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Tuesday, August 23, 2011

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Cirrus Research Founder Satya Pradhuman: No Recession, Equity Market Volatility To Subside In 3-6 Months

Posted: 23 Aug 2011 05:53 AM PDT

By Harlan Levy:

Satya Pradhuman founded Cirrus Research in 2007 after more than 20 years on Wall Street as a respected and often-quoted executive in the equity research departments of E.F. Hutton, Lehman Brothers, and Merrill Lynch.

Harlan Levy: Worries about Europe's debt crisis and European banks seem to have caused recent, heart-stopping stock market plunges. Is a collapse of the interbank market a real risk?

S.P.: To date we don't see that, but the uncertainty is what's causing the volatility to ripple through the equity markets. I think that the jitteriness is reflecting the concerns for banking liquidity. That said, a look at how LIBOR – the borrowing rate from bank to bank -- spreads have moved suggests that the concerns are nowhere as great as they were in 2007, 2008, or 2009.

H.L.: What would be the effect on the global and U.S. economies if Europe's bank problems escalate into an


Complete Story »

Can Gold Stocks Still Shine?

Posted: 23 Aug 2011 04:46 AM PDT

By Market Blog:

By David Berman

If you've been invested in actual gold this year, you're probably a happy little bug right now. But anyone who has invested in gold producers can only grumble: Good idea, bad performance. While gold has risen 30 per cent, gold stocks within the S&P/TSX composite index are down 1 per cent.

Tuesday's action merely highlighted the frustration, with the price of gold down a little and gold stocks down a lot.

The disconnect has left many observers scratching their heads. Stephen Walker, an analyst at the Royal Bank of Canada, figures it is due to a general distaste for equities amid the market selloff, as well as concerns about rising operating costs for gold producers and some skepticism over whether the sky-high price of gold can hold. However, he and his colleagues outlined in a note why stocks should catch up to bullion.

Part of it has


Complete Story »

A Gold Correction Is Coming

Posted: 23 Aug 2011 04:37 AM PDT

By Kevin McElroy:

Expect a gold correction. By a correction, I mean a 5-10% drop in the price of gold. Also, expect it to happen quickly. This bull market in gold is 10+ years old, and over the last year alone, gold is up over 50%.

A correction will undo part of that 50% run-up in weeks if not days. It will be dizzyingly, nauseatingly fast. Don't get dizzy. Don't let gold's short-term fall nauseate you away from gold's long term trend. Use it to your advantage. When gold dips, you should be buying.

Why? Because nothing has changed. The fundamental reasons for owning gold are still in place.

We know the trend in gold is intact because sovereign debt problems are as bad as ever with no signs of improving. In fact, they're likely to worsen. Western Europe's monetary experiment, the Euro, is standing on the precipice of history's waste bin.

The


Complete Story »

Gold Reaches $1,913.50 – Smart Money Moving into Silver as UBS Says $50 Silver in 3 Months

Posted: 23 Aug 2011 01:29 AM PDT

Paper Currencies Finally Redeemed for Gold

Posted: 23 Aug 2011 01:16 AM PDT

Paper Currencies Finally Redeemed for Gold

Tuesday, August 23, 2011 – by John Browne


The basic unwillingness of politicians to face economic and financial realities has caused the United States and European Union to face currency collapse. The politicians are content literally to paper over the problem with massive amounts of newly printed currency. This means that savvy investors, facing major real losses, are turning increasingly to gold. In essence, even though currencies are no longer on a gold standard, they are increasingly being "redeemed" for gold in the marketplace.

For decades, fiscally irresponsible US Administrations have gradually reduced the world's richest nation, with a currency perceived as 'good as gold,' to the position of the largest global debtor, with a debased currency. Furthermore, US stock markets have offered little real return. Indeed, the Dow stands just below 11K, down over 3K points from its all-time high on October 9, 2009. Discounting for inflation shows a loss close to 4K points, or a fall of over 25 percent from its all-time high. Meanwhile, equities in emerging markets have often shown handsome returns.

The recent political wrangling in Washington has damaged the financial credibility of the United States, prompting a long overdue debt downgrade by ratings house Standard & Poor's. This removes a fundamental pillar supporting the dollar as the global reserve asset of choice.

In Europe, the unwillingness of politicians to face the fatal structural flaws within the euro is encouraging a fear-driven economic recession, sovereign debt defaults, a banking crisis, and, potentially, a currency collapse. This is hurting the euro's formerly bright prospects of replacing the dollar as global reserve.

