saveyourassetsfirst3 |
- Why Quantitative Easing WILL NOT Help the Economy – But WILL Help Gold and Other Commodities!
- Bernanke Denies Printing Money. Mogambo Not Convinced.
- Swiss National Bank
- Year-End Precious Metal Insurance Sale
- The Future Mobile Advertising Revolution
- Gold and Silvers Daily Review for December 20th, 2010
- Focal Point : GOLD
- Gold Demand From ETF Growth Will Reach 1,700 Tons By 2012
- Charting Silver
- Porter Stansberry: The destruction of our currency is now certain
- Top trend forecaster: Ten shocking predictions for 2011
- Marc Faber: Big emerging markets correction coming
- Here's what a dollar crisis could do to U.S. gold stocks
- View From the Turret: Tis the Season
- The Incompatibility of Today's Interest Rates and Gold Prices
- Some Information on Silver
- Strong Dollar still weighing on Gold
- Bernanke’s inflationary binge could spark a currency war and ruin the dollar
- 3 Things to Watch As Silver Season Ends
- Empire of Fraud no. 9 (How to Play the Silver Spike)
- Zero Collateral
- Why the Correction is Winning the Fight Against Fed Stimulus
- MUST WATCH: Jim Rickards – The Currency End Game
- Silver Lining: Jim Williams of Arian
- Champagne For Some, Red Bull for Others
- Gold Advances as ETF Holdings Surge
- CFTC Delays Position Limits – Bullion Banks Reduce Silver Shorts
- Weekender: The Trouble With Modern Monetary Theory (MMT)
- Gold, Silver could go ballistic by year end
| Why Quantitative Easing WILL NOT Help the Economy – But WILL Help Gold and Other Commodities! Posted: 20 Dec 2010 06:55 AM PST At present, the governors of the Fed are creating massive distortions in the financial markets with little hope of improving real economic growth or employment... Quantitative easing promises to have little effect except to provoke commodity [gold and silver] hoarding, a decline in bond yields to levels that reflect nothing but risk premiums for maturity risk, and an expansion in stock valuations to levels that have rarely been sustained for long (the current Shiller P/E of 22 for the S&P 500 has typically been followed by 5- to 10-year total returns below 5% annually). [Let me explain.] Words: 3066 |
| Bernanke Denies Printing Money. Mogambo Not Convinced. Posted: 20 Dec 2010 05:56 AM PST No matter how much I try to calm down, I can't stop being angry about the unbelievable, towering arrogance of the horrid Ben Bernanke, chairman of the Federal Reserve, when he actually said, "One myth that's out there is that what we're doing is printing money. We're not printing money. The amount of currency in circulation is not changing"!! Astute Junior Mogambo Rangers (JMRs) immediately noticed my editorial use of two exclamation points to punctuate Mr. Bernanke's words, which I deliberately use to bring your attention to a focused, laser beam-like intensity so as to fully appreciate the single, uncontested fact that Ben Bernanke is, being as polite as I can, a lying, stinking piece of worthless, dangerous, corrupt crap. Well, he must act that way, I suppose, in defense of the Utter, Utter Failure (UUF) of the Federal Reserve and its slavish, unthinking, mindless obedience to the erroneous computer forecasts and printouts of their idiotic and tragically-laughable neo-Keynesian econometric crapola, which I cleverly and sarcastically sum up as, "Approximations and guesses turned into actions based on forecasts with precision to three decimal places!" Of course, Junior Mogambo Ranger s (JMRs) already know that Ben Bernanke, chairman of the Federal Reserve, is finishing up the job of destroying the economy by simply creating terrifyingly more and more money, a fearful over-creation of money that was started by the satanic Alan Greenspan, chairman of the Fed from 1987-2006, so use of the double exclamation points seems to call for some explanation. The first exclamation point is to show that Mr. Bernanke is, indeed, a lying, stinking piece of worthless, dangerous, corrupt crap, as the fact is that Currency in Circulation is $976.4 billion, which is up $55 billion in the last year, and which is a 6% increase in the cash part of the money supply, which ain't zero. And let's take a look at the monetary base! It is up $14 billion in just the last week! And the M2 money supply is up about $700 billion in the last year, too, taking M2 to $8,767 billion! And let's not forget that the national debt is horrifyingly up another $1.7 trillion in the last year, zooming the national debt to a staggering $13.8 trillion, which begs the question, "Where in the hell did $1.7 trillion in cash come from, with which investors used to buy this flood of new government debt, if not from the Federal Reserve creating it? Outer space or something?" It was such a good question that I decided to call up the Federal Reserve to ask them. And I since I took the precaution to record the entire conversation, you can actually hear me tell the little receptionist who answered the phone, "I want to talk to this Ben Bernanke halfwit, the one who says the Fed is not printing money, so that he could to explain to me, and explain to this whole quadrant of the galaxy, where in the hell $1.7 trillion in cash came from to buy all of that new Treasury debt, if not from the Federal Reserve! And don't tell me it came from outer space, when I know – for a fact! – that all this money did NOT come from outer space! And don't ask me how I know, puny Earthling, but I know!" Well, the storyline turned out to be a dud, as I waited on "hold" for a long time, there was some weird clicking on the line, and then the line went dead, which I take as meaning that the cowardly Bernanke is avoiding me so that I can't force him to admit that he is drowning the country in money and thus he is destroying us with disastrous inflation in prices. And if I could force him to admit that, then it would be but child's play to get him to also admit, "The Mogambo, whom we all mocked and ridiculed because he sounds so stupid, looks so stupid and acts like an irresponsible lowlife, is actually right! Buying gold and silver is, as he says, the appropriate action to take when the money supply is being increased, and if you can't see that for yourself, or believe it when you hear it from me, the chairman of the Federal Reserve, then you deserve what you get, you moron, which will be, as the Fabulous And Wonderful Mogambo (FAWM) has famously said, 'You're freaking doomed!'" Ahhh! Would that life be that easy! Fortunately, buying gold and silver is the easiest part of all, and it is so obviously the right thing to do that those who buy them say, "Whee! This investing stuff is easy!" The Mogambo Guru Bernanke Denies Printing Money. Mogambo Not Convinced. 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." |
| Posted: 20 Dec 2010 05:18 AM PST Bruce Krasting submits: The Swiss National Bank has made two significant reserve management moves over the past decade that have blown up spectacularly. Now they have put on another big position. Given the past track record, a spec position against their book might be a winner. First, a bit about the past. Starting in 2001 and ending in 2005 the SNB sold off half of their big holdings of gold. They sold a total 1,300 tonnes. Phillip Hildebrand, the current chairman of the SNB gave a speech in 2005 to the Institute for International Economics. He crowed about the success of the program. (PDF Link). This chart from that speech tells it all (click to enlarge). The SNB sold at the dead bottom of the market. The four-year program netted them an average selling price around $350. What a disaster. The 42 million ounces of gold is now worth $44 billion more than what it was sold for. Complete Story » |
