a major bank”. “Every one of us can see that the current euro crisis is the hardest challenge Europe has to meet since the Treaty of Rome was signed. It’s an existential challenge, and we must rise up to it”. “There is a grave threat of contagion effects for other member States in the monetary union and increasing negative feedback loop effects”. “Whichever scenario you choose, the euro is going to be weak. Even if the Eurozone were to allow more serious slippage in budgetary consolidation than I have suggested, that would probably not help the euro either, as markets would start to doubt the longevity of the currency union for political reasons”. “We should not knock this [bailout] deal from Athens. The Eurozone might not have survived otherwise [...] On my estimate, the total size of a liquidity backstop for Greece, Portugal, Spain, Ireland and possibly Italy could add up to somewhere between €500bn ($665bn, &ound;435bn) and €1,000bn. All those countries are facing increases in interest rates at a time when they are either in recession or just limping out of one. The private sector in some of those countries is simply not viable at those higher rates”. - FT columnist, Wolfgang Munchau, 2 May 2010. Full paper from openeurope.org.uk:
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| Guest Post: Asian Gas Market Starting To Heat Up Posted: 28 May 2010 12:45 PM PDT
Submitted by www.oilprice.com Asian Gas Market Starting to Heat Up
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| Carmel Daniele: Gold Will Rise and Sky Won’t Fall Posted: 28 May 2010 12:17 PM PDT
http://www.theaureport.com/pub/na/6409
The Gold Report: You started your namesake CD Private Equity Natural Resources Fund in 2006 to take advantage of the commodity super-cycle, which you believe could last more than 20 years. Copper, often considered a barometer of global economic health, fell from about $3.60 per pound to less than $3.00 from April to May. Is the super-cycle still in good health? Carmel Daniele: I still think it's in good health. If you look at history, these super-cycles last on average about 30 years. The U.S. super-cycle involved the urbanization of 100 million people and it lasted 40 years in the 1880s. Then the modernization of Japan in the 1960s involved 30 million people and that super-cycle lasted 30 years. This super-cycle involves the urbanization and industrialization of 3 billion people. We're only 10 years in, so I wouldn't be surprised if it lasts longer than 20 years. I've got a great chart on this that BHP Billiton Ltd. (NYSE:BHP; PKSHEETS:BHPLF) has done, tracking gold alongside copper. The thing is, the swings are quite violent. It's quite common for the price of copper to go up and down, but the long-term trend is up. TGR: Do you look at anything else besides the chart from BHP that allows you some confidence in the cycle? CD: I look at the growing number of people in the world; the growing middle class which is fuelling demand for resources. But I also look at the supply side. It now takes a lot longer from the discovery of a mine to the point where it's into production. People have been talking for a long time about lots of copper companies in Alaska, and the DRC getting into production and supply coming on stream, but it just takes a lot longer. So the supply side constraints are heavily fuelling this super-cycle too. I also look at what some of these emerging countries are doing rather than saying. If you look at China and India, you will see they are securing limited resources around the world in order to continue to build out their empires. So, if you take a macro view, this super-cycle is still very healthy. We try to invest in companies that have an asset that can develop and grow and then be sold to some of these emerging countries that desperately need the resource for their industrial revolutions. TGR: Nonetheless, we are experiencing some volatile markets right now. I think investors in most places are looking for ways to find shelter. CD: It's not uncommon. Basically, most people sell in May and go away. It happens every year, and I hear this every year. It's like, "Oh my goodness, the markets are really bad!" There's always something you can blame it on. At the moment, it's being blamed on the euro and the EU crisis. It happens every year. TGR: German Chancellor Angela Merkel recently said that she fears for the euro. CD: I think that the whole thing is being blown out of proportion. Nearly 70% of the euro area's economy is made up of the three countries: France, Germany and Italy. So unless their sovereign debt crisis derails, I don't see how the euro could weaken sufficiently. Greece is only a very small part of the EU area, just 2.5%. I can understand why she would say that because all of the euro countries have very different legislation, but they've all got the same currency. They are all affected and interrelated. For the euro to be saved, maybe what you could see is more legislation and some better enforcement so that the laws are aligned a bit more. TGR: What's your hedge against a possible collapse of the euro? CD: People are wondering, "Which currency do I hold my money in? The euro? The pound? U.S. dollars?" I hear this all the time. The safest bet is gold. It's the safest currency. It's become a currency. I am actually investing in gold equities as a result. I see gold doing very well. TGR: How well? CD: Gold could get really, really high, especially if China, for example, starts buying it. There's often been talk about them diversifying out of the U.S. dollar into gold. It could easily break through $2,000 if you have China suddenly buying it. TGR: Where do you see the gold price headed in the next 12 months? CD: I think mid $1,000 to $2,000. TGR: How should investors get exposure to gold? CD: Gold equities. TGR: Are we talking seniors, intermediates, juniors? CD: I prefer the juniors. You can invest in the juniors, mid-tiers or even the big caps, but my fund invests mainly in the juniors, as that is how you get the most leverage from the gold price. TGR: What about other ways to gain exposure to gold? CD: People can always buy gold bullion. That's probably the safest, but then you have to worry about where you're going to store it. Some people have invested in ETFs, but the problem is you don't actually have possession of the physical gold, even though they say they've got it backed by physical gold. I think gold equities are the best because you get a multiplier effect. I prefer the ones that have some exploration upside where the asset can grow. So you're not just betting on the gold price going up; you've got a resource that can potentially grow. TGR: When you talk about gold the excitement in your voice is apparent. What is it about gold that makes you excited? CD: Gold's a psychological metal. It's driven by more than just demand/supply dynamics. Basically when economies aren't doing very well, and people aren't feeling very optimistic, they tend to flock to gold. It's a currency as well. The potential is enormous there. Plus you've got China and India; if they start buying gold, it could easily skyrocket. Then you've got inflation because of all the paper money that's being printed and is starting to circulate in the economy due to government stimulus spending. Gold is a great hedge against inflation—to keep the purchasing power of your money. I suppose I prefer the gold equities because you get that multiplier effect. You see, if the gold price goes up, the leverage that you get is so much higher than just holding the gold bar itself. TGR: What do you look for in a gold company? CD: I like there to be growth in the underlying asset. There has to be some sort of upside. The deposit has to be in a safe jurisdiction. Very importantly, it has to be run by management with a good track record in developing an asset. The other thing I look for is whether the company is likely to be taken out. Or even better, if it is both predator and prey like the highly successful Osisko Mining Corp. (TSX:OSK).There's a lot of consolidation in the sector, because when companies start producing, they're shrinking, as they are depleting their asset. Every time they're producing gold, they've got to replace that resource. They either have to go out and discover one or buy out a junior. TGR: What are some companies you're following with those kinds of resources? CD: I like Greystar Resources Ltd. (TSX:GSL). It's got over 15 million ounces of gold (at its Angostura project in Colombia) with the IFC (International Finance Corp.) as a key investor. The preliminary feasibility study completed in mid-2009 showed it would have an annual production of about 500,000 ounces of gold at a cash cost of $391 an ounce. The only thing is that the project's development could be delayed, because Greystar is waiting for a decision on an appeal due to the retroactive application of a new mining law. The project is seen by very many people as having economic significance to Colombia. TGR: Are there other Latin American plays you like? CD: I like Galway Resources Ltd. (TSX.V:GWY) as well, which is near Greystar's project in Colombia. They're drilling targets at their Pie De Gallo property. They've discovered some very high economic