This week's Angela Merkel-Nicolas Sarkozy summit meeting amounted to nothing constructive. The most popular topic was instituting a Tobin tax on forex transactions. This would, of course, drive financial markets out of the EU to more friendly environments. But more importantly, it leaves the major structural issues of a two-speed Europe unaddressed.

With nothing achieved by the EU's ruling Franco-German axis, European banks are correctly seen as increasingly vulnerable to further EU sovereign debt defaults. Of course, former communist Merkel and her French 'poodle,' the socialist Sarkozy, will find no problem in transferring toxic bank assets to the public purse. But it will require more market anguish before they dare to do it. Once this happens, the euro will be locked on the same railway to devaluation as the dollar.

China's yuan has strong fundamentals, but is not properly situated to vie for a place on the world stage. It is neither backed by hard assets nor freely floating. Though this policy is changing, it is not yet a true alternative to the dollar as it maintains a fixed exchange 'band' to restrain its true value.

Naturally, private investors and foreign central banks are turning to the very monetary instrument that they never should have abandoned: bullion gold. That is why the gold price is rising in $50 leaps per day, with only small corrections. Gold is being re-monetized.

Still, despite our continued warnings, and perhaps motivated by yield or a misplaced sense of safety, some investors still are tempted into dollars and US Treasuries, driving them to negative real yields of up to three percent. This may prove to be one of the largest financial traps in history, potentially devastating the savings of many investors. It reflects a fundamental investment strategy flaw.

It has been held that most wise investors should look not at yield and capital appreciation, but at total return. The only need to differentiate between yield and capital growth is for tax purposes. Some investors avoid gold still, because of its lack of yield. This can be a costly mistake when gold's meteoric capital gains are taken into account.

Some are skeptical because of the performance of silver during the spring. However, it must be remembered that silver is still up some 125% year-over-year. The drop from $50 to $35 was directly related to an unprecedented triple-margin hike by the Chicago Mercantile Exchange. The exchange made the same move against gold, but the yellow metal shrugged it off through buoyant demand.

Indeed, while silver is temporarily hobbled by worries of global depression and a corresponding drop in industrial demand, gold appears to have no such reservations. Silver may ultimately surge well past gold as the emerging markets prove themselves able to stand on their own despite an ailing West. But gold is a pure monetary trade, and its signal is indisputable.

As long as politicians continue to paper over their problems by issuing more fiat money, gold will regain its crown as the king of monetary instruments.

http://www.thedailybell.com/2838/Joh...eemed-for-Gold

The Catalyst for Consolidation in the Gold Sector

Posted: 23 Aug 2011 01:10 AM PDT

Porter Stansberry:Five steps you must take before the End of America

Posted: 23 Aug 2011 12:57 AM PDT

From Porter Stansberry in the S&A Digest:

... To understand where we are now, you have to start with a clear understanding of money and credit. Most normal people never have to think about these ideas. But… during a financial crisis… you won't have any idea what's really happening unless you understand a few basics of economics. Please bear with me while we cover a few fundamentals. Understanding these concepts will make it easy for you to see how much trouble we're in right now.

Credit is money that's been borrowed. In a healthy economy (one with sound money, like gold), credit is limited to savings. That only makes sense, doesn't it? How could you borrow something that someone else hasn't already put aside for the purpose of lending?

Of course… saving is hard. Most people would prefer to have the benefits of credit without the effort of saving. And that's what they vote for in democracies. Thus, we have modern economics, which is based on a simple lie: That you can safely expand credit in excess of savings.

But, of course, you cannot create wealth from a printing press. Doing so causes price inflation, asset inflation, a credit collapse – or a mix of all three. Everyone knows this. And yet it seems the entire global political class remains dedicated to pretending otherwise.

When credit is expanded far enough in excess of savings, you get a collapse. It happens every time. It shouldn't surprise anyone. Sooner or later, creditors look around and begin to ask themselves a critical question: Can these debts really be financed? Will I ever get my savings back? If credit has been expanded radically beyond savings (as it has in the U.S.), the answer is invariably no. That's what S&P was warning about two weeks ago. And that means credit will be harder and harder to get in the U.S.

Currently, the total-debt-to-GDP ratio in the U.S. is almost 400%. (Total debt is the combined federal, state, municipal, corporate, and individual debt in the U.S.) Crushing debt loads have already destroyed the real estate market and led to an economic decline. For now, the government has stepped up to replace the private borrowing and spending. As a result, we're now spending close to half our GDP merely on interest and government taxes. This simple fact should give everyone a reason to worry about the future of our country. Spending half your production each year on the government and interest payments doesn't leave much to live on or invest for the future.