| Year-End Precious Metal Insurance Sale Posted: 20 Dec 2010 05:10 AM PST Hard Assets Investor submits: By Brad Zigler Holiday bargains abound now. Relatively speaking, of course. Take the price of gold and silver as examples. Price-conscious bullion buyers who waited a week for a sale ("Five Golden Rings A Bargain?") were recently able to save $20/ounce for the shiny yellow stuff. Complete Story » |
| The Future Mobile Advertising Revolution Posted: 20 Dec 2010 04:36 AM PST Jeff Pierce submits: I think as we look back on 2010 we will all recognize that Mobile Advertising is now becoming part of our daily life. With Google (GOOG) and Apple (AAPL) both entering the year making multi-million dollar acquisitions, it was only a matter of time before mobile really took off. Whether it’s via smart phone, netbook or tablet, people are starting to expect it. This reminds me a lot of 2007, when Apple introduced the iPhone that wowed consumers with amazing touch screen capabilities. You could flick pages, resize pictures, rearrange the screen and of course play games much differently than before. It was not long before people started to expect a touch interface on every device they came in contact with and today 55% of all smart phones come with a touch screen interface. Complete Story » |
| Gold and Silvers Daily Review for December 20th, 2010 Posted: 20 Dec 2010 03:46 AM PST
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| Gold Demand From ETF Growth Will Reach 1,700 Tons By 2012 Posted: 20 Dec 2010 02:24 AM PST Yahoo |
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| Porter Stansberry: The destruction of our currency is now certain Posted: 20 Dec 2010 12:27 AM PST From Porter Stansberry in the S&A Digest: I'd like to begin today's Digest with a parable of sorts. I'd like to show you what the [tax cut] "compromise" reached in Washington was all about and the damage it will have on our economy moving forward. The specifics of the compromise are mind-numbingly dull, so I've thought of a more entertaining way to explain what's really going on... Here's how our story begins: Pretend you're one of the millions of deadbeat home "owners" out there. I put "owners" in quotes because lots of the people in this situation don't actually have any equity in the property at all – and never did, thanks to piggyback and no-doc loans (among other absurdities). Now, I realize our subscribers aren't these kinds of people. So you'll have to use your imaginations. Just indulge me for a minute. Pretend you bought a house you knew you couldn't possibly afford (unless home prices actually did go to the moon), and you haven't been making any real payments on your house in months or years... Normally, you'd be facing two choices. If there's simply no way you can afford the interest on the note – if you've lost your job, for example – you don't have any other choice. You have to return the keys. You'll lose whatever equity you had in the house. And you'll have to start paying rent somewhere else or rely on the kindness of family (or strangers) to take you in. The other choice, assuming your income exceeds the interest and principal payments, is simply to reduce all your other expenses until you're able to make the payments. That's biting the bullet and taking your lumps. It's painful, but it will teach you a valuable lesson about buying things with credit. Congress faces a similar choice. Our current total debt is now close to $14 trillion. The number is so large it's meaningless. No one can comprehend how much money $14 trillion really is. A better way to think about it is that each American taxpayer owes $125,000. That's like a whole additional mortgage for most people. I want to be clear about this: These debts are real. These debts are money we owe today. They must be financed (we have to pay interest on them). And they DO NOT include any future promised payments. And the money Congress officially owes fails to include other significant debts. Regardless, Congress is likely to end up repaying these debts. Debt at the state level now totals $1.1 trillion, and local government debt is another $1.6 trillion. Investors have long assumed Congress effectively guarantees these debts (Investors trusted the federal government would step in to prevent state and local governments from defaulting). In addition to these debts, Congress has guaranteed the assets of Fannie Mae and Freddie Mac on an unlimited basis. Losses at these two companies, by my estimate (which was once thought ludicrously large and is now a mainstream prediction), total $800 billion. And then there's a slew of TARP-related investment and guarantees, the costs of which are unknown. If you throw on an extra $3 trillion, that brings the total debt package up to much more than 100% of GDP. Adding up all the numbers and applying a market-based rate of interest (6%) to these debts, you'll find that the real (i.e. not manipulated by the Federal Reserve) cost of servicing these $17 trillion in debts would be a little more than $1 trillion. Total annual federal revenue from income taxes and corporate taxes over the last year was $1.1 trillion. These are all real numbers. You can verify all of them. What they tell me is... absent the Federal Reserve's intervention in the Treasury bond market... and absent the myth of "off balance sheet" obligations... our federal government would already be bankrupt. I don't believe in financial myths. Neither should you. Our government is bankrupt: It cannot possibly afford to finance its existing obligations in sound money. At the moment, none of the official numbers appear so dire because state governments haven't gone belly up (yet), the losses from Fannie and Freddie (which are certainly real) haven't been officially added to the budget, and the Federal Reserve is still holding down interest rates. The problem is, by manipulating interest rates and printing money, inflation pressures are already heavily influencing the real economy. Sooner or later, the Fed will have to stop or risk a massive hyperinflation. And at the moment the Fed steps away from the Treasury bond market, how high will rates go? Given the real state of the government's balance sheet, rates could soar well past 6%. This collapse of the bond market could happen overnight. It could happen at any time... any time. Again... all of these facts and numbers are real – all of them. They are all based on what we owe today. I'm not counting projected deficits (which are huge and growing). I'm not counting any personal debt in these forecasts – which are also immense. Total debt in the U.S. comes to more than $680,000 per family. No doubt, these personal debts cannot be repaid and could not even be financed without the ongoing intervention by the Federal Reserve. Thus... our nation's economy is literally hanging by a piece of paper – the global paper-dollar standard. And Fed Chairman Ben Bernanke is destroying it by printing billions of dollars per day. How long can this go on? Not long, friends. Not long at all. The Congressional Budget Office knows all of these facts. WikiLeaks obtained none of this data. Every single member of Congress knows these facts. Bernanke knows them, too – which is why he was trembling so hard on national TV a couple weeks ago. So what did Congress decide to do about these problems this week? What was the compromise that was reached that the news media seems so happy about? The politicians decided to lower taxes. It's a move the Congressional Budget Office estimates will add nearly $1 trillion more to the deficit over the next two years. That's another $1 trillion that we will have to finance. No spending programs were cut. None. Congress is like an upside-down, deadbeat homeowner who has refused to move out of his house and can't possibly afford the mortgage. He thinks everything will be fine because he's living