Gold World News Flash |
- China Ratings Agency Downgrades US Debt Well Below Moody's, S&P, and Fitch
- Three Interesting Audio Interviews About Precious Metals and the Economy
- Is Gold About To Rocket and SP500 Tank Video
- (-1780) Gold and Silver in the Code of Hammurabi
- Dividend Payers Likely to Beat Corporate Bonds
- We Are All Ratings Agencies Now
- Investing for the Fall of the American Empire
- A Glance At The Start Of Earnings Season, And Yet Another Asset Price Decoupling
- Olé! Brace for Earnings Season!
- In The News Today
- US Export Push Fails As Chinese June Exports And Trade Surplus With America Hits Record
- Harry Schultz on the Power Elite, the Internet and Why Gold Is Going Much Higher
- Jim's Mailbox
- Irrational Gold Selling
- International Forecaster July 2010 (#3) – Gold, Silver, Economy + More
- Adrian Douglas: Price suppression follows inevitably from fractional-reserve gold banking
- Debt Commisioner: We Are Doomed
- South African metals analyst complains of silver price manipulation
- Telegraph notes BIS gold swap mystery, quotes GATA's Douglas
- Telegraph notes BIS gold swap mystery, quotes GATA's Douglas
- Shouldn't Do It; Couldn't Do It Anyway
- Can the Stock Market Keep Rising? Gold, Too?
- Can the Stock Market Keep Rising? Gold, Too?
- Guest Post: Deciphering Joe Cassno's Lies Before The Financial Crisis Inquiry Commission
- US Debt Crisis Reverting to the Mean
- BEAR’S BEWARE II
- What I See Next for Gold, Dollar & SPX
- Preventing Your Government From Stealing Your Gold
- New Orleans is back in Top 10 cities list, so join GATA there
- Gene Arensberg: Huge short covering in gold by large commercials
- FT’s Lex on gold and the BIS: Nothing to see here
- Strange Bedfellows: Australia’s Labour Party and The Big Three Miners
- Best deal on 90%?
- Austrian Economics: True Money Supply, Deflation and Inflation
| China Ratings Agency Downgrades US Debt Well Below Moody's, S&P, and Fitch Posted: 11 Jul 2010 06:30 PM PDT
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| Three Interesting Audio Interviews About Precious Metals and the Economy Posted: 11 Jul 2010 06:11 PM PDT
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| Is Gold About To Rocket and SP500 Tank Video Posted: 11 Jul 2010 05:37 PM PDT
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| (-1780) Gold and Silver in the Code of Hammurabi Posted: 11 Jul 2010 05:30 PM PDT
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| Dividend Payers Likely to Beat Corporate Bonds Posted: 11 Jul 2010 05:13 PM PDT  Alan Brochstein, CFA submits: One doesn't have to try too hard to read about the deal of a decade available in large dividend-paying stocks. Barron's made cheap large-caps the cover story last week and followed up this week with a warning about risk in low-yielding corporate bonds after a flood of new money lately. While I often doubt something is right when it is being flashed on the covers of financial magazines, I tend to believe that this is a historical buying opportunity. Last week, I discussed my Conservative Growth/Balanced Model Portfolio, which invests primarily in dividend-paying stocks that are likely to increase their dividends over time, describing what I called a "compelling style for challenging times." Today, I want to lay out some scenarios for how investors might fare between investing in dividend-payers vs. corporate bonds. One can set up any number of examples, so please keep in mind that this is just one example. In my scenario, the investor has a five-year time horizon. That used to be considered long-term, but these days, five years is an eternity! In any event, our choice will be between a five-year corporate bond or a stock that pays a dividend. In reality, one should assume a portfolio of bonds or stocks rather than single issues. Complete Story »
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| We Are All Ratings Agencies Now Posted: 11 Jul 2010 04:53 PM PDT Quick...name one paper currency that has not eventually reached its intrinsic value. Just checking. Another week begins in a world saddled with debt and plagued by imbalances that refuse to balance. For example, China's General Administration of Customs reports that the nation's exports hit a record and June and generated a big trade surplus. Exports were up 43.9% year-over-year, while imports were up 34%. The $22.84 billion surplus gives China more money to buy U.S. bonds, if it so chooses. But the alarming statistic, from an Australian perspective, is that imports of iron ore and copper were down for the third straight month. This isn't proof positive that China is doubling down to its old strategy of exporting its way to prosperity. But it does make you wonder if, without strong growth of consumption in China's domestic market - the kind that might, theoretically, create demand for Western goods and services - the world is just treading water in the same trade model that has led us to the current over-production in the East and over-consumption in the West. Not all Chinese exports were up, though. China again cut exports of rare earths , by 72% according to today's Age. Rare earth elements, if you're not familiar with them, are used to make a heap of high-tech modern wonders, from LCD televisions to the batteries that power hybrid cars (and much, much, much more). We've been following this story for years for several reasons. First, rare earths are critical to modern technology and military appliances and applications. You can't run a gadget, whiz bang economy without them. Demand is growing. Supply, however, is not. China has become the world's largest exporter of rare earths in recent this years. Its reduction of exports slowly puts the squeeze on non-Chinese consumers of rare earths wishing to continue production of goods that use them. China has developed a strong position in the market (the Saudi Arabia of rare earths). If you make goods with rare earths in them, it could be the only way you'll get the rare earths you need is to locate your production in China. This reduction in exports will probably become a trade issue. But it's also an investment opportunity. There are only a handful of non-Chinese rare earth's producers who can theoretically sell product to non-Chinese customers. Of them, a few are in Australia. And of those, one of them has a large ore body with a mine life of ten years or more. This is the kind of opportunity Kris Sayce is always chasing up in the Australian Small Cap Investigator. However, you want to be a year or two early on these sorts of things, when projects and shares have not yet be "de-risked." You have to take a risk when you're taking an early punt on an unproven story. But that's why the rewards are so much better for small cap punters. Incidentally - if we were hedging our bets against the China real estate bubble/collapse theory that we put forward in Exit in the Dragon, we'd probably include rare earths in the portfolio of hedges, along with lithium and mineral sands. Today's Australian Financial Review reports that new car sales in China were up 47.7% in the last six months compared to the same time last year. But coming off a low base, any big percentage increase is suspect. In this case, what matters is that 9.01 million new cars were sold in China in first half the year - more than the 5.61 million in the U.S. and 2.65 million in Japan combined. Do you ever wonder if there's enough oil in the world for the Chinese to drive their cars as much as Americans and Australians do? We wonder - especially when we think off-shore oil drilling will be verboten to publicly listed oil companies who don't want to be sued out of existence. Where is the oil going to come from if not from deep below the ocean? How about from the sun! Well, in a way, all hydrocarbons are all a form of stored solar energy. It' s concentrated most in black coal but delivers its biggest wallop in liquid, transportable, crude oil. That makes oil - in both real and economic terms - very hard to replace. Speaking of which, it looks as though the Gillard government will discuss more giveaways to the alternative energy industry (subsidies) to make them more "competitive" with conventional energy providers. In a way, this is probably what a carbon tax is about: putting a price on carbon so it raises the wholesale and retail price of conventional energy high enough to make make greener, less efficient sources more competitive. But that doesn't mean it isn't an investment opportunity. If China doesn't run its cars on coal or oil, maybe it will be batteries with lithium oxide. And maybe some Australian companies can benefit from that while the abundant lithium brines of South America go through the stunted development process that comes when the government claims lordship/ownership of resources in the name of the People/Crown. Shae Smith is guest editing over at Money Morning while Kris Sayce works on his sun tan in England. She alerted us to a Wall Street Journal article in which a new state-sponsored ratings agency in China says U.S. sovereign debt deserves to be rated AA with a negative outlook on low-growth and high-debt factors while Chinese debt is AA with a positive outlook on high-growth and low-debt factors. Sounds about right, doesn't it? But in truth, you shouldn't need or rely on n ratings agency to tell you the value of sovereign credits. They are all, mostly, being marked down. A better strategy is to use your own brain and decide for yourself if a given institutions has racked up so much debt that the whole business has become about paying interest to creditors rather than generating a profit for shareholders. Dan Denning
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| Investing for the Fall of the American Empire Posted: 11 Jul 2010 04:50 PM PDT
Adrian Day of Adrian Day Asset Management says that you should be restructuring your portfolio to reflect the ongoing economic decline of the West and the rise of the East. The US is now in a period that historically parallels Great Britain at the end of WWII, when a pound cost $5, on its way to $1, some 37 years later. While we are seeing some dollar strength now, this is only a fleeting move in a secular bear market (UDN). Central banks have cut their holdings of the greenback from 70% to 65%, and we could be on our way to 50% or lower. They no longer wish to hold such a heavy weighting of the currency of a country with such a large and worsening structural deficit. This will not be achieved through some great cataclysmic sell off, but a slow and steady diversion of new money into other assets. Adrian especially likes the Singaporean and Hong Kong dollars and the Chinese Yuan (CYB). Ownership of Canadian and Australian dollars, and gold, is rising. He is not a fan of the yen or the euro. Day is extremely cautious about global stock markets for the time being, but likes emerging markets long term, which will be driven by a rising middle class in the decades to come. Brazil (EWZ) is a top choice, with vast improvements in governance since the bad old days of the eighties, and one of the world’s strongest currencies. He’s out now, awaiting an election that could bring a leftist tilt. He likes real estate mortgage lender Gafisa (GFE), in which Chicago mogul San Zell is the largest investor (click here for more depth at http://www.madhedgefundtrader.com/july_30__2009.html ). Adrian clearly adores Singapore (EWS), where companies have believable accounting and super strong balance sheets. Day has nothing in Africa or Eastern Europe. Adrian is also a big gold bull (GLD), as it now is a defensive holding that does well in every economic scenario. He doesn’t see the retail rush to buy the barbaric relic as a fiat currency replacement any time soon. And then there’s the central bank bidding war. Ben Bernanke and Alan Greenspan are in denial, still don’t understand the Fed’s role in creating the credit bubble, and until they do, investors have no reason to trust in paper currencies. The cerebral Englishman wants to buy oil and gas during the traditional summer weakness, as well as commodity producers. He worships Freeport McMoRan (FCX), the top copper miner, as one of the best managed companies in the world. He is bullish on food (CORN), ags like Potash (POT), and water (PHO) (click here for my piece on H2O at http://www.madhedgefundtrader.com/september_17__2009.html ). He also likes business development companies such as Apollo Investments (AINV) and Ares Capital (ARCC). After getting a degree from the prestigious London School of Economics, Adrian devoted a lifetime to uncovering undervalued investment opportunities around the world. Today Adrian runs his own money management firm which focuses on global diversification for institutional clients. He is about to release a book entitled Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks. You can learn more about Adrian’s firm by visiting his site at http://www.adriandayassetmanagement.com/ . To listen to my interview with Adrian on Hedge Fund Radio in full, please click here at http://www.madhedgefundtrader.com/july-6-2010-adrian-day.html and then on the “PLAY” arrow at “Today on Hedge Fund Radio. To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two and a half years of research reports available for free.
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| A Glance At The Start Of Earnings Season, And Yet Another Asset Price Decoupling Posted: 11 Jul 2010 04:18 PM PDT
Tomorrow the Q2 earnings season kicks off, with Alcoa as usual leading the parade. The chart below shows all the S&P stocks that report in the coming week. The key day will be Friday when GE, BofA and Citi all report together.
