Gold World News Flash |
- The Stock Market Is Crumbling: This Is A Depression
- Russia's Central Bank Buys Another 500,000 Ounces of Gold in July
- Daily Dispatch: Weekend Edition - August 21, 2010
- Joe Foster: Catalysts Pushing Gold
- Mega Private Equity Deal in 2010: Some Fundamentals in Place
- Jim's Mailbox
- Watch Former Fed Governor Fred "Napoleon Dynamite" Mishkin In Dire Need Of A Diaper Change
- SEC's Jersey Score Gaining Momentum?
- Visualizing America's Surging Personal Bankruptcy Filings
- As Iran Is Loading Fuel In Its First Nuclear Power Plant, Israel Warns Reactor Use "Totally Unacceptable"
- States Desperate: New Taxes For Owning A Driveway?
- Government Bond Defaults And Currency Devaluations Coming
- FDA Not Testing Gulf Seafood for Mercury, Arsenic or Other Heavy Metals Because "We Do Not Expect to See an Increase Based on this Spill"
- Gold – the Shadow Currency
- Risk Comparison: Options Versus Equities – Part 1
- Bullion As An Alternative To Shorting, Part II
- Europe Trembles
- Any Growth in Gold?
- Buying Power in Dollars
- Bond-Market Says "Recession"
- Ted Butler’s weekly interview with King World News
- Ted Butler's weekly interview with King World News
- Resource demand spurs M&A deal surge
- Art Cashin Market Thoughts Redux - Follow Up King World News Interview
- This Past Week in Gold
- Tim Geithner/Obama Are Full Of Sh%t
- WSJ Gets It…..Sort Of
- Guest Post: Preserve and Protect: Mapping The Tipping Points
- Another Warning Shot for Bond Investors
- It's Going To Get Worse, A Whole Lot Worse
| The Stock Market Is Crumbling: This Is A Depression Posted: 21 Aug 2010 04:44 PM PDT Richard Russell - The Stock Market Is Crumbling The Godfather of newsletter writers, Richard Russell, summed up our situation as follows, "crumbling." Again I will repeat what I have always liked about Russell is that he likes to focus on the big picture. What is the big picture? Here are a few snippets from his latest commentary... August 21, 2010 Richard Russell: On to the markets. The stock market is crumbling -- actually crumbling before our very eyes. ...I'm saying that half the issues in the Dow, the NYSE, S&P and NASDAQ have now sunk below their important 200-day moving averages. And the same is true of the big stock averages. And the incredible thing is that even as the stock market is falling apart, the experts and the media are taking in and believing the government reports, and they think everything is bright and sunny.. It's as if they can't see or take in what the market is doing -- the whole financial world seems to be brain-washed...I've never seen anything like it. The Russell opinion. It's the markets that are telling the real story, not the analysts or the government..Believe me if the stock market continues the way its been going (particularly if it crashes) it's going to scare the living hell out of America's consumers. If consumers freeze up, you're going to see all the deflation you want. So who to believe, the analysts and economist or the stock and bond markets? At this point, who's running the nation? It's not Obama, it's not Geithner or Bernanke, it's not even the Fed -- IT'S THE MARKETS. And we'll watch 'em as intently as a barn owl watches a mouse. A final take -- It's simply uncanny to see the stock market (most stocks) falling apart while the media and the government tells us that "things are looking better." It's as if the nation is watching a horror movie and is reacting with a case of the giggles. As for Richard Russell, he's resting easy. I've been urging my subscribers to "clean house" and be OUT of all stocks. I think (hope) I've got a lot of happy, solvent subscribers, which is exactly what I want as this market teeters on the edge of an historic collapse. Question -- Russell, recently you wrote up certain utilities as a source of income. What are your latest thoughts now? Answer -- My thoughts now is that I want subscribers OUT of all stocks and bonds except for gold and gold items. Before this bear market is over, it's going to take down everything. We're in cash and gold, and probably less cash as time goes along. This is not a recession, but rather a depression. Recessions tend to break people, depressions on the other hand tend to consume them. 
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| Russia's Central Bank Buys Another 500,000 Ounces of Gold in July Posted: 21 Aug 2010 02:28 PM PDT Gold declined about four bucks from the open in Far East trading Friday morning... until about an hour before trading began in New York. Then the price popped to its New York high of the day [$1,232.90 spot] just minutes after the Comex opened for business. Two short episodes of not-for-profit selling took gold to its low of the day [$1,221.30 spot] at the London p.m. gold fix... 10:00 a.m. Eastern time right on the button. Volume was decent for a summer Friday afternoon. Here's the New York gold chart on its own so you can see how precise the timing of the low was at the London p.m. gold fix at 3:00 p.m. in London... 10:00 a.m. in New York. Silver's price meandered in a very tight range all through Far East and early London trading on Friday. Volume was exceptionally light... and the price really didn't start heading lower until 11:00 a.m. in London. From there it fell a dime into the London silver fix at noon, rose for the next hour to a s...
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| Daily Dispatch: Weekend Edition - August 21, 2010 Posted: 21 Aug 2010 02:28 PM PDT August 21, 2010 | www.CaseyResearch.com Weekend Edition Dear Reader, Welcome to the weekend edition of Casey's Daily Dispatch, a compilation of our favorite stories from the week for the time-stressed readers. Of course, if you want to read all of the Daily Dispatches from the week, you may do so in the archives at CaseyResearch.com. After the Brick and Mortar Funeral, What’s Next? By Vedran Vuk The brick-and-mortar video stores such as Blockbuster, Hollywood Video, and Movie Gallery are on their way out. Blockbuster has been beaten down to penny stock status at 14 cents per share. On the other hand, Netflix has a roaring share price of $139. Though Netflix appears to be a very attractive business, I see cracks in its future. No, I’m not recommending Blockbuster’s stock. The company has serious problems and will be gone soon enough. Though I wouldn’t be surprised to see it emerge out of bankrup...
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| Joe Foster: Catalysts Pushing Gold Posted: 21 Aug 2010 02:28 PM PDT Source: Brian Sylvester of The Gold Report 08/20/2010 Portfolio Manager Joe Foster calls himself a "stock picker." And he's pretty good at it. Class A shareholders in Van Eck Global's International Investors Gold Fund have seen an average return of almost 25% for 10 straight years under his care. "I'm looking for the gold companies that are going to outperform the indexes, my peers and gold," Joe says. And he shares some of those companies with you, in this exclusive interview with The Gold Report. The Gold Report: Joe, in your view, what are the catalysts that will push gold to the next level? Joe Foster: Well, there could be a range of catalysts, any one of which could rear its ugly head. TGR: Which ones are most likely? JF: The financial system has not yet recovered from the shock of the credit crisis. We're in the midst of a historic credit contraction that could turn into a deflationary credit contraction. As the Fed and the economy deal with this, there is ...
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| Mega Private Equity Deal in 2010: Some Fundamentals in Place Posted: 21 Aug 2010 12:45 PM PDT
By Static Chaos In contrast, the latest deal involving private equity--Blackstone acquiring Dynergy for $543 million--is a far cry from the heyday of private equity deals back in 2006, when deals such as Harrah`s Entertainment, Hospital Corp. of America, Clear Channel Communications, Kinder Morgan, and Freescale Semiconductor each worth more than $17 Billion dollars took place. In 2007, Blackstone acquiring Equity Office Properties Trust for $38.9 billion, and TXU went for a $42 Billion three way deal with Goldman Sachs, Kohlberg Kravis Roberts, and TPG.
So, how likely is it that we have a$100 Billion private equity deal in the remainder of this year? Well, at the beginning of this year it would have seemed impossible, but the dynamics are there for a deal to occur. Things really just have to fall into place. With the latest rumblings of M&A activity, there is an increasing chance that we witness a Mega Private Equity deal that really shakes up the current valuation models regarding what public companies are worth. A case in point is a company like HP with a trailing P/E around 11, has solid growth, leader in numerous business segments within technology, sits on a large amount of cash, and is grossly mispriced in the market place compared to a firm like Dell with a trailing P/E around 16.
HP has many of the components necessary for a private equity mega deal, solid company with a bright future, extremely low multiple, assets are worth more than the current market cap if sold separately, low relative debt, strong cash flows, large cash reserves, relevant industry due to increased productivity and demands, lacks a CEO, leverageable, and most of all--very financeable for a major deal to banks.