grades near another company called Ventana Gold Corp. (TSX:VEN). In the end, Greystar, Galway and Ventana will have to consolidate because they need just one single processing operation that would create synergies, and it would establish a larger economic resource. If they each tried to do it themselves, they would not benefit from the economies of scale of production. TGR: Which company do you see consolidating the camp? CD: The one that's got the largest market capitalization is Ventana, but they don't have their National Instrument 43-101 resource yet. TGR: What are some others you like? CD: Another one I like is Medoro Resources Ltd. (TSX.V:MRS). They took over a smaller company called Colombia Goldfields and because of Medoro's superior management, it created a lot of value. They consolidated over 6 million inferred ounces of gold and 30 million ounces of silver at the Marmato Project. Their resource stands now at close to 10 million ounces of gold and 61 million ounces of silver. A few months ago, they announced the purchase of the Frontino gold mine in Colombia. Another private one to look out for that will become public at some stage is Gran Colombia, which owns the other half of the Frontino gold mine with Medoro. TGR: What about a little farther south at Colossus Minerals Inc.'s (TSX:CSI) Serra Pelada project in Brazil? CD: I haven't been following that one of late, but I do know it's a very large resource with very high grade. The thing is, in Colombia, everywhere, every rock you turn over, you'll find gold because it's such a rich country. TGR: You're certainly bullish on Colombia. CD: It's one of the richest places in the world for gold at the moment. That's why everyone is going there. There's so many junior gold companies popping up everywhere in Colombia—it's hard to keep up. TGR: What companies do you follow outside of Colombia? CD: There's one called International Tower Hill Mines Ltd. (TSX:ITH, NYSE.A:THM). It's an Alaska-based gold deposit. It's got over 7.5 million ounces of gold. The prefeasibility study is due out the middle of this year. I think the economics might be further improved with increased resources. I think that's likely, given some recent successful step-out drilling and very encouraging metallurgical results. Another one I like is Allied Gold Ltd. (TSX:ALG; AIM:AGLD; ASX:ALD). That's a Papua New Guinea-based producing gold mine. It's got the funds available to grow from an 80,000-ounce producer to 230,000-ounce producer by developing a fairly significant orebody. That's quite significant. It could increase by a further 100,000 ounces by 2013 to become a 330,000 ounce per annum producer. TGR: Is there anything that we have not talked about that has you excited about the gold sector right now? CD: I think there's still a lot of money to go into the gold sector that hasn't, to date, and is ready to pile in. TGR: Where would this money come from? CD: Pension funds and very long-term money. In the past, funds mainly from the U.S., didn't believe so much in gold as a currency or anything else. Now I think they are starting to see the benefits of it being a hedge against inflation and a safe form of currency. TGR: Are there other companies in other sectors, such as rare earth, that represent good investment opportunities? CD: Lithium Americas Corp. (TSX:LAC) is exploring and developing in Argentina. It has one of the largest evaporative lithium projects in development. It's doing its prefeasibility study and it's attracted two strategic investors Magna International Inc. (TSX:MG.A; NYSE:MGA) and Mitsubishi Materials Corp. (Fkft:MMC). So I'm hoping that it's going to be the go-to stock for lithium, basically. The other one in rare earths that is quite interesting is a company that's called Dacha Capital Inc. (TSX:V:DAC; OTCQX:DCHAF). What they try to do is stockpile rare earths to control the physical market. So they're buying it and stockpiling it and storing it away. I know that China does have the monopoly and is trying to make sure that they control that monopoly on rare earths. So it will be interesting to see how Dacha Capital goes. Of course, the Japanese are trying to break that monopoly by looking for acquisitions. They're the only two that I like at the moment. TGR: Carmel, thank you for talking with us. Carmel Daniele is the founder of CD Capital and CEO of the CD Private Equity Natural Resources Fund. The Fund's investment objective is to achieve capital growth through pre-IPO and pre-trade sale companies in the natural resources sector, targeting opportunities that deliver substantial returns on exit.Carmel was previously focused on selecting and negotiating natural resource investments for the Special Situations Fund at RAB Capital. Prior to this, she was a Group Executive in Corporate Advisory at Newmont Mining, negotiating and structuring mergers and acquisitions around the world for the Newmont Capital group, which included the US$24 billion three-way merger between Franco-Nevada, Newmont and Normandy to create the largest gold company in the world. Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page. DISCLOSURE:
Streetwise – The Gold Report is Copyright © 2010 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part. The GOLD Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report. From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or other | ||
| Posted: 28 May 2010 12:17 PM PDT Gold Price Close Today : 1,212.10Gold Price Close May 21st: 1,175.70Change: 36.40 or 3.1%Silver Price Close Today : 18.411Silver Price Close May 21st : 17.633Change 77.80 cents or 4.4%Platinum Price... 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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| Mining Stocks and The General Stock Market – Rising or Declining Together? Posted: 28 May 2010 12:14 PM PDT
This essay is based on the Premium Update posted on May 28th, 2010
Since our previous essay dedicated to the general stock market and its influence on the PM sector generated a lot of positive feedback we decided to provide you with a follow-up. However, before jumping straight into the chart analysis, let's focus on the big picture.
McKinsey Global Institute (MGI), prestigious consulting firm, believes India is on the verge of the second-greatest urban migration the world has ever seen. In their new report India's Urban Awakening, MGI says India's urban population could swell to 590 million—nearly twice the size of the United States—by 2030. India would need to build a city the size of Chicago every year for the next 20 years in order to create enough commercial/residential space to meet the needs of its growing population. MGI says India will have "68 cities with populations of more than 1 million, 13 cities with more than 4 million people and 6 mega cities with populations of 10 million or more."
MGI says the Indian economy is expected to be five times greater by 2030, with urban centers being the key driver of this growth. It projects India's labor force to increase by 270 million—70 percent from urban jobs. This new labor force will also be relatively young compared to other BRIC countries.
While these numbers are amazing, perhaps the most important statistic for us is the projected growth of India's middle class. MGI estimates that India will have 91 million middle class households by 2030, that's more than a 300 percent increase from the 22 million they have today.
Historically, gold has been a preferred form of savings in India as well as in China and many of the other Asian countries. With incomes rising as more people enter the middle class, and with the numbers of the wealthy class increasing, it is more than likely that some of this new found wealth will flow into gold.
While these great, historic changes will take place in the far future, let's take a look at what is in store in the more immediate future. Let's begin this week's technical part with the analysis of the S&P 500 Index. Let's start with the long-term SPY ETF chart (charts courtesy by http://stockcharts.com.)
On the very long-term chart above, we see very little change from last week. The implications which need to be re-emphasized here are the support levels which have been reached and the significance of the spike in volume based on weekly closing prices. Thursday's closing level, slightly more than 110, is above the 50-week moving average and also above the 50% Fibonacci retracement level. This is in line with what we expected and reported previously.
This week we see a rebound in the long-term chart and this move caused the SPY/ETF to close above the declining black line seen above which is the multi-year resistance level. This line has now become a support level. We also see that the close is above the 200-day moving average line in the range of 110. Confirmation that the bottom is in is seen by a spike in volume as well as the low RSI level. Volume levels have not been declining recently (taking weeks into account), similar to what was seen in a 2008 pattern. This indicates that further declines are unlikely at least in the short run. To the contrary, we expect the general stock market to move higher and precious metals to do the same based on the technical signals visible in the above chart.
