Gold World News Flash |
- A Correction Would be Good for Metals
- Time for Bouncy Bouncy
- An Addendum to the ‘Flations – Gold $5,000
- Why the Bank of Japan’s Economic Stimulus is good for the Gold Price
- Winners And Losers
- Gold "Caught in Bind" as Stocks Fall, Fresh Easy Money Looms, Dow/Gold Ratio Falls
- Prelude to Meltdown: An interview with Bert Dohmen
- Gold: The Big Picture Gets Bigger!
- Hyperinflation vs. Inflation: Understand the Difference
- Oil Plunges and Gold Rallies as Confidence in the Future Deteriorates
- Rounding Up the Culprits of Rising Prices
- Hourly Action In Gold And The HUI From Trader Dan
- Bubble My A$$
- Congratulations
- Gold Stubbornly Higher
- Now That GATA Can Be Quoted, Can Central Banks Be Asked?
- Hi Yo Silver
- How I Feel About Gold
- China and Copper
- LGMR: Gold Caught in Bind as Stocks Fall, Easy Money Looms, Dow/Gold Ratio Falls
- Crude Oil Follows Equities Lower, Gold is Calm Before the Storm
- Be Careful Who You Snitch On
- Good is Bad, Bad is Good
- Ron Paul questions whether any gold at Ft. Knox
- Gold Seeker Closing Report: Gold and Silver Gain Almost 1% and 2%
- Being Negative Might Be A Positive
- At $4 Trillion A Day, And At 50x Leverage, FX Trading Volume (and Risk) Dwarfs That Of Equities And Treasuries
- Is Ben Bernanke Losing Sleep Over Possible Great Depression?
- In The News Today
- SP 500 September Futures Daily Chart; Gold Daily
- Guest Post: A Termite-Riddled House: Treasury Bonds
- The Best Way to Bet on America
- Gold Rallying to $1,500 as Soros's Bubble Inflates
- Healthy Correction or Ailing Recovery?
- DC Begins the Bust Up
- breaking news - JPM no longer trading commodoties
- Silver and Gold Prices are Performing Exactly as You Would Expect if They Intended to Burst Through Old Resistance
- Michael Pento Says Fed Will Buy Stocks And Real Estate In Its Next Attempt To Create Inflation
- Magna Cum Laude?
- Japan's New Stimulus: Good for Gold
| A Correction Would be Good for Metals Posted: 31 Aug 2010 06:42 PM PDT Jeff Pierce submits: Looking at the metals market I believe we’re going to be running into some major resistance soon for a couple of reasons. I share a different opinion than most that these markets are going to explode to the upside and below I’ll explain my reasons. I do believe the bull market in gold/silver will continue, just with a fairly deep correction to stir the pot and shake out any weak hands, as well as give new traders/investors a chance to get on board this bull train. I’m not suggesting to take action at this time and position yourself on the short side as that would be foolish as these markets continue to rise. However, if you are currently very long in these metals I would watch very closely how these charts react at the resistance areas below and then react accordingly. Complete Story »
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| Posted: 31 Aug 2010 05:37 PM PDT Before we get stuck into today's financial world, a request: please don't store petrol in your garage. A reader took us to task for suggesting that last week in our survivalists "to own" list. It was just a list. But her point is well taken. Petrol doesn't keep well. And you may need it later to burn all your paper money and furniture to keep warm. So store it somewhere safe, if you're going to store it at all. But perhaps all this talk of a Long Depression is premature. We've just finished revising and remaking our case for D2 (the Second Great Depression) in the latest issue of Australian Wealth Gameplan. We were all set with a fairly conventional analysis of the macro-economic scene when we decided to scratch the whole thing and re-write it from a long-term historical perspective. Usually these attempts are either incredibly stimulating and provocative or really boring for everyone else to read. Hopefully it won't be boring. But our main point is that when you're living in the middle of one, a long depression probably doesn't feel like it. It feels like every day things might get better. But they don't, at least not for a long while. You certainly wouldn't suggest Australia is in the middle of Long Depression based on yesterday's current account deficit figures. Boy howdy, were they good! The current account deficit went from $16.5 billion in the March quarter to just $5.6 billion in the June quarter. As a percentage of GDP, the current account deficit is now at its smallest level in about 30 years. Go iron ore! Go coal! Go! The improvement in Australia's terms of trade is what accounted for the big jump. Record prices for iron ore and coal increased what Australia got paid for exports. And import prices - what Australia pays for the things it buys from the rest of the world - did not grow as fast. Presto. Change-o. Record low current account deficit. Naturally, a record jump in the terms of trade - 12.5% for the quarter and 24.5% for the year - is the sort of spike that would convince us export prices have peaked and the Chinese real estate crash is imminent. Based on the Economic Statement in published in July, the government is counting a record-high terms of trade to support revenues, bring down the debt, and spur mining investment (despite the MRRT). Good Times are Here Forever  Speaking of the government, apparently there still isn't one. You might have expected this lack of political certainty (clarity about the future rate of taxation on mining companies) to be negative for the share market. But apparently Aussie investors - and maybe their leveraged global contemporaries - are drinking from the big jug of Kool Aid Ben Bernanke and the Fed have brewed. In fact, whether Aussie investors are reacting to the prospect of Quantitative Easing from the Fed or not, it's pretty clear that not having a government is not a negative for share prices. Long live the status quo! But on this issue of the Fed, the relevant question is how QEII would operate. We were going to write "work," but we're certain it's going to fail inasmuch as its ultimate aim is get credit flowing again in America. The Fed is pushing households and businesses to do something they've decided they don't want to do: borrow and spend. If the aim of QEII is to get consumer spending back up to 70% of American GDP so it can drive global growth and restore the status quo ante the Global Financial Crisis, it will fail and gold and other tangible assets will keep going up. But if the goal of QEII is to buy corporate stocks and bonds to make everyone feel richer so that they might behave with more fiscal irresponsibility, well doggone it, it might just be crazy enough to work! By work, we mean it might create a bid for stock prices, what with everyone knowing the Fed is there to buy. In fact, it would probably be a very good time to be a seller with the Fed on the other side of the trade. Maybe that's why everyone's buying now, so they can sell to the Fed later. Of course, there's a long way to go between speculating about QEII will manifest itself and the Fed actually buying stocks outright. But just as a journey of a thousand miles begins with a single step, so also does the destruction of a currency begin with baby moves. And finally, about that list of things to stock up on for Long Depression, what do you reckon was at the top of most people's lists? Salt! It was followed closely by sugar, soap, silver, bullets, and booze. We got many notes on the subject and have read them all. We're not able to reply to each one personally, but thanks for all the effort. We'll compile a master-list and make it available later this week. Meanwhile, here was one of our favourite notes:
Dan Denning
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| An Addendum to the ‘Flations – Gold $5,000 Posted: 31 Aug 2010 05:34 PM PDT Edward Harrison submits: By Frederick Sheehan
Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009). Complete Story »
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| Why the Bank of Japan’s Economic Stimulus is good for the Gold Price Posted: 31 Aug 2010 05:31 PM PDT
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| Posted: 31 Aug 2010 05:27 PM PDT 
The sad truth is that as work has become a global commodity, middle class American workers have been placed in direct competition with the cheapest labor in the world. For years the U.S. economy was so strong that nobody really noticed that it was bleeding thousands of jobs every single month. But now that 14 million Americans are unemployed and the U.S. economy is literally hemorrhaging jobs people are starting to sit up and take notice. Let's take a look at one recent example. Ford Motor Company has just announced the closure of a facility that produces the Ford Ranger in St. Paul, Minnesota. Approximately 750 good paying jobs are going to be lost. But isn't Ford doing better these days? Sure. Don't people still need Ford Rangers? Of course they do. Minnesota Governor Tim Pawlenty even offered Ford a multi-million dollar incentive package full of tax cuts and job creation incentives to keep the factory going. Basically, Pawlenty did everything except get down on his hands and knees and beg Ford to keep the plant open. But it wasn't good enough for Ford. So where is Ford going to make those Ford Rangers now? Well, the statement issues by Ford did not say, but it did offer some clues.... "Ford continues to concentrate on implementing the plan we initiated four years ago to streamline our plant operations and better leverage our global platforms. At this time, the Twin Cities Assembly Plant does not fit into our global manufacturing strategy." Did you notice that the world "global" was used twice there? In other words, Ford plans to move their factory some place where labor is cheaper. But the truth is that this is happening in every industry. Between 2004 to 2008, tire imports from China increased 215 percent by volume and 295 percent by value. During that same time period, tire manufacturing in the United