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| Posted: 21 Aug 2010 12:36 PM PDT Extremely Unbalanced Long Bond Market While massive net outflows in the Treasury bond market by connect players as open interest spikes doesn't necessarily imply a immediate trend change, it does reflect an extremely unbalanced market. An extremely unbalanced with rising open interest (participation) tends to associated with hot markets. Hot markets are dangerous. Those familiar with the probabilities of statistical Z scores from a normal distribution understand the rarity of +/- 3 Sigma reading. The enclosed link to Z-score applet with help those less familiar. The most recent COT data generated a -3.04 2-year trend Z-Score. Lower Money Flow Table: The following chart illustrates the spike in participation into hot market. Long-Term U.S. Treasury Bond and the COT Futures and Options Open Interest Stochastic Weighted Average:
Jim, Weimar politicians thought it wise to hide their military debt as well as having various off-sheet unaccountable accounting measures as they prepared for the mass printing. We are better off cutting our own path thru the forests of finance CIGA JB Slear Figures on government spending and debt WASHINGTON (AP) — Figures on government spending and debt (last six digits are eliminated). The government's fiscal year runs Oct. 1 through Sept. 30. Total public debt subject to limit Aug. 19 13,310,379
Dear Jim, This is a milestone. CIGA Ursel Shrinking 'Quant' Funds Struggle to Revive Boom "They were revered as the brightest minds in finance, the 'quants' who could outwit Wall Street with their Ph.D.'s and superfast computers. But after blundering through the financial panic, losing big in 2008 and lagging badly in 2009, these so-called quantitative investment managers no longer look like geniuses… The combined assets of quantitative funds specializing in United States stocks have plunged to $467 billion, from $1.2 trillion in 2007, a 61% decline, according to eVestment Alliance… One in four quant hedge funds has closed since 2007, according to Lipper Tass. 'If you go back to early 2008, when Bear Stearns blew up, that's when a lot of quant managers got blown out of the water,' said Neil Rue, a managing director with Pension Consulting Alliance… 'For many, that was the beginning of the end,' he added."
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| Watch Former Fed Governor Fred "Napoleon Dynamite" Mishkin In Dire Need Of A Diaper Change Posted: 21 Aug 2010 12:08 PM PDT
Some time ago we penned a post, titled"Mishkin On Iceland: "Nothing Is F*#&ed Here Dude" which discussed the former Fed director's March 2006 analysis "Financial (IN)Stability In Iceland." Those interested in our original observations of Mishkin's horrendous analysis (of what proved to be the first bankrupt European country of the new century, but certainly not last) can find them at the original link. Yet continuing with the Duderino references, today, new shit has come to light, which once again confirms that not only is the Fed populated by the most intellectually incapable and corrupt people, but that anything coming out of Columbia University (and the Ivy League in general) is not worth the paper it is printed on. Watch the attached clip to see a former Fed director go from comfortable, to fidgety, to stuttering, to thoroughly discredited, to in dire need of diaper change, in under 2 minutes. Last but not least, here is the soundbite of the year: "You have faith in the central bank." No further comment necessary.
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| SEC's Jersey Score Gaining Momentum? Posted: 21 Aug 2010 12:07 PM PDT
Mary Williams Walsh of the NYT reports, Pension Fraud in New Jersey Puts Focus on Illinois:
In a separate article, the WSJ wrote an op-ed on the SEC's Jersey Score:
In a related topic, Janet Morrissey of TIME reports, SEC Now Offering Big Payoffs To Whistle-Blowers:
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| Visualizing America's Surging Personal Bankruptcy Filings Posted: 21 Aug 2010 11:50 AM PDT
As we pointed out on Wednesday, personal bankruptcies recently jumped to a five year high (a 20% increase over the prior year). While the recent increase in filings has been alarming, the truth is that it could merely be a mean reversion, which as the chart below shows, is precisely where filings used to be prior to the 2005 bankruptcy reform passed. As The Economist, which created this chart points out, " The data suggest that an older trend is reasserting itself. This is could be more bad news for America—or it could just mean that creative destruction is alive and well." Either way, the chart is sure to see quite a bit of airplay this election season, as the populist rhetoric heats up. Don't be surprised however if the section before 2005 is cut off.
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| Posted: 21 Aug 2010 11:00 AM PDT
As has been widely anticipated, Iran is currently in the last stages of preparation before pushing the On button for its brand, spanking new (and 20 years in the making) nuclear power plant. As Reuters reports: "Television showed live pictures of Iran's nuclear chief Ali Akbar Salehi and his Russian counterpart watching a fuel rod assembly being prepared for insertion into the reactor near the Gulf city of Bushehr." Yet despite Russia's guarantee that it would collect spent rods that could be used to make weapons-grade plutonium, Israel is not taking this development lightly at all, and as Jerusalem Post reported earlier, warned that "It is totally unacceptable that a country that blatantly violates decisions of the United Nations Security Council and the International Atomic Energy Agency, and ignores its commitment to the Non-Proliferation Treaty charter, will enjoy the fruits of using nuclear energy," according to Foreign Ministry spokesman Yossi Levy said. Which in turn has prompted Ahmadinejad to warn that a strike on Iran would be answered with "harsh and painful" response. All in all, just another Saturday in the middle east. Yet that's not all, as Iran now seems intent on seeing how far the already frayed nerves in the region can stretch (and recall that recently Gulf states announced that the military option may be the best strategy for the region).
As for the whole reactor situation, even with ever increasing jawboning, Israel was very careful not to provoke or incite Russia:
Yet just in case there is escalation, Iran made its feeling known that WWIII would follow promptly any incursion, which he nonetheless did not expect to occur.
In other words, the world is suddenly back to relying on the rationality of two people both in possession of launch codes, and a hope that both are familiar with the M.A.D. doctrine. In other words, stability rules. Surely, this is precisely the environment for stocks to surge to 36,000 on 3-4 shares traded, as the New York Fed "prices in" global thermonuclear warfare. Absent fireballs sprouting everywhere tomorrow, the likelihood of the delayed POMO reaction on Monday to send stocks well above the 50 DMA is suddenly all too real. Below is a look at Iran's reactor, courtesy of Reuters:
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| States Desperate: New Taxes For Owning A Driveway? Posted: 21 Aug 2010 10:38 AM PDT What if you owned a small business? What if you owned a small business and your customers came to your store or office? What if you owned a small business where your customers came to your store or office, and parked in your parking lot? What if you owned a small business where your customers came to your store or office, parked in your parking lot, and the government made you pay taxes for each and every car? Would you still own a small business? These may sound like hypothetical questions, but for a city in Kansas, they have become reality. Last night, the city of Mission passed a new tax on driveways. Yes, driveways. Home owners will pay $72 each year for having a driveway. Business owners, though, take the biggest hit in this new tax, which is being hailed as "revolutionary" and "ground-breaking." Beginning in December, all businesses will be taxed a fee of at least $3,558 per year. But wait- it gets better… Let's say that you own a local bank, where customers come in to see you for home loans, business improvement packages, or simply to put money aside for the future. You could owe the city $5,659 per year. Maybe you own a local fast food franchise- do you have an extra $12,200 sitting around? Because that's how much you could be paying. Maybe you work at a local Target- where the annual tax would amount to a whopping $64,750 per year. More Here..
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| Government Bond Defaults And Currency Devaluations Coming Posted: 21 Aug 2010 10:22 AM PDT It's no secret the economic data in the U.S. and other major economies have rolled over. That's why bond yields have taken another nose dive — hitting record lows in Germany and nearing record lows in the U.K., the U.S. and Japan, as shown in the chart below. The bond market is telling you directly … "Forget the thoughts of recovery and hunker down for more economic pain and crisis."
Deleveraging is keeping demand depressed, making deflation the big threat. Indeed, especially given the world's bloated debt problem. The last thing you want when you're saddled with debt is deflation. In a deflationary environment, money increases in value, but it's much harder to come by. So those with debt tend to have a more difficult time servicing that debt. That doesn't bode well for economies that have recently been exposed as "at risk" of default. When you put the pieces of the puzzle together, it seems clear that the sovereign debt problems that served as a warning signal in the first half of this year will end in government bond defaults and currency devaluations. More here.. 
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| Posted: 21 Aug 2010 10:14 AM PDT
Congressman Markey's subcomittee held a hearing Thursday on seafood and the oil spill. Markey got the Food and Drug Administration to admit that fish are not being tested from oiled areas:
The FDA also admitted that it is not testing for mercury, arsenic or other toxic heavy metals, because - wait for it - the FDA doesn't expect to see an increase of these toxins from the oil spill:
But in the real world:
The FDA's statement is similar to NOAA Administrator Jane Lubchenco's recent assertion that oil doesn't bioaccumulate in fish, and that fish naturally "degrade and process" the oil. As a former long-time NOAA scientist points out, NOAA hasn't exactly been neutral and objective with regards to Gulf oil spill science:
Unfortunately, this is how government today operates ... its main activity is simply to try to cover up crises.
