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Monday, February 28, 2011

Gold World News Flash

Gold World News Flash

A Gold standard would solve AGW

Posted: 27 Feb 2011 07:47 PM PST

Federal Reserve carbon footprint and the end of cheap coal MK: The hardest argument to win – over the past 10 years – has been trying to convince environmentalists to support a gold standard as a way to decapitalize the worst polluter in the world, the US dollar and the Fed policies that go with [...]


iShares Silver Trust (SLV) scam exposed

Posted: 27 Feb 2011 07:40 PM PST

GDP: Nothing Is Ever As It Seems

Posted: 27 Feb 2011 05:23 PM PST


This article originally appeared on The Daily Capitalist

The revised real GDP numbers for Q4 2010 were a disappointment for most economists who foresaw the third and fourth quarters to be much higher. The BEA's advance report last month said GDP was up 3.2%. The new numbers show it was only up 2.8%. As I anticipated in my article on the advance report, I expected the numbers to be revised downward and they were. These facts fit into my thesis that we are headed into stagflation.

First, the details. The consensus Q4 estimate of economists was that GDP would be +3.4%. From the BLS release:

The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly offset by negative contributions from private inventory investment [see this on durable goods orders] and state and local government spending [this has to be a positive].

 

Imports decreased which are a subtraction in the calculation of GDP.  The small fourth-quarter acceleration in real GDP primarily reflected a sharp downturn in imports, an acceleration in PCE, an upturn in residential fixed investment, and an acceleration in exports that were mostly offset by downturns in private inventory investment and in federal government spending, a deceleration in nonresidential fixed investment, and a downturn in state and local government spending.

 

Final sales of computers added 0.30 percentage point to the fourth-quarter change in real GDP after adding 0.29 percentage point to the third-quarter change.  Motor vehicle output subtracted 0.31 percentage point from the fourth-quarter change in real GDP after adding 0.49 percentage point to the third-quarter change.

For the entire year of 2010:

Real GDP increased 2.8 percent in 2010 (that is, from the 2009 annual level to the 2010 annual level), in contrast to a decrease of 2.6 percent in 2009.  The increase in real GDP in 2010 primarily reflected positive contributions from private inventory investment, exports, PCE, nonresidential fixed investment, and federal government spending.  Imports, which are a subtraction in the calculation of GDP, decreased [-12.4%].  The upturn in real GDP primarily reflected upturns in exports, in nonresidential fixed investment, in PCE, and in private inventory investment and a smaller decrease in residential fixed investment that were partly offset by an upturn in imports.

Prices as measured by the GDP Price Index continued their climb:

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 2.1 percent in the fourth quarter, the same increase as in the advance estimate; this index increased 0.7 percent in the third quarter.  Excluding food and energy prices, the price index for gross domestic purchases increased 1.2 percent in the fourth quarter, compared with an increase of 0.4 percent in the third.

 

The price index for gross domestic purchases increased 1.3 percent in 2010, in contrast to a decrease of 0.2 percent in 2009.  Current-dollar GDP increased 3.8 percent, or $538.8 billion, in 2010.  In contrast, current-dollar GDP decreased 1.7 percent, or $250.1 billion, in 2009.

Just looking at spending measures, you can see the impact of the drop in imports. While real person consumption expenditures (domestic goods only) were up 4.1% in Q4 (versus 2.4% in Q3), real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- decreased 0.6% in Q4, in contrast to an increase of 4.2% in Q3.

If you need charts to see the stagflationary trend, here:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

These charts show a flattening of output and a steady increase in prices. One might ask, with all of the monetary and fiscal stimulus efforts by the Fed and the Administration, why is output flattening out while prices are increasing? The quick answer is that their policies have failed, notwithstanding their protests to the contrary ("Yeah, but things would have been much worse ... blah, blah, blah.").

Is this a trend? I believe so. As I said in my article on the first release:

The bottom line is that we are seeing monetary inflation and it is impacting prices. Real savings is still in short supply and that is inhibiting growth. Spending will not revive the economy, but an inflated money supply will give the impression of economic improvement, but it will be an ephemera. It will further negatively impact real savings. I would expect weaker GDP numbers in Q1 2011 (wait until the revised Q4 come out to see if I'm right). Unemployment will remain high. This is a recipe for stagflation.

There is a new wrinkle in this forecast: oil.

As David Rosenberg said Thursday, rising oil prices reflect a "geopolitical risk premium" which is why bonds jumped this week:

10 Year Treasury

Rosenberg pointed out what is going through the minds of oil traders:

It is estimated that as much as 1 mbd of output has been taken out of the system from the Libya crisis and the outsized move in the oil price is testament to the view of just how tight the global supply-demand backdrop has been. Imagine where the price would be if it weren’t for the spare capacity out of Saudi Arabia. Analysts at Nomura are saying $220 a barrel is achievable if more production is halted in Libya and Algeria. ...

 

Saudi Arabia has the capacity to fill the void left by Libya, but that misses the point. The risk of further unrest is rising, especially with sectarian issues in full force in Bahrain. This means that oil prices at a minimum will retain a geopolitical risk premium — most oil experts now peg this at $10-$15 a barrel. If countries start to stockpile more crude in light of current events, one can expect the oil price premium to rise even further even if the situation calms down overseas. So no matter what, barring a sudden downturn in demand, and the one thing about oil (food too) is that demand is relatively inelastic over the near term, the risk is that we will see further increases in the price of crude even from current lofty levels.

Friday on Bloomberg TV, Rosenberg said he sees rising oil and food prices taking 1% off GDP. He said that 2 of the 3 times that oil and food went up together resulted in a recession. It didn't happen in 1996, he says, because of the forces of the tech boom.

It all depends, as they say. The issue is: how long will political roiling in the Middle East continue? ¿Quien sabe? My point is that we will see stagflation regardless of oil. As I pointed out in "A Note on Inflation: It's Here," the forces of inflation are already in motion and its effects are starting to show up, one of which is price inflation.

Again, we need to be mindful of what is "inflation:" it is always an increase in money supply. One of the effects of inflation is price increases. Other effects, even more serious, include the destruction of real capital (that is, capital saved from production or labor, not from printing fiat money). The destruction of real capital accompanying inflation is the only explanation for stagflation.

The result of an oil shock will add to our economic woes, compounding the recessionary side of stagflation.

There has been a lot of buzz about stagflation in the mainstream media lately. Most economists pooh-pooh the idea. The reason is that they don't understand inflation, mostly confusing price increases as a cause of something bad rather than aneffect of something bad.

Mr. Rosenberg is one of those who make this mistake. He points to low wages and low capacity utilization as the reason why we can't have stagflation. Unfortunately that wasn't the case in the late '70s and early '80s. (See this chart showing low cap/u and high inflation at the same time.) Other economists like this fellow have entirely no understanding of the issue:

"The old way of thinking used to be that you'd have a jump in crude-oil prices, leading to an increase in inflationary expectations, and that would push the long end of the yield curve higher," said Howard Simons, strategist at Bianco Research near Chicago. "Nice theory, but it hasn't worked over the last 10 or so years."

The thing I want to leave you with is Fed Vice-Chair Janet Yellen. Ms. Yellen gave a speech Thursday on improving the Fed's communications and thus our expectations of what the Fed will do. This is the Blah, Blah Theory of economics. The bottom line is that she and the Fed believe they can "jaw" their way to a better economy. By telling us that they are going to continue to be "accommodative" (i.e., "print" money) we will believe them and lend and buy and things will magically improve.

Don't believe a word she says. This is the arrogance of a central planner talking, believing that she and her co-workers control the economy. Pull a lever here and there, and voila! things are all better. The econometrician's dream.

I can tell you with some certainty that if things get worse, and if unemployment stays high, which is what I believe is happening, they will panic and pull out all the stops.

Crude Rises as Unrest Spreads, Gold Inches Back Toward Records

Posted: 27 Feb 2011 05:00 PM PST

courtesy of DailyFX.com February 27, 2011 08:51 PM Oil and gold are moving higher to start the new week as the Libya crisis continues and unrest spreads to yet another country in the region. Commodities – Energy Crude Rises as Unrest Spreads Crude Oil (WTI) - $99.66 // $1.78 // 1.82% Commentary: Crude oil is starting the new week how it left last week—to the upside. Both WTI and Brent are up almost 2% in early trade, with the former back near the key $100 level. A still very uncertain situation in Libya has the market on edge, and now that a substantial amount of production has been knocked offline due to the crisis, it will be months at least before things are back to normal. Best estimates peg the amount of crude oil production that is offline at anywhere from 800,000 barrels per day to almost the entire 1.6 million barrels per day that Libya produces. Regardless of how much production is offline, market sources are indicating that exports have virtually gr...


As Bloomberg Reporter Is Beaten Up In China, Wen Jiabao Promises To Crack Down On "Power Abuse"

Posted: 27 Feb 2011 02:54 PM PST


With violent protests springing up like mushrooms, following recent appearances in North Korea and Vietnam, and following last weekend's failed attempt at a Jasmine Revolution, China's authoritarian regime is about to be put to the supreme test. Bloomberg reports that "Chinese Premier Wen Jiabao pledged to punish abuse of power by officials and narrow the growing wealth gap as police blanketed Beijing and Shanghai to head off planned protests inspired by revolts in the Middle East." In other words, beatings (and disappearances) will continue until morale finally improves. As for the beatings, Bloomberg's Stephen Engle managed to experience one up close and personal: "Security officers also detained several foreign journalists, including Stephen Engle, a reporter for Bloomberg Television. The Wall Street Journal saw Mr. Engle being grabbed by several security officers, pushed to the ground, dragged along by his leg, punched in the head and beaten with a broom handle by a man dressed as street sweeper." Yes, China may be the most repressive regime when push comes to shove, but should 1+ billion angry and hungry Chinese decide there is nothing all that unique about China compared to Tunisia, Algeria, Egypt, Libya, Bahrain, Oman, Saudi Arabia, Ivory Coast, Vietnam, North Korea, Djibouti and countless more to come, not even the most convincing "blanketing" by police forces will do much of anything to prevent the only revolution that matters.

Bloomberg on China's latest desperate attempt to deflect public anger:

The root of corruption lies in a government that has too much unrestrained power, Wen said in a two-hour online interview with citizens yesterday. He promised to curtail food costs and tackle surging property prices. Wen also cut economic growth targets and said the government would focus on ensuring the benefits of expansion were more evenly distributed.

Wen’s comments came as hundreds of police deployed in Beijing and Shanghai at the site of demonstrations called to protest corruption and misrule. At least seven people were bundled into police vans near Shanghai’s People’s Square, while in Beijing several foreign journalists were forcibly removed from the Wangfujing shopping district.

China’s leaders have emphasized the country’s economic successes in their response to demonstrations both in China and in the Middle East. While the country’s economy has expanded more than 90-fold in the past three decades, Wen said rising inequality is threatening social stability.

“The party leadership needs to reassure the people that in the absence of political reform they can nonetheless meet the people’s rising expectations,” said Chinese University of Hong Kong’s adjunct professor of history Willy Wo-lap Lam. “The expectation for what the government should do for the people has increased” as a result of protests sweeping Arab nations.

And following all that is the only thing that matters:

An August report by Zurich-based Credit Suisse AG put income inequality levels in China at levels not seen outside of sub-Saharan Africa. High food prices, unemployment and anger over corruption helped spark the protests that toppled Tunisian President Zine El Abidine Ben Ali, Egypt’s Hosni Mubarak and have fueled rebellion against Libya’s Muammar Qaddafi.

As for what is really happening in China, we can't wait to see Bloomberg's Stephen Engle recount first thing tomorrow:

Police easily quashed last Sunday's call for protests at designated sites in 13 cities, including a McDonald's outlet in the popular Wangfujing shopping street in downtown Beijing. For this past Sunday, the online activists urged people to protest silently by simply "taking a stroll" at many of the same sites.

In Beijing, hundreds of security officers—including uniformed police, burly plainclothes agents with earpieces, public-security "volunteers" in red armbands, and at least one SWAT team armed with automatic rifles and body armor—were deployed to Wangfujing. They initially allowed people to move fairly freely, while checking identification papers, but later cleared out most people and blocked off a 200-meter section of the street as two street-cleaning machines swept up and down spraying water to either side.