In Europe, the problem is a bit different… and slightly more technical. Most of the debt in Europe is held by the big banks, not the sovereigns. Look at just two French banks, for example. Credit Agricole and BNP Paribas have combined deposits of a little more than 1 trillion euro. But they hold assets of 2.5 trillion euro. Those assets equal France's entire GDP.

And those are only two of France's banks. Right now, the tangible capital ratios of these banks have fallen to levels that suggest they are probably bankrupt – like UniCredit in Italy and Deutsche Bank in Germany. BNP's tangible equity ratio is 2.85%. Credit Agricole's tangible equity ratio is 1.41%. (UniCredit's is 4.42%, and Deutchse Bank's is 1.92%).

These banks have long been instruments of state policy in Europe. They've funded all kinds of government projects and favored industries. Making loans is far more popular with politicians than demanding repayment for loans. As a result, these banks are left with nothing in the kitty to repay their depositors. If there's a run on these banks (and there will be), how will they come up with money that's owed? No one's saying. (But I'll tell you in a moment…)

The numbers are similar across most of Europe's biggest banks. And the money that's owed is staggering. The reason the market fears these debts so much is that there's no clear mechanism to increasing the money supply enough to paper them over, as there is in the U.S. As strange as it may seem, investors prefer the U.S. Treasury market precisely because they know there's nothing to stop the Fed from buying as many Treasury bonds as the market wants to sell. On the other hand, in Europe, there's no guarantee whatsoever that the ECB will continue to buy the sovereign bonds – and there are even rules that explicitly forbid the ECB from financing bank bailouts.

What's the end game? How will this huge mess be sorted out? The essential problem is there's too much credit and too little money. So a lot more money is going to be created. Let me explain why I'm so sure this will happen…

Twice in the last week, I've heard someone describe gold as "just another fiat currency." James Altucher said this in our discussion about gold on Yahoo Finance (which followed our previous debate.) And I also heard some clown on CNBC make the same claim. To these folks, gold is in a bubble because it's become so overvalued against the other fiat currencies. It's amazing to me how little knowledge there is on these topics. Gold isn't a fiat currency at all. In fact, it's the only form of money that's not a fiat currency.

I enjoy offshore fishing. I have a relatively modest center-console fishing boat. I like it because it's really fast and I can get across to the Bahamas quickly, which is my favorite place to fish. But to get there in a reasonable amount of time, I need calm water. My wife is always surprised that I can tell the surface conditions of the ocean just by looking at the sky. I know because the ocean is the mirror of the sky. While you might not be able to "see" the waves in the sky, waves are caused by wind. You just can't see the wind.

The same thing is true about the price of gold and the stability of fiat currencies. Gold is the mirror of the world's paper currency system. The price of gold doesn't reflect the intrinsic value of the metal – which is almost unchanging over time. It reflects the relative value and volatility of paper currencies.

The people who are arguing that gold is overvalued are not looking at the right numbers. They ought to be looking at Europe's banks. They ought to be looking at the amount of short-term obligations that are sitting on the U.S. Treasury's books. The price of gold is reflecting the likelihood that the world's sovereign nations decide to bail out Europe's banks and paper over the U.S. Treasury debt. Here's how it will happen…

Two great depositories of the world's bad debt are Europe's banks and the U.S. Treasury. Europe's banks will need trillions of euro (yes, trillions) to regain safe capital ratios. And the U.S. Treasury will need trillions of dollars to refinance its upcoming repayment schedule. Both will be accomplished by the actions of the U.S. Federal Reserve. Step one will be the extension of swap lines to the European Central Bank (ECB) by the Federal Reserve, which will allow the Fed to buy between $2.5 trillion-$5 trillion worth of "riskless" ECB notes. These notes will allow the ECB to bail out Europe's banks, which will in turn begin to buy U.S. Treasurys to repair their capital ratios.

The big unknown in this scenario is whether or not the Germans will approve this massive inflation. I can't know whether they will go along or not. But several of their biggest banks need a bailout, which leads me to believe they will eventually get on board. Whatever the final details, the goal is clear – a massive increase in the size of the Federal Reserve's balance sheet and a correspondingly huge increase in the world's money supply. And that's what you're seeing when you look at the prices of gold and silver.

How will we get from here to there exactly? I can't know. It may be done piecemeal, one quantitative-easing program and bank bailout at a time. Or it might happen with some kind of grand new compromise – a kind of Bretton Woods II solution. But just remember where we must end up… Europe's banks have to be recapitalized. And the U.S. Treasury has to be refinanced. The only way to accomplish this that has any chance of being approved by the democracies in question is via the printing press.