rent-free and thus can afford to go out to dinner, take vacations, and buy a new car. In fact, things are going so well, he's kinda forgotten about the entire risk of foreclosure. Nobody will ever get around to kicking him out he's come to believe. What could go wrong? The leadership of the United States is driving our country directly off a cliff. They are pretending a day of reckoning will never occur... that Bernanke can successfully paper over these debts along with however many trillions of additional dollars are necessary. This is the absolute height of ignorance. The destruction of our currency and our country's standing in the world's economy is certain. We are already at the point where our government's debt cannot be financed at any legitimate rate of interest... and yet our leaders show zero interest in doing anything to prevent this unmitigated financial disaster. Crux Note: Porter recently produced a video detailing exactly what to do to protect yourself from these problems. If you haven't watched it yet, be sure to do so here. More from Porter Stansberry: Porter Stansberry: This investment secret will change your life Porter Stansberry: Food crisis looming... prices set to skyrocket... Porter Stansberry: These horrific predictions are now coming true |
| Top trend forecaster: Ten shocking predictions for 2011 Posted: 20 Dec 2010 12:26 AM PST From LewRockwell.com: After the tumultuous years of the Great Recession, a battered people may wish that 2011 will bring a return to kinder, gentler times. But that is not what we are predicting. Instead, the fruits of government and institutional action – and inaction – on many fronts will ripen in unplanned-for fashions. Trends we have previously identified, and that have been brewing for some time, will reach maturity in 2011, impacting just about everyone in the world. 1. Wake-Up Call in 2011: The people of all nations will fully recognize how grave... Read full article... More Cruxallaneous: This high-flying stock could be a terrible omen for America TIPPING POINT: A financial collapse could be closer than ever Democrats and Republicans are BOTH wrong about the Bush tax cuts |
| Marc Faber: Big emerging markets correction coming Posted: 20 Dec 2010 12:18 AM PST From Investment Postcards from Cape Town: Marc Faber, author of the Gloom Boom & Doom Report, is not expecting emerging markets to perform well over the next six months. As a matter of fact, he sees a 20–30% correction as quite likely. China, India, and Brazil are already... Read full article (with video)... More from Marc Faber: Marc Faber: The bear market in bonds is just beginning Marc Faber: The two investments every American should own Marc Faber: The three commodity investments you must buy now |
| Here's what a dollar crisis could do to U.S. gold stocks Posted: 20 Dec 2010 12:00 AM PST By David Galland, Managing Director, Casey Research: As the U.S. dollar takes a nosedive and precious metals gain more and more attention from individual investors, the number of questions and concerns is increasing as well. The following reader email addressed to Casey Research is representative of so many inquiries that we decided to provide an in-depth response that may prove instructional to others as well. I have been agonizing about getting metal after dumping paper metal I held and was reading the Daily Dispatch looking for investment clues. I was pondering the ratios of thirds that you mentioned in a recent Dispatch and the pursuing of metal stocks when an issue occurred to me that was not mentioned. On the one hand, you discuss the dollar trap of investors running from one currency to another, away from the dollar and back to it. I fear that the dollar is doomed as are other fiat currencies, and time is getting short. So the question that came to mind is, what happens if one is invested in metal stocks or any vehicle that is denominated in a fiat currency, and that currency goes bust, blotto? What value does that investment retain? Does it become a total loss? Read full article... More on gold stocks: This could be a great time to sell your gold stocks How to trade junior gold stocks with much less risk George Soros and John Paulson love this gold stock |
| View From the Turret: Tis the Season Posted: 19 Dec 2010 11:55 PM PST
From a trading perspective, opportunities are likely to be weighted toward the early part of the week with volume drying up substantially by Thursday and Friday. When it comes to institutional desks, we're dealing with the second string managers (at best) and so the price and volume signals become less reliable. This doesn't mean that we shut down our trading operations entirely, but it does warrant an attitude of caution as the price movement includes more noise, and lower levels of liquidity make it more difficult to efficiently enter and exit positions. The Mercenary Trader book enters the week with a fairly heavy short bias. China represents a significant portion of our short exposure as the leader of emerging markets fights inflation and may disappoint global growth investors who still appear to be overweight this vulnerable area. At the same time, several domestic (US) momentum names are beginning to show signs of topping out, and we've already begun building exposure with risk points tightening and profits accumulating. Working with a balanced book is always an objective to pursue, and we are continually stalking long opportunities to help counterbalance our bearish exposure. In practice, this often means using stop / limit orders to buy attractive names should the market begin to rally. So while the actual exposure in our trading book remains heavily bearish, there are a number of bullish opportunities that remain on our radar and will likely trigger buy orders should the price action begin to improve. So with that backdrop, let's step in and look at a few charts for this holiday week.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I had to smile a bit when I read Whitney Tilson's excellent fundamental review of Netflix Inc. (NFLX). The article begins with the statement "We've lost a lot of money betting against Netflix…" and then goes on to explain why Tilson believes Netflix is over-priced and vulnerable. While we agree with most of the bearish elements of the article (and have been shaking our heads at the rise in the stock for months now,) I'm happy to report that we have NOT lost a lot of money betting against Netflix. Whenever a momentum stock appears to dislocate itself from any rational fundamental price range, value short traders are often the first to step onto the battlefield and begin to fade the momentum. But the problem is, when a stock is disconnected from rationality, there's really no reason to believe that it will re-connect in a short amount of time. If a stock priced at $100 makes absolutely no fundamental sense, why couldn't it trade to $200 just as easily?? And so for Netflix, (along with other momentum generals) we have taken a few shots at bearish trades along the way – but only when the price action shows that there is a good reward-to-risk opportunity. Our trades always have a well-defined risk point and if that level is hit, we're out – no questions asked! In the case of Netflix, we noted "three strikes and you're out" last week – and we have built a short position based on 1) internal business turbulence, 2) a major price failure at the key $200 level and 3) a failure to hold the bullish "index effect" after the stock was added to the S&P 500. The stock faces a key test at the current juncture with the 50 EMA just below – a level that has offered support several times on the way up. If this area is broken, it could give us yet another chance to pyramid our exposure and pour on the nitro for the ride lower.