The short-term chart provides us with more timing details. This week we saw huge volatility as the general stock market tested (and verified) its support levels and finally closed above the 200-day moving average. This level is decisively above the rising support lines, regardless of which is selected.
The recent move up was not on huge volume nor were the volume levels extremely low. This trend is common in the early stages of a rally and therefore is not taken to be a bearish sign. This is also confirmed by the RSI level. In short, higher prices for the general stock market appear likely, a bullish short-term sign for precious metals.
Therefore, the general stock market moved up this week as expected and there are signs the rally will continue. Support levels are in place and volume levels indicated some strength in the recent upswing. Furthermore, we do not see some of the negative signs common in past bearish markets. In short, analyses of this week's charts indicate a bullish period ahead for both the general stock market and the PM sectors.
Speaking of the PM sector and stocks, let's take a look at the long-term chart of the HUI Index.
With respect to the precious metal sector this week, the HUI long-term chart last week seemed close to a bottom. It had approached its 50-day and 200-day moving averages and the RSI had moved to a probable low. This suggestion was that a bottom had been reached and a turnaround was likely.
This is exactly what we've seen this week. The fact that it is clearly seen in the long-term chart implies that the turnaround was quite sizable. In the past, when the HUI index moved sharply below its 50-day moving average and the RSI moved below its lower channel, a sharp turnaround with vengeance began a significant rally.
Perhaps this is what we've seen in the past week. The RSI rebounded and the HUI index rose sharply higher after bottoming below the 50-day moving average. If history repeats itself, as it so often does, the HUI index chart suggests that higher prices will be seen in the coming weeks.
One of our indicators (featured below) appears to confirm this point.
The above chart features our SP Gold Stock Extreme Indicator, which – according to its name – signals tops or bottoms in the mining stocks. This week we've seen this indicator move quickly below its lower dashed line and reversed. This is what we've seen in the past several months when the prices were bottoming, so this is clearly a bullish sign.
Summing up, many tools indicate that the mining stocks are to move higher from here, perhaps just like they did in November 2009. Still, not every part of the precious metals sector is showing extraordinary strength, which suggests caution. For now, we remain cautiously bullish on the mining stocks. Detailed analysis and additional 16 charts are reserved for our Subscribers.
To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.
Thank you for reading. Have a great and profitable week!
P. Radomski Editor
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| A Quick Post Script To Mr. Jeffrey Sachs Posted: 28 May 2010 10:56 AM PDT
We apologize in advance for harping back on this issue, but it is pretty damn hilarious. In the BBC Newsnight interview with Hendry, Tett and Sachs, the esteemed Columbia professor, at 4:50 into the clip, asks "How long has this Greek question been on the table. Ablout 10 weeks maybe?" A rather violent explosion from Sachs follows when Hendry calls him out on his tenured stupidity. All this was discussed yesterday. However, we wanted to provide a response to the Ivy League professor, as he did pose a legitimate question. In the following FT interview from January 2009, Hugh Hendry discussed the future of the eurozone and the PIIGS, and at 24 seconds into it, he provides the response Sachs is seeking: "I fear [the collapse of the Eurozone] is becoming more likely." He follows "If we saw parity with the euro, my goodness, that would be deemed to be unthinkable." And concludes, "There is a shortage of dollars. People think I'm crazy - they are printing billions, trillions of dollars. But keep in mind America has $50 trillion of debt outstanding. And that was fine because they thought it had $50 trillion of assets. And what we are discovering is these asset prices deflate - it's vaporization..." Dear Mr. Sachs - the very person you were sitting across the table from foresaw everything to the dot, just as it would happen 16 months later, even as you were calling up old buddies to get that Teacher of the Year award, or get that extra fellowship (in demagoguery?). Our advice to you is do what your parents did, get (an honest) job sire.... which will never happen - pouring the Kool Aid is easy and pays well. So here is our second bit of advice: watch all Hendry appearances, and listen to what he says. He will always ends up right, and you will always be wrong, since you defend a broken system which is fated for implosion. And just as Hendry sees deflation first, then hyperinflation (and watch this clip for some more brilliant insight), so it shall be. And for some reason people like Sachs will once again be invited to roundtables, in which they will goundlessly claim that nobody foresaw any of ensuing Keynesian collapse... So now that we have answered your question, we have one of our own - how does Columbia allow this level of mediocrity to be publicized on national television?
h/t Ian
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| Posted: 28 May 2010 10:18 AM PDT Gold recovers losses, ends week up 3.3% The COMEX August gold futures contract closed up $0.60 Friday at $1215.00, trading between $1203.80 and $1217.30. May 28, p.m. excerpts: see full news, 24-hr newswire… May 28th's audio MarketMinute
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| Precious Metal Protection from Frightening New Creatures Posted: 28 May 2010 10:00 AM PDT The big news, of course, is that "Private-sector scientists led by Craig Venter have developed the first living cell controlled by synthetic DNA." This is, I think you will agree with me and the rest of the world, completely amazing! They have actually taken a synthetic chromosome that they cooked up and transplanted it into a recipient cell, and thus created a new, different organism! A new form of life made from materials you probably have around the house! There is, however, no mention of whether they raised their arms in triumph and cried out excitedly, "It lives! It lives!" like in the movies, although I would, if I were them! Well, as exciting as this is, it becomes Very, Very Interesting (VVI) in a terrifying "end of the world" kind of way when one considers that almost any creature is now possible, ranging from one-celled killer viruses up to, and including, powerful bio-weapons like demonic, robotic cyborgs that have laser beams that shoot out their eyes, they can't be killed, they can't be stopped from killing ("That's all they do!") and they will all have, ominously, badges. And how about flying monkeys, like in the Wizard of Oz? The unintended consequence is that they will be coming after you because they have badges, too, perhaps making good on the witch's promise of, "I'll get you for this, my pretty! And your little dog, too!" Naturally, in the face of such an onslaught of indefinable, screaming dread at the sheer bulk of the unintended consequences that will develop as a result of being able to make creatures on demand, I fall back to Basic Mogambo Strategy (BMS), which is to buy gold, silver and oil, although with engineered creatures, maybe not oil, as it would be possible to create some kind of living creature that would excrete oil, perhaps after eating plastics and pollutants! And there is no reason why it can't taste like chicken, too, whereupon everything is fine until it evolves into these creepy things that hide under the furniture and wait until you walk by, and then they jump out, grab your ankle, and suck all your blood through your skin. So you can see how a paranoid and frightened guy like me can only see this as an historic moment of being able to create new creatures-by-design, and is truly a Whole New World (WNW) where, from now on, it will be a struggle between undreamt-of benefits versus tragic unforeseen costs. And the future of gold and silver? Brighter than ever! Whee! This investing stuff is easy! The Mogambo Guru Precious Metal Protection from Frightening New Creatures 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."