With earnings still expected to post healthy gains over Q2 of last year, it will become increasingly difficult for companies to report the same type of blow out bottom line outperformance that was seen earlier in the year on continuing cost cutting, which is still accompanied by merely tepid revenue growth. If anyone is so confused as to why corporations continue to hoard cash, the record high margins may be a good place to start. CEO are not stupid and know all about the reversion to the mean phenomenon, and are stockpiling cash precisely for that, and for the imminent increase in corporate taxes, whose recent collapse has been a primary reason for the cash stockpile (a topic we discussed first about 3 months ago). Tangentially, for readers who trade across asset classes, in addition to the recurring FX-risk decoupling seen between the carry pair of choice, another notable observation is the recent decoupling between stocks and IG bonds, as represented by the on the run IG CDS index (14). As we have demonstrated repeatedly, and as even the WSJ is finally picking up on, fund flows have been going into IG and out of stocks, which is yet another reason why credit spreads are far more likely to be indicative of reality as it is a leading capital asset class, not a lagging one. Yet somehow spreads manage to tighten in the pursuit of stocks, even as IG suggested the S&P is about 50 points rich to a credit implied fair value. A useful pair trade would be to sell stocks (which are typically overvalued when compared to AUDJPY fair value) and buy IG credit (sell CDS) should this trend persist. We will keep you posted.
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| Olé! Brace for Earnings Season! Posted: 11 Jul 2010 03:56 PM PDT
What a great match in Soccer City on Sunday, but in the end someone had to win and on Sunday it was Spain who won its first World Cup victory. Congratulations for this well earned victory.
The S&P 500 is coming off its biggest weekly gain in over a year. Some analyst like James Barnes of GaveKal Dragonomics in Hong Kong, think last week's surge in stocks was due to a shift in asset allocation:
With so much cash on hand, David Templeton asks, Will Dividend Payments Likely Improve?:
I wouldn't be surprised if high quality dividend paying stocks outperform in the next decade, but there are other sectors worth looking at as well. Last week Chinese solar shares popped after mega Chinese loans were announced:
And it's not just Chinese solars that rallied strongly last week. According to Bloomberg New Energy Finance, US solar stocks rebounded 6.9% with #000000;">Power-One Inc, the US-based inverter and energy efficiency company, being the star performer. But there are other sectors worth tracking too. For example, while everyone is worried about the collapsing Baltic Dry Index, China just posted a monster trade surplus with exports up a whopping 44%. What does that mean for your portfolio? It means keep an eye on shipping companies which are heavily leveraged to the global economic recovery. Companies like Dryships (DRYS) are breaking out from important technical levels after being crushed. And what about semiconductor companies like Lattice Semiconductor (LSCC) which surged 14% on Friday? It may also be breaking out and remains on my watch list. Importantly, there is plenty of liquidity to drive risk assets higher, so don't be surprised if we have a low volume melt-up this summer. I think some sectors will do better than others this summer, but generally speaking earnings and companies' guidance shouldn't disappoint. We shall see. Some experienced traders, like Tim Knight of Slope of Hope, believe this this mini-rally fuel is going to run out soon, and he is positioning himself accordingly. Who knows how this all plays out in the coming weeks. I believe there is way too much pessimism out there and that risk assets will be bid up. Instead of selling the news, traders and algos are likely to be buying the news. If underperformance anxiety kicks in, everyone will be chasing indexes higher again. Stay tuned, should be interesting to see how things unfold this earnings season.
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| Posted: 11 Jul 2010 02:44 PM PDT Dear CIGAs, I would like to welcome our newest little buddy to the family!
Jim Sinclair's Commentary So far this weekend. Bank Closing Information – July 9, 2010 Home National Bank, Blackwell, OK
Jim Sinclair's Commentary Dean Harry, my dear friend of 45 years, opines. Harry Schultz on the Power Elite, Free Markets, the Internet & Why Gold Is Going Much Higher Daily Bell: Where is gold going? Silver? Harry Schultz: Much higher. Sky is the limit for gold. Governments are losing control of gold. They cheat, steal, lie, maneuver … but gold will beat them and is already doing so, in stages.
Jim Sinclair's Commentary From Kitco.com. Gold We are now in the very early stages of Stage Three with gold having gone up 24% in 2009 and up 13.3% in the first 6 months of 2010. As such there are no shortage of prognosticators who see gold going parabolic reminiscent of 1979 when gold rose 289.3% in the course of just over a year (from a $216.55 closing price on Jan. 1, 1979 to a closing price of $843 per ounce barely a year later on Jan. 21, 1980) and 128% higher in a late-1979 parabolic blow-off of just under 11 weeks! A 289% increase in the price of gold from $1250 would put gold at $4,866. That being the case what appear on the surface to be rather outlandish projections of what the bull market in gold will top out at don't seem quite so far-fetched. Below is a list of the parabolic tops for gold as discussed in articles and/or speeches by well known economists, academics, market analysts and financial commentators. Their prognoses are limited to those above the CPI adjusted 2010 price of $2,300 and they are grouped according to the extent each individual sees gold appreciating over the next few years (and next few months in a few cases). The list below is provided on my site – with a link to the actual article in which each estimate was put forth if you care to check out the rationale behind each individual's projections. Higher than $10,000 Mike Maloney: $15,000; $5,001 – $10,000 Arnold Bock: $10,000 (by 2012); $5,000 David Rosenberg: $5,000;
Jim Sinclair's Commentary Something for the dollar bulls to consider. Chinese Rating Firm Critical of U.S. Debt BEIJING—A Chinese firm that aims to compete with Western rating companies declared Washington a worse credit risk than Beijing in its first report on government debt Sunday amid efforts by China to boost its influence in global markets. Dagong International Credit Rating Co.'s verdict was a break with Moody's Investors Service Inc., Standard & Poor's Ratings Services and Fitch Ratings, which say U.S. government debt is the world's safest.
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| US Export Push Fails As Chinese June Exports And Trade Surplus With America Hits Record Posted: 11 Jul 2010 02:37 PM PDT
China's first trade deficit in many years of ($7.2) billion recorded in March is now a distant memory. The Chinese General Administration of Customs has released June trade data, which confirms that no matter what China does with the yuan, and no matter the amount of posturing coming out of the US and Europe, in their attempts to 'stimulate' an export economy at least in words, the Chinese export juggernaut marches on: the June trade deficit came in at an even $20 billion, on relatively flat imports, and relentlessly growing exports. In fact, after surging by $32 billion in March, imports have remained flat each month at just under $120 billion, while exports have been increasing consistently as month after month of fiscal stimulus has been pushing the domestic export industry to the redline. Indeed, in the midst of a CNY reval, and a complete collapse in the Baltic Dry as excess supply, especially in capesize vessels is causing shipping rates to rapidly hit unsustainable levels, exports to the US and the Europe hit multi year records - the EU came in at $27.2 billion, the highest since the summer of 2008, while the US saw a record number of Chinese exports in the month at $25.5 billion, as well as the biggest trade deficit with China in history (at least according to China) at ($17.7) billion- something tells us Chuck Schumer will not be too happy with this number. Most importantly, total Chinese June exports of $137.4 were, paging Chuck Schumer again, an all time record. Total imports and exports:
Total imports and exports by country:
Below is the monthly trade detail with the US - note that June 2010 was the all time biggest amount of exports to the US, as well as the biggest net trade surplus in history. Not a good data point for the Obama Export Commission.
And the EU:
Yet the June export record will likely be a fluke. Bloomberg quotes Shen Jianguang, Hong Kong-based economist at Mizuho Securities Asia Ltd, who warns: "Exports may see a sharp deceleration after July as demand in Europe and the U.S. weakens and a stronger Chinese currency, higher wages and reduced export tax rebates erode the competitiveness of Chinese goods. The government may have to intensify efforts to boost the domestic economy as they have limited control over external demand." Another question is how will Obama explain the fact that the "terrific" start to his Doubling of exports in 5 years program has begun with a month that shows a record amount of imports from China. And for those who believe that Europe, gripped in the throes of austerity, will continue to import the same amount of near record quantities of products, disappointment is sure to set in as soon as one month from now. Furthermore, the collapse in the BDIY which has dropped by more than half since the beginning of June is an indication that even an institution as honest as the Chinese Customs administration may have a few 'birth-death' adjustments in its numbers. The June number is nothing less than a culmination of all monetary and fiscal efforts to push the export economy to the edge. And as secondary indicators now roll over, we expect a plunge in the July trade numbers.
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| Harry Schultz on the Power Elite, the Internet and Why Gold Is Going Much Higher Posted: 11 Jul 2010 02:34 PM PDT Sunday, July 11, 2010 – with Scott Smith Harry Schultz The Daily Bell is pleased to present an exclusive interview with Harry D. Schultz (Caricature left). Introduction: Chevalier Harry D. Schultz, KHC, KM, KCPR, KCSA, KCSS, has written scores of books and is considered a founder of the investment newsletter business. Based in Monaco, and now in his 80s, he has been producing his newsletter, The International Harry Schultz Letter (HSL), for over 45 years. During his 65 years of publishing, Harry has lived in 17 different countries and published his work in many of them. He is truly an international man whose shoulders have rubbed with some of the top political, business and social figures of our time. He prides himself of being stridently anti-communist and anti-socialist. According to the international edition of the Guinness Book of World Records from 1981-2003, Harry Schultz was the highest paid investment consultant in the world fetching anywhere ...
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| Posted: 11 Jul 2010 02:33 PM PDT Dear Jim, Section 9006 of the Patient Protection & Affordable Care Act (Healthcare Reform) amended the IRS Code of 1986 to require reporting (i.e. 1099) of all "amounts in consideration of property" and "gross proceeds" greater than $600. http://democrats.senate.gov/reform/patient-protection-affordable-care-act-as-passed.pdf http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00006041—-000-.html If I'm reading this correctly, it means that anytime you sell something (gold/silver coins for example) and receive $600 or more in proceeds that business must report that sale to the IRS. This previously was not the case. H.R. 5141 has been introduced which repeals this amendment to the IRS code. http://www.washingtonwatch.com/bills/show/111_HR_5141.html Here is the IRS code with the amendments (underlined and bold) included. IRS Code of 1986 § 6041. Information at source (a) Payments of $600 or more All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, amounts in consideration of property, premiums, annuities, compensations, remunerations, emoluments, gross proceeds, or other fixed or determinable gains, profits, and income (other than payments to which section 6042 (a)(1), 6044 (a)(1), 6047 (e),6049 (a), or 6050N (a) applies, and other than payments with respect to which a statement is required under the authority of section 6042 (a)(2), 6044 (a)(2), or6045), of $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gross proceeds, gains, profits, and income, and the name and address of the recipient of such payment. Regards, Dear CIGA Tom, Yes, let's not forget lawn sales, auto trade ins, and your children's lemonade stand if successful. Orwellian, to say the least. Regards,
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| Posted: 11 Jul 2010 02:33 PM PDT Last Monday I couldn't believe my eyes when I saw that the price of gold had dropped $44.20, which was weird enough since Kitco was showing the "Gold Price Change due to Weakening dollar" was up by $23.00, meaning gold should be going up thanks to the weakening dollar, while the "Gold Price Change due to Predominant Selling" was down a whopping $67.20! Wow! Selling! Since most of the problems with my medications regimen seem to be finally solved, what could I do but laugh, although weakly, in a kind of dull, sedated babble, "Hahahahahahaha!" at the sheer incongruity of it all, instead of going off on a Manic Mogambo Tangent (MMT) of some kind, probably either about how the Federal Reserve has destroyed the dollar by creating too many of them, or, on a more timely topic, about what idiots the sellers of gold are. Apparently, these market-timing geniuses have failed to understand that that this is the Perfect Freaking Time (PFT) to buy gold, because here they are, selling! Hahaha! Obs...