As far as new setups are concerned, we're keeping it relatively light this week given the liquidity and volatility issues at hand. Fertilizer / Agflation The agflation theme has taken a bit of a back seat over recent weeks as European concerns have captured traders' attention. But after taking some time to consolidate recent gains, fertilizer stocks could offer an attractive bullish trade as they begin another leg higher. It's interesting to note that even after the Potash Corp. (POT) takeover deal was killed by the Canadian government, the stock still remains well above the level it sat at before the hostile bid. This evidence of demand for the stock leads to great opportunities for a few of the competing firms… We have a pending trade in Agrium, Inc. (AGU) which has found support near the $80 level. If AGU begins to move higher, we will take on long exposure which helps to offset our bearish bent, and also offers us a great reward to risk setup with a few bips at risk and significant upside potential if AGU pushes to new highs.
Fellow fertilizer stock Mosaic Co. (MOS) has a similar pattern as the stock has taken a few weeks to consolidate tremendous summer gains. Fundamentally, the fertilizer demand picture still looks very bullish with emerging market population growth (along with a higher standard of living) drives both quantity and price levels for stockpiles of potash, phosphates, and nitrogen-based fertilizers.
 Precious Metals Jack has been picking academic arguments left and right with his discussion of Modern Monetary Theory (MMT) as well as through his discussion of The Von Mises Prophecy. I use the term "academic arguments" because the majority of rebuttals come from theorists sticking to hypothetical models. But our position as real-economy market participants has us much more interested in making money – versus being "right" – and at this point we're seeing yet another opportunity to leg into additional precious metals exposure. Our current position in Silver Wheaton (SLW) has us sitting with partial profits booked, a tightened risk point that protects profits on the second half of the position, and an opportunity to pyramid back into some additional exposure should the name find support and begin to trade higher once again. The company is one of our three favorite silver plays, and Silver Wheaton has a very unique approach to the business. Instead of developing its own mines, SLW enters purchase agreements with an assortment of silver miners – thereby reducing its operational risk but still allowing the company to participate profitably as the price of silver advances.
Entering the week, we have an additional silver setup pending. The ProShares Ultra Silver (AGQ) offers a leveraged play on the spot price of silver, and its recent pullback to the 20 EMA may very well offer an attractive entry point. With currency concerns still a major factor in today's market, precious metals continue to be seen as an attractive alternative to owning Dollars, Euros, Yen or other currencies. Additionally, speculative traders are actively involved creating demand and sending prices sharply higher.
China Weakness We continue to hold our bearish China exposure with short positions in broad indices like the iShares China 25 (FXI) as well as the PowerShares USX China (PGJ). Baidu Inc. (BIDU) offered us an exceptional opportunity to take on bearish China exposure when the stock broke down last week. BIDU had been trading in a tight range near its peak, and our pending short trade was hit as the stock broke through the support levels. Now BIDU is back below the key $100 level which could give traders another reason to dump their exposure, adding more pressure to this expensive and vulnerable Chinese stock.
Shortly before the open, the futures show modestly positive action with no major surprises. Trade 'em carefully this week, |
| The Incompatibility of Today's Interest Rates and Gold Prices Posted: 19 Dec 2010 10:03 PM PST An interesting video on interest rates and the gold price, provided by Itulip.com. The sound quality is inferior but the concept is what is important. John Williams vs. Ben Bernanke on (Hyper)Inflation The Con of [...] |
| Posted: 19 Dec 2010 10:01 PM PST For those interested in silver, Casey Research has a report. The report is clearly promotional, but it provides "newbies" background to silver markets. I am not recommending any particular strategy or product. I suggest this [...] |
| Strong Dollar still weighing on Gold Posted: 19 Dec 2010 04:45 PM PST Goldmoney |
| Bernanke’s inflationary binge could spark a currency war and ruin the dollar Posted: 19 Dec 2010 04:43 PM PST
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| 3 Things to Watch As Silver Season Ends Posted: 19 Dec 2010 04:26 PM PST Silver season is coming quickly to a close after one of the best five month rallies in silver history. From mid-August to early December, silver managed to rise more than 66% from top to bottom, a sign of silver's strength against what is normally a positive, but not nearly as pronounced, rise in silver prices. In moving forward, there are three main events on which silver investors need to focus. |
| Empire of Fraud no. 9 (How to Play the Silver Spike) Posted: 19 Dec 2010 04:22 PM PST At the current gold to silver price ratio of about 47:1, silver is a low risk investment with a large potential reward. If you are interested in silver, then you know the bullish arguments. What I'm telling you here, is how to play the coming silver spike. |
| Posted: 19 Dec 2010 12:08 PM PST --Australia's biggest problem on Monday, December 2010 is that there's just not enough government debt. Yes, it may sound strange to you, dear reader. But take it from the Australian banks, the Reserve Bank of Australia (RBA), and the Australian Prudential Regulatory Authority (APRA). -- It turns out your Daily Reckoning editor has been thinking about it all wrong! It's not too much debt we should be worried about. It's too little! --We're referring to the story this weekend that the RBA will offer "contingency loans" to any Aussie banks if and when there's another credit crisis. The plan was cooked up in response to new global banking liquidity requirements. Those requirements were set up by the Basel Committee on Banking Supervision. It's a group that makes the rules for other central banks. --So what? --Well, the Basel gang has said that in order to prevent another crisis from taking down big banks, banks must hold the kind of assets they can quickly turn into cash; enough cash to see them through a 30-day "severe liquidity stress scenario," according to Bloomberg. That's the cash the banks would use to settle up short-term loans and obligations (the kinds of loans that are hard to refinance when no one is lending). --The types of assets that are liquid enough to satisfy the Basel people are cash, government bonds, and non-financial high-grade corporate debt. Basel says 60% of assets must meet the liquidity requirement. But here's the problem...there's not enough government debt in Australia! --Aussie banks have most of their assets tied up in home loans, as the chart below from APRA shows. And with only $175 billion in government debt outstanding, there's not enough government debt for the banks to load up on to reach the 60% threshold. So how can they make sure they satisfy the Basel requirements?