That's why I continue to warn about inflation. That's why I continue to advocate buying gold and silver. That's why I'm bearish on stocks (especially bank stocks). And that's why I think it's prudent for you to take steps to safeguard your property and your family – especially if you live in a big city. The population won't be ignorant of what's happening. The message will be clear: Governments and bankers have the right to steal from the whole world via inflation. That will probably inspire the crowds to do the same.

What should you do?

Step one: Make sure you have at least a year's worth of living expenses set aside in gold and/or silver. Haven't bought any yet? Sorry about that. Insurance gets mighty expensive once you can see the hurricane coming. Buy it anyway.

Step two: Make sure you and your family are relatively safe from the threat of violence. People used to make fun of me for saying this until they saw what happened in London. It will happen here, too.

Step three: Hedge your portfolio by shorting stocks or buying puts on some of the companies I've been identifying as vulnerable for months and months.

Step four: Get liquid. If there's a real bank crisis, you'll want to have plenty of cash on hand. Even though the U.S. dollar is likely to be devalued by 30%-50%, you might still need cash for a few days if the ATM network or the credit card network is turned off, which it might be.

Step five: Try buying into a farm co-op or other independent supply of fresh food. I know, this sounds a little crazy. Likewise, I suggest you stockpile critical medications. It's better to be safe. And prices for critical drugs would soar if there were any disruption to global supplies.

In closing, let me say that I hope none of these terrible things happens. Perhaps the crises of U.S. sovereign debt and Europe's rotten banks will have a better outcome. I simply can't figure out how we can get out of this mess without a huge inflation – but I'm certainly open to other ideas.

Yes, we could do the right thing, which would be to repudiate our debts as unaffordable and restructure our obligations. But I can't recall the last time any democracy took this path – it's far too honest. No politician is going to willingly take the blame.

Nor do I think these problems can be kicked down the road much longer. Confidence in the system is falling apart. Venezuela, for example, exited the modern financial system last week. It sold all of its Treasurys and recalled its gold from vaults in London. Yes, I know, it's only Venezuela. But other nations will follow. Central banks all around the world are buying gold, not dollars. That's a trend that's going to escalate. Quickly. I believe it's only a matter of time before a large Treasury auction completely fails, as our creditors simply become unwilling to lend. And when that happens, then a huge inflation will be our only way out.

Crux Note: Porter recently published a new "End of America" video... If you haven't seen it yet, be sure to click here.
 
More from Porter Stansberry:

Porter Stansberry: Why stocks are plummeting now

Porter Stansberry: This chart is predicting the End of America

Porter Stansberry: My worst predictions are now coming true

Four reasons to short gold now

Posted: 23 Aug 2011 12:45 AM PDT

From Forbes:

I understand the argument for owning gold (GLD). I hear the same six points repeated by every guy who goes on CNBC and Bloomberg every hour:

– It's the new currency.
– QE3 is coming.
– Europe is cracking up.
– There is a supply-and-demand imbalance.
– It's under-owned by most people and central banks.
– We still haven't got to the parabolic stage yet where your grandma and taxi drivers are talking about it.

I get it. I've made those arguments many hundreds-of-dollars-per-ounce ago. But...

Read full article...

More on gold:

Why gold could easily triple from here

These stocks could predict the next big move in gold

This could be the most important gold story of the year

Extorre Announces Results for 20 Holes Drilled at the Puntudo Project Silver-Gold Discovery in Argentina

Posted: 23 Aug 2011 12:43 AM PDT

Extorre Gold Mines Limited (AMEX:XG; TSX:XG; Frankfurt: E1R, "Extorre" or the "Company") announces results for 20 additional holes from the Renaldo Area on Extorre's 100% owned Puntudo Project in Santa Cruz Province.

Keiser on Chavez and his Gold

Posted: 23 Aug 2011 12:03 AM PDT

Gold, silver and platinum prices continue to rally

Posted: 22 Aug 2011 10:45 PM PDT

Several factors have contributed to the strong price rally in the precious metals sector in the last few weeks. These primarily include the ever-worsening debt problems in Europe and America, growing ...

Chavez’s gold grab prompts dash for physical

Posted: 22 Aug 2011 09:15 PM PDT

Yesterday saw high volatility on world stock markets, as concerns over the health of the US banking sector sabotaged an early rally in US stocks. WTI crude rose, as did broad commodity indices, with ...

No Let Up in India's Appetite For Gold

Posted: 22 Aug 2011 09:11 PM PDT

¤ Yesterday in Gold and Silver

The gold price gapped up about twenty bucks at the open on Sunday night in New York...and basically traded flat from there until around 12 o'clock noon in Hong Kong.  Then the price tacked on another twenty bucks by the London open at 8:00 a.m. BST...which is 3:00 a.m. in New York.