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| International Forecaster July 2010 (#3) – Gold, Silver, Economy + More Posted: 11 Jul 2010 02:13 PM PDT By Bob Chapman, The International Forecaster US MARKETS Our first glimpse of the European Common Market came in the late 1950s in Europe where we lived. The evolution came late in the 1950s in the beginnings of Common Market and the formation of EFTA. That consolidated during the 1960s along with the miracle of Germany's recovery. In the ensuing years more consolidation took place leading up to the European Union, eventually the end of the Soviet Union, the Maastricht Treaty and the euro. Most people during those years did not realize that this amalgamation was really a reconstruction of the centralization of what was once the Roman Empire. As we wrote many years ago it was a union doomed to failure. It was an unnatural alliance of tribes that had been in conflict since the beginning of time held in part together by a currency based upon one interest rate that would fit all. The social and political ramifications were enormous. The theory of one-interest rate fits all doomed the alliance from the very beginning, as it was the vehicle for a major malinvestment of funds. It fostered misallocation throughout the entire union and even worse was accompanied by a creeping loss of sovereignty. This is what can happen when economic, financial and social considerations are harnessed by political stupidity or perhaps opportunism. As we wrote many years ago these efforts were doomed to failure. It was finance and economy run by politically motivated bureaucrats, most of whom were interested in world government. The result is what we have today – a Europeon the edge of failure and breakup. A system that not only wanted to act as a gateway to one-world government, but one that at least for a time would channel the power of Germany. The last barrier for Germany was unification done in a way that cost West Germany a fortune and retarded growth for about ten years. Now we have a bailout to contend with. Austerity throughout Europe and England in order to find the financial wherewithal to pay the bankers the debt incurred by five-euro zone nations. Debt created by banks out of thin air to now be repaid from the hides of not only the nations in trouble, but by lenders as well from other sovereign states, such as France, Germany and others. We believe in the long run central European nations will tend to again diversify and revert back to nationalistic tendencies after having been unsuccessful in union and in a currency union. The core states had learned that the overly ambitious and poorly constructed euro had become a dependency trap and the centralization had become a bureaucratic nightmare. Germany had paid a dear price for German reunification of East and West Germany. The one for one exchange of the two marks proved very expensive and addition to the reconstruction of the Eastern zone, which was 20 years behind the West – an example of retarded growth. In addition, the work ethic had been lost. From the German viewpoint it had to be done. The US, and particularly the British and the French were very happy with the reunification, because they knew it would retard growth for about ten years, and make Germany less assertive and less competitive. After that the euro was a millstone around the neck of the country. Only half of Germans wanted the EU and 68% to this day did not want the euro. In fact, they wouldn't accept euros printed by other members of the euro zone. If you remember the French and the Dutch voted down the EU Constitution, and there was no referendum in Germany. The bought and paid for politicians voted in their behalf essentially selling them out. As you know a constitution was illegally shoved down their throats. Without a constitution first and then a monetary union to follow. There was no chance the venture could ever work. The outcome was a 27-nation union run by a 16-nation currency. The collapse of which, as we mentioned earlier, will bring decentralization and nationalism. This tribalism is perfectly normal, especially with a commonality of religion throughout Western and Central Europe. We must say though religion never kept Europeans from killing each other, as we have seen over and over again. That, of course, has been the work of bankers, which is another story for another time. As a result of these changes coming about Europe will function in traditional ways and prosper even more than before. The weaker countries, that had been subsidized, will again fall behind. That simply is the way societies work. We believe ultimately all nations will return to tariffs on goods and services, because Europe and the US cannot compete with low cost labor, thus the EU and WTO will probably cease to exist. The leader in such a change could well be England and the US. Such developments could also bring difficult times for Muslims and illegal aliens in England and on the continent. The one-world, new-world order concept could very well be laid to rest unless, of course, the elitists decide to start another world war. One thing is for sure the misallocation of assets would end. No more one-interest rate fits all, and no more subsidies. Banks and sovereigns are also going to find out that the debt owed by these five countries is going to have to be restructured. If it is not lenders are going to realize they face a general default. This is going to become a financial and political reality. Responsible reaction is not a luxury these nations can afford and remember that the lender is 80% responsible for the loan. They crafted the terms and created the loan from nothing. A 70% haircut on debt would be workable, but it would engender lenders taking losses of $1.4 trillion. Sovereigns such as Germany, France and Holland could handle the losses, but lesser countries and banks might not be able too. Then again, they should have thought about that when they made the loans. The blame question also arises due to former actions by regulatory powers that did everything short of forcing banks and insurance companies to buy questionable debt. It shows you how insidious the history of these loans have been. This is why strong centralized control does not work. In some situations they were selling quality paper to buy junk as directed by bureaucrats in Brussels. The result is the reality is all there. The fallen nations cannot pay without a 30 to 50 year depression. That means they won't be doing much business with the healthier states, which would tend to spread the depression. That means a big meeting is coming, which would and should include the UK and US, and as we forecast months ago, default and devaluation will go forward. Such an arrangement won't stave off depression, but it will shorten it. The big losers will be lenders, solvent nations and individuals. The latter because their wealth will fall by 2/3's, as their currencies are devalued and they enter structured default. If you are unconvinced just look at the deteriorating pricing of debt reflecting default in Europe. As example is the debt of Greece. It is an established fact. The Greek, euro zone and EU approach has been incremental or the death of 1,000 cuts. If the players were smart they would restructure and cut Greeceloose from the euro. No, they are not doing that and what we find is the PM selling off the Greek Islands to Bilderberger friends throughout Europe. The key for Greek survival is no euro and back to a low valued drachma. This time Northern Europe does not need zero interest rates. It was low interest rates in the PIIGS countries that caused these problems initially. The way for the ECB to remedy that is to raise interest rates, but they can't do that. The US and the Fed would be all over them. The alternative is to have the ECB allow each nation's central banks to set their own rates. That would work, but power would be taken from the European Central Bank, so they won't want to do that. As a result the euro will then collapse from within. A breakup of the euro would relieve stronger members of having to buy debt from suspect countries and those funds would be invested in new products, real estate and expansion – things that increase profits and lead to less taxes and more stable government. The longer it takes to remove the 5 PIIGS from the euro zone and get rid of the euro the better off all of Europe will be. In spite of looming unpayable debt the stronger European countries will do very well after a period of adjustment. They will be no longer shackled by political bureaucrats fromBrussels. Markets in Europe will return to their historical tribal roots and live naturally. Most countries will be far more prepared to enter a new free market and be comfortable doing so. This would include decentralization and diversity. Getting rid of the euro and the EU will be the best thing in years that has happened to European countries. Needless to say, this won't go over very well with the New World Order crowd. They will again have been unsuccessful. – This was a section from the most recent issue of the International Forecaster. You can read the full 39 page issue by using the information below to subscribe. THE INTERNATIONAL FORECASTER
P. O. Box 510518, Punta Gorda, FL 33951-0518 Published and Edited by: Bob Chapman CHECK OUT OUR WEBSITE 1-YEAR $159.95 U.S. Funds US AND CANADIAN SUBSCRIBERS: Make check payable to Robert Chapman (NOTInternational Forecaster), and mail to P.O. Box 510518, Punta Gorda, FL 33951-0518. Please include name, address, telephone number and e-mail address. Or: We accept Visa and MasterCard charges. Provide us with your card number and expiration date. We will charge your card US$159.95 for a one-year subscription. You can email us in two separate emails (1- the Credit Card Number with full name, address and your telephone number and (2- the Expiration date on the card.
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| Adrian Douglas: Price suppression follows inevitably from fractional-reserve gold banking Posted: 11 Jul 2010 02:03 PM PDT By Adrian Douglas For 11 years the Gold Anti-Trust Action Committee has been amassing evidence that the prices of gold and silver are suppressed. The mechanisms by which this is achieved are complex and multi-faceted. Attempting to convince industry insiders and investors that such an intricate price suppression scheme is not only active but has been active for more than 15 years meets a lot of resistance. In this article I am taking a different approach; I am going to find some common ground between what GATA says and what its critics say. I am going to define some facts about the gold market that are practically undisputed and show that those facts lead unequivocally to a conclusion that the gold price is suppressed. Given that these conclusions are based upon facts on which everyone agrees, then everyone should agree that the gold market is suppressed. What everyone can agree upon is that through unallocated bullion accounts, gold certificates, and pooled accounts the bullion banks and gold brokers are operating a "fractional reserve" operation. This means that dealers who undertake to sell and store bullion for their customers on an "unallocated" basis can sell a lot more bullion than they actually have. Many investors will buy and sell their bullion without ever seeing it. This allows the dealers to keep in their vaults only enough bullion to meet the demands of the small percentage of investors who demand physical delivery. ... Dispatch continues below ... ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia. Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013." For complete information on Sona Resources Corp. please visit: www.SonaResources.com A Canadian gold opportunity ready for growth CPM Group executive Jeffrey Christian, a recognized precious metals expert, makes no bones about the fact that the gold market operates on a "fractional reserve" basis. He even goes as far as to confirm that this is well understood in the industry: http://www.financialsense.com/editorials/2010/0423.html Christian says GATA has "expressed shock" that gold held in unallocated accounts is "seen as deposits on the books of the banks and dealers holding those accounts, just like money deposited in a bank, and can be lent against. When they realized this, they began to rant against the fact that unallocated gold can be lent out by a bank holding it. They claimed I had admitted that gold in unallocated accounts was a form of fractional reserve banking. It is a form of fractional reserve banking, but I did not 'admit' that; it's a well understood fact in the industry, and was even the subject of a recent Financial Sense interview with another expert guest." In 2000 Christian wrote a lengthy paper entitled "Bullion Banking Explained." I made a critical analysis of this document in an article entitled "Making Paper Bullion Explained": In his paper Christian explained what a bullion bank does with an ounce of gold held on deposit for an unallocated account customer: "Imagine, if you will, that the bank can line up three or more producers and others who want to borrow this gold. All of a sudden that one ounce of gold is now involved in half a dozen transactions. The physical volume involved has not changed, but the turnover has multiplied. This is the basic building block of bullion banking. This admittedly rudimentary outline of bullion banking holds the key to understanding how bullion banking allows for a multiple of trades to be based on one lot of metal. As a consequence of my article it appears that Christian has realized how damning his paper was, and while it was posted at the CPM Group Internet site for 10 years, it recently was removed mysteriously. However, you can still find a copy at the GATA Internet site here: http://www.gata.org/files/CPMGroup-BullionBankingExplained.pdf In 2003 Graham Tuckwell, chairman of Gold Bullion Securities, made a presentation to the annual London Bullion Market Association (LBMA) Precious Metals Conference. The transcript of his speech can be found here: http://www.lbma.org.uk/docs/conf2003/2e.tuckwellLBMAConf2003.pdf Tuckwell said: "In fact, you could argue unallocated gold isn't gold; it's just a piece of paper issued by a bank, and in most cases, unsecured risk." I think it is reasonable to infer that you can't stand up at an LBMA conference and say those sorts of things if they were not true. But we don't need to take it on faith because we can see for ourselves from the language of the bullion bank unallocated account agreements. The following definition of an "unallocated account" comes from an actual customer agreement issued by a bullion bank: "'Unallocated account' means, in relation to a Precious Metal, the account(s) maintained by us in your name recording the amount of that Precious Metal which we have a contractual obligation to transfer to you (or, in the case of a negative balance, if so permitted by us, which you have a contractual obligation to transfer to us)." Nowhere in the agreement does it require the bullion bank to hold the metal that it has an obligation to "transfer" to the customer. Under the liabilities section the only liability the bank accepts is to pay in cash for any failure of the bank to perform under the agreement. It is reasonable to conclude that it can be taken as a fact that bullion banks operate on a fractional reserve basis. The bullion bank apologists