Gold World News Flash

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• Worlds Collide
• GLD, GDX and SLV - Does November 2009 Repeat in July 2010?
• Jim?s Mailbox
• Monster printing, deficit cutting and seeing no bubbles but one
• Dollar Headed into Perfect Storm
• Alex Cowie: Why gold is trending toward $27,163
• Will We Have Inflation, Deflation, or Hyperinflation? Part 3
• Why central banks do care about gold: the connection to interest rates
• The Technical Traders View on Gold, SPX and Financial
• Crude Oil Climbs Toward $80, Gold Once Again Aiming for All-Time Highs
• The Wants and Fears of George Soros
• 1983 magazine profile shows BIS constantly intervening in gold market in secret
• Ambrose Evans-Pritchard: RBS expects ‘monster’ money printing by Fed
• Dan Arbess: Investing as the Foundation Shifts
• Gold eyes record peak
• Budget Cuts?
• Treasury Reserves Power to Seize Everything
• Can the Euro Survive a Sovereign Debt Crisis 6-14-10
• Gold Market Update - June 27, 2010
• Silver Market Update - June 27, 2010
• Seeking Help
• Quote du Jour
• Gauging the Risks of Recession
• Smack Down in Toronto
• Parsing Recent Carrier Strike Group Movements
• Ambrose Evans-Pritchard: RBS expects 'monster' money printing by Fed
• Ambrose Evans-Pritchard: RBS expects 'monster' money printing by Fed
• Lesions Found In Brains Of Dead Fish
• Fed Looks to Hyperinflate
• Guest Post: Destined to Fail – Magical Thinking at the G20
• Jim's Mailbox
• Debunking Deflationist Myths & Scare Tactics About Gold
• Arbing The Decoupling Between CDS And Out-Of-The-Money Equity Puts In Distressed Names
• Update on Giant's New Games
• Postcards from the Gulf
• Is Deswell Industries Seeing an Uptick?
• 3 Stocks With High Dividends, Low PEG Ratios and High Growth Prospects
• 3 Reasons Why the Treasury Should Borrow Now to Restructure and Rebuild
• Fortress Mentality No Solution To Protesting
• Adrian Douglas: Manipulative derivatives in gold and silver keep growing
• James Turk: People are starting to distinguish between paper gold and real gold

Worlds Collide Posted: 28 Jun 2010 01:55 AM PDT It's been touted as of late that central banks don't care about gold. Well they do. Gold has been, is and always will be money. Nothing else.

GLD, GDX and SLV - Does November 2009 Repeat in July 2010? Posted: 28 Jun 2010 01:23 AM PDT What you will notice is that the current setup for GLD is practically identical to that which existed in November 2009.

Jim?s Mailbox Posted: 27 Jun 2010 07:03 PM PDT View the original post at jsmineset.com... June 27, 2010 02:21 PM Gold Shares Dominant Relative Strength CIGA Eric Gold shares post their highest close relative to the stock market since the onset of the bull market in 2000. The gold shares sector continues to be the strongest group within the stock market. This is characteristic of a devaluation-driven economic environment. Gold Miners Index to S&P 500: More…...

Monster printing, deficit cutting and seeing no bubbles but one Posted: 27 Jun 2010 06:58 PM PDT Stacy Summary: Gee, I wonder if they are as committed to their promise to halve deficits in 3 years as they were to their commitment three years ago to double aid to poor countries? Macquarie says no bubble in Australian housing or US Treasuries, but a big one in gold RBS tells its clients to prepare for monster money printing by Fed G20 pledges to cut budget deficits in half by 2013

Dollar Headed into Perfect Storm Posted: 27 Jun 2010 06:05 PM PDT By Rick Ackerman, Rick's Picks For spin-free analysis of the global economy, the Australia-based  The Privateer is one of our favorite reads. Amidst a cacophony of hubris and unwarranted optimism, its editor, William Buckler, provides a perspective that reduces the mainstream media's reports of "recovery" to drivel. Buckler notes drily that "the signs that the party is indeed almost over are all around us and becoming very difficult to ignore."  The same goes for the U.S. dollar. When Nixon cut off foreign holders from redeeming dollars for gold in 1971, says Buckler, the U.S. initiated a reckless global experiment with fiat paper. "Forty years later, the bill for this adventure has come due," he warns, "and there is nobody to pay for it." Like Rick's Picks, The Privateer regularly finds something to amuse in mainstream-news headlines on the topic of the economy. Here's one that caught his eye — and ours as well: "China Makes Good on Flexibility Vow – Yuan Falls". As if any of the central banks actually support flexible markets. If it had been Hitler's invasion of Poland that was being reported, the headline might have read, "Hitler Makes Good on Vow to Seek More Room for Germany". Ominous Signs Recall that U.S. stocks got barely any lift from the news.  Abetted by short sellers caught on the ropes last Sunday night, DaBoyz and their pigeons were able to pretend for only a few hours that China's decision to let the yuan rise was good news. Stocks all around the world rallied sharply if fleetingly, but by Monday morning most traders seem to have figured out that a pricier yen would subject global financial markets, particularly the U.S. dollar, to killing stress. The Dow Industrials fell steadily for the rest of the week, failing to attract even one decent short-squeeze rally the whole way down.  Ominous. And here's why: Imagine everything the U.S. and the rest of the world buys from China costing more. Then imagine China's exports falling as a consequence, leaving the country with far fewer dollars to buy U.S. Treasury debt. Well, it is no longer something that needs to be imagined, for that is exactly what China intends. With the nation's foreign currency reserves edging toward $3 trillion, most of that in U.S. dollars, it was time for China put an end to a greenback-support operation that had long since grown beyond the bounds of sanity.  That is not to say, however, that Chinese support for the dollar has outgrown its usefulness, for the arrangement has given the U.S. Treasury the appearance of solvency, freeing up easy credit for U.S. consumers with an insatiable hunger for Chinese goods. Serene Detachment All of that is about to change, though, and with it the status of the dollar as the world's reserve currency.  We find it remarkable under the circumstances that, a week after China's decision, the dollar has yet to implode — nor Gold to erupt, presumably with sufficient force to leave the $1300 threshold behind in a cloud of dust. It is difficult to think that both of these things will not occur, although it may take a shift in the sheep-like thinking of money managers, for they are conditioned to believe that the dollar and Treasury paper are "safe havens" even though a U.S. without recourse to printing-press money would look far worse than that supposed financial basket case, Greece. With both Europe and Japan abandoning deficit spending as means of spurring their moribund economies, the U.S. dollar can only fall, and gold rise, as the former confronts a perfect storm of bad tidings.  This will happen even with the support of a dying coterie of money managers who may pretend for yet a little while longer that black is white, and that 1 + 1 = 3. It is predictable that they will all have their epiphany at once. When that day arrives, investors who are hedged with gold will be able to ponder the consequences with serene detachment. (If you'd like to have Rick's Picks commentary delivered free each day to your e-mail box, click here.) Rick's Picks is a trading newsletter for stock, gold, silver and mini-indexes. All trades are based on the proprietary Hidden Pivot technical analysis method. © Rick Ackerman and www.rickackerman.com, 2010.

Alex Cowie: Why gold is trending toward $27,163 Posted: 27 Jun 2010 06:02 PM PDT 2a ET Monday, June 28, 2010 Dear Friend of GATA and Gold: Adapting methodology often suggested by JSMineSet.com proprietor and gold mining executive Jim Sinclair, Alex Cowie of the Diggers and Drillers letter argues that the target price for gold is more than US$27,000, which he figures is the valuation needed to offset global public debt with central bank gold reserves. Of course Cowie seems to assume that reported reserves are actual reserves and that gold leasing has not caused central banks to do anything duplicitous with their reserve accounting -- a careless assumption but one he may be forgiven in favor of his larger point. Cowie's analysis is headlined "Why Gold is Trending Toward US$27,163" and you can find it at Money Morning Australia here: http://www.moneymorning.com.au/20100616/why-gold-is-trending-towards-usd... CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. ADVERTISEMENT Prophecy to Become Coal Producer This Year with 1.5 Billion Tonnes of Resource 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 Join GATA here: New Orleans Investment Conference Wednesday-Saturday, October 27-30, 2010 Hilton New Orleans Riverside Hotel http://www.neworleansconference.com/index.html * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts 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: http://www.goldrush21.com/ * * * 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: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

Will We Have Inflation, Deflation, or Hyperinflation? Part 3 Posted: 27 Jun 2010 05:48 PM PDT From The Daily Capitalist This is Part 3 of a four part article that deals with what I feel is the primary question investors must now answer: is our future to be inflation or deflation? The answer has vast implications to our investment planning and decisions for the near term, and possibly for our long term. It is a very complex question with a lot of moving parts involving economics and politics.   Like it or not, it is economic theory that is driving macroeconomic policies and political decisions that determine whether we will have inflation or deflation. Since not all of my readers are sophisticated traders I have tried to present the issues in a direct and hopefully understandable way. To those sophisticated readers, please bear with me. Part 3 What Factors Will Drive the Economy? This is the point where we need to look at some long-term trends in the economy to see how they will impact a recovery. If our economy is based on consumer spending (70% of GDP) then GDP will see a decline in the second half of 2010. In my article, Economic Megatrends That Will Drive Our Future, I point our seven megatrends that will impact our economy for the long term: The culture of consumption is broken and won’t return to former levels. This is the key to everything. Consumers will continue to increase savings to prepare for retirement. Declining U.S. consumer demand will continue to negatively impact the world economy. Deflation (deleveraging) will continue for some time. Home ownership rates will decline to more historical levels of, say, around 66%, down from the high of 69% during the boom, which will keep a lid on home prices. Government stimulus and recovery programs only delay recovery and deepen the pain for workers. Massive federal deficits will double the national debt, result in higher taxes, and will act as a permanent drag on the economy. I wrote this article in September, 2009, and it still stands. The significant things to note are No. 1 and No.2. Consumers are over-indebted and are doing their best to pay down debt. This article from the Wall Street Journal defines the issue: After years of bingeing on debt, U.S. households are paring back. Those not doing so by choice are often being forced, because lending standards remain tight. [T]he household sector's debt level, which includes both consumer credit and mortgage loans, remained at about 20% of total assets in the first quarter.   In the mid-1990s that ratio was around 15%, compared with a peak in the first quarter of 2009 of about 22.5%.   Just getting debt down to 18% would require households to shed an additional $1.4 trillion of debt. The way to pay down debt is to decrease spending and increase savings, especially when unemployment is at 9.7% and when real wages  (inflation adjusted) have been essentially flat: J. M. Keynes referred to the phenomenon of increased savings and reduced spending as “hoarding” by consumers and believed it harmed the economy, which is why, he said, the government needs to spend in their stead. In fact, what consumers are doing is very rational economic behavior in light of uncertainty. Savings will actually lead the economy out of the recession by creating new capital to fund an economic expansion. The main point here is that the consumption cycle for the majority of big spenders, the Baby Boomers, has changed, in my opinion, permanently. Boomers now realize that they need to save for retirement because Social Security won’t be enough, they don’t have enough financial assets, their home values will not regain their former highs, and they won’t inherit enough from their parents to help them in their old age. This has significant impacts on the recovery and the inflation/deflation issue. That is because the politicians making policy decisions believe that Keynes is right. I’ll discuss this later. Is Credit Unfreezing? Recently lending has increased and excess reserves have decreased. Some have suggested that this is the beginning of the end of the credit freeze but I disagree. This chart (TOTLL, YoY) reveals an increase in lending by commercial banks in Q1 2010: This corresponds to a like decrease in excess reserves (EXCRESNS) during the same period: This lending is evidenced by an increase in consumer loans in Q1 2010 (CONSUMER): What happened was that consumers went on a mild spending spree. I believe that almost all of the increase in consumer spending had to do with government fiscal stimulus: Cash for Clunkers, Cash for Appliances, and the home buyer credit which has spurred sales in home improvement goods. New car sales have been doing better as a result of dealer incentives. The data show that nonrevolving loans (NREVNCB), the measure for (mainly) auto loans (up 7.1% in April), went up dramatically in Q1 2010: Retail sales increased during that period, but now it is declining, much to the concern of the Fed. The latest Fed Flow of Funds report showed renewed declines in total credit as well as consumer credit. For Q1 overall household debt decreased for the seventh consecutive month (-2.4%). Consumer credit contracted 1.5%. Nonfinancial business debt was flat after four months of declines. The Report said revolving credit, or credit-card use, fell a 19th straight time in April, down 12.0%. Further, personal savings are increasing again after the drawdown. It appears that the temporary increase in consumer spending was not related entirely to money supply increases. Nonrevolving loans for autos increased, but a significant portion of general spending was fueled by personal savings of consumers. The following chart reveals that the rate of consumer savings (PSAVERT) declined in response to government incentives which favored certain industries (mid-2009 to Q1 2010). It appears that personal savings is starting to rise again, but we will need to watch the data to confirm such a trend. The Fed’s Problem The Fed has a dilemma. On the one hand, if they believe we are in a strong recovery, then they are worried about inflation. There was a lot of talk about recovery and the problem of what will happen when banks start lending again: banks will use their huge excess reserves which would cause money supply to explode, thus fueling “inflation” which they define as rising prices. This is what has been popularly referred to as the “draining the pond” or the “exit strategy” problem: how can the Fed sop up excess reserves before they hit the economy and cause rising prices? It is a very serious issue. The Fed closely monitors CPI and, as shown before, prices are growing at the rate of 2% YoY. (I’ll discuss signs of a decreasing CPI rate below.) If they decide to decrease the money supply by raising the Fed Funds rate from nearly zero percent, they believe they run the risk of jeopardizing the nascent recovery. For many months now most of the discussion by the Fed and most economists concerned exit strategy. Now the discussion has changed almost 180°: the buzz is now all about the possibility of deflation and economic decline. (See discussion below.) For these reasons, I don’t think they are that concerned with inflation for the near term. The Implications of a Double-Dip Decline Temporary Effects of Stimulus I think the economy is headed for a decline commencing at some point in the second half of 2010. I believe the Fed is concerned about this as well. Evidence of this is starting to show up in the numbers. The reasons for this are complex, but: Most of the economic gains have been the result of fiscal stimulus which is running out of steam. There has not been sufficient deleveraging in the economy by which banks have repaired their balance sheets. The remaining huge real estate debt hanging over banks, especially commercial real estate, has not been dealt with because of various government policies that postpone the inevitable write-downs (mark-to-make believe, extend and pretend, housing credits, and delay and pray) and will restrict lending. Monetary stimulus has failed to create viable economic growth. These facts inhibit the creation of credit and will act like an anchor on the economy. The long-term megatrends mentioned before will reduce economic activity and cause major shifts in the economy. There is no question that consumer spending has been stimulated by government programs. Those programs are now coming to an end. Recent data showing a decline in retail sales surprised most economists. The Wealth Effect Another factor is that the stock markets have had a positive impact on families’ perceived wealth which has helped consumer spending. But, it appears that most of such spending has been from the wealthier segment of the economy. A recent Gallup poll showed that consumers earning more than $90,000 accounted for the bulk of that spending increase. A market stock decline will reduce this wealth effect. Manufacturing Recovery I believe our manufacturing recovery has been a result of cyclical factors unrelated to stimulus programs. As nervous retailers and wholesalers cleared out inventories in the early stages of the recession, at some point they had to restock. While unemployment is high, the fact is that at least 80% of the work force have jobs and, even though they may feel insecure, they still spend on what is necessary. That boosted manufacturing. But manufacturing without renewed consumer demand and a revival of credit will not lead us out of the recession. Also, manufacturing has been benefited by the cheap dollar which has boosted exports. Other countries, especially developing countries, have been buyers of US products. But I think this is changing because of: The dollar’s rise caused by Europe’s deep economic problems will reduce our cheap dollar advantage; and China’s economy is based on exports and declining US and EU economies will impact its growth. Further they are facing a serious housing bubble that will burst the hard way. China needs an American economic recovery to save them, not vice versa. It is clear that the American economy headed for a double dip decline, which I believe will occur in the second half of 2010. Deflation Fears I have noticed in the mainstream media that with increasingly weak numbers coming out recently there is a lot of talk about deflation. This is important because it is a reflection of mainstream economic thinking, which includes the Fed. Ben Bernanke reads the same headlines as you and I do. Here are some recent headlines and the issues they raise: CPI Declines The consumer price index dropped 0.2% last month, the Labor Department said. The "core" rate of inflation--underlying consumer prices, which strip out volatile energy and food items and are closely watched by the Fed--rose 0.1% in May. … This concerns shows up in Core CPI YoY (CPI less energy and food): Deflation Fears Stir in Developed Economies Deflation makes it harder for consumers, businesses and governments to pay off debts. Principal repayments on debt are fixed but deflation is marked by falling incomes, so as deflation sets in the burden of paying off old debts gets greater. …   That's an acute worry today. In addition to government debt, U.S. households are still trying to work off large debt burdens built up in the last two decades. A Federal Reserve report Thursday [Flow of Funds report] showed households cut their borrowings in the first quarter to $13.5 trillion, down from a peak of $13.9 trillion in 2008.   Bernanke Warns on Deficits Deflation isn’t a concern at moment Bernanke Calls for Deficit Plan Advancing a theme he has emphasized in the last few months, Mr. Bernanke said that if Congress pursued more fiscal stimulus to sustain the recovery, it should be accompanied by a concrete plan to bring the deficit back into line in the long run. Without a fiscal "exit strategy," he said, the U.S. could, "in the worst case," see financial instability like in Greece.   The Congressional Budget Office projects the U.S. deficit will hit $1.4 trillion this year, or 9.4% of gross domestic product. Even as the economy recovers, it projects deficits in excess of $400 billion a year later this decade.   Bernanke Urges Deficit Cuts At a moment when many economists warn that the American economic recovery is likely to be imperiled by prolonged high unemployment and slow growth, President Obama is discovering that the tools available to him last year — a big economic stimulus and action by the Federal Reserve — are both now politically untenable.   Fed Weighs Growth Risks But fiscal woes in Europe, stock-market declines at home and stubbornly high U.S. unemployment have alerted some officials to risks that the economy could lose momentum and that inflation, already running below the Fed's informal target of 1.5% to 2%, could fall further, raising a risk of price deflation.   Martin Wolf on the Danger of Deflation There is no world economy big enough to offset renewed contraction in Europe and the US. Concerted fiscal tightening could, in current circumstances, fail: larger cyclical deficits, as economies weaken, could offset attempts at structural fiscal tightening. …   Policymakers must recognise that deflation is a risk, too, and that tighter fiscal policy requires effective monetary policy offsets, which may be hard to deliver today, above all in the eurozone.   Premature fiscal tightening is, warns experience, as big a danger as delayed tightening would be. There are no certainties here.   S&P Warns of Rising Corporate Defaults

