Gold World News Flash |
- An Inverted Death Cross in Investment Grade Credit
- KBR's Buyback: Real or Not?
- Why Governments Hate Gold
- The Derivatives Market and Reality
- Insufficient Silver to Supply China’s Growing Demand
- Phil Weiss: Best Advice? Integrated Oil Co's
- Daily Dispatch: It’s Not Temporary
- Middle East Producers See More Heavy Oil in their Future
- It’s Not Too Late to Buy Gold — Or for Uncle Sam to Tax It!
- When Do We Start Arresting The Central Bankers?
- Jim?s Mailbox
- Hourly Action In Gold From Trader Dan
- In The News Today
- Trader Dan Comments On The Declining Trust In Paper Assets
- Britain to See Inflation Risk?.. US Tax Collapse Coming?
- Disaster and Opportunity
- Markets Making You Sick?
- Very Good Article
- Is This It?
- LGMR: Gold Hits New Record Highs, Silver Jumps
- Gold at $1,250
- The mystery of the Gold Certificates
- Any G20 Rally May Be Short-Lived
- Genomic Health: Possible Takeover Candidate?
- 5 Natural Gas Stocks to Protect Against a Declining Euro
- Small Businesses Remain Best Reflection of Weak Economy
- Bulgarian Audit: More Bad News for EU
- Is Selling Out of Fear a Wise Approach?
- EU Debt Crisis, May / June Update: Imminent Default Threat Off, But Deterioration Continues
- Widespread Asset Deflation
- The Euro Index and Gold - The Most Important Pair?
- Insufficient Silver to Supply China’s Growing Demand
- Britain Is the First To Choose Deflation
- What Denotes a Dip Doubled or Deep?
- PPI of Metals: An Annual Revision
- Morgan Stanley On America's Biggest Challenge: Entitlement Spending
- Gold Seeker Closing Report: Gold Climbs to a New Record High and Silver Gains 1.5%
- UK And US Among Top 5 Weekly Sovereign Deriskers
- Theatre Of The Absurd (with apologies to Albert Camus)
- The Scramble For Gold Is On: GLD Gold Holdings Hit A Fresh Record, Increase By 12 Tonnes Overnight
- Honest Money Gold and Silver Report: Market Wrap Week Ending 6/03/10
- 12 Reasons Why The U.S. Housing Crash Is Far From Over
- Profiling One Of The World Biggest Bears: Baupost's Seth Klarman
- May US Car Sales Overview
- The Euro Index and Gold – The Most Important Pair?
- US Best for Growth - Say What?
- The Downside of Keynesian Economics: Santa Barbara Bank & Trust
- Gold 'debate' at Vancouver conference fizzles
- Gold 'debate' at Vancouver conference fizzles
- The Gold Price Made a New All Time Intraday High at $1251.80
| An Inverted Death Cross in Investment Grade Credit Posted: 08 Jun 2010 07:59 PM PDT The Pragmatic Capitalist submits: As we’ve previously described the primary differentiating factor between this sell-off and every sell-off since March 2009 has been the action in the credit markets. For the first time in over year we are seeing substantial deterioration across credit markets. This has been notable in IG credit. Spreads have started blowing out again as the sovereign debt fears raise memories of Lehman Brothers. The action in yesterday’s market was notable due to the strong technical movement we saw in spreads. The 50 day moving average moving upward crossed the 200 day moving average moving downward. In a typical market this would be known as a “golden cross”, but as widening spreads are a negative indicator this is actually an inverse “death cross”. It sounds very phony as most technical analysis chart patterns do, but this is one that is worth noting. The crossing of the moving averages is a very rare event and generally indicates the beginning of a very strong directional trend. We have noted similar patterns in several markets over the last few years including the golden cross in the S&P 500 in June 2009 at S&P 900 and the death cross in Chinese equities just prior to their recent 20% decline. Complete Story »
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| Posted: 08 Jun 2010 07:51 PM PDT As a spin-off - from Halliburton (HAL) - and as a company with loads of excess cash, KBR, Inc. (KBR) regularly pops up on my radar screen. The most recent 10k shows $941 million in cash a no debt. Significant, considering the current $3 billion market cap. Complete Story »
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| Posted: 08 Jun 2010 07:48 PM PDT This past week several emerging and ongoing crises took attention away from the ongoing sovereign debt problems in Greece. The bailouts are merely kicking the can down the road and making things worse for taxpaying citizens, here and abroad. Greece is unfortunately not unique in its irresponsible spending habits. Greek-style debt explosions are quickly spreading to other nations one by one, and yes, the United States is one of the dominoes on down the line. Time and again it has been proven that the Keynesian system of big government and fiat paper money are abject failures in the long run. However, the nature of government is to ignore reality when there is an avenue that allows growth in power and control. Thus, most politicians and economists will ignore the long-term damage of Keynesianism in the early stage of a bubble when there is the illusion of prosperity, suggesting that the basic laws of economics had been repealed. In fac...
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| The Derivatives Market and Reality Posted: 08 Jun 2010 07:48 PM PDT A market dependent on extreme leverage of already complex financial products does require at least some form of stability. This stability, often in the form of financial assistance, was made clear in 2008 when failing derivatives speculators were systematically bailed out after losing billions of dollars and threatening the entirety of the world economy. Solutions to Risk Proposed solutions to the growing size and scope of the derivatives include regulation and outright banning the market. Neither of these solutions, though well intended, will truly fix the growing size of the greatest asset bubble on earth. Regulations miss the driver of growth, failing to recognize that the derivatives market grows based on the availability of cheap credit. Regulations would also limit the number of market actors, which are important to maintaining stability and decreasing systemic risk. Banning derivatives would only result in higher prices for insurance and other real...
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| Insufficient Silver to Supply China’s Growing Demand Posted: 08 Jun 2010 07:48 PM PDT Most people have never heard of "the invisible hand" of the market, which is the surprising result of everyone working to get money with which to satisfy their own selfish interests, and it ends up benefiting everybody, a result that is so glorious that it seems that things are being guided by some "invisible hand." On the other hand, most people have heard the conundrum, "What is the sound of one hand clapping?" (Answer: a kind of "whoosh"), and they have heard the oxymoron "Hi. We're from the government and we're here to help you." Against those timeless phenomena, we have James A. Dorn of the Cato Institute writing about the "grabbing hand," which is entirely familiar if you have kids who are always whining that they are always hungry because you spend all your income on gold, silver and oil in your fearful, panicky response to the Federal Reserve creating So Freaking Much Money (SFMM) and the Obama administration deficit-spending So Freaking Much Money (SFMM). So you already ...
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| Phil Weiss: Best Advice? Integrated Oil Co's Posted: 08 Jun 2010 07:48 PM PDT Source: Brian Sylvester of The Energy Report 06/08/2010 The economic recovery that will drive up oil prices is still at least a year away, says Argus Research senior analyst Philip Weiss in this exclusive interview with The Energy Report. Weiss says oil prices will soften to average $73 in Q4/10. He predicts prices will firm in 2011 as supply tightness pushes oil to at least the high $80s late next year. Weiss believes the Gulf of Mexico oil spill has had a negligible effect on the oil price so far and recommends holding tight on companies with significant exposure to the Gulf, like Anadarko, Transocean and BP. He generally favors the sector's big players but you will have to keep reading to find out which ones make Phil's cut. The Energy Report: Last week German Chancellor Angela Merkel said the euro was in trouble and that the EU needed an orderly means of dealing with the insolvency of its members. Germany even banned naked short selling. Are Europe's debt issues...
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| Daily Dispatch: It’s Not Temporary Posted: 08 Jun 2010 07:48 PM PDT June 08, 2010 | www.CaseyResearch.com It’s Not Temporary Dear Reader, One of the prevailing fictions of the moment is that the soaring deficit and knock-on debt load of these United States – among other prominent nation-states – is but a temporary necessity that, as soon as the crisis is resolved, will recede like a gentle evening tide. Sticking one’s nose above the westerly horizon, however, provides a dose of reality on the lingering long-term effect of an unresolved sovereign debt crisis. The chart just below paints a crystal-clear portrait of a desperately sick economy, bedeviled by persistent debt caused by stubborn levels of elevated government spending against a steady downtrend in revenue. The economies of Japan and the U.S. are quite similar in one important way. And that is that they both enjoy considerable international demand for their respective currencies. In the case of Japan, this de...