From the London open, gold got sold off over thirty dollars, with the low of the day coming a few minutes after 8:30 a.m. in New York.  Then a $30 rally commenced that ended just before lunch on the east coast...and gold then traded sideways up until around 3:40 p.m. in the New York Access Market, before tacking on another eight bucks going into the close.

The absolute high was a tiny spike just minutes before the close of electronic trading at 5:15 p.m. in New York, where gold made it all the way up to $1,902.10 spot.  The gold price closed at another nominal high on Tuesday...up $45.00 spot on the day.  Volume was very heavy once again.

Silver was up over a buck in the first hour of trading, but then gold sold off, with the Far East low coming around 10:00 a.m. Hong Kong time.  The price then rallied back almost to the $44 mark before getting sold off, like gold, shortly before lunch in London.

It should then come as no surprise that the bottom in silver came at the precise moment as the bottom in the gold price...about 8:31 a.m. Eastern.  The subsequent rally took the silver price back up to $43.80 and, after a minor sell-off going into the close of Comex trading, silver rallied back to around the $43.80 mark...closing up 82 cents spot on the day.  Silver's net volume was pretty light.

The dollar,as per normal in these times, was not a factor in the gold and silver arena once again, as it never strayed too far from the 74.00 mark all of Monday.

As I mentioned in Saturday's column, I was very encouraged by the share price action in the gold and silver stocks on Friday...because for the first time in a while, they were actually up on the day when the general equity markets had tanked badly.

Well, they were certainly in rally mode again yesterday...as the whole sector caught a pretty strong bid.  The shares gapped up..and then rallied to their highs of the day shortly before lunch in New York...only giving back a very small fraction of that as the day wore on.  The HUI finished up 4.09%.

The silver stocks were on fire...and I had a couple of junior producers that were up double digits yesterday...and with a very few minor exceptions that I could see, they all did well.  The only drag on Nick Laird's wonderful Silver Sentiment Index was BVN-N which wasn't even up a full percentage point.

But we shan't complain...as the SSI was up a rather chunky 6.06%.

(Click on image to enlarge)

The Comex Daily Delivery Report for Monday showed that 88 gold and 4 silver contracts were posted for delivery tomorrow.  The link to what action there was, is here.

I was surprised to see that GLD actually had a withdrawal yesterday...as their inventory declined 204,475 troy ounces.

The silver price is up more than four bucks in the last two business day...and the first deposit into SLV occurred yesterday when a measly 584,496 ounces were deposited.  I'm sure that the this ETF is owed many, many millions more ounces that simply aren't available.  I'm sure that the fund manager, BlackRock, must be shorting the heck out of SLV since they can't get the physical they need.  Ted Butler said that he will be really interested in seeing what the short position in SLV is when it's posted later this week.  So will I.

Over at the Zürcher Kantonalbank for the week that was, they reported adding 15,210 ounces of gold, along with a very tiny 62,340 troy ounces of silver to their respective ETFs.  As always, I thank Carl Loeb for these numbers. 

After two days of no reports, the U.S. Mint finally had something to say for itself.  They sold 8,000 ounces of gold eagles...4,000 once-ounce 24K gold buffaloes...and a rather smallish 565,000 silver eagles.  Month-to-date sales show that 91,000 ounces of gold eagles...21,500 one-ounce 24K gold buffaloes...and 2,699,500 silver eagles have been sold so far in August.

The Comex-approved depositories took in 600,934 ounces of silver on Friday...and shipped a smallish 23,688 ounces out the door.

As I said in my Saturday column, I wasn't able to talk to silver analyst Ted Butler about the strange goings-on with silver in Friday's Commitment of Traders Report...and that I would steal the appropriate info from Ted's weekend commentary.  Here it is.

"In silver, there was a sizable 5,300 contract increase in the total net commercial position to 40,700 contracts (203.4 million ounces) on the previously mentioned $2+ increase in price for the reporting week. A big chunk of the weekly increase in the total commercial short position was due to silver raptor selling of long positions of 3,700 contracts. The big 4 added 1,000 contracts to their short position, with the 5 thru 8 accounting for the balance. Interestingly, the reciprocal buying by speculators was mostly confined to short-covering, rather than new speculative long positions being established. Given the choice, speculative short-covering is better than new long positions being established, as it lessens the likelihood of eventual panic long liquidation at some point. Overall, the silver COT structure is still bullish, while the gold COT structure remains neutral through the end of the reporting week."