Why central banks do care about gold: the connection to interest rates Posted: 27 Jun 2010 05:48 PM PDT 1:46a ET Monday, June 28, 2010 Dear Friend of GATA and Gold: In his obscure academic paper published in the June 1988 issue of The Journal of Political Economy, then-Harvard Professor Lawrence H. Summers, eventually to become U.S. Treasury secretary and presidential economics adviser, explained the inverse relationship between gold and real interest rates and implied that government could control the latter if it could control the former: http://www.gata.org/files/gibson.pdf In recent and much shorter essays the financial writers Adrian Ash of Bullion Vault and Andrew Mickey of Q1 Publishing have elaborated a lot more understandably on the relationship between interest rates and gold. Mickey's essay is headlined "Bernanke's Bind: One Chart Reveals Gold's Next Move" and you can find it at GoldSeek here: http://news.goldseek.com/GoldSeek/1276495740.php Ash's essay is headlined "What The Economist Doesn't Know About Gold" and you can find it at Bullion Vault here: http://goldnews.bullionvault.com/gold_inflation_062320103 Both conclude that as long as the real rate of interest is being destroyed and government currency devalued, the direction of the gold price has to be up. GATA would put an asterisk on that conclusion, to the effect that gold's rise will be tempered by central bank gold dishoarding and backstopping of bullion bank gold paper sales; but the more that people buy and take delivery of real metal rather than bullion bank paper, the faster the gold price will rise. CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. ADVERTISEMENT Prophecy to Become Coal Producer This Year with 1.5 Billion Tonnes of Resource 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 Join GATA here: New Orleans Investment Conference Wednesday-Saturday, October 27-30, 2010 Hilton New Orleans Riverside Hotel http://www.neworleansconference.com/index.html * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts 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: http://www.goldrush21.com/ * * * 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: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

The Technical Traders View on Gold, SPX and Financial Posted: 27 Jun 2010 05:40 PM PDT By Chris Vermeulen, TheGoldAndOilGuy It was a non stop sell off last week in equities as the SP500 sold down 4 days straight with a small move up on Friday. While investors were cashing out of stocks, we saw that money move into the big shiny yellow safe haven – Gold. I have put together a short video showing you how I see the market and what I think is likely to happen this week for gold, stocks and financials. But here are my Cole's Notes version incase you cannot view the video. Gold: - Long term trend is up and I am currently long gold but feel a sharp correction could happen any day. - Price/Volume action on gold is bearish short term - We took some money off the table on Friday into the strength - I am protecting my long position using a stop around the $1240 area - I still like gold and hope it rallies, but if it turns around I will be in cash until the correction is over. SP500: - SP500 is currently oversold after its 4 day sell off - This index is trading deep into a support level - Financial sector and GS (Goldman Sachs) tend to lead the market and they performed well on Friday. - I feel the SP500 index is due for a solid 2-3% bounce and possibly a 4-6% rally Watch My Video For More Detailed Analysis and Price Levels Can see the video above? click here - http://www.thegoldandoilguy.com/articles/sunday-june-27th-gold-spx-video/ If you would like to get my detailed trading analysis and trading signals please visit my website: www.TheGoldAndOilGuy.com Chris Vermeulen

Crude Oil Climbs Toward $80, Gold Once Again Aiming for All-Time Highs Posted: 27 Jun 2010 05:40 PM PDT courtesy of DailyFX.com June 27, 2010 07:57 PM Crude oil rallied 2.2% last week, while stocks fell over 3.5%. Can this strong outperformance continue in the new week? Commodities - Energy Crude Oil Climbs Toward $80 Crude Oil (WTI) $78.75 -$0.11 -0.14% Crude oil is close to flat in light Asian trade after rallying strongly on Friday. Prices broke through recent highs near $78.50 and are on track to test the psychological $80 resistance soon. As we have been harping on for several sessions now, crude oil is exhibiting some very significant relative strength versus other risk assets. The S&P 500 stock index fell almost 3.5% last week, but crude oil rallied 2.2%. This type of action is in sharp contrast to what happened in May and early June, when risk assets would move in lockstep with each other. The most significant factors that are driving this outperformance are the appreciation of the Chinese Yuan and concerns over Gulf of Mexico output. These two fac...

The Wants and Fears of George Soros Posted: 27 Jun 2010 05:39 PM PDT The Daily Reckoning George Soros has demonstrated to the world that he has one of the brightest financial minds of our era. He articulated a framework that he dubbed "reflexivity," which inconveniently argued that forces in the financial system could periodically become unstable rather than always tending towards equilibrium. His famous winning bets such as against the British or Thai currencies made his opinions not only respected by money managers such as myself; they instilled fear within powerful politicians and central bankers. Those on the wrong side of Soro's wagers are not only speculators, they can be simple businessmen and their employees who pursue trade using the only thing available: government fiat currency. Yesterday, I had lunch with a businessman, who in the Asian contagion of 1998, lost his 125 year old company when a major contract for sale of equipment into Thailand failed because letters of credit were not available. Fortunately, after a modified bankruptcy he recovered from the experience many painful years later. Yesterday Mr. Soros delivered a speech in Berlin in which he lambasted the Germans for wishing to operate a sound currency and refraining from racking up an oversized government budget deficit. He advocates temporarily application of massive establishment of credit, the "recapitalization" of banks with freshly printed reserves, and dramatic fiscal stimulus. In a clever analogy, he likens the world's situation to that of an automobile speeding out of control around a curve, which would be corrected by a delicate two-phase maneuver: "just as when a car is skidding, first you have to turn the car into the direction of the skid and only when you have regained control can you correct course." Later, like a self-styled Einstein, he proposes a "thought experiment" proving that if Germany were to continue its monetary and fiscal disciplines, it would suffer tremendous lack of industrial competitiveness and the whole of Europe would collapse around it. To understand the speech, one must know what the wants and fears of George Soros are. In my book, Endless Money (John Wiley & Sons 2010), I develop a unique perspective on the topic of liberal billionaires such as Soros and Buffett. Specifically, I argue that their vested interest in maintaining the trend towards socialism and feeding its insatiable appetite with voluminous money creation through bank lending preserves a tax structure that imperils the middle class and results in unprecedented accumulation of wealth among the super-rich. Billionaires love a system in which banks double the money supply every seven years through issuing credit-backed currency, because it sets asset prices on an upward trajectory. More than half of wealth accumulation of the super-rich comes from this rather than accumulated net income or the earning of ordinary income, and this rise in net worth is generally untaxed since it is unrealized. And not to worry – it can be monetized free of taxation through manageable amounts of borrowing at government-suppressed interest rates and even hedged out with derivatives. It is no wonder that liberal billionaires ask that we solve the deficit problem by lifting the combined total of state and the federal income taxation rate to 50%, because unlike small entrepreneurs and highly productive laborers, they are mostly untouched by taxes on income. So, what is Soros's greatest fear? It is the end of such a system, and its replacement with the only unencumbered currency known to man for thousands of years: gold. This would end the politically convenient bread and circuses promulgated by socialists and Keynesians that deflect public attention from the glaring injustice and looming disaster of it all, much less the chronic unemployment of Europe and the emergence of the "new normal" impoverished and governmentally dependent underclass in the United States. Yesterday Mr. Soros warned the Germans that their prudence will bring down Europe and that they will not be spared, even if they might enjoy the pleasures of buying Spanish vacation villas or Greek islands at fire sale prices. He criticizes the inadequacy of the $1 trillion euro "shock and awe" solution enacted a month ago, chiding, "Even more troubling is the fact that Germany is not only insisting on strict fiscal discipline for weaker countries but is also reducing its own fiscal deficit. When all countries are reducing deficits at a time of high unemployment they set in motion a downward spiral. Reductions in employment, tax receipts, and exports reinforce each other, ensuring that the targets will not be met and further reductions will be required." Taking it further, he engages us in a thought experiment of what would happen if Germany were to withdraw and leave the rest of Europe on the euro: "The Deutschmark would go thru the roof and the euro would fall thru the floor. This would indeed help the adjustment process but Germany would find out how painful it can be to have an overvalued currency. Its trade balance would turn negative and there would be widespread unemployment. German banks would suffer severe exchange rate losses and require large injections of public funds. But the government would find it politically more acceptable to rescue German banks than Greece or Spain." But why engage in thought experiments when history has been a guide? In the aftermath of the first world war, most of the countries of Europe were mired in unemployment and relied upon the printing of currencies to monetize their war obligations and feed government budgets hell-bent on kick-starting their economies. This included Germany, which unfortunately through the Versailles treaty could not escape liabilities owed in strong currencies. We know in hindsight that despite the incredible currency tumult witnessed in the depression of 1920-1921, the world economy recovered so quickly that there was scarcely time for Warren Harding to be pressured into enacting legislation to end the downturn, even though the U.S. operated the strongest currency at that time. Only beginning in 1930 with the overdose of intervention begun by Hoover, who was wrongly accused of doing nothing, did we see the damage that reflexivity could exacerbate. This interwar period is complex, and in Endless Money I devote many pages to it in order to lend insight to what happened in the Great Depression. And accordingly, our present situation cannot be understood unless an emphasis is placed upon the post-1971 buildup of credit, which went into orbit in recent years. The media and investors continually are looking for the next bubble that might follow the internet blowoff, the subprime disaster, and the 2008 meltdown. But these are merely small manifestations of the larger, multi-decade or even multi-century bubbles of fiat currency and big government intrusion into the economy that cannot be made to disappear through the adroit turn of the driver's wrist when he loses control of his vehicle. Up to this point, Soros has advocated that sovereign gold is of little use and should be redirected to developing nations through IMF lending. Around year-end 2009 he began accumulating the yellow metal and miners of it, probably in anticipation of inflation that would be caused by monetary and fiscal stimulus. But he warned the economic brains at Davos in January 2010 that gold was a bubble while doubling his holdings, a deceptive ploy which for any garden variety investment advisor might attract the scrutiny of the SEC. Like BP might have thought before the unimaginable disaster of the Gulf occurred, he need not fear the jack boot of the regulators, since they both have in common heavy political donations to liberal politicians and causes. But that protection racket may not save him from an angry mob should his fears of driving over the edge materialize. The great investment question of our time is the inevitability of deflation or inflation, and this subject is investigated in detail in Endless Money and my other writings such as For Whom the Gold Bell Tolls (February 2010). Predicting the financial markets might be easier if the wild card of government intervention were not poised to be dealt. Operating a fiat currency completely severed from gold in 1971 (continuing a trend of precious metals demonetization begun in the early nineteenth century) has built a veritable mountain of debt. And Mr. Soros's hypothetical car might have swerved off the curve on the financial road that was constructed upon this mountain many times if it were not for Greenspan or Bernanke executing the delicate two-stage maneuver repeatedly already: in 1987, 1991, 1998, 2001-2, and most recently 2008-present. These incidents have lulled the car's driver into thinking that excessive speed in the creation of money and governmental budgeting can be managed by dexterous maneuvering. The better Fed Chairmen and Congress got at it, the more systemic moral hazard was assumed. Unless Mr. Soros is the penultimate deceiver of financial markets, governmental leaders, and men generally, he still has not learned what a strong and growing minority of gold investors know, which is that they no longer wish to be passengers in that car. Regards, Bill Baker, for The Daily Reckoning [Editor's note: William Baker is the author of "Endless Money: The Moral Hazards of Socialism. You can get your own copy of his book here.] The Wants and Fears of George Soros 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." More articles from The Daily Reckoning….