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| Three Arguments Against a Euro Collapse Posted: 28 May 2010 10:00 AM PDT Lee Munson, founder & CIO of Portfolio LLC, thinks the euro has been trading like the Greek drachma when it should be trading more like the deutschemark. With painfully high debt levels in Japan, and structural economic problems in China and the US, he sees little reason to fixate on the demise of the euro. From Real Clear Markets: "First, Japan has the worst debt to GDP in the developed world. How has this been overshadowed by Greece, the industrial powerhouse that it is, and its inability to pay its bills? While the yen has been stable relative to the dollar, Japanese trade will blow up if its currency keeps going up in a straight line. "Second, China has its own fair share of problems stemming from new tax, labor, and environmental laws that will place serious pressure on bottom line growth. Add to the mix the expiration of their infrastructure stimulus, and margins could get squeezed. Since the currency is still tied to the dollar, there could be social unrest if their currency appreciates. "Third, consider the United States of America, with its problematic economic future. When the stimulus starts to run out, and Congress raises taxes, the last thing we will need is a strong dollar. A weak dollar means higher exports, which means more jobs and more money for consumers to spend." As troubled as the eurozone is, the strongest competitors on the currency playing field also have their own weaknesses. While it's true that the US has a more robust infrastructure for supporting the state economies that make up its currency, as long as it can, California's budget remains not much better looking than Greece's. And, as a whole, the US still has roughtly the same overall fiscal deficit as Spain… about 12 percent. You can read a few more reasons to not count out the euro quite yet at Real Clear Markets' coverage of how the euro's not heading to parity. Best, Rocky Vega, Three Arguments Against a Euro Collapse 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."
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| Chart of the day: Another huge reason to own gold Posted: 28 May 2010 09:24 AM PDT From The Big Picture: WJB’s John Roque looks at the past 4 cycles in Gold relative to the valuation of the S&P500... See the chart here... More on gold: Gold panic: Europe is running out of gold This could be the best gold trade of the year Gold could be starting its biggest rally in history
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| Meet the junior mining stocks China is targeting now Posted: 28 May 2010 09:22 AM PDT From Mineweb: No matter the economic environment -- faltering banks, plummeting equity markets, sovereign debt crises -- resource-needy China is still moving ahead to secure more iron ore. Its miners and steelmakers, little bothered by Canberra's proposal for a controversial resources "super tax", are now looking at Australia's iron ore juniors, bankers and analysts say. Players such as... Read full article... More on China: It's official: China now dumping the dollar Rumors swirling China set to make giant gold purchase China's global resource binge arrives in the United States
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| World Gold Council: Global gold demand is soaring Posted: 28 May 2010 09:21 AM PDT From Zero Hedge: The World Gold Council has released its Q1 2010 Gold Demand Trends report. Below is the summary on the global outlook for the gold market: * The WGC expects that demand for gold is likely to be strong during 2010 driven by jewelry demand in India and China and investment demand in Europe and the USA. Weak economic recovery in the US and Europe is burdened by high and rising public debt levels in the wake of the financial crisis. As a result, the attraction of gold to investors... Read full article... More on gold: This could give gold a HUGE boost The No. 1 thing to remember about gold Matt Badiali: Meet the investors pushing gold over $1,200 an ounce
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| How Ron Paul could help repeal Obamacare... Posted: 28 May 2010 09:11 AM PDT From Gary North on LewRockwell.com: The six words are: Public Law 111-148 is hereby repealed. Public Law 111-148 is the Patient Protection and Affordable Care Act. This is the compulsory health insurance law that Democrats rammed through Congress and Obama signed. The Republican Party voted unanimously to oppose it. Most of them did this for low-risk grandstanding reasons. Had George W. Bush proposed the bill, they would have voted for it, just as they voted for his prescription drug law. Ron Paul can force their hands in November. By introducing the bill, he will guarantee that... Read full article... More on Ron Paul: Ron Paul: Don't call Obama a socialist Ron Paul wants you to read this book now Ron Paul: How gold could save the U.S. dollar
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| Posted: 28 May 2010 09:00 AM PDT Imagine the looks on their faces, when Deng Xiaoping sold them out. The old commies in China had tried to make steel in backyard barbecues. They'd carried the fat Mao on a litter, on a long march to nowhere. They'd pretended his Little Red Book was more than drivel. They'd endured one absurdity after another…purges, starvation, and misery…all for the cause. And now this… "To get rich is glorious…" Xiaoping is alleged to have said. Whether he said it or not, millions of Chinese took it to heart. They got richer, faster than any people ever had. The economy is now 10 times larger than it was then; it grew 300% just in the last 10 years. Incomes rose every year. There are now more millionaires in China than in France. Three times as many as in Britain. And more people are becoming millionaires there than anywhere else on earth. Three decades ago, the world's hinge creaked. Deng Xioaping opened a door in 1979. He announced a new oddity, a "socialist market economy.'' We can imagine the looks on faces in Washington and London too. And why shouldn't they gloat? They had won the Cold War; they had no idea that their victory would be fatal. China took the capitalist road in 1979. Russia was not far behind. By the mid-'80s, it was already spending half its entire output on its military. And then the Americans started talking about neutron bombs and a "star wars" program. Leonid Brezhnev had a stroke. His successors faced the challenge, first with perestroika and finally with capitulation. Meanwhile doors opened and shut in England, France and America, too. Maggie Thatcher moved into #10 Downing St. in 1979. Ronald Reagan brought 'Morning in America' to the White House in 1980. Like Thatcher and Xioaping, Reagan was determined to reduce the government's role in the economy. And in 1981, Francois Mitterand entered the Elysee Palace in France. His stated goal was the opposite – to increase state involvement in the economy. No matter what direction they claimed to be going, all the western economies ended up in more or less the same place – on the road to debt serfdom. While China got rich by encouraging (or perhaps merely allowing) capital formation, western nations got poorer, relatively, by consuming capital. In France, and much of the rest of Europe, government led the consumption boom. While households continued saving at relatively high levels, Mitterand raised the cost of the welfare state. Minimum wages went up 10% immediately. Then, he cut the workweek and added so many benefits for the workingman that the system barely worked at all. French government debt rose from 20% of GDP in 1980 to 80% now; in a couple more years, the government will have spent an entire year's output that France had not yet put out. In Britain and America, government spending rose too. But household spending went up even faster. The resulting boom was almost magical; the effects were diabolical. Britain went from a debt/GP ratio of 43% in 1980, to over 65% today. Its deficits rose up too and now are projected to be the highest in the European Union – as much as 13% of GDP. But the big expansion in both Britain and America was in private household debt. Combined with government borrowing, it pushed total debt from about 150% of GDP in the mid-'80s to as high as 400% today. Japan – the other major 'western' economy – has total government debt of nearly 200% of GDP. Its deficit is now so large that it must borrow an amount equal to the total it collects in income taxes. It is said, of course, that Japan has much debt but also much savings. The trouble is, the savings and the debt are largely the same money. Households saved. Government borrowed the money. The savings that are supposed to offset the debt have already been spent. All together, Europe, America and Japan have total government debt of about $32 trillion, compared to total output of $34 trillion. Add $50 trillion or so of private debt, and you begin to see the bottom of the hole. In other words, the developed economies have borrowed nearly 3 years' worth of future output. At 5% interest, (investors recently wanted Greece to pay 16%!) this means the western world must give up all the output from January 1st to the end of February just to stay in the same place. Meanwhile, back in China, last week's visit to Beijing revealed a glorious transformation. In the early '80s, a visit to China was a hardship. The streets were drab. The people were drabber, in their grey clothes and grey towns. They stared at tourists as they had never before seen a capitalist. Minders still accompanied tourists. Most of the country was off-limits. There were few private automobiles and few roads deserving of them. In just 3 decades Beijing has become one of the world's most dynamic, forward-leaning cities, with new Audis and Mercedes bumper to bumper…as far as the eye can see. There are sparkling office towers with millions of earnest workers…and gleaming hotels with sleek prostitutes in the lobbies. Chinese entrepreneurs hustle deals at every table. China is still an emerging economy. Europe, Japan and the USA, on the other hand, are submerging – sinking in a sea of debt. Getting rich is glorious. Getting poor is a damned shame. Bill Bonner To Get Rich is Glorious 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."