don't dispute this but only argue that there is nothing wrong with such a system provided that customers receive bullion when they ask for it or get settlement in cash. But the bullion bank apologists do deny any notion that the gold market is suppressed or manipulated. Let me demonstrate that once it is accepted that there is a fractional reserve operation in the gold market, then there is de-facto gold price suppression. They are flip sides of the same coin. Imagine if you had heard about the great Colorado River and how fast it flows. If you were to go to the mouth of the river in Yuma, Arizona you would be astonished to see what a small river the Colorado is. But perhaps what you wouldn't know is that the river is dammed upstream, which has reduced the flow from its native condition of the early 1900s by 90 percent. The water is diverted from these dams for irrigation and municipal water supplies. For each 10 gallons of water that flows into the reservoirs created by the river dams, only 1 gallon reaches the river mouth. In exactly the same way the bullion banks act as dams to the capital that flows into their coffers to purchase bullion. For each 10 or maybe as much as 100 ounces of gold that are requested to be purchased and fully paid for by investors, only one real physical ounce is purchased. What will happen to the price of gold if only a fraction of investors' money is being used to purchase bullion and the rest is siphoned off to "irrigate" the bank's balance sheet to be channeled into entirely different investments? Any price rise will necessarily be muted. This is gold price suppression. Make no mistake about it; gold price suppression is an absolutely guaranteed outcome of fractional reserve bullion banking. In a thought experiment we could imagine a world where all investors are content to hold paper gold in an unallocated account and never ask for delivery. The bullion bank could then purchase no real gold whatsoever. There could then be massive demand of billions of dollars flowing into the bullion banks to purchase "paper gold" while the price of real physical gold plummeted because no one was buying the mine output of the gold mines. In our Colorado River analogy you could have record rain fall upstream in the Rockies and the river could dry up in Yuma. In 2007 Morgan Stanley settled out of court a class-action suit by precious metals investors. The complaint alleged that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley either made no investment specifically on behalf of those clients or it made entirely different investments of lesser value and security. If Morgan Stanley was the only one operating in this way, the price suppression would be small. But we know from the London Bullion Market Association that their member bullion banks collectively trade 24 million ounces of gold each day on a net basis. This is $7.5 trillion annually. When a vast majority of this capital never goes to purchase real physical metal, the suppressive effect on the price is monumental. The dangers of owning "paper gold" have mainly been discussed as the risks of receiving a cash settlement or the risks of losing an investment entirely. These are certainly risks that everyone should take seriously. But in addition to those risks one should add the contribution made to price suppression. By allowing your investment to be channeled away from augmenting the demand for physical metal, you are handicapping your own investment. The good news is that the tide is turning. More fund managers and institutional investors are becoming aware of the difference between "paper gold" and real bullion. This was highlighted brilliantly and eloquently by Ben Davies, CEO of Hinde Capital in London, in his recent interviews on CNBC Europe and King World News. (See http://www.gata.org/node/8683, http://www.gata.org/node/8805, and http://www.gata.org/node/8809.) Imagine what will happen when the proverbial dam bursts. As more investors who already believe they own gold demand delivery of physical bullion in place of their paper substitutes there will be a run on the bullion banks. The suppressive effect of holding back demand from the physical bullion market will be reversed with force and fury. There are already signs of massive cracks in the dam. Last week I wrote an article analyzing the BIS gold swaps in which I concluded that the transaction had the hallmarks of a bullion bank bailout. (See http://www.gata.org/node/8803.) It appears that the bullion banks needed desperately 380 tonnes of gold. When coupled with recent surreptitious monthly gold sales by the International Monetary Fund, this BIS gold swaps are indications that gold supply is drying up -- or, more appropriately, that demand is becoming insatiable. The impending massive and rapid upward revaluation of gold and silver, or conversely, massive and rapid devaluation of fiat currency will make any discussions of deflation entirely moot. Investors should do their own due diligence to ensure that their bullion investments are either held in their own custody or in the custody of institutions that guarantee allocated storage that is verifiable and audited. Why hold an investment that will be used by the dealer to prevent it from performing as you anticipate? The process by which only a portion of an investment is used to purchase bullion -- what is politely called "fractional reserve bullion banking" -- is fraudulent because it acts against the investor's interests. CPM Group's Jeffrey Christian said of fractional reserve bullion banking, "It's a well-understood fact in the industry." If so, then gold price suppression should also be a well-understood fact, because the consequence of fractional-reserve bullion banking is undeniably price suppression. ----- Adrian Douglas is editor of the Market Force Analysis letter (www.MarketForceAnalysis.com) and a member of GATA's Board of Directors. Join GATA here: New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php
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| Debt Commisioner: We Are Doomed Posted: 11 Jul 2010 01:31 PM PDT BOSTON -- The co-chairs of President Obama's debt and deficit commission offered an ominous assessment of the nation's fiscal future here Sunday, calling current budgetary trends a cancer "that will destroy the country from within" unless checked by tough action in Washington. The two leaders -- former Republican Senator Alan Simpson of Wyoming and Erskine Bowles, White House chief of staff under former President Bill Clinton -- sought to build support for the work of the commission, whose recommendations due later this year are likely to spark a fierce political debate in Congress. "There are many who hope we fail," Simpson said at the closing session of the National Governors Association meeting. He called the 18-member commission "good people with deep, deep differences" who know the odds of success "are rather harrowing." Bowles said that unlike the current economic crisis, which was largely unforeseen before it hit in the fall of 2008, the coming fiscal calamity is staring the country in the face. "This one is as clear as a bell," he said. "This debt is like a cancer.More Here.. 
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| South African metals analyst complains of silver price manipulation Posted: 11 Jul 2010 01:15 PM PDT Silver 'Robbed of its Lustre' From the Sunday Times http://www.timeslive.co.za/business/article545100.ece/Silver-robbed-of-i... There is evidence to support allegations that the price of silver has been manipulated and suppressed by the large US bullion banks, says precious metals analyst David Levenstein, of Lakeshore Trading [in Johannesburg]. "These companies continually use the futures markets to create price distortions in the market. At the moment, there is a huge [disparity] between the price and the real market situation," says Levenstein. Historically, silver's price moves, in percentage terms, are greater than those of gold. But unlike gold the price of silver is way off its all-time high, when it traded at above $50/oz (R380/oz). The demand for silver has exceeded supply for almost 20 years. But why is the price of this metal so depressed? Levenstein asks. In 1940 the US government owned almost half the world's 10 billion ounces of silver. Today, it owns none. The only way to bring the supply and demand into balance is going to be higher prices. Levenstein, who began trading silver in 1979, believes that silver is going to be one of the best investments of the decade. ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php Join GATA here: New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia. Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013." For complete information on Sona Resources Corp. please visit: www.SonaResources.com A Canadian gold opportunity ready for growth
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| Telegraph notes BIS gold swap mystery, quotes GATA's Douglas Posted: 11 Jul 2010 01:02 PM PDT Secret Gold Swap Has Spooked the Market By Garry White and Rowena Mason http://www.telegraph.co.uk/finance/markets/7884272/Secret-gold-swap-has-... It takes a lot to spook the solid old gold market. But when it emerged last week that one or more banks had lent 380 tonnes of gold to the Bank of International Settlements in return for foreign currencies, there was widespread surprise and confusion. The news that a mystery bank has just pawned the family jewels gave traders a jolt -- nervous about the sudden transfer of almost 20 percent of the world's annual gold production and the possibility of a selloff. In a tiny footnote in its annual report, the bank disclosed its unusually large holding of gold, compared with nothing the year before. The disclosure was a large factor in the correction of the gold price this week, which fell below $1,200 for the first time in more than a month. ... Dispatch continues below ... ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia. Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013." For complete information on Sona Resources Corp. please visit: www.SonaResources.com A Canadian gold opportunity ready for growth Concerns hinged on whether the BIS could potentially sell on this vast cache of bullion in the event of a default, flooding the market with liquidity. It appears to have raised $14 billion for whoever's been doing the swapping -- small fry on the currency markets but serious liquidity in the gold market. Denominated in euros, gold has fallen 8 percent since the beginning of the month and is now trading at a seven-week low of E937 per troy ounce. The big gold exchange traded funds (ETFs) -- having peaked at record inflows in May -- have also been showing net outflows over the past few days. Meanwhile, economists and gold market-watchers were determined to hunt down which bank is short of cash -- curious about who is using their stash of precious metal for what looks suspiciously like a secret bailout. At first it looked like the BIS was swapping gold with a troubled central bank. After all, the institution is the central bankers' bank and its purpose to conduct transactions with national monetary authorities. Central banks in the troubled southern zone of Europe were considered the most likely perpetrators. According to the World Gold Council, central banks in Greece, Spain, and Portugal held 112.2, 281.6, and 382.5 tons of gold respectively in June -- leading analysts to point fingers at Portugal, or a combination of the three. But Edel Tully, an analyst from UBS, noted that eurozone central banks would be severely limited with what they could do with the influx of extra cash -- unable to transfer it straight to governments or make use of the primary bond markets. She then listed the only other potential monetary authorities with enough gold as the US, China, Switzerland, Japan, Russia, India, and Taiwan -- and the International Monetary Fund. This led to musings that the counterparty was the IMF, making sense because the lender of last resort is historically prone to cash shortages and has been quietly selling off gold in the first half of the year. Renowned gold expert Jim Sinclair adopted this explanation. The panic came when people mistook a lease for a swap, he argues. Far from being a big release of gold into the market, it is simply a commercial arrangement between the IMF and BIS with a favourable rate of interest paid for the foreign currency. "Gold swaps are usually undertaken by monetary authorities," he writes on his industry blog, MineSet. "The gold is exchanged for foreign exchange deposits with an agreement that the transaction be unwound at a future time at an agreed price. "The IMF will pay interest on the foreign exchange received. Historically swaps occur when entities like the IMF have a need for foreign exchange, but do not wish to sell the gold. In this case, gold is a leveraging device for needed currency to meet requirements. "The many reports that characterise the large IMF gold swap as a sale of gold into the markets do not understand the difference between a swap and a lease." However, the day after original reports about the swaps, BIS emailed a statement saying that the swaps had not been conducted with monetary authorities but purely with commercial banks. This did nothing to quell the sense of mystery surrounding the deal or deals. It is almost inconceivable that a single commercial bank could have accumulated so much gold alone. And cynics have suggested that the whole affair still looks like a secretive European bailout that a single country wants to keep quiet. In this case, one or more of the so-called bullion banks -- which act as wholesale market-makers and include Goldman Sachs, Deutsche Bank, JP Morgan, HSBC, Barclays, UBS, Societe Generale, Mitsui, and the Bank of Nova Scotia -- would have agreed to act on behalf of a monetary authority. This would add an extra layer of anonymity. "So the BIS swaps look like a tripartite transaction," writes Adrian Douglas of the Gold Anti-Trust Association. "The commercial bank or banks made a swap with a central bank or banks and then the commercial bank or banks made a swap with the BIS." Analysts for Commerzbank note that in the meantime, "The price of gold is tending weaker at present." Join GATA here: New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php