1983 magazine profile shows BIS constantly intervening in gold market in secret Posted: 27 Jun 2010 05:38 PM PDT 1a ET Monday, June 28, 2010 Dear Friend of GATA and Gold: Thanks to our friend W.G. for pointing out a fascinating article written for Harper's magazine in November 1983 about the Bank for International Settlements by the veteran journalist Edward Jay Epstein, who seems to have been given unusual access to top BIS officials. Epstein's article shows the BIS running the world financial system almost entirely in secret and, in the process, frequently intervening in the gold market or making gold available to arbitrageurs as part of a general system of currency market regulation — and swapping gold particularly as part of a policy of supporting the U.S. dollar. Of course this was 27 years ago and the BIS couldn't possibly be part of such things anymore, could it? After all, Kitco senior market analyst Jon Nadler says central banks have no motive to manipulate the gold market, and CPM Group executive Jeff Christian says central bankers hardly ever think about gold. (That would explain why they have chosen him as their gold consultant.) Epstein's article is headlined "Ruling the World of Money" and you can find it in the archive of his Internet site here: http://www.edwardjayepstein.com/archived/moneyclub.htm CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. * * * 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: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

Ambrose Evans-Pritchard: RBS expects ‘monster’ money printing by Fed Posted: 27 Jun 2010 05:38 PM PDT By Ambrose Evans-Pritchard The Telegraph, London Sunday, June 27, 2010 http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/785759… As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve. Entitled "Deflation: Making Sure It Doesn't Happen Here," it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy. The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost." Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE). Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing. The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era. The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7 percent in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40 percent in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous. Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely – http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.h… – because the Fed is soon going to have to the pull the lever on "monster" quantitative easing." "We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors. Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2 percent by force majeure said this is the option "which I personally prefer." A recent paper by the San Francisco Fed argues that interest rates should now be minus 5 percent under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2 percent when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds. Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said. Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3 million without support. California has to slash $19 billion in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112 billion to comply with state laws. The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4 percent of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33 percent to a record low of 300,000 in May after subsidies expired. It is sobering that zero rates, QE a l'outrance, and an $800 billion fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's E750 billion rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the E110 billion EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money? Clearly we are nearing the end of the "Phony War," that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, automakers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70 percent of GDP to 100 percent by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy. Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous — and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes. Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market — and therefore the banks — would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual. The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation. Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt. At the time, the broad money supply war growing at 6 percent and the Dallas Fed's "trimmed mean" index of core inflation was 2.2 percent. We are much nearer the tipping today. The M3 money supply has contracted by 5.5 percent over the last year, and the pace is accelerating; the "trimmed mean" index is now 0.6 percent on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap. There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble. * * * 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: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

Dan Arbess: Investing as the Foundation Shifts Posted: 27 Jun 2010 05:38 PM PDT Market Folly submits: Today again courtesy of Dealbreaker we wanted to highlight Dan Arbess' recent presentation from the Ira Sohn Investment Conference entitled, 'Investing As The Foundation Shifts'. We had previously summarized the Ira Sohn Conference and have detailed numerous presentations from the event. This time around, we're taking a deeper look at the slideshow from Dan Arbess, the Xerion Fund manager at Perella Weinberg Partners. Earlier, we looked at Dan Arbess' portfolio commentary and identified that he is seeing opportunity in stressed credit and owning what China wants to buy. And now, we'll focus on some of his additional investment ideas. When we summarized the Ira Sohn Investment Conference, we noted that Arbess was bullish on China exposure and in particular, Yum Brands (YUM) given its prolific expansion into the country. He isn't alone in his conviction here as we've seen a slew of hedge funds add positions in Yum Brands in recent quarters. In particular, we made note of Bill Ackman's YUM stake. Read more »

Gold eyes record peak Posted: 27 Jun 2010 05:37 PM PDT Trading less than $10 shy of last week's record high. Read more….

Budget Cuts? Posted: 27 Jun 2010 04:11 PM PDT As violent protests erupted outside, the leaders of the world's largest economies plotted the future course of the global economy at this weekend's G20 summit.  So what was decided?  Well, according to various reports in the mainstream media, it was the "deficit hawks" who got their way.  Apparently the consensus of the G20 meetings was that a round of tough budget cuts is the medicine that the world economy needs.  In fact, the G20 leaders all pledged to cut their respective budget deficits in half by 2013.  Canadian Prime Minister Stephen Harper, one of the key advocates of budget cuts, said that the G20 nations need to walk a "tightrope" between stimulating their economies and debt reduction.  But as the largest economies around the globe transition from reckless government spending to budget reductions and austerity measures, what is that really going to mean for the world economy? Well, the truth is that as good as "budget cuts" sound, they can have some very nasty short-term side effects. You see, there is no getting around the fact that whenever governments spend more money it is good for economic growth.  The problem is that a large number of governments around the globe have been consistently spending way beyond their means for decades and now they find themselves up to their eyeballs in debt. The exploding sovereign debt levels around the globe are not sustainable by any definition, and so it was undeniable that something had to be done. In fact, European Commission President José Manuel Barroso put it quite succinctly during the G20 meetings in Toronto when he told the press the following.... "There is no more room for deficit spending." The reality is that nations such as Greece, Spain, Portugal and Italy are already on the verge of default.  Japan has accumulated so much debt that it makes headlines almost constantly in the newspapers over there.  The exploding U.K. debt was one of the key factors that enabled the Conservatives to take power in the most recent election. But nobody has more debt than the United States.  As of June 1st, the U.S. National Debt was $13,050,826,460,886.97.  The U.S. government has accumulated the most colossal mountain of debt the world has ever seen and it is exploding at a rate that is breathtaking. So, yes, the largest economies of the world have a major problem with government debt.  But are budget cuts and austerity measures the correct solution? It depends who you ask. The reality is that the U.S., the U.K. and many of the other most powerful economies in the world now find themselves between a rock and a hard place.  If they continue recklessly going into debt their economies will continue to be stimulated (at least to some degree), but interest expenses will continue to spiral upwards and borrowing costs will go through the roof as credit ratings fall.  In the end, nation after nation would end up defaulting and the world financial system would crash hard. However, if the G20 nations actually do implement the hard budget cuts that are necessary to get their debts under control, it will suck a ton of money out of the system and could send the already vulnerable global economy into a devastating deflationary depression.  The truth is that neither option is a good option. Either path is going to contain a good amount of economic pain. So what do you do when there is no good solution? Stephen Lewis of Monument Securities recently argued that the path of "fiscal stimulus" has been totally played out and so there is no good reason to continue to go down that path.... "Growth could be negative again as soon as the fourth quarter. There is no easy way out since fiscal stimulus has already been pushed as far as it can credibly go without endangering US credit-worthiness." However, Chris Whalen, a former Federal Reserve official and now head of Institutional Risk Analytics says that unless the printing presses are quickly cranked up again we are definitely headed for deflation....  "The party is over from fiscal support. These hard-money men are fighting the last war: they don't recognise that money velocity has slowed and we are going into deflation. The only default option left is to crank up the printing presses again." So what is the right answer? For now, G20 leaders have decided that budget cuts and austerity measures are the right answer. Not that Barack Obama and U.S. Federal Reserve chairman Ben Bernanke didn't fight behind the scenes for additional "stimulus" for the world economy. You see, when it comes to "Helicopter Ben", his first instinct is to always pump more money into the economy.  In fact, according to one major U.K. newspaper, U.S. Federal Reserve chairman Ben Bernanke has been fighting an intense behind the scenes war for control of U.S. monetary policy.  Bernanke is reportedly frightened that the U.S. could be headed for a deflationary spiral and has been pushing the idea of a fresh injection of money into the U.S. economy. But for now Bernanke has lost.  Barack Obama has joined the other leaders of the G20 in promising to cut their budget deficits by 50 percent by 2013. Not that we are actually going to see that happen. We all know how reliable Barack Obama's promises are.  He was busy breaking his 2008 campaign promises before he was even sworn in. And the day will come when Barack Obama needs to turn the economy around in order to win some votes, and when that day arrives the temptation to "stimulate" the economy with some more government spending will prove irresistible. But for the moment, Obama is lining up with the other G20 leaders and is swearing that he is going to get spending under control. That should settle world financial markets down for the moment, but the reality is that as all of the major economies around the world suddenly see a dramatic reduction in government spending, a substantial economic slowdown will be inevitable. When the world economy slows down, unemployment will spike, the global real estate mess will get even worse and "austerity riots" could even break out in many areas of the globe. So at some point, the pendulum will once again swing back towards "stimulus" and world leaders will indulge their debt addictions once again.  But that will only make the long-term global economic problems even worse. The truth is that the entire world economic system is broken.  It is built on a fraudulent pyramid of debt, derivatives, central banking and paper money that is doomed to fail.  But world leaders will continue to keep it alive for as long as they can. Right now their big solution is to get all of the major industrialized nations to agree to huge budget cuts.  These budget cuts, if they are actually implemented, are very likely to lead to a severe economic slowdown and potentially even a deflationary depression.      But continuing on the path that the G20 leaders were on would have resulted in a wave of sovereign defaults and hyperinflationary meltdowns. So the G20 leaders have decided to change course and they are hoping that they can navigate the economic minefield ahead and bring our economies through all of this okay. But in the end they are going to fail.

Treasury Reserves Power to Seize Everything Posted: 27 Jun 2010 03:54 PM PDT By C. Powell Because of recent inquiries to GATA about the possibility of an attempt by the U.S. Government to confiscate privately held gold and silver bullion and coins and shares in companies mining the precious metals, we're republishing here the correspondence between GATA and the U.S. Treasury Department on the subject in 2005. The Treasury Department [...]

Can the Euro Survive a Sovereign Debt Crisis 6-14-10 Posted: 27 Jun 2010 03:23 PM PDT ...

Gold Market Update - June 27, 2010 Posted: 27 Jun 2010 03:23 PM PDT Clive Maund A great way to make yourself popular is to tell people what they want to hear, and the trick is to make yourself scarce before the wheel comes off, or at least slip quickly into the background when it does. Thus you’ll find no shortage of articles out there telling you what a great investment gold is and the countless reasons for buying it. They are “playing to the gallery” which is normal near a market peak. However, most of the evidence that we are examining points to an imminent reversal and retreat - not a bearmarket though as the bullmarket in gold is thought to have much further to run and will probably end in a spectacular parabolic blow off with prices at dizzying heights compared to today, but this is still a long way ahead of us - over a shorter time horizon we may first have to deal with a significant correction. Let’s start by putting things in context by looking at gold’s long-term chart from the start of its bullma...

Silver Market Update - June 27, 2010 Posted: 27 Jun 2010 03:23 PM PDT Clive Maund While silver is certainly in position to break out to new highs, which would be expected to lead to a substantial advance, its chart at this time should certainly give cause for concern to the more cautious and prudent investor. Silver still stubbornly refuses to confirm gold’s breakout to new highs, as do the major PM stock indices, and remains stuck in the zone of strong resistance beneath its highs of 2008. While it is in position to break out upside now, being as it is tantalizingly close to its highs, and with its moving averages correctly aligned for such a development, gold appears to be flagging and marking out a potential bearish Rising Wedge, and the broad market is believed to be topping out with the prospect of a severe decline once it breaks down. All this being so it is clear that silver may be marking out a sizeable Double Top area. However, most of the evidence that we are examining points to an imminent reversal and retreat - not a be...

Seeking Help Posted: 27 Jun 2010 03:23 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here June 27, 2010 04:28 AM THE BRENDAN MARROCCO ROAD TO RECOVERY TRUST P.O. Box 120197 Staten Island, NY 10312 OUR MISSION The Trust will assist Brendan in his recovery by supplementing the cost of Brendan's care, treatment, medical and extraordinary expenses when necessary and assist in continually improving the quality of Brendan's life now and into the future including adaptive housing requirements. BRENDAN MARROCCO On January 15, 2008 Brendan entered service in the United States Army and was assigned to complete basic training at Fort Benning, Georgia. Brendan completed basic training on May 2nd 2008.* Upon graduation he volunteered for service in the Infantry and was assigned to the 25th Infantry Division based at Schofield Barracks, Hawaii.* Specifically, Brendan was assigned to the 3rd Infantry Combat Brigade, Alpha Company, 2nd Battalion, 27th Regiment. In late Octob...