Here's a nice photo of gold bars that I lifted from a story that I didn't post on Saturday, as the story just wasn't worth it...but the picture was too nice not to share.

Here's a nifty chart that's courtesy of Nick Laird over at sharelynx.com.  It shows the deviation of the 200-day moving average in gold from its mean.  At 28.3%...it's getting up there.

(Click on image to enlarge)

You just know that the gold market is starting to heat up when the editing process reaches the point where one has to start tossing gold or silver-related stories out the window, as there were just too many of them.  This is the stage the I reached with today's column...as the weekend papers and Internet were wall-to-wall precious metals commentaries.

I did my best...but there is still a pile of reading, watching and listening to do.  I'll wimp out once again and leave the final edit up to you.

If the bullion banks can figure a way to engineer a price decline, they will do exactly that...as their short positions have been bleeding red ink to the tune of billions over the last little while.
Scrap gold sales peter out in India. Gold shines as Swiss franc's haven appeal dims. Chilton to speak on silver again if CFTC doesn't do so by next month.

¤ Critical Reads

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Wall Street Aristocracy Got $1.2 Trillion From Fed

Citigroup and Bank of America were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.

By 2008, the housing market's collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.

The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010.

I thank Washington state reader S.A. for this Bloomberg story from early yesterday morning...and the link is here.

View full GSD edition

Gold ETF Now Bigger Than S&P 500 ETF

Ladies and gentlemen, here is today's market in a nutshell:

GLD, the SPDR Gold Trust ETF, is now bigger in terms of assets than SPY, the SPDR S&P 500 ETF. GLD has $77 billion in assets, compared with $75 billion for SPDR, according to Dave Lutz at Stifel Nicolaus.

At last check, GLD was up more than 2%, compared with SPY, up about 0.3%.

That's the entire blog from yesterday's edition of The Wall Street Journal.  The picture of gold bars is worth the trip, so here's the link.  I thank West Virginia reader Simon Elliot for this story.

View full GSD edition

Oakland Robbers Snatching Gold Chains Off Victims

The Oakland Police Department is alerting residents about an increase of street robberies that target people wearing gold chains.

Most victims have been women and the suspects usually approach on foot, snatch the chain from the neck and run away, Oakland police said.

The story was posted last Friday over at CBS San Francisco...and I thank California reader Martin Arnest for sending it along.  The link is here.

View full GSD edition

The next De Gaulle: The New York Sun

Following up on its editorial on Friday about French President Charles De Gaulle's recognition of the monetary issue, Saturday's edition of The New York Sun looks around for the next De Gaulle and examines the tireless work of gold advocate Lewis Lehrman, a member of President Reagan's gold commission, an ally of U.S. Rep. Ron Paul in the pursuit of a sound monetary system...and a sponsor of The Gold Standard Now project.

I stole the preamble...and the editorial...from a GATA release on Saturday...and the link to this very worthwhile read is here.

View full GSD edition

Venezuela pushed the golden Humpty Dumpty off the wall: Mike Kosares

The Chauvez story about Venezuela's gold has generated an outpouring of stories...and few are more capable of describing the current situation better than Mike Kosares over at Centennial Precious Metals.

Here's a GATA release with the short Kosares piece imbedded in it.  Chris Powell's intro is a must read...as is the short Kosares essay.  The link to all is here.

View full GSD edition

Will Venezuela's gold repatriation prove GATA's case? - Mineweb

Mineweb's Lawrence Williams comments on how Venezuela's attempt to repatriate its gold may test GATA's view of the gold market. Williams' commentary is headlined "Chavez Move Could Drive Gold through the Roof -- and Put Confiscation on the Cards Again"...and the link to the story is here.

View full GSD edition

Venezuela formally asks Bank of England to return its gold

Venezuela formally asks Bank of England to return its gold

Posted: 22 Aug 2011 09:11 PM PDT

Venezuela formally asks Bank of England to return its gold

Venezuela's central bank has requested its 99 tons of gold holdings from the Bank of England, according to a bank statement sent by e-mail, citing the institution's president Nelson Merentes.

"We've contacted the Bank of England and the corresponding protocols have been initiated to complete this operation as soon as possible," Merentes said, according to the statement. "Once that's done, the shipments will begin by sea."

This story was one I picked out of a GATA release on Sunday...and the link is here.

Will Venezuela's gold repatriation prove GATA's case? - Mineweb

Posted: 22 Aug 2011 09:11 PM PDT

Will Venezuela's gold repatriation prove GATA's case? - Mineweb

Mineweb's Lawrence Williams comments on how Venezuela's attempt to repatriate its gold may test GATA's view of the gold market. Williams' commentary is headlined "Chavez Move Could Drive Gold through the Roof -- and Put Confiscation on the Cards Again"...and the link to the story is here.