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| Telegraph notes BIS gold swap mystery, quotes GATA's Douglas Posted: 11 Jul 2010 01:02 PM PDT Secret Gold Swap Has Spooked the Market By Garry White and Rowena Mason http://www.telegraph.co.uk/finance/markets/7884272/Secret-gold-swap-has-... It takes a lot to spook the solid old gold market. But when it emerged last week that one or more banks had lent 380 tonnes of gold to the Bank of International Settlements in return for foreign currencies, there was widespread surprise and confusion. The news that a mystery bank has just pawned the family jewels gave traders a jolt -- nervous about the sudden transfer of almost 20 percent of the world's annual gold production and the possibility of a selloff. In a tiny footnote in its annual report, the bank disclosed its unusually large holding of gold, compared with nothing the year before. The disclosure was a large factor in the correction of the gold price this week, which fell below $1,200 for the first time in more than a month. ... Dispatch continues below ... ADVERTISEMENT Sona Resources Expects Positive Cash Flow from Blackdome, On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia. Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013." For complete information on Sona Resources Corp. please visit: www.SonaResources.com A Canadian gold opportunity ready for growth Concerns hinged on whether the BIS could potentially sell on this vast cache of bullion in the event of a default, flooding the market with liquidity. It appears to have raised $14 billion for whoever's been doing the swapping -- small fry on the currency markets but serious liquidity in the gold market. Denominated in euros, gold has fallen 8 percent since the beginning of the month and is now trading at a seven-week low of E937 per troy ounce. The big gold exchange traded funds (ETFs) -- having peaked at record inflows in May -- have also been showing net outflows over the past few days. Meanwhile, economists and gold market-watchers were determined to hunt down which bank is short of cash -- curious about who is using their stash of precious metal for what looks suspiciously like a secret bailout. At first it looked like the BIS was swapping gold with a troubled central bank. After all, the institution is the central bankers' bank and its purpose to conduct transactions with national monetary authorities. Central banks in the troubled southern zone of Europe were considered the most likely perpetrators. According to the World Gold Council, central banks in Greece, Spain, and Portugal held 112.2, 281.6, and 382.5 tons of gold respectively in June -- leading analysts to point fingers at Portugal, or a combination of the three. But Edel Tully, an analyst from UBS, noted that eurozone central banks would be severely limited with what they could do with the influx of extra cash -- unable to transfer it straight to governments or make use of the primary bond markets. She then listed the only other potential monetary authorities with enough gold as the US, China, Switzerland, Japan, Russia, India, and Taiwan -- and the International Monetary Fund. This led to musings that the counterparty was the IMF, making sense because the lender of last resort is historically prone to cash shortages and has been quietly selling off gold in the first half of the year. Renowned gold expert Jim Sinclair adopted this explanation. The panic came when people mistook a lease for a swap, he argues. Far from being a big release of gold into the market, it is simply a commercial arrangement between the IMF and BIS with a favourable rate of interest paid for the foreign currency. "Gold swaps are usually undertaken by monetary authorities," he writes on his industry blog, MineSet. "The gold is exchanged for foreign exchange deposits with an agreement that the transaction be unwound at a future time at an agreed price. "The IMF will pay interest on the foreign exchange received. Historically swaps occur when entities like the IMF have a need for foreign exchange, but do not wish to sell the gold. In this case, gold is a leveraging device for needed currency to meet requirements. "The many reports that characterise the large IMF gold swap as a sale of gold into the markets do not understand the difference between a swap and a lease." However, the day after original reports about the swaps, BIS emailed a statement saying that the swaps had not been conducted with monetary authorities but purely with commercial banks. This did nothing to quell the sense of mystery surrounding the deal or deals. It is almost inconceivable that a single commercial bank could have accumulated so much gold alone. And cynics have suggested that the whole affair still looks like a secretive European bailout that a single country wants to keep quiet. In this case, one or more of the so-called bullion banks -- which act as wholesale market-makers and include Goldman Sachs, Deutsche Bank, JP Morgan, HSBC, Barclays, UBS, Societe Generale, Mitsui, and the Bank of Nova Scotia -- would have agreed to act on behalf of a monetary authority. This would add an extra layer of anonymity. "So the BIS swaps look like a tripartite transaction," writes Adrian Douglas of the Gold Anti-Trust Association. "The commercial bank or banks made a swap with a central bank or banks and then the commercial bank or banks made a swap with the BIS." Analysts for Commerzbank note that in the meantime, "The price of gold is tending weaker at present." Join GATA here: New Orleans Investment Conference * * * Support GATA by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Prophecy to Become Coal Producer This Year Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen. For Prophecy's complete press release about its production plans, please visit: http://www.prophecyresource.com/news_2010_may11.php
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| Shouldn't Do It; Couldn't Do It Anyway Posted: 11 Jul 2010 12:31 PM PDT Paul Krugman, Martin Wolf and the other big spenders are remarkably resilient. And cunning. On their advice, the world's governments put up as much as 4 years' worth of the entire planet's savings to bring about a 'recovery.' On the evidence of the last couple of weeks, it didn't work. In the world's leading economy, 8 million jobs have been lost. The US government disappeared almost a million jobseekers from the unemployment lists in the last two months to try to make the numbers look better. Still, fewer people have jobs now than when the stimulus began. Those workers with jobs earn less than they did then. And those who lose their jobs wait longer than ever to find a new one. Housing is sinking again, too, with nearly half of all the mortgaged houses already worth less than their mortgages. Illinois has stopped paying its bills. California is laying people off wholesale. But instead of falling on their swords in shame, the economists behind the stimulus efforts are positioning themselves for an 'I told you so,' moment. In our last installment, Britain and Euroland had just turned towards austerity. Alone among the Western nations, the United States of America pledged to stay the course, continuing its program of counter-cyclical stimulus. Then, last week, the US Senate rejected a measure to extend unemployment benefits. Suddenly, we're all austerians now. Krugman was quick to distance himself: "as I and others have been arguing at length, penny-pinching in the midst of a severely depressed economy is no way to deal with our long-run budget problems. And penny-pinching at the expense of the unemployed is cruel as well as misguided." 'Spend now; cut later,' is still his advice. But with so much spending...and so little to show for it...you'd think he'd be shy about proposing more. At least, he might feel the burden of proof more heavily upon his shoulders. Is there any evidence that increased government spending – even in time of private sector retrenching – makes people better off? And even if 'spend now, cut later' were good advice, is there any evidence that they can actually do it? None that we know of. Based on the experience of the '80s and '90s, we observed last week that it didn't seem to matter what governments did or what they said...the markets went about their business. Today, we add a further provocation. Let us take a look back at the penultimate budget of the Clinton years: "Eight years ago, our future was at risk," Bill Clinton congratulated himself on Sept. 27, 2000. "Economic growth was low, unemployment was high, interest rates were high, the federal debt had quadrupled in the previous 12 years. When Vice President Gore and I took office, the budget deficit was $290 billion, and it was projected this year the budget deficit would be $455 billion." The Clinton team claimed to have turned things around. They claimed credit for a budget surplus of $122 billion. This was the third surplus in a quartet...the only surpluses in US budget history after 1972. That year may be significant. Before then, the world did business in dollars backed by gold; if a nation spent too much, its gold would be called away to settle its debt. After that, the US could spend as much as it wanted; the gold parked in Ft. Knox stayed put. And so the deficits grew year after year like the children of Abraham. But in the '90s, a remarkable thing happened. Practically the entire developed world began running fiscal surpluses. The US. Canada. Sweden. Finland. Europe. The entire OECD. From deficits of about 1% of GDP, budgets improved, with surpluses of about 2% by the end of the '90s. This seemed to prove that civilized men and women, even in the time of paper money, can get control of their budgets. We already knew they could 'spend now.' It was beginning to look like they could 'cut later' too. In June 2000, Clinton administration economists predicted that the surpluses would keep coming, rising to as much as $1 trillion over the next 10 years. But the US economy seems to have gone from Heaven to Hell in less than a decade. The race that turned deficits into surpluses lost its magic touch within 18 months. By 2002 deficits were back. And they were staggering, nearly $3 trillion worth of deficits in 2009 and 2010 alone. The economists completely misunderstood what was going on. The triumph they celebrated was not in themselves but in their stars. They had just been lucky. Bill Clinton's administration had kept up spending just as the Reagan team had before them, from $1.4 trillion in '94 to $1.8 trillion in 2001. But interest rates fell. Credit grew. And the economy boomed. The Clinton era boom is now the Obama era bust. When the contraction hit, the feds followed the formula. They mustered their fiscal and monetary stimulus. But they got no recovery. Spending more now won't help. Not because the Obama team is less competent than the Clinton crowd. They are just unluckier. Credit is contracting. So Krugman will be proven right after all after all. Austerity will not bring prosperity. But then, neither would stimulus. Krugman will say 'I told you so'...and spend the rest of his career in darkness and confirmed delusion. Bill Bonner
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| Can the Stock Market Keep Rising? Gold, Too? Posted: 11 Jul 2010 12:25 PM PDT By John Townsend, TheTSItrader.blogspot.com The lower chart is data from Investor's Intelligence and graphically measures their weekly readings of bearish investment advisors. The upper chart is the weekly SPX for the past four years. And a good stock trader should always be asking him/herself, are we at an extreme and if so, which one? This chart is my attempt to communicate that we are at an extreme in sentiment. And it turns out that the extreme at this time is FEAR, not greed. The lower chart is data from Investor's Intelligence and graphically measures their weekly readings of bearish investment advisors. The upper chart is the weekly SPX for the past four years.
You will notice that each peak in the percentage of bearish investment advisors marks an important low in the stock market. And, we observe that from bottom to top, each cycle of emotion is not able to stretch more than about 20% in a given period of time. It would seem that human fear can be pushed just so far and then it seeks relief – no matter the perceived fundamentals of the stock market. And likewise, emotions of confidence and downright greed can only be stretched so far before the sentiment cycle bottoms and turns back up. The current situation is that bearishness has been stretched about 20% in the past 10 weeks and should be getting close to beginning a roll over. Of course, this means that the stock market should be generally going higher over the next many weeks. A current bears begin to throw in the towel and become buyers, the cycle progresses through its natural course. This alone is what will propel the stock market higher into the foreseeable future. I have identified a range on the chart where we could expect the stock market to start running into trouble – the next top – and that would be when the percentage of bears finally drops back down to somewhere around 20%. As that is likely to take quite a while, this current rally could last quite a while, weeks and weeks. Here is another chart to observe the timeless pendulum swing of human emotion. This is a chart of the Put/Call ratio of Equities from 2005 to the present. What I have done is identify the price of the SP-500 at the major peaks and bottoms. Notice how the bottoms are always highs in the stock market. Notice how the peaks are always lows in the stock market.
We observe that the pendulum rarely swings more than .20 in one direction or the other. At present, we have swung about that far from the previous bottom and appear to be deciding where to go next. My feeling is that the pendulum should now swing downward and thereby pull stocks upwards. Gold is in a secular bull market and going to go much higher over time, particularly as it is still in the process of the C wave of its ABCD characteristic pattern, and should be delivering a parabolic advance in the upcoming months. But gold has got itself in a bit of a tough situation at the moment, and I do not see how it will be able to wiggle free until it first heads south. The following chart is an hourly chart of GLD for the past 5 or 6 weeks. I use the True Strength Index (TSI) indicator to generate buy and sell decisions and the indicator is shown below the GLD price action. On this chart I demonstrate the technique of trend line breaks to give me sell signals when the upward momentum of gold cannot be sustained. At present, it appears that gold is in the precarious position of having drained its battery over the past five sessions and looks ready to drop. There is a gap below Friday's trade that probably needs to be filled anyway.
Once gold falls through that white trend line I drew using the True Strength Index (Monday or Tuesday), it will be interesting to see if the indicator then continues to fall below its ZERO level. When the TSI indicator is falling below ZERO, price is also falling and will continue to do so until the indicator reverses. The other thing I will be interested to see is what kind of positive volume comes into GLD. So far it appears that some big volume players have taken their chips off the table and when they come back to play, that could put in a bottom for gold. At my website you will find these charts and many others with details on how you can use the True Strength Index (TSI) indicator at www.FreeStockCharts.com. There are 5 or 6 techniques for deriving buy/sell signals using the TSI and I freely make this information available for your use. If interested in learning more, please visit my site: TheTSItrader.blogspot.com or Email me at: TSITrader@gmail.com
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| Can the Stock Market Keep Rising? Gold, Too? Posted: 11 Jul 2010 12:25 PM PDT By John Townsend, TheTSItrader.blogspot.com The lower chart is data from Investor's Intelligence and graphically measures their weekly readings of bearish investment advisors. The upper chart is the weekly SPX for the past four years. And a good stock trader should always be asking him/herself, are we at an extreme and if so, which one? This chart is my attempt to communicate that we are at an extreme in sentiment. And it turns out that the extreme at this time is FEAR, not greed. The lower chart is data from Investor's Intelligence and graphically measures their weekly readings of bearish investment advisors. The upper chart is the weekly SPX for the past four years.