Security officers also detained several foreign journalists, including Stephen Engle, a reporter for Bloomberg Television. The Wall Street Journal saw Mr. Engle being grabbed by several security officers, pushed to the ground, dragged along by his leg, punched in the head and beaten with a broom handle by a man dressed as street sweeper.

Bottom line: you can take the authoritarian despotism out of the procyclical capitalism, but... nah, who are we kidding.


Graham Summers’ Free Weekly Market Forecast (Is THE REAL Crisis About to Begin)?

Posted: 27 Feb 2011 02:22 PM PST

Graham Summers' Free Weekly Market Forecast (Is THE REAL Crisis About to Begin)?

The BIG story from last week is that stocks broke support in a BIG way, falling below the trendline that has supported them since this rally started in late August '10. Indeed, it looks as though we not only broke below this line but have since rallied to retest it: a classic pattern during corrections.

gpc 2-28-1

The big issue right now is if stocks can reclaim this line, or if they're rejected at it (indicating former support is now resistance). Another way of putting this is whether or not the Fed has the power to push the market into yet another ramp job.

In plain terms, the entire market rally since the March 2009 lows has been fueled by rampant liquidity and little else. EVERY time the market came close to breaking down, the Fed ramped up the money printing and stocks exploded higher again.

The Fed is trying this same trick again for this correction. Indeed, as soon as stocks began to dip the US monetary base went vertical… which begs the question: why is Bernanke so terrified? Seriously, stocks only fell 3.5% and he went ALL OUT printing money to hold the market up.

gpc 2-28-2

Consider that stocks have rallied nearly 30% since the start of September 2010. As Tyler at ZeroHedge has noted, the market has traded above its 55-DMA for 123 days straight: an absolute record.

So… we've just put in one of the most incredible rallies in stock market history, and the very minute that the market begins to correct Bernanke starts pumping his brains out?

I'll tell you why.

Bernanke is absolutely TERRIFIED of what's coming. He knows that if his famed "Bernanke Put" is no longer sufficient to propping up the market, then he's about to lose control of the financial system again… which means, you guessed it, THE REAL CRISIS is about to hit.

Remember, the only thing that pulled us from the brink in 2008 was Bernanke printing like a lunatic. It's the ONLY thing that has held the market together. And while it may have kicked off a major rally in stocks… it FAILED to address the underlying issues that caused the Crisis in the first place: namely excessive debt and leverage.

In fact, Bernanke has made the financial system even MORE leveraged than it was in 2008. So if the Fed's moves no longer have an effect on the markets, then it's time for the REAL Crisis… the Crisis to which 2008 was a warm up.

Why?

Because when the stuff hits the fan this time around, the Fed will be powerless to do anything. Bernanke's already shot every bullet he's got. So when he loses control this time around, not only will the market crater, but the belief that has kept the financial system afloat through every Crisis of the last 30 years (namely that the Fed can always save the day) will shatter.

And when that happens it will be the US financial system, NOT just stocks that goes down. After all, Bernanke has bet a heck of a lot more than just stocks on his thesis that money printing generates wealth. He's bet the stock market, bond market, US Dollar and even the US economy.

So when the whole thing comes crashing down this time, we'll be seeing a systemic collapse that will make 2008 look like a picnic. After all, Bernanke's trashed the US Dollar, so that safe haven is now garbage. US bonds aren't much better as the Fed is now monetizing just about everything that the US issues (and is the largest owner of US debt, owning more Treasuries than even CHINA).

So what's that leave?

Gold, silver, and other inflation hedges that will maintain purchasing power when the US Dollar collapses. This is why I'm already preparing subscribers of Private Wealth Advisory for this outcome with an "Inflation" Portfolio comprised of the eight best inflation hedges on the planet.

Two of them you likely already know about: Gold and Silver. But the other six I can assure you that you and 99.9% of the rest of the investment community have NEVER even heard of.

I'm talking about the most EXTRAORDINARY inflation hedges in the world: the unheard of gems that will outperform even Gold and Silver as inflation erupts in the US financial system.

Case in point, two of the first three of them (from the Inflationary Storm Pt 1) are already up 20% and 25%. Meanwhile Gold and Silver have only risen 1% and 14% over the same time period.

See what I mean?

The Inflationary Storm Pt 1 has sold out, but copies of the Inflationary Storm Pt 2 (which details three incredible inflation hedges which I only JUST told subscribers about last week) are still available, though we're already starting to run out.

Indeed, I'm only making 250 copies of this second report available to the public. Any more than that and we'll blow the lid off these investments too quickly (one is already up 3% in just two days).

As I write this, there are only a few copies left. And I fully expect we'll sell out shortly. So if you want to pick up a copy of the Inflationary Storm Pt 2 (including the names, symbols, and how to buy my three NEWEST extraordinary inflation hedges) you better move quickly.

To reserve a copy…

CLICK HERE NOW!!!

Good Investing!

Graham Summers

Silver Vigilantes Vs Oligarchy (JP Morgan)

Posted: 27 Feb 2011 02:21 PM PST

Russ Certo Shares A Market Update At A Time When Fundamentals No Longer Matter

Posted: 27 Feb 2011 02:19 PM PST


From Russ Certo of Gleacher & Company

Let it ever be said that America had no sooner become independent than she became insolvent of that her infant glories and growing fame were obscured and tarnished by broken contracts and violated faith, in the very hour when all the nations of the earth were admiring and almost adoring the splendor of her rising.

John Jay

A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from  the mouth of labor the bread it has earned- this is the sum of good government.

Thomas Jefferson

Rather go to bed supperless than rise in debt.

Benjamin Franklin


Uprisings in Africa and the Middle East last week trumpeted any and all global investment themes.  The hearts and minds of peoples against regimes played out on a global scale.  Crude ended the week up 9.1%.  CBOE Volatility Index, VIX, rose 15%.  Global equity bourses retreated a few percent with the U.S. outperforming by a marginal percent on QUALITY flight.

The Swiss Franc traded like GOLD as both assets also benefitted from safe haven flows.  The 30 year long bond was another beneficiary and its performance dramatically flattened the yield curve as investors translated the prospect of higher energy prices as an economic TAX and not a harbinger of inflation expectations.

In some ways there is a marriage of both global and domestic themes alike as the peoples yearn for representation and the embodiment of what government REPRESENTS for people.  Or doesn’t represent.  Played out on a minor scale, one eye this week was on Wisconsin, Indiana, Ohio, New Jersey and the battles of the hearts and minds of public and private employees alike or better quantified as the high profile and human debate of the efficient allocation of private tax dollars and the consequent rate of return of public service.  To oversimplify, it seems like the relevant and searching question everywhere in nation(s) is, how effective does government allocate public and private resources and consequently represent its peoples?

This is the looming topic in the United States this week as both sides of the Congressional isle try to avert a government shutdown as lawmakers have funded our domestic "obligations?" only through this Friday.  I guess obligation is a relative term.  Federal agencies are scrambling to figure out how to handle a shutdown of government.  Hey, mail would continue but  Federal Parks would be closed.  There are many other obvious fiscal and market iterations to be learned as to any auxiliary impacts of how a shutdown or our budgetary largess will shut us down from our creditors.

Why not add another "supervisory" policy body to the equation to this week to complicate the mix as "helicopter" Ben delivers a generally demonstrative semi-annual Humphrey Hawkins testimony to the Congressional wigs on the Hill.    Years ago Humphrey Hawkins was one of the most volatile trading sessions of the year.  Let’s see what can learn about future monetary policy from "helicopter" or "biofuel" Ben given what central bank monetary policies have contributed to recent commodity and energy instability and maybe partial catalyst to "imbalances’ around the world?  Further, Treasury Secretary testifies on cutting the U.S. role in the mortgage market.  Trying to trade the likes of robust month end index extensions, FED buybacks, and fundamental payroll reports (Friday consensus est. +200,000) this week almost seems like an afterthought to government hand in global policy AGAIN.

What are the fundamentals that have been relegated to back page news given the seemingly fundamental(ist) change brewing in the Middle
East?   Rosenberg in Barron’s this weekend highlighted Thursday’s release of Commerce Department January durable goods orders and shipments.  Beneath the surface the durable orders "ex" transportation and defense components, dropped 6.9%, the worst since January 2009, the zenith of the great recession.  Granted these data are volatile but this portends consideration of the underbelly of prospective economic recovery.  As a timely side note, he and other pundits recently have equated every sustainable $10 increase in the price of crude (last week) lobs a near percent off GDP.
http://online.barrons.com/article/SB50001424052970204477304576160542286591316.html?mod=BOL_twm_col

Also, domestically and back page Wal-Mart posted its 7th straight sales decline at U.S stores last week.  Is this is a sign of a consumer recovery hedonic switch to higher consumer outlets and outlays?  Further, the front page of Saturday NYT business reports that recession wary consumers are keeping their stuff longer, literally.  Car owners, for example, are holding onto their clunkers longer than at any time since 2008.  Not just the big ticket items like durables noted above.  For a number of products like cars, phones, computers, even shampoo and toothpaste, the data shows a slowing of product life cycles and consumption.
http://www.nytimes.com/2011/02/26/business/26upgrade.html.

Stephanie Pomboy noted in an interview with Barron’s that there is an unfavorable seasonal adjustment period that moves from very low in January to high in March and April and that retail sales will have a high hurdle adjustment to show positive prints  in coming months.  Further year over year comparisons will also become optically challenging as the year progresses.  Moreover, she notes that Federal stimulus dollars are widdling away.
http://online.barrons.com/article/SB50001424052970204477304576160411426984364.html?mod=BOL_twm_fs#articleTabs_panel_article%3D1

This is at a time when retail investors had added $32 billion to mutual and exchange traded funds.  Planners are mystified at risk adverse clients who have  been profiled to have liquidated equities near the lows and appear to be capitulating with the S&P up 100% from pre-crises lows.  I will also suggest that these investors are STARVED for performance given Fed engineered paltry low yields.  Hard to grow your net worth with conservative bank CD rates and fixed income living ZIRP rates.  They are being forced into the market by Fed policy and I think we can anticipate the outcome, given what other policies action conclusions we have reached and have impacted corners of around the world.    Weekly net inflows into stock funds averaged $5.5 billion on the week.

http://online.wsj.com/article/SB10001424052748704692904576166290382532296.html

A dichotomy of investment flows or is it that this week, Bank of America, the largest U.S. bank, said that in January that the loss in its credit card division widened to $6.6 billion in 2010 versus $5.3 billion in previous year.  Meanwhile, the Obama administration is pushing a settlement to reduce the loan balance of troubled borrowers who owe more than what their homes are valued at, which is approximately 23% of all mortgages outstanding in the United States.  This would cost big banks billions but could ultimately help clear housing stock.  I’ll leave the moral hazard aspects and contract right considerations to the quotes of our founding fathers above and below.

Mortgage players years ago subscribed to the notion that the U.S. housing market embodied quantifiable specific Metro characteristics which were mined for clues regarding underwriting standards and loan performance and, hence, security valuation.  The marketplace learned during the great recession that markets can very quickly become correlated and represent national not metro themes.  So, recent history bundled many of these correlations from a performance point of view UNTIL NOW.
http://online.wsj.com/article/SB10001424052748703803904576152751927679680.html


As just noted  before the housing "boom" regional and national prices in the 14 biggest markets had a negative correlation.  According to Case Shiller index from 1997 to 2006, however, correlations become close or were determined by market liquidity or illiquidity functions.  Correlations are still quite high by pre-1997 standards but they ARE supposedly weakening.  For example medium prices for existing home sales declined from the previous year in 134 of 152 metropolitan statistical areas.  By contrast in the 4thquarter of 2010, median prices ROSE in 78 markets, fell in 71 and were unchanged in three.