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| Posted: 28 May 2010 08:43 AM PDT
A Busted Formula, by Eric Sprott and David Franklin There’s nothing wrong with throwing a little money at a problem to make it go away. There’s equally nothing wrong with throwing a little borrowed money at a problem to make it disappear, as long as you have the means to pay that borrowed money back. But what happens if you throw a lot of borrowed money at a problem, and the problem doesn’t go away? If you’ve ever experienced a situation like that you can probably understand how Europe feels right now. It just unleashed a magnificent $1 trillion euro bailout and the market responded with a selloff by the end of the week! So what happened? That money was supposed to make the problem go away, after all. And it was a lot of money. Why did the market respond to it with such disdain? We believe the market’s reaction is confirming what we have long suspected: that these bailouts provide next to no long-term value. They don’t produce real jobs. They don’t improve productivity. They just prolong the precarious leverage game played by the financial sector, and do so at tremendous cost to taxpayers. "Bailout and Stimulate" has been the rallying call for governments and central banks since the beginning of this financial crisis – and it has certainly had its impact over the last two years, but not the type of impact we need to propel real, sustainable growth. There are three recent, glaring examples of this busted "Bailout and Stimulate" formula in action: Exhibit A: The United States From the outset of this financial crisis, the US Government and Federal Reserve have spent prolific amounts of money to save its banks and stimulate its economy. According to Neil Barofsky, special investigator general for the Troubled Asset Relief Program, the United States has now spent approximately $3 trillion on various programs to stem the financial crisis.1 This figure is expected to be updated again in July. This $3 trillion expenditure includes stimulus programs like ‘cash for clunkers’, the extension of unemployment benefits, infrastructure spending, the "Making Home Affordable" program, as well as the activities of the Federal Reserve. To measure what the fiscal stimulus has actually accomplished we looked to the US Federal budget outlays/receipts to gauge the impact of the stimulus on GDP.
Another troubling statistic relates to the cost of job creation for the American Recovery and Reinvestment Act (that’s the $787 billion program designed to produce real jobs in the United States). The White House estimates that it takes approximately $92,000 of government spending to create one job in the US. The White House justifies this exorbitant amount by stating that at the current employment level, each job in the US economy generates $105,000 in GDP, thus resulting in good "bang for the (taxpayer) buck".5 Spending $92,000 to generate $105,000 in GDP seems justifiable on the surface. But further digging reveals that the actual cost to save or create one job in the US was $117,933 per job from February to December 2009.6 That’s well over $92,000, and more than the $105,000 "return" each job is supposed to provide in GDP. If this metric is correct, it means the US government is actually suffering a negative return from its job stimulus. To further convolute the issue, one must also consider that the supposed $105,000 GDP return for each new job doesn’t incorporate the fact that the $92,000 (or $117,933) spent to create it was BORROWED. Why does this aspect of government expenditure never make it into the analysis? Spending $92,000 for a $105,000 pop in GDP represents bad logic when that $92,000 isn’t yours to spend. If we incorporate the interest costs required to borrow the $92,000, are we really producing value or just digging a deeper hole? Numerical discrepancies aside, the fact remains that GDP is a terrible metric to measure the return of a job program. GDP is technically the value of all finished goods and services produced in an economy. From a business perspective, GDP is akin to revenue, which isn’t an asset, and is different from ‘earnings’ or ‘profits’. Businesses don’t hire additional workers for their marginal increase to ‘revenue’ – they hire to increase their marginal ‘profit’. The White House approach to job stimulus will maximize spending, not profit. Rather than maximize spending, why not maximize actual employment by finding a way to produce a job for less than $92,000? Surely some of the fifteen million unemployed workers in the US would appreciate some help in that area.7 Exhibit B: The Latest Bailout Failure in Europe In a show of force designed to impress the world markets, the European Union pieced together an unprecedented loan fund worth almost €1 trillion euros. The fund’s capital was made available to rescue euro zone countries in financial trouble. The European Central Bank announced it was ready to buy euro zone government and private bonds "to ensure depth and liquidity." The US Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank announced that temporary US dollar swap facilities would be opened to provide liquidity. Never have so many organizations coordinated and contributed so much to a single bailout effort! So what was the ultimate effect of this shock and awe campaign? After enjoying a short-lived obligatory rally, the market for stocks, bonds, and the euro (in terms of USD) traded lower by the end of the week. Gold, a barometer of fear, appreciated almost 6% in euro terms over that same week. Which brings us to the crux of the problem… Exhibit C: Over-Levered Banks Banks are at the epicenter of this financial crisis. The reason? Leverage. We outlined our measurement of bank leverage in our article Don’t bank on the Banks in November 2009. As equity investors we worry about the impact a change in assets will have on a banks’ tangible common equity. Readers will note that the German financial regulator recently banned naked credit-default swaps of euro-area government bonds and banned naked short selling in ten German banks and insurers. It shouldn’t surprise you to learn that, according to their most recent filings, German banks are some of the most levered in the world. Table B shows the leverage calculation for each of the four largest banking institutions in Germany as of March 2010.
Commerzbank has the highest leverage of the German banks at 124:1. This means that if their assets drop in value by a mere 0.8%, their tangible shareholders equity is effectively wiped out. How many asset classes do you think have dropped by 0.8% since Commerzbank’s last filing in March? We would guess almost all of them have (except gold of course). Hence the recent ban on naked short selling of German bank shares. They’re too vulnerable to handle the market’s wrath. The German banks are not alone. Most large banks around the globe are operating with too much leverage. The governments can keep the "Bailout and Stimulate" game going, but it won’t amount to much in the long-term unless the leverage issue is wrung out of the banking system. Until that happens, bailing out the banks is akin to pouring money down a bottomless pit. The key point to remember with bailouts and stimulus is that it’s ultimately your money that the government is spending – and your children’s money. The numbers strongly suggest that your money isn’t being spent wisely. We need real jobs and real growth, not bigger, more leveraged banks. The market isn’t oblivious – it can see what’s happening. Gold’s recent strength in lieu of seemingly ‘deflationary’ economic data confirms the market’s doubts over government intervention in the financial system. Needless to say, we remain bearish.