States fell by 25 percent. It turns out that there are lots of people who are willing to make tires for near slave labor wages in China. In our new "global economy", American workers are just far too expensive. So middle class manufacturing jobs are fleeing our shores at a staggering pace. Since 1979, manufacturing employment in the United States has fallen by 40 percent. Are you alarmed yet? You should be. The truth is that we did not have to merge our economy with nations like China. China does not have the same minimum wage laws that we do. China does not have the same environmental protection laws that we do. In China, companies can treat their workers like crap. As a result of open trade with the United States, scores of shiny new factories have opened all over China while once great manufacturing U.S. cities such as Detroit have degenerated into rotting war zones. We continue to expand trade with China even though their communist government stands for things that are absolutely repulsive and has a list of human rights abuses that is seemingly endless. But politicians from both parties swore up and down that globalism would be so good for us. Now we have created a network of free trade agreements that would be virtually impossible to unwind. The following are just some of the free trade agreements in force around the world right now.... The ASEAN Free Trade Area (AFTA) Of course the most important trade organization of them all is the World Trade Organization (WTO) which is constantly working to expand world trade and further integrate the economies of the world. But the American people don't understand all this. They just want the U.S. government to do something to create more jobs. But whenever the U.S. Congress tries to do something nice for U.S. workers like raising the minimum wage or requiring companies to give them more benefits it ends up backfiring. Why? Because those things make American workers even more expensive and it gives companies even more incentive to send our jobs overseas. We have recklessly merged our economy with economies around the world that are far less developed than our own. Unless this thing is reversed, it is inevitable that the standard of living of American workers will be forced down until it approximately matches workers in the rest of the world. Already, millions of high-paying manufacturing jobs are being replaced by low-paying service jobs. The U.S. Labor Department's 2009 Occupational Employment and Wages report found that retail sales, cashiers, general office clerks, food preparation and service workers, and nurses were the occupations with the highest levels of employment in 2009. Retail sales and food service workers? Those are jobs for 17 year old kids. But today apologists for this flawed system tell us that we just need to suck it up and take two or even three low paying jobs because things will never go back to how they used to be. So has globalism created any winners? Of course. As I noted yesterday, the folks down on Wall Street are doing quite well. New York state Comptroller Thomas DiNapoli says that Wall Street bonuses for 2009 were up 17 percent when compared with 2008. The reality is that the exploitation of very cheap foreign labor has enabled many large global corporations to make insane amounts of money. Things are very good if you are at the top of the food chain. According to Harvard Magazine, 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans. In addition, our elected officials are doing quite nicely these days. According to an analysis by The Hill, the 50 wealthiest members of the U.S. Congress saw their collective fortunes increase 85.1 million dollars to $1.4 billion in 2009. Yes, it is very profitable to be part of America's ruling class. Meanwhile, tens of millions of average Americans continue to suffer. Recently a user on Unemployed-Friends named Jim shared his tragic story.... My Name is Jim and I was laid off last June. My whole department was outsourced. There was talk of it and when I heard it from my boss (the CFO) when I went home I started to send out resumes. Then the day came when the layoff came. So in 1.3 years I have sent out 160K resumes, between blasting, send out from job boards and e-mailing my resume blindly to companies HR departments. I was on 5 interviews. I want to work badly. Everyday I send out resumes but lately I have been getting depressed, I found out who my real friends and family are now. I have been kicked down substantially in these 1.3 years. I feel like I'm staring into an abyss of no jobs, will I ever work again? IDK. When I used to talk to "Friends" and "Family" they all say "Things will get better" "Don't worry", Yeah right. I feel so alone and worthless. I wish I had at least 1 GOOD friend but it seems like no-a-days the dog eat dog world is worst than ever. I'm NOT suicidal, not at all. Then I found this site. I have been saying we are in a depression for 2 years but nobody listened and people have dismissed what I have said. The sad thing is it seems like we are on the verge of an economic collapse or worst. So that is my story Americans like Jim don't understand why they can't get jobs anymore. They feel like failures, but it is actually the system that is failing. Globalism is not good for middle class American workers. Democrats can continue to pass law after law that attempts to help American workers, but unless something is done to protect American jobs they are going to continue to be shipped overseas. Republicans can pass tax break after tax break, but unless those tax breaks are linked to jobs the ruling elite and the big global corporations will just pocket those tax breaks and will continue to ship jobs overseas in order to make bigger profits. What both parties should be doing is trying to figure out ways to keep American jobs in America, but at this point both parties are completely sold out to globalism. Globalism was the official policy of the Bush administration and it is the official policy of the Obama administration. Unless something dramatic changes, the U.S. economy is going to continue to lose huge numbers of jobs and people like Jim are going to continue to wonder what in the world happened to their lives. But in 2010, most Americans are so busy drinking beer, watching sports, keeping up with Lady Gaga and Justin Bieber, and obsessing over the new cast of Dancing With The Stars that they aren't even aware that things are literally falling apart all around them. It is really sad.
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| Gold "Caught in Bind" as Stocks Fall, Fresh Easy Money Looms, Dow/Gold Ratio Falls Posted: 31 Aug 2010 05:27 PM PDT
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| Prelude to Meltdown: An interview with Bert Dohmen Posted: 31 Aug 2010 05:00 PM PDT When Bert Dohmen talks, smart investors listen. In 2007 when most investment analysts and economists were downplaying the developing credit market troubles, Bert warned investors that the probability was very high that the troubles would escalate into full-blown crisis and would produce a crash of historic proportions. He chronicled the developing credit crisis in the pages of his newsletter and also published a book in early 2008, Prelude to Meltdown, which provided his insightful views on the emerging crisis in depth. The book will surely go down as a landmark written by a financial visionary who was several steps ahead of his peers. Dohmen writes the widely read Wellington Letter investment advisory, which has provided top-notch forecast and analysis of U.S. and global financial and economic trends since January 1977. His newsletter has received many #1 ratings by the top ratings services and has forecasted every bear market using sophisticated technica...
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| Gold: The Big Picture Gets Bigger! Posted: 31 Aug 2010 05:00 PM PDT Graceland Updates 4am-7am www.gracelandupdates.com Email: [EMAIL="s2p3t4@sympatico.ca"]s2p3t4@sympatico.ca[/EMAIL] Aug 31, 2010 1. Welcome to the Big Leagues. I keep telling the gold community that the Chinese people and Chinese corporations should not be confused with the Chinese Gman scumbag. 2. Stratfor, one of the most respected information services in the world, announced that the head of the Chinese central bank might be missing, and now it's hitting the mainstream media, although the spin machines are in power mode downplaying the situation. Imagine Ben Bernanke running away! That's the magnitude of the situation! I told you, repeatedly, that the Chinese central bank/Gman had massive losses on their US dollar and bond positions they bought in a crazed price chase, from the banksters. Almost nobody listened. Instead, they told me what a master investor the Chinese Gman was, while I called him a bustout. Let's repeat...
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| Hyperinflation vs. Inflation: Understand the Difference Posted: 31 Aug 2010 05:00 PM PDT [CENTER]Hyperinflation vs. Inflation: Understand the Difference[/CENTER] Hyperinflation and inflation may share the same root, but they're two entirely different trees. While many assume that hyperinflation is just inflation's oversized cousin, there is much more to hyperinflation than most are aware. The Basics of Inflation Investors, traders, and average Joes alike should all have a firm understanding of inflation through rudimentary economics studies. Inflation is nothing more than an increase in the money supply that leads to changes in aggregated demand and ultimately higher prices for goods. Increases in prices during inflation are certain, and they tend to happen over a period of years or decades, rather than months or days. Most commonly, inflation does not appear until eighteen months after monetary policy adjustments, as businesses rework prices to increase their market share of the aggregate demand for products. The Basics of Hyperinfla...