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| Middle East Producers See More Heavy Oil in their Future Posted: 08 Jun 2010 07:48 PM PDT Middle East oil countries should increase production of heavy oil as oil prices remain higher and improved technology makes it easier, those attending an industry conference in Bahrain were told. Bahrain's oil minister, Abdulhussain Mirza, told the Heavy Oil World MENA conference that heavy oil reserves in the region were estimated at 1 trillion barrels, or 28% of total world reserves, but historically accounted for little more than 10% of production. "The vast reserve demonstrates the importance of heavy oil as a future energy source, one that cannot be overlooked and, therefore, companies that position themselves early in the heavy oil business are likely to win the game," Mirza said, according to local news reports. Bahrain recently signed an agreement with Mubadala Development, an Abu Dhabi state-owned firm, and Occidental Petroleum of the U.S., to boost heavy oil production in the Awali field, one of the oldest in the region and Bahrain's only oilfield. ...
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| It’s Not Too Late to Buy Gold — Or for Uncle Sam to Tax It! Posted: 08 Jun 2010 07:48 PM PDT The 5 min. Forecast June 08, 2010 10:39 AM by Addison Wiggin & Ian Mathias [LIST] [*] Another gold record… Chris Mayer explains why it’s not too late to buy [*] Today’s juicy rumor: A tax on gold profits [*] Global recovery killer: After pricing method change, iron ore prices quietly rise 147% [*] Will the stock correction turn into new bear market? One historic indicator worth watching [*] Plus, inbox rage: The 5 labeled both un-American and an enemy of Canada [/LIST] Another day, another all-time high: Chalk up yet another record for gold today, having just eked by its previous record of $1,249 an ounce. You know the story by now: The EU debt crisis of today, the U.S. debt crisis of tomorrow and an uncertain stock market… all good for good old gold. But is it too late to buy some more? “My short answer is no,” writes Chris Mayer. “Gold isn’t is always a good investment… If you bought gold in the ...
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| When Do We Start Arresting The Central Bankers? Posted: 08 Jun 2010 07:48 PM PDT Market Ticker - Karl Denninger View original article June 08, 2010 10:13 AM You want to know where the spikes in the Euro came from today? Try here: That's "official intervention" by the Swiss National Bank and if they don't cut this crap out they're going to cause an equity and credit market collapse. These jackasses now have double the Euros they held just a short while ago from these "operations", and as you can see, they're pissing into a hurricane on even a daily basis, say much less on anything more consequential: Congress does not have the right to get involved in the affairs of a foreign sovereign. But Congress has every right to demand that Bernanke close his goddamn swap lines right now until this shit stops, lest The Fed be the one who is on the hook when the entire ECB structure comes apart and WE THE TAXPAYERS are on the hook. This sort of tampering, performed by a private party, is illegal. Of course it's routine and "expected" in the FX space ...
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| Posted: 08 Jun 2010 07:48 PM PDT View the original post at jsmineset.com... June 08, 2010 09:31 AM I.O.U.S.A. CIGA Eric The numbers that failed to add up in 2007 are nowhere closer to doing so in 2010. In time, David Walker, as well as other visionaries such as Jim, Volcker, Schultz, Faber, etc. that see the warning signs long before the calamity, will be proven correct by the forces of the capital markets. Change is not driven by political will but rather capital flows assessing risk relative to reward. David Walker, comptroller general of the U.S., totaled up our government’s income, liabilities and future obligations. He concluded the numbers don’t add up. Those that have not watched this yet, please do so now. Source: iousathemovie.com More…...
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| Hourly Action In Gold From Trader Dan Posted: 08 Jun 2010 07:48 PM PDT View the original post at jsmineset.com... June 08, 2010 09:52 AM Dear CIGAs, A warning from rating agency Fitch concerning the state of the UK's finances rekindled investor fears towards Europe and was the catalyst for a push into a new all time gold not only in US Dollar terms but also in terms of both the Euro and the British Pound. All three notched records at the PM fix in London today. Last evening it appeared that happy talk from Chairman Bernanke about the US's "moderate recovery" had relieved investor worries and given the markets a bit of relief from the pounding of late. That did not last long however. Two things dented the feel-good mode – Bernanke mentioned that unemployment is going to stay high for a while and then came Fitch. The problem for the spinmeisters is that the very nature of the chronic debt-related issues that plague so many nations of the West simply cannot be talked away any more. They are too deep-seated to gloss over and while the monetary authorities...
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| Posted: 08 Jun 2010 07:48 PM PDT View the original post at jsmineset.com... June 08, 2010 10:04 AM Jim Sinclair's Commentary Consistency is something that the CDS weapons of mass financial destruction can count on. Spanish public sector on strike against austerity plan Tuesday, 8 June 2010 13:29 UK Spanish public sector workers are holding a strike in protest against an average 5% cut in pay that comes into effect this month. The cuts are part of a government austerity package aimed at reducing the country’s budget deficit, swollen by almost two years of recession. Hundreds of protesters gathered in front of Madrid’s finance ministry blowing horns and chanting slogans. Spanish unions said 75-80% of public sector workers had joined the strike. The labour ministry, however, put the figure at 16%. "This government is totally inept," said protester Alfredo Barrero Sanchez, 55. He accused the government of ignoring the crisis until it was too late. "In the end, look what has happened to this cou...
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| Trader Dan Comments On The Declining Trust In Paper Assets Posted: 08 Jun 2010 07:48 PM PDT View the original post at jsmineset.com... June 08, 2010 10:08 AM Dear Friends, Trust in paper assets continues to decline as evidenced by the Dow Jones-Gold ratio and the Gold-Bonds ratio. I do not have a chart of gold compared to the Euro bond but I would venture that its chart is even more impressive. Click chart to enlarge in PDF format with commentary from Trader Dan Norcini ...
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| Britain to See Inflation Risk?.. US Tax Collapse Coming? Posted: 08 Jun 2010 07:48 PM PDT Britain to See Inflation Risk? Tuesday, June 08, 2010 – by Staff Report Inflation 'a greater risk to Britain than deflation' ... Inflation is a greater risk to the British economy than deflation, a majority of economists polled by The Daily Telegraph have said. They fear policymakers will try to inflate their way out of the debt crisis. Their concerns are not expected to be reflected in the Bank of England's decision this week on interest rates, with the Monetary Policy Committee ... A large number were worried that, with public spending being slashed, deflation is a threat to the UK. But more now fear higher prices. Eleven of the 25 economists surveyed said inflation was a bigger worry over the next five-years. Nine of the economists polled said that deflation remained the primary concern, while five other economists said that they either feared a combination of both, or that the two would even each other out. The economists' warning comes after the ...
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| Posted: 08 Jun 2010 07:48 PM PDT By Neil Charnock www.goldoz.com.au There are many current global opportunities that might escape investors at this time. With so many different influences at hand it pays to keep the radar screen on and one eye on the markets at all times at the moment. Things are moving and developing quickly. Disaster is opportunity in disguise if you can work out how to play the situation. Take Greece as an example, one that scared a great many people and caused massive disruption and pain for many. If you live in Europe and had your Euros converted to gold, or USD you just converted a massive opportunity into profit. I warned Spain was going to 'happen' next a few weeks ago and that gold was going to go through the roof. It is up US$50 since then on the back of further break down in the Euro and fears about Hungry. The Australian dollar has fallen sharply and gold in has risen in USD causing a double whammy effect pushing the local gold price to $1530 as I wake up today. ...