Quote du Jour Posted: 27 Jun 2010 03:13 PM PDT "It wasn't my trading that made me most of my money… it was the sitting and waiting…" ~ Famous stock trader Jesse Livermore Thanks to Ed Steer's Gold & Silver Daily

Gauging the Risks of Recession Posted: 27 Jun 2010 03:08 PM PDT Via Pension Pulse. Advisor Perspectives published John Mauldin's latest weekly comment, Risk of Recession. It's an absolute must read, and I highly suggest you read it all, but I will focus in on the following: Jonathan Tepper (coauthor of the next book I am working on) sent me this piece from a group called EMphase Finance, based in Montreal. They wrote this back in April, as the Weekly LEI was beginning to turn over. They have found a bit of data that seems very good at predicting the economy of the US 12 months out. Let's take part of their work: "Many market participants are debating whether or not a double-dip recession will occur within the next quarters. As we are writing our report, ECRI Weekly LEI fell quickly to 122.5 points from 134.7 in April. This indicator did a good job leading U.S. Real GDP Y/Y by 6 months over the last two decades. However, ECRI Weekly LEI recently became quite unreliable as it increased up to 25% Y/Y in April, a level consistent with an unrealistic 8% U.S. Real GDP Y/Y! You can notice the problem on the left chart below. "We discovered a new leading indicator to forecast U.S. Real GDP Y/Y, and it is simply the U.S. Terms of Trade (TOT). It is defined as the export price / import price ratio. We are pleased to be the first to document this, at least publicly. On the right chart above, TOT leads U.S. Real GDP Y/Y by 12 months. The only drawback: underlying time series are monthly instead of weekly, but this is not really an issue with that much lead. Also, the relationship still holds well if we extend to the maximum data (1985)." Their conclusion? "As you probably noticed earlier, TOT is suggesting a decline of U.S. Real GDP Y/Y to nearly 0% within the next 12 months. Q2 2010 Real GDP Q/Q Annualized to be released on the 30th July may match expectations as it reflects data of the last three months, which were positive in general. However, we are most likely going to see weaker numbers in the next quarters. Will this lead to a double-dip recession? We believe the odds of a double-dip recession within the next 9-12 months are minimal, but odds may increase to 50-50 in 2011, depending on the evolution of variables we follow in the upcoming months." And while we are on leading indicators, let's end with this note from good friend and data maven David Rosenberg of Gluskin Sheff (based in Toronto). "For the week ending June 11th, the ECRI leading index (growth rate) slipped for the sixth week in a row, to -5.7% from -3.7%. Only once in the past – in 1987, but the Fed could cut rates then – did this fail to signal a recession. But a -5.7% print accurately signaled a recession in the lead-up to all of the past seven downturns. "The consensus is looking at 3% real GDP growth for the second half of the year, but as Chart 2 (above) suggests, the two quarters following a move in the ECRI to a -5% to -10% range is +0.8% at an annual rate on average. So right now the choice is really either a 2002-style growth relapse or an outright double-dip recession – pick your poison." I suggest you all read Emphase Finance's June 2010 letter. Francois Soto writes well, reviewing many leading economic indicators. I am glad John mentioned his firm in his weekly letter giving me chance to discover and promote new talent in Montreal's finance circle. Another Montreal firm John mentioned was Bank Credit Analyst (BCA Research). BCA is where I got my hands dirty and really learned about markets and macroeconomics. I miss those Friday afternoon meetings where someone presented market research and each Managing Editor talked about the risks they saw in the areas they covered. Eric Lam of the Financial Post reports that Chen Zhao of BCA Research thinks a double-dip recession is unlikely and European worries are overblown: U.S. economic data has recently taken a turn for the worse, while the sovereign debt contagion continues to spread in Europe, leading many to mouth the two words nobody wants to hear: Double Dip.   Chen Zhao with independent research firm BCA Research, said while there are continuing concerns weighing on global markets, the world will bend but not break.   “The odds of a double-dip recession are low and as long as there is no renewed economic contraction, equity prices should grind higher over time,” he said in a report.   Efforts by central banks, especially in the United States and Sweden, to expand their balance sheet by taking on equity have worked to stabilize banking sector problems and deflationary tendencies.   “Therefore, the ECB’s recent move to beef up quantitative easing and its reassurance that it will buy sovereign debt and even private credit should be viewed very positively,” Mr. Chen said. “This action has greatly reduced the risk of a major policy blunder and therefore lends support to risky assets over time.”   Of course, there is still a real risk of double-dipping in Europe, but Mr. Chen said the eurozone economy has been “rather moribund for years” and is so marginalized its contribution to global growth has become minimal.   For example, when the Japanese economy collapsed in the early 1990s, many expected a chain reaction sending the rest of the world into a death spiral. Instead, the rest of the world went into a sustained boom.   “What the experience suggests is that the cross influences of various economic forces are always intertwined and that they are difficult to disentangle and assess at the time,” Mr. Chen said. “Netting it all out, it seems maintaining a positive bias is a reasonable posture as far as investment strategy is concerned.”   Besides, people start talking about a double dip at some point after every recession, and there is no reason why this recession is any different, he said. I agree with Chen. My contacts at pension funds, economics departments, and at hedge funds all tell me the likelihood of a double-dip recession is low. In fact, some see the US economy picking up again in 2011 after growth rates come down in the second half of this year/ early next year. It's too early to tell but one thing is for sure, E.S Browning of the WSJ is right when reported that rapid declines in stocks have rattled even optimists: A look at history confirms something many investors had felt about the market's recent turmoil: It is the speed of the declines, even more than the size, that has been most shocking.   The Dow Jones Industrial Average fell 12.4% in just 42 days from the peak on April 26 through June 7. The Standard & Poor's 500-stock index fell 13.7% in 45 days from its peak.   The only other time in 80 years that the Dow has fallen that far, that fast so early in an economic rebound was in 1950, when North Korea invaded South Korea to start the Korean War. Then, the Dow fell 13.6% in 31 days from peak to trough, according to a study done for The Wall Street Journal by Ned Davis Research. Stocks recovered in 1950 and remained in a bull market for another decade.   This spring, the stock decline has been blamed on things like fears of spreading debt woes in Europe and the Gulf of Mexico oil spill, severe problems but somehow less bone-chilling than a Communist invasion. The fact that the market has proved so fragile has made even some optimistic analysts wonder whether the troubles might be deeper than people had believed.   "This correction has had more legs than we thought," says Tim Hayes, Ned Davis's chief investment strategist.   At the end of last week, stocks did rally. Mr. Hayes says the many indicators he tracks tell him the recent downdraft is probably a nasty interlude to be followed by more gains. Still, the market's vulnerability has left him with doubts.   "We could actually be in a bear market now," he acknowledges. If so, stocks would resume their declines and, by the most common definition, the Dow would continue down to at least 20% from the April high.   Before the April swoon, the Dow had been up 71% from its low on March 9, 2009, one of the fastest rallies of that size in market history.   To see how the recent declines stack up with past ones, Ned Davis Research looked at all pullbacks of 10% or more during periods when the economy was in the first 18 months of recovery from recession, as it is now. Normally, that is a strong period for stocks: The study found that rapid declines are rare in such a period and tend to be associated with unsettling world events.     In 1955, the Dow fell 10% in 18 days—a smaller decline than today's, but a sharp one. It came at the time of President Dwight Eisenhower's heart attack, which shocked the country. To find a similarly large decline in a short period, one has to go back to 1928, when the inflated stock market wavered less than a year before the 1929 crash.   It isn't common for stocks to go into a bear market so soon after an economic recovery has begun, but it isn't unprecedented. It happened in 1962, at the end of the long 1950s bull market. In 2002, stocks fell more than 31%, during the Enron and WorldCom scandals. That was another period when stocks rallied after a long bear market and then hit trouble, a double dip that shattered investors' confidence. In 2002, the rally ran out of steam and the bear market resumed, although the rally in 2001-2002 wasn't nearly as long or as large as the one the market has just experienced. Much like 2002, the recent decline has also alarmed many individual investors who had only just begun to regain their appetite for stocks.   Stocks also went into bear markets in the early phases of economic recoveries in the 1930s and 1940s, a period of economic and international unrest.   Some analysts compare the current pullback with a 15.6% correction that began late in 1983. That one came at the beginning of a long period of stock strength that ran from 1982 through 2000, and turned out to be no more than a painful blip. The difference is that the 1983-1984 correction happened slowly, over eight months.   Some say that electronic trading may be playing a part this time by contributing to exceptional volatility, because hundreds of millions of shares can change hands in minutes. Once, it was highly unusual for 90% of stocks to be up or down on any single day. In recent years, as computers have come to dominate trading, it has become much more common.   Bespoke Investment Group did a study looking at all declines of 10% or more in the S&P 500 since 1927. Those include 40 cases in which the S&P 500 fell as much as, or more than, its recent 13.7% decline.   In 25 cases, the majority, stocks continued down and wound up in a bear market, meaning a decline of 20% or more. But there was still a significant minority of cases, 15, in which the declines stopped short of a bear market.   "This correction has happened very fast compared to most corrections," says Justin Walters, Bespoke's co-founder.   The deeper a decline gets, the higher the odds it will become a bear market. Like Mr. Hayes, Mr. Walters says he expects stocks to avoid a bear market this time. But if stocks turn down again and "we hit a new low, the odds are really high that we will go into a bear market, based on the historical numbers," he says.   One reason that analysts such as Mr. Walters and Mr. Hayes expect stocks to recover is that they were looking particularly strong shortly before the April declines.   Almost 30% of stocks on the New York Stock Exchange hit new highs in March, the most since 2003, Mr. Hayes says. The market turned down just one week after the percentage of new highs peaked in mid-April.   It is rare for stocks to go from such broad strength directly into a bear market. It usually takes indexes weeks to begin a decline after individual stocks begin fading. The only time a bear-market decline began a week after a peak in new highs was in March 2002, and many analysts consider that downturn the continuation of an old bear marketrather than the start of a new one.   Bearish analysts worry that the market's recent weakness is a sign that the world's debt and unemployment problems may be too severe to keep the stock market moving higher. But Richard Sylla, professor of economics and financial history at New York University's Stern School of Business, says he feels optimistic about the market.   His research shows that horrible decades like the past one tend to be followed by better periods for stocks. It is normal for stocks to rally when unemployment is high, before the economy is fully back on its feet, he says. He says corporations have cut their debt and improved cash positions and profits.   Prof. Sylla says he put some of his personal savings back into stocks early this month. He didn't put all his cash to work, however, and says he would consider buying more stocks if prices fall more. Although it could take more time, he says, he thinks better days are ahead for stocks."After 10 bad years, I think the next 10 years will look pretty good," he says. When it comes to understanding stock market swings, I love reading Tim Hayes of Ned Davis Research, one of the best strategists in the industry. Just like BCA, the whole team at NDR is excellent and they provide top-notch research to their institutional clients. My personal feeling is that the dominance of high frequency trading (HFT) platforms at prop trading desks of large banks and large hedge funds are behind the rapid declines in stocks we have witnessed. Finally, take the time to read Ciovacco Capital Management's latest essay, Market Corrections and Economic Cycles. Mr. Ciovacco concludes   The markets are currently week and need to be monitored closely. Even in the context of an ongoing bull market, further weakness in stocks is possible, especially over the next two-to-twelve weeks. History says patience remains important since the odds continue to favor gains in risk assets over the next three-to-twelve months Decisions in the next two-to-twelve weeks will most likely be very important relative to full year 2010 performance. As long as the odds favor positive outcomes over the longer-term, we will make an effort ride out any future volatility. If the odds shift in a bearish manner, we will make principal protection a higher priority. I still think that we are likely going to experience a low volume summer melt-up in stocks. I am looking for oil prices to head higher, mainly because of geopolitical risks, but I also think algorithmic trading will pick-up and you're going to see some very jerky markets this summer. I am more confident that the US economic recovery will proceed unabated, albeit at a slower pace than the last ten months. Keep watching those employment reports at the beginning of the month because any sign of a recovery there will bolster confidence in stocks and the real economy.

Smack Down in Toronto Posted: 27 Jun 2010 01:10 PM PDT As anticipated, Obama and Geithner went to the G20 and asked the rest of the world to keep rolling the printing presses for “a little while longer”. They got a resounding “NO”. The head's of state from Germany, France, England and Canada said NO. Ever polite, the Japanese had not thing to say and every smart, the Chinese also had nothing to say. As of tonight there is no engine of growth in any corner of the globe. The US is going to try to go it alone with big fiscal imbalances. Based on this weekend’s lack of support for continued deficit spending outside of America the logical economic conclusion is that the US is going to be running up big trade and current account deficits with the rest of the world. We are also going to look pretty silly in about twelve months. Our boy Tim G. did a lame effort in defending the US position at a press conference. The full Q&A is here. Some selected thoughts from the guy who has his hands on the tiller: What we share in the G20 is a recognition that if the world economy is to expand at its potential, if growth is going to be sustainable in the future, then we need to act together to strengthen the recovery and finish the job of repairing the damage of this crisis. One day Tim tells us that things are recovering very nicely and we have a sustainable economic outlook in front of us. The next day Tim says we are still in “crisis”. Tim talks from both sides of his mouth. He does it on the world stage. No one outside of the border seems to be buying this. After reading tomorrow’s headlines not too many inside the border will believe it either. I would look to the language the President used in the letter he sent to his counterparts. You can see in that letter, again, the basic strategy we think makes sense, which is to make sure we’re focused on growth now. Sorry Tim. No sale. You tipped the scales. Now they have to get back. We do think it’s very important to continue to put in place a targeted set of additional supports to help promote small business lending, give aid to states in the United States to make sure they can keep teachers in the classroom, to provide incentives for business investment to try and make sure we’re helping the long-term unemployed. Those things are good policy now. They make sense for the country. Tim is referring to a failed effort by the Administration to get Congress to pony up an extra $50b. That was the cost to keep 300k teachers on the books and to extend unemployment until after the election. As of Friday, Congress has said no. As of tomorrow it will be dead on arrival. There’s another mistake some governments have made over time to, in a sense, step back too quickly in the hope that -- on the hope that it’s over. And we want to do is continue to emphasize that we are going avoid that mistake. This is the heart of the matter. A growing number of both "leaders" and regular folks have concluded that the really Big Mistake in front of us is if we were to borrow a few more trillion to fend off something for a few more quarters. Tim sees the Big Mistake in exactly the opposite direction. You’re not going to have growth in the future unless people believe you have the political will to bring these deficits down over time. And that’s our challenge. Well-said Tim. Without confidence we are dead. And you are doing nothing to instill the confidence we need. The President has outlined actions to reduce our future deficits No he hasn’t. He is avoiding the issue like the plague. He set up a deficit commission to look into the matter. What kind of leadership is that? As near as I can tell a cranky octogenarian who has a very fat wallet heads this commission. This commission is not going to tell us anything we don’t already know. This was just a method of delaying the process until after the bi-elections. We have to make sure that people understand that we’re going to take the steps necessary to bring down our deficits over time. But we also need to make sure we’re growing. The phrase “over time” could mean anything. It certainly does not mean the next 24-36 months. Tim is completely out of touch on this issue. My guess (hope) is that the smack down in Toronto makes a big splash in the MSM. Both public and market sentiment could be negative. Should that happen, who might be the lighten rod? None other than Tim G. This could set up as an opportunity for a new Treasury Secretary that has a different perspective. If confidence is something you wanted, then a change is necessary. We’ll see what the Market says.