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| Oil Plunges and Gold Rallies as Confidence in the Future Deteriorates Posted: 31 Aug 2010 05:00 PM PDT courtesy of DailyFX.com August 31, 2010 12:01 PM Volatility was a commonality in price action across the commodities market Tuesday. A busy macroeconomic docket would help drive crude to its biggest daily loss in three months and push gold back into its bull trend with two months highs. North American Commodity Update Commodities - Energy An Oil Reversal has been Cut Building Fundamental Uncertainty Crude Oil (LS Nymex) - $71.92 // -$2.78 // -3.72% As if a forceful reminder that the global economic outlook is bleak and fading with each series of economic releases, US-based crude marked a sharp decline through Tuesday’s session. The 3.7 percent decline through the day’s end was in fact the biggest single-day loss since June 4th and meaningful follow up on Monday’s loss. Looking for the fundamental basis for this move, we for once can’t trace the heightened activity level back to a general shift in risk appetite. If we look at an...
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| Rounding Up the Culprits of Rising Prices Posted: 31 Aug 2010 05:00 PM PDT From Bloomberg.com we get the bad news that "Bank of England Governor Mervyn King said inflation is likely to exceed the UK government's upper 3% limit in coming months as higher sales taxes drive gains in consumer prices," which "rose 3.1% in July from a year earlier after climbing 3.2% in June." Apparently, he has to write a letter about it, probably something along the lines of "Dear British taxpayer, Our stupidity and incompetence have caused prices to rise more than 3% in a year, which means you are all doomed unless we government lowlife halfwits stop being incompetent, especially as regards monetary policy in general and creating far too much new money in particular, which we won't. Terribly sorry, old chap. Respectfully yours, Mervyn." Of course, this cruel punishment of having to write a letter is harsher than the justice meted out in the USA, as New Jersey, and everybody connected with their pension disgrace, lied, hid relevant information and data, and is, according to the...
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| Hourly Action In Gold And The HUI From Trader Dan Posted: 31 Aug 2010 05:00 PM PDT View the original post at jsmineset.com... August 31, 2010 09:43 AM Dear CIGAs, Click charts to enlarge today's hourly action in Gold and the HUI with commentary from Trader Dan Norcini ...
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| Posted: 31 Aug 2010 05:00 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! August 31, 2010 11:08 AM Read If I die before the end of the gold rally, please remember me for my quote -”We’re in the mother of all gold bull markets.” And give my love to Tokyo Rose. [url]http://www.grandich.com/[/url] grandich.com...
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| Posted: 31 Aug 2010 05:00 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! August 31, 2010 11:18 AM In a business where failure is the norm, a sincere congratulations to Timmins Gold (TMM-TSX-V), a client of Grandich Publications. The latest results continue to suggest TMM is one of the world’s leading emerging producers. I spoke recently about TMM breaking out and forming a new base from old resistance. It’s nice to have eggs served on a plate for a change than on my face. [url]http://www.grandich.com/[/url] grandich.com...
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| Posted: 31 Aug 2010 05:00 PM PDT courtesy of DailyFX.com August 31, 2010 09:30 AM Gold is making its way lower in an impulsive fashion. The first 5 wave decline ended following a terminal thrust from a triangle. The rally is in 2 equal legs, common for corrections, and may be nearing completion. 1252 is potential resistance....
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| Now That GATA Can Be Quoted, Can Central Banks Be Asked? Posted: 31 Aug 2010 05:00 PM PDT Monday was an extremely quiet trading day in both precious metals, despite the fact that it was also the last trading day in the August contract. Gold was in a four dollar trading range throughout Monday... and silver wasn't much more exciting, with a twenty cent trading range. Volume in both metals was vanishingly small... the lowest numbers that I can ever remember seeing, once all the roll-overs and spreads were removed. What little action there was started after the Hong Kong close, with a smallish rally in both metals that ran into a resolute seller moments after trading began on the Comex in New York... and that, as they say, was that. Those two features are plainly visible on both graphs. The silver graph looks identical... The world's reserve currency did nothing until 11:00 a.m. in Europe on Monday morning... which is 5:00 a.m. Eastern time. I understand that yesterday was a holiday in England... and I'm not sure whether the curre...
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| Posted: 31 Aug 2010 05:00 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! August 31, 2010 06:27 AM The technical’s on silver are becoming very bullish Hi Yo Silver – away! [url]http://www.grandich.com/[/url] grandich.com...
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| Posted: 31 Aug 2010 05:00 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! August 31, 2010 07:17 AM I don’t think anybody could have been more bullish and determined than I that we’re in the mother of all gold bull markets. Amazingly, people like myself, GATA and others had to keep defending our positions to many(including the media) because of the continuous foolishness of forecasts by gold perma-bears – most of whom have been wrong all the way up. So excuse me for my cockiness but knowing we’re about to leave a period of seasonal weakness and enter gold’s strongest two months seasonally, I feel like this song when I think of gold’s future (Going to kick some gold bear a$$). [url]http://www.grandich.com/[/url] grandich.com...
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| Posted: 31 Aug 2010 05:00 PM PDT Richard (Rick) Mills Ahead of the Herd As a general rule, the most successful man in life is the man who has the best information In this author's opinion, China, and to a lesser extent India and other developing nations, are responsible for the largest and longest base metals bull market the world has ever experienced. Many fear the bull market for natural resources is over when in fact nothing could be further from the truth. This seems especially true, because of the supply/demand picture, regarding copper. Copper's chemical and physical properties: [LIST] [*]High ductility [*]Corrosion resistant [*]Malleable [*]Excellent conductor of heat and electricity [*]Alloyed with other metals - zinc to form brass, aluminum or tin to form bronzes or alloyed with nickel - it acquires new characteristics for use in highly specialized applications. [/LIST] Copper is used for: [LIST] [*]Conducting electricity and heat [*]Telecommunications [*]Transporting water and gas [*]...
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| LGMR: Gold Caught in Bind as Stocks Fall, Easy Money Looms, Dow/Gold Ratio Falls Posted: 31 Aug 2010 05:00 PM PDT London Gold Market Report from Adrian Ash BullionVault 08:35 ET, Tues 31 Aug. Gold "Caught in Bind" as Stocks Fall, Fresh Easy Money Looms, Dow/Gold Ratio Falls THE PRICE OF GOLD held in a tight range as London re-opened after the Summer Bank Holiday on Tuesday, slipping $3 an ounce to $1235 as world stock markets fell again to near the end of August some 6% down on the month. Silver prices reversed an earlier 1.5% drop to trade back at $19.12 an ounce. "A disappointing day for precious metals," says one Hong Kong dealer in a note. "Despite its safe haven status, gold came off in tandem with stocks, re-visiting Friday's low." The US Dollar slipped back against the Euro today, but crude oil dropped back through $74 per barrel and government bonds rose everywhere, nudging 10-year US Treasury yields back down to 2.50%. "Gold is caught in a bind," reckons Tokyo trader Kazuhiko Saito at Fujitomi, speaking to Reuters. "Slowing growth and deflation worrie...
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| Crude Oil Follows Equities Lower, Gold is Calm Before the Storm Posted: 31 Aug 2010 05:00 PM PDT courtesy of DailyFX.com August 30, 2010 10:51 PM Despite mixed economic data on Monday, crude oil and equities both fell, suggesting that the bearish bias remains intact. With markets at critical technical levels and a flurry of economic data still expected, the week promises to be anything but dull. Commodities – Energy Crude Oil Follows Equities Lower Crude Oil (WTI) - $74.13 // $0.57 // 0.76% Commentary: Crude oil’s three-day win streak was snapped on Monday after U.S. equity markets fell almost 1.5% on the day. Crude’s decline was much more modest in comparison; the commodity fell $0.47, or 0.63%, but the sell off is continuing after hours with the commodity down another $0.58, or 0.78%. Double dip fears are back in focus, as the S&P 500 stock index threatens to break the $1040-$1050 support level, a break of which would then expose the July 1st multi-month lows at $1011. Economic data on Monday was mixed—personal spending figures showed a 0.4% i...