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| Gold – the Shadow Currency Posted: 21 Aug 2010 09:32 AM PDT What you read in the mainstream financial media about gold never ceases to amaze and amuse. About a week ago, in this item at the Wall Street Journal MarketBeat blog, Matt Phillips said he was pretty, pretty, pretty skeptical about the shiny rock save for his belief that it's a bubble. Today, sitting in for Jason Zweig in writing the Weekend Investor column, Jeff Opdyke thinks that the shiny rock is some sort of a shadow currency.
Yes, something is definitely amiss, but it's not gold. Gold just sits there, waiting to be dug up out of the ground or pulled out of some vault and sent off to some other vault while central bankers run their printing presses non-stop in order to get the ailing economy – its ills widely believed to be a result of too much easy money – back on its feet. It is truly remarkable that there is such great interest in a metal whose only real purpose in the world is to make paper money look bad in comparison. Actually, it's not remarkable at all – unless you're part of the mainstream financial media. After seeing only a modest correlation between inflation and gold and the much stronger inverse relationship between gold and the trade-weighted dollar, Opdyke figures the yellow metal is some sort of an anti-dollar or a shadow currency of some kind that is sending off signals about the "potential diminishment" of the purchasing power of paper money. That sound plausible…
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| Risk Comparison: Options Versus Equities – Part 1 Posted: 21 Aug 2010 09:03 AM PDT By Chris Vermeulen, TheGoldAndOilGuy While future articles will return to focusing on the option Greeks, a recent comment regarding risk really piqued my interest. The age old discussion about risk versus reward, equities versus options, and the fundamental difference between Nassim Taleb's "Black Swan" risk and what most people perceive as ordinary risk. In a perfect world, financial markets are by design a discounting mechanism of a cash flow stream, risk versus reward, and a psychological environment where the difference between profits and losses is merely perception. In the end, trading is all about the mastery of risk mitigation and leveraging probability. I am an options trader, not because I do not like equities or futures, but because I fear the perception of their so-called safety. Most academics and the average investor believe that financial markets, specifically individual stocks follow a Gaussian, or log normal distribution. While various economists and statisticians have argued this point for decades, to understand that price distributions are in fact not strictly Gaussian. Price distributions are capable of exhibiting more than the predicted occasions of price inhabiting the extreme regions of the distribution curve. Understanding these concepts is critical in order to have a robust understanding of risk. This type of phenomenon is called "fat tail" risk; statisticians refer to it as leptokurtosis. It is this degree of risk well beyond the normally distributed range to which Taleb has characterized as "Black Swan" risk. In financial markets, having accepted that these fat tails do in fact exist and exist with a frequency far beyond what is intuitively apparent, risk becomes significantly harder to quantify. When risk becomes more difficult to quantify it can be said that investors and traders have significantly more exposure to a catastrophic event than they realize. In basic terms, the financial world we live in today is wrought with fat tails. Government integration and manipulation of financial markets, the Federal Reserve's (supposedly independent) direct engagement into the bond market, and specifically treasuries and mortgage backed securities creates an environment in those markets where distributions are not statistically normalized. Geopolitical risk such as the potential for an Israeli air strike against Iran places unconditional risk on a variety of risk assets, at the forefront light sweet crude oil. If one considers all the various risks extant, risk today seems excruciatingly high. Professors on Minyanville have recently called into question whether paper assets like the Gold ETF GLD is accurately priced. It is widely believed that there is significantly less physical gold versus gold-backed paper. This adds yet another element of uncertainty to an increasingly uncertain environment. What would happen to the gold ETF GLD if an analyst announced that the GLD ETF no longer had access to physical gold? What would happen to the valuation? How can they maintain adequate capital levels inside the ETF if gold demand rises while physical supply diminishes? The answer is contraction in the NAV price of the gold ETF. In real terms, the ETF owns less gold than the paper supposedly represents and price must come down to indicate this discrepancy. Make no mistake, the market will be happy to provide the swift and unforgiving necessity of adjusting to parity. While the above offers basic examples of fat tails, the increased statistical variation has a name. The name of this type of condition where fat tails surround us and atypical logarithmic distribution takes place is called kurtosis. As a side note, since recent and forthcoming articles are going to focus on the Greeks, kurtosis comes from the Greek word meaning υρτός, kyrtos, or kurtos. (Just thought I'd throw that in there for a synergistic moment)
A scenario similar to the condition in which we find financial markets today could likely be summarized as a period of time where Leptokurtosis has become prevalent. Leptokurtosis is a statistical phenomenon where a population's distribution, in our case equities, has a rather pronounced peak around the average. This peak is representative of a population that is rife with fat tails, higher variance, and a propensity for abnormally large swings in the standard deviation of returns. What does all this mumbo jumbo mean? It means that when fat tails are present within a leptokurtic distribution, risk literally can become infinite. Fat tails and leptokurtosis are just a few of the many statistical economic studies that have caught the eye of many academics, specifically in the areas of advanced statistics, mathematics, and . . . economics. Distributions, kurtosis, and fat tails are the science behind behavioral finance. To most people this subject matter is boring, however it is only boring if you have never experienced the gut wrenching expression of these phenomena in the market; after that experience, the subject becomes transfixing. The average investor believes that when they buy a stock the likelihood of it declining significantly in a short period of time is relatively minimal. We have been conditioned by Wall Street snake oil salesmen that due to inflationary pressure, over long periods of time equities must rise as a function of inflation. Everything is a buy in the long term, plus it makes for a great story to build a business model around that the retail crowd buys into. While this may be true in the long run, we live finite lives which do not have the luxury of allowing behavioral mean reversion over geological periods of time. Right now risk is excruciatingly high. We have a variety of risks and uncertainties that are plaguing financial markets. The statistics behind the market today would likely exemplify the excessive risk built into the current system. So how exactly does this relate to options you might be wondering? I trade options instead of individual stocks to reduce risk. Options offer a variety of ways to hedge risk, even after a trade has been initiated. Options allow for manipulation where as with stocks and futures there is little one can do besides fully hedge a position. The reason I utilize options instead of futures or equities for swing trades is because by definition they are insulated from outlying events such as an unexpected act of war or a natural disaster which could interrupt the flow of commerce for an extended period of time. Options are inherently less risky than stocks because of the leverage built into them. Since all moneys invested in the market are subject to Black Swan risk, the ability to control an equivalent position with dramatically less capital commitment is a core risk reduction strategy. Yes, a trader can lose his/her entire investment if they own an option naked. Experienced option traders that buy and sell calls or puts naked and then hold them for extended periods of time is likely an anomaly. Experienced option traders will use some form of a spread to mitigate their risk further. Additionally, most online brokers offer option traders access to contingent stops which are based on the underlying asset's intraday price. Fat tails and leptokurtosis are the result of financial markets reacting violently to unexpected events, similar to what happened this week when the jobs number was much worse than expected or to the still unknown factors which precipitated the recent "flash crash". Large price swings similar to what we have seen recently are usually attributed to higher volatility. Higher volatility for prolonged periods of time is just another symptom that points to fatter tails and leptokurtic distributions. Reliance on the Gaussian, log normal distributions likely have some of the "machines" on Wall Street in a situation where their models do not work. Option traders leaning long into the close on Wednesday that utilized specific types of spreads had limited risk. They did not have to worry if the market gapped their stop. Their risk was limited from the moment they initiated the trade. In contrast, an equity trader that went long before the close on Wednesday could have exited if they had access to the premarket, however if they didn't the gap down found them losing more than they originally set out to lose. The market gapped over their stop, leaving them vulnerable to further downside. The unquestioning reliance on stops to close positions in times of Black Swan events is flawed at its core because it denies the very existence of unknown and unknowable risk. This is just one example of how equity traders who routinely hold positions overnight are exposing themselves to potentially unidentifiable levels of risk in today's market. If we are in a period where leptokurtosis and subsequent fat tails in the distribution prevail nothing is impossible when risk is being calculated. By statistical definition, a period where a fat tail(s) exist indicates a period where risk is extremely high. Log normal modeling software will significantly underestimate the true risk in financial markets. What trading software and price models are you using in your analysis? If you are using a gut feel or one type of stock chart to help guide your decisions about risk, you could potentially be mischaracterizing risk by as much as 5-7 standard deviations. 5-7 standard deviations is scary my friend, the kind of scary that days that have nicknames that start with "black" are made of. If you would like to receive our free options trading reports and trading signals please join our free newsletter at: www.OptionsTradingSignals.com J.W. Jones is an independent options trader using multiple forms of analysis to guide his option trading strategies. Jones has an extensive background in portfolio analysis and analytics as well as risk analysis. J.W. strives to reach traders that are missing opportunities trading options and commits to writing content which is not only educational, but entertaining as well. Regular readers will develop the knowledge and skills to trade options competently over time. Jones focuses on writing spreads in situations where risk is clearly defined and high potential returns can be realized.