Parsing Recent Carrier Strike Group Movements Posted: 27 Jun 2010 01:07 PM PDT As with any Nimitz class carrier, the USS Dwight D. Eisenhower (CVN 69) doesn't deploy alone.  Instead she sails with a number of other support vessels composing a "Carrier Strike Group."  Within the Eisenhower's traditional strike group (Carrier Strike Group Eight) are: Command Destroyer Squadron Two Eight, composed of 8300 ton Arleigh Burke class guided missile destroyers focused on antiair, antisubmarine, antisurface, and strike operations using the AN/SPY-1D Phased Array Radar, an AEGIS upgrade, and the best-in-class AN/SQQ-89 integrated ASW Suite.  Originally designed to deal with former Soviet air threats (like Iran's Su-25, MiG-29A (Fulcrum) and MiG-29UB aircraft?): The USS Bainbridge (DDG 96) The USS Barry (DDG 52) The USS Laboon (DDG 58) The USS Mitscher (DDG 57) The USS Ramage (DDG 61) Along with: Arleigh Burke class guided missile destroyers: The USS Carney (DDG 64) The USS McFaul (DDG 74) The USS Farragut (DDG 99) ...and 9600 ton Ticonderoga class guided missile cruisers: The USS Hue City (CG 66) The USS Anzio (CG 68) The USS Vicksburg (CG 69) Generally, Carrier Strike Groups are also escorted by two or three attack submarines as well.  Those aren't talked about much. Carrier Strike Group Ten, built around the USS Harry S. Truman, is composed of a substantially similar group.  It will, however, replace Command Destroyer Squadron Two Eight with Command Destroyer Squadron Two Six: USS Hawes (FFG 53) USS James E. Williams (DDG 95) USS Kaufman (FFG 59) USS Ross (DDG 71) USS Oscar Austin (DDG 79) USS Winston S. Churchill (DDG 81) USS Elrod (FFG 55) The presence of three Oliver Hazard Perry class frigates (FFG 53, FFG 59, FFG 55) is interesting.  Zero Hedge readers may remember the Oliver Hazard Perry class by its most famous member, the USS Stark (FFG 31) which was struck by not one but two Exocet anti-ship missiles launched from an Iraqi plane in 1987 and somehow managed to limp to Bahrain and was eventually repaired and returned to service.  Less famous, but more dramatic, the USS Samuel B. Roberts struck an Iranian mine, which blew a 6 meter hole in the vessel, flooded the engine room, and actually broke the keel.  For the unwashed, the end of the keel is typically the end of a warship.  Despite this, the Samuel B. Roberts was not only salvaged, but repaired and returned to action.   The USS Stark (FFG 31) lists to port after being struck by Iraqi Exocet missiles in 1987 For comparison, the only real action the Arleigh Burke class has seen is via the USS Cole (DDG 67) which was attacked while in port by suicide bombers. Though the Eisenhower and Carrier Strike Group Eight are due to rotate out of the area after a six month deployment in July, two things are interesting with respect to this rotation. Firstly, the arrival of Carrier Strike Group Ten with the Harry S. Truman puts two anti-air and anti-cruise missile groups in the U.S. Fifth Fleet AOR ("Area of Responsibility," Persian Gulf, Red Sea, Arabian Sea and East African Coast) at the same time.  Also, this is the first time the Harry S. Truman has been in the Fifth Fleet AOR.  (The Eisenhower relieved the USS Nimitz, which is now sitting patiently in San Diego, back in January). Sailors aboard the USS Dwight D. Eisenhower (CVN 69) render honors to the USS Harry S. Truman (CVN 75) (Arabian Sea, June 26, 2010) Second, the outgoing Carrier Strike Group Eight is commanded by Rear Admiral Phillip S. Davidson.  Of course, one does not manage to command a Carrier Strike Group without active and combat deployment, but Davidson's background is far more weighted to strategy and policy accomplishments.  To wit: Adm. Davidson’s initial sea service assignments were in frigates and destroyers in both the Atlantic and Pacific Fleets and he has made deployments to the Persian Gulf, Western Pacific, Mediterranean, Indian Ocean, Red Sea, Eastern Pacific and Baltic Sea areas of operation.  He was also the Commanding Officer in two warships, commanding USS  Taylor (FFG 50) from August 1998 to June 2000 and USS  Gettysburg (CG 64) from October 2004 to June 2006. He deployed and earned Battle Efficiency “E” awards in both of those ships. Ashore, he has served in a variety of operations, planning and policy billets on the U.S. Pacific Fleet staff, the Navy staff and the Joint Staff; as the Navy’s Military Aide to the Vice President of the United States; and as a Special Assistant to the Commander-in-Chief, U.S. Pacific Fleet, the Commander-in-Chief, U.S. Pacific Command, and later, to the Chief of Naval Operations.  He was the Deputy Director for Strategy and Policy in the Joint Staff/J-5 in his first flag officer assignment.   Rear Admiral Davidson is a distinguished graduate of the U.S. Naval War College. His decorations include the Defense Superior Service Medal, the Legion of Merit, the Meritorious Service Medal, the Navy Commendation Medal with Combat “V” and other personal, unit and campaign awards. He has a Master of Arts in National Security and Strategic Studies and is a Joint Specialty Officer.1 His replacement, Rear Admiral Patrick Driscoll, Commander of Carrier Strike Group Ten, has enjoyed a career with a decidedly different focus, specifically: A combat hardened strike fighter pilot and commander with significant experience in the Iraq-Iran theater. Notice: Driscoll's initial fleet assignment was with the 1983 Battle "E" winning VS-32 “Maulers," where he completed two Indian Ocean deployments and was selected as the Atlantic Fleet Sea Strike Pilot of the Year. Following transition training in the A-7E CORSAIR II, Driscoll deployed with the VA-105 "Gunslingers" to the Mediterranean Sea and Indian Ocean, which included participation in tanker escort operations during Operation Earnest Will. His next sea assignment was with the "Clansmen" of VA-46, where he deployed aboard the USS John F. Kennedy (CV 67) to the Red Sea in support of Operations Desert Shield and Desert Storm. Driscoll then attended the Naval War College, with a follow-on joint assignment with the U.S. Arms Control and Disarmament Agency in July of 1993. In 1996, Driscoll reported once again to the "Gunslingers" of VFA-105 deploying aboard USS Theodore Roosevelt (CVN 71) and participated in Operation Deliberate Guard over Bosnia and Operation Southern Watch in Iraq. Driscoll's next assignment was the commanding officer and flight leader of the Navy Flight Demonstration Squadron (The Blue Angels) for the 1999 and 2000 show seasons. In April of 2001, Driscoll reported to Carrier Air Wing 5 based in Atsugi, Japan. During Operation Enduring Freedom, he led the TACAIR strike element aboard the USS Kitty Hawk (CV 63), which served as an Afloat Forward Staging Base during combat operations in Afghanistan. He deployed again in 2003 and led his air wing in combat during Operation Iraqi Freedom.  In 2008 he served in Baghdad, Iraq as Director of Communication and spokesman for Multi-National Force-Iraq (MNF-I).  He is currently serving as Commander, Carrier Strike Group TEN.   Driscoll’s staff assignments include: Deputy Director, Deep Blue; EA to the Deputy Chief of Naval Operations for Information, Plans and Strategy; EA to the Vice Chief of Naval Operations and the Chairman’s Joint Strategic Working Group.   Personal awards include the Legion of Merit with two gold stars, the Distinguished Flying Cross with Combat V, three Bronze Stars, and the Defense Meritorious Service Medal. He is a distinguished graduate of the Naval War College and holds a Masters degree in National Security and Strategic Studies.2 Driscoll relieved Rear Admiral Mark Fox in May of last year. Even in the event Carrier Strike Group Eight rotates out immediately, in Carrier Strike Group Ten the Arabian Sea has a group of vessels battle proven in this theater and against a similar foe commanded by an experienced air combat officer and filled with freshly deployed fighting men and women. New moon on July 12th. Hmmmmm. 1. U.S. Navy Biography of Rear Admiral Phillip S. Davidson. 2. U.S. Navy Biography of Rear Admiral Patrick Driscoll.

Ambrose Evans-Pritchard: RBS expects 'monster' money printing by Fed Posted: 27 Jun 2010 01:03 PM PDT By Ambrose Evans-Pritchard The Telegraph, London Sunday, June 27, 2010 http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/785759... As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve. Entitled "Deflation: Making Sure It Doesn't Happen Here," it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy. ... Dispatch continues below ... ADVERTISEMENT Prophecy to Become Coal Producer This Year with 1.5 Billion Tonnes of Resource 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 speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost." Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE). Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing. The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era. The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7 percent in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40 percent in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous. Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely -- http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.h... -- because the Fed is soon going to have to the pull the lever on "monster" quantitative easing." "We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors. Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2 percent by force majeure said this is the option "which I personally prefer." A recent paper by the San Francisco Fed argues that interest rates should now be minus 5 percent under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2 percent when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds. Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said. Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3 million without support. California has to slash $19 billion in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112 billion to comply with state laws. The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4 percent of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33 percent to a record low of 300,000 in May after subsidies expired. It is sobering that zero rates, QE a l'outrance, and an $800 billion fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's E750 billion rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the E110 billion EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money? Clearly we are nearing the end of the "Phony War," that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, automakers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70 percent of GDP to 100 percent by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy. Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous -- and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes. Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market -- and therefore the banks -- would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual. The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation. Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt. At the time, the broad money supply war growing at 6 percent and the Dallas Fed's "trimmed mean" index of core inflation was 2.2 percent. We are much nearer the tipping today. The M3 money supply has contracted by 5.5 percent over the last year, and the pace is accelerating; the "trimmed mean" index is now 0.6 percent on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap. There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble. * * * Join GATA here: New Orleans Investment Conference Wednesday-Saturday, October 27-30, 2010 Hilton New Orleans Riverside Hotel http://www.neworleansconference.com/index.html * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts 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: http://www.goldrush21.com/ * * * 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: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

Ambrose Evans-Pritchard: RBS expects 'monster' money printing by Fed Posted: 27 Jun 2010 01:03 PM PDT By Ambrose Evans-Pritchard The Telegraph, London Sunday, June 27, 2010 http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/785759... As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve. Entitled "Deflation: Making Sure It Doesn't Happen Here," it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy. ... Dispatch continues below ... ADVERTISEMENT Prophecy to Become Coal Producer This Year with 1.5 Billion Tonnes of Resource 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 speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost." Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE). Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing. The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era. The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7 percent in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40 percent in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous. Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely -- http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.h... -- because the Fed is soon going to have to the pull the lever on "monster" quantitative easing." "We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors. Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2 percent by force majeure said this is the option "which I personally prefer." A recent paper by the San Francisco Fed argues that interest rates should now be minus 5 percent under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2 percent when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds. Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said. Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3 million without support. California has to slash $19 billion in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112 billion to comply with state laws. The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4 percent of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33 percent to a record low of 300,000 in May after subsidies expired. It is sobering that zero rates, QE a l'outrance, and an $800 billion fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's E750 billion rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the E110 billion EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money? Clearly we are nearing the end of the "Phony War," that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, automakers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70 percent of GDP to 100 percent by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy. Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous -- and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes. Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market -- and therefore the banks -- would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual. The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation. Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt. At the time, the broad money supply war growing at 6 percent and the Dallas Fed's "trimmed mean" index of core inflation was 2.2 percent. We are much nearer the tipping today. The M3 money supply has contracted by 5.5 percent over the last year, and the pace is accelerating; the "trimmed mean" index is now 0.6 percent on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap. There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble. * * * Join GATA here: New Orleans Investment Conference Wednesday-Saturday, October 27-30, 2010 Hilton New Orleans Riverside Hotel http://www.neworleansconference.com/index.html * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts 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: http://www.goldrush21.com/ * * * 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: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

Lesions Found In Brains Of Dead Fish Posted: 27 Jun 2010 12:15 PM PDT CAPTION: Dead red fish litter the bank of the St. Johns River north of the Buckman Bridge [in Jacksonville] Monday, June 7, 2010. A multitude of dead red fish have been reported for the past two weeks with the cause being unknow [sic] at present. Jacksonville Times-Union If you think the… fish kill on the St. Johns River is an annual event that just came early this year —think again. That's the message that two men with close ties to the river want you to know. … "This kill is unprecedented," he said. He explained that fish kills due to low oxygen levels are typically confined to smaller areas, not as widespread as the problem has become. … Fish continue to die in an area from roughly theBuckman Bridge [in Jacksonville] south to Lake George… [Quinton White, the executive director of the marine science institute at Jacksonville University] said that last week the St. Pete lab sent staff to Jacksonville University to sample more recently killed fish. "They did necropsies on site," he said. He said they found lesions in the brains of some redfish. "I'm not sure what else," White said. More Here.. This posting includes an audio/video/photo media file: Download Now

Fed Looks to Hyperinflate Posted: 27 Jun 2010 12:00 PM PDT This potential move gives the deflation versus inflation debate a new perspective. We have written in the past that we had questions about the Great Depression based on conflicting opinions of Murray Rothbard, Milton Friedman et. al. Living through the "Great Recession" has begun to clear them up. It is a little like being a lab rat; it is painful, but the experience gives you an insider's look at the scientific method. Or in this case a fiat-money economy.