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| Posted: 31 Aug 2010 04:55 PM PDT
Buried in the recently passed Dodd-Frank financial reform bill are massive financial rewards for turning in your boss. The SEC is hoping that multimillion dollar rewards amounting to 10%-30% of sanction amounts will drive a stampede of whistleblowers to their doors with evidence of malfeasance and fraud by their employers. If such rules were in place at the time of the settlement with Goldman Sachs (GS), the bonus, in theory, could have been worth up to $500 million. Wall Street firms are bracing themselves for an onslaught of claims, legitimate and otherwise, by droves of hungry gold diggers looking for an early retirement. Don’t count on this as a get rich quick scheme. Government hurdles to meet the requirement of a true stoolie can be daunting. The standard of evidence demanded is high, and must be matched with the violation of specific federal laws. Idle chit chat at the water cooler won’t do. Litigation can stretch out over five years, involve substantial legal costs, and often lead to a non financial settlement with no reward. Having “rat” on your resume doesn’t exactly look good either. Just ask Sherron Watkins, the in house CPA who turned in energy giant Enron’s Ken Lay, Andy Fastow, and Jeffrey Skilling just before it crashed in flames. Nearly a decade later, Sherron earns a modest living on the lecture circuit warning of the risks of false accounting, and whistleblowing. 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 years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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| Posted: 31 Aug 2010 04:53 PM PDT
From The Daily Capitalist In George Orwell’s brilliant novel Nineteen Eighty-Four, one of the characters, Syme, in discussing the nature of Newspeak, says “It’s a beautiful thing, the destruction of words.” Newspeak was a systematic attempt by the dictators of Oceania, a totalitarian society eerily similar to North Korea, to control thought by eliminating words that gave rise to ideas they disapproved. What Syme and Orwell are talking about is that the destruction of words is the destruction of ideas. There is a parallel to this in contemporary economic thought. Mainstream economists, Keynesians, Neo-Keynesians, and Neoclassists, would have you believe that what common sense would call “good” is now “bad.” Conversely, “bad” is the new “good.” I don’t mean to suggest that we are heading toward becoming a North Korea. My point is that that the experts seem to abandon common sense and yet most people instinctively understand that good is good. Common sense is the crux of Austrian theory economics. Austrians look at how individuals act, not how "economies" or "nations" act or behave. Ludwig von Mises, the greatest Austrian thinker, and in my opinion the greatest economist, entitled his great work, Human Action (not National Action). The Austrian School was referred to by the Germans as the Psychological School because its analysis started with individual action and how those actions would either attain or fail to attain the goals sought by individuals. In other words, it involves a lot of the "common sense" that guides human behavior most of the time. It is comforting to know there is a philosophy of economics that conforms to what human being actually do rather than how some economist thinks we ought to behave. Examples of economic Newspeak flourish, especially if you listen to President Obama’s economic team. My favorite example is the present conflict between consumer spending and consumer saving. Since the crash, consumers have cut back on spending and are increasing their savings. Most economists are saying this is bad for the economy; they urge us to spend, spend, spend to save the economy. Actually, it is just the opposite: saving is the road to recovery. It seems rather obvious that during a downturn of the economy it would be natural for people to save more and spend less. They are uncertain about their jobs, the values of their homes have plummeted (about 30% since the peak in 2006); their stocks have declined, and their debts are high. Isn’t it common sense that people are doing the rational thing by saving? This is something our parents and grandparents understood well. Yet Keynesian economists, the dominant economic theory today, tell us that consumers should be spending rather than saving. “Don’t you realize,” they say, “that 70% of our economy is based on consumer spending. Why do you think we have all that unemployment? We won’t recover until we can get people to starting buying stuff again!” Since we aren’t spending they have got the government to do our spending for us. Paying one man to dig a hole and paying another man to fill it is, under Keynesian theory, the path to recovery. According to their logic, we had the biggest financial bust in world history because consumers wrongfully just stopped spending. If that was the case, it’s funny we didn’t hear these guys warn us about too much consumer spending during the housing bubble. To explain why saving is good and why economists are wrong, we have to ask why we keep having these boom-bust cycles. Here is where common sense really has been thrown out the window by mainstream economists. Almost all economists believe that you can make the economy prosper by printing huge amounts of new money and throwing it at the economy to make it grow. Does it make sense that by printing more pieces of impressive looking green paper that you can create wealth? If that were the case, why aren’t the Zimbabweans the richest people on the planet? Yet, this is what economists believe and this is what the Fed practices. To cut this short, this is exactly what the Fed did starting in 2001. Over a five-year period, the Fed reduced its Fed Funds rate from 6% to 1%. Money flooded the economy. Housing projects that made no sense but for the cheap money and the false appearance of paper prosperity, were hugely over produced. When the Fed stopped the gusher of money in 2006, the whole thing collapsed and pulled the economy down in the biggest bust the world has ever experienced. Consumers, as we are referred to by economists, lost $10 trillion of wealth in the bust, and were left with huge debts from their wild spending. They borrowed against the value of their homes, they borrowed on their credit cards, and they borrowed to buy big new cars. Now about 25% of Americans have more debt on their homes than the homes are worth. So what would you do in those circumstances? Spend more? I don’t think so. And that is why consumers are saving. Yes, it reduces consumer spending, but how else are we going to save when unemployment is high and wages are stagnant? Savers are making rational, informed choices and economists just can’t see that. There are two major benefits from savings. You could say that reduced spending doesn’t boost the economy and it causes housing and other asset values to decline. But that ignores a critical point, and one that is hindering recovery: how else are you going to get rid of the homes and commercial real estate and that were overproduced during the fake boom? This really is simple economics: supply and demand. As prices fall, buyers will be attracted to the market, and gradually the excess disappears. The longer those assets and their related debts hang around, the longer this recession will last. This, I believe is the most critical issue in the economy right now: by letting the economy solve the problem of all these overproduced assets, credit will start flowing again. Another critical benefit is that new savings builds up capital for future expansion. In addition to the $10 trillion lost by us consumers, the entire wealth of this country was reduced by maybe another $30 to $50 trillion (these numbers are hard to pin down). With all that capital wiped out, you may ask where the capital will come from to finance a revival of the economy once the dead wood is cleared away. We already know that it can’t be done by printing money. It can only be done by savings. I say, “Thank you my fellow Americans for doing the right thing to help our economy recover. Please ignore the economists. Take care of yourselves and you’ll be taking care of the economy.” Good is good. Bad is bad.
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| Ron Paul questions whether any gold at Ft. Knox Posted: 31 Aug 2010 04:51 PM PDT This guy has balls... Ron Paul questions whether there's gold at Fort Knox, NY FedBy Michael O'Brien - 08/30/10 10:21 AM ET Rep. Ron Paul (R-Texas) said he plans to introduce legislation next year to force an audit of U.S. holdings of gold. Paul, a longtime critic of the Federal Reserve and U.S. monetary policy, said he believes it's "a possibility" that there might not actually be any gold in the vaults of Fort Knox or the New York Federal Reserve bank. The libertarian lawmaker told Kitco News, a website tracking news about precious metals, that an audit was necessary to determine how much the U.S. maintains in gold reserves in case the government were to use gold to back the dollar. "If there was no question about the gold being there, you think they would be anxious to prove gold is there," he said. "Our Federal Reserve admits to nothing, and they should prove all the gold is there. There is a reason to be suspicious and even if you are not suspicious why wouldn't you have an audit? "I think it is a possibility," Paul said when asked if there was truth to rumors that there was actually no gold at Ft. Knox or the New York Fed. Paul had been one of the Republicans to spearhead a broader audit of the Fed as part of the Wall Street reform bill passed through Congress this year. The provision, which was weakened somewhat in the final version, found Paul joining with a number of Democrats to require the Fed to open its books and outline its assets and liabilities. The gold reserves, which Paul's new bill would audit, are generally seen as a guarantee on a nation's currency, but the U.S. moved the dollar away from being tied to the price of gold in 1972. Paul stopped short of calling for the reinstitution of the gold standard and instead called for the government to allow the use of hard currency — gold and silver tender — alongside the use of the dollar. "If people get tired of using the paper standard they can deal in gold or silver," he said. Source: http://thehill.com/blogs/blog-briefi...-gold-reserves
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| Gold Seeker Closing Report: Gold and Silver Gain Almost 1% and 2% Posted: 31 Aug 2010 04:00 PM PDT Gold traded mostly slightly lower in Asia and London before it jumped higher in early New York trade and saw an over $10 gain at $1247.35 ahead of a slight dip midmorning, but it then advanced to new highs in the last few hours of trade and ended near its last minute high of $1249.75 with a gain of 0.86%.