You will notice that each peak in the percentage of bearish investment advisors marks an important low in the stock market. And, we observe that from bottom to top, each cycle of emotion is not able to stretch more than about 20% in a given period of time. It would seem that human fear can be pushed just so far and then it seeks relief – no matter the perceived fundamentals of the stock market. And likewise, emotions of confidence and downright greed can only be stretched so far before the sentiment cycle bottoms and turns back up. The current situation is that bearishness has been stretched about 20% in the past 10 weeks and should be getting close to beginning a roll over. Of course, this means that the stock market should be generally going higher over the next many weeks. A current bears begin to throw in the towel and become buyers, the cycle progresses through its natural course. This alone is what will propel the stock market higher into the foreseeable future. I have identified a range on the chart where we could expect the stock market to start running into trouble – the next top – and that would be when the percentage of bears finally drops back down to somewhere around 20%. As that is likely to take quite a while, this current rally could last quite a while, weeks and weeks. Here is another chart to observe the timeless pendulum swing of human emotion. This is a chart of the Put/Call ratio of Equities from 2005 to the present. What I have done is identify the price of the SP-500 at the major peaks and bottoms. Notice how the bottoms are always highs in the stock market. Notice how the peaks are always lows in the stock market.
We observe that the pendulum rarely swings more than .20 in one direction or the other. At present, we have swung about that far from the previous bottom and appear to be deciding where to go next. My feeling is that the pendulum should now swing downward and thereby pull stocks upwards. Gold is in a secular bull market and going to go much higher over time, particularly as it is still in the process of the C wave of its ABCD characteristic pattern, and should be delivering a parabolic advance in the upcoming months. But gold has got itself in a bit of a tough situation at the moment, and I do not see how it will be able to wiggle free until it first heads south. The following chart is an hourly chart of GLD for the past 5 or 6 weeks. I use the True Strength Index (TSI) indicator to generate buy and sell decisions and the indicator is shown below the GLD price action. On this chart I demonstrate the technique of trend line breaks to give me sell signals when the upward momentum of gold cannot be sustained. At present, it appears that gold is in the precarious position of having drained its battery over the past five sessions and looks ready to drop. There is a gap below Friday's trade that probably needs to be filled anyway.
Once gold falls through that white trend line I drew using the True Strength Index (Monday or Tuesday), it will be interesting to see if the indicator then continues to fall below its ZERO level. When the TSI indicator is falling below ZERO, price is also falling and will continue to do so until the indicator reverses. The other thing I will be interested to see is what kind of positive volume comes into GLD. So far it appears that some big volume players have taken their chips off the table and when they come back to play, that could put in a bottom for gold. At my website you will find these charts and many others with details on how you can use the True Strength Index (TSI) indicator at www.FreeStockCharts.com. There are 5 or 6 techniques for deriving buy/sell signals using the TSI and I freely make this information available for your use. If interested in learning more, please visit my site: TheTSItrader.blogspot.com or Email me at: TSITrader@gmail.com
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| Guest Post: Deciphering Joe Cassno's Lies Before The Financial Crisis Inquiry Commission Posted: 11 Jul 2010 12:13 PM PDT
Submitted by David Fiderer Deciphering Joe Cassno's Lies Before The Financial Crisis Inquiry Commission Joe Cassano is a very good liar, which is why it would be so hard to prosecute him for perjury. When testifying before The Financial Crisis Inquiry Commission, the former head of AIG Financial Products kept blending in half-truths with his audaciously dishonest claims, so that the overall effect was nonsensical. For instance, to justify his outrageous claim that, "the books were generally considered fully hedged," he explained that "we were using it basically in actuarial basis ...[so] it's not hedged in the conventional sense." (Translation: The book was never hedged in any sense. Nor was there any actuarial analysis, only a reliance on triple-A credit ratings.) These rhetorical tricks were designed to throw sand in everyone's face. But his tactics seem to have worked. The staunchly unregenerate Cassano framed a media narrative that deflected away from his dishonesty and gross incompetence. Here's a reality check on some of his more ridiculous claims, in order of appearance: 1. Cassanos's Claim: AIGFP never compromised its high underwriting standards. Commission Chairman Phil Angelides asked Cassano if he understood the subprime risks he insured. Cassano stonewalled with a lot of doubletalk:
Reality Check: Cassano insults everyone's intelligence by refusing to admit that he insured tens of billions of dollars of toxic investments that were primarily comprised of subordinated tranches of subprime mortgage securities. The CDOs that caused the collapse of AIG were no more "multi-sector" than the government of Iceland is multiracial. His unwillingness to acknowledge the obvious truth is a rhetorical device intended to cast doubt and cause confusion among listeners and the media.
Reality Check: Cassano said he would answer the question "directly" and then didn't. The question asked whether he personally understood the risks associated with the subprime mortgages embedded within the CDOs. It wasn't about what "we" did, and it wasn't about some dilution or non-dilution of some undefined underwriting standards that may have had nothing to do with subprime risk. What remains indisputable is that there were no standards for protecting AIG's liquidity. AIGFP was in the business of trading derivatives. The liquidity risk, pertaining to collateral postings, was never even considered when these deals were approved. It sold $78 billion worth of long-term credit default swaps that were unhedged. As part of those swap agreements, AIGFP agreed to post margin, or cash collateral, without ever attempting to define the basis by which those collateral postings would be calculated. The stupidity of Cassano and other top managers at AIG cannot be overstated. They operated like an 11-year-old driving a motorcycle. The current chief risk officer at AIG explained:
Reality Check: Lewis, like Cassano, had no idea what he was doing. Every trader, every junior risk analyst, every deputy assistant treasurer with the most minimal level of competence knows the dangers of selling an unhedged derivative. You can lose money when the swap terminates, and you can lose liquidity before the swap terminates. The longer the tenor of the swap, the bigger the risk. This isn't some honest mistake, some detail that could ever be overlooked. A financial company depends on liquidity the same way that a mammal relies on oxygen to stay alive. Lewis acted like the traffic cop who looks at cars in the left lane and ignores the vehicles in the right lane. The only plausible explanation why Lewis still has his job is that the AIG does not want to expose more dirty laundry. Their stupidity was compounded further their willingness to post collateral based on the "market value" of the CDOs. Lewis's claim that "these instruments up until the time of the crisis had traded in very narrow bands, highly liquid AAA securities, until the crisis occurred," is further demonstration of his cluelessness and/or dishonesty. The triple-A tranches of these CDOs didn't trade. Why would they? AIG had assumed virtually all the credit risk in the most senior tranches. These CDOs never had an ascertainable market value based on comparable sales or industry benchmarks, according to PriceWaterhouseCoopers, AIG's auditor, and Deloitte & Touche, Maiden Lane III's auditor. Both accounting firms designated the CDOs as Level 3 assets, explained here. Another level of stupidity was their disregard how residential mortgage-backed securities work. These mortgage bonds are valued according to the credit losses that are expected in the future, not according to the actual losses that have already been recognized. It takes a long time, typically about a year, to recognize an actual loss on a loan after the borrower first becomes delinquent. Usually, a notice of foreclosure is first presented after the 90-day delinquenciy period has passed, later, the lender commences a procedure whereby it "buys" the residence, and then the property sits on the market until it is sold to partially pay down the loan. Because of the time lag, you need to be concerned about paying cash margin long before the final tally of actual losses on a mortgage pool. Goldman had always understood this; Cassano's people didn't. Cassano and his management team, who were in the business of trading derivatives, didn't know squat about liquidity risk. Because AIG never understood the risks it was taking on, it agreed to contract language that gave Goldman and other CDO banks the opportunity to jerk the company's chain indefinitely. Since the valuation of the CDOs could be debated endlessly, there was an ongoing risk that, at any given moment, Goldman could declare its unmet demands for cash collateral to be an event of default. One default can quickly trigger a series of cross-defaults forcing a bankruptcy. This was why the rating agencies told AIG and the New York Fed that the contingent liabilities tied to these CDOs needed to be removed no later than November 10, 2008, or AIG would suffer further downgrades. 2. Cassano's Claim: The CDOs held by Maiden Lane III performed in line with his expectations.
Reality Check: To recap simply, Cassano insured the CDOs acquired by Maiden Lane III for $62 billion. AIG had paid out $35 billion in cash collateral to the CDO banks before Treasury and the New York Fed began negotiating with the banks. When Maiden Lane III paid the banks an additional $27 billion to acquire the CDOs and tear up the credit default swaps, AIG recognized a loss of $35 billion. Deloitte & Touche valued the CDOs at $27 billion on December 31, 2008, and that value more or less held steady as of December 31, 2009. Cassano wants to make it sound as if the CDOs' performance, after recognition of the $35 billion loss created by him, somehow validates his own reckless performance. When Cassano said, "the only thing I can do is look at the existing portfolio and say that it is performing.." it became obvious that he was lying. Cassano can't look at the performance of the CDO portfolio because he no longer works at AIG and the performance reports on all CDO portfolios are kept secret. The reports are only disclosed to actual investors of CDOs, who are bound by nondisclosure agreements. (The reports are still kept secret in order to protect the banks and rating agencies from lawsuits.) Cassano was blowing smoke in everyone's face; he has no idea whether these deals have "pierced the attachment levels," i.e. crossed the loss threshold when a credit default swap provider must pay out. Again, any half-wit in finance understands the idea of discounting future expected losses to present value. 3. Cassano's Claim: His books were fully hedged.
Reality Check: Cassano went Orwellian, labeling his unhedged portfolio as "hedged" the in the same manner that East Germany called itself the German Democratic Republic. Every hedge has two offsetting positions. A single position is always unhedged, period. The distinction between a hedged position and an unhedged position that you deem to be low-risk is as big as the Grand Canyon. A hedge protects you against a market shock, when the markets freeze or act in an unexpected manner. A "low-risk" unhedged position has no such protection. Of course, the "actuarial basis" that Cassano relied upon was also bogus. 4. Cassano's Claim: The risk exposure on the credit default swaps was managed on an actuarial basis. The "actuarial basis" by which these CDOs were evaluated was AIG's secret financial model developed by Professor Gary Gorton of Yale. It was one of those "Monkey-See-Monkey-Do" models that regurgitated credit ratings but tested nothing. The truth was revealed by Andrew Forster, the former CFO of AIGFP, in testimony given on July 1, 2010. The questioner was Commissioner Peter Wallison:
To clarify further, if you let the bogus triple-A ratings define the range of possible outcomes, a "stressed" scenario is meaningless. 5. Cassano's Claim: His people did not rely on the rating agencies to evaluate the risk.
Reality Check: See 4 above. This is how a liar defends his lies with more lies. 6. Cassano's Claim: He arranged the CDOs to benefit from structural seniority.
Reality Check: Any residential mortgage asset that was not initially rated triple-A is deeply subordinated, at the bottom 20% of the capital structure. The deeply subordinated tranches of subprime mortgages were packaged into CDOs, with senior tranches that were rated triple-A and insured by AIGFP. Structural seniority in a CDO only indicates that you're better off than the suckers beneath you. It's like having the top bunk in steerage on the Titanic. 7. Cassano's Claim: The New York Fed handed over $40 billion to the CDO counterparties.