--The obvious answer is that the Australian government should go much deeper into debt. Borrow more money at all costs! This would allow the banks to buy up that debt and hold it on their balance sheet as high-quality capital in a liquidity crisis. If only the government would borrow more money, the banks would be better capitalised with more liquid balance sheets. With more debt, the whole economy would be richer. --But let's assume the government is not going to issue new bonds fast enough to meet the Basel requirements. No problem! The RBA has said it will accept other kinds of collateral in exchange for liquid reserves that can see a local big bank through a global crisis. What kinds of collateral qualify? --That's where it gets a little tricky. The RBA hasn't finalised what kind of bank assets will be acceptable as collateral for a loan in a crisis. But there are only so many assets on the balance sheet to choose from. The big ones are: residential housing loans, commercial real estate loans, and deposits (expensive watches, gold coins, and plasma televisions do not, unfortunately qualify...not yet anyway). --If the RBA is going to accept commercial real estate loans as collateral for a loan, it will slowly be turning itself into the kind of pawn shop/brothel that the Federal Reserve has become. We say "brothel" because the joint RBA/APRA announcement says the RBA may simply charge a borrowing bank an "appropriate fee" in exchange for liquidity. Don't have collateral? That's okay. Just pay a fee! --This is called "renting the public balance sheet." It is more of an over-night rental rather than a long-term accommodation. It's a kind of financial love motel in which the banks get what they desperately need for the night (or a few weeks). But afterwards, no one has to know what happened and the banks can go back to pretending they are good, upstanding citizens. --Of course the other possibility is that Aussie banks pledge deposits as collateral for emergency loans. But with deposits also potentially backing the newly-approved covered bonds, surely you couldn't double pledge the same collateral could you? Or could you!? --If you dismiss with all the mechanics of which collateral is eligible at the RBA, you can see that the real problem is that the banks have massive over-exposure to housing on the asset side of the balance sheet. But hey, that's where the money is to be made right? Keep feeding the bubble and you can't go wrong. --The only thing different with the story today is that in order to satisfy global liquidity requirements from Basel, Aussie banks have to basically admit they don't really have any other assets that would satisfy normal collateral requirements. So the RBA has agreed to create a scheme where no collateral is required at all! --Presto! Change-o! Bingo, bango, bongo! --So as we begin the week we see that the gradual financialisation/debt enslavement of Australian life continues. The interest of the banks trumps the interest of an economy based on building real things and selling them to generate incomes. Everyone in Australia will get rich with rising house prices without having to do any work. Because that's worked so well everywhere else! --Finally, the man who coined the expression, "a currency without a State" is dead. Italian central banker Tommaso Padoa-Schioppa died in Rome at the age of 70, according to the Financial Times. Former EU President Jacques Delors said that Padoa-Schioppa, "Embodied the spirit of European construction," Jacques Delors, former president of the European Commission...He had a huge historical culture, and he was also a specialist: he had a great knowledge of the economy and financial regulation. And he was even more federalist than me." --History sometimes offers up these parallels. Europe's federal experiment in centralised money without harmonised political and economic structures is falling flat on its face (also dying). It was an intellectual conceit to begin with, based on a flawed understanding of money. --Money isn't an idea. It's a commodity. And if it doesn't have certain real, tangible properties, it will eventually fail (as all paper currencies do). That will probably be the big event of next year. If this year was the year of the sovereign debt crisis, next year is the year of reserve currency failure. Until tomorrow... Similar Posts: |
| Why the Correction is Winning the Fight Against Fed Stimulus Posted: 19 Dec 2010 12:08 PM PST Here's the latest report from Bloomberg:
Hold on. Are you telling us that after the Fed increases the core money supply by 300%...and says it is going to up it another 100%...consumer prices are still flat? Yes? Hmmm... And are you saying that slowing consumer price increases show that the "recovery is gaining momentum?" Are you kidding? Oh, dear reader... What claptrap! What nonsense! What balderdash! The feds make the biggest stimulus effort in history. The Fed pumps $1.7 trillion into the banking system...with a promise of $600 billion more. And consumer prices don't even budge? What happened to the most fundamental laws of finance? Have they been suspended? Have we entered some perverse, parallel universe? Or does this mean what we think it means...that the downward tug of the Great Correction is so strong it overwhelms all the feds' efforts...the zero percent prime lending rate...the $700 billion stimulus bill...the $1.3 billion federal deficit...QE I, QE II... That's no success story. That's a disaster. Of course, all this money has to go somewhere. And there's no mystery about where it has gone. Commodities are hitting new highs. Oil seems headed back to $100 a barrel. Gold was over $1,400 an ounce. Even US stocks are up about 25% this year. As predicted, the feds' easy money has gone into speculative assets...not into the real economy. That's why one out of 10 people in the workforce is officially unemployed...and why, unofficially, it's probably more like one out of every 5. And it's why consumer prices are NOT rising. Imagine what would happen if this were a real recovery? Imagine that the Fed increased the core money supply by 4 times. Imagine what would happen to consumer prices! Poor Ben Bernanke must be tired of imagining. He will keep printing money - or so Bloomberg concludes - until he doesn't have to imagine anymore. He'll print until he reads about inflation in the paper! But when will that be? How much wood pulp will Ben Bernanke have to chuck into the printer until consumer prices rise and unemployment falls? We'll find out! And more thoughts... Is the US the "sick man" of the globe, asks a Reuters article? It's a provocative headline. And the answer is probably "yes," in many respects. "Report drunk drivers," says one sign. "Report Suspicious Activity," says another. "Report Unclaimed Bags," says a third. Americans are being trained to denounce their neighbors. There's something a little sick about so much tattling. And here's something that is not only sick, but fatal: "Tax deal cruises through Senate," said yesterday's Washington Post headline. The House is supposed to follow. Now, you take a place like Italy or