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| Being Negative Might Be A Positive Posted: 31 Aug 2010 03:53 PM PDT Neither stocks nor bonds responded meaningfully to the release of the Fed minutes, which said approximately what we all thought they would. "Many Fed officials" said the downside risks to the recovery had increased, and "several members" said ... Read More...
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| Posted: 31 Aug 2010 03:50 PM PDT
If one looks around and wonders where the speculators have gone (the carbon-based variety, not the feedback-loop creating, binary terrorists) look no further than the FX market, which according to the latest BIS data, has hit $4 trillion in daily notional volume (20% higher than the $3.3 trillion in 2007), nearly quadruple the combined U.S. stock and Treasury trading, which in April averaged about $134 billion a day (down from a daily average of $148 billion in 2007) and $456 billion (down from an average of $570 billion for all of 2007), respectively. This amounts to nearly one quadrillion in total dollar transaction volume per year. There are two main reasons for the exodus from other products, and for ongoing cloning of the "Japanese housewife" phenomenon: the ongoing migration away from the bizarre daily moves in stocks, which are now traded almost exclusively by robots, or other frontrunning machines (see Schwab daily 52 week low), and the ridiculous leverage allowed in FX margin accounts. Just today, the CFTC announced that after the proposed 10-to-1 retail FX transaction leverage was shot down by "dealers, lawmakers in Congress and others who feared it could push investors into overseas markets with less protection", instead Gary Gensler's goons decided to keep all the habitual gamblers in house, and give them virtually unlimited leverage, or, as the case may be: 50 times. Recall that Bear and Lehman just needed 30x leverage to blow themselves up, and that happened with the FRBNY and the SEC both supervising. So let's see: $4 trillion...50x retail leverage...no regulation...this will surely end well. Below is a chart from the WSJ, which in turn recreated a BIS chart on the same topic, highlighting the explosion in FX gambling.
The WSJ's Tom Lauricella has more:
Lately a critical market question has been one of a "chicken or egg" variety, long highlighted by Zero Hedge: does the market push the carry trade, or does the carry trade (and lately this means almost exclusively the AUDJPY or the EURJPY) exert an effect on stocks. Now that we know that the notional ratio is roughly 25:1, the answer is clear. Yet with so much more leverage allowed in FX (especially for institutions, which can lever their trades practically infinitely), it would not be at all surprising if a truly de minimis amount of actual equity capital, levered up thousands and thousands of times, in the form of carry pairs, was the true mutated heart of this mangled monster of a market. As for what specific pairs dominate FX, the WSJ explains:
Another quick look at the carry trade:
And just in case you thought robots would miss the opportunity to trade in trillions daily, and create their own little feedback loop gargoyles, with gargantuan leverage to boot, think again.
Once again, this is a recipe for disaster, with far too much equity at risk, and a ridiculous amount of leverage on top. How this will end is all too clear, but in the meantime, retail has to suffer a few years worth of losses, with Wall Street pocketing the gains, just to make sure that when the plug on the ponzi is finally pulled, the getaway jet to the nonextradition country is completely packed with more than enough gold and other hard assets.
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| Is Ben Bernanke Losing Sleep Over Possible Great Depression? Posted: 31 Aug 2010 03:42 PM PDT Federal Reserve chairman Ben Bernanke loses sleep over the possibility that the United States may suffer a repeat of the 1930s' Great Depression. Inflation hawks and opponents of President Barack Obama's Keynesian "stimulus" warn continually of a possible repeat of the 1970s' stagflation. Yet recent data is beginning to suggest a more unpleasant possibility still: that the United States could suffer both traumas simultaneously - a prolonged period of pathologically high unemployment combined with vicious and unrelenting inflation. This grim prognostication results from recent developments that have eliminated some economic possibilities but boosted the probability of others, including the apparently unlikely outcome The possibility I thought most likely a year ago, of a relatively strong recovery accompanied by rising inflation (which might then require a Paul Volcker-style remedy to combat it, so pushing the economy into a double-dip similar to that of 1980-82) now seems relatively unlikely. Likewise, the possibility feared above all others by Bernanke, of a bout of savage deflation sufficiently severe to choke off economic recovery, is also off the table - although in my view it was never truly on it. (snippet) The US might also, like Argentina, suffer a period of hyperinflation. Long Read HERE..The prospect ahead is thus uniquely gloomy. Part of the gloom is caused by a natural and unavoidable change in the terms of trade, making a reduction in US living standards inevitable. However, most of it can be ascribed to wrong-headed policies pursued by the four horsemen of the financial apocalypse, Messrs Bush, Obama, Greenspan and Bernanke. 
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| Posted: 31 Aug 2010 03:11 PM PDT Jim Sinclair's Commentary One thing is for sure. Regardless of whether the rumors are true about the Chinese central banker, you can be sure the people who run the Chinese central bank will not buy many more US Treasuries. Yes, this statement speaks to the Chinese rating of US Treasury investments, a definite downgrade that Moody's and Standard and Poors dare not make. Japan debt safer than U.S. debt: China economist BEIJING, Aug. 11, 2010 (Reuters) — China has been buying record amounts of Japanese government debt because it is less risky than U.S. debt, at least in the short term, a Chinese government economist said on Wednesday. Investing in Japanese bonds is safer because so much of the country's debt is held domestically, and the yen is on course to strengthen further, said Zhang Ming, an economist with the Chinese Academy of Social Sciences, a top government think-tank. "Even though the difference in yields is big, China has been abandoning U.S. debt and picking up Japanese debt. This definitely shows that it believes the risks of U.S. debt far exceed those of Japanese debt," Zhang said in a report issued by his research institute. The report was issued a day after the Federal Reserve said it would buy more U.S. government debt in a form of mild quantitative easing to counter economic weakness. Top Chinese leaders have previously registered their concerns about lax U.S. fiscal policies eroding the value of their investments in the United States.
Jim Sinclair's Commentary I wonder if he just figured this out. This has been true since they planted the buttonwood tree. Hedge Fund Manager Dan Loeb: "The Whole System Is Rigged" Apparently everyone's forwarding around the powerful message in hedge fund manager Dan Loeb's most recent letter to investors. The message, from the number of chunks of quotes Dealbook pulls out of Loeb's letter is: I don't trust the government to do what's best for the economy, so I'm pulling out of companies that could be impacted by public policy. Third Point's most recent investment strategy reflects Loeb's belief that banks, healthcare, and for-profit education companies are "overly exposed to unpredictable government regulation." In the startling conclusion, Loeb says: "It is easy to see why so many people have concluded that the entire system is rigged." Here are the quote chunks we pulled from Dealbook's analysis of the letter. Key points are bolded:
Jim Sinclair's Commentary And I understand in Iran. Citigroup to Increase China Workforce to 12,000 in Three Years Citigroup Inc. plans to almost triple its workforce in China to as many as 12,000 people in the next three years, intensifying its rivalry with HSBC Holdings Plc in the world's fastest-growing major economy. The New York-based bank will hire more in China than in any other market in Asia-Pacific, Stephen Bird, Citigroup's co-chief executive officer for the region, said yesterday in an interview. Citigroup has 4,500 employees in China and 50,000 in Asia, according to spokesman James Griffiths. Citigroup CEO Vikram Pandit is raising his bet on China, where banks extended a record $1.4 trillion of new loans last year. Unlike HSBC and Standard Chartered Plc, Citigroup has no plans to sell shares in China and will instead fund expansion with money generated in Asia, Bird said on Aug. 25. "China is one of Citi's priority markets globally," said Bird, 43. "We have aggressive consumer banking expansion plans and want to open branches as fast as regulators in China will let us." Citigroup has 29 outlets in the country and plans to add 10 more this year. That will still leave it short of HSBC's 102 outlets and the 59 operated by Standard Chartered. Standard Chartered, the U.K. bank that gets more than three-quarters of profit from Asia, has more than 4,000 employees at its China unit. HSBC, Europe's largest lender by market value, has more than 5,000. Industrial & Commercial Bank of China Ltd. had 390,000 workers at the end of 2009.
Jim Sinclair's Commentary Even the dead are now homeless.