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| Posted: 08 Jun 2010 07:48 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here June 08, 2010 08:24 AM Read the Financial Physician Blog hosted by my long-time friend Lou Scatigna (who turned 50 today and now will be sliding down the other side of the mountain with me) Latest posting of his that are must reads include: [LIST] [*] US Cost Of Euro Bailout Will Only Be $100 Billion [/LIST] [LIST] [*] Laffer: Tax Hikes and the 2011 Economic Collapse [/LIST] [LIST] [*] Ahmadinejad: Flotilla Raid Step Towards Israel's Annihilation [/LIST] [LIST] [*] CNBC EUROPE VIDEO: Gold going to $6,000 [/LIST] [url]http://www.grandich.com/[/url] grandich.com...
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| Posted: 08 Jun 2010 07:48 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here June 08, 2010 08:36 AM It helps answering the many questions on gold stocks versus gold. [url]http://www.grandich.com/[/url] grandich.com...
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| Posted: 08 Jun 2010 07:48 PM PDT Gold declined in quiet slowly through all of Far East and London trading on Monday... with gold's low of the day [$1,209.80 spot] coming minutes after 9:00 a.m. in New York. From there it rose a few dollars until the London p.m. gold fix was in around 3:10 p.m. in London... 10:10 in New York. Then the gold price took a big pop... and was up a hair over $20 in an hour and change. From that point it rose quietly... adding on another five bucks or so... closing around $1,241 spot. Gold's absolute high of the day came between 3-4:00 p.m. Eastern time, at $1,246.20 spot. Silver's path was very similar to gold's except there was a big spike down in early Hong Kong trading which took silver's price below $17.20 spot... which was its low of the day. Silver recovered all of that spike down loss within the next hour or so... then continue to decline to its New York low at 9:30 a.m. Eastern time. Silver, too, drifted gently higher until the London gold fix was in. From th...
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| LGMR: Gold Hits New Record Highs, Silver Jumps Posted: 08 Jun 2010 07:48 PM PDT London Gold Market Report from Adrian Ash BullionVault 07:40 ET, Tues 8 June Gold Hits New Record Highs, Silver Jumps, as "Reckless Governments" and "Double Dip Recession" Spur Investment THE PRICE OF GOLD held in wholesale 400-ounce bars jumped against all major currencies in London trade Tuesday morning, hitting fresh all-time highs in Dollars, Euros and Sterling as European stock markets extended yesterday's late drop on Wall Street. Leading economy government bonds also rose, pushing 10-year UK gilt yields back below 3.50%. Crude oil ticked down towards $71 per barrel, but base metal prices were mixed – with copper falling and aluminum rising – after China's No.1 aluminum producer, Chalco, said market-prices have fallen below the cost of production. Silver prices also rose, unwinding last week's drop vs. the Dollar and reaching 3-week highs vs. Euros. "If there is a double dip [recession], it will be a reflection of a long-term economic crisis,"...
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| Posted: 08 Jun 2010 07:48 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here June 08, 2010 06:52 AM People are asking me how do I feel with gold at $1,250?The gold perma bears keep saying all the way up it’s over. Fatboy from Freehold,is there a video/song that best describes gold right now (that’s Murphy and Sinclair in ring) [url]http://www.grandich.com/[/url] grandich.com...
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| The mystery of the Gold Certificates Posted: 08 Jun 2010 07:41 PM PDT
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| Any G20 Rally May Be Short-Lived Posted: 08 Jun 2010 07:19 PM PDT Moby Waller submits: I don't consider myself an expert on global macro economic news, but there is an interesting event coming up which may influence the markets quite a bit. The bi-annual G20 Summit is coming up June 26/27 in Toronto. We've heard rumblings about European bankers working on their growing debt and currency problems (Hungary is the latest to be shook). Also talk about President Obama trying to push through Financial Reform before this meeting. Complete Story »
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| Genomic Health: Possible Takeover Candidate? Posted: 08 Jun 2010 07:08 PM PDT Jason Chew submits: Genomic Health (GHDX) is a pure-play oncology in-vitro diagnostics company with approved products and a pipeline to drive future growth. It fits in well with the growing importance of personalized medicine in the pharmaceutical industry. Personalized medicine is comprised of two parts- the drug, and the diagnostic, a combination sometimes referred to as Dx/Rx. Biomarker and companion diagnostic development have been most notable in the oncology field. The high clinical trial failure rate coupled with the advent of targeted therapies have certainly been drivers in this trend. According to a report by PriceWaterhouseCoopers (PWC), the diagnostics market is only 2% the size of the overall drug market. With encouragements from the FDA and current industry trends toward personalized medicine, this market is set for growth. Complete Story »
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| 5 Natural Gas Stocks to Protect Against a Declining Euro Posted: 08 Jun 2010 06:49 PM PDT  Kurt Wulff (McDep Associates) submits: Five small cap natural gas buy recommendations Hugoton Royalty Trust (HGT), Dorchester Minerals (DMLP), San Juan Basin Royalty Trust (SJT), Birchcliff Energy (BIREF.PK) and Cimarex Energy (XEC) may appeal to investors seeking to protect against the declining value of the Euro in the face of government debt failures. Income and small cap oil and gas stock prices have advanced along with gold while the euro has declined. We believe in oil and gas as real assets whose nominal value should adjust upward as currencies inevitably lose purchasing power. Yet, our main investment case remains that energy is a growth investment because it is essential to the economic progress that nearly all strive to achieve. Originally published on May 14, 2010. Complete Story »
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| Small Businesses Remain Best Reflection of Weak Economy Posted: 08 Jun 2010 06:47 PM PDT The Pragmatic Capitalist submits: The National Federation of Independent Business continues to report a very weak economic environment for small businesses. The NFIB’s small index optimism index improved this month, but the outlook for the economy remains very tepid. William C. Dunkelberg, NFIB’s chief economist says the economy remains very weak:
Complete Story »
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| Bulgarian Audit: More Bad News for EU Posted: 08 Jun 2010 06:46 PM PDT David White submits: The Euro was down approximately -0.5% versus the Swiss Franc (CHF). To my mind this is still very negative for EU financials. Many EU mortgages are denominated in Swiss Francs. When the EU moves -0.5% versus the Swiss Franc, it means PIIGS owners with Swiss Franc denominated mortgages owe 0.5% more in principal. It means their payments are 0.5% higher. It means they are closer and closer to defaulting. It means banks are carrying more and more toxic loans. This makes me wince every time I think of Spanish real estate. The Eastern European countries’ currencies usually go down more than the Euro with respect to the Swiss Franc. I haven’t checked all of these for Tuesday. However, the Bulgarian Lev was down to 0.70511 Swiss Francs on June 8 from 0.70887 on June 7 (down again). This is down approx. 4.5% since May 22 (2 weeks ago). It is down close to 9% from Dec. 2009. This is a huge change for all those trying to pay off their Swiss Franc denominated mortgages. It goes a long way to explain the widening in the Bulgarian CDS spreads lately. Bulgaria was near the top of the list of largest spread wideners Tuesday (see table below). Complete Story »
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| Is Selling Out of Fear a Wise Approach? Posted: 08 Jun 2010 06:28 PM PDT Wall Street Post Game submits: Yesterday morning, BMO Capital Markets issued a report to clients recommending “switching out of equity positions and going to cash.” Analyst Mark Steele writes that the credit markets and European crisis are only worsening, and will have a dampening effect on equities. Is selling out of fear really the best advice?The front page of the report states in summary:
Complete Story »
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| EU Debt Crisis, May / June Update: Imminent Default Threat Off, But Deterioration Continues Posted: 08 Jun 2010 06:20 PM PDT Cliff Wachtel submits: If you haven’t been keeping up with the European Debt Crisis, here’s your chance to get up to speed fast. Imminent Default Threat Off, But European Deterioration Continues Complete Story »