Guest Post: Destined to Fail – Magical Thinking at the G20 Posted: 27 Jun 2010 11:28 AM PDT Submitted by Chris Martenson Destined to Fail – Magical Thinking at the G20 The G20 meeting has revealed two important things that tell us something about our combined economic future. First we learned that the US lost the battle to try to get everyone back on the Keynesian print-a-thon bandwagon. This tells us something about US leadership in these troubled times. Once-upon-a-time, the US could dictate such things, and those days are apparently over which deserves to be noted. I am a supporter of austerity as the least worst of two paths which I will outline below (the other being printing), but I want to be sure to give the global rejection of the US position on stimulus the proper attention it merits. Here’s the relevant information: TORONTO — Despite President Obama’s pitch at the summit meeting for developed nations here for continued stimulus measures to prevent another global economic downturn, the United States will go along with other leaders who are more concerned about rising debt and join in a commitment to cut their governments’ deficits in half by 2013, administration officials said on Saturday. (Source – NYT – all quotes below from same article) In the lead-up to the G20, the US was lobbying heavily for a very different outcome. The US wanted continued stimulus and thin-air money printing and made its plea for this policy stance very publicly in the days and weeks leading up to the G20 meeting. The reasons for this stance are numerous and complex, but one stands out prominently: Elections are coming up. If you are an incumbent, now is not the time to cut off the stimulus efforts. The story here is that the US wants to stay on the path of printing, borrowing, and government stimulus, but a significant portion of the rest of the developed world has decided this is not a direction that makes sense. Such fundamental splits in philosophy are what great historical turning points are made of. The second thing we learned is that, despite these differences in how to fund future growth, there is nothing yet to indicate that any the world leaders are aware that the very concept of perpetual growth is an unworkable fallacy. It’s obvious, hopefully to even the most casual of thinkers, that someday, sooner or later, whatever growth one is engaged in will have to stop. Nothing grows forever; everything has a limit. But apparently the concept of limits is not part of the magical framework of modern economic thinking (emphasis mine, below): Mr. Cameron and Mr. Obama, in their first private meeting since Mr. Cameron took office, acknowledged their different approaches toward balancing the need to promote greater economic growth and job creation in the short term with the long-term desire to reduce national debts, which reached dangerous heights during the downturn. But they played down those differences. It’s funny how these things are always expressed as a “need.” We “need” economic growth and job creation. Have you ever wondered why this is? Why is it that we “need” either? Needs are not negotiable; wants are. How sure are we that job creation and economic growth are actually needs? Well, we need job growth, because there are more and more people entering the work force each year due to population growth. If there were no population growth and everybody already had a job, then there would be no “need” to create jobs. Zero percent job growth is the right amount for a stable population. No growth = no need for new jobs. So we can therefore reduce the politicians' statements about the need for jobs to its more basic level and discover that they are really saying we “need” population growth. It's certainly been a very real and dominant factor for a very long time, but it is not a need. There are many who would even say it shouldn't even be considered a “want.” We can trace an enormous number of the problems or predicaments we face to over-population or to the strain that results from accommodating the needs of a growing population. It seems to me that if job creation is a ‘need’ then we’d do well to ask ourselves if we’d prefer to spend our time trying to figure out how to create an ever larger number of jobs in perpetuity or if we’d like to spend our time figuring out how to create a stable population. While this may be an uncomfortable topic for some, it also happens to be reality. Since it’s logically true that eventually population growth will have to stop it’s entirely probable that we’d gain more bang for our buck if we expended our efforts towards creating a stable population than trying to build a perpetual-motion job creation machine. And what about the “need” to grow the economy? Where does that come from? If you’ve watched the Crash Course you know that this imperative for economic growth comes from the money system itself. Debt-based money requires growth. If we had a stable population engaged in stable and sustainable activities using non debt-based money as their freely circulating medium of exchange, then there would be no “need” for economic growth. Zero percent economic growth would work just fine. But we’ve got a growing population and we’ve got debt-based money and that’s the long and the short of it. Hence, we are stuck with the political reality that we “need” growth in the economy and job creation (even though these “needs’ are self-inflicted by our decisions, not due to some fundamental law of the universe like gravity). Knowing that something is wrong with this perpetual growth narrative, we've taken to adding a few comforting words around ‘growth’ to make it seem as if our thinking is actually very clever and mature: “But we are aiming at the same direction, which is long-term sustainable growth that puts people to work,” Mr. Obama said. “Long-term sustainable growth” that “puts people to work.” Sounds good, doesn’t it?  Who could be against that?  The problem is that the first part of the statement is an oxymoron. There’s no such thing as “long-term sustainable growth”. Heck, in the long run, there’s no such thing as “sustainable growth.” Sooner or later, whether its bacteria in a Petri dish, mice in the pantry, or humans on a globe, growth stops. The only question is whether you cease that growth by design, on your own terms, or by disaster on some other terms. Whenever you hear the words “sustainable growth” I invite you to recall this line of thinking and ask yourself if such a thing as sustainable growth is even possible. If it is, I have certainly I have never seen any workable plan, not even sketched onto a napkin in crayon, that explains how growth can be sustainable. Growth always ceases the only question is when and under what terms. Some more quotes from the G20: Mr. Cameron added, “Those countries that have big deficit problems like ours have to take action in order to keep that level of confidence in the economy which is absolutely vital to growth.” (...) The Obama administration did have allies at the meeting in opposing rapid moves to withdraw governments’ stimulus measures. The Brazilian finance minister, Guido Mantega, told reporters that the debt-reduction targets could compromise economic growth (...) Trying to bridge the differences among leaders here, [Timothy Geithner] said: “Our challenge, as the G-20, is to act together to strengthen the prospects for growth. This will require different strategies in different countries. We are coming out of the crisis at different speeds.” (...) The setback underscored the difficulty Mr. Obama has had in making the case for stimulus. At home as abroad, Mr. Obama is confronting the limits of the consensus that took hold after the economic crisis began in 2008, which favored bigger deficits to spur job creation. At stake, as the administration sees it, is continued global recovery or a relapse into another recession.   Recovery, growth, and jobs. This is what the world seems to want in unison, and this is something we can easily understand and appreciate given the fact that all the world’s leaders were born and raised during a period without limits.   Now that we can clearly see a wall of limits right in front of us, the question remains as to which countries will be able to navigate the treacherous shoals of change as we try to find a different set of understandings upon which to build a new world that can offer prosperity without growth. It’s a big challenge and I am keeping my fingers crossed that somehow we’ll manage to figure out that our current trajectory is unsustainable and that we need entirely new thinking, centered on reality, to enter our global discourse. The alternative is to default into the comforting arms of growth only to discover, much to our dismay, that it was prosperity we wanted after all and that growth and prosperity are very different things. In a world of limits, one steals from the other. My preference would be to have prosperity be the thief and growth the victim, but our leaders seek the opposite. This theme of what we might expect in a world of limits is a dominant portion of my analysis that I perform for my enrolled members. We do not live in a world where anything will suddenly run out, but a world where there will be slightly less and less that needs to be spread around more and more people, and more and more debt. Running an analysis of all three E’s, the Economy, Energy and the Environment, and tying these to personal actions and financial implications is one unique service I that I provide. The other is to be your information scout. The Challenge For The US Now, back to the more immediate challenge for the US: Yet even within Mr. Obama’s administration there are fault lines on how much additional stimulus is desirable. Some news reports in recent days suggested that Peter R. Orszag, the budget director who recently announced that he would be leaving in late July, was resigning partly out of frustration that he had lost the argument for deeper and quicker reductions in projected deficits. The apparent rift here is between Orszag, who wants the US to begin to live within its economic means, and the staunch Keynesians Geithner and Summers who want to print and spend to achieve political aims. As a card-carrying member of the green eyeshade club, Mr. Orszag knows that their path represents the eventual and probably catastrophic bankruptcy of the US. Rather than continue to duke it out with the “print now, pay later” club, Orszag has opted to leave for greener and friendlier climes. In full disclosure, Larry Summers is among my least favorite people on the planet. I cannot figure out how he manages to get to such prominent positions given the fact that his track record is a nearly unblemished trail of poor decisions and economic ruin. Everything in his record suggests that his only form of competency is political ambition, yet somehow he keeps getting his ideas enacted. It’s a real mystery and not the good kind, like where that extra $20 in your pocket came from. In my view Summers is a gigantic liability for this country and the current administration and the sooner he is sent packing the better. Geithner too for that matter. At any rate, the G20 plan calls for the US to cut its existing budget deficit to only 3% of GDP by 2013. For the US this would represent a decline from a $1.4 trillion deficit to a roughly $420 billion deficit, or ~$1 trillion in cuts in just three years. Without getting too technical, this is just not going to happen. Cutting a trillion in federal spending would cut 7% from the GDP. And even if we were willing to undertake a 7% hit to GDP, where would the trillion come from? It turns out that much of the US deficit is now structural meaning it sits in the “mandatory” column as opposed to the “discretionary” column. To help frame the predicament, I’ll note that Obama recently proposed a three-year freeze on all non-defense discretionary budget spending which – drum roll please – constitutes only $447 billion out of a $3.5 trillion budget. In other words, finding a trillion is simply out of the question if the only part of the budget that can be controlled right now because it is both discretionary and politically viable in an election year, is only $447 billion. You can’t squeeze blood from a stone and you can't save a trillion from a budget of less than half a trillion. And that’s only part of the problem. One path to getting the deficit to 3% from its current 10% of GDP is to cut spending. However, this path carries the seeds of its own failure. Government spending is a big part of GDP so cutting spending shrinks the GDP. The more spending is cut the more GDP shrinks which makes the deficit ratio less favorable. Adding insult to injury, government revenues expand and shrink in proportion to GDP so cutting spending actually leads to reduced revenues which leads to higher deficits which lead to more cutting which results in an endless spiral into the dumpster. The other path consists of elevated government borrowing and spending done with the hope that eventually GDP climbs up over time thereby reducing the deficit to GDP ratio. The US sees this as the only viable option but Europe has figured out that this path too has its own ‘end-game’ which is the eventual collapse of sovereign debt and the high likelihood of associated political and social chaos. Neither option is really attractive at this point, which is the definition of a predicament. My final analysis is that because we have such political animals as Summers driving the ship of state the US will tell the G20 it agrees to the plan but will not honor those words. At least not during this election year. And probably not next year either because it will be inconvenient then too for some reason or another. And probably not ever unless forced by external circumstances because the political class in the US seems unable to confront the idea that limits apply. And so the US, and its ever compliant side-kick Japan, will continue to spend wildly even as Europe dutifully wrestles with the new reality. At first it will seem like the US is the place to invest because its ‘growth prospects’ will appear stronger but someday, and not too terribly far in the future, it will dawn on the financial markets that the US is a hopeless basket case saturated with debts that cannot ever be paid back under current terms. This is already true, but for some reason financial markets seem ignorant of this reality. Someday there will be a sudden revolt in the Treasury markets, a new equilibrium will be found, and vast quantities of wealth and our national standards of living will disappear seemingly overnight. And that’s only if those other two E’s don’t thunder out of the chute and into the arena for all to see. Then all bets are off.

Jim's Mailbox Posted: 27 Jun 2010 10:21 AM PDT Gold Shares Dominant Relative Strength CIGA Eric Gold shares post their highest close relative to the stock market since the onset of the bull market in 2000. The gold shares sector continues to be the strongest group within the stock market. This is characteristic of a devaluation-driven economic environment. Gold Miners Index to S&P 500: More…