One would think this is a hopeful sign but the above data from the National Association of Realtors (NAR) is based on quarterly price data and can be skewed higher or lower by merely a few transactions.  This is why some economists look at Case Shiller because it is based on repeat sales of specific homes, arguably more accurate but limited to only the 20 biggest markets.  Mind you, this week home prices home prices fell to now lows in eleven cities in December, according to NAR.  But also this week it was revealed that NAR may have been over-counting home sales dating back to 2007.  For 2010 the group had reported a convenient mere 5.7% drop in home sales compared to a 10.8% drop by CoreLogic, the shtick real-estate analytics firm.

The WSJ urges getting a mortgage before the door gets shut.  They observe that new laws and regulations, still declining home prices, new fees associated to GSEs shoring up their finances, and Dodd-Frank provisions slated to kick in will adversely impact the ability to get affordable loans.
 Fannie and Freddie ARE adding new fees to loans to people with the best credit, credit scores over 720 but who put down less than 25% or borrowers with scores between 700 and 719 who put down less than 20%.  The new fees will be 25bp to 50 bps on the loan values.
http://online.wsj.com/article/SB10001424052748704520504576162632959543492.html

Dodd-Frank provisions to take place on April 18th will change how mortgage brokers are paid.  Perhaps, a responsible pursuit, but the likely consequence is a bevy of new costs that will be passed onto borrowers.  Also, there will be more restrictions with the FHA and its relationship with both consumers and the GSEs.

The FHA needs to bolster its capital and is raising its required annual mortgage-insurance premium for its loans by 25% of the loan value.  This is really important as these loans are aimed for first time home buyers and FHA has been the major backstop in last several years requiring only 3% down and has grown its market share from less than 3% of origination market share to greater to 30% given comparatively tight credit conditions in other lending markets.  There will also be an up-front mortgage insurance payment of 1% of loan amount and an ANNUAL premium of 1.15% which also goes into effect on April 18.

Even more tenuous for borrowers (of last resort) is that the FHA is changing the minimum down payment required for a loan to a whopping 10% vs. recent 3%.  Also, Fannie and Freddie loan limits are likely to drop  back to $625,500.  The limits were temporarily increased to $729,750 in 2008 when the market for "Jumbo" loans all but disappeared.

A separate article in the Sunday NYT real estate section discusses how the new fee rate structures above would raise the cost of a $157,000 mortgage, a typical FHA loan amount, by about $33 a month or $396 a year.  Or if you live in Manhattan where the average home price is still one million, the Fannie and Freddie loan limit changes, mean the higher cost of non-federally insured jumbo loans.  Again, Treasury Secretary Geithner testifies on cutting U.S. role in mortgage market, a commendable pursuit but with important varied implications for all player stakeholders, which will like ensure even higher fees.
http://www.nytimes.com/2011/02/27/realestate/27mort.html.

The above bank and originator stakeholders above which are likely to pay higher fees for originating new loans as part of the afore-mentioned "reform" were also the focus this week of Fed’s Hoenig , who no longer votes on interest rate decisions, is known as a dissenter of what he perceives to be destructive Fed money printing tactics.  This week he chimed in on the undeniable complete failure of Dodd-Frank’s stated goal of eliminating the threat of too big to fail institutions.

As a result of Dodd-Frank there is greater concentration of derivative exposure amongst the top five biggest banks.  The concentration of derivative risk has never been greater and the top five biggest lender banks account for 98% of total derivative exposure.  Also, the complexion of transactions is highly concentrated between the firms themselves, leaving the "systemic risk from too-big to fail firms even worse than before the crises."  Obviously Fannie and Freddie still also have a small derivative counterparty concentration of activity with less than two dozen players.  Another hailed watershed policy endeavor which illustrates again the inefficient allocation of government "regulation".
http://online.wsj.com/article/SB10001424052748704150604576166623494617598.html

Barron’s this weekend ran a piece titled, "Beyond Laissez-Faire" which revisits Adam Smith who is known for his laissez-faire theories in his 1776 "An Inquiry into the Nature and Causes of the Wealth of Nations."  The great economist railed against allowing any bank to get so big that its failure could bring down the financial system.

As we may have studied, Smith felt the "invisible hand" of open competition to transmute private self interest into the public good of LOWER prices was essential.  Monopolies, preferential tariffs, less-than-impartial regulation and other restraints fettered the invisible hand which just maybe peoples around the world have discovered recently.

I think this is particularly timely reminder given the symbolic unrest caused by overarching demagogue around the world, a domestic imminent vote on increasing the debt limit above $14 trillion dollars, and the partisanship of state and private workers fighting for varied visions representation by government.

As we turn the page the chief of federal budgeting, Jacob Lew, the director of the Office of Management and Budget is misleading the public on Social Security in Barron’s.
http://online.barrons.com/article/SB50001424052970204586904576164562270366374.html

And the "government-guaranteed annuities would let us retire without fear" and help the Treasury find a new source of domestic demand for its paper.  A topic we have discussed often.
http://www.nytimes.com/2011/02/26/opinion/26Hu.html?_r=1&ref=annuities

"Government is best when it gets out of the way of the marketplace by largely restricting its activities to limited regulation, national defense, protection of property rights".- Adam Smith.  The parallels of what is affecting both domestic and global markets this week.
http://online.barrons.com/article/SB50001424052970204477304576160434013710402.html?mod=BOL_twm_fs

Gold Market Update - Feb 27, 2011

Posted: 27 Feb 2011 02:10 PM PST

Clive Maund Gold broke out above its Dome boundary last week, which was not what we were expecting. Fundamentally this action was due to fears relating to the worsening situation in Libya, and while this breakout is a bullish development, it has not as yet led to a breakout to new highs, and the bearish overall behaviour of PM stocks last week means that it could have been a fakeout. On the 8-month chart for gold we can see the breakout, which, while not exactly breathtakingly robust, has improved the technical picture, especially as it has resulted in the 50-day moving average starting to turn up. On this chart it is clear that upon breaking out gold was immediately held in check by the strong resistance approaching the highs, which until now at least, has prevented further progress. This resistance level is of major importance and we can therefore presume that a breakout above it will lead to a strong advance. One scenario here that would be likely to precede a break...


Silver Market Update - Feb 27, 2011

Posted: 27 Feb 2011 02:04 PM PST

Clive Maund After last week's update called for a near-term top in silver we got one more up day, thanks to the antics of the Libyan "fruitcake" digging his heels in and resisting being swept away. After that silver did indeed start to correct back although it ended the week with an up day. On its 8-month chart we can see that silver backed off after hitting an adjusted "bullhorn" target - in last week's update we had targetted it at a trendline drawn across the early and late December peaks, but it exceeded that, so we then found that it had actually stopped at the trendline drawn from the November high. Now it is very overbought, as is evident from the intermediate MACD indicator at the bottom of the chart, so if the situation in the Mid East starts to cool, we could very easily see a substantial reaction shortly. However, we should remain aware that this situation is very fluid and if the problems in the Mid East intensify, leading to gold breaking out to new highs, ...


Finally

Posted: 27 Feb 2011 01:05 PM PST

Well what seemed like an eternity, the markets have woken up somewhat, although some markets have gone to extreme levels in craziness i.e. gold, silver and oil in recent days. Read More...



Do Plunging Tax Refunds And Declining Tax Withholdings Predict A Consumption Collapse And A Subpar Nonfarm Payroll Number?

Posted: 27 Feb 2011 12:03 PM PST


Almost a year ago, Zero Hedge looked at the trend in US tax refunds, and we found that last year the government was doing everything in its power to accelerate the remittance of refunds to taxpayers. Back then we said that "one of the primary reasons why consumers may have exhibited an abnormal propensity to spend in January and most of February (at least according to government, if not Gallup, data), is the much greater individual tax refunding conducted by the Treasury/IRS this year compared to the prior year." But if accelerated tax refunds was the story in 2010, in 2011, at least so far in the year, it is precisely the opposite. In fact, to date the IRS has refunded nearly $20 billion less compared to 2010, and about $14 billion less than in 2009. With consumers suddenly having far less cash, does this mean that February and March are set to be major disappointments from a retail sales perspective, and any other vertical having to do with consumer "strength"?

Using Daily Treasury Statement data, we compile the weekly data for the first 13 weeks heading into April 15 (the point by which most refunds have been issued), and find that both average weekly remittance and 2011 cumulative refund issuance is running at a nearly 20% lower run rate than 2010.

Below we chart the weekly data for 2009-2011...

And cumulative:

For anybody but the Koolaid master at Goldman Sachs (who we are confident will have a rebuttal to our thesis within 72 hours), this is certainly a troubling development.

On the other hand it may simply indicate that US taxpayers have maxed out on their withholding exemptions, and as a result are due far less from the IRS, as we suggested early in 2010.

BNY's Nicholas Colas has some additional perspectives on why a nearly 20% cumulative shortfall has developed between 2010 and 2011 refunds, as well as why tax withholding data indicates that the NFP estimate of +185,000 for this Friday may be woefully otpimistic. His observations below:

The logical question about this shortfall is simple: “Why?” There are a few potential answers that relate to both the timing of filing/refunds as well as the total amount that may eventually be refunded.

  • Incentives to file early have declined in 2011. The Homebuyer Tax Credit expired on June 30, 2010. According to the IRS’s data, some $3.6 billion of the +$200 billion in refunds last year were triggered by this incentive to purchase a first home. This credit was extended to all home purchases in 2010, but with only half a year of eligibility there are many fewer tax filers who have a strong incentive to get their paperwork in early and receive their $7,500.
  • Lower Refunds to Collect in 2011. The American Recovery and Reinvestment Act (ARRA) of 2009 lowered payroll taxes by $400/person or $800/couple for two years – 2009 and 2010. The program began in early/mid-2009, so only 2010 saw the entire effect of these lower withholding amounts. Keep in mind that these were not reductions in taxes – they were simply reductions in withholding, and result in lower refunds, everything else equal.

I think it is too early to know if tax refunds will prove substantially lower in 2011, although the early data presented here is not especially promising. In truth, neither explanation above is particularly robust. The homebuyer tax credit might be a $1-2 billion shortfall this year (half of its contribution in 2009). ARRA might be a total of $13-15 billion for this whole tax season ($100/worker incrementally lower withholding in 2010). The troublesome point is that in just the first seven weeks of 2011 we are already short the already-mentioned $21.7 billion to last year’s cadence – far more than the total of these two potential contributing factors. All that is left by way of explanation is that taxpayers just haven’t gotten around to filing as quickly as in past years. But the trend in recent years has been to faster filing, not slower.

We will keep monitoring this data through April 15th, but it seems clear that consumer spending patterns will face an incremental headwind on top of higher oil prices as we roll through March and early April.

In addition to tracking the refund data, the U.S. Treasury Daily Statement is also a useful dataset for estimating labor market trends. That’s because the Treasury gives us a very granular look at personal income tax and withholding data. The majority of Americans work “on the books,” so their employers are responsible for submitting the funds required to satisfy each workers tax withholding and other payments to the government such as Medicare/Medicaid, Social Security and Unemployment Insurance.

The attached chart shows the trends through February 22 and is a useful reality check as we think about what next Friday’s Jobs Report might bring:

  • February personal tax/withholding receipts are down 0.5% year on year, adjusted for 2 percentage points of reduced withholding in 2011 for lower Social Security payments. Unadjusted, those receipts are down 4%.
  • This is the first negative comparison since June 2010. The data is choppy, to be sure, reflective of the sluggish labor market recovery we’ve seen over the past few months.

It therefore seems that current consensus estimates of 185,000 private sector jobs added in January is very optimistic. Yes, that number is based on a survey of just a few thousand households, but the disparity between the tax/withholding data is quite wide. Consider that the Labor Department currently estimates that there were 129,281,000 people in the workforce last January, and 130,229,000 in December 2010 (seasonally adjusted). If there were really another 180,000  people employed in February, wouldn’t tax receipts rise year over year? The math says they should. Also keep in mind that last month’s lackluster 36,000 jobs added came with a modest increase in tax/withholding receipts. Why should we expect job growth to increase in February to +180K if the actual tax/withholding amounts collected are lower than year-ago levels.