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| Bullion As An Alternative To Shorting, Part II Posted: 21 Aug 2010 09:02 AM PDT By Jeff Nielson, Bullion Bulls Canada In Part I, I discussed the world's largest and most obvious asset-bubble (excluding the derivatives market): the U.S. Treasuries market. While I pointed out that this market was an obvious target for "shorting", I also explained to readers why there were simply too many risks associated with shorting this opaque, and highly-manipulated market. I explained that investing in bullion ("long") was a good "proxy" for shorting U.S. Treasuries, and concluded that this proxy was a safer, superior substitute for that short-position. In this installment, I will apply that analysis to other U.S. asset-classes: the financial sector, and the U.S. dollar, itself. When Wall Street's multi-trillion dollar Ponzi-schemes imploded (based upon the U.S. housing-bubble, which they also created), it was common knowledge that the entire U.S. financial sector was leveraged by an average of 30:1. It is a matter of simple arithmetic to observe that with such extreme leverage, it only takes a loss of a little over 3% on the underlying assets to take all "bets" at 30:1 leverage to zero. Given that most of Wall Street's leverage was based upon the U.S. housing market, and given that the U.S. housing market plunged by roughly 30% (in its first collapse), you don't have to be a "mathematician" to figure out that this was ten times the decline necessary to take the entire, U.S. financial sector to zero. Clearly, most U.S. banks (and all the Wall Street Oligarchs) are hopelessly insolvent. The "mark to fantasy" accounting rules, conveniently created just before the much-hyped "stress tests" of U.S. banks, can hide the bankrupt status of these corporate shells, but it certainly does nothing to change that reality. Because these bankrupt entities (collectively) have market capitalizations in the trillions of dollars, once again we see a U.S. asset-class where shorting the market would seem like a "no-brainer". However, as with the U.S. Treasuries market, as soon as we take a closer look at this sector, we see a saturation-level of corruption, and a total disconnect from all market fundamentals. Not only does the U.S. financial sector benefit from the "24/7" market-pumping activities of the Plunge Protection Team, but it has been allowed to rig markets to a much, much greater degree through its "trading algorithms". This "high-frequency trading" allows the Wall Street Oligarchs to lead around market-sheep by the nose, even more successfully than the legendary "Pied Piper" was able to lead astray children. And when these trading-algorithms "blow up", and cause all these manipulated equities to begin to revert to "fair market value", the so-called regulators simply cancel any trades they don't like – and give Wall Street a "do-over". Given that level of market fraud, it's easy to see how some of these fraud-factories could go an entire quarter where they "made money" in markets every day. However, even this extreme level of market-rigging isn't enough to satisfy (and protect) these financial Oligarchs. As the Crash of '08 intensified, and these bankrupt-banks plunged closer and closer to their "fair market value" (i.e. zero), the Oligarchs ran crying to the SEC, hid under its skirt, and demanded "protection". The primary perpetrators of countless billions of dollars of "naked shorting" (i.e. counterfeiting shares) demanded that not only should they (and only the Oligarchs) be protected from naked shorting (which was/is already illegal), but that they should be "protected" from all shorting (i.e. a total ban on shorting the stocks of these bankrupt banks). With a level of market-rigging which exceeds anything seen in the most-crooked casinos, clearly it is much more perilous to short U.S. financial stocks than to short U.S. Treasuries. Once again, we must ask ourselves "is there a good proxy" for this short-position? We can answer this question by envisioning what would happen if these banks were successfully shorted, or just look at the simpler scenario of what would happen if/when investors desert this sector. As with U.S. Treasuries, it seems very obvious that those deserting U.S. bank stocks and those looking to capitalize on the exodus out of this sector would both be drawn to bullion. More articles from Bullion Bulls Canada….
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| Posted: 21 Aug 2010 09:00 AM PDT Bullion Vault Still, when Germany gets up off its knees, the continent trembles. And last week, the Berlin government announced the best results since the wall fell in '89. From the first quarter to the second one the republic's GDP rose 2.2%. At that rate – about 9% a year if it continues – Germany is running neck and neck with China. Compared to France and the US, Germany is flying nearly 4 times as fast. Greece meanwhile is backing up. Its economy shrank 1.5% last quarter. Histocially, the Teuton tribes were an aggressive lot. The Usipetes, Tenchteri, Batavi, Cherusci, Chatti, Vandals, Goths, Franks, Alans, Suebians – all jostled each other for centuries. They must have gotten a taste for competition. And when Rome wheezed her last gasps they fell on her like French tax collectors on a widow's estate. The Vandals pushed all the way across Gaul and Iberia, crossed to North Africa, and from their new base in Carthage, continued to tickle the old Empire until it rolled over on them. Everybody has his elbows out. But competition takes many forms. Better to build Audis and Mercedes than Tigers and Messerschmitts. Better to race for market share than for the Champs Élysée. Whatever form it takes, competition isn't likely to stop. Happily, most of the time, it is a boon to everyone – even to the losers. That's why Germany's current success is only a threat to the economists and commentarists who've been giving her advice. The rest of us hold our breath and hope for more. It was only a month ago that Martin Wolf led a "great debate" on how governments should react to the financial crisis. Of all the ideas to come out of financial crisis of '07, Wolf proposed one of the most remarkable. He illustrated it with the fable of the ant and the grasshopper. He saw two types of economies. There were those that produced and those that consumed. The trouble, according to Wolf, was that the two didn't compete at all. Instead, they lived in a kind of symbiotic parasitism. The grasshoppers lived off the labors of the ants. Not only did the grasshoppers make the things that the ants used, the ants took the grasshoppers' money and lent it back to them, so they could buy more. The grasshoppers were ruining themselves. But the ants were making a mistake too. They were building up capital, but what could they do with it? There was no point in expanding output capacity; arguably, they already produced too much. And what could they buy? The grasshoppers had nothing to sell. That was not the worst of it. When the grasshoppers had spent too much, said Wolf, both bugs were trapped. If the grasshoppers in Spain and Greece were forced to spend less, the ants in Düsseldorf were condemned to sell less. Their economies were doomed to go down together, like galley slaves chained to a sinking ship. In any case, it looked like the sort of thing the fixers could fix. Germany is all make. Greece is all take. The system was out of whack. Trade flows must balance out to zero, so Wolf et al concluded that the problem could be corrected on either side. Germany could stop working so hard and exporting so much stuff it didn't want. Or, Greece could stop spending so much money it didn't have. Since any slowdown in spending threatens the "recovery," it would be better for Germans to do more spending themselves. They should raise wages and encourage their own people to buy more Audis…more ouzo…and more pointy shoes with curled up toes. This was no time for austerity. They misunderstood the problem. Imagine two men marooned on an island. They barely survive. One works hard, hunting, gathering, and planting. The other dances on the beach like Zorba, depending on the kindness of his companion for his daily rations. The problem is not the lack of balance. The problem is the slacker. You could redress the balance between them by getting the productive one to slack off too. But then, they'd both starve. The Euro was seen as part of the problem, too. It was either too low for Germany or too high for Greece, said analysts. In the good old days, Greece could have pulled a fast one, devaluing its currency to make its citizens poorer, and their labor and exports cheaper. But now, there is no cheap and easy solution. Which set us to a-wondering about how the world possibly got to where it is. For the hundred years from the end of the Napoleonic Wars to the beginning of WWII, Europe was rarely happier, more prosperous…or more at peace. Yet during that time, money was even more inflexible than the Euro. Governments did not commit premeditated murder of their own currencies. Instead, the value of paper money was protected by gold. People competed by working harder, saving more, and figuring out how to produce more with less – just as the Germans are doing now. This week, the Merkel team followed up. "The lady's not for turning," Ms. Merkel might have said, taking a line from Margaret Thatcher's Brighton conference speech of 30 years ago. With the pressure off its budget, the commentators thought the Germans might be tempted to ease up on their austerity program. Instead, the German government will continue to pursue cuts to military and social spending, she said. Success will not distract Germany from its austerity program. Whether failure will send it off the rails is a question to be answered later. Want the safest gold at the lowest prices? Go to world No.1 BullionVault now for a risk-free tour…