Venezuela pushed the golden Humpty Dumpty off the wall: Mike Kosares

Posted: 22 Aug 2011 09:11 PM PDT

Venezuela pushed the golden Humpty Dumpty off the wall: Mike Kosares

The Chauvez story about Venezuela's gold has generated an outpouring of stories...and few are more capable of describing the current situation better than Mike Kosares over at Centennial Precious Metals.

Here's a GATA release with the short Kosares piece imbedded in it.  Chris Powell's intro is a must read...as is the short Kosares essay.  The link to all is here.

Gold Goes Off Charts as Gartman Sees Prices for Metal Heading ‘Parabolic’

Posted: 22 Aug 2011 09:11 PM PDT

Gold Goes Off Charts as Gartman Sees Prices for Metal Heading 'Parabolic'

Gold's rally to a record above $1,900 an ounce has pushed the metal to overbought levels according to technical analysis tools, as economist Dennis Gartman said prices will go "parabolic."

Bullion's relative strength index has topped 70 since Aug. 5, a signal to some investors who study technical charts that prices may be set to decline. Gold hugged its upper Bollinger band most of this month, which may signal possible resistance, while a moving average convergence/divergence indicator and Elliot Wave patterns suggest prices are overextended, said Ross Norman, chief executive officer of London bullion brokerage Sharps Pixley Ltd.

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Gold spikes to high as fears over global economy linger

Posted: 22 Aug 2011 09:11 PM PDT

Gold spikes to high as fears over global economy linger

The price of gold hit $1,894.80 an ounce in early trading despite a bounce in European stock markets.

Jeremy Cook, chief economist at foreign exchange brokers, World First, said: "Gold is a rocket ship at the moment and there are many factors that make us expect further gains.

This very short story [with a most excellent graph] appeared over at The Telegraph yesterday afternoon.  I thank Roy Stephens for the story...and it's worth the one minute of your time it will take to peruse the chart...and read the handful of short paragraphs.  The link is here.

Gold shines as Swiss franc's haven appeal dims

Posted: 22 Aug 2011 09:11 PM PDT

Gold shines as Swiss franc's haven appeal dims

Moves by the Swiss National Bank to curb strength of the Swiss franc will fuel investors' insatiable demand for gold, adding to its relentless rise to new record highs as confidence in the franc as a safe store of value dwindles.

Analysts say this could help gold vault $2,000 an ounce within the coming weeks, with the potential for very large spikes if risk aversion on financial markets gains momentum.

This Reuters story is another item that I 'borrowed' from a GATA release yesterday.  I consider this more than worth your time as well...and the link is here.

Sponsor of Utah's gold and silver legislation interviewed by King World News

Posted: 22 Aug 2011 09:11 PM PDT

Sponsor of Utah's gold and silver legislation interviewed by King World News

King World News has interviewed Utah state Rep. Ken Ivory, sponsor of that state's recently enacted legislation recognizing gold and silver as legal tender. You can listen to the interview at KWN website...and the link is here.

Scrap gold sales peter out in India

Posted: 22 Aug 2011 09:11 PM PDT

Scrap gold sales peter out in India

Here's a story that appeared in Monday's edition of The Wall Street Journal.  It's printed in the clear in this GATA release...and this is a must read as well.  The link is here.

Chilton to speak on silver again if CFTC doesn't do so by next month

Posted: 22 Aug 2011 09:11 PM PDT

Chilton to speak on silver again if CFTC doesn't do so by next month

Here's another story and intro from Chris...

U.S. commodities trading regulator Bart Chilton has told blogger Craig Duling that he's disappointed with the slow pace of the silver market investigation of the U.S. Commodity Futures Trading Commission and will make a statement on silver if his commission doesn't do so by the third week of September. Chilton's comments, confirmed by GATA, can be found at Duling's blog here.

I'll be very surprised [but very pleased] if Chilton says anything new of substance.

Gold & Silver Market Morning, August 23, 2011

Posted: 22 Aug 2011 09:00 PM PDT

Why is Bank of America’s Stock Cratering Yet Again? It’s the Extend and Pretend Endgame

Posted: 22 Aug 2011 08:42 PM PDT

Yesterday, the S&P 500 ended flat, yet Bank of America continued its truly impressive implosion, with its stock tanking 7.89%. It is now trading at a market cap of $65 billion, versus a book value of common equity of roughly $215 billion.