Gov. Perry: $100 a Barrel Oil? Try $200, $300

Posted: 27 Feb 2011 11:46 AM PST

The uncertain situation in the Middle East could send world oil prices to $200 or $300 a barrel even as the Obama Administration fails to promote domestic energy development, Gov. Rick Perry (R-TX) warned today.
Gov. Perry spoke to bloggers at a briefing in Washington, D.C., this morning. (Present were Rob Bluey of the Heritage Foundation, Jen Rubin of The Washington Post, and your Shopfloor.org correspondent.) The governor, who is chairman of the Republican Governors Association, is in town for the winter meeting of the National Governors Association.
In light of oil crossing the $100 a barrel price this week, we asked about the Obama Administration's policies and attitudes toward development of domestic energy. The governor responded:
Gov. Rick Perry
Putting America's future at jeopardy by basically hand-cuffing ourselves because of our lack of focus on domestic energy policy I think is devastating to the future.You said hundred-plus-dollar-a-barrel oil. Yes. That's today. It certainly could go to $200 or even $300 a barrel if the situations in the Middle East – Libya, into Syria, Jordan, Iraq, Iran, Saudi Arabia, Yemen all of those countries – if we're to see continued deterioration of peaceful conducting of business in the drilling and transportation of oil….
I don't think it's out of the reach of possibility to see oil even twice or three times what it is today –- devastating to the world economy.
More Here..

Gasoline: No Cure For High Prices Like High Prices

Posted: 27 Feb 2011 11:00 AM PST


By Dian L. Chu

Crude oil market has been on a wild roller coaster ride ever since riots started escalating in Egypt and Libya. The latest Libyan supply disruptions sent WTI futures surging above $103 a barrel in New York on Thursday, Feb. 24, while Brent oil in Europe was also closing in on $120 a barrel.

However, both oil markers retreated mostly due to traders scrambling to reposition when NYMEX and ICE boosted margin requirements on oil futures as crude traded above $100 a barrel.

Furthermore, the news that Saudi officials are in talks to supply refineries with oil from spare capacity to bridge the gap caused by Libya also seemed to have calmed market fears…at least a little. Oil prices nevertheless finished the week spiking 13% to 2 ½-year high.

Gasoline Jumped 6 Cents in One Day

Crude oil makes up about 67% of the gasoline price, based on the latest assessment by the U.S. Energy Dept. So, it is of no surprise that the national average price of unleaded regular gasoline jumped nearly 6 cents in one day to $3.29 a gallon from Thursday to Friday, Feb. 25.  That was the biggest one-day jump in two years, according to the AAA.  

The latest data from the U.S. Energy Dept. also showed the average retail gasoline price marked its largest weekly increase of 2011, jumping 1.6% to $3.19 per gallon the week ending Feb. 18. That’s 20% higher than last year at this time (See Chart). Diesel also has rising for the past 12 weeks now averaging $3.57 per gallon.

Chart Source: U.S. EIA

 

Some analysts started talking about $4 or even $5 a gallon gasoline at pump could be right around the corner. Many are worried about the potential impact high oil and gasoline prices could bring to the still fragile U.S. as well as world economy.

Europe’s Libyan Panic

As a large share of the oil trading in Europe comes from the Middle East, Brent has rallied in response to the increasing geopolitical tensions in that region, plus Brent is actually undersupplied due to regional and seasonal factors.

Furthermore, Libya’s crude is considered an alternative to light and sweet grades such as Brent, which is popular among European refiners for diesel production. The International Energy Agency (IEA) estimated that the Libyan unrest has curtailed up to 47%, or 750,000 barrels a day (bpd) of Libya’s total oil production, and that before the crisis Libya produced about 1.6 million bpd, or 1.4% of global oil output.

So, the almost 50% production halt at Libya, although not a significant threat from a global supply point of view, is squeezing European oil companies to find substitute for the equivalent grade from other nearby regions like Algeria, Nigeria, which could further bid up the Brent benchmark.

U.S. Hit With A Double Premium

As pointed out in my previous post, the U.S. petroleum product prices are trending with Brent oil in Europe, instead of the WTI in the U.S., which is trading at a steep discount to Brent mainly due to WTI losing its relevance with a logistic land-locked high storage at Cushing, Oklahoma (See Chart).


So, on top of the geopolitical premium, prices of gasoline and distillates in the U.S. are getting hit with an additional WTI-Brent spread premium since Brent is trading at around $14 more than the U.S. WTI crude.

Ample Stocks in the U.S.


The problem is that by following Brent’s movement, U.S. gasoline and distillate prices are basically reacting to market fundamentals in Europe--ignoring the ones at home.

While European refiners are scrambling to find alternatives to their preferred Libyan crude, crude oil, along with petroleum products are well supplied with plenty of stocks in the United States (See Charts). In fact, stocks of gasoline is just 2.8 million barrels off the 20-year high reached in the week ending Feb. 11.

Fear Knows No Boundaries

Crude oil is probably one of the largest, most liquid and speculated commodities in the world. As such, there are lots of components, physical (supply and demand) as well as psychological that go in to the price of oil as well as gasoline.

The supply anxiety associated with the uprising in Egypt, Libya, and possible contagion in the world's major oil producing region has kept the energy market, European Brent in particular, on edge. 

As long as the situation in the Middle East and North Africa remains volatile and unresolved, markets will keep adding fear premium to crude oil and associated products. And fear has no boundaries even though there’s no clear present danger of an actual physical supply shortage.  

No Cure For High Prices Like High Prices

In the U.S. however, even though gasoline and heating oil prices are chasing Brent, it does not change the fact that there’s a product glut in the U.S. with a flat demand outlook. So, unless there’s a whole lot of surprise hidden new demand to support current price levels, prices will have to come down.

Otherwise, prolonged high oil and product prices will most likely lead to consumer behavior change -- driving and spending less—which could bring about a demand destruction, and another recession to boot, forcing an oil market [crash] correction to reach equilibrium.

Market Correction in March

The futures curve pretty much tells a similar story. According to the CME Feb. 27 data, RBOB April 2011 futures contract stood at $2.9086, but it drops to $2.8704 for April 2012, $2.8078 in 2013, and only $2.6744 in 2014.

So, based on the discussion here, I’d expect a market correction at the next contract rollover around March 8.  Technical indications suggest WTI crude could easily correct to the $90 levels, heating oil to the $2.60 levels, and RBOB to the $2.50 levels. From a trading and investor’s point of view, the size of the correction would be worthwhile to go in short the April crude, RBOB and heating oil.

Fed’s QE2, a weak dollar, recent upbeat economic data and a cold winter season has provided support to crude product prices. However, as winter ends, QE2 expires in June with QE3 an unlikely scenario, and China cools off its economy to fight inflation, gasoline and distillates probably have already seen their highs for the year already.

Related Reading: Crude Oil: Egypt Contagion and a Tale of Two Risk Premiums

EconForecast, Feb. 27, 2011 | Facebook Page | Post Alert | G Buzz | Kindle

Got Gold Report – Silver Shortage in Full Bloom

Posted: 27 Feb 2011 11:00 AM PST

Two weeks ago we finished our intro by saying: "There are signs of uncommon but somewhat hidden strength underneath precious metals, the footprints of which are likely not readily apparent to casual observers." Since then reports of extremely tight supply in silver persist, silver has rallied big, silver futures stay in historic backwardation and some veteran market observers are now thinking that a true supply squeeze is underway in the small silver market.


Gold Market Update

Posted: 27 Feb 2011 10:12 AM PST

Gold broke out above its Dome boundary last week, which was not what we were expecting. Fundamentally this action was due to fears relating to the worsening situation in Libya, and while this breakout is a bullish development ... Read More...



Silver Market Update

Posted: 27 Feb 2011 10:11 AM PST

After last week's update called for a near-term top in silver we got one more up day, thanks to the antics of the Libyan "fruitcake" digging his heels in and resisting being swept away. After that silver did indeed start to correct back ... Read More...



The Blame Game?

Posted: 27 Feb 2011 09:36 AM PST


Via Pension Pulse.

William S. Lerach reports in the Huffington Post, Blame Wall Street, Not Hard Working Americans, For The Pension Funds Fiasco:

The confrontations in Wisconsin and other states are the opening salvo of a political blame game -- who is responsible for the gigantic public pension fund deficits that threaten states' solvency and workers' retirement savings? The conservative spin machine blames public employees, claiming their greedy unions extorted extravagant and now unaffordable benefits which justify pension cutbacks and union-busting. This is a false. The real cause of the pension fund debacle is the greed of Wall Street and its corporate allies. It's a result of their dismantling of our nation's regulatory safeguards and Wall Street's capture and abuse of America's public pension funds -- charging them huge management fees, while losing trillions of dollars of pension fund assets in risky investments.

 

Wall Street developed with no regulation. Abuses abounded. Financial markets were corrupt. Then came the 1929 Crash, a wealth destruction event that ended the dreams of an American generation. The Pecora hearings exposed self-dealing and fraud by Wall Street bankers. Wall Street faced ruin. But instead of wiping out Wall Street or nationalizing the banks, we chose to save capitalism and protect investors -- by creating a new system of highly regulated financial markets.

Congress created the SEC to oversee stock exchanges, require honest accounting and disclosure by corporations and broke up (and strictly controlled) the Wall Street banks. In time, this new regulatory framework created the greatest age of economic growth and prosperity in history. Despite periodic recessions and bear markets -- there were no more investor wealth destruction events.

 

As the U.S. became the world's financial powerhouse, no one got more powerful than the Wall Street banks and their corporate allies. Then they set about undoing the very regulatory framework that had saved them. As politics came to depend on massive infusions of cash, no one provided more of it than corporations and Wall Street banks. They complained that regulation was restricting American competitiveness and economic growth -- our citizenry was seduced by promises of greater growth and prosperity. Government, which had actually been the key to the solution, became portrayed as the problem. They captured Congress. And then came the regulatory teardown.

 

Congress deregulated the S&Ls. Then it enacted severe cut backs on investor protections and curtailed their right to sue. Glass-Steagall was repealed -- allowing the long forbidden financial giants -- investment and commercial banks -- to recombine. The Wall Street/ Corporate alliance used its power to see that regulatory agencies passed into the hands of appointees who were hostile to the regulations they were supposed to enforce. Investor protection rules were diluted. A pro-corporate Supreme Court curtailed suits against banks and corporations. The result was behemoth banks, less regulatory oversight and less accountability.

So, what came from this era of de-regulation? Increased competitiveness, economic growth, wealth and prosperity? No -- instead we got repeated waves of financial fraud and wealth destruction events.

 

First came the S&L blowup of the mid-1980s. Over 3,000 S&Ls collapsed. A few years later it was the 2000-2001 dot.com/telecommunications meltdowns epitomized by WorldCom and Enron. Most recently, our major financial institutions were rocked by scandal -- the worst crash since 1929. Investors lost over $20 trillion in these three massive wealth destruction events, which were the result of the teardown of the regulatory framework that had been erected over the prior 70 years to control our financial markets and protect investors. America's public pension plans -- guardians of the life savings of countless working people -- were the biggest victims of these wealth destruction events.

 

A pension system is a bet on the future -- some money is set aside currently, but not enough to pay all the promised benefits. So, how pension funds are invested and safeguarded is key. Originally, many states required pension funds to invest in safe, interest-bearing bonds. But Wall Street could not make a lot of money from that, so it bank-rolled initiatives and legislation to repeal these protections and permit pension funds to be invested in the stuff they make big profits by peddling. Then Wall Street money managers captured pension funds' investment portfolios by assuring trustees that ever-higher stock prices would pay for the retirement promises. Charging enormous fees, they made risky stock market bets, putting up to 80% of pension plan assets in the stock market. The Wall Street wisdom that ever-rising stock prices would fund pension plan promises was wrong. In fact, we have seen three major equity wealth destruction events in last 20 years.

 

As a result, the financial situation of our public employee pension funds is precarious. These funds lost hundreds of billions in the S&L disaster and the 2001-2002 market crash. After the 2001-2002 wipeout -- guided by Wall Street -- fund trustees took much greater risks to try to make up for the prior losses. They poured billions into hedge funds, private equity, speculative real estate and that special Wall Street invention -- collateralized debt obligations. Then, in the 2008-2009 financial crisis, the losses of public funds were stupendous. 109 state funds lost $865 billion in about one year. CalPERS lost $72 billion! Now virtually all of these funds are now grossly under-funded. New Jersey and Illinois are each over $50 billion underwater.