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| Posted: 08 Jun 2010 06:14 PM PDT If you can't grow your way out of debt - and it looks increasingly likely that total debt in the Western world is growing faster than the economy - what else can you do? You're left with only three choices: default on it, print money to pay for it (quantitative easing, or inflationism), or cut spending and raise taxes. The task of today's Daily Reckoning is to look at which scenario is most likely and what investments will benefit (or suffer) the most. But, as you'll see in the note from our friend Dr. David Evans in the other featured article, we have entered unknown territory in the size of public sector debt creation. This can keep asset values inflated for longer than you might expect. But it can't prevent their ultimate deflation. That's what you have to be worried about now: widespread asset deflation. Even gold - which set a record high USD terms overnight - will not be immune. In fact, any time you see something making record highs, a correction is not far away. With gold, investment demand (as a hedge against bad monetary policy) is pushing the price up. Deflationist Robert Prechter says a genuine Europe debt crisis and technical momentum are setting up gold for a 40% fall from its highs. He cites the uber-bullishness of gold investors, with 98% being bullish. But then, you would be bullish if you were buying, wouldn't you? Why else would you buy if you didn't think the price was going up? We mention Prechter's prediction, though, because it's prudent to do so. The bigger the debt bubble, the harder they fall. Ultimately, gold (physical gold anyway) is a kind of insurance policy against whole-sale value destruction in paper assets. Like most insurance, you hope you don't have to use it because the world will be a lot less pleasant place if you have to. And to the extent that investor sentiment ebbs and flows with the news cycle, gold is like any other asset in its volatility. But fundamentally, we'd say it will survive the coming credit write downs a lot better than credits. There is an advantage to not being anyone else's promise to pay. Those promises are going to be hard to keep, even if bigger and bigger institutions are guaranteeing them. As Bill noted last week, the current sovereign debt troubles in Europe (and America, and Japan, and the US) are a consequence of the collectivisation of irresponsibility. The risk of loss from bad lending (and borrowing) has been transferred to larger and larger entities...from the individual to the investor...from the investor to the money centre bank...and from the money centre bank to the nation state. And now, bond traders are betting that in places like Greece, the most likely outcome is default, not austerity. According to a Bloomberg poll, 73% of traders think Greek debt is already zombie debt. Pimco's Anthony Crescenzi says we are at a "Keynesian endpoint." Someone, by the way, should mention this to Wayne Swan, Kevin Rudd, the Coalition, and anyone who thinks spending money you don't have improves your economy. It stimulates activity. But that is not the same thing as growing prosperity. When you "bring forward demand" by giving away money or granting tax credits for the purchase of big ticket items like cars and houses, where you think that demand is coming from? The future, of course. That means it won't be there when you get to the future. But the debt you took on to bring forward demand will be. How selfish and adolescent. And worse, when you "bring forward demand" you bring it into the world prematurely. In a financial sense, this means homebuyers who, financially speaking, may not be ready to endure the hardships that come with rising interest rates and unemployment. They can only hope that things don't happen. If they do, the demand brought forward could get crushed. Standard and Poor's credit analyst said as much in a report about the Australian housing market widely quoted in the press. She wrote that, "'We believe the larger debts and higher leverage expose some Australian mortgage holders, especially those with less equity in their houses, to potentially greater financial shock if high unemployment and interest rates, alongside a collapse of residential property values, were to occur." To be fair, she went on to say that she thought the housing market fundamentals in Australia were strong. And you won't have any shortage of real estate spruikers to tell you that unemployment won't ever rise in Australia (can't happen here mate) and neither will interest rates. This means not only will homeowners never go into negative equity, it means the collateral of Australian banks - over 50% residential housing - is, well, safe as houses. They were saying the same thing about American mortgages in 2004. But while Australia stews on what risk, if any, there is in having $774 billion in mortgage debt as a nation, Europe is dealing with the fact that you can't spend money you don't have and improve solvency issues. This is why Keynesianism is dead and why tax grabs are in vogue. When there's no more money to redistribute (steal from one group to give to another) and the government can't borrow, the only alternatives are outright inflationism (the farcical printing of money to buy government debt), default, or austerity. Pimco's Crescenzi writes that, "Time, devaluations, and debt restructurings might be the only way out for many nations...Debt-fuelled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now being seen as a magic elixir that has morphed into poison." And if you think we're just picking on Europe, think again. Ratings agency Fitch stuck it to David Cameron in the UK and said his deficit reduction plans aren't good enough. And in our homeland, the debt-to-GDP ratio is fixing to exceed 100%. The only reason no one is panicked is that the US dollar, for all its grotesque deformities, is not the Euro. All of this raises serious issues for emerging market nations. Do they continue to invest in the sovereign bonds of Western Welfare states? And if not, what will they invest in? And if their primary export markets embrace slower growth and austerity, will emerging market nations face slower growth themselves, with smaller trade surpluses and less capital available to finance other people's debts? Hmm. This is a lot to think about. Your editor is on a plane to Seattle early tomorrow morning and will be out of touch for the next five business days. But thinking will be done. And writing. In the meantime, you'll hear an entirely different perspective from our trader colleague Murray Dawes. Dan Denning
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| The Euro Index and Gold - The Most Important Pair? Posted: 08 Jun 2010 06:05 PM PDT Summing up, from the USD perspective, the gold market appears to be moving slightly higher. Still, the current rally might be more visible from the non-USD perspective, as the Euro Index is still declining. In other words, if you're trading gold for euro, sterling or other non-USD currencies, there appears to be even more upside potential for gold.
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| Insufficient Silver to Supply China’s Growing Demand Posted: 08 Jun 2010 06:02 PM PDT Most people have never heard of "the invisible hand" of the market, which is the surprising result of everyone working to get money with which to satisfy their own selfish interests, and it ends up benefiting everybody, a result that is so glorious that it seems that things are being guided by some "invisible hand."
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| Britain Is the First To Choose Deflation Posted: 08 Jun 2010 06:00 PM PDT Over the last three years, the Federal Reserve has conjured up trillions of dollars of funny money in an attempt to breathe some inflation back into the economy. The attempt has cleared failed. Now, it would appear, Britain has become the first country to throw in the towel on fiscal and monetary black magic.
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| What Denotes a Dip Doubled or Deep? Posted: 08 Jun 2010 05:09 PM PDT Yesterday’s big news: Monday night, Bernanke said the Fed might not wait until full employment is reached before increasing rates. Wow, that’s really a bulletin – certainly worthy of the key spot on Bloomberg’s Top News scroll that it maintained for much of the day. Full employment…whether that’s 4%, like the Fed thought in the late 1990s, or 5%, like they thought in the 2000s, or 6%, like they think now…is years away, 2012 at the earliest. Yes, it seems a fair bet that if unemployment drops 3% or so from the highs then the economy is booming enough that the central bank can move rates from zero. Thanks for that post, Dr. Obvious. Complete Story »
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| PPI of Metals: An Annual Revision Posted: 08 Jun 2010 04:12 PM PDT Ivan Kitov submits: About a year ago we revised the evolution of several price indices of metals. Our general approach is based on the presence of long-term sustainable trends in the evolution of the CPI and PPI in the United States. The difference between various components of these indices is not a random but rather a predetermined process, as shown in a series of papers we published in 2008-2009 [1-4]. Using these trends, one can predict consumer and producer price indices for select goods, services and commodities [5-7]. We have summarized these papers and some more studies in a monograph “Deterministic mechanics of pricing” published by LAP [8]. In this post, we revisit the trends in the PPI of three commodities related to metals: steel iron, nonferrous metals, and metal containers. Originally, these items were studied in our article [4]. This is a regular revision with the next scheduled to the end of 2010. Complete Story »
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| Morgan Stanley On America's Biggest Challenge: Entitlement Spending Posted: 08 Jun 2010 04:07 PM PDT
There are some who will take up hundreds of pages to explain something as simple as the complete bankruptcy of the US entitlement program. Others, like Morgan Stanley in this case, present it succinctly- why write and write and write when a one page income (well, loss technically) statement will suffice? In a presentation, oddly focusing on Internet Trends, the MS team puts up an appendix page that probably should make the inbox of every politician in America. In a nutshell, when analyzing the math of entitlement spending, even as revenues flatline (at best), and decline (realistically), the expenses are quite literally growing geometrically. At this rate of deterioration, the Loss on the entitlement P&L will be at ($3 trillion) a year by 2013. For those who don't buy this estimate, here is a refresh: it was +$128 billion in 2001, (318) billion in 2005, and ($1,413) billion in 2009. Then there are some like former Western Asset Management personnel, who are so confused by numbers so massively negative, that they #Ref out their excel spreadsheets, and tend to ignore them altogether. Which brings us to the topic of the night - those who find the most efficient way to short Western Asset Management (and its retention policy of never hiring those proficient with positive and negative integers... forget about floating point) will win a free Zero Hedge hat.