Greece. The papers report that there are riots in Italy. And in Greece, anti-austerity demonstrations have turned violent. You don't see that sort of thing in the US. Nope. Because in America our public servants really serve. Some of the members of the Senate wanted the rich to pay more in taxes. Others just wanted to be sure the poor got more unemployment benefits and other giveaways. But after hours of argument, the world's greatest deliberative body thrashed out a compromise. Forget the taxes. Forget the cuts. Everybody gets something. Yes, dear reader, that's what makes America great. You might think it is reckless to extend the tax reductions, what with the nation going broke and all. Or you might think it hardhearted not to give more handouts to the little guy, what with the Great Correction underway. But it's always inspiring to see the peoples' representatives joining hands and doing something that is truly stupid. Lower taxes AND more spending too! *** Meanwhile, the poor Europeans just can't seem to get with the program. They're cutting services. They're working to balance budgets. They're raising taxes. And even still, investors sell their bonds! No kidding. "Spain debt yields near euro-era high," says The Financial Times. See what good it gets you? You try to do things right and investors stab you in the back. So you see, the Americans are right. Better to spend, spend, spend...until you go broke. Regards, Bill Bonner. |
| MUST WATCH: Jim Rickards – The Currency End Game Posted: 19 Dec 2010 11:26 AM PST This must watch lecture features Jim Rickards at Johns Hopkins University on December 7, 2010. He spoke as part of the Rethinking the Future International Security Environment series at Johns Hopkins. In the lecture Rickards discusses the unavoidable global currency crisis and its possible outcomes CLICK HERE FOR THE FULL VIDEO LECTUREClICK HERE FOR THE LECTURE PRESENTATION (PDF) CLICK HERE FOR THE LECTURE OUTLINE (PDF) CLICK HERE FOR THE PRESENTATION NOTES (PDF) |
| Silver Lining: Jim Williams of Arian Posted: 19 Dec 2010 10:00 AM PST For the CEO of Arian Silver the potential for 200 million ounces in the ground is something to get excited about. In an interview, Williams explains why he remains bullish on the prospects for silver and outlines his plans for Arian in the future. |
| Champagne For Some, Red Bull for Others Posted: 19 Dec 2010 10:00 AM PST Gold spot prices opened $9.80 per ounce higher on Monday and were quoted at $1,385.30 as fresh fund-originated buying was noted in the wake of the EU debt uncertainties and Korean peninsula–initiated jitters. |
| Gold Advances as ETF Holdings Surge Posted: 19 Dec 2010 10:00 AM PST Gold is rallying for a second day as some bargain buyers begin to nibble after the recent selloff. Long-term US Treasury yields have fallen nearly 25 basis points since last week and that is increasing the appeal of the safe haven metal. |
| CFTC Delays Position Limits – Bullion Banks Reduce Silver Shorts Posted: 19 Dec 2010 08:59 AM PST LAS VEGAS - We are still on the road as we write this brief weekend note for readers and subscribers, but ready to head back to the ranch in Texas. Today we take a look at the CFTC hearing on metals position limits and a close look at the positioning of the bullion banks in silver futures, but first, just below is this week's closing table. ... |
| Weekender: The Trouble With Modern Monetary Theory (MMT) Posted: 19 Dec 2010 04:40 AM PST
To be blunt, MMT is fatally flawed, and someone needs to address those flaws head on. (That is the conclusion of yours truly after investigating in recent months.) If you aren't familiar with Modern Monetary Theory, the quotes in the blue sidebar may disturb you a bit. They highlight some rather bizarre assertions made by MMT proponents. In some ways the MMTers are neo-channelers of Dick "deficits don't matter" Cheney. (Full quote: "Reagan taught us that deficits don't matter.") In reality, what Reagan taught us is that deficits don't have to matter for extended periods of time. But then, all of sudden, they can start mattering a great deal. But we'll get to that… point being, MMTers think deficit concerns are bunk. In fact, they don't see much reason to worry at all! Dead wrong, as we shall see…
Let me preface by saying I have great respect for the work of Cullen Roche, who blogs at the excellent Pragmatic Capitalist website (www.pragcap.com). From what I can tell, Cullen is the most vocal and ubiquitous defender of MMT on the web (next to Waren Mosler himself). Because he is so indelibly associated with MMT, I want to stress that my sharp criticisms here are directed at the theory, not Mr. Roche individually. Let me also throw in that these are just the thoughts of a humble trader, trying to explain economic reality in layman's terms. I am no policy wonk. My partner and I are just straight up swing traders looking to book 40% annual returns with reasonably controlled drawdowns. But because my views and communication methods are somewhat unorthodox – and because I've picked up a few things in my global macro travels over the years – I feel have something to add here. We'll start with some due diligence… then move into the blunt critiques of MMT… then offer a visuals-and-graphics alternative, closing with a recap. Due Diligence Before we break out the baseball bats, it's only fair to let the defenders of MMT speak in their own words. For that reason, I recommend the following resources:
The big assertion of MMT is that the United States government is self-funding. (See box at right.) According to MMT,
For this reason, MMTers further add, the United States government can never run out of money. How could it? The money Uncle Sam spends does not come from bonds or taxes. He just spends it. As Cullen Roche says, "[The government] finances new spending by telling men and women to walk into a room and change numbers up and down in a computer." Sound crazy? It isn't – it makes perfect sense. Believe it or not, this isn't the part of MMT that is fatally flawed. They are right when they say the government is self-funding. They are also right when they say the government can never "run out of money." (The disagreements – big ones – will come in other areas.) As MMT argues, the government could technically fund itself without issuing bonds or raising taxes at all. It could simply spend what it needs to spend. Under this system, the cost of government waste would come in the form of inflation. To the degree that the government diluted the money supply unproductively, they would be little different than the North Korea regime running off truckloads of $100 bill "supernotes." But here is the funny thing. This big assertion of MMT – The government can never run out of money! The government is self funding! – is actually not a very important point in the broader scheme of things. At the end of the day, MMT's "eye-opening relevation" is simply a technical observation that Uncle Sam has a printing press… that Uncle Sam can run that printing press whenever he wants… and that, therefore, Uncle Sam can always pay off debts issued in his own legal tender.