Debunking Deflationist Myths & Scare Tactics About Gold Posted: 27 Jun 2010 09:16 AM PDT Haven't you heard? As I type this, the US and other world economies are supposedly in nothing but increasing deflationary pressures that will not be able to be stopped by any government or central banker no matter how much stimulus or money printing they decide on doing! At least that's what many of the talking heads on financial TV are telling us especially within the last month or so. They have been saying this message for awhile now. Here's an interview from Mike "Mish" Shedlock from October 2009 talking about deflation: And so begins another inflation vs deflation debate. Many of you who don't want to learn everything there is to know about macroeconomics to understand what is really going on in the world right now are probably wondering is there an investment that will do well in inflation and/or deflation so you don't have to be an expert economist to protect yourself and make an investment decision and get on with the rest of your lives? First off, this is the best explanation summary I have read recently of what's happening. John Williams of ShadowStats even agrees (about short term deflationary pressures) as far as M3 goes, but is M3 even a valid measurement of the money supply and therefore of monetary inflation? My Austrian Economist friends would disagree with him here about M3 being a valid indicator of the true total money supply, but The M3 Money Supply figures John Williams has recreated do show M3 dropping!  All of this I just mentioned about deflation will be a moot point if Ben Bernanke and other heads of central banks, including the IMF and Bank of International Settlements (BIS) aka the Central Banker's Bank decide to step on the gas pedal and add more gasoline to the fire via more stimulus! The Italian Keynesians in Italy are even upset with Germany for its "deflation policies." Despite declining M3 figures, ShadowStats' Consumer Price Index (CPI) calculations also show inflation in consumer goods and services as measured by rising prices running at around a 6% clip. James Turk, author of the book Dollar Collapse, Founder of the precious metals storage company GoldMoney, and a consultant for GATA thinks that hyperinflation is still by far the most likely outcome in his latest analysis. What do these mixed signals mean? What's the truth? Can I protect myself from inflation and deflation at the same time? (The short answer is Yes, you can.) I even wrote an article awhile ago about commodities and commodity stocks telling you how commodities and their producers offered you inflation protection and also emerging market growth in case there is no real inflation. Commodities are really the only asset class still in a long term, secular bull market and as an investor looking to protect and grow your wealth long term, I believe you need to be invested in this powerful long term trend. I have already written a previous and very detailed article on Silver, which I think is perhaps the best long term investment one can make. Wall St for Main St Co-Founder, Mo Dawoud, of Mo Money Blog also has an article about Silver. But, today I wanted to talk more about Silver's more popular big brother, Gold. See Gold has a secret power that most people don't even know about! Besides doing well in inflation, Gold also does well as a deflationary hedge! Surprised huh? I will start my case for how and why gold does well during a deflationary environment later in the article. So what's really happening in our economy right now? What should you believe? Which experts should you trust? How can you protect your portfolio in case of inflation or deflation or both? Are we going to have bad inflation, bad deflation or will it be some sort of weird, hybrid mix that will hurt and destroy everyone (some more than others)? These are the types of things Mo Dawoud and I think about everyday at Wall St for Main St. Despite the evidence I have shown you of conflicting inflationary and deflationary pressures happening worldwide (I could show you a lot more conflicting evidence still but let's keep this article relatively short) and no real clear winner in the near term, in an "I told you so"  trumpeting fashion, deflationists like Bob Prechter of Elliot Wave International and Harry S. Dent are coming back out of the woodwork to pat themselves on the back for being right about their long term, "Deflationary Death Spiral" predictions. What's funny is deflation is really not a death spiral at all. We were just taught it was in Economics 101 by our Keynesian teachers and professors. In fact, deflation is the cure for all of the inflation that's been going on in our economy and monetary system for many decades. Deflation is something the markets badly want as a cure for our extreme debt problems. The problem with deflation is central bankers and governments want to do everything they can to prevent it. The truth about deflation is economics and business students have been brainwashed for decades that higher prices are a good thing! Higher (rising) prices are in fact inflationary if they are rampant in our economy. Saying higher prices, loss of purchasing power in our money and therefore inflation is a good thing is a complete and total lie engineered by Keynes and his economic disciples, like Paul Krugman, who have written your school's economic textbooks to justify government's hidden agenda! Higher prices are only good for higher taxes and for specific corporations. They have ZERO benefit for everyone! Higher prices do not produce higher wages. Increasing production and efficiencies, lowering costs and adding more useful skills produce higher wages. If a business tries to raise prices too high, a competitor will come in and compete and threaten to steal market share or worse, bankrupt the company. When the free market system is functioning properly due to innovation, proper competition and other gains in efficiency, prices should actually be falling on all goods and services while the quality of goods and services increases. Capitalism or the free market system was founded on the belief of "Creative Destruction." To give you an example of how the free market works properly to benefit consumers, this is why a $600 50″ Flat Screen LCD TV of today is cheaper and of higher quality than a $5,000 30″ Flat Screen Plasma TV was of say about 7 years ago. This is how a market is supposed to behave. We still have some markets correctly behaving in this manner but not nearly as many as there should be. This is 100% due to government interference in specific markets, like healthcare to name just one, and also large corporations deciding it is in their best interest to pay to lobby Congress and get tax breaks, tax rebates and subsidies instead of investing that capital in more useful things like innovation, research and development and other things that would have a long term benefit to society and to the company. Many corporations have now sacrificed long term gains for short term profits. Malinvestment, corruption, inefficiencies and overbearing regulations are suffocating many markets and are preventing proper competition. Competition and the threat of extinction produces innovation and better technology, lower prices and higher quality in all goods and services. The problem is governments don't like deflation even if that's what the market says we all need to have happen. Actually, 'don't like' is not strong enough. They hate deflation and will do everything in their power, legal or illegal, to fight it! This often means changing the rules of money. Why? Because government's interest and the interests of specific corporate special interests completely conflict with the interests of its citizens. The interests of government and its citizens, for the most part, are no longer aligned, which is sad, but that's the truth about what has become reality now. Government is now a separate entity much like a corporation is a separate entity. Many governments are still spending frivolously and have not tightened their belts like the rest of us are being forced to do in our personal lives and in our businesses. This is the brainwashing I am talking about. You have been led to believe that there is nothing wrong with higher prices on the goods and services you need and want. I am telling you the opposite is true. Why does the government hate deflation and lower prices? Because it lowers their tax revenues, it gives private citizens back their purchasing power (makes money more valuable to hold and save and invest) in their money and it lowers asset prices and other other consumer prices for goods and services we need and want. Deflation does not allow governments to use inflation as a tax to steal our purchasing power (inflation is 100% pure government policy and is really nothing but an invisible, hidden government tax) and it lowers the taxes they collect on normal things like wages, property tax, etc. This is one of the major reasons why there is so much effort by the Fed and Federal Government to try to re-inflate the housing bubble and to create inflation. It's in the government's interests to create inflation (not too much inflation at once or too many people will wake up and realize and also dump the paper, fiat currency). The bottom line is modern governments and central bankers have not allowed deflation to occur without first trying to interfere heavily in a country's economy and markets and to first create inflation. History is strewn with countless examples of interventionist policy by governments where the free market was not allowed to heal itself and purge itself of the bad investments and misuse of capital. There is some revisionist history out there in textbooks that says FDR saved the US from a deflationary death spiral during the Great Depression of 1929 because his predecessor, President Herbert Hoover,  who was supposedly a proponent of the free market stood by and did nothing. Unfortunately, this is another lie we have all been taught and you will have to unlearn. The truth is FDR just continued what Hoover started. Hoover was an interventionist also. He was anything but a "free market" guy. History book writers who wrote the textbooks we used in school all needed a goat to make FDR look like a hero and so the "truth" about Hoover was twisted to make FDR look great and Hoover look like an evil and uncaring Capitalist pig. The last non-interventionist President that allowed a pure deflation and did not interfere in markets was President Warren Harding during the Great Depression of 1920. This is a video of a 50 minute speech Austrian Economist, Author, and Economic Historian Thomas Woods gave on the subject: Harding refused to interfere in the markets and he ran on an "allow deflation" platform. In fact, Harding even cut government spending in half! While the first year of that depression was very hard, and I believe unemployment numbers were higher for that first year than in 1929, the US was out of a depression and recovering in only 18 months! Normally, a hyperinflation occurs followed by a deflation to wipe out the mess completely and so the system (our economy) can hit the reset button. This is a very painful process, but we cannot avoid taking any pain and I am 100% sure we are going to have to take our "medicine" aka the cure eventually. That cure involves letting bad debts and bad loans and other toxic things like Mortgage Backed Securities go to their intrinsic value of zero or close to it. Besides congratulating themselves, these deflationists also ALWAYS have one last word of advice. They tell you to immediately sell your gold and gold stocks! This is it they say. The top in gold is in and they are fully sure of it. There's just one problem! They've been calling a top in gold for years! How many years have these deflationists been calling a top in gold? Well, Bob Prechter has been calling a top in gold and silver every slight increase for the last 15 yrs or so! If you followed his advice and shorted gold and silver each time, you might be bankrupt. Here's a link to the best summary available on the Internet of Bob Prechter's track record of forecasts. He and his Elliot Wave followers have been a lot more correct in the short and medium term with their predictions than in their long term predictions. In fact, CXO Advisory Group, the company who compiled the statistics and summary of Prechter's forecasts gave Prechter a Guru Accuracy Rating of only 26%. I would not be listening to Prechter for long term investment advice. In my opinion, he's a very good technical trader. That's it. When asked what to buy with the money from selling your gold and gold stocks, Bob Prechter recommends short term US Treasuries as the best option. That's funny to recommend you buy debt in a debt crisis don't you think? Wouldn't certain types of cash (non G7 "Westernized" currencies) be better and safer than US Treasury debt? Dent has the same recommendations as Prechter. A Better Solution Ok, so why the conflicting evidence of inflation and deflation? Is it even possible to have both inflation and deflation at the same time? The answer is 'Yes' and according to Dan Amerman, this has actually occurred many times throughout history! Dan Amerman is a former longtime, and now reformed (he saw the error of his ways) investment banker who has switched from helping Wall St design weapons of mass destruction (financial derivatives) to quitting that industry about a decade ago so he could focus on helping out the people of Main St from losing everything they have to Wall St and the government. He also wrote the textbook many central bankers still use, so it would be slighting him to call him anything other than an expert at what he does. He has a free Turning Inflation Into Wealth Mini-Course on his website that you can sign up for that he sends to you periodically through email updates. I'd recommend you sign up for his course as he can help you increase your Financial IQ exponentially for free if you are willing to spend the time reading and learning! After that brief introduction to Amerman, for those of you unfamiliar with him, now back to my regularly scheduled argument. Deflationists say we cannot have both inflation and deflation at the same time. Dan Amerman counters that this is the Santa Claus Theory of Deflation that is so prevalently taught in classrooms by economics professors in academia. For deflationists, this is what they've been taught in the economics classrooms by mostly Keynesian Economist schoolteachers and professors who teach central planning, tout higher prices as a good thing, and lots of other Keynesian nonsense and General Theory dribble. This theory of deflation is theory and jargon and only exists in a vacuum where the US economy is not affected by other global factors and pressures! In my humble opinion as well as Dan Amerman's opinion, it can and will destroy your net worth if you adhere to it religiously and bet most or all of your investment and/or retirement money on it. In fact, according to Dan Amerman, pure deflation where asset values AND prices/monetary supply both deflate at the same time has never occurred in modern history in the way and the historical examples the deflationists claim it has! Amerman cites deflationists 2 main examples and successfully counters their arguments: The US Great Depression of 1929 Present day Japan, which has supposedly been stagnant with deflation for going on 2 decades now. I and many other experts not believers in Keynesian macroeconomics beg to differ. They say deflation, which is a decrease in money and credit, is so powerful that there cannot be any way for central bankers and governments to continue to inflate/devalue/debase the Dollar and other paper currencies. I beg to differ. As a last resort, the Fed and other central bankers can ALWAYS devalue the US dollar against gold by going into the open market and purchasing gold. When you do that you are essentially shorting your own currency to make it weaker. Now, admittedly, the US economy is facing some short term deflationary pressures, but the US economy and our stock markets are not inside a vacuum because of globalization and there is not deflationary pressures worldwide. In fact, China has increasing inflationary pressures! Also, Helicopter Ben Bernanke and the other Keynesians at the Fed as well as President Obama and others in Congress are seeing the same thing and it's time for another round or three or five of large Stimulus and Job bills! Another $80 billion Stimulus bill is in Congress already and more will surely come. There are nowhere near the amount of signs outside of the developed world that deflation is a risk. Inflation is still, by far, the main concern in emerging markets and will continue to be the main concern worldwide for years to come as all world governments continue to print money, Austerity Measures or no austerity measures. Ok well now let's move onto the conclusion and something the deflationists really have ZERO credible explanation for happening, the curious case of Homestake Mining. Citing this example will win you an argument against deflationists of why gold does well during deflation every time! The Curious Case of Homestake Mining and How it Disproves Everything Most Deflationists Think About Gold's Behavior During Deflation I have debated deflationists often about inflation vs deflation and about gold. All deflationists HATE gold and think it is a very poor investment in deflation. The most popular answers always are, "you can't eat gold," "if the world is ending gold will be useless," "if things ever come to that government is going to confiscate all of your gold and we are going to laugh at you, give you nothing for it and we are going to tell you 'I told you so',"  "you will not be able to defend your gold," "water, food, guns, ammo and plant seeds will be more valuable." They then say how gold will collapse during a deflation and the price will fall by more than half. There's just one problem. History says otherwise! The truth is they haven't done their homework. Almost none of the deflationists I have talked to, and I have debated dozens, have studied Homestake Mining and what happened to the company during the Great Depression of 1929. The deflationist camp cannot explain it away so they simply try and dodge the "Homestake" golden bullet/ace. For those of you unfamiliar, Homestake Mining was the only major gold mining company listed on the NYSE during the Great Depression of 1929. When deflation occurred and FDR took over for President Hoover, one of the first things he did was try to seize/confiscate all privately owned Gold. Government agents were stationed outside banks and people were told to hand in all of their gold in exchange for a $20/oz price. Similar attempts were made with silver. FDR then revalued gold to $35/oz against the US Dollar effectively devaluing the US Dollar against Gold by over 40%!!!! The gold was then melted down into bars and a secure storage facility was built at Fort Knox. After the confiscation, the bankers and people at the Fed knew the gold confiscation and dollar devaluation was coming ahead of time and they acted on this inside information and they managed to buy gold bullion and also shares of Homestake Mining knowing the confiscation of gold would make it a more scarce and desired commodity. Confiscating gold will also create a Black Market for gold as people will have an even larger demand for it because of its scarcity.

Arbing The Decoupling Between CDS And Out-Of-The-Money Equity Puts In Distressed Names Posted: 27 Jun 2010 08:44 AM PDT In his latest analysis, Goldman credit strategist Charles Himmelberg resumes the firm's party line of claiming the market is overestimating the risk impact of "fat tail" events, because presumably, as Goldman's Javier Pérez de Azpillaga showed previously, even though Spain is insolvent, is facing a massive budget deficit, has a huge debt-roll problem, and has a banking system that is locked out of capital markets, all is good (full report here) and all those who are betting on Europe's demise are about to lose money (how this Eurozone optimism jives with Goldman's recent downgrade of the EURUSD to 1.15 is beyond non-lobotomized comprehension, so we'll just leave it be as yet another fully expected Goldman inconsistency). Yet, as ever so often, inbetween the conflicts of interest, Goldman does tend to provide that occasional piece of useful, actionable information. In this case, Himmelberg has done a very relevant analysis comparing Jump to Default costs for CDS and for out-of-the-money equity puts on distressed public names, and concludes that purchasing CDS provides a far better, lower-costing entry point to hedge against default. As he notes: "Our results show that pricing in the two markets follows the same trend, but that credit protection may be cheaper in many cases." Specifically, anyone wishing to arb the mispricing of credit and equity downside protection would be wise to put on a pair trade basket where one buys CDS/sells OTM Puts in SFI, LIZ, BC, MIR, NYT, and DDS and the inverse (sells CDS/buys OTM Puts) in F, AMR, MGM, TSO, SFD and LEN on a DV01 neutral basis, and wait for risk normalization between equity and credit to lead to a recoupling in the spreads.  As we have demonstrated in presenting the daily decoupling and subsequent recoupling in the EURJPY-ES pair, technical divergences such as this particular one will likely not persist for long as in this fundamental-less market, any divergence from the norm in technicals is promptly (if with a slight delay) filled in. the For those interested in pursuing this further, here is Himmelberg's elaboration. Credit default swaps are frequently used by equity investors to hedge the risk of distress across their names, similarly to put options. And if we assume that a stock goes close to zero in case of default, then a CDS can be seen as a zero-strike put option. It is therefore natural to compare the cost of default protection in the two markets (See also “A Simple Robust Link Between American Puts and Credit Insurance”, by P. Carr and L. Wu (2007)). We  acknowledge that liquidity may be limited in the out-of-the-money puts in some of these names, but we believe the comparisons are valuable to add perspective for investors in each market. To make the comparison as close as possible, we follow the methodology below: 1. Our analysis considers the universe of HY names with liquid out-of-the money put options of around 1-year maturity, struck lower than 50% of current stock prices 2. We define the gain upon jump-to-default (JTD) for holders of CDS and American equity put protection. We assume bondholders recover around 35-40% upon default, depending on the name, while shareholders lose everything but 5% 3. We compare the former to the cost of the two instruments, using ask prices. For CDS, we use the carry cost, pro-rated until the option’s expiry The resulting information shows the cost per default protection in the two markets  follows a similar pattern. In particular, credit default swaps and puts tend to trade at similar cost, when the puts are out-of-the-money, i.e. close to the theoretical CDS strike (Exhibit 12). On average, equity options appear to be slightly more expensive than CDS. Partly, the average differential is due to the fact that puts are less out-of-the-money than CDS, and therefore include protection for underperformance scenarios where the company does not necessarily enter default. However, the strong discrepancies in the analysis where puts are deep out-of-the-money suggest that default protection may be cheaper in credit. A portion of this discrepancy is be driven by wide bid-ask spreads in the options markets (see chart below for more details on our analysis). Zero Hedge will construct a CIX index in which we will track the relative performance of the proposed pair trade basket, as we are confident that in today's directionless and idealess market, those funds with an access to both CDS and equity will likely be eager to take advantage of this mispricing.That said, we would urge readers with exposure in just one or the other market to not attempt to just put on one side of this trade in anticipation that other "greater fools" will close their side of the trade. That is the surest way blow up your book in no time.   Attachment Size Spain Cash Position 6.26.pdf 558.45 KB This posting includes an audio/video/photo media file: Download Now