1 Heflin, Jay (April 20, 2010). Government has spent $3 trillion (and counting) on financial crisis. The Hill. Retrieved on May 27, 2010 from: 2 We used current-dollar GDP numbers provided by the BEA to determine the marginal impact of deficit spending on GDP. There is no separate data set generated by the BEA, however the number is published in their news releases. It is also worth noting the divergence between reported numbers from the BEA. While the current dollar measurement of GDP decreased by $185.1 billion or 1.3% on 2009, real GDP was widely reported as increasing by 0.1%. This divergence is due to seasonality adjustments in real GDP and the percentage change reported is a blended increase over the 4 quarters in 2009. 3 Bureau of Economic Analysis (March 26, 2010) Gross Domestic Product: Fourth Quarter 2009 (Third Estimate) and Corporate Profits, 4th quarter 2009. Retrieved on May 25, 2010 from: http://www.bea.gov/newsreleases/national/gdp/2010/gdp4q09_3rd.htm. 4 Financial Management Service, A Bureau of the United States Departement of the Treasury. Monthly Receipts, Outlays, and Deficit or Surplus, Fiscal Years 1981-2010. Retireved on May 25, 2010 from: http://www.fms.treas.gov/mts/index.html. We adjusted the cash flows to a calendar year period to match GDP reporting. 5 Executive Office of the President Council of Economic Advisers. (May 2009) Estimates of Job Creation from the American Recovery and Reinvestment Act of 2009. Council of Economic Advisers. Retrieved on May 27, 2010 from: http://www.whitehouse.gov/administration/eop/cea/estimate-of-job-creation/ 6 McPheters, Lee (February 3, 2010) What Is the Cost per Stimulus Job? Knowledge @ W.P. Carey. Retrieved on May 27, 2009 from: 7 Bureau of Labor Statistics, U.S. Department of Labor. (May 7, 2010) The Employment Situation-April 2010. Retrieved on May 27, 2010 from: http://www.bls.gov/news.release/pdf/empsit.pdf 8 Reported figures for each institution as of Q1 ended March 2010
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| The Importance of Credit as Macroeconomic Variable Posted: 28 May 2010 08:29 AM PDT Erwan Mahe submits: Following the emergence of money velocity accelerators (CDOs and CPDOs), we have been insisting ad nauseam about the importance of credit as a macroeconomic variable, as in the spirit of the Financial Instability Hypothesis, which has become the rage since the collapse of the subprime market. I believe this vision, which centers more on the problems of collateral, financial institution balance sheet leverage and, thus money velocity, more than a simple reading of "money supply," will become important again in the context of a very turbulent banking sector. Complete Story »
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| The U.S. Government Bond Bubble Posted: 28 May 2010 08:28 AM PDT
What follows will read like an indictment on our entire economic system. But underlying my (relatively mild) harangue is an observation that people are ignoring the most obvious bubble out there; that is, the bubble in U.S. government bonds. The following is my attempt to figure out why. Efficiency Market Theory Let's face it, markets are inefficient. The efficient market theory, manufactured from the ivory towers of academia, poses perhaps the greatest threat to the stability of our system. Here's why. False assumptions produce false conclusions. The efficient market theory posits that bubbles aren't recognizable before they pop. The natural consequence of this misguided belief is that government officials will never act to preempt bubbles since they are, by definition, impossible to identify. This is one of the reasons why supposedly "efficient" markets are consistently marked by fat tails, outright panics, and "once in a lifetime" events. The efficient market theory currently extends to U.S. government debt. In a circular manner, the strength of U.S. bonds is justified by low yields, which is evidence of the strength of U.S. bonds. But take a step back and remember that current yields are a product of government intervention. Stability, especially artificial stability, breeds instability. U.S. bonds are a bubble, and it's pretty damn recognizable at the present time. Psychology and Cognitive Dissonance I love incorporating psychology to economics because this dual framework explains the world a whole lot better than pseudo-scientific economic models that are consistently wrong. I'm convinced that one of the biggest barriers to investment success is cognitive dissonance. To briefly explain, cognitive dissonance is a phenomenon by which people attempt to reconcile two opposing views. When faced with seemingly contradictory facts or opinions, most people will defend their existing framework by explaining away anything that refutes it. To understand why this human tendency is important in the context of a U.S. debt default, we must understand the framework most Americans currently carry. Most Americans cling to a framework that goes something like this: The U.S. is the biggest economic power the world has ever seen. We are the engine of global growth. We are immune to panics that characterize "less developed" countries. Our debt is rated Triple-A. Therefore, we can never default on our debt. Any evidence contrary to pre-existing frameworks will be explained away- this is human nature. So when gold goes to record highs, instead of recognizing that it is the free market's indictment of the monetary system, people will say "gold is a bubble." When Greece experiences a debt crises engendered by factors indistinguishable from ours, people say "we're not Greece- we can print our own money." Utter nonsense. By going short U.S. government bonds, I am basically going short the human tendency to cling to a worldview that provides them the most comfort. Always let historical precedent and facts determine your conclusions, not irrational human tendencies. Crony Capitalism and Collapse of the Rule of Law The rule of law is perhaps the most underappreciated aspect of functioning markets. Once the system degenerates into a form of crony capitalism (think: Chrysler bond debacle), you know serious economic shocks lie ahead. When people realize they can "game" the system, believe me, they will. Economics is all about incentives. Think about the tragicomedy that is Wall Street. Banks on life support get bailed out from the government to "save" the financial system. But to appease the public, politicians throw in a provision that banks can't hand out bonuses unless they repay TARP. No problem! Banks issue stock and dilute existing shareholders to repay TARP. Then they hand out record bonuses. Follow the path of money and realize your tax dollars are going directly to the pockets of morons who brought down our system. The system is being gamed big-time. What's the net effect? Investors lose confidence in the entire system and withhold their capital. This especially holds true for government bonds. The system can take only so much corruption before imploding at the seams. Blindly Trusting Financial "Experts" To rid you of any delusions that experts know what they are talking about, allow me to briefly walk you through the debacle known as subprime. Most professionals couldn't see the bubble in housing inflating even though it was staring them in the face. And this was a mere 7 years after the collapse of the Nasdaq! Leading up to the crash of housing, the consensus could not envision a national decline in home prices since their "infallible" economic models used data of home prices over a 60 year period. All quants needed to do was adjust their models back about 15 years to the Great Depression and they would have understood that home prices do indeed fall. Garbage in, garbage out. Models are useless without a proper historical backdrop. The experts, led by Paul Krugman, are now claiming that the U.S. is not Greece. Some people think this argument is sensible; to me, this is simply evidence of a world gone mad. The key thing to understand here is correlation. CDO's were priced so richly because it was assumed that different tranches, which respresented a diverse range of mortgages throughout the U.S, were not correlated. This assumption proved to be false because all homes were inflated equally by the same credit bubble and the same fraudulent system. False assumptions in correlation are prevalent as it pertains to sovereign debt. Somehow we believe the problems in Europe will not find their way to us. Unfortunately, we are experiencing a global sovereign debt crisis. Every single Western government is in debt up to their eyeballs. All bankrupt nations have lent money to each other in a complicated web that can be addressed only through default. Therefore, in the long run, all sovereign debts are correlated. Failure to Predict Second and Third Order Effects Perhaps the tendency that underlies policy mistake after policy mistake is the failure to think beyond first order effects. Politicians are especially adept at thinking at a linear level. Let me give you an example. Imagine you are the governor of California and your state is bankrupt (doesn't take much imagination). Say you want to raise your revenue by $100 million dollars. The easy solution is to tax the arbitrarily defined "rich." Suppose your definition of "rich" is anyone with an income of over $1 million. Assume that the revenue derived from this demographic at current tax rates is $50 million. Simple arithmetic will dictate that you double your tax rate and your problems are solved. Perhaps people don't believe this could possibly be the fantasy world our politicians live in. But this is essentially what the state of Maryland did. Millionaires promptly went "missing." Our leaders fail to see potential second and third order effects of debt monetization; the subsidizing of the auto, housing, and financial industry; and the ad hoc disregard of the rule of law. If these trends continue, I am 100% sure capital will flee America. We need to start thinking beyond propping up failed corporations and running up our national debt; this course is unsustainable. Linear World, Dynamic World Let's go back to the subprime debacle for a second. Credit default swaps, which were an effective short against housing, only started to crater in mid 2007- even after it was obvious that the models pricing CDO's were seriously flawed. Market makers (Government Sachs) briefly manipulated bond prices to buy time as they faded their clients and ran for the exits. Once people understood the toxicity of CDO's, we saw an all-out stampede as bond prices crashed dynamically, Does this sound familiar? Is our government not manipulating markets and delaying the inevitable by monetizing debt? Short of saying it outright, our government can't make it any clearer that trouble lies ahead. Seriously, what do you expect? Imagine Bernanke going on national TV and saying the following: "I would like to inform the American people that we are bankrupt. We have been hoping to maintain confidence in our system by artificially suppressing rates by buying up bonds with money we printed from nothing. We hope that by keeping rates low, we can create another illusory speculative boom and kick the debt can down the road for another administration to take the blame for. I have no clue what I'm doing- after all, I'm the one who thought subprime was "contained." Yea right. Our leaders are going to spend like drunken sailors until the entire house of cards comes crumbling down. I'm telling you, the evidence is staring you in the face. Gold is your only insurance.