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| Posted: 21 Aug 2010 09:00 AM PDT Bullion Vault PORTFOLIO Joe Foster calls himself a "stock picker", says the Gold Report – and he's pretty good at it. Class A shareholders in Van Eck Global's International Investors Gold Fund have seen an average return of almost 25% for 10 straight years under his care. "I'm looking for the gold companies that are going to outperform the indexes, my peers and gold," Joe says in this exclusive interview with The Gold Report… The Gold Report: Joe, in your view, what are the catalysts that will push gold to the next level? Joe Foster: Well, there could be a range of catalysts, any one of which could rear its ugly head. TGR: Which ones are most likely? Joe Foster: The financial system has not yet recovered from the shock of the credit crisis. We're in the midst of a historic credit contraction that could turn into a deflationary credit contraction. As the Fed and the economy deal with this, there is a range of possibilities that could create a catalyst. One would be further implementation of quantitative easing, where the Fed steps in and buys securities in order to prop up the financial system. A second is the housing market, which looks like it's weakening again. If we see a double dip in the housing market, it could create the financial stress that provides a catalyst. The sovereign debt issues are something that, to me, will be on the table for quite some time. They could flare up again in Europe and elsewhere. State and municipalities' finances are in very difficult shape right now. We could see some form of stress in the municipal bond market that could cause some sort of a catalyst for gold, as well. So there's a range of catalysts that could come into the market over the next year or two that drive it higher. TGR: The Fed may look at more quantitative easing, but it doesn't really have a lot of room to operate as far as interest rates go. What sort of economic policy does America need at this point? Joe Foster: I think our monetary system needs an overhaul. I guess some sort of stimulus, whether it be quantitative easing or some more fiscal stimulus, might be necessary to keep the economy from going into a deeper recession. But I think plans to create a more sound monetary system would go a long way toward boosting confidence in the government's ability to handle these crises in the future or to prevent them from happening. TGR: Do you think what is happening now will ultimately result in a new currency down the road? Perhaps even a global currency? Joe Foster: A global currency would be very difficult. Just to have a sound Dollar again would create a lot of stability around the world. Many other countries still peg their currencies to the Dollar, so proper management of the Dollar would, in effect, create a sound global currency. The Dollar is still the world's reserve currency. I'm calling for some sound money policies that we haven't seen since the Dollar was floated back in the 1970s. TGR: In a June commentary on gold you said, "states across the country are undertaking austerity measures to counter gapping budget deficits." Could a state, or states, defaulting on loans or even declaring bankruptcy be the next leg down that turns the recession into something worse? Joe Foster: Well, I doubt it would go as far as a state actually declaring bankruptcy. Congress looks like it's going to approve another round of state aid to keep the states afloat. I think you would see the federal government step in before we saw a bankruptcy. But states like New York and California and others around the country are in serious financial trouble. We'll have to see if the austerity measures that they're implementing will keep them out of bankruptcy. I think this is more of a slow burn. I don't see it as being the catalyst for the next leg in the gold market. I think we'll reach the next leg in the gold market before any state reaches such a desperate situation. TGR: How high do you see gold getting by the end of this year and through the end of 2011? Joe Foster: I'm looking for it to make new highs as we trend into 2011, moving through the fall of 2010. The high was around $1,265 in June. We've been on a steady trend higher. There's a lot of volatility in the gold market, but I would expect that trend to continue. It wouldn't surprise me if it moved through the $1,400 level sometime during 2011. TGR: You said that you believe that the government would step in and prevent a state from declaring bankruptcy or becoming insolvent. Do you believe the government is, to some extent, manipulating the gold market? Joe Foster: I think that's speculation. I haven't seen solid evidence that the government is manipulating the gold market one way or the other. Even if they are, I think the market will determine where the Gold Price goes in the longer term. TGR: You have managed assets for investors since 1998. In the post-2008 era, are you managing your gold fund the same way you did in the pre-2008 era? Joe Foster: Well, we're using the same strategies or similar strategies now that we have since this bull market began in 2001. Relative to our peers, we're probably overweight in juniors and mid-cap companies and underweight in the large-cap companies. Some of the fundamental strategies that we use remain in place. I would say that the big difference is that, prior to the credit crisis, we spent a lot of time explaining to investors why they should invest in gold as a hedge against financial stress. Since the credit crisis we don't spend much time explaining why you should invest in gold because investors get it. Everybody gets it now that gold functions as a sound currency and as a financial hedge in times of turmoil. I spend more time describing how we construct our portfolio and manage the fund because investors are now asking: "How do I invest in gold? Do I want Gold Bullion? Do I want a Gold ETF? Do I want a managed fund? Do I want an equity ETF?" Those are the questions that investors are asking now that we weren't hearing prior to the crisis. TGR: That's noteworthy. But your asset allocation must've changed some since the crisis. You said it's heavier than your competitors on juniors and mid caps. Joe Foster: I've got an entire range. I've got companies from juniors all the way up to the largest producers in the fund. We play the whole spectrum of gold companies. It's just that I've got a higher weighting in juniors and midtiers than I do in the large-cap companies. We're stock pickers, we're bottom-up, fundamentals-driven stock pickers. I'm looking for the gold companies that are going to outperform the indexes, my peers and gold. TGR: You've certainly done a good job. Over the last 10 years, Class A shares in your International Investors Gold Fund are up almost 25%. Does gold's steady climb upward provide a greater margin for error in gold fund management? Joe Foster: Not really. When you look at Gold Mining, gold production peaked in 2001 and it's been on a slow decline ever since. In an industry that's in decline, you know you're going to have winners and losers. The market likes companies that can provide growth. But in a declining industry those types of companies become fewer and farther between. And there are lots of gold companies that have underperformed gold in this cycle. So stock picking becomes very important. It's not always easy to outperform gold in this type of an industry environment. TGR: How do you go about picking stocks? What are you looking for? Joe Foster: We look for growth. Companies that can develop properties at reasonable cost and that can increase their margins. The best kind of growth is organic growth, where companies discover deposits and develop them. That's the first thing we look for, organic growth. The second thing would be growth through acquisitions. We look for management that can identify creative acquisitions and grow that way. TGR: Is it still cheaper for companies to go out and raise money and drill for organic growth versus acquiring assets through M&A? Joe Foster: It's very difficult to do. For most of the industry, it's almost impossible. The reason gold production isn't increasing globally is that all the easy stuff has already been found. The prolific gold fields of South Africa, Nevada and Western Australia are all mature areas that are in decline. The industry hasn't found another prolific gold area like Nevada. Instead, they have to look all over the world and into remote areas. There are new discoveries being made; it's just not at the pace that we saw 20 years ago when Nevada and Western Australia were emerging. TGR: You mentioned Nevada. When I was looking at your fact sheet on the International Investors Gold Fund, only about 10% of your holdings are based in the US Does America need more gold mines? Joe Foster: The US is still one among the top-five gold producers in the world. It's still a substantial gold producer. I don't know if we need more gold mines. It's a function of geology. Probably 90% of the gold production in the US comes out of Nevada. As I said earlier, Nevada is past its prime; it's a region wherein production is in decline. TGR: But California has banned new Gold Mining projects, and Montana has banned heap leaching as a form of gold extraction. We're seeing some exploration success in places like Wyoming and Idaho. The US is still the fourth-largest country in the world by area, so you would think there are lots of areas that remain unexplored. Joe Foster: Well, if the United States was more mining friendly, there's no doubt it could be a much larger gold producer than it is; but, in all practicality, that's not going to happen. Mining is such a miniscule part of the US economy that it's not politically feasible to revise the mining laws in states like California and Oregon. It's a bit much to ask in places like that. TGR: Do you have some parting thoughts for us? Joe Foster: Well, we talked about the gold market more in the near term, but this gold market's been in bull mode for almost 10 years now. As far as we can tell, it could go on for another 10 years. Who knows? I think the actions we're seeing among the monetary and fiscal authorities around the world are setting up a situation wherein we could see another inflationary cycle once we get through this credit contraction. I think in the longer term, the risk of an inflationary cycle is going to be with us for quite some time. That's going to be the ultimate driver of this gold bull market.