To which we say: "Yeah, so?"
"Well," the MMTers say, "the fact that the government is self-funding – and could technically fund itself without bonds or taxes at all – means that worrying about deficits is stupid! Deficits don't matter!" And this is where MMTers go off the reservation. Contrary to what MMT argues, deficits still matter, even in a regime where the US government cannot technically default. A lack of technical default does not preclude DE FACTO default, or default-like degradation by incremental degrees, as investors shift their asset mix preferences over time. To understand why, consider the game of Monopoly. MMT proponents like to point out that "the banker in Monopoly can never run out of money." And this is more or less true! We happily concede this point. The U.S. government is like the banker in Monopoly in that government issuance of currency and debt is a closed loop, with all U.S. debts payable by U.S. currency (which has no limits).
So why are MMTers wrong about deficits? Because there is more than one board game to play. To wit, if the Monopoly banker grossly abuses his priveleges, investors can go and play some OTHER board game. They can choose to play "Clue" instead. (As in, getting a Clue. Get it? Ha ha…) Let's break it down:
Why are top hedge fund managers like David Einhorn, John Paulson and George Soros aggressively long gold? Because they are in effect saying: "Mr. Monopoly $USD Banker, we do not like the way you are abusing your privileges. We know you cannot technically default, but we still feel your actions are grossly irresponsible… and so we choose to STOP playing Monopoly and go play Clue (i.e. buy gold) instead."
Still with me so far? MMT crows that the United States government is self-funding, that it can "never run out of money," and that most people don't understand this. In this MMT is correct. But they neglect to acknowledge that, if the government abuses its Monopoly privileges, investors can change their preferences and play a different game, i.e. rotate out of U.S. liabilities (bonds and currency) and into alternatives (hard assets, other currencies, E.M. etc). "But hold on one minute," the Modern Monetary Theorists say. "There will ALWAYS be demand for U.S. currency – because we need it for transactions and payroll and taxes!" This idea extends from the Chartalism school of thought. As a U.S. citizen, you get paid in dollars and have to pay your taxes in dollars. Also, if you want to go down to the store and buy milk or gasoline or shotgun shells, you have to conduct your transactions in dollars. Therefore, hey presto, permanent currency demand. But consider this:
How is this is so? Through the power of instant conversion transactions. When you use your major credit card to buy something for sale in a currency other than your own base currency, the bank makes the conversion for you on the spot. This reality makes it possible to limit one's currency exposure to point of sale only! The same applies with tax and payroll considerations. What is to prevent a U.S. based business from holding its cash reserves in, say, a mix of Canadian dollars and Swiss francs, then converting to the necessary funds to $USD only at the instant point of transaction, i.e. when they pay the tax? And as for payroll, why couldn't a company wait until the last second to convert its payroll accounts from, say, Swiss francs to dollars… with employees again making the switch from $USD to something else as soon as the paycheck hits their accounts? Heck, let's take this further. Thanks to the modern miracle of ETFs, you could keep 99% of your net worth in copper, crude oil and cotton if you really wanted to. Whenever you needed $USD for a transaction of some kind, you could convert instantly – "point of sale" – and hold no dollars otherwise. The argument that "there will always be demand" for a currency because of tax, payment and transaction requirements thus seems dubious at best. There is nothing (at least for now) to prevent even U.S.-based investors from 1) shifting their preferences away from $USD liabilities, and 2) minimizing their exposure to $USD to as small a footprint as possible (and hedging even that!). Let us also note that the "constant demand for the currency" argument in part stems from U.S. hegemony and the use of the $USD as the world's reserve currency. But this is a situation that can change – just ask the British Empire! And because world reserve currency status can be lost, slowly and by degrees, it makes sense to show concern at the margins. Like when major players such as Russia and China take concrete steps to remove the middle-man $USD from their trade flows, for example.
Here is where this MMT stuff gets amusing. These guys don't understand that a technically correct definition is not the same as a relevant and useful argument. They crow about how the United States government is self-funding… and they go on about how taxes and transactions create demand for a currency… without realizing that these technical assertions are not relevant to the true problem. Again, the true problem is that investors can shift their preference away from the Monopoly banker's closed loop system when the priveleges of that system are abused. To the degree that this is missed, all the hubbub about a "technically correct" definition is meaningless! It's like the old story of sober Plato and the prankster Diogenes (see box). MMTers are like Platonists walking around saying "Man is a featherless biped!" While the featherless biped definition is technically correct, it is also subject to severe problems (as Diogenes' plucked chicken so demonstrated). The same is true of MMT's big assertions. Their self-funding stuff is technically correct, but irrelevant to the endgame problem of shifting investor preferences when the Monopoly banker goes rogue.