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| Posted: 28 May 2010 08:25 AM PDT
The attached chart demonstrates conclusively (and hilariously) just how impotent stocks are, especially on days when even the Liberty 33 crew is in Long Island, in every attempt to break the magnetic EUR correlation. The attempted decoupling that started around 2 hours prior to the close, in which stocks were praying that the EUR correlation desks would follow into the close and just melt up following Atari's cavalry charge into the weekend, broke with 5 minutes to go, as stocks ended exactly where the EURUSD said they would, and very much the opposite of where Michelle Caruso-Cabrera and Bob Pisani were hoping they would (which would be relevant if the pair actually had any credibility still left to be torn down). Also, on the chart below, note how every time there would be an uptick in the EURJPY, stocks would exagerate the move by a factor of 5. It appears the HFTs are now flatly losing the game. Last but not least, 5 minutes before the close, Goldman's Joseph Cohenites released a hike in their S&P EPS estimates for both 2010 and 2011, from 76 to 78 for the first, and from 90 to 93 for the second. Again - failure.
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| BoE’s Posen: US needs to wake up to fiscal problems Posted: 28 May 2010 08:15 AM PDT by Marc Jones Speaking at a Bundesbank conference on global imbalances, Posen warned that people needed to realise the extent of the deficit problems in the world's largest economy. "The U.S. fiscal position is unlikely to improve in the sense of becoming more disciplined any time in the near future," Posen said, pointing to little U.S. desire to increase taxes or cut spending in areas such as the military and health care. "Why was it that we only woke up on Greece a few months ago. We all see this coming in the U.S., at least we should, at what point do we wake up?" [source]
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| BoE's Posen: US needs to wake up to fiscal problems Posted: 28 May 2010 08:15 AM PDT by Marc Jones Speaking at a Bundesbank conference on global imbalances, Posen warned that people needed to realise the extent of the deficit problems in the world's largest economy. "The U.S. fiscal position is unlikely to improve in the sense of becoming more disciplined any time in the near future," Posen said, pointing to little U.S. desire to increase taxes or cut spending in areas such as the military and health care. "Why was it that we only woke up on Greece a few months ago. We all see this coming in the U.S., at least we should, at what point do we wake up?" [source]
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| Stocks retreat as Fitch downgrades Spain’s debt Posted: 28 May 2010 08:11 AM PDT by Stephen Bernard Stocks were down before the news about Spain broke in early afternoon. They fluctuated as the day wore on. The last trading day of May fit the pattern of the rest of the month. May was difficult for the market as persistent and intensifying worries about Europe's debt problems sent the Dow down 7 percent. The average was heading toward its worst monthly performance since February 2009, the month before stocks began their recovery from 12-year lows. The Dow also looked to have its biggest May drop since 1962. "This month was damaging to the psychology of investors, so consumption may taper in the near term," said Jamie Cox, managing director at Harris Financial Group in Richmond, Va. Cox said consumers are more tentative after last year's market drop and recession, so they are more likely to cut back quickly at any signs of economic weakness. Investors, particularly retail investors, are also more likely to sell stocks at the first sign of a pullback, he said. "We're not far enough removed from the 2009 drop," Cox said. "People are saying 'not again.'" [source]
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| Stocks retreat as Fitch downgrades Spain's debt Posted: 28 May 2010 08:11 AM PDT by Stephen Bernard Stocks were down before the news about Spain broke in early afternoon. They fluctuated as the day wore on. The last trading day of May fit the pattern of the rest of the month. May was difficult for the market as persistent and intensifying worries about Europe's debt problems sent the Dow down 7 percent. The average was heading toward its worst monthly performance since February 2009, the month before stocks began their recovery from 12-year lows. The Dow also looked to have its biggest May drop since 1962. "This month was damaging to the psychology of investors, so consumption may taper in the near term," said Jamie Cox, managing director at Harris Financial Group in Richmond, Va. Cox said consumers are more tentative after last year's market drop and recession, so they are more likely to cut back quickly at any signs of economic weakness. Investors, particularly retail investors, are also more likely to sell stocks at the first sign of a pullback, he said. "We're not far enough removed from the 2009 drop," Cox said. "People are saying 'not again.'" [source]
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| Mining Stocks and The General Stock Market - Rising or Declining Together? Posted: 28 May 2010 08:04 AM PDT Historically, gold has been a preferred form of savings in India as well as in China and many of the other Asian countries. With incomes rising as more people enter the middle class, and with the numbers of the wealthy class increasing, it is ... Read More...