Reality Check: A lying liar lied about the dollar amount paid by the New York Fed, and about the criteria that drove negotiations. The CDO counterparties received $35 billion, paid out by AIG before it allowed the New York Fed to take the lead in negotiations, on Thursday November 6, 2008, well past the point when there was time to negotiate anything. There were no clear-cut contractual defenses because there were no clear standards for calculating collateral. The rating agencies told AIG, Treasury and the Fed that AIG's failure to remove the contingent cash calls from the CDOs by |
| US Debt Crisis Reverting to the Mean Posted: 11 Jul 2010 12:11 PM PDT Being an economist must be the most amusing job in the world. It's a laugh a minute. So many foolish pretensions, so many claptrap theories, so much pomposity and vanity... We used to enjoy reading Thomas L. Friedman in The New York Times. Whenever he wrote about anything even remotely connected to economics we were assured a good chuckle. But he's moved on to geo-politics. Israel this... Palestine that... It's probably just as funny, but it's not our field. The only thing we know about the subject is that it shouldn't exist. Now, if we want entertainment we turn to Paul Krugman. He's not as funny as Friedman, frankly. And he's right about things often enough to make him unreliable. But it's still fun to watch a popular economist strut his stuff. Krugman was really annoyed that the Senate refused to extend unemployment benefits, for example. He called them "heartless...clueless...and confused" as if that was some sort of revelation. We don't know about 'heartless,' but clueless and confused could apply to just about every US Senate since the beginning. And as for failing to extend unemployment benefits, was that really a bad thing? "Where you stand depends on where you sit," goes the expression. If you're sitting in an unemployment office, you're likely to be in favor of more benefits. If you're paying taxes, struggling to make ends meet, you might resent having to pay more for others who don't work. Krugman points out that it's not their fault. Unemployment compensation doesn't really reduce people's desire to find work – not when there are 5 applicants for every job. Still, adjustments need to be made...and not having any money coming in the door is bound to be a motivator to make them. (More on Krugman below...) The real reason people are unemployed is that the price of labor is too high. We're in a period of price and debt destruction. Output prices are going down. So, labor prices should be going down too. But labor prices are 'sticky'...they don't go down easily. Especially when there is unemployment compensation to keep them stuck. Unemployment compensation just interferes with the correction, delaying the necessary adaptations. You are getting tired of hearing us say this. But we are in a period of debt destruction. The world has too much debt...particularly the 'rich' part of the world...particularly the people who speak English...and particularly the US and Britain. Instead of spending money they don't have, people are beginning to save even the money they do have. This plays hell with the economy. Not only does it eliminate the sales it should not have had in the first place...it also reduces the sales it should have had – those that come from honest, current earnings. For now they must be foregone to make up for those that had gone before. Does that make sense? Yes, it does. Sales that are paid for with credit are really a call on future earnings. They consume today what will be earned tomorrow. That's why sales that come from credit are the best kind – from an economy's point of view. Usually, business pays its employees, who then buy its products. But when the employees spend credit – they're spending money that hasn't been earned yet. The employer gets extra current sales without any offsetting current expense. Profits go up. There is some unwritten law in nature that everything must balance out somehow. So, if profits go up in a credit expansion, they're bound to go down in a credit contraction. So are prices. And labor rates too. Yesterday, the Dow managed an additional advance, a nice follow-up from Wednesday's big move to the upside. Up another 120 or so points. Is this the start of a new bull phase? We don't know. But we wouldn't bet on it. Not as long as the credit contraction continues. Bloomberg:
And more thoughts... "I just am not sure what I want to do..." Jules, 22, has been out of school for a year. He has a remarkable talent for music. "You like music. Why not just go for it? I'll help you..." said his father. "I don't know. I don't know if I can do it. I don't know if I have enough talent. And there are a lot of other people trying to do it...and a lot of them are a lot more talented than I am... "And I don't know if I should do it either. When I write songs I have to reach so deep into myself that I'm almost afraid of what I find. It's too painful emotionally...it makes me think too much. "Sometimes I think I'd be better off at a career that didn't involve so much creative imagination. Something that I could do without becoming too emotionally engaged. A normal career. Like working for a big business. Or something completely different. When I was working with you fixing the barn roof, for example, I was completely at ease. I enjoyed it. But then when I went back to work on my music, I got in a gloomy mood again." Father is supposed to know best. But there are some things he thinks he knows and some things he knows he hasn't a clue about. He replied: "Well, you can stop worrying about the 'talent' issue. In the first place, I've seen what you can do. There's no lack of talent. "Besides, when I was your age I thought talent was so important. Raw talent is very important when you're just starting out in life. Because it's all you've got. The guy who is very smart, for example, is the guy who gets good grades without hardly trying and gets into good schools and seems like he's going to set the world on fire. "But there are different kinds of talent. There's a talent for being able to remember things. There are guys who have perfect pitch. And there are guys who are able to get to work on time and keep at it. As you grow older, raw talent becomes less and less important. Because you have more and more accumulated experience, wisdom, skill, instinct and so forth. The guy who was naturally talented gradually loses ground to the guy who gets to work early and stays late. "You want to be a success? It's very simple. Get to work at 8AM. Stay on the job until 8PM. Repeat that. Keep at it for 10 years. I guarantee you'll be a success at whatever you're trying to do. "As for the question about whether it would be better to avoid a career in the arts, I can't help you very much. We're a moody bunch. It comes from your Irish ancestors. We're a race of dreamers and diehards, full of romantic illusions, and probably better off doing masonry than poetry. But whatever you decide to do, you're probably better off getting on with it... "You know, you can treat an artistic career in a businesslike way too. Not all artists are tortured souls. In fact, it's probably more of a posture than a reality. And very hard to maintain for a long time. Those tortured souls tend to end badly and early. The real professionals keep going. "Some writers, for example, will put their pens down at 5 o'clock...even in the middle of a sentence. Yes, it's probably a good idea to keep some distance between your soul and your work. Work in a businesslike fashion. Torture your soul on weekends. Or, replace barn roofs. "Hope this advice helps." Bill Bonner
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| Posted: 11 Jul 2010 12:09 PM PDT By Toby Connor, Gold Scents The initial thrust out of one of these major cycle bottoms will usually gain 6-10% in the first 8-13 days. We are now 5 days in and up 6.6% so far. I expect we will see a test of the 200 day moving average before we see any significant pull back. These initial moves out of intermediate bottoms don't tend to wait around as smart money smelling blood in the street pile in quickly. It's only the little guy, who doesn't understand what has just happened, that continues to fight the trend change. This is usually about the time that I see the technicians start calling for this or that resistance level or trend line to put a halt to the rally. They are, of course, assuming this is a bear market rally and it will soon be over. First off, let me say I'm not convinced yet that the cyclical bull is dead. I would need to see the market come back down and break the recent lows first. If both the transports and industrials do that then yes, we will have a Dow Theory sell signal and at that point I would have to assume that the market has begun the third leg down in the secular bear market that started in March of 2000. Now let me say this, bear markets don't begin because of lines on a chart. They begin because something fundamental is broken in the economy or financial system. Now we certainly do have a broken financial system, no doubt about it, but then again this cyclical bull was never built on the foundation that we had fixed anything in the financial sector. We certainly haven't fixed anything in the economy with unemployment remaining above 15% if one counts everyone out of work. No this cyclical bull was built on a foundation of massive liquidity. I'm not convinced yet that that fundamental base is broken. Only time will tell. But even if this is a bear market rally let me assure you that bear market rallies don't end because of lines on a chart. If you think you are going to spot a top in a bear market rally by drawing a few trend lines or some meaningless resistance level you are just kidding yourself. It ain't gonna happen. It never has and it never will. Lines on a chart don't halt bear market rallies anymore than they initiate bear markets. I'll tell you exactly what halts a bear market rally. Sentiment! Sentiment, at every single one of those rallies during the `07-`09 market, reached bullish extremes. Not one single rally was halted by a pivot point or resistance level prior to sentiment reaching extreme bullish levels.  Even after the recent surge, sentiment is still so depressed that it's at levels lower than most of the intermediate bottoms during the last bear market. So let me tell you, if you think the market is going to turn tail and run because it hits the pivot at 1130 or the 200 day moving average, or because you think earnings aren't going to be rosy, you are going to be sorely disappointed. If this truly is a bear market then before you even begin to look for a technical turning point you first have to wait until sentiment does a 180 degree turnaround. That just doesn't happen quickly after the kind of beating we just got. Trust me, it's going to take a while for investors to forget a 17% correction and dare to become bullish again. If I had to guess I would say at least 8 to 11 weeks. Even longer if the next half cycle (due around day 15-20 of the rally) and full daily cycle correction (due around day 35-45 of the rally) are strong enough to scare investors again. The problem with the move out of February bottom was that we got no corrections and it quickly turned into a runaway move. Those kind of rallies tend to end with some kind of mini-crash. I started telling subscribers there was a high possibility of that back in late March and early April. It happened in Feb. of '07 with the China crash and sure enough, it happened again in May with the flash crash. Traders become extremely complacent during one of these runaway moves. At the April top sentiment had reached levels more bullish than at the top of the last bull market. As usual, we paid a heavy price for that complacency. But now we've swung 180 degrees back in the other dierection, with sentiment so depressed it even makes the `09 bottom look positively giddy. That my friends is the base for another powerful rally. Actually I won't be at all surprised if the market rallies back to new highs … even if we have begun the initial topping process of this cyclical bull. Remember the bear market had already begun in the summer of `07 but that didn't stop it from rallying back up to marginal new highs in Oct. before finally rolling over into the second worst bear market in history. This idea that the markets can somehow magically look into the future is just ludicrous. I can assure you no one can see the future, and that includes the millions and millions of investors that make up the global markets. Now let me say this – we already know where the cancer is. Does that mean the stock market will now start to discount the next bear market? In the summer of `07 we knew the cancer was in the credit markets, initially beginning in the subprime mortgage market. Did the market look into the future and discount the unraveling of the global credit markets at that time? No it did not. The stock market rallied to new highs. Well, we already know what will eventually bring this house of cards down, it's already started just like it had already started in the summer of `07. We are going to have one sovereign debt implosion after another and that is going to lead to the cancer spreading through the global currency markets eventually infecting the world's reserve currency. But don't expect the market to look ahead and begin discounting the unraveling of the global currency markets. Markets don't do that. What they do is slowly recognize the fact that the fundamentals are broken. Once enough traders realize that, the markets begin to roll over, usually in an extended process taking many months. I doubt this time will be any different, especially since the central banks of the world are going to fight the bear with a blizzard of paper. Don't make the mistake of thinking the markets have to act rationally. They don't and won't. If the Fed prints enough money markets are going to rise even though the global economy is crumbling all around us. If you are bearish and determined to pit your stash against Ben's printing press I'm afraid you are signing up for one very difficult time ahead. I seriously doubt we are going to see another credit market implosion like we saw in `08. Without a severe dislocation like that there will be no market crash this time. When the bear does return (and he will eventually) the next leg down is going to be a long drawn out process with multiple violent bear market rallies. Selling short in that kind of market isn't going to be easy. As a matter of fact I doubt 1 bear in 10 will even manage to make money in that kind of environment. Bear's should be careful what they wish for. I suspect the next leg of the secular bear will manage to destroy both bulls and bears alike.        Toby Connor A financial blog primarily focused on the analysis of the secular gold bull market. If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions, email Toby.
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| What I See Next for Gold, Dollar & SPX Posted: 11 Jul 2010 12:08 PM PDT By Chris Vermeulen, TheGoldAndOilGuy Last week we saw stocks move sharply higher as traders started to cover their short position which added fuel to an already oversold market ready to bounce. Overall volume was not that strong on the move up which is a bearish sign. On Friday afternoon we saw the SP500 continue to move into the $1075 resistance level on very light volume. This indicates to me that buyers are not willing to pay these higher prices because the market has moved up so quickly and the fact that it's trading at a resistance level. I feel the market will gap higher on Monday just like we say on June 20/21 deep into a resistance level and the big money will short the pop sending it sharply lower.
Gold looks to be shifting its momentum from a down trend to an uptrend. It's forming a reverse head & shoulders pattern which is shown in the video posted below. Here is My Technical Trading Report Video Covering:- Gold iPhone/iPad Video Format: Click Here Weekend Conclusion:In short is looks as thought the market is at a critical pivot point. We could see prices stall out here and continue the down trend or see strong buying step in sending prices higher in the equities market. We need to wait and see what type of price action unfolds in the coming days. If you would like to receive my trading alerts and education checkout my service at www.FuturesTradingSignals.com or my swing trading service at www.TheGoldAndOilGuy.com Chris Vermeulen Get My Free Weekly Update Delivered to Your Inbox!