 

Why are our public pension systems and plans in such precarious financial condition? Of course there are some examples of excessive pensions, of double-dipping and of "gaming" the system to "goose" the pension amount. But these are few in number. And, even in the aggregate, the financial impact of these excesses pale in comparison to the gigantic investment losses of these pension funds. So let's place the fault where it really belongs -- not with working people -- but with Wall Street banks. Who made money on these risky investment gambles? Who takes pension fund trustees to play golf and on so-called "educational" junkets at lush resorts to enjoy lavish dinners? Wall Street.

 

The inappropriate investments that caused these massive pension fund losses were not an accident. The pension fund field caught the Wall Street contagion -- financial corruption. It's called "Pay to Play." The SEC saw it years ago but, controlled by anti-regulation political appointees, it did nothing. So a nationwide system of political contributions to elected officials who sit on fund boards and payoffs and kickbacks to politically well-connected "Placement Agents" to steer fund money to Wall Street became widespread. Not surprisingly, the investments obtained by "pay-to-play" kickbacks and contributions have generated horrific losses.

 

An investment officer of the California Public Employee Pension Fund was forced to resign -- he got an all-expense-paid trip to NYC from an investment group that got $600 million from the fund. The middle men on that deal -- two former top CalPERs officials -- got some $20 million to arrange this placement. Two other former CalPERS officials have been sued by the Attorney General for taking $50 million in placement fees to steer pension investments. CalPERs lost hundreds of millions on such investments. Alan Hevesi -- the former head of the New York State Fund -- pleaded guilty to doling out billions in that Fund's assets to favored managers in return for benefits. The SEC has finally outlawed this system of bribes and kickbacks. But too late -- the damage has already been done to the pension funds. Nationwide, public pension funds lost billions on these types of corrupt investments with Wall Street types.

 

The horrible deficit numbers funds admit to actually hide a far more terrible reality. To determine how well a fund is "funded" it uses an assumed rate of return. It estimates how much the fund will earn on its investment portfolio in the future. For decades, public pension funds have assumed 7.5%-8%, even 9% annual growth, i.e., over 100% compounded over 10 years. Fat chance!

 

Today, pension funds are engaged in massive deceptions to conceal the true extent of their funding deficits. They are concealing the massive black holes that haunt public budgets. These ridiculous 7.5%-9.0% assumed rates of return are not "little white lies" -- they are Everest-sized whoppers. If the three big California Public Funds used a 4.5%-5% rate of return instead of the 7.5%-8% they now use, these funds would be $500 billion under-funded -- 10 times the $50 billion shortfall they admit to. Since this is a nationwide deception going on in virtually all public plans, try extrapolating that out. Public employee funds are probably $3 or $4 trillion underwater. The massive shortfalls we now face exist despite prior "Bull Markets" and the current rally. And the next round of excess of a still under-regulated Wall Street will produce another wealth destruction event that will erase recent gains.

 

This is no academic matter. The time to keep the retirement promises is now upon us. In the next several years, some 77 million U.S. baby boomers -- including millions of teachers and public service workers -- will enter retirement. Unfortunately, the U.S. public pension system has become a fraud-infested house of cards. Wisconsin shows us this house of cards is starting to collapse, sparking a major political battle.

 

The conservatives will "scapegoat" public employees as a privileged -- protected -- class. But it was not firemen, cops, clerks, or teachers (or their unions) who lost trillions of dollars in risky investments in an under-regulated stock market over the past 20 years. The Wall Street money managers lost it in investments acquiesced in by the pension fund trustees they had wined and dined. It's the same old story. The bankers pocket gigantic fees. The privileged few get fat. Ordinary people get run over. And now are even to be blamed -- even punished -- for a mess they did not create.

 

We cannot allow these public pension plans to collapse. Nor can we break our promises to workers who relied in good faith on promised pensions. Fortunately, there is a solution that could help protect retirees and at the same time help finance our huge federal deficit -- if we act fast.

  • First -- stop allowing Wall Street money managers to speculate with workers' retirement savings in risky equities and other crazy investments.
  • Second -- create a new 7% or 8% inflation-indexed U.S. Treasury bond only for retirement funds, in staggered 10-30 year maturities. Require all pension plans to buy and hold these bonds. To allow an orderly transition -- require that over the next seven years -- 80%-90% of all pension plan assets must be put in these safe, high-yield bonds.
These bonds will provide low-cost returns for pension funds. This will stop Wall Street's gouging the funds with huge fees and speculating with workers' retirement savings. This solution will also help finance our huge federal deficit. While the interest rate is high -- we taxpayers are going to end up paying to solve this problem one way or the other. And, at least this way, the interest payments will go to support our fellow retired citizens -- not the Chinese. It's a simple, elegant solution -- but Wall Street and the politicians they control will never permit it.

While I empathize with the spirit of this article, Mr. Lerach fails to mention a few things. First, an agreement between the Clinton administration and congressional Republicans, reached during all-night negotiations on October 22, 1999 introduced the most sweeping banking deregulation bill in American history. It's simply wrong to blame "Conservatives" for deregulation of the American financial system. Both major parties catered to the financial elite to introduce sweeping banking deregulation.

Second, as I wrote back in January, while a large part of the blame lies with Wall Street, it's too easy to use greedy bankers as scapegoats for the pensions fiasco. Poor governance, rosy investment assumptions, bad asset management (which didn't focus on protecting the downside) and bad political decisions all played a role too. Nobody forced pension fund managers to buy the crap Wall Street was peddling them. So many people fell for the utter nonsense that the Street was selling them. They hired "rocket scientists" to slice and dice risky mortgage debt, turn it into "AAA" tranches which the rating agencies certified (sigh!) and presto, these investments were now eligible for pension fund managers to invest in. Anyone who's read Michael Lewis' The Big Short must be appalled at how pension fund managers totally abdicated their fiduciary duties by not questioning what was actually backing these "AAA" investments.

Third, while I like the idea of introducing more inflation-sensitive US Treasury bonds, I don't like the idea of forcing pension plans to invest the bulk of their assets in these bonds. This idea has been floating around for years (I believe Zvie Bodie came up with it), but it flies in the face of good governance and exercising fiduciary responsibility. There are no guarantees that inflation-sensitive bonds will outperform in the future, especially in a deflationary environment, and it's better to invest in a diversified portfolio of private and public markets.

Finally, as I mentioned in an update to my last comment on California pensions, there is a concerted effort going on right now to weaken public pension plans or abolish them altogether. I'm of the school of thought that this is pure fear mongering and total nonsense. While Wall Street continues to enjoy record bonuses, private and public pension plans are getting decimated. But instead of blaming people, we got to get on with it and start introducing meaningful regulations and reforms which will bolster pensions and the financial system.

The damage is done. We're not going to change the past, so let's focus on building the future. We can address the pension funds fiasco as responsible adults, recognizing that changes will require sacrifices from all stakeholders, or we can continue down this ridiculous path of public and private pensions attrition. Keep this in mind as the political rhetoric on pensions heats up.

The Days of Gold-Plated Public Sector Pensions are Numbered

Posted: 27 Feb 2011 09:00 AM PST

*Public Sector Pensions in Jeopardy for Good Reason! Here’s Why The 'workforce elite' in America today are public sector employees and they, led by state and municipal unionized workers, are now in open revolt to preserve their special status, and the status quo.*Wisconsin is the current case study in what happens when the government, a monopoly service provider, confronts the fact that the taxpayer is tapped out and can't take it anymore – and there simply isn't enough money anymore. Those realities are going to result in major adjustments in worker incomes, future pensions and benefits and their overall standard of living. Let me explain. Words: 1849 So*says Arnold Bock (www.FinancialArticleSummariesToday.com)*inan article which*Lorimer Wilson, editor of www.munKNEE.com,* has edited**for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.*Bock*goes*on to ...


Reasons to Pass on Newmont Mining Corporation

Posted: 27 Feb 2011 07:28 AM PST

Newmont Mining Corporation (NEM) released an update Friday, including a dividend payment. It was not well received by the investment community: The stock price fell 7.36% on massive turnover of 19.1 million shares, which is twice the daily volume.

We will start with a quick look at the chart where we can see the golden crossover of the 50 DMA crossing over the 200 DMA in a downward direction, this is usually a rather negative sign for stocks. The technical indicators have also turned negative and are heading south.

Gold prices also took a bit of a pounding after hours which didn't help the situation.

Newmont Mining announced Friday that net income increased 76% to $2.3 billion ($4.63 per share) in 2010, compared to $1.3 billion ($2.66 per share) in the prior year. Operating cash flow was a record $3.2 billion for 2010, compared to $2.9 billion in 2009. Adjusted


Complete Story »


Marc Faber: "I Think We Are All Doomed"

Posted: 27 Feb 2011 06:31 AM PST


All who enjoy hearing a meaty Marc Faber fire and brimstone sermon, that cuts through the bullshit, will be happy to know that the Gloom, Boom and Doom author conducted a 40 minute interview with the McAlvany Financial Group, which covers all the usual suspects: gold, silver, precious and industrial metals, the "crack up boom", the future of the Ponzi and capital markets in general and much more. Of course, it wouldn't be a Faber interview without the requisite soundbite: "I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it." Of course, on a long enough timeline...

Key extract from the Faber speech:

I think we are all doomed.  I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it.

For the investor, the question is: How do I navigate through this complete disaster that is going to unfold?  And I think if you look at different asset classes – real estate, equities, bonds, cash, precious metals – I suppose that you have to be diversified.  I think real estate in the U.S. may go down another 10% or so, or even 15%, but I am always telling people, if you can buy the piece of land or the house you like, what do you actually care if it does down another 10%?  If everything I bought in my life had only gone down 10-15%, I would be very rich, because a lot of things became worthless, especially loans to friends, and bonds, and so forth.

Look at the history, for example, of Germany, for the last 100 years.  They had World War I.  They had the hyper-inflation in World War II.  The bond-holders got wiped out three times.  If you owned Siemens, and you still own Siemens today, it was not a fantastic investment, but at least you still have something.  You were not wiped out.  I think that in equities you will be better off because you have an ownership in a company, than by being the lenders to companies, and the lenders, especially, to governments.

Faber on the key distinction between nominal and real, which nobody on CNBC seems to grasp yet, why gold now is cheaper than it was in 1999, and on the Dow and gold reaching parity.

In a money-printing environment, it is very difficult to know what is actually cheap and what is expensive.  Is the price of wheat high, or is it low?  Inflation-adjusted, it is extremely low.  In nominal terms, it is relatively high.  I believe that, in March 2009 when the S&P was at 666, the market was actually much cheaper than is generally perceived, because of the money-printing, and I do not anticipate that we will see 666 on the S&P again, in nominal terms.

In other words, they are going to print so much money that the S&P could be at, perhaps, 2000, but in real terms, it could be down below the lows of March 6, 2009.  Maybe in gold terms, we could one day reach a ratio of Dow Jones to gold of 1-to-1, as we were in 1980.  In other words, the Dow could be perhaps at 10,000 or 12,000, and gold could be at the same level.

That is why I am advising people to accumulate gold.  Can gold have a correction?  Yes, there has been a little bit too much euphoria about gold, and we may have a correction, but I do not think we are in a bubble in the price of gold.  In fact, I could make a case that gold, at this level of $1400 an ounce, is cheaper than in 1999, when I look at the unfunded liability growth of the U.S., at the credit growth of the U.S., and at the household growth, and at the money printing, and at all the wealth creation that happens in China and Russia.

Full interview:

(complete PDF transcript)

 

AttachmentSize
McAlvany Faber Transcript 2.25.2011.pdf222.87 KB


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Gold price loves a crisis

Posted: 27 Feb 2011 06:18 AM PST

If there is one thing that gold loves, it's a crisis - and once again the commodity has started to outperform.