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| ECRI Leading Indicators Dip Again; Is a Double-Dip Recession Coming? Posted: 28 May 2010 08:02 AM PDT Michael Shedlock submits: Inquiring minds are investigating leading indicators of the Economic Cycle Research Institute (ECRI). Here are a couple of charts. Complete Story »
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| Madoff-Like Celebrity Financial Adviser Scams $30M, Collared Hiding in his Closet Posted: 28 May 2010 08:00 AM PDT He's offered financial advice to the likes of Hollywood A-listers including Sylvester Stallone, Uma Thurman, and Martin Scorsese, but Kenneth Starr has now been locked up for charges of stealing $30 million from his celebrity clients. From the Associated Press: "Kenneth Starr, 66, was ordered held without bail on charges of wire fraud, investment adviser fraud and money laundering after a prosecutor said Starr hid behind coats in a closet at his home when agents came to arrest him, forcing them to yank him out by the collar… "…U.S. Attorney Preet Bharara said at a news conference that Starr stole money in a Ponzi-like scheme from January 2008 through April after gaining the trust of wealthy and influential clients and sometimes controlling their finances. 'He made it a point to seem like it was a very exclusive thing, creating a mystique about what it means to be a client of Mr. Starr,' Bharara said. "There's no indication [Wesley] Snipes, Scorsese or Stallone were victims. An IRS criminal complaint said cheated clients included a former hedge fund manager and well-known philanthropist, an actress who was a longtime friend of Starr's, a former talent agency executive and his wife, an heiress and a prominent jeweler with a flagship Manhattan store. They were not identified by name." It's unfortunate to see theft in any form. However, it seems possible that celebrities can be more at risk of falling prey to criminals. The stars may have a particular lack of contact with the regular world, and perhaps a less developed ability to see the kinds of ordinary warning signs that might spook a more average investor. To help avoid this sort of predicament in the future, Joshua Brown at The Reformed Broker offers some "free advice to the Hollywood set" today. Here are a few highlights: "… 2. Your financial advisor is not supposed to play polo or wear designer sunglasses, nor should he ever have a popped up collar under any circumstances. He must never wear shoes without socks or wear a watch with a diamond bezel. "3. In truth, if an advisor or money manager's opening shpiel is about all of the other famous people he works with, this should not make you feel comfortable. Its actually a giant red flag indicating that you are dealing with a starf*&%er and a social climber who is more concerned with himself than you. "4. Even your brother-in-law will rob you if you give up power of attorney. Go ask Billy Joel. Uma Thurman signed over Power of Attorney so that Ken Starr would do her taxes. That's funny, my CPA never seemed to need signatory authority over my bank account to prepare my tax forms…hmmm." You can see more details in the Associated Press coverage here, and more of The Reformed Broker's advice to stars, here. Best, Rocky Vega, Madoff-Like Celebrity Financial Adviser Scams $30M, Collared Hiding in his Closet 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."
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| Consumers Not Doing Their Part in the Recovery Posted: 28 May 2010 08:00 AM PDT After yesterday's manic rally, the major US indexes opened down a bit this morning. Earlier, the Commerce Department reported consumer spending "unexpectedly" stalled in April – the first time since last September the numbers didn't go up. Incomes rose, and so did the savings rate. Of course, this is a good thing in the long haul. We need savings to rebuild a healthy economy. But in the credit-addled mind-set of Wall Street, the mighty consumer who drives 70% of the economy isn't doing his part to support "the recovery." The Dow sits at 10,205 as we go to print. The volatility index has retreated to around 30 as traders prepare for the holiday weekend. It was just a week ago that it reached 45 – something that's happened only four other times in the last two decades. Gold pulled back overnight to $1,207 this morning. The dollar index recovered some of yesterday's losses and sits at 86.3. A 10-year Treasury bill yields 3.31% this morning. Not quite the insane lows of earlier this week, but still good enough to keep a 30-year fixed mortgage at 4.87%. Despite the stock market's ups and downs this week, the fundamental weakness remains unchanged, both in the US and in Europe. "The notion that the Greek financial crisis is contained and soon to be forgotten," asserts The Richebächer Letter's Rob Parenteau, "is dead wrong. "Our experience in recent years," Rob continues, "is that when professional investors play the denial game, they play it to the hilt. Their walls of denial are made of brick and remarkably thick, and they do not come down easily. "But when current events blatantly reveal the incompleteness, if not the insanity, of consensus views, the walls of denial maintained by professional investors are undermined swiftly, and nothing more is left on the ground than a pile of red bricks with dust rising from them. "When the thundering herd, in its infinite stampeding wisdom, turns tail, best to go find a ditch to jump into so you do not get trampled to death." For what it's worth, the Treasury still pegs the national debt this morning just shy of $13 trillion. The USDebtClock.org website apparently jumped the gun. As if it matters. The latest jobs bill Congress is discussing (they don't want us to call it a "second stimulus," because that implies the first didn't do the trick) has been scaled back from $200 billion to $143 billion to $84 billion. As if that matters, either. "Government has grown too big, promised too much and delivered too little," says our friend David Walker, assessing what really matters from his vantage point as the former US comptroller general. "We are not exempt from the fundamental laws of prudent finance, and we should quit acting like we are." Assuming that does not happen, how to invest accordingly? "People still think of emerging-market economies as poor cousins," offers Marc Faber hopefully, "but because 80% of the world's people are here, in aggregate the consumption is huge. Everybody should have 50% of their money in the emerging world, outside the West." Another way of looking at it: In emerging markets, private investment and enterprise is making up a greater proportion of GDP. Here at home, it's just the opposite. Addison Wiggin Consumers Not Doing Their Part in the Recovery 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."
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| Hugh Hendry Warns To "Prepare For Hyperinflation" Posted: 28 May 2010 07:40 AM PDT
The endlessly entertaining Hugh Hendry, who gave Jeffrey Sachs a royal beatdown yesterday and pretty much discredited the Columbia professor for life, is back in this interview with Money Week's Merryn Webb, in which he once again is not afraid to make "bold" statements. Such as that hyperinflation is pretty much inevitable, that China is the functional equivalent of the Next fashion chain in the 1980s, that instead of listening to idiots on TV who just talk their high beta books, investors should buy the largest and safest stocks. Interestingly, Hendry actually suggests a viable way to fix America's problems, which would require China to write off its US debt, thus "securing the health and vitality of China's biggest customer." Alas, we don't think it would be sufficient, as China holds about $1 trillion of US debt (at least officially). For the Hendry plan to work, debt repudiation would have to go viral, with all banks, US and European, writing down foreign debts as well. Of course, this would bring about the crash of the financial system overnight which is why it won't happen. And yes, it still will crash, as the financed assets are bled of all their cash flows, but at least the grind into systemic bankruptcy will be slow, painful (for the middle class) and very drawn out. As for hyperinflation, Hendry's view coincides with that of Zero Hedge: "the current deflationary shock will deepen and then create "political legitimacy to go nuclear with hyperinflation" via the printing press."
h/t Kevin
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| Spanish Debt Yields Drop With the Downgrade Posted: 28 May 2010 07:39 AM PDT Bondsquawk submits: Credit Rating Agency Fitch downgraded the sovereign credit of Spain by from AAA to AA+ today which reflects concerns that an economic recovery will be sluggish due their debt burden. Despite the downgrade, Fitch views that the country’s credit remains strong and the outlook is currently stable. According to the report, Fitch states:
Complete Story »
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| Inside the European Banking House of Cards Posted: 28 May 2010 07:38 AM PDT Morningstar submits: By Matthew Warren Just as the U.S. Federal Reserve was winding down its quantitative easing program at the end of March, we were harboring concerns about how much higher U.S. mortgage rates might reset with such a large buyer stepping back from the market. During the month of April, long idling but persistent rumblings regarding sovereign credit concerns around peripheral EU countries quickly grew louder, as a different link turned out to be the weakest in the global credit market chain. In the ensuing months, the cost of capital rapidly reset higher for European countries perceived to face the weakest combined debt/deficit/economic pictures, most prominently Greece, Portugal, and Spain. Based on market action, it appears that there are also some lingering concerns about Ireland, Italy, and the U.K. It is somewhat of a chicken or egg argument about whether some of these countries potentially faced solvency issues that caused the debt markets to react so negatively or vice versa. What we find undeniable is that a rapid reset higher in the cost of credit for already troubled countries increased the odds of a bad outcome for any particular country. This situation closely mirrors what happened in the U.S. with its most financially troubled households. When the cost of (and access to) mortgage and credit card debt quickly reset in adverse fashion, the already high odds of default jumped overnight. Complete Story »
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