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| Preventing Your Government From Stealing Your Gold Posted: 11 Jul 2010 12:07 PM PDT By Jeff Nielson, Bullion Bulls Canada With the U.S. government having already stolen the gold of its own citizens once, a question which I have often been asked by American readers is "do I think the U.S. government will steal [their] gold again?" My reply has always been that in the absence of a gold standard there is no motive for simply confiscating all gold again.
With U.S. debts and liabilities exceeding $100 trillion, while all the gold inside the U.S. is worth considerably less than $100 billion (at current values) even a quadrupling of the gold price from today's price would still make it totally inconsequential in restoring solvency to the U.S. government. If the government were to stoop to directly (and openly) stealing from its citizens, it would be much more likely to pillage their bank deposits, which are more than ten times as large as their gold holdings.
However, there is a further point which I should have made which relates to this issue. Specifically, even without formally "confiscating" our gold, all of our governments have already created a vehicle to steal a portion of our gold: our taxation systems. The pretext our governments use/will use to steal our gold (and silver) via taxation is "capital gains". This is such a perversion of the concept of a "capital gain" that such tax treatment for gold and silver is simply evil.
Keep in mind that if you buy "physical" bullion and sell it for a "profit" that most of that "gain" is merely the money you didn't lose by foolishly storing your wealth in our paper, "fiat" currencies. In other words, there was not a "capital gain" for your gold or silver, but more properly there was a capital loss on all paper currency.
Once we recognize this obvious truth, it leads to another, equally obvious truth. If the government believes it has the right to tax our "capital gains" we make in gold versus paper, then it must allow claims made on the commensurate capital losses in our paper, "fiat" currencies versus gold.
In fact, our tax codes refuse to acknowledge those equally valid "capital losses" – and for an obvious reason: it would amount to receiving a tax deduction for "inflation". Since inflation is the vehicle which governments and bankers use to steal our wealth in the first place (which creates the need to buy gold and silver), the last thing they want to do is to slow down that theft.
Actually, governments do the exact opposite. Inflation pumps up nominal prices and nominal wages – increasing the total amounts of both sales and income taxes. No, our governments are too addicted to stealing to allow us to claim "capital losses" on our paper currencies. And they are so hypocritical and evil that they also intend to tax our gold and silver: the only means of preventing theft-by-inflation.
Having demonstrated that our tax system has a double-standard which is so perverse as to be genuinely evil, I now intend to explain to readers how to legally avoid such perverse taxation. Bear in mind that I offer this advice having studied tax-law, and in order for the advice to be valid, readers must follow every aspect of this strategy, precisely as described.
To explain the legal, tax avoidance strategy for gold and silver bullion, I must first explain how our governments "justify" stealing our gold and silver with taxes. To begin with, we help them perpetrate this taxation double-standard by foolishly using terminology which supports their interpretation. We talk about "buying" and "selling" bullion with our paper, "fiat" currencies, when what we are really doing is converting one currency into another. More articles from Bullion Bulls Canada….
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| New Orleans is back in Top 10 cities list, so join GATA there Posted: 11 Jul 2010 12:04 PM PDT 1:32p ET Sunday, July 11, 2010 Dear Friend of GATA and Gold (and Silver): If you'd like to have a great time, learn a lot, and do a good deed for GATA, consider attending this year's New Orleans Investment Conference, to be held Wednesday through Saturday, October 27-30, at the Hilton New Orleans Riverside hotel. In addition to GATA Chairman Bill Murphy and your secretary/treasurer, New Orleans cofnerence speakers will include GATA favorites Gene Arensberg of the Got Gold Report; Ticker Traxx letter editor Thom Calandra; Boom, Gloom, and Doom Report editor Marc Faber; USGlobal Investors CEO Frank Holmes; Gold Newsletter editor Brien Lundin; and Sprott Asset Management CEO Eric Sprott. National celebrity speakers will include former U.S. Comptroller General David Walker, Pulitzer Prize-winning columnist Charles Krauthammer, and former House Republican Majority Leader Dick Armey. Of course dozens of resource companies will be exhibiting during the conference as well. Lasting for four days, the conference is a major affair and registration isn't cheap, but you get a discount for registering early, and the conference will make a substantial contribution to GATA for every GATA supporter who registers using the special Internet link below. Coincidentally, Travel & Leisure magazine announced this week that for the first time since the devastation of Hurricane Katrina, New Orleans has made it back to the magazine's list of the top 10 cities to visit in the United States and Canada. An Associated Press story about that is appended. It's hard to have a bad time in New Orleans, especially as the Northern Hemisphere's weather starts getting colder. It's a lot more than the laid-back party town of the French Quarter. The restaurants are phenomenal, the food is unique, there are fascinating museums and exhibitions, and the people are so welcoming and friendly, really glad that you're there. And of course the more GATA supporters who attend, the more fun Murphy and your secretary/treasurer will have after spending most of their lives in dark rooms illuminated only by computer screens and their reflection off empty liquor bottles. The Hilton New Orleans Riverside is a lovely place — right at the River Walk and a short walk to the French Quarter and, if your Internet stock brokerage account isn't enough for you, Harrah's casino. And the hotel has arranged special discount rates for conference attendees. So please at least check out information about the conference, using this link: http://www.neworleansconference.com/redirect.php?page=index.html&source_… That link will get you to the hotel's Internet reservations site as well. And please note the Travel & Leisure story about New Orleans' revival below. We hope to see you there in October. CHRIS POWELL, Secretary/Treasurer * * * New Orleans Back in Travel & Leisure Top 10 Cities By The Associated Press http://news.yahoo.com/s/ap_travel/20100708/ap_tr_ge/us_travel_brief_trav… NEW YORK — New Orleans is back in Travel & Leisure magazine's top 10 cities list for the first time since Hurricane Katrina devastated the city and its tourism industry in August 2005. New Orleans took the No. 7 spot in the category of top cities in the United States and Canada, part of the magazine's annual World's Best Awards. The 2010 awards were announced Thursday. New Orleans was last named to the list, in the No. 10 spot, in July 2005. The city has steadily rebuilt and revitalized its tourism industry in the past few years. New York took the No. 1 spot on the U.S. and Canada cities list, followed by San Francisco; Charleston, S.C.; Chicago; Santa Fe, N.M.; Vancouver, British Columbia; and after New Orleans, Quebec City, Quebec; Victoria, British Columbia; and Washington, D.C. Winners in the best islands category internationally include exotic locales like the Galapagos and Bali, but for the continental U.S. and Canada, the island winners are places mostly known for beautiful scenery and simple pleasures: Mount Desert Island, Maine; Cape Breton Island, Nova Scotia; Vancouver Island, British Columbia; San Juan Islands, Wash., and Canada's Prince Edward Island. The full World's Best Awards list will appear in Travel & Leisure's August issue, which is available on newsstands July 23. It can also be seen online at: http://www.travelandleisure.com/worldsbest. Winners in other categories include Abercrombie & Kent for best river cruise, a new category on the list; Crystal Cruises as best large-ship cruise line; Singapore Airlines as best international airline; Virgin America as best domestic airline; and Hertz as best car-rental agency. Best hotels in the continental U.S. included San Ysidro Ranch, A Rosewood Resort, in Santa Barbara, Calif., as top resort; Trump International Hotel & Tower in Chicago as best large city hotel; and Triple Creek Ranch in Darby, Mont., as top inn. Bangkok was rated as the best city internationally, but the magazine noted that data for the awards was mostly collected before the worst of the recent political upheaval in Thailand. Winners for Travel & Leisure World's Best Awards were determined using results of a questionnaire made available to Travel & Leisure readers online, and through invitations in the January, February, and March issues of the magazine. Nearly 16,000 readers participated. Join GATA here: New Orleans Investment Conference * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| Gene Arensberg: Huge short covering in gold by large commercials Posted: 11 Jul 2010 12:04 PM PDT 12:06p ET Sunday, July 11, 2010 Dear Friend of GATA and Gold (and Silver): In his Got Gold Report this weekend, Gene Arensberg finds the large commercial shorts in gold covering their positions hugely but much less short covering in silver. You can find the Got Gold Report here: http://www.gotgoldreport.com/20100710COTflashPDF.pdf CHRIS POWELL, Secretary/Treasurer Join GATA here: New Orleans Investment Conference * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| FT’s Lex on gold and the BIS: Nothing to see here Posted: 11 Jul 2010 12:04 PM PDT 1:32a ET Sunday, July 11, 2010 Dear Friend of GATA and Gold: Last week's pseudonymous "Lex" column in the Financial Times about the recent strange and hidden gold swaps undertaken by the Bank for International Settlements was typical FT — high-falutin' dismissiveness about gold that avoided any original research, avoided even seeking on-the-record comment from the source, the BIS itself. How does the BIS explain the transaction? Why was it hidden in a footnote in the bank's annual report rather than announced generally? Since commercial banks are not known for maintaining large gold reserves such as those in these swaps, where and how did the commercial banks get the gold? Were the commercial banks fronting somehow for central banks? What's really going on here? Though the failure of the BIS to announce the transaction demonstrated an intent to hide it, Lex and the FT won't ask about it. Rather than investigate, Lex and the FT have lined up in front of the story to shoo curious onlookers away, much like the bumbling detective played by Leslie Nielsen in the fireworks factory scene in the movie "The Naked Gun": http://www.youtube.com/watch?v=rSjK2Oqrgic When it comes to gold and central banking, the FT seems to see its job as being not so much to report the news as to suppress it. The "Lex" column, headlined "The Gold and the BIS," is appended. Now move along. Nothing to see here. CHRIS POWELL, Secretary/Treasurer * * * Gold and the BIS By Lex http://www.ft.com/cms/s/3/27c110da-89a3-11df-9ea6-00144feab49a.html What to make of the news that the central banks' central bank is sitting on 346 tonnes of gold? It is held via gold swaps between the Bank for International Settlements and European commercial banks that have collateralised loans with ingots. Such operations had been rare in recent years but took off in earnest just as the Greek sovereign debt crisis erupted — so the news, contained in a note to the BIS' annual report, unleashed numerous conspiracy theories. Traders theorised that one or more of the bloc's central banks pawned gold to prop up their groaning banking systems. Spain's regional savings banks, or cajas, and Greek lenders, for example, have sucked in copious liquidity in recent months and are likely to need more. These transactions bore all the hallmarks of a furtive operation to assist a peripheral eurozone central bank unwilling to be seen pawning its reserves. But the swaps raised only $14 billion — surely not enough for any such sweeping operations. Another tale was that the central banks used swaps for bridging finance pending drawdown of the eurozone rescue package; but again, the numbers fail to stack up. An even more far-fetched explanation has the International Monetary Fund selling reserves to boost its own finances ahead of a bailout. The reality is almost certainly more prosaic, having more to do with the technicalities of the collateralised lending market than with the entry of a big new player. But the far-fetched theories still had a real-world consequence and put the skids under gold: prices slid back to late-May levels on the news. Ironic, really, since it is jitters about the eurozone debt crisis that had fuelled the precious metal's fabulous rise — up 15 per cent from the start of the year to a nominal high of about $1,265 a troy ounce two weeks ago. Join GATA here: New Orleans Investment Conference * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit:
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| Strange Bedfellows: Australia’s Labour Party and The Big Three Miners Posted: 11 Jul 2010 12:04 PM PDT The Gold Report submits:
The Gold Report's boots-on-the-ground correspondent in Australia, Richard Karn (managing editor, The Emerging Trends Report), updates us on the death of the Resource Super Profits Tax [RSPT] proposal and the birth of a new tax, the Mineral Resources Rent Tax [MRRT]. Supposedly a "fair share" for all, but Karn is not convinced. Read on for his take on the new tax's implications for Australian mining.
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| Posted: 11 Jul 2010 12:02 PM PDT What say you all? Please post a website if you've got a link. Also, what is the standard acceptable markup on 90%? Thanks
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| Austrian Economics: True Money Supply, Deflation and Inflation Posted: 11 Jul 2010 11:49 AM PDT |
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