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Egypt Bans Export Of Gold "In Any Form"

Posted: 27 Feb 2011 06:07 AM PST


Looks like speculation that the Egyptian Central Bank's gold stash may have been just modestly plundered is starting to play out. According to Reuters. "Egypt has issued a ministerial decree immediately banning the export of gold in all its forms, including jewellery and ornaments, until June 30, the official news agency MENA said on Sunday. "This decision, which comes in light of the exceptional circumstances the country is passing through ..., is to preserve the country's wealth until the situation stabilises," MENA said. Egypt's currency has come under pressure after some of the country's main sources of foreign currency, including tourism and foreign investment, collapsed after the protests that ousted President Hosni Mubarak erupted on Jan. 25." Obviously, this "emergency" step would not be required if the E(gyptian)CB was still in full possession of its purported stash of the inedible metal. Whether the decline is due to alleged Mubarak sequestering of the shiny metal, or by other members of the former ruling regime is unclear, but one thing is certain: the WGC is long overdue in adjusting the Egyptian gold holdings from 75.6 tonnes to their real current value... far lower. As for Egyptian fiat: that is as freely exportable now as ever. If only anyone wanted it. But yes, somehow emerging markets are manipulating their currencies lower than fair value, the conventional wisdom claims.

 

We're Rapidly Approaching the Crisis to Which 2008 Was a Warm Up

Posted: 27 Feb 2011 05:48 AM PST


(snippet)
Thus, the BIG question for US stocks is whether the market has already digested all the QE hype to the point that threats of additional liquidity does nothing, OR if the Bernanke "Put" is still in play.

While this might not seem like a big deal, I can assure it is THE most significant issue the financial markets face right now. The reason for this is that IF the Bernanke "Put" is no longer relevant, that is additional liquidity and bailouts, doesn't actually induce a rally anymore… then the entire financial system will collapse in one form or another.
Remember, the only thing that pulled us from the brink in 2008 was Bernanke printing like a lunatic. It's the ONLY thing that has held the market together. And while it may have kicked off a major rally in stocks… it FAILED to address the underlying issues that caused the Crisis in the first place: namely excessive debt and leverage.
In fact, Bernanke has made the financial system even MORE leveraged than it was in 2008. So if the Fed's moves no longer have an effect on the markets, then it's time for the REAL Crisis… the Crisis to which 2008 was a warm up.
Why?
Because when the stuff hits the fan this time around, the Fed will be powerless to do anything. Bernanke's already shot every bullet he's got. So when he loses control this time around, not only will the market crater, but the belief that has kept the financial system afloat through every Crisis of the last 30 years (namely that the Fed can always save the day) will shatter.

And when that happens it will be the US financial system, NOT just stocks that goes down.
Prepare Now!
More Here..

How to Treat Skin Cancers With Eggplant & Vinegar

Gold Fails to Break to New All Time High Despite Middle East Crisis

Posted: 27 Feb 2011 05:00 AM PST

Despite all the turmoil gold was not able to get into new high territory.  It will be interesting which way for gold next week.


GOLDEN FIREWORKS ARE ABOUT TO BEGIN

Posted: 27 Feb 2011 04:13 AM PST

By Toby Connor, Gold Scents
The gold bull is now on the verge of launching the most spectacular leg up yet in this 10 year bull market.This spring we should see the final parabolic rally in this massive C-wave advance that began in April `09 with a test of the 1980 high at $860.

First off let me explain gold's 4 wave pattern (and no it has nothing to do with Elliot wave).

Gold moves in an ABCD wave pattern, driven not only by the fundamentals of the gold market (which I will get into in a minute) but also by the emotions of gold investors and the thin nature of the precious metals market.

The A-wave is an advancing wave that begins and is driven by the extremely oversold conditions created during a D-wave decline (more on that in a second). A-waves can often test the all time highs but rarely move above them. Usually they will retrace a good chunk of a D-wave decline.

The B-wave is a corrective wave spawned by the extreme overbought conditions reached at an A-wave top.

The C-wave is where the monster gains are made. They can last up to a year or more. The current C-wave is now almost two years old. They invariably end in a massive parabolic surge as investors and traders chase a huge momentum driven rally.

Of course as we all know parabolic rallies are not sustainable. So the final C-wave rally ends up toppling over into a severe D-wave correction as the parabola collapses. This is about the time we hear the conspiracy theorist's start crying manipulation. In reality all that has happened is that smart money is taking profits into a move that they know can't be sustained.

Then the entire process begins again.


Next let me show you the fundamental driver of the secular gold bull. It's probably no surprise to most of you that the Fed's ongoing debasement of the dollar is one of the main drivers of this bull. But let me take this one step further and show how the dollar's three year cycle drives these major C-wave advances and how the move down into the dollar's three year cycle low always drives a final parabolic C-wave rally.

First off let me show you a long term chart of the dollar. I've marked the last 7 three year cycle lows with blue arrows. The average duration from trough to trough is about 3 years and 3 months. As you can see the dollar is now moving into the timing band for that major spike down in the next 2 to 3 months.

The extreme left translated nature (topped in less than 18 months) of the current cycle gives high odds that the final low when it arrives will move below the last three year cycle low. That means that between now and the end of May we should see the dollar fall below the March `08 low of 70.70.


That crash down into the final three year cycle low will drive the finale parabolic move up in gold's ongoing C-wave advance. Just like every major leg down in the dollar has drive a major leg up in gold since the gold bull began.



I will be watching the dollar over the next couple of months for signs that the three year cycle low has been made. Because once the dollar bottoms and begins the explosive rally that always follows a major three year cycle low it will initiate the severe D-wave correction in the gold market. Gold investors will want to exit at the top of the C-wave if at all possible and avoid getting caught in the D-wave decline.


There is also a developing pattern on the gold chart that once it reaches its target will be a strong warning for traders and investors to exit so they don't get caught in the profit taking event as the parabola collapses.

This T1 pattern is a four part pattern with the first and second legs up being almost equal in magnitude, separated by a midpoint consolidation that allows the 200 DMA to "catch up". The current T1 has a target of roughly $1650ish once gold breaks out of the consolidation zone.



The fourth part of the pattern is the D-wave correction which should retrace to test the consolidation zone between $1300 and $1425. At that point the next A-wave will begin and we'll repeat the whole process over again.


Let me be clear though. I have no desire to buy gold. I doubt I will ever buy another ounce of gold again. The real money will be made in silver during this finale C-wave advance and in the miners (I prefer silver miners).


During the last major moves higher in the gold market, miners, which are leveraged to the price of gold, stretched 35% to 45% above the 200 day moving average. At the latest peak the HUI was only 25% above the mean. A strong clue that this was not the final C-wave top.

I expect we will see the HUI stretch 40 to 60% above the 200 DMA at the final top later this spring. But like I said I really have no desire to buy gold or the major gold miners. The real money is going to be made in silver and silver miners.


Silver has been exhibiting exceptional strength compared to gold for 7 months now. The consolidation on the silver chart is much larger than on the gold or gold miner charts. I expect that massive consolidation to drive silver up to test the old 1980 high of $50 by the time gold puts in it's final C-wave top.

The time to get on board is before gold breaks out of the consolidation. Once it does the parabolic move should be underway and your chances of a significant pullback to enter the market will decrease significantly.


I've been helping investors time the gold and silver bull for several years now. If you are the kind of person that needs a coach to keep you focused on the big picture. Some one to cut through the meaningless noise of all the myriad top callers and bubble proponents. Someone to show you how these long and intermediate term cycles operate so you can actually make money from the gold bull.

For those of you that need a coach and want to learn how the gold bull works, I'm going to make available, this week, a special 15 month subscription. For the regular price of one year I will add three free months to your subscription. To take advantage of this offer click here.

Choose a username and password and enter goldscents15 in the promotional code box, then click continue. You will be taken to a page with the 15 month offer.

Now is the time to act before the bull comes roaring out of the gates and the fireworks begin.

Toby Connor

GoldScents

A financial blog primarily focused on the analysis of the secular gold bull market.

If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions, email Toby.

The Tools of Disinformation

Posted: 27 Feb 2011 04:09 AM PST

By Jeff Nielson, Bullion Bulls Canada

In the preceding piece to this, I introduced readers to the topic of disinformation. I pointed out it was a technique for psychological manipulation which was literally thousands of years old, and one which our governments have made a great effort to master – either out of desire, or necessity.

One problem with analyzing a topic of this nature is that people will naturally associate it with "conspiracy", since there is specifically an element of secrecy to this form of propaganda. In turn, readers have been conditioned to immediately become suspicious of any/every "conspiracy theory". Ironically, this itself is an illustration of the one of the largest and most successful disinformation campaigns in our societies, but I won't go into detail in that respect until later.

Having discussed disinformation previously in the somewhat theoretical context of war, many readers may be thinking to themselves that, in fact, this is a topic which has no relevance in "the real world" (i.e. peoples' day-to-day lives). In actuality, we are being saturated with disinformation every day of our lives, much like the deluge of 'ordinary' propaganda – to which growing numbers of people are finally awakening.

For the most common form of disinformation we need only look to our stock markets (one of the "playgrounds" of the bankers). Go to any/every "stock bulletin board" or forum anywhere in the Western world, and every day you will see an army of "trolls", whose sole (paid) function is to spread disinformation about various companies.

Such disinformation generally comes in two forms: false rumors and incorrect information. Regarding the former, obviously this tends to take the form of either a company is about to "do something", or "something" is about to be done to them. Regarding the latter variety, incorrect information comes in an infinite variety of forms. Sometimes such false information is meant to make people think better or worse about a particular company, however very often the goal is merely to create confusion: the 'deer-in-the-headlights' syndrome, where conflicting information causes investors to be frozen in indecision – while the predators decisively engage in their buying or selling.

Those trolls whose paid assignment is to create favorable sentiment about a company (and hopefully push-up the share price) are called "pumpers" while those who are paid to denigrate companies (and try to crush the share price) are known as "bashers".  There are two very good reasons why the "bashers" are both more numerous and more dangerous than the "pumpers".

First there is the contrarian argument. As every good "contrarian" knows, you can make more money as an investor by being right against 'the run of the herd' rather than with them. Because the natural growth of our economies tends to create an upward bias for share prices, being a "contrarian" typically means being a "basher". Thus bashing "good" companies (or even bashing "bad" ones) tends to be more profitable than pumping bad companies. Only amateur disinformation-artists tend to waste their time in "pumping" good companies, since with the herd already positioned in such companies, this is where the least profit-potential exists.

The other reason why the professional disinformation-artists (i.e. trolls)  tend to focus upon "bashing" is a simple reality of our credit-based (i.e. debt-based) economies. Because the bankers have brainwashed even strong, successful companies to gorge themselves on debt, our entire markets have become a "game" to see who can raise the most debt, on the best terms.

With much of this debt being equity-based financing (especially for smaller and mid-cap companies), the "success" or "failure" of these companies becomes a direct function of their share price. At this point the game becomes nothing more than "shooting fish in a barrel" for the banksters (and the trolls who work for them).

Because markets are almost entirely based upon the relative performance of companies rather than their absolute performance, those companies who are continually being forced to finance at unfavorable terms (because of constant bashing, and other "dirty tricks") will be seen as "laggards" – and their share price will be punished even further, quickly becoming a "vicious circle" where the more companies "lag" the more their share price is punished, causing them to lag further still.

More articles from Bullion Bulls Canada….

The Well-Traveled Funds of Fed Money Creation

Posted: 27 Feb 2011 04:05 AM PST

By The Mogambo Guru

Someone named Denis wrote to Mish Shedlock of globaleconomicanalysis.blogspot.com and asked, "I read many times on your blog how bubbles created by the Fed led to the overpricing of assets such as real estate and stocks. Someone paid those overpriced valuations."

The question is, "So, where is the money? At some point will that money be used to mitigate the economic doom?"

Before I could interrupt, Mr. Shedlock himself answers, "Most of the money went to 'money heaven' which is to say nowhere at all."

Of course, I am delighted at the clever turn of phrase, even though I am not sure I understand it unless loans have defaulted, making money disappear.

So unless it is actual currency that is physically lost or destroyed, money lives eternal unless the debt, from which the money sprang, is not paid back, and some debtor is saying to some creditor, "Hey! Screw you, you crooked bastard bankers that caused all this economic mess by creating So Damned Much Money (SDMM) over the decades that it produced bubbles in the stock market, the bond market, the housing market, a gigantic financial services industry, an enormous derivatives market and a monstrous, suffocating increase in the size and oppressiveness of local, state and federal governments!