Some might say the above critique is unfair. After all, at least in passing, MMT does address the "bad spending and shifting preferences" problem. From the TPC website: Thus, government cannot just spend and spend and spend or the extra dollars in the system will chase too few goods and drive up prices. It's important to understand that government cannot just spend recklessly. This is important so I'll say it again. This does not give the government the ability to spend and spend and spend. If they spend too much and tax too little they can create mal-investment and inflation. Well stated by Cullen Roche and quite true! And yet, the opening quote box is now replicated to make a point. MMT pays lip service to the "can't spend and spend" idea, but then MISSES THE IMPLICATIONS. To wit, if constraints on the government's ability to "spend and spend" are truly understood and acknowledged by MMTers at large, then why does Mosler say that "government debt is not true debt" and that "There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it?" And if "spend and spend" has acknowledged negative consequences, then why does Cullen Roche sharply imply that funding costs are irrelevant? In a world where the government cannot "spend and spend" willy nilly, funding costs certainly ARE relevant because the printing of currency to service high interest rate debt issues is most assuredly an UNPRODUCTIVE use of funds! Imagine Uncle Sam printing an extra trillion bucks every month just to cover interest payments. Yeah, he could technically do it… but what effect would that have? Not a small one. One of the mildly maddening things about MMT, it seems, is that there is a willingness to lightly address certain "mild" critiques in passing without acknowledging that those critiques actually blow a huge hole in the strongly stated assertions of the theory.
Yet another problem with MMT – not stated outright, but heavily implied – is the assumption that the United States government is financially immortal. MMTers think and act as if deficits don't matter, no matter how big they get, solely because Uncle Sam can write his own checks in a neat little closed-loop system. Yet this viewpoint neglects the reality that, given enough abuse of privilege, the entire system can be abandoned to a point of critical threshold collapse – or abandoned to a great enough degree to cause massive problems, even if the baseline system survives. Longevity and immortality are not the same thing. Present strength can (and often does!) degrade into future weakness. At this point the MMTers resort to a situational defense. They pooh-pooh the idea that investor preference will ever shift away from $US debt and currency to a significant degree because the U.S. is, at this present point in time, still hegemonic and strong. In part they lean on the chartalist taxes and transactions argument – a leg of the stool we have already kicked out. But more aggressively they point out the United States is uber-dominant — 25% of the global economy etc – and that there are no signs (supposedly) this will change. Therefore, why worry about default? But this argument is extremely weak from a theoretical standpoint. Why? Because saying "the U.S. is too strong to fall" is a long way from saying "the U.S. can never fall." Philosophically, the "U.S. can't fail" argument is comparable to this:
Of course, the individual who assumes immortality is in for a rude surprise. The same could be said for many an empire… Here is a more logical approach to the sovereign immortality question:
And here is where MMT goes really, really wrong: Because MMT leans so heavily on the "self-funding" argument, the chartalist "always a demand" argument, and the present economic supremacy of the U.S., they completely dismiss (or hand wave away) the threat that shifting investor preferences could eventually bring down the empire. In thus so doing, they dismiss the possibility of death by degrees.
Or to put it another way:
Note we are not flat-out predicting the financial downfall of the United States here. (No hyperinflationista or deflationista labels, thanks.) We are merely pointing out that, if downfall is theoretically possible (due to shifting investor preferences), then concern at the margin can be warranted or at least justified. Or to put it another way, you don't have to think "the dollar is going to zero" to have legitimate concerns about where it is going! The hyperbole label — everyone worried about the deficit is a hyperinflationist / deflationista — is a sort of subtle ad hominem.
As such, it's really quite funny to see MMTers snarling at all the "fools" who show concern over U.S. debt levels. Those who show concern are only "fools" if the U.S. is bulletproofl. But if the U.S. is NOT bulletproof… if the self-funding regime can at least theoretically be abandoned to a critical threshold point… then the small signs of decay are not to be dismissed. Instead of meaningless worries, they are genuine concerns, like the frog in the pot slowly being boiled.
Here is another issue with Modern Monetary Theory. Imagine if I told you that, of all the animals in the animal kingdom, elephants are unique because they live in five dimensions. All other animals get four dimensions (three physical dimensions plus time). But for some wacky reason, elephants get five. Then further suppose that, when you pressed me on why this is true, I assured you that my theory was sound and you just had to accept it. The analogy here is to the weird place of self-funding governments in MMT. All other entities – households, individuals, businesses – are subject to more "normal" economic rules. Yet somehow governments are the magical alchemist elephants… they supposedly have some bizarre fifth dimension factor (born of self-funding elixir) that makes them normality-exempt. Yours truly argues that the fifth dimension does not exist and there is no call for theorizing it. Elephants (i.e. governments) get four dimensions like all the other mammals. Why? Because a sovereign governments' ability to do what it does, within the constraints that it faces, is wholly explainable by the 'normal' laws of economics. We do not need weird or bizarre exemptions. "But governments are different," MMTers say. No they aren't – not really. They are just bigger. It's true that the United States government can fund itself, a unique proposition. But you know what? I can "fund myself" too… and so could you if you wanted. The question is, who would accept our paper and why! An entity's ability to "fund itself," then, does not depend on whether it is a government or not. Instead it depends on that entity's credibility as a powerful force, which in turn depends on access to real productive assets. The government's self-funding fifth dimension "magic trick" is thus actually very mundane. The credibility and ongoing acceptance of the government's self-funded paper is only achieved via the leveraging of the real U.S. economy, i.e. government access to real productive wealth by threat of force! Economic power flows from the barrel of a gun… the government has the ability to tax and appropriate. If (as a U.S. citizen) you disagree with your tax bill, or choose not to pay what Uncle Sam asks, you get thrown in jail. Therefore your assets are, in effect, Uncle Sam's assets for the ta |
| Gold, Silver could go ballistic by year end Posted: 19 Dec 2010 04:31 AM PST Sprott Asset Management |
As traders sit down to their desks this week, holiday distractions are likely to play a role in both liquidity and volatility. Typically, the two weeks surrounding Christmas are great environments for research and planning.
It's time to put the smackdown on Modern Monetary Theory (or MMT for short).
The Big Assertion
Monopoly versus Clue
Debunking the Chartalist Defense
The Plucked Chicken Problem
Is this Critique Unfair?
'I am Immortal.' Really?
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