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| Gold Seeker Closing Report: Gold Climbs to a New Record High and Silver Gains 1.5% Posted: 08 Jun 2010 04:00 PM PDT Gold waffled near unchanged in Asia and rose in early London action to a new record intraday high of $1251.68 by a little before 6AM EST before it fell back to $1240.75 by just before 10AM EST in New York, but it then bounced back higher in the last few hours of trade and ended at new record closing high with a gain of 0.42%. Silver climbed to as high as $18.421 in London before it dropped back under $18.25 in early New York trade, but it then rose to a new session high of $18.461 in the last minutes of trade and ended with a gain of 1.49%.
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| UK And US Among Top 5 Weekly Sovereign Deriskers Posted: 08 Jun 2010 03:17 PM PDT
The week's biggest (sovereign) CDS movers have been released, and we have some new entrants in the most endangered species list. While by now nobody will be surprised that the UK is a consistent top 2 player (coming in this week with $319 million in net notional derisking, this making it the 8th week or so the country has made the top 3), only behind Italy and its $452 million in net notional, and just in front of last week's #1 Brazil, the presence of the United States at #4 should be a little unsettling. It has been months since the US appeared in the top 5. And just like in the long gold case, the same types of existential questions once again arise when the interest in US CDS picks up: who gets to pay off your contracts in the case of an event of default? Elsewhere, the presence of Korea and Turkey (or Australia) in the top 10 should not come as too surprising. On the other end, short covering was violent in CDS of Spain, Hungary and Portugal - Europe's newest lepers. Is the CDS community concerned the EU can actually pull out a rabbit out of the hat that actually works for once? Hardly. The top 10 reriskers also saw the inclusion of France and long-forgotten insolvent Greece.
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| Theatre Of The Absurd (with apologies to Albert Camus) Posted: 08 Jun 2010 03:01 PM PDT I see Banana Ben Bernanke doesn't see a double-dip recession: Federal Reserve board chairman Ben Bernanke said Monday he didn't think that the U.S. economy would slip back in to recession, saying that consumer spending and business investment seem strong enough to keep the economy growing, albeit at a relatively subdued rate. LINKSet aside all debate about the accuracy of the Government's GDP calculation (there are several problems) and recall that Bernanke is the expert who said as recently as 2007 that housing prices are not too high, there is no housing bubble and everything in the mortgage market is fine. The fact of the matter is, I'm not sure I can ever recall Bernanke issuing an accurate economic assessment. The persistence of the public's faith in Bernanke's garbage is absolutely astonishing. I'm not sure where Banana Ben sees growth coming from other than from massive Government stimulation. The housing market was propped with several hundred billion in tax and mortagage subsidies (actually $1.25 trillion in direct Fed intervention). Not much of a bounce for all of that money. And I recently found out how the bounce in sales at GM and Chrysler was engineered. GMAC has been issuing car leases with an unusually high residual value. What this does is lower the monthly payment of the lessee. However, at the end of the lease, the "residual value of the car will be substantially higher than its market value. Guess who pays for that? The Government aka the Taxpayer. At some point everyone who is willing to buy an American-made car in exchange for a lower monthly payment - AND fog a mirror from a credit-worthy standpoint - will have made their move. And just like with the cash 4 clunkers program, the sales of GM/Chrysler (and probably Ford) cars will stall out. So with housing and autos hitting a wall, where is Bernanke envisioning real economic growth? I have no idea and notice that he does not offer any ideas. With that as a backdrop, and in the context of Germany and the UK calling for budget cuts and Obama today demanding that all Govt agencies cut their budgets by 5%, does anyone really believe budgets will be cut and spending reduced? How is it at all possible for these Governments to implement "austerity" programs, cut Government spending AND service their debt? The majority of European and U.S. economic activity has been created by trillions in Government stimulus (direct and indirect). If the Governments take away this punch bowl, the economies tank - hard. Then how do these Governments feed their people and service their debt without printing massive amounts of money? Does ANYONE really believe that the leaders in power right now will commit this political suicide and actually cut spending? Conversely, if they refuse to cut spending, where is the organic, private sector economic growth going to come from? It's no secret that a second stimulus Bill is working its way thru the bowels of Congress right now. The only question is how large it will end up being. My best guess is that something substantial (i.e. several hundred billion) will be passed in time for it to create some kind of economic dead cat bounce ahead of the November elections. Of more significance and likely of much larger size, will be an eventual QE2 program announced by the Fed, in conjunction with the EU Central Bank. I am guessing several trillion. This will allow the U.S. and EU to cover another big bank bailout, which will be necessary as the collapse in commercial real estate converges with the next wave of big mortgage defaults/housing foreclosures about to hit the U.S. I would suggest that the recent price action in gold, which has inexorably risen in price along with the U.S. dollar, is forecasting both increased Government spending deficits and round two of the Fed's money printing program. 
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| The Scramble For Gold Is On: GLD Gold Holdings Hit A Fresh Record, Increase By 12 Tonnes Overnight Posted: 08 Jun 2010 02:02 PM PDT
The total NAV in tonnes in GLD has just hit a fresh new all time high, climbing by 12.2 tonnes overnight, and closing at 1298.53. Gold holdings in the ETF have now increased by 30 tonnes over the past week, taking up all the weekly gold supply produced by miners on the planet. Also, as the charts below demonstrate, after being relatively flat, total gold tonnage in the GLD has increased at a dramatic pace over the past month, increasing by 10% of all assets, even as gold fixing has only increased by 4% during the same time period. It appears even non-physically backed gold ETFs are now scrambling to get all the gold (either real or imaginary) they can get their hands on. Chart of GLD closing price and NAV:
Indexed chart of GLD closing price and NAV:
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| Honest Money Gold and Silver Report: Market Wrap Week Ending 6/03/10 Posted: 08 Jun 2010 01:22 PM PDT The Swiss announced that they will not defend the euro in the currency markets. This helped propel the euro below 120 for the first time since 2006. Look for on-going sovereign debt problems in the future, which will become as infamous as ...