"Now it's my turn to screw you in a fit of Unthinking Mogambo Revenge (UMR)! I ain't paying you back the money I borrowed! Thus, your fiat money literally disappears! This is why, if you will remember, I said 'screw you!' at the beginning of my harangue! Hahahaha!"

Well, this, despite its terrific sense of catharsis and vengeance, does not answer the original question, which is, "Where does the money go?"

The answer is that the money goes (and you can quote me on this) everywhere! Hahahaha!

I can see by the bored look on your face that you do not understand my glib explanation, you do not see what is so funny that I would laugh about it, you think I am an idiot and you are wondering why you are wasting your life listening to a moron like me.

Well, to be completely honest, I personally have no idea why you are wasting your life, although I can tell you, in case you are interested, that if you are NOT buying gold, silver and oil stocks in response to the Federal Reserve constantly creating so unbelievably much money that it will cause inflationary catastrophe for the economy, then you will soon not HAVE any life worth living when inflation in prices destroys you and everything you love, and you will be forced down, down, down to nasty subsistence living, checking the garbage cans and dumpsters behind restaurants for food during the day, and sleeping in them after closing time to keep out the rats.

You can tell by my use of terms like "garbage" and "rats" that I am obviously sinking into a Big Mogambo Funk (BMF) about the whole mess caused by the Federal Reserve creating so much money.

But when I say the money "goes everywhere," that is exactly what I mean.

Perhaps a simplified illustration will help. Suppose I borrow a dollar to buy something from you for $1. You pay the government (at a 25% tax rate) 25 cents, leaving you with 75 cents.

Now you spend your 75 cents buying something from Amy, whereupon Amy pays the governments 25%, or 19 cents, leaving her with 56 cents.

Amy spends her 56 cents by buying something from Bob, who pays the government 25%, leaving him with 42 cents.

Extrapolate this out, and after awhile you can see that the whole dollar eventually goes into the coffers of the government, which spends the money everywhere!

Therefore, the money goes everywhere! Just like I said!

And that is why creating excess money causes inflation in prices, and that is why you should be buying gold, silver and oil, running around like a hyperactive lunatic buzzing your brains out on crystal meth, because when the Federal Reserve is creating so much money, gold, silver and oil will go up in price, which is such a deceptively simple investing scheme that you marvel at it and exclaim, "Whee! This investing stuff is easy!"

The Mogambo Guru
for The Daily Reckoning

The Well-Traveled Funds of Fed Money Creation originally appeared in the Daily Reckoning. The Daily Reckoning has published articles on the impact of quantitative easing, bakken oil, and hyperinflation.

Technical Observations On An Extremely Overbought Market With 123 Consecutive Closes Above The 55 DMA

Posted: 27 Feb 2011 04:04 AM PST


While John Noyce covers his usual fare of weekly FX technical developments, with an emphasis on the EURUSD, the AUDUSD, the USDSEK, the NZDUSD,  and broadly the extremely low level of implied vol in FX (unlike commodities - we expect a switch from commodity implied vol to FX very soon), as well as a very curious collapse in correlation between G10 FX implied vol basket, the VIX and the EURAUD spot. But the most notable observation is what may happen to stocks now that the 55 Day Moving Average is in danger of being breached for the first time in 123 days. The two key support trendlines are the August uptrend since August, which is at 1,300 and the 55 DMA, which is at 1,284. Should both of these be taken out, there is no technical support until the Jackson Hole level of mid 1,000s.

From Noyce:

  • The S&P has so far done the absolute minimum correction, in terms of it has tested the uptrend from the August ‘10 lows at 1,300
  • However, as discussed in a number of updates and client meetings over the last couple of weeks, the thing which “concerns” us in terms of it being a warning of a larger move is the fact that the market has been above the 55-dma for such an extreme period on a daily close basis.
  • With Wednesday’s close above the market having spent 123 consecutive daily sessions above this particular moving average (it hasn’t made a daily close below since 1st September ‘10). This is very extreme by historic standards and takes the S&P to a greater period above its 55-dma than that which equity markets in other regions (particularly Asia) managed before they began to correct over recent weeks.
  • The other notable point about the recent price action is the extreme move seen on Monday where the market posted its largest one-day %age decline since the recent rally began in earnest on 27th August ‘10.
  • In terms of levels from here;
    • The uptrend from the 27th August low’s at 1,300
    • A similar size correction to that which took place from the 5th November high to the 16th November low (in point terms) would target 1,290
    • The 55-dma stands at 1,284
  • In conclusion we’re by no means making an argument for a real “downtrend” in equities to begin, it’s too early to make that type of statement, but, the risks of a larger correction developing do seem quite high.

Also, the US is now more overstreteched than any other world markets:

  • The charts opposite show the same count of the number of days the market achieved above the 55-dma for the Kospi and Taiex (the Korean and Taiwanese benchmarks)
    • These two markets, from their lows in May ‘10, developed some of the cleanest and most steady trends of the various national benchmark indices in the Asian region. However, even given that backdrop, they only managed to achieved 111 and 109 consecutive daily closes above their respective 55-dmas before breaking back below on a daily close basis and correcting further.
    • With this in mind, just in pure comparison terms, the chances that the S&P achieves a daily close back below its 55-dma which stands at 1,284 seem quite high (as a reminder, up until Wednesday, the S&P has made 123 consecutive daily closes above its 55-dma).

On the other hand, with the market correlating about 0.9 with the size of the Fed's balance sheet, as was first demonstrated on Zero Hedge, to say that charts, technicals, fundamentals, or anything besides central planning matters, can seem naive to many.

Another interesting chart for those who still believe the VIX is still relevant (we believe the SKEW is much more important than the VIX, but that is a different story).

  • As always it’s difficult to calculate targets for the VIX, but the way the index is breaking quite impulsively higher from its recent wedge like consolidation against the April ‘10 lows and the fact that you can argue some sort of double bottom pattern is in place certainly warns that we could see further upside.

 


Gold scrap scarcity hobbles Indian refineries

Posted: 27 Feb 2011 04:04 AM PST

Gold Refineries' Operating Capacity Declines

By Dilip Kumar Jha
Business Standard, New Delhi
Sunday, February 27, 2011

http://www.business-standard.com/india/news/gold-refineries/-operating-c…

MUMBAI — The operating capacity of domestic gold refineries reached alarmingly low levels due to scarcity of scrap. Currently domestic gold refineries are operating between 25-30 per cent of their installed capacity as against 35-40 per cent around the same time last year.

"Used gold sales have declined steadily in the last one year as consumers are holding jewellery in anticipation of higher prices. Total recycled gold supply plunged to 89 tonnes in 2010 as compared to 122 tonnes in the previous year," said Ajay Mitra of the India and Middle East office of the World Gold Council.

Despite availability of other raw materials like "gold powder" and "dore bar" (raw gold), refineries can rely only on used gold from domestic sources for melting into coins and bars for further processing.

Gold powder cannot be imported due to security and storage reasons. Import of "dore bar" also faces high customs duty, which is unviable. Hence, domestic refineries generally procure used gold from local jewellers for running their operations.

The situation, however, is unlikely to change for domestic refineries at least for one more month. With the beginning of festival season in the south, especially in Kerala and Chennai, used gold sales increase. The April-May holiday season in the south coincides with Akshaya Tritiya, the most religious festival for buying gold. Also, during this period, most of non-resident Indians bring huge amounts of gold jewellery from abroad for sale in local markets, which increases availability tremendously.

"Therefore, we hope that gold scrap availability will rebound in early April which would encourage higher capacity utilisation of refineries," said James Jose, managing director of Chemmanur Gold Refinery Ltd.

"Lower capacity utilisation will surely hit refineries' topline and bottomline. But we are used to it. This has been the scenario for the last couple of years. Hence, we have re-adjusted ourselves to cope with this situation," he added.

The next season for higher used gold availability in India is December-January, which ended this year on a disappointing note due to volatile prices.

In the last budget, basic customs duty on gold ore and concentrates was reduced from 2 per cent ad valorem to a specific duty of 140 rupees per 10 grams. The excise duty on refined gold made from such ore or concentrate was reduced from 8 per cent to a specific duty of 280 rupees per 10 grams. The import duty on raw gold was cut from over 400 rupees per 10 grams to 280 rupees per 10 grams. But an excise duty of 140 rupees per 10 grams was also levied. In effect, the overall duty was raised to 420 rupees per 10 grams, as against 300 rupees per 10 grams on pure gold.

* * *

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Paper metals markets will blow up, Rickards tells King World News

Posted: 27 Feb 2011 04:04 AM PST

11:53a ET Saturday, February 26, 2011

Dear Friend of GATA and Gold (and Silver):

Market analyst Jim Rickards today gives a wide-ranging interview to King World News, remarking, among other things, that the oil market is heavily manipulated by governments, that governments use the paper gold markets to quash the gold price, that the International Monetary Fund has developed a detailed plan for global "quantitative easing" using Special Drawing Rights, that the Federal Reserve is "a large propaganda machine," that it's "just a matter of time" before the arbitrage between paper and physical precious metals markets blows up, and that precious metals investors can protect themselves against expropriation only by taking delivery. It's a great interview, about 23 minutes long, and you can listen to it at the King World News Internet site here:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/2/26_Jim_R…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Haynes and Norcini review metals' week at King World News

Posted: 27 Feb 2011 04:01 AM PST

11:05a ET Saturday, February 26, 2011

Dear Friend of GATA and Gold (and Silver):

In the weekly precious metals review at King World News, Bill Haynes of CMI Gold and Silver says he's confident that the precious metals will keep working higher over the long term, and JSMineSet.com analyst Dan Norcini remarks on how quick the dips in silver are being bought and how weak the U.S. dollar is. The interviews together are not quite 22 minutes long and you can listen to them at King World News here:

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/2/26_K…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

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Silver Backwardation: Will There Be a Silver Short Squeeze?

Posted: 27 Feb 2011 04:01 AM PST

Jeffry Chmielewski submits:

Backwardation is a situation where the spot price of a commodity is higher than the forward futures price. Generally, the price of a commodity is more expensive in the future because of storage costs – and that situation is called Contango. Contango is the usual situation, and Backwardation is somewhat unusual, as it means that a premium is being paid to own a commodity now rather than in the future – and it often means there is a shortage of that commodity. For example, buying wheat for delivery in the future does no good if you are hungry today. You will gladly pay a premium to have the food now.


Recently, Silver has gone in to backwardation. That is, the spot price of silver for immediate delivery exceeds the futures price. A common theory being thrown around is that there are shortages, and this is leading to the potential for

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Capitalizing on the Rise in Silver Prices

Posted: 27 Feb 2011 04:01 AM PST

Avery Goodman submits:

In my most recent article (on February 7, 2011), I spoke about the probability of a silver price explosion. The futures market was selling at remarkable levels of backwardation and the spot price was hovering in the range of $28 or so per troy ounce. I expected the price to rise substantially in the very short term future. That prediction was correct. Less than three weeks later, prices are now hovering in the $33 per troy ounce range, just shy of an 18% increase in price. That qualifies as incredible performance from any asset.

Most astonishing about the price increase is that is hasn't done much to reduce the backwardation. The price difference has gone up to $1.17 per ounce, at its maximum, which is substantially higher than it was on February 7th. At some point, higher prices will pry physical silver loose from those holding it and stop the

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Yamana Gold: Underwhelming

Posted: 27 Feb 2011 04:01 AM PST


Try as we may we just cannot get excited about Yamana Gold Incorporated (AUY) it is range trading at a time when gold prices are close to hitting new highs. This stock touched $14.00 in November 2009 and here we are as of Friday closing at $12.60. Still, Thursday, Yamana Gold published figures regarding its mineral reserves so we will take a quick look at the highlights.

Yamana's mineral reserves and mineral resources for the year ended December 31, 2010. The Company's total proven and probable mineral gold reserves increased by 4.5 million ounces to 22.1 million ounces, which represents a 26% increase over the previous year. Measured and indicated gold resources increased by 12% from 2009 to 14.5 million ounces. Silver and copper proven and probable mineral reserves increased by 3% and 9%, respectively.