Update on Giant's New Games Posted: 27 Jun 2010 08:30 AM PDT Xiaofan Zhang submits: In this article, I update investors on the four new titles operated by Chinese online game company Giant Interactive Group (GA): King of Kings III, XT Online (Xian Tu), Dragon Soul (Long Hun), and ZT Online II. I believe these games indicate Giant is making progress in revenue diversification. Among these four games, I believe XT Online is the most likely one to become a hit game with 200K+ Peak Concurrent Users (PCU) and $5-$10 million revenue per quarter. King of Kings III usage has likely peaked shortly after entering open beta on April 27. Currently its PCU are around 80K, according to my research. I believe the major reason for King of Kings III's quick maturation was the fierce competition in the 3D MMORPG category. In this category, elite games such as World of Warcraft, Zhu Xian, and Aion have already taken dominant market share among 3D game players in China, who are a much smaller group than 2D and 2.5D players but are much more difficult to satisfy. XT Online (Xian Tu) has been doing well since entering unlimited closed beta on May 20. Currently its PCU are around 110K, according to my research. I note XT Online is Giant's first 2.5D game. Its look-and-feel is very similar to Changyou's (CYOU) TLBB, the leader in the 2.5D category. Although I don't think XT Online can surpass TLBB's 900K+ PCU record, I think Giant's strategy of learning from TLBB will certainly reduce the chance of failures in XT. Based on my assessment of XT, I believe this game's quality and 2.5D game category's large user base will allow it to potentially reach 200K PCU and generate $5-$10 million revenue per quarter. Dragon Soul (Long Hun) is still in the unlimited closed beta stage, which started on January 21. The game has gone through several server consolidations during the past five months, indicating that it still needs significant improvement in game content to stablize its player base. Given the limited size of the 3D player base in China, I believe it is difficult for Dragon Soul to attract those sophisticated 3D game players away from leading games such as World of Warcraft, Zhu Xian, and Aion. I forecast Dragon Soul to have similar performance to King of Kings III. ZT Online II has recently finished its second round of research & development testing and received mixed user feedbacks. ZT Online II has achieved significant improvement in graphics compared with prior titles in the ZT game series. Unlike Perfect World's (PWRD) Zhu Xian 2 and Changyou's TLBB 2, ZT Online II is an independent game, not an expansion pack. I believe Giant did this because it wanted to implement its new C2C-trading-commission-based revenue model in a new game to avoid causing earnings fluctuation to its long-time flagship game ZT Online. In my view, ZT Online II is a nice complement to the existing games in the ZT series. It may not become a hit game, but it will help Giant further expand ZT series' player base and extend ZT series' life cycle. Disclosure: No positions Complete Story »

Postcards from the Gulf Posted: 27 Jun 2010 08:16 AM PDT Clouds of Oil Billowing from Seabed may Contain Silver Lining There may be something other than misery being telegraphed from the bottom of the Gulf of Mexico. To the acute observer, something besides pollution may be seen rising ... Read More...

Is Deswell Industries Seeing an Uptick? Posted: 27 Jun 2010 08:13 AM PDT Robert King submits: Deswell announced its 4Q results last Wednesday. The numbers were in-line with my expectations. The balance sheet reflects a little bit of cash burn coupled with a reduction in receivables and inventory. We can also see that there was a reduction in PP&E [Property, Plant & Equipment], reflecting depreciation, but we should remember that the PP&E is booked at cost and doesn’t reflect appreciation on the underlying real estate. Current liabilities decreased by quite a bit to offset a lot of the shrinkage on the assets side. On these new numbers, once again not adjusting for real estate appreciation, my liquidation value calculation is roughly $3.64. Unexpectedly, management has announced that they will be distributing a $0.05 per share dividend on July 28th, 2010 to shareholders of record as of July 7th, 2010. At our entry price of $4.00 per share, assuming continued dividends in the future, that would be a dividend yield of 5%. I’m wondering if this means that management is seeing an uptick in customer orders. Complete Story »

3 Stocks With High Dividends, Low PEG Ratios and High Growth Prospects Posted: 27 Jun 2010 08:07 AM PDT Double Dividend Stocks submits: If you’re looking for dividend paying stocks with good future EPS growth prospects and low P/E to EPS growth valuations, (PEG), here are 3 dividend stocks from our High Dividend Stocks by Sector tables: United Online, (UNTD), and Himax Technologies, (HIMX), are both ranked high in our Technology High Dividend Stocks table, and Collectors Universe, (CLCT), has the highest current dividend yield in our Consumer Discretionary Dividend table. CLCT also recently raised its dividend from $.25/share per quarter to $.30/share. Complete Story »

3 Reasons Why the Treasury Should Borrow Now to Restructure and Rebuild Posted: 27 Jun 2010 07:58 AM PDT Lawrence J. Kramer submits: Alan Mulally is credited with saving Ford Motor Company (F) by borrowing as much as he could – $23 billion – in 2006, before the credit crunch hit other U.S. businesses, to fund a major turn-around of the company's business. Uncle Sam needs to take a page from Mr. Mulally's book. Because our private borrowers cannot absorb all the risk-averse capital our massive trade deficit brings in, the Treasury has an opportunity to borrow long-term at rates that seem ridiculously low in light of our national debt and continuing deficits. The money is just lying there. All the Treasury has to do is pick it up. Complete Story »

Fortress Mentality No Solution To Protesting Posted: 27 Jun 2010 07:43 AM PDT By Jeff Nielson, Bullion Bulls Canada Canadians used to take pride in being Canadian citizens. We relished being seen unequivocally as a positive influence in the world. It was part of our identity that our soldiers rarely used their weapons, as almost all of their service was devoted to official "peacekeeping" missions. Having a vast nation, with large expanses of unspoiled wilderness, we appreciated that gift – and had traditionally adopted very "green" attitudes toward preserving environments and ecosystems. At the same time, Canada had generally not only been a generous donor of foreign aid, but very proactive as an advocate for developing nations, and a "bridge" in dialogues with other developed nations. In all those areas, Canada's reputation has been greatly diminished. Our soldiers now have a new primary mission, which is supposedly parallel with our "peacekeeping": "kill the enemy". It requires no explanation that increasing the latter greatly diminishes our effectiveness in the former. Meanwhile, Canada's "image" in the world, with regard to environmental issues and policies has gone from "green" to a skull-and-crossbones, with Canada recently being awarded a "trophy" of infamy: voted the world's least "green" nation as a result of two concurrent policies. Not only has the current government essentially reneged and renounced Canada's commitment from the "Kyoto Accord", it has laid-waste to the province of Alberta – through the reckless expansion of the Canadian tar-sands, where maximizing output has meant totally abdicating responsible management and development with respect to the environment. Lastly, Canada is rapidly losing its favorable reputation among developing countries. This comes in a number of forms, but starts with Canada allowing itself to be a "tool" in the U.S.'s "War For Drugs" in Afghanistan – where the partnership between the CIA and local warlords has turned Afghanistan into the largest heroin-factory in global history. Wall Street banks are able to launder such drug-profits with impunity, classified under "trading profits". While Canada's government still mouths worthy platitudes when it comes to aiding poor and developing countries, such statements are being increasingly seen as mere rhetoric. With Canada becoming less-generous in foreign aid and less vocal and assertive as a voice for developing countries, Canada's current government now seems much more interested in currying the favor of its cronies among the developed countries, and mostly the United States. This attitude is on display for the entire world at the current G8/G20 gatherings, where Prime Minister Stephen Harper engaged in the most fascist display of force ever seen at one of these gatherings – relative to any legitimate threat. Over $1 billion (taxpayer) dollars has been squandered in turning the heart of Canada's largest city into an armed fortress, where legions of riot-police front massive barricades. More articles from Bullion Bulls Canada….

Adrian Douglas: Manipulative derivatives in gold and silver keep growing Posted: 27 Jun 2010 07:42 AM PDT By Adrian Douglas Saturday, June 27, 2010 The U.S. Treasury's Office of the Comptroller of the Currency (OCC) has just released the first-quarter 2010 bank derivatives report, which can be found here: http://www.occ.gov/ftp/release/2010-71a.pdf This report contains more evidence that a flood of paper gold and silver instruments are being used to divert investor capital away from the purchase of the actual physical metals in order to suppress prices. Before looking at gold and silver specifically, there are some other very important points to be noted in the report: – The notional value of derivatives held by U.S. commercial banks increased $3.6 trillion in the first quarter, or 1.7 percent, to $216.5 trillion compared, to Q4 2009. The notional value increased 7.1 percent from Q1 2009. – U.S. commercial banks reported trading revenues of $8.3 billion in the first quarter, 15 percent lower than $9.8 billion of revenue in the first quarter of 2009. – Derivative contracts remain concentrated in interest rate products, which comprise 84 percent of total derivative notional values. The notional value of credit derivative contracts, at $14.4 trillion, represents 7 percent of total notionals. Credit derivatives increased by 2.3% during the quarter. – Five large commercial banks represent 97 percent of the total banking industry notional amounts and 86 percent of industry net current credit exposure. So there has been an increase of $3.6 trillion in notional value of derivatives in just three months! It sure looks like the banks are working hard to reduce risk and avoid a reoccurrence of the financial meltdown of 2008 that was caused by the failure of Lehman Brothers and AIG due to their monstrously oversized derivatives books! This increase of $3.6 trillion in Q1 is greater than the entire gross domestic product of the United States in Q1! It also looks like the regulators are working hard to make sure that the risks are not concentrated in a few banks that are "too big to fail," what with five U.S. banks holding a mere 97 percent of all banking industry derivatives! It is ominous that derivative holdings increased 7.1 percent year-on-year while bank trading revenues decreased 15 percetn. Has the limit of the law of diminishing returns been exceeded? Let's have a look at the gold and precious metals derivatives and compare Q1 2010 to Q4 2009: The gold derivatives of all maturities increased by $7.8 billion (7.8 percent) to $107.7 billion. Some $6.8 billion of the increase was in gold derivatives of less than one year maturity. JPMorgan Chase increased its gold derivative holdings by $2.1 billion (2.5 percent) while HSBC increased its gold derivative holdings by a mind-boggling $6.1 billion (37.9 percent). (The HSBC holding is inferred, as its holding is listed under "other commercial banks," but as JPM and HSBC have traditionally held more than 95 percent of the precious metals derivatives it is reasonable to conclude that the other commercial bank category is almost entirely made up of the HSBC holding.) The increase in gold derivative notional value in Q1 is equivalent to 40 percent of all gold mined in the world during the quarter. The precious metals (silver) derivatives of all maturities increased by $0.9 billion (6.9 percent) to $13.7 billion. The silver derivatives of less than one year maturity increased by $1 billion (8.7 percent). The holdings of JPM in silver derivatives of all maturities increased $1.7 billion (22 percent) while those of HSBC decreased by $0.8 billion to $4.25 billion (-15 percent). The increase in notional value of silver derivatives held by JPM represents approximately 100 million ounces, which is 57 percent of the global production of silver during the quarter. The entire notional value of silver derivatives of maturities of less than one year is $12.6 billion. This represents 745 million ounces of silver. It is relevant to compare the derivatives that expire in less than one year with annual global silver production; the notional value is equivalent to 106 percent of annual global silver production! Two bullion banks, JPM and HSBC, continue to dominate the precious metals derivatives market with positions that are outrageously oversized compared to the underlying metals markets. On Friday members of Congress who are negotiating the financial reform legislation came to a stunning compromise on a proposal by Sen. Blanche Lincoln to ban the banks from trading commodities and equity and credit default swaps. http://uk.reuters.com/article/idUKN2527340820100625 Under the agreement banks can "continue to handle foreign exchange, interest rate, and gold and silver swaps and to hedge their own risks. Activity in cleared and uncleared commodities, agricultural, energy, and equities swaps, and credit would have to move to an affiliate within two years." It is intriguing to say the least that the banks retain the right to continue to trade derivatives in gold and silver. This is almost a de-facto recognition that manipulating the gold and silver markets is a necessary function of the banking industry to keep the dollar Ponzi scheme running. But the manipulators are like King Canute ordering the waves back from the shore. The demand for real physical gold and silver in preference to paper and derivative substitutes is an investment theme that is gaining pace and is approaching like a tsunami. The suppression of gold and silver prices is doomed to fail and, in my opinion, in the very near future. —– Adrian Douglas is editor of the Market Force Analysis letter (www.MarketForceAnalysis.com) and a member of GATA's Board of Directors. * * * 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: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

James Turk: People are starting to distinguish between paper gold and real gold Posted: 27 Jun 2010 07:42 AM PDT 12:03a ET Sunday, June 27, 2010 Dear Friend of GATA and Gold (and Silver): In a 16-minute interview with Eric King of King World News, GoldMoney founder and GATA consultant James Turk says that the near-term outlook for gold is exciting, that people shouldn't take risks with their gold, that in large part because of GATA's work people are beginning to understand the difference between real metal and paper gold, and that the key moment in the long-running gold rally may have come a year ago when the Greenlight Capital hedge fund managed by David Einhorn shifted its investment from the GLD exchange-traded fund into bullion. The interview with Turk is 16 minutes long and you can find it at King World News here: http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/6/26_J… CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. * * * 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: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

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