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| 12 Reasons Why The U.S. Housing Crash Is Far From Over Posted: 08 Jun 2010 01:13 PM PDT
The reality is that it has taken unprecedented U.S. government intervention to even stabilize the U.S. housing market. Now that the tax credit has expired, and as the U.S. economy continues to worsen, there is simply no way (except if we see hyperinflation at some point) that housing prices are going to return to the levels that we saw during the height of the housing bubble. Banks and other lending institutions all across the U.S. have seriously tightened their lending standards and so it is now much more difficult to get approved for a mortgage. That means that there are going to be less home buyers in the marketplace. In addition, while mortgage rates are at record lows right now, the truth is that they will not stay there indefinitely. When interest rates do start to rise that is going to suck even more home buyers out of the market. Truthfully, the housing market is not going to be as good as it was during the first several months of 2010 for quite some time. The entire U.S. economy is on the verge of collapse, and when it does the real estate industry is going to be one of the first to feel the pain. The following are 12 reasons why the U.S. housing crash is far from over.... #1) Now that the huge home buyer tax credit (government bribe to purchase homes) has expired, the real estate industry is bracing for the worst. The truth is that a significant percentage of those Americans that planned to buy a home in 2010 really tried to squeeze their purchases in before the April 30th deadline in order to take advantage of the tax incentive. According to mortgage consultant Mark Hanson, "buyers were bidding on everything and sellers were accepting anything and everything before 4/30." Now that the tax credit is over, things could get really slow for the U.S. real estate market. #2) A massive "second wave" of adjustable rate mortgages is scheduled to reset in 2011 and 2012. In fact, there are many analysts that are openly speculating that this second wave could be even more brutal than the first wave that we experienced in 2007 and 2008. #3) The number of home sale closings in May was down more than 5% compared to April. #4) Newly signed home sale contracts dropped more than 10% in May. #5) There has been an even more dramatic decline in mortgage applications. In fact, home purchase applications are now almost 40 percent below the level of just four weeks ago. #6) Internet searches on real estate websites are down 20 percent compared to this same time period in 2009. #7) From all indications, a record number of foreclosures is going to continue to flood the market. The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period. That was a record high and up from 9.1 percent a year ago. #8) U.S. banks repossessed nearly 258,000 homes nationwide in the first quarter of 2010, a whopping 35 percent increase from the first quarter of 2009. #9) A staggering 24% of all homes with mortgages in the United States were underwater as of the end of 2009. #10) People can't buy houses if they are flat broke. For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011. #11) The truth is that American consumers are stretched to the limit and are increasingly finding it very difficult to pay their bills. During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter. #12) The overall U.S. economy is in really bad shape and is rapidly getting worse. If American workers cannot find good jobs and if they keep going bankrupt in record numbers they simply are not going to be able to buy homes in 2010 or any year thereafter. Those who are projecting a robust housing recovery are living in some kind of fantasy world. It is just not going to happen. Let's just hope that things don't get as bad as the numbers seem to indicate that they might. Another devastating housing crash would just suck the life right out of the U.S. economy. So let us hope for the best but also let us be prepared for the worst.
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| Profiling One Of The World Biggest Bears: Baupost's Seth Klarman Posted: 08 Jun 2010 01:04 PM PDT
Absolute Return+Alpha has put together a must read profile of Seth Klarman and his hedge fund Baupost: a formidable combination, which has quietly become the sixth largest alternative asset manager in the US: "Seth Klarman, president and portfolio manager of 28-year-old Baupost Group, is considered the dean of value investing among hedge fund pros, and such a devotee of Benjamin Graham and David Dodd that he was the lead editor to the reissue of their classic, "Security Analysis,"in 2008. With his wire-rimmed glasses, graying beard and kindly smile, the 53-year-old Klarman has a gentle, professorial air about him—and a reputation as a cautious investor who is more likely to be found sitting on a mound of cash than taking big risks in frothy markets. But if Baupost has been able to throw its weight around recently, it's not just because beaten-down markets provided tremendous opportunities for value investors. It's also because Klarman has been on such an asset-building binge that Baupost has become the sixth-largest hedge fund firm in the UnitedStates, with $21 billion under management—three times the $7.4 billion Klarman managed just three years ago." Full article:
h/t saumilpmehta
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| Posted: 08 Jun 2010 12:46 PM PDT
One of the highlights pointed out by those demonstrating the "resurgence" of the US consumer has been the increasing SAAR of car sales in the US. To be sure, May's SAAR of 11.6 million in light vehicle sales was the highest since September of 2008, when it was at 12.5 million (as seen on the chart below). Yet one item often ignored is that the incentives, especially by the Big 3, as reported by Autodata have reached record highs in May 2010, averaging $3,470 per car for the Detroit 3. Not surprisingly, the one company that is not bankrupt or a ward of the state, Ford is the one providing the lest amount of subsidies. And even as the D-3 capture market share, Asian automakers have not only not followed suit with a comparable ramp up in incentives, but some are in fact doing the prudent thing and cutting back on subsidies. Furthermore, the recent million car+ recalls by Chrysler and GM have not been mentioned even once by CNBC Phil Lebeau, even as the latter spearheaded a governmentally-mandated crusade against Toyota, fully intent on discrediting the Asian carmaker. Lack of free market dynamics aside, here is a snapshot of the most recent car sale trends in the US, coupled with inventory, incentive and granular D-3 sales data. Monthly SAAR:
GM sales by model:
Ford sales by model:
Fiat/Chrysler sales by model:
Changes in market share MoM and YoY:
Dealer inventory:
And, most importantly, incentives:
Charts from Goldman Sachs
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| The Euro Index and Gold – The Most Important Pair? Posted: 08 Jun 2010 12:44 PM PDT
This essay is based on the Premium Update posted on June 8th, 2010
Markets are skittish and the pace and force of financial crises has taken a frightening turn for the worse. It seems like the fuse gets shorter between each crisis. We barely catch our breath from one when confronted with the next. Looking back three decades a crisis had taken place, on average, every three years. But now, a scant 18 months after the 2008 meltdown, Europe's Greek sovereign debt crisis hit with full, fulminating force. One crisis begets another and it seems like the world's economy is on a treacherous bumper-to- bumper course where any misstatement from politicians can cause a multiple car pile up. Still, the fact worth keeping in mind is that the main stock indices lead, not follow the main economic indicators, such as the GDP growth.
Therefore, when one reads something about the unemployment, GDP, import/export dynamics etc., in the vast majority of cases this information is something that is already factored into prices. Let's just say that the realistic assumption here is that the institutional investors / specialists have better access to information / research teams. At the same time they usually control large amounts of capital and their investment decisions can influence the value of the stock indices. So, if these investors' research suggests that the economic statistics are going to be grim in the future, they are likely to sell stocks right away, before everyone else gets the same information – without waiting for the official numbers to be released. Consequently, prices of stocks are to lead economic statistics.
Naturally, a move in either direction might accelerate after a particular piece of news is released, but the overall trend will most likely be in place much before that.
Moving back to gold – more and more often we hear talk of investors searching for "Safe Haven," as if it's a quest for a Holy Grail.
Take a look at these recent headlines:
· "Bullion Sales Hit Record in Stampede to Safety." (Financial Times) · "Gold is Safe Haven for Looming Crash." (Seeking Alpha) · "Gold Ticks Higher On Safe Haven Buying." (AP) · "Gold Rush: This is a new round of safe haven buying." (Bloomberg)
Safe haven is defined as a currency, stock or commodity favored by investors in times of crisis because of its stability and/or easy liquidation. Gold is a universally recognized currency carrying no counterpart risk, easily portable and unlike fiat currencies, it is nobody else's liability. Early civilizations equated gold with gods and kings, and gold was sought in their name and dedicated to their glorification. Humans almost intuitively place a high value on gold, equating it with power, beauty, and the cultural elite. And since gold is widely distributed all over the globe, we find this same thinking about gold prevalent throughout ancient and modern civilizations.
Sometimes safe haven is mentioned in connection to gold, other times U.S. treasuries and the Japanese Yen. Last month when financial markets plunged in "flash crash" mode, there was talk of capital flight from countries like Germany and Britain to perceived safe havens like Switzerland. Across the globe, investors fled from risky currencies, bonds and stocks to gold, the dollar, the Japanese yen and U.S. bonds.
In mid-May with intense pressure on the euro, we witnessed panicking German dealers and banks desperate to get their hands on Krugerrands, the world's most popular gold coin. At the Rand refinery in South Africa, the phone did not stop ringing all that week and people were buying gold coins like crazy. The Austrian Mint, which produces the popular Philharmonic gold coin, sold more gold in the two weeks from April 26 than in the entire first quarter of the year because of soaring European demand. Still, when the general stock market decline, gold used to move lower in the past years.
There are two reasons why gold has retreated on each of these occasions. The first, gold, as a part of some commodity indices, is automatically subject to liquidation along with the others. The second, gold is sold in order to raise cash or meet margin calls from other sectors. Once nervous investors and distress sellers had been flushed out of the market, sentiment towards gold returned in most of the major crises as well as its status as a safe haven. Still, as mentioned in the previous Premium Update, this might not be the case in the near future, as investors would realize that any declines in gold caused by plunge on the general stock market are only temporary. So far gold's performance confirms this theory.
Throughout history and in all civilizations gold has been valued and cherished. It has offered security in times of political or economic crisis. In extreme situations a few gold coins hidden in a coat lining could mean the difference between life and death. Gold is almost indestructible and does not corrode or rust. The amount available changes slowly and the quantity of newly-mined gold added each year is a small proportion of the existing inventory.