HIGHLIGHTS:

  • Total proven and probable gold equivalent (1) mineral reserves increased to 25.1 million ounces,

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Dead Presidents: Taking the Dollar at Face Value by Joseph Farah, founder WND.com

Posted: 27 Feb 2011 04:00 AM PST

2.22.11 — After almost a century of inflation, today's dollar has less than 2 cents of the purchasing power that it had in 1913 when the Federal Reserve Board was founded.

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“Ireland, not the EU is in charge here. The opening salute from Kenny should not be to ask for EU concessions but to simply say “Go to Hell” or more politely to offer 1 cent on the dollar for debt.”

Posted: 27 Feb 2011 03:27 AM PST

Massive Rout in Irish Elections; Collision Course with the EU; Default the Best Option for Ireland Share this:


“The dollar right now is hanging on the precipice. If we break below 77 on the dollar index, look out below.”

Posted: 27 Feb 2011 03:05 AM PST

Rare miss for Jim Rickards; completely misses the trends on the ground in N. Africa and Middle East.

Posted: 27 Feb 2011 02:43 AM PST

Eric King interviews Jim Rickards MK: We disagree with JR on his comments regarding revolts in N. Africa/Mid-East (he hews toward the line given by Fox propaganda) as well as his comments regarding the role of Big Oil in these events. On Davos, Jim rings the alarm bell on the '100 trillion dollar' recapitalization plan [...]


Will Market Win Best Actor Award for Impersonating a Healthy Economy?

Posted: 27 Feb 2011 02:18 AM PST


Once again investors came out in full force to buy the fucking dip on Friday after learning that Qaddafi's men opened fire on protesters in Tripoli in Moammar's shoot first, shoot later negotiations policy, GDP was revised down to "QE3 is coming," gold rose to over $1,400 an ounce once again making Flavor Flav's teeth the most expensive commodity in the world, and the US government threatens to shut down while individual states bust unions (and if it is this Union's bust, then Money McBags approves) and teachers across the country get pinkslipped (while others slip pink).  So once again cognitive dissonance reigns like Peter the Great in 18th century Russia or like Ms. San Antonio (only without eating so many tacos).

 

With Saudi Arabia promising to pump out enough oil to support both lost Libyan production and an even better Oil Rumble, and with consumer sentiment rising in everything but how the consumer sentiment number is calculated (Money McBags will guess lovingly and with a fuckload of goal seeking and hard coding), investors ignored every other bit of common sense, toggled away from Kate Upton's twitter pics, and jumped back in to the market faster than Charlie Sheen jumps back in to a bottle of vodka (or Capri Anderson's rectum).

 

Anyway, Money McBags thought he would try a gimmick for Friday's wrap-up because all writers need to find new tricks (especially ones like Money McBags as he writes as if he is trying to put his round peg through Karissa Shannon's spare hole).  So in honor of Sunday's Oscars, Money McBags thought he would equate each news item of the day to a best picture nominee simply because he needs a challenge.

 

Inception goes to consumer sentiment hitting its highest level in 3 years because clearly consumers must be dreaming of something other than the declining buying power of the dollar and the shitawful ponzeconomy™ if they really feel confident about anything other than their savings being fucked (and see, that's funny because most of them have no savings).  The Thomson Reuters/University of Michigan/Vivid Video survey on consumer sentiment came in at 77.5 which was up from 74.2 in January and the highest since January 2008 which was right when the last guy on the Street knew that bank balance sheets were more fictitious than a Dr. Boris Sachakov hemorrhoid removal, so um, look out below.  The number was above the median forecast of 75.3, above the early February reading of 75.1, and above Money McBags' sentiment of "you have to be kidding me" because the only times Money McBags has been less confident in the consumer was during the Beanie Baby phase and when Garth Brooks went platinum.  Consumers reported "significant" labor market improvements, judged their personal finances more favorably than at any other time in the past three years, and insisted that redneck is a religion.

 

True Grit goes to GDP which keeps trying to tough it out despite being more fucked than David Wu's political career. GDP for Q4 was revised down to 2.8% annual growth, below 3.2% guesses, and well below the 5% needed to lower the 9% unemployment rate without just clerically adjusting the labor force participation rate down again (Money McBags' "Fuck Off" strategy), but hey, just buy the fucking dip.  The slower growth was driven by deeper spending cuts by state and local governments who continue to suffer from lower tax revenues and reality.

 

Toy Story 3 goes to the Ben Bernanke who is treating M2 as if it is Monopoly money as the money supply not only grows faster than Cameron Diaz on the awesomeness scale but is more correlated to the rise in the S&P than tinnitus is correlated to attending a Black Eyed Peas concert.  But hey, Money McBags guesses we will learn the hard way that Zimbabwe isn't just for lovers (lovers of AIDS that is).

 

The Kids Are Alright goes to the state of Wisconsin whose teachers have missed work to protest cuts to their health care benefits and collective bargaining rights as a union which has caused senate Democrats to flee the state to avoid voting as it is always best to run from bullies.  Teacher protests give kids more time to stay at home, fire up the playstation, and plan the next rainbow party, which is alright with Money McBags.

 

The King's Speech goes to Libyan dictator Moammar Qaddafi who got up in the center of Tripoli on Friday and threatened to make his country a living hell and kill those who oppose him.  When protesters heard this, they rejoiced, claiming a living hell would be three steps up from Libya's current living situation which is so bad it has been compared to having to french kiss Kathy Griffin's sphincter.

 

Winter's Bone goes to Winter Pierzina as who wouldn't want to giver her a bone?  And, yes, that has nothing to do with the economy or the market, but it is very important to confirm.

 

The Fighter goes to all of the protesters in the Middle East and Northern Africa who are tired of some asshole despotic ruler continually oppressing them and are now striving to become that asshole ruler to be able to oppress the factions they hate.  How these Middle East protests have not spooked the market more is a question for which Money McBags is seeking an answer (though he is pretty sure the answer isn't pussy furry).

 

Black Swan goes to AIG who in a black swan event shit on the global economy a few short years ago as their derivatives book of credit default swaps (which had a one in bazillion chance of blowing up according to the douchenozzles who were writing that shit and whose bonuses relied on writing it, but nothing to see there) found itself in the Gaussian curve's fat tail and blew the fuck up as insuring something without actually putting aside the money in case that thing you are insuring gets fucked is as dumb of a business as ZAGG or a Wilford Brimley tongue kissing booth.  But it gets even better because in an even bigger black swan event, this fucking company is still in business somehow (because apparently criminal actions don't get punished in the US if you have a good lawyer and are on the government's payroll) and on Friday they put up a big Q but sold off as investors raised concerns over AIG's huge property insurance business, its aircraft leasing unit, and how the fuck they can actually trust a company that came within a Verne Troyer nut hair of blowing up the world.  Money McBags isn't saying AIG is a shitty company, he's saying they are a fucking shitty company.

 

127 Hours goes to every company that had earnings or analyst ratings changes on Friday because in 127 hours (or 3 to be more precise) no one will remember and the stocks will trade on new speculation (and by new speculation, Money McBags means the Fed's continued capital injection).  In earnings on Friday, Salesforce.com apparently sold the fuck out of some forces beating earnings guesses and raising full year guidance as cloud computing remains hotter than Tulip sales in the Netherlands in the 1600s or two lip sales in Eliot Spitzer's hotel rooms in the 2000s.  In other earnings news, ADSK saw profits rise 23% on a 16% increase in revenues and the company is now up 45% for the year as more people use their autocad software to design the cardboard boxes in to which they have moved.

 

In other company news, FSLR was down 6% despite higher profits as the solar panel maker burned investors by forecasting weaker sales this year and warned it would cut prices to compensate for the end of solar subsidies in Europe.  That said, a flurry of analysts raised their price targets on the stock because lowered sales forecasts didn't effect their hardcoded models.  Finally WFC climbed after Goldman raised its rating on the stock to "buy" from "neutral" after the analyst was told he hadn't published anything on WFC in a while and needed to drum up some trading flow.

 

If you want to read which small cap company Money McBags gave The Social Network to, click over to the award winning When Genius Prevailed where Money McBags has fundamental analysis, more dick jokes, and plenty of Lucy Pinder.  And if you're really bored, Money McBags is known to frequent the twitter from time to time.

On the Verge of a Gigantic Move Higher!

Posted: 27 Feb 2011 01:51 AM PST

Gold is getting extremely bullish. Once gold breaks above the old highs, a huge step higher could be next. A $200 to $250 move could even be in the cards. Read More...



Capitalizing on the Rise in Silver Prices

Posted: 27 Feb 2011 01:30 AM PST

Avery Goodman submits:

In my most recent article (on February 7, 2011), I spoke about the probability of a silver price explosion. The futures market was selling at remarkable levels of backwardation and the spot price was hovering in the range of $28 or so per troy ounce. I expected the price to rise substantially in the very short term future. That prediction was correct. Less than three weeks later, prices are now hovering in the $33 per troy ounce range, just shy of an 18% increase in price. That qualifies as incredible performance from any asset.

Most astonishing about the price increase is that is hasn't done much to reduce the backwardation. The price difference has gone up to $1.17 per ounce, at its maximum, which is substantially higher than it was on February 7th. At some point, higher prices will pry physical silver loose from those holding it and stop the


Complete Story »


Silver Market Hit Hard With Bear Raid

Posted: 27 Feb 2011 12:19 AM PST

Friday I said: "Today was the option expiration on the Comex, and those options which are 'in the money' and have not been settled for cash are now converted to March futures positions. Depending on the size and distribution of those conversions we may see some 'action' in the front month because they are sometimes notoriously weak hands and will receive at least one 'gut check.'"


The Global Flight into Gold and Silver

Posted: 26 Feb 2011 11:18 PM PST

The world is awash in dollars and that is being reflected in the USDX, which are six major currencies versus the dollar. The loss of value is being loudly trumpeted as the IMF says a replacement must be found. This is the same IMF that has been foisting non-gold backed SDRs on us since 1969. Every time they have tried this it has been a failure. We can give the Illuminists an ‘A’ for effort, but what they do not get is that the professionals and investors see right through it. Another batch of fiat currency is not going to solve the world’s currency crisis, which can only be saved by gold backing. Needless to say, the mainstream media will never talk about this in realistic terms, because the elitists control them. The denigration of currencies versus gold and silver are advancing apace, as the elitists day after day try to suppress gold and silver prices.


Gold on Track to Top All-Time High

Posted: 26 Feb 2011 09:42 PM PST

Tim Wood submits:

Gold priced in a basket of commodity currencies is on track to set a new all-time inflation-adjusted monthly average high for February 2011. Commodity currency gold will top the previous all-time high set 31 years ago in January 1980.

MineFund's Commodity Gold Price Index (CGX) prices gold in the most liquid "commodity currencies". The currency basket is weighted by the value of exports of ores and beneficiated ores from the issuing countries. The basket consists of the Canadian dollar, Australian dollar, South African rand, Brazilian real, and Chilean peso.

click to enlarge images

A commodity currency means that the money's value is determined in large part by extractive industry activity in host countries. The fortunes of these natural resource based economies, like South Africa, are tightly tied with commodity price cycles.

The new all-time high comes despite the index's heavy weighting toward the Canadian and Australian dollars which remain quite


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Stagflation Is Coming; Time to Accumulate Gold

Posted: 26 Feb 2011 09:31 PM PST

Brian Wills submits:

Do you remember the "misery index" that was tracked during the stagflation of the Carter Administration? The misery index is calculated by adding the unemployment rate to the inflation rate. In 1980 it hit a high of just under 22%. Last year it was over 11% and this year it's on track to be at least as "miserable".The bar graph below provides the numbers since 2000:

2000 7.35
2001 7.59 Bush, G.W.
2002 7.37
2003 8.26
2004 8.21
2005 8.48
2006 7.87
2007 7.46
2008 9.61
2009 8.92 Obama
2010 11.29

Stagflation is defined as rising inflation occurring simultaneously with economic stagnation. Doesn't sound plausible does it? How can prices rise if economic growth is anemic? Well, take a look at what happened in the late '70s
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