Jim Sinclair's Commentary The Consumer Confidence Index is a survey of economic statistics that is dicey at best. Consumer confidence rose more than forecast in August. Specifically, the Conference Board's confidence index increased to 53.5 from a five-month low of 51 in July; beating the Street's estimate of 50.7. (From Bloomberg.com)
Jim Sinclair's Commentary Case-Shiller, your nose is growing. The S&P/Case-Shiller home-price index for June increased 4.2% from June 2009. (From Bloomberg.com)
Jim Sinclair's Commentary Debka is rumored (unconfirmed) to be influenced by Massad. Regardless, this development is telling. US to sell Israel massive military fuel stocks worth $2 bn On Aug. 6, the US Defense Security Cooperation Agency, DSCA, informed Congress of the sale to Israel of 60 million gallons of unleaded gasoline, 284 million gallons of JP-8 aviation jet fuel and 100 million gallons of diesel fuel at an estimated cost of two billion dollars. The date is significant, DEBKAfile's intelligence sources find. Ten days earlier, the Japanese tanker M.Star was attacked in Omani waters of the Strait of Hormuz with 200,000 tons of oil. Although American experts who examined the vessel, they never attributed the damage to sabotage by Iran or al Qaeda, despite the latter's claim of responsibility on Aug. 4 While Washington did its best to sweep the incident under the rug, Saudi intelligence were worried enough about the threat inching dangerously close to the Gulf's oil exporting lifeline to launch an independent investigation of the incident. Their investigators discovered it was staged by a Saudi terrorist who operates out of Iran under the orders of the Revolutionary Guards. To Riyadh, the episode looked like a blunt warning from Tehran to Washington and its allies about the consequences – not just of a direct strike against Iran's nuclear facilities, but the possibility of sanctions upsetting the equilibrium of the Islamic regime. Blockage of the Strait of Hormuz would cut off Israel's primary source of fuel. Therefore, our sources report, a series of accords, some of them secret, have been transacted to back up America's standing commitment to keep Israel supplied with its energy needs in the event of armed conflict or crisis on world fuel markets.
Jim Sinclair's Commentary The Federal Budget Deficit is going further and further out of control. Record number in government anti-poverty programs WASHINGTON — Government anti-poverty programs that have grown to meet the needs of recession victims now serve a record one in six Americans and are continuing to expand. More than 50 million Americans are on Medicaid, the federal-state program aimed principally at the poor, a survey of state data by USA TODAY shows. That's up at least 17% since the recession began in December 2007. POLITICS: Welfare agencies boost voter rolls "Virtually every Medicaid director in the country would say that their current enrollment is the highest on record," says Vernon Smith of Health Management Associates, which surveys states for Kaiser Family Foundation. The program has grown even before the new health care law adds about 16 million people, beginning in 2014. That has strained doctors. "Private physicians are already indicating that they're at their limit," says Dan Hawkins of the National Association of Community Health Centers. More than 40 million people get food stamps, an increase of nearly 50% during the economic downturn, according to government data through May. The program has grown steadily for three years.
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| SP 500 September Futures Daily Chart; Gold Daily Posted: 31 Aug 2010 02:48 PM PDT |
| Guest Post: A Termite-Riddled House: Treasury Bonds Posted: 31 Aug 2010 02:15 PM PDT
Submitted by Gonzalo Lira A Termite-Riddled House: Treasury Bonds
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| The Best Way to Bet on America Posted: 31 Aug 2010 01:12 PM PDT There is lots of ugly economic news out there, but one key bright spot is world trade. In the US, one particular industry will enjoy windfall profits from exports this year. That industry is agriculture. In 2009, world trade took a big hit in the wake of the financial crisis. Global exports fell 12%. Governments tried to protect their home teams and a wave of tariffs and other protectionist measures followed. This was what happened during the Great Depression, too, as the Smoot-Hawley Tariff Act raised tariffs on more than 900 goods. As a result, world trade sank by 25% during the early years of the Great Depression. But that hasn't happened this time around. In fact, the emerging economies of the world are already exporting and importing more than they were before the 2008 crisis. In the US, a big winner is agriculture. US farmers are looking at record exports of $14 billion this year. The heat wave frying European crops (in particular Russian crops) helps that. But even before the drought, in just the first four months of the year, the US enjoyed a $4 billion trade surplus in agriculture. For years, the US has been the world's largest exporter of corn, wheat and soybeans. It is a leading exporter of many other agricultural goods. Today, US farmers are cashing in on demand from emerging markets, particularly Asia. China has been trying to build self-sufficiency in food. But it has a long list of hurdles, chiefly a shrinking supply of arable land and water shortages. Also, the median Chinese farm is less than one acre. This hinders the economies of scale that come from big farms. In any event, US farmers are sending more and more goods to the Far East. So perhaps it is no surprise that first US grain export depot built in 25 years is not on the rim of the Gulf of Mexico, but on the Columbus River in Washington state, about 60 miles from the Pacific Ocean. The new Port of Longview grain terminal will handle 8 million tonnes a year. (The Port of Louisiana is the still the top grain export hub in North America, although California recently passed Louisiana as the top point of departure for US cotton.) We'll need more depots like the new Port of Longview. American infrastructure has had a hard time keeping up with surging ag exports. Outside of Seattle, for instance, 80 rail cars filled with dried peas sat for three weeks on the train tracks waiting for a ship to unload them. It's not an isolated example. A soybean exporter in, say, Minnesota, could normally ship 40 tons of beans to Malaysia in 15-20 days. With recent bottlenecks, it took 60 days. There are plenty of stories of everything from hazelnuts to soybeans tied up in shipping bottlenecks for weeks. The US isn't used to such export strength. As The Wall Street Journal noted, "America's trading infrastructure grew imbalanced, with a huge capacity to import goods but an attenuated capacity to export them. Loads of grain or corrugated paper leaving the US took a back seat to the DVDs and toys coming in." That's the problem. For too long, the US economy has been all about overindulged consumers. There were too many stores selling too much junk, too many houses people couldn't afford and too much debt on all of it. This part of the economy grew to grotesque proportions, stimulated by easy credit. But underneath it all, there is still the old world of making things. In my last issue of Capital & Crisis, I wrote about the surprising strength of American manufacturing. American agriculture is also a bright star in the US firmament and an appealing place to invest. The future of American agriculture is very bright indeed, as a recent report from the FAO makes very clear. You can find the report, entitled "How to Feed the World in 2050," right here. This excerpt from the report sums up the investment case:
In addition to the usual assortment of resource issues such as water and soil and climate change, there are some topics you wouldn't think of otherwise, such as biodiversity. Take a look at this:
I won't highlight too much of this report, because I'd be repeating myself. If you've read my observations for the last year or so, you know all you need to know about what's happening in the world's market for food. Still, if you need an overview, the FAO's report covers most of the issues. Farmers with windfall profits will have more money to expand production next year. That's more money for things such as seed and tractors and fertilizers. As long as its export markets remain open, US farmers should have a great year. As a long-term investment, Lindsay (NYSE:LNN) should benefit as farmers spend some of that money on irrigation equipment. The economics are attractive, as the machinery significantly boosts yields and makes more efficient use of water. I also like the non-US ag plays, because high crop prices and the rising demand for food bode well for agriculture around the globe. In Canada, Viterra (TSX:VT) is a good long-term holding. It should rebound after excessive rains in Western Canada hurt grain production. In China, Migao (TSX:MGO), makes fertilizers for high-end crops such as fruits, vegetables and tobacco. It's growing capacity, and as the financials reflect the additions, it should report good earnings. Those are just a few. There are plenty more. The business of producing food should continue be a good one. Chris Mayer
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| Gold Rallying to $1,500 as Soros's Bubble Inflates Posted: 31 Aug 2010 01:03 PM PDT Investors are accumulating enough bullion to fill Switzerland's vaults twice over as gold's most- accurate forecasters say the longest rally in at least nine decades has further to go no matter what the economy holds. Analysts raised their 2011 forecasts more than for any other precious metal the past two months, predicting a 10th annual advance, data compiled by Bloomberg show. The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18 percent more than the record $1,266.50 reached June 21. Holdings through bullion-backed exchange-traded products are already at more than 2,075 metric tons, within 0.1 percent of the all-time high. "Either a swift economic recovery or further dismal economic performance should bring new buyers into the market," said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt who was the most accurate forecaster in the first quarter and expects the metal to rise as high as $1,400 next year. "A stronger economy would create more jewelry demand. If the economy stays weak or gets worse, then investors will be looking for a safe haven." More Here..