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| Posted: 21 Aug 2010 09:00 AM PDT Bullion Vault CHINA is the largest holder of the US Dollar in its foreign exchange reserves, notes Julian Phillips at the GoldForecaster. But Beijing's $2.45 trillion in US assets is an impossible number to trade on foreign exchanges. So they're stuck with them, until they can spend them. As long as the US Dollar is the world's sole reserve currency, these reserves are useful to buy any asset in any country. But it is vital that they retain their buying power. Buying power is defined by its exchange rate value, and inside the United States relates to the inflation rate. A prime task of the Federal Reserve is to maintain price stability, i.e. buying power stability. So when China expressed concern over the value of the Dollar (and its buying power), we all became concerned. There are many reasons to be concerned about the future of the Dollar. We shall look at some of these in this article. Quantitative Easing is a technique the Fed used to fill the holes that the credit crisis created. Writing down of assets is essentially a reduction of money in the system. The consequences of this in the banking system meant that money disappeared off bank balance sheets and reduced their lending capabilities. The actions of the Fed allowed the money that disappeared to reappear again. It works nicely if the banks keep on lending. But if they don't the exercise is fruitless as they protect themselves by not lending, but investing back in government bonds instead. That's happening today, because instead of lending money, banks are investing in Treasury and Agency securities. Their holdings of such assets increased to $1.57 trillion at the end of July, up 40% from $1.12 trillion in mid-2008. The government is borrowing in a rush, to shore up its deficit, growing fast at the moment. The projected 2010 deficit of $1.47 trillion will be a record, and equivalent to 10% of the economy. China and most other people expect such a growing deficit will lead to a significantly weaker Dollar. At worst, such a prospect has the potential to deter foreign investment in the US, shoving up interest rates. If the US Dollar Index falls below 80 (this Index measures the Dollar against a basket consisting of the Euro, Yen, the Pound Sterling, the Canadian Dollar, the Swedish Krona and Swiss Franc), the Dollar will fall quickly and heavily and further discourage investment in Dollar assets. The longer the government delays in stimulating the US economy again, the bigger the amount of new money needed to reflate the economy. As an economy deflates, money velocity slows and consumer attitudes become more and more thrifty. This makes efforts to return the economy to growth harder and harder. A fair analogy would be to compare the situation to retrenching an employee. To bring confidence and hope back to previous levels, two employees must be hired. The longer it takes to fire up the economy, the greater the stimuli needed to do so. Experienced investors are expecting new stimuli to lead to explosive inflation because the change from deflation to recovery becomes more and more mercurially uncontrollable the longer it is delayed. We do not expect to see a US trade surplus in the years to come, because of the structure of the US economy. Every deficit means that more Dollars were exported. To date the difference between a recessionary economy and a growing economy is either a $30 billion or a $60 billion trade deficit. However, we do not think that US foreign suppliers will dump their Dollars, but we do expect them to accept only the amounts that relate directly to the value of their US trade in the future. Lowering the amount of Dollars they accept will allow them to reduce its role as the sole reserve currency over time. Unless the US restructures its economy so that the trade deficit is eliminated, there is an immeasurable (but certain) time limit on its continuing as the sole reserve currency. As the power of the US wanes, the clock is ticking. There are two events that will precipitate this hasty decline. Each of these has the power to accelerate the role of the Dollar in the global economy. Since Middle Eastern oil production began sales of oil have been priced in the Dollar. While there has been discussion on Dollar pricing, no change has been made to it. The Middle Eastern nations cannot afford to stand alone, they believe. The US has guaranteed their security and shown that they are committed to doing this as seen in Kuwait and in Iraq. Such commitment now protects these nations from terror attacks as well. The House of Saud would fall quickly were it not for the protection they get from the US. Hence there is more to pricing oil in the US Dollar than meets the eye. Until this advantage is either lost or replaced there is little enthusiasm to accept other currencies in payment of oil. Of late, though, we have seen Saudi Arabia increase its gold reserves and expect the rest of the Persian Gulf nations to follow suit, in time. We see this as them buying a small amount of insurance against the dangers facing the US Dollar. You may well ask why haven't they diversified their reserves into other currencies? Just as the Dollar is a reserve currency because of its 'oil backing', so oil in itself is instant international liquidity acting the same way as gold does. The need to have diversified reserves is lessened because of this. Consequently the dangers facing oil producers are not nearly as great as those who will have to rely on their gold and foreign currency reserves should they face a crisis. Gold buying by them is not for the benefit of the country, but for the sake of the reserves themselves. China is up and coming and draining the power and wealth from the West. It is inevitable that a growing world won't rely on a waning Dollar, but will set up a system that immunizes them from the ailments of the Dollar. We believe discussions are well under way to globally use a basket of the world's main currencies as the benchmark for global trade. After all, the focus of US Dollar policy makers is on US economic performance, not on global economic performance. A global reserve currency must reflect the overall global economy's state not just one part. It must also have the flexibility to reflect changes in the performance of different parts of the global economy. The 'basket' idea suits this role well. Finally, there's the looming internationalization of the Chinese Yuan. While the Chinese banking system is not yet mature enough to be a large part of the global banking community, they are moving fast to get there. At the moment the heart of Chinese manufacturing (the Guanchou area) is allowed to use the Yuan internationally. It's a bit like a movie maker trying out the popularity of a film in one town. Once they have systems that are tried and tested they will be able to go global. The advantages of pricing Chinese goods in the US Dollar are huge, still. It's a currency used all over the world and by managing the exchange rate, the Chinese export industry remains competitive internationally. In the process China gains a huge level of surplus Dollars needed for its development in future years. So long as the Dollar retains its buying power internationally this position is fine. But it is clear to all that the US Dollar may well not be able to retain its buying power at the current level in the not so far future. The day is already on the horizon when it would serve China well to gather the currencies of all its trading partners in its reserves rather than just the two main ones. It will also serve the Chinese to have the Yuan become an international reserve currency, under their own management. Even as part of a global basket of currencies the advantages to China would become greater than they are in using the Dollar, particularly if they could buy oil in the Yuan too. The transition to an international Yuan would hurt the Dollar, but such pain may serve China better in the long run. After all if the Dollar did plummet, China would simply be another victim. We do not see them letting that happen and will act to forestall that. Even the Chinese see gold playing a part in the transition and beyond. Buy Gold at the very lowest costs possible using world No.1 BullionVault…
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| Bond-Market Says "Recession" Posted: 21 Aug 2010 09:00 AM PDT Bullion Vault DAVID ROSENBERG calls it the smoking gun, says Tom Dyson at Daily Wealth. Rosenberg and I just spoke on the phone. You might not know his story, but David Rosenberg is a Wall Street legend. He is famous for being a bearish economist at the most bullish firm on Wall Street. When the housing market was in a roaring boom, Merrill Lynch was making billions. But Rosenberg, Merrill's chief economist, was warning about recession and a bear market in stocks. He said the housing and mortgage bubble would pop and a severe economic downturn would follow. Last year, he quit Merrill Lynch. Many people thought Merrill fired him for not being bullish enough.
He's now Chief Economist at Gluskin Sheff, a boutique money-management firm in Canada. Of course, Rosenberg's bearish views were spectacularly right, and Rosenberg is now one of the most popular economists in the media. You'll often find him giving an interview on CNBC or a quote to the Wall Street Journal. So what's Rosenberg's smoking gun? It's the bond market. First, check out this chart of the yield on the 10-year Treasury note. It's collapsing… now at March 2009 levels. Rosenberg writes a great, free daily newsletter, Breakfast With Dave, where he summarizes and comments on all the major economic news of the day. In one of his issues last week, he showed that whenever the economy heads into a downturn, bond traders start anticipating the recession before the stock market.