Gold has been a "reserve currency" and a safe haven for thousands of years, and those who understand history know that it will always remain one.
To see what history will say about the gold price this week let's begin this week's technical part with the analysis of the Euro (charts courtesy by http://stockcharts.com.)
In the Premium Update published on May 21st, we identified two strong support levels that the euro was approaching (marked with red circles on the above chart.). Since that time we have seen the euro move lower after having paused briefly. Right now, the euro is declining towards the lower support area at the level corresponding to its 2005 low as well as its mid-2003 high. Additionally, the lower border of the multi-year trading channel is marked by the declining dotted line on the above chart.
These two border levels cross right at the area marked with the red circle. Also significant is the level of the Fibonacci 61.8% retracement level obtained from the euro's 2000-2008 rally. The euro is not likely to fall much further from here. We have illustrated its probable bottom with the red circle, and we believe that there is about 90% probability that the euro would not move below the Fibonacci 61.8% level.
Therefore, it appears gold is driven by the downward movement in the Euro Index. As the euro declines, gold's price increases, because – as mentioned earlier in this update – we see significant demand from European Investors. Speaking of gold, let's take a look at the long term GLD chart.
In the recent Market Alert, we discussed how the self-similar pattern, which we've referred to in recent updates, is no longer reliable. It served us guidance for a few months, greatly improving the accuracy of the analysis, but it does not seem to be much useful any longer. Generally, there is a trade-off between particular pattern's reliability, accuracy, and the time that it is valid. The self-similar pattern was really something outstanding because it provided all of the above benefits for a relatively long time. The reality is that each and every pattern has to end and that self-similar pattern could not have been an exception.
Moving back to the gold market itself, in this week's long-term chart, the more classical RSI tool indicates that we are not in an overbought situation. We saw a decline and then a bounce-back and we may see it go a bit higher than we saw in early-May. The rising support line confirms this. Moreover, we have seen a confirmation in the form of relatively high volume in recent daily upswings.
Summing up, from the USD perspective, the gold market appears to be moving slightly higher. Still, the current rally might be more visible from the non-USD perspective, as the Euro Index is still declining. In other words, if you're trading gold for euro, sterling or other non-USD currencies, there appears to be even more upside potential for gold.
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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| US Best for Growth - Say What? Posted: 08 Jun 2010 12:00 PM PDT We had to look at this article twice, because the first time we didn't quite believe it. From our perspective, the US economy is not in great shape. Also from our perspective (and we've been writing about this for nearly a decade now) gold and silver investments are still attractive (despite their price appreciation), and may be until this great hard-money bull market runs out of steam. That may not be for another half decade.
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| The Downside of Keynesian Economics: Santa Barbara Bank & Trust Posted: 08 Jun 2010 11:42 AM PDT
From The Daily Capitalist This is the year that Santa Barbara Bank & Trust (Pacific Capital Bancorp; Nasdaq:PCBC) celebrated its fiftieth anniversary. It also may be the year it goes out of business if a recent rescue deal isn't completed. For almost 50 years, SBBT was a Santa Barbara institutions. Founded by civic leaders, it was one of the few local banks that thrived and survived over the years. There were a number of other local banks that started here which either went out of business or were acquired by a larger institution. Only one other local bank has survived long-term and thrives as an independent entity, the much smaller Montecito Bank & Trust founded in 1975. That bank is privately owned by a single local entrepreneur. Since 1960 SBBT had built itself on a conservative business model that relied on lending to local individuals and businesses, using the connections and reputation of their founders and the knowledge they had of the community they served. After a few years it was clear that the bank was enjoying solid, but not spectacular, growth and paid regular dividends to its shareholders. The stock was closely held in that no one ever sold stock unless they had to or died. There was a standing list of people who wished to invest if stock became available. Many investors became very well off from their investment, especially the early investors who benefited from stock splits over the years. I know several that became wealthy and the stock comprised most of their asset base. They hired bright people who took the firm's banking philosophy seriously. Many of the senior level executives were life-long employees of the bank and had acquired a great deal of wealth from their stock options and purchases over the years. I'm not going to portray the people who founded and ran the bank as geniuses or saints, or that they never made mistakes, but I will say they were honest, careful, concerned, and dedicated to the bank. I found it was not so easy to get a loan from them, as some of my real estate clients discovered. Some of the senior loan officers, executives, and managers who had been with the bank for many years had the opportunity to retire well relatively young, relying on their bank stock sitting in their 401(k) plans. Some came away with very substantial amounts. The bank was generous to their retired employees, providing some health and dental care benefits. Then things changed. They went for regional expansion starting in the late 1980s and started establishing branches out of the immediate Santa Barbara area. At that time, as now, the population on what is called the South Coast, the coastal towns including Santa Barbara, was was relatively small, about 200,000. They expanded south into Ventura and even Northern Los Angeles counties, and northward into San Luis Obispo, Monterey, San Benito, Santa Clara, and Santa Cruz counties. Much of their expansion was through acquisitions made from 1997 to 2005. Now it has 48 branches and has assets of $7.369 billion.
It seemed that SBBT went from the conservative local bank to a forward-looking and expanding regional bank. It seemed that the culture had changed with its size. Perhaps that is inevitable with growth. In order to compete with other regional players they had to be more aggressive in attracting deposits and borrowers as they entered new territories. They had to offer different products and services. They built up a trust department and engaged in wealth management. They completed about ten mergers over the years to acquire smaller banks in these areas. Now they are struggling to stay in business. Looking back with quite a bit of hindsight, there were basic flaws in its business model and some of the business choices it made that led to its downfall. To be fair, hindsight is a wonderful thing for a commentator looking on from the outside. Perhaps my observations are wrong, but here's how I see it. 1. In 2005 they implemented a new computer system for its banking business and added customer relations management programs. From what I heard on the street the implementation was a disaster and the bank had substantial problems which ultimately resulted in the replacement of the then current president. It's kind of interesting because their 10K in 2006 only said, "The Company has experienced some challenges with the installation that have caused inconvenience to customers." Having been on the lawyer side of securities issues I believe that statement is quite an understatement. What I think it says was that "We had a disaster but fixed it. Sorry." It makes one wonder about management when something like that happens. While it had fine people at the top, perhaps they under-appreciated the complexity of the new world in which they operated. I see the computer fiasco as a symptom of that stress. 2. They had acquired a tax anticipation loan business (Refund Anticipation Loan “RAL” and Refund Transfer “RT”) that generated a lot of cash flow. Basically tax preparers submit loan applications to the bank for clients who want an immediate payment of their tax refunds and didn't want to wait around for the IRS to pay them. The interest charged on such loans is very high and the bank caught a lot of criticism from consumer advocate groups. According to their Q1 2006 10K, "In the first quarter of 2006, funds lent in RAL transactions totaled $6.0 billion compared to $4.8 billion in the first quarter of 2005. The funds processed through RT transactions totaled $12.1 billion in the first quarter of 2006..." They had revenues of $87,573,000 from these loans in Q1 but loan charge offs were rising. They borrowed the funds to make these loans by securitizing the loans. They sold the business for $10 million in January of this year. While profitable, the securitization business had dried up making it difficult for them to raise capital to fund these loans. The need to raise additional capital to fund RALs compounded their problems since they needed a lot more capital just to maintain their Tier 1 capital ratio because of their growing problem with real estate loans. So, a significant amount of cash flow was lost to them which only compounded their problems. 3. They jumped big into the residential real estate development business, mainly through acquisitions of other banks. From their Q3 2006 10K, their president says,