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| Healthy Correction or Ailing Recovery? Posted: 31 Aug 2010 12:31 PM PDT Bad day for stocks, yesterday. A bad day. Not a terrible day. Not a crash day. Just a bad day. The Dow fell 140 points. This was baaaad...because it shows that the stock market does not really buy Bernanke's storyline. You'll recall that when we left off last week, Ben Bernanke assured the world that while the recovery was not exactly what he had hoped for, he nevertheless had the situation in hand. He said he had the tools necessary to fix the problem and would do whatever was required. The initial reaction was positive. The Dow rose more than 160 points on Friday. Some analysts thought the market's downward trend had been broken. But it needed follow-through on Monday. Instead, the market fell. The fact is, there is no recovery...and no recovery is possible...and investors are beginning to realize it. Then what is going on? A "Great Recession," say some analysts. A "depression," say others. There is a good article in The Financial Times that helps understand what is really going on. It's by Ken Rogoff and Carmen Reinhart; you've heard of them before, dear reader. They are the ones who researched dozens of episodes of financial crisis and sovereign default throughout history. Today, they write in the FT about what happens after a financial crisis. Well, what do you think? Do you think you get a "recovery"? Do things go back to normal? Is the recession over quickly and painlessly? Not at all. Instead, there is rarely anything you would recognize as a "recovery." Things do not go back to normal because they weren't normal before the crisis. Crises are caused by abnormal conditions - usually too much credit, too much debt, too much spending and too much speculating. Then, when the bubble blows up, it typically takes a long time for the economy to get back on its feet. Over the following ten years, unemployment usually stays higher than it was before the crisis. Growth rates are usually lower. And ten years after a blow-up in real estate house prices are still usually BELOW where they were when the crisis hit. But what if the feds really get on the ball and try to turn things around? Then, watch out! We read an article on dying yesterday. Here's a question for you, dear reader. Would you rather live in a recessionary economy or die in a booming one? We'll take the recession. Probably most people would. Heck, make it a depression. There are a lot of illnesses for which there are no cures. Still, people will spend a fortune...and endure unspeakable treatments...in the hopes that they will be the one in a thousand who survives. So too are people ready to believe that Dr. Bernanke can cure what ails the US economy. We don't think so. Because we don't think the economy is "sick." We think it is healthy...and finally correcting the mistakes of the Bubble Epoque. Leading economists and the feds have believed, for example, that there was some problem of "liquidity" that was temporarily blocking the flow of cash and credit. They believed the problem could be solved by making more money available. That was why the Fed bought an extra $1.4 trillion of the banking sector's suspicious "assets." They wanted to make sure the banks had money to lend. Well, now the banks have plenty of cash. Businesses too have record holdings of cash. Even households are rebuilding their cash accounts. But who's borrowing? Who's spending? Who's buying new houses, for example? (New house sales are currently taking place at the slowest rate ever measured.) CNN: "Credit if finally available, but no one wants it." And more thoughts... Why don't people borrow? Because it's not a liquidity problem. It's a debt problem. A solvency problem. And it won't go away by making more cash and credit available. Instead, all those bad decisions, bad loans, and bad investments have to be cleaned up. And that takes time. And while the economy is de- leveraging, people are becoming more cautious...more risk-averse...more modest in their expectations. What do Rogoff and Reinhart say about governments' efforts to fix these problems? What does history show? They say the feds often make the situation worse. Not only do governments typically pour bad money after good, they also disrupt the process of correction. Insolvent banks are kept alive. Big businesses that ought to go broke and be sold off are instead propped up...the lights are kept on by government subsidies, preventing new competitors from occupying the space. Consumers and investors keep waiting for the promised "recovery"...for the cure...for the fix. Instead of quickly adjusting to the new circumstances, they delay...they hesitate...they postpone unpleasant changes. They might quickly sell a house at a loss, for example. They could then go on with their lives. But when they hear the feds tell them they have a new program in the works...or a new stimulus bill in Congress...or new action by the Fed...what are they supposed to think? "Maybe I should wait and see if this new effort does the trick..." they say to themselves. "I'll feel like a real fool if I sell now and then the feds get a new bull market going." "Maybe I should wait before accepting a job at a lower salary; it says in the paper that the economy should recover by summer..." The economic setbacks of the 19th century were sharp, but fairly short, affairs. The contribution of modern economics has been to stretch them out and make them worse. *** How about China? Won't growth in China and the other BRICs lead the whole world out of its funk? We wouldn't count on it. First, the Chinese economy has been growing at near double-digit rates for the last ten years. It didn't stop the crisis and so far it hasn't helped the developed nations - at least the US - get out of it. More important, China is probably getting itself into a big mess too. All we know is what we read in the paper on the subject. But what we read is that the spectacular growth China has enjoyed so far was made possible by freeing the private sector. But now the Chinese government is muscling the entrepreneurs out of the way. "Now...it is state-run Chinese companies that are on the march," says The New York Times. Railroads, mining, airlines, manufacturing, hotels, yogurt... The Chinese government either owns it, controls it, or invests in it. And if you think private investors make mistakes, you should see what the government does! A Daily Reckoning dictum: people make mistakes all the time; but if you want to make a real mess of things, you need taxpayer support. Regards, Bill Bonner
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| Posted: 31 Aug 2010 12:00 PM PDT So now the government is to step in and undo companies that are "headed" for collapse. This seems to us yet another step forward into a kind of bizarre alternative universe where free-markets are controlled and free-enterprise is managed. Anyone who has lived more than a few decades on the planet in a Western regulatory democracy must know at this point that regulatory authorities consistently fail. A larger dominant social theme here is, "We just have to keep trying until we get it right."
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| breaking news - JPM no longer trading commodoties Posted: 31 Aug 2010 11:39 AM PDT http://finance.yahoo.com/news/Source...&sset=&ccode= i found this over on kitco, its being reported by everyone.
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| Posted: 31 Aug 2010 11:27 AM PDT Gold Price Close Today : 1248.30Change : 11.40 or 0.9%Silver Price Close Today : 19.382Change : 0.372 cents or 2.0%Platinum Price Close Today : 1528.00Change : -2.00 or -0.1%Palladium... This is a summary only. Visit GOLDPRICE.ORG for the full article, gold price charts in ounces grams and kilos in 23 national currencies, and more!