And finally, the smoking gun for the 2010 recession… The 10-year Treasury yield peaked on April 5 at 3.99%. It's now at 2.60% four months later. The stock market peaked on April 26, three weeks later… In other words, if the action in the bond pits is any guide, the economy is going back into recession. I asked Rosenberg what investors should do about this. He likes Gold Investment and the highest-quality natural resource companies. But bonds are his favorite investments. He says most people think cash is king. But they're wrong. In a deflationary recession, income is king. He calls his strategy "SIRP," which stands for Safety and Income at a Reasonable Price. Rosenberg thinks interest rates will continue to decline like they did in Japan, and bond investments will continue to rise in value. Corporate bonds are his favorite. Rosenberg says American corporate balance sheets are loaded with cash and extremely healthy, so corporate bonds are safe. Start your Gold Investing with this free gram at BullionVault now…
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| Ted Butler’s weekly interview with King World News Posted: 21 Aug 2010 08:59 AM PDT 11:15a ET Saturday, August 21, 2010 Dear Friend of GATA and Gold (and Silver): Silver market analyst Ted Butler tells King World News in his weekly interview that the silver futures market looks 90 percent bullish and the gold futures market about 60 percent bullish, even as he reminds listeners that the futures markets don't reflect supply and demand for real metal. Butler adds that the biggest silver short, JPMorganChase, still appears not to be increasing its short position. You can listen to the interview at the King World News Internet site here: http://kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2010/8/21… CHRIS POWELL, Secretary/Treasurer * * * 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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| Ted Butler's weekly interview with King World News Posted: 21 Aug 2010 08:59 AM PDT 11:15a ET Saturday, August 21, 2010 Dear Friend of GATA and Gold (and Silver): Silver market analyst Ted Butler tells King World News in his weekly interview that the silver futures market looks 90 percent bullish and the gold futures market about 60 percent bullish, even as he reminds listeners that the futures markets don't reflect supply and demand for real metal. Butler adds that the biggest silver short, JPMorganChase, still appears not to be increasing its short position. You can listen to the interview at the King World News Internet site here: http://kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2010/8/21… CHRIS POWELL, Secretary/Treasurer * * * 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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| Resource demand spurs M&A deal surge Posted: 21 Aug 2010 08:59 AM PDT By Javier Blas and William MacNamara http://www.ft.com/cms/s/0/6d2c71b8-ac81-11df-8582-00144feabdc0.html The rise of China and India has sparked a renewed surge in aggressive dealmaking in the resources sector, with more than $50 billion in proposed takeovers this week alone wagering on continued strong commodities demand. BHP Billiton on Friday tabled formally its $39 billion hostile takeover for PotashCorp, the world's largest listed fertilised producer, ahead of a statement from Sinochem, the Chinese-state owned chemical group. In the first concrete signs of Beijing's interest in the deal, Li Qiang, a spokesman for Sinochem, said the company was paying "close attention" to the takeover battle, adding that it was "interested in overseas potash investment opportunities." The Canadian company told its shareholders "not to take any action regarding the offer" from the Australian mining group of $130 a share, with many bankers betting on a counter-bid emerging from China. The rise in deal activity is the clearest sign that executives believe that the "commodities supercycle," driven by the industrialisation of emerging countries, is sustainable. Raw materials prices have risen 35 per cent since the depths of the financial crisis in early 2009, led by a recovery in crude oil, copper and iron ore. Natural resources companies, including miners, oil, and natural gas producers and fertiliser makers, have launched $316 billion so far this year in M&A deals, the largest for the opening eight months of the year, according to Dealogic, the data provider, and on course to beat the annual record of $384 billion of 2006. The battle for PotashCorp comes in a week in which Vedanta, the London-listed mining group, sought to take a majority stake in Cairn India, and KNOC, the South Korean national oil company, launched a hostile takeover for UK-listed Dana Petroleum. Agrium, the Canadian fertiliser company, has also agreed to buy Australian grain trader AWB. A senior industry executive said: "Companies with a strong balance sheet, coming out of the downturn one year ago, were frightened to act in case we still faced Armageddon." But an improved environment has led some companies to renew old ambitions. "A lot of companies practised for these types of deals in 2008. . . . Now they are ready to move faster." * * * 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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| Art Cashin Market Thoughts Redux - Follow Up King World News Interview Posted: 21 Aug 2010 07:50 AM PDT
Two weeks ago we posted the most recent interview by King World News of long-time market veteran Art Cashin, in which the UBS market strategist prophetically pointed out that the "Fed is walking a tightrope in a Hurricane." As the data has confirmed since then, the winds are picking up, and the market is starting to finally realize the gargantuan task the Fed is faced with, in its attempts to flood the market with a second tidal wave of free money. Today, Cashin is once again on KWN, discussing this week's disappointing data, primary the negative Philly Fed reading and the first half a million print in initial jobless claims in a year. Cashin summarizes the failed spin of the recoveryless recovery as: "the two main points of pain are employment and real estate, and both of them are showing no signs of getting any better." Another topic touched upon are technicals, which in addition to the much discussed Hindenburg Omen, investors also have to worry about the 50 DMA, and the market would have a second back to back close below the indicator if stocks do not pick up in the coming week. Cashin is also very skeptical on earnings, whose quality continues to deteriorate as it comes mostly due to SG&A cuts, resulting in wage deflation: "the pressure on wages continues and that is not inspiring a lot of hope." As for further Fed QE episodes, Cashin does not believe additional monetization would have any incremental impact: "what's happened is - Bernanke dropped the money, but when it came on the ground people raked it up, put in the garage and went back to sleep, so things are not happening." Lastly, Cashin says that "the bond market is discounting some very troublesome times ahead - people want the return of their money, rather than a return on their money. There is ongoing concern about the state of the financial system itself." Cashin's conclusion: "there appears to be a bull market in pessimism - the bond market has a slightly better record in calling things than the stock market." Looking forward, "you may get a small bounce if nothing geopolitcally happens over the weekend, there are concerns over Iran, so if nothing happens there you may get a small bounce, but I would be cautious until the market can prove to me its got it balance again." Full interview with Art Cashin.
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| Posted: 21 Aug 2010 07:49 AM PDT  By Jack Chan at www.simplyprofits.org
Summary Disclosure
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| Tim Geithner/Obama Are Full Of Sh%t Posted: 21 Aug 2010 04:59 AM PDT with regard to demanding a stronger yuan from China. The price inflation consequences for this country would be disasterous. Think about what percentage of everyday necessities consumed in this country comes from China. Walmart's prices would go through the roof. Food stamp and unemployment benefit leeches will be doomed. Just a little nugget of golden truth for this beautiful Denver Saturday. "Joe's" comment in yesterday's post triggered this thought. IF you do see China letting its currency revalue significantly higher, better make sure you have a lot of your wealth moved into physical gold/silver. As soon as the sheeple in this country get just a real whiff of price inflation, we will get to see what a real gold rush looks like. 
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| Posted: 21 Aug 2010 04:54 AM PDT After the junk from Brett Arends and James Altucher, the WSJ finally has some worthwhile analysis on Gold. However, there are still many holes in this piece. The author basically concludes that Gold is a currency and not a commodity because it has followed US Dollar movements closely. Yes, we all know that Gold and the greenback usually move in opposite directions. However, while noting Gold as a currency, the author fails to note that it is a worldwide and universal currency. Righting America's national balance sheet would explicitly raise the dollar's value as investors with money abroad move assets into a more-sound American economy. The selling of euro, yen and pounds would push the dollar higher—and gold lower. First of all, I would argue that at this point, righting the balance sheet isn't the issue. The issue is that the US and other nations start growing fast so they can grow their way out of their massive debts. The debt burden won't become smaller if the US has a balanced budget. In fact, we'd see GDP decline and in turn, debt as a percentage of GDP would rise. If a nation has a low overall debt, then austerity can work. However, when your debt becomes to large, growth is the only answer. Secondly, the selling of foreign currencies isn't necessarily bearish for Gold, which has risen against all currencies since 2000. There are many extended periods when both the greenback and Gold moved higher….Q2 and Q3 of 2005, 2001, Q4 2008 and Q1 2009 for starters. Lastly, the author seems confused by Golds relationship with inflation. Invest in gold, then, according your beliefs about the future of the greenback. Just don't invest based on the idea that gold is a proxy for inflation. You are likely to be played for a fool. Actually, Gold moves in accordance not with inflation but with inflation expectations. In the 1980s and 1990s, we had inflation but since it was disinflation, inflation expectations were kept in check. Finally, we should note that Gold does well in times of credit stress. Deflation or hyperinflation can result from a tight credit environment. This is why Gold performs well in both deflationary and inflationary environments. Going forward, instead of focusing on inflation/deflation, investors should focus on the sovereign debt picture of western governments. If it worsens, then Gold will continue to rise. Unlike those who write editorials in the WSJ, we have been following Gold day by day throughout this bull market. Check out our premium service for 14 days and for free!
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| Guest Post: Preserve and Protect: Mapping The Tipping Points Posted: 21 Aug 2010 04:11 AM PDT
Submitted by Gordon T Long of Tipping Points Preserve and Protect: Mapping The Tipping Points The economic news has turned decidedly negative globally and a sense of ‘quiet before the storm’ permeates the financial headlines. Arcane subjects such as a Hindenburg Omen now make mainline news. The retail investor continues to flee the equity markets and in concert with the institutional players relentlessly pile into the perceived safety of yield instruments, though they are outrageously expensive by any proven measure. Like trying to buy a pump during a storm flood, people are apparently willing to pay any price. As a sailor, it feels like the ominous period where the crew is fastening down the hatches and preparing for the squall that is clearly on the horizon. Few crew mates are talking as everyone is checking preparations for any eventuality. Are you prepared? Do you believe trees grow to the sky?