The management statement notes that much of the loan interest growth was driven by loans from a bank they acquired in San Luis Obispo county. This is where the money train goes off the tracks. A growing portfolio of commercial real estate (CRE) and residential real estate loans, both for development and acquisition, were made throughout the boom, including loans made at the very top of the market. No one saw it coming. Loan Portfolio Analysis | ||||
| Gold 'debate' at Vancouver conference fizzles Posted: 08 Jun 2010 11:41 AM PDT 6:45p CT Tuesday, June 8, 2010 Dear Friend of GATA and Gold: If gold is in a bubble, it wasn't apparent at the World Resource Investment Conference in Vancouver Sunday and Monday, the conference being lightly attended despite the beautiful venue, the beautiful weather, and a large number of exhibiting companies. What was supposed to be the conference's highlight, a debate about gold between Kitco senior market analyst Jon Nadler and U.S. Global Investors CEO Frank Holmes, was a dud. The audience expected an argument over gold market manipulation, and the first question from the moderator, retired gold newsletter editor Bob Bishop, pointed the participants in that direction. But Nadler stated flatly that central banks have no interest in manipulating the The debate offered no review of the central bank intervention in the gold market that is part of the otherwise acknowledged historical record, like the London Gold Pool of the late 1960s, nor of the both open and surreptitious intervention GATA has documented, often from the files of central banks themselves. Such material can be found in the "Documentation" section of GATA's Internet site here: http://www.gata.org/taxonomy/term/21 A;parently neither panelist was prepared to review the history and the documentation, nor, apparently, had they been asked to. Indeed, it seems unlikely that Nadler, who long has greatly resented suggestions of gold market manipulation, would have participated at all if the agenda included any review of history and documentation. Since central banks are usually so secretive, the contemporaneousness and degree of their intervention in the gold market are always fairly subject to interpretation and debate. But central bank interest in gold price suppression is beyond any reasonable dispute. Federal Reserve memoranda and meeting minutes as well as personal memoirs, contained in the "Documentation" section of GATA's Internet site, demonstrate that in recent decades at least four former chairmen of the Fed were intensely interested in suppressing the price of gold -- William McChesney Martin, Arthur Burns, Paul Volcker, and Alan Greenspan. If central banks are not surreptitiously involved in gold price suppression even now, why has the Fed refused to give GATA access to its gold records and particularly the records it acknowledges concealing about its gold swap agreements with foreign banks? If the Fed has no interest in suppressing the price of gold, why has GATA had to sue the Fed for access to these records under the Freedom of Information Act in U.S. District Court for the District of Columbia? How anyone can blithely deny such evidence and manifest so little curiosity and still be considered a gold market analyst? But then purported doubters of the gold price suppression scheme have sunk to worse lately. In his recent debate with GATA Chairman Bill Murphy at Jim Puplava's FinancialSense.com, CPM Group executive Jeffrey M. Christian restorted to wholesale fabrication. Christian sought to minimize something in Federal Open Market Committee meeting minutes from 1995 that GATA has often cited -- the acknowledgement by Fed general counsel Virgil Mattingly that the U.S. government lately had been involved in gold swaps. The swaps cited by Mattingly, Christian claimed in the debate at FinancialSense.com, were entirely innocent and involved U.S. financial assistance to Portugal. But questioned by Fed Chairman Alan Greenspan about his gold swap comments in the FOMC minutes, Mattingly offered no such explanation. Rather, in a memorandum to Greenspan published by GATA, Mattingly denied making any statements about gold swaps at all and insisted that the FOMC minutes had misquoted him. Evidence of central bank intervention in the markets, open and surreptitious, abounds lately. Just the other day the German economics minister was quoted by Dow Jones Newswires as saying that the Fed has been intervening lately in the currency markets: And yet the Fed has not announced any such intervention -- and as far as we can tell, no other news organization has pursued the Fed for explanation. Most news organizations seem to have no more curiosity about central bank market intervention than Nadler and Christian do. Kitco has posted video of the Nadler-Holmes debate here: http://www.kitco.com/KitcoNewsVideo/kitco_news.htm But don't let it take you away from reruns of "My Mother, the Car." CHRIS POWELL, Secretary/Treasurer 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 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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| Gold 'debate' at Vancouver conference fizzles Posted: 08 Jun 2010 11:41 AM PDT 6:45p CT Tuesday, June 8, 2010 Dear Friend of GATA and Gold: If gold is in a bubble, it wasn't apparent at the World Resource Investment Conference in Vancouver Sunday and Monday, the conference being lightly attended despite the beautiful venue, the beautiful weather, and a large number of exhibiting companies. What was supposed to be the conference's highlight, a debate about gold between Kitco senior market analyst Jon Nadler and U.S. Global Investors CEO Frank Holmes, was a dud. The audience expected an argument over gold market manipulation, and the first question from the moderator, retired gold newsletter editor Bob Bishop, pointed the participants in that direction. But Nadler stated flatly that central banks have no interest in manipulating the The debate offered no review of the central bank intervention in the gold market that is part of the otherwise acknowledged historical record, like the London Gold Pool of the late 1960s, nor of the both open and surreptitious intervention GATA has documented, often from the files of central banks themselves. Such material can be found in the "Documentation" section of GATA's Internet site here: http://www.gata.org/taxonomy/term/21 A;parently neither panelist was prepared to review the history and the documentation, nor, apparently, had they been asked to. Indeed, it seems unlikely that Nadler, who long has greatly resented suggestions of gold market manipulation, would have participated at all if the agenda included any review of history and documentation. Since central banks are usually so secretive, the contemporaneousness and degree of their intervention in the gold market are always fairly subject to interpretation and debate. But central bank interest in gold price suppression is beyond any reasonable dispute. Federal Reserve memoranda and meeting minutes as well as personal memoirs, contained in the "Documentation" section of GATA's Internet site, demonstrate that in recent decades at least four former chairmen of the Fed were intensely interested in suppressing the price of gold -- William McChesney Martin, Arthur Burns, Paul Volcker, and Alan Greenspan. If central banks are not surreptitiously involved in gold price suppression even now, why has the Fed refused to give GATA access to its gold records and particularly the records it acknowledges concealing about its gold swap agreements with foreign banks? If the Fed has no interest in suppressing the price of gold, why has GATA had to sue the Fed for access to these records under the Freedom of Information Act in U.S. District Court for the District of Columbia? How anyone can blithely deny such evidence and manifest so little curiosity and still be considered a gold market analyst? But then purported doubters of the gold price suppression scheme have sunk to worse lately. In his recent debate with GATA Chairman Bill Murphy at Jim Puplava's FinancialSense.com, CPM Group executive Jeffrey M. Christian restorted to wholesale fabrication. Christian sought to minimize something in Federal Open Market Committee meeting minutes from 1995 that GATA has often cited -- the acknowledgement by Fed general counsel Virgil Mattingly that the U.S. government lately had been involved in gold swaps. The swaps cited by Mattingly, Christian claimed in the debate at FinancialSense.com, were entirely innocent and involved U.S. financial assistance to Portugal. But questioned by Fed Chairman Alan Greenspan about his gold swap comments in the FOMC minutes, Mattingly offered no such explanation. Rather, in a memorandum to Greenspan published by GATA, Mattingly denied making any statements about gold swaps at all and insisted that the FOMC minutes had misquoted him. Evidence of central bank intervention in the markets, open and surreptitious, abounds lately. Just the other day the German economics minister was quoted by Dow Jones Newswires as saying that the Fed has been intervening lately in the currency markets: And yet the Fed has not announced any such intervention -- and as far as we can tell, no other news organization has pursued the Fed for explanation. Most news organizations seem to have no more curiosity about central bank market intervention than Nadler and Christian do. Kitco has posted video of the Nadler-Holmes debate here: http://www.kitco.com/KitcoNewsVideo/kitco_news.htm But don't let it take you away from reruns of "My Mother, the Car." CHRIS POWELL, Secretary/Treasurer 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 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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| The Gold Price Made a New All Time Intraday High at $1251.80 Posted: 08 Jun 2010 11:35 AM PDT Gold Price Close Today : 1244.00Change: 4.70 or 0.4%Silver Price Close Today : 18.468 Change 31.5 cents or 1.7%Platinum Price Close Today: 1520.00 Change: 10.40 or 0.7%Palladium Price Close... 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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