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| Michael Pento Says Fed Will Buy Stocks And Real Estate In Its Next Attempt To Create Inflation Posted: 31 Aug 2010 11:07 AM PDT
As part of the Fed's latest QE iteration, it has already been made clear that despite initial disclosures that the Fed would stay in the 2-10 Year bound of Treasurys, Ben Bernanke is now also gobbling up the very long end of the curve. For all those who are, therefore, still confused why bonds continue to surge to record levels, don't be: when there is a guaranteed bidder just below you in the face of the Fed, and who you can turn around and sell to at will, there is no pricing risk. The problem, from a bigger stand point, is what happens when the Fed is actively buying up 30 Year bonds with impunity and the much desired (by the Fed) inflation still does not appear? Well, the Fed then, in Michael Pento's opinion, will begin to purchase stocks and real estate. And as all those who enjoy comparing the US to Japan can attest, outright purchases of securities by the Japanese government is a long-honored tradition in the ongoing fight with deflation in Japan. However, and as the recent BOJ (lack of) intervention demonstrated, Japan never could do anything with the required resolve, and bidding up one stock here and there would never achieve anything. Which is why in this interview with Eric King, Michael Pento makes the case that as opposed to the occasional market intervention via the President's Working Group, Bernanke will soon make stock purchases an outright policy of the Federal Reserve as its last ditch attempt to engender inflation before the hundreds of billions of Commercial Real Estate and other bank debt start maturing in 2011/2012. Bernanke is running out of time and he knows it. And once the Fed becomes the bidder of last resort in stocks, all bets are off, as the Central Bank will become the defacto only market in virtually every risky category. And the only safe vehicle, once the market then begins to price in Fed driven asset-price hyperinflation, will be gold. Pento also provides some perspectives on the Fed's balance sheet, which he anticipates will expand in a "great fashion", but a much bigger concern to the recent Euro Pacific Capital addition, is the possible surge in M2: "That base money can expand, M2 which is currently running around 8.5 trillion all the way up to nearly 25 to 30 trillion dollars of money supply and that's enough obviously to send prices through the roof." All Bernanke needs to do is light the "alternative asset purchasing" match and all those who wonder what left field hyperinflation could come out of, will get their answer. Of course, it wouldn't be a Pento interview without a requisite smack-down, in this case of Dennis Gartman, whose call to sell gold denominated in euros at the very bottom of the recent gold correction needs no further commentary: EUR-denom gold has jumped well over 10% since Gartman said to get out. Pento adds the following: "There is so much misinformation out there, Dennis Gartman was out there saying gold has lost its inflation hedging properties: this is just ludicrous and insane. I can tell you that gold will never lose its inflation lure, and that's precisely why I've stepped up my purchases of gold., I see what the monetary base is doing, I can clearly see Bernanke's next step to vastly increase the size of the balance sheet and the monetary base. So for me, it's 100% an inflation hedge." Pento also goes into explaining why housing is facing a "deflationary depression," and a further collapse in pricing, why inflation benefits only those closest to the money, i.e., the banks and the military complex, why it destroys the middle class (we are sure Buffett ca. 2003 could say something about that too... the current, far more senile and captured Uncle Warren, not so much), the impact on discretionary purchases, on unemployment, real incomes, and all other items which tend to "follow the money." Lastly, Pento concludes with an analysis of what would have happened had the government allowed the deflationary depression to occur two years ago, without the tens of trillions in bank bailouts. We protracted, and elongated the depression. But instead of having the benefit of falling prices, you have rising prices." And if Pento is right, the price rise has only just begun. Full King World News interview here.
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| Posted: 31 Aug 2010 10:48 AM PDT
CBC News reports, Magna, Stronach deal to go ahead:
If you read the comments on this article posted on the CBC website, they range from "what a crook!" to "he deserves his payday". Let me go over a couple of comments below. The first one blasts institutional shareholders:
I take issue with this statement because pension funds are by far more long-term in their investment approach than mutual funds or hedge funds. If anything, you'd want to have more pension funds as shareholders to take decisions that are in the best interest of long-term shareholders. More recently, the Ontario Teachers' Pension Plan posted a highly critical analysis of the Magna-style dual share collapses, asking whether class B shares are worth $863 million (click on images to enlarge):
In the end, despite opposition from several large Canadian public pension funds, Frank Stronach's $1-billion payday arrived:
Was the payout to Frank Stronach "abusive"? Any reasonable analysis would suggest so, but this battle was lost. While recognizing and appreciating that entrepreneurs like Mr. Stronach are the backbone of our economy, founding companies that generate lots of jobs while taking on enormous personal financial risks (see video below), I also share the concerns of institutional investors who feel this decision will set a dangerous precedent for other conversion deals.
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| Japan's New Stimulus: Good for Gold Posted: 31 Aug 2010 10:11 AM PDT When Quantitative Easing causes inflation, people naturally turn to Gold Investment... THE BIG ISSUE in global markets is the meeting of the Bank of Japan, writes Julian Phillips of the Gold Forecaster, where they debated what to do about a Yen strong enough to damage Japanese exports, the mainstay of the Japanese economy. It was agreed that Japan will spend ¥920 billion ($10.8bn) on economic stimulus and compile an extra budget if needed. The central bank expanded a loan program by ¥10 trillion ($116bn). This left the market underwhelmed and the Yen went stronger still. This was a red rag to a bull as it invited speculators to push the Yen even higher. They will keep pushing it up until the Bank of Japan takes sufficient action to prevent its rise. The talk is now that it will rise to around ¥78 against the US Dollar, which will force crisis action on the government. But far more than meets the eye lies in this action and potential action.
To understand the importance of these issues we take you back to the last time you heard the US complain about the undervaluation of the Chinese Yuan. It is perceived by many in government and in both parties that the Chinese are manipulating their currency to gain advantage in international trade and this is making many people angry. The Japanese are about to attempt the same. While the principles of a currency's exchange rate dictates that it should reflect the underlying Balance of Payments, such moves clearly go against this. Perhaps we should question whether the Balance of Payments should dictate an exchange rate? Or should it be as in Asia, do what you can to support your exports? If it is the former then the system of exchange rates as we have relied on is giving way to expediency, a road with no principles. In short, if expediency is the way forward then the global system of exchange rates is under threat. It is not simply a case of manipulating ones economy to engineer a weakening of one's currency if you need to stimulate your own economy. Surely, this also applies if you already have a strong economy. In the case of the US the policy of benign neglect has led the US into a situation that will lead to a falling Dollar as it has a structural Trade deficit and has watched its manufacturing slip away to China over the years. The reality of this is now China can exert a huge influence over US monetary policy due to the huge investment it has in US Treasuries. And right now they are making moves to reduce this investment to the detriment of the US The reality is there is no set of rules that determine exchange rates in the world economy. But you will find those who end up at a disadvantage howling 'foul'. When the 'credit crunch' struck, money literally disappeared of the balance sheets of banks and off those of individual investors. Governments stepped in, in Europe and the US and pumped in new money in an attempt to fill those holes to keep the system going. Despite this the credit crunch persists. Yes, the banks did fill these holes and have made good profits through their trading activities, but the impact on the broad economy is that bank lending was not resuscitated. The state of the consumer and the broad economy in the developed world tells us this. What's more, the banks have been pumping that money into Treasuries and making money there. So the purpose of the QE is actually being defeated in the States particularly. Certainly, no inflation is being seen in the US economy as a result of the QE. At least not yet! What should happen is that the money supply should be expanded in conjunction with job stimulation. We take you back to the Depression and the vast money expansion which President Roosevelt authorized through the revaluation and purchase of Gold Bullion thereafter. One of the ways he pulled the US out of the Depression was to employ the unemployed to dig holes and fill them in again. Many thought this ridiculous, but what did it do? It introduced that new money into the economy by expanding the numbers of employed but most important of all it got the consumer spending as the money supply expanded. The money did not go in at the top but went in at the bottom to then filter up into the entire economy. This got the entire economy going, not just the banks. It wasn't inflationary because it did not simply add money to the system, it added spending consumers too. It matched the expansion of the economy to the expansion of the money supply. Japan is a different kettle of fish. It has suffered deflation for a decade now. Its deflation has been absorbed by the economy and no 'holes' are there needing filling. New money in their system, we believe, will lie on the surface of the economy (as they want it to). It will precipitate inflation. Once this happens, savers will see little gain in holding depreciating cash and turn to invest in assets, so as to protect the value of their savings. They are not spending, but continue to save. By doing that the flow of money in the economy is too slow. We believe that Japan is now about to walk that inflationary road to get the consumer spending through lowering the value of his savings. The only difficulty is that they have not done enough in this latest package to achieve that, so expect more and soon, as the Yen continues to rise. If they have success, you can be sure the US will do the same. How can this be good for Gold Investment? Put yourself into the shoes of the Japanese investor. He has suffered deflation for so long he regularly invests in other currencies to gain the interest rate differential as well as the gain in foreign currencies over the Yen when it falls. With the Bank of Japan telling these investors they want to lower the Yen, these investors, when convinced this is about to happen, will follow this route more enthusiastically. If he believes inflation is about to take off, he knows that in the present global environment the Bank of Japan cannot afford to let interest rates rise (and take the Yen with them). He then realizes that the buying power of the Yen is being reduced by such stimuli. Inevitably, once the Yen has been undermined by QE, interest rates will eventually have to rise, to counter excessive inflation. With this in mind both cash and fixed income securities lose their attraction. A hard asset that cannot be debauched is preferable. Locally this can be anything from property to gold. The advantage of gold is that it is well known to the Japanese and it travels all over the world. History also shows that gold has proved itself the certain retainer of value in all extreme times including both deflation and inflation. In view of this we believe that the Japanese will turn to gold, once they see the policies intended to lower the Yen, working. Got gold? Make it safe, secure and cost-effective like nowhere else at world No.1 BullionVault...
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