Apparent synthetic wealth has artificially and temporarily been created through the production of paper. Whether Federal Reserve IOU notes (the dollar) or guaranteed certificates of confiscation (treasury notes & bonds), it needs to never be forgotten that these are paper. It is not wealth. It is someone else’s obligation to deliver that wealth to the holder of the paper based on what that paper is felt to be worth when the obligation is required to be surrendered. It must never be forgotten that fiat paper is only a counter party obligation to deliver. Will they? Unfortunately, since fiat paper is no longer a store of value, it is recklessly being created to solve political problems. What you will inevitably receive will be only be a fraction of the value of what you originally surrendered.
Consolidating the trends and distortions outlined in these two series, we arrive at the following ‘large brush’ death spiral leading to a failure of fiat based currency regimes.
The above cycle is well supported by recent and still unfolding developments. These have been mapped onto the cycle.
MAPPING THE TIPPING POINTS
SEQUENCE & TIMEFRAMES We can never be sure of the sequence and time frame of any particular Tipping Point. Like a house of cards you never know which one, or what movement will precisely bring the house of cards down. What you know however, is that it will happen – you just need to be patient and prepared. Unfortunately few have the patience or think they can time it for even more profit. The greatest trader of all time, Jesse Livermore, wrote after a life time of trading, that his best gains were made when “he bought right and sat tight!”
DETERMINING MORE GRANULARITY – We are in the 2010-2011 Transition Phase
In my articles EXTEND & PRETEND: A Guide to the Road Ahead and EXTEND & PRETEND: A Matter of National Security I outlined even more granularity to the virtuous cycle turning vicious spiral.
We can now overlay the Tipping Points onto this map. We arrive at the following. A – EXIT FROM ECONOMIC CRISIS STAGE
TRANSITION: HIGHER INTEREST RATES B – ENTER POLITICAL CRISIS STAGE
C - HITTING ‘MATURITY WALL’ STAGE Lending ‘Roll-Over’ – Game Ends A recent Zero Hedge contributing author summarized the current environment nicely: “There is an entrenched insolvency problem in the United States, and a picture is worth a thousand words. Insolvency is not illiquidity; insolvency is about income that can’t service debt burden. Notice where things fall off the cliff: I believe we are getting close to this point. Just need a catalyst. Sequential bond auction failures here, a sovereign default there, massive liquidity drain all around, worse… whatever. The fumes running the engine (QE, or credit easing) are dwindling.”
There is an old sailor’s saying: Red sky at night, sailors delight. Every morning the next batch of economic numbers is released and the indications are consistently red. Of course the market initially drops, and then miraculously rises on no volume. Since 2007 we have potentially constructed the largest head and shoulders topping formation we have ever seen. “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain
Gordon T Long
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| Another Warning Shot for Bond Investors Posted: 21 Aug 2010 04:00 AM PDT The United States experienced another interesting first on Wednesday. For the first time in the history of our union, the Securities and Exchange Commission brought charges against a State. The powers that be in New Jersey had been deceiving and misleading investors in regards to the fiscal well-being of the Garden State, and the SEC busted 'em. Bravo. That's where the good news ends. But first, the Cliff's Notes to this mess, according to the SEC's allegations: In 2001, New Jersey increased pension benefits for state employees without having the funds to cover new benefit expenses. For the next six years, at least, the state continued to underfund the pension system – but hid that information from municipal bond investors. On 79 separate occasions the state sold a total of $26 billion in bonds while "withholding and misrepresenting pertinent information about its financial situation," said SEC director of enforcement Robert Khuzami. In other words, they lied so that the bonds they were selling would appear more attractive. It's classic balance sheet fraud, committed by senior state officials working for both democrat and republican governors. And the state's bond underwriters – JP Morgan, Citi, Morgan Stanley, Bank of America, Barclays, Merrill and (of course) Goldman Sachs – all probably lied too. At the very least, they all failed to conduct due diligence before vouching for the quality of the state bonds. What's the penalty for this outright fraud? Nothing. The State of New Jersey will pay the SEC precisely zero dollars. Not one state employee will pay a fine either, or go to jail…not even lose his job. In fact, the State didn't even have to admit wrongdoing. "New Jersey agreed to settle the case without admitting or denying the SEC's findings," calmly explains the SEC press release. Come again? Essentially, the only provision of the settlement is Jersey's promise that it won't do this in the future. That's it. And Goldman Sachs, JP Morgan and all those other mega-banks? C'mon… They weren't even mentioned in the SEC's statement. It's worth repeating: We're talking $26 billion in bonds sold under purposely false pretenses. This isn't some small-time phony IPO. Pretend a company like McDonald's, which has a market cap of roughly $77 billion (that's about the same value of New Jersey's pension fund system) sold $26 billion in bonds under similar guise. Heads would freaking roll. They'd be lucky to not go bankrupt. Yet, here we are. New Jersey officials were so unfazed by the SEC settlement – the status quo was so unchanged – that they proceeded with a $2.2 billion bond sale on August 19, 2010. That's less than 24 hours after the SEC announced the results of their investigation. SEC investigators did a fine job forging into uncharted territory and exposing State fraud, but they offered literally the most toothless settlement possible. That's not to say no lessons have been learned. The smart investor should already be leery of municipal bonds, with so many states struggling to close budget gaps while honoring swollen pension agreements. Now you have all but absolute proof that State administrators are not only unable to balance their books, but they're willing to cook 'em too. Plus, there is really no incentive for States to change their ways, aside from a gentle tap on the wrist from the SEC. And this whole mess ought to (though it likely won't) highlight fundamental unfairness in the way we regulate the $3 trillion municipal bond market. Having the SEC patrol state funds is a hot mess of conflict of interest and political gamesmanship. At the end of the day, this is government policing government…an operation likely to be as inefficient as it is ineffective. Of course municipalities need a regulator, as they have proven unable to regulate themselves. But once the SEC discovers such a fraud, why not – at the least – order the state to hire a team of private sector auditors that will report their findings to the government every year for the next five…or as long as it takes for the State to get its act together. How's that for a stimulus plan? Auditing state pension programs would employ thousands of accountants for years. And those are real jobs, with a real purpose… Bean-counters could get back to work and bureaucrats would have to be just as responsible and forthright as the rest of us. While they're at it, those auditors can figure out exactly how long those struggling pension funds will last before running out of money. Wouldn't that be nice to know? We'll be on the lookout for an e-mail from Mr. Obama, asking for more details on our stimulus plan. In the meantime, know what you're getting into when you buy muni-bonds. Only one state has ever defaulted on its bonds – Arkansas back in 1934. So the odds are still in your favor. But reason is not. Now ethics aren't, either. Ian Mathias Another Warning Shot for Bond Investors originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."
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| It's Going To Get Worse, A Whole Lot Worse Posted: 21 Aug 2010 03:38 AM PDT Yes, it's going to get worse, a whole lot worse ... Bill Gross warns this is the "New Normal. Forget 10% returns. Think 5%". ... Economist Larry Kotlikoff, author of The Coming Generational Storm, warns: "Let's get real. The U.S. is bankrupt. Neither spending nor taxing will help the country pay its bills" ... Economist Peter Morici warns: "Unemployment is stuck near 10%. Deflation coming. Stock market threatens collapse. The Federal Reserve and Barack Obama are out of bullets. Near zero federal funds rates, central bank purchases, a $1.6 trillion deficit have failed to revive the economy." ... Simon Johnson, co-author of 13 Bankers, warns: "We came close to another Great Depression, next time we may not be so lucky." Why? Because Wall Street's already well into the next bubble/bust cycle -- the "doom cycle." Warning: More bad news ahead. Welcome to a bleak second half 2010, worse for 2011. It's early morning: In comes economist Gary Shilling's new Insight newsletter, just before I head for the kitchen to make my wife's breakfast. Gary's "Mid-Course Checkup" doesn't raise my spirits. Sure, he's got bragging rights. His January forecasts are still on the money. But don't you just hate guys like him? Brilliant. Honest. Great track record. I guess that's why he's been a long-time Forbes columnist. Investors listen when he talks. More Here..BP Claims For Real Estate Collapse Coming In Gulf? More Here.. Minnesota home sales drop 40 percent in JulyRead more: Here..Will The Next Pop Be the Bond Bubble Bursting? More Here.. 
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For a long time, we've all heard that gold is a commodity—no different, really, from silver or wheat or pork bellies. Its price ebbs and flows (supposedly) with inflation, which historically drives commodity prices.
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