Market commentators were having so much fun discussing the meltdown that FT Alphaville even dedicated a post to the "The Bank of America Explanation Game." This was its tally, and the post includes an explanation for each:

1. An analyst note suggesting BofA will need to raise $40bn-$50bn

2. Reports that BofA is keeping a stake in China Construction Bank

3. Yet more talk of snags in a broad mortage settlement deal

4. General market weakness and BofA's susceptibility to HFT

5. Wikileaks has apparently destroyed some of its BofA data files

Henry Blodgett at Clusterstock endorsed the "BofA needs a lot more capital" view, and pointed out the obvious: the bank had had plenty of opportunity to sell equity when its share price was higher, and if it did need to sell stock now, it was going to be extremely painful for existing holders. Concerns about BofA's ability to bolster its balance sheet are probably not helped by rumors that the bank is trying to unload Merrill and (not surprisingly) finding no takers.

Now narrowly, the trigger yesterday likely was the Jefferies view re Bank of America possibly needing to raise $40 to $50 billion. But that isn't the most helpful way to frame the issue.

Think about it. BofA has $215 billion in book value of common equity. $40 to $50 billion is a huge number relative to that. For investors to react suddenly to one firm's view (what, you own the stock and this is news to you?) points to something much more fundamental.

We are now seeing the downside to extend and pretend. Years of regulatory forbearance mean that investors know the marks on the balance sheet of a beast like Bank of America (and frankly all the other big banks) have a ton of air in them. And now that the economy is looking seriously wobbly and the odds of son of Credit Anstalt are well above zero, it means big banks are at real risk of getting seriously whacked in a major stress event. Worse, with Dodd Frank (supposedly) barring bailouts and Tea Partiers on an anti-bank, anti-Fed, anti-spending warpath, it might not be so easy for the authorities to rescue a big bank if a run started (not that I'm advocating a rescue, mind you, I'm looking at this from the vantage of a bank shareholder).

Steve Waldman set forth the basic issue in a very important post last year:

Bank capital cannot be measured. Think about that until you really get it. "Large complex financial institutions" report leverage ratios and "tier one" capital and all kinds of aromatic stuff. But those numbers are meaningless. For any large complex financial institution levered at the House-proposed limit of 15×, a reasonable confidence interval surrounding its estimate of bank capital would be greater than 100% of the reported value. In English, we cannot distinguish "well capitalized" from insolvent banks, even in good times, and regardless of their formal statements.

Now normally, investors accept the unknowability of bank equity because they have some faith in the system. Does anyone have any confidence in the system now? Financial regulators have shown themselves to be incompetent and/or badly captured by banks. Earth to base: letting off bank management easy is bad for investors in the long run. Being an investor in an overly risky bank looks swell until it suddenly isn't.

Look at how the officialdom blew the bank stress tests. The sole purpose of that exercise was to goose bank stock prices so they could afford to raise new capital and rebuild their balance sheets affordably. What happened instead? Treasury let the banks sell pretty small amounts of stock and allowed them to "pay off the TARP." Huh? The economic motivation for that was solely to escape pretty minimal restrictions on executive pay. And to compound the error, banks (BofA being one of the few exceptions) were allowed to resume paying dividends.

It is pretty easy to construct a list things to doubt on Bank of America's balance sheet. Here are a few:

Second liens. Net of reserves, they are about $80 billion. That should probably be written down by 60%. That gets you to $48 billion, conveniently in range with the capital raise number bandied about today.

Commercial real estate loans. $182 billion, per the bank's latest Y9. Probably at least some modest impairment there.

Goodwill. $78 billion. Countrywide has been written off, but Ken Lewis loved overpaying. The bank made a botch of its acquisition of US Trust, and given that it is rumored to be unable to ditch Merrill, query whether any goodwill booked in connection with Merrill is worth anything now. Some it not a fair bit of this number is probably vapor-y.

European exposures. Ooh, this is fun. No number here per se. Moynihan was asked in the seriously misbilled "we'll take tough questions" conference call. He said BofA had $17 billion of European sovereign exposures and claimed it was hedged.

First, hedges of sovereign risk are wrong way hedges. The AIG credit default swaps against CDOs were classic wrong way hedges. An event that will lead you to put in an insurance claim is very likely to kill the insurer, which means your hedge is no good.

Second, sovereign exposures aren' t likely to be the biggest risk BofA faces in Europe. What about its European bank exposures?

Notice how this list looks pretty bad and we haven't even gotten to mortgage litigation losses. Not to worry, those are years away.

More immediate is what might happen to other exposures, particularly derivatives positions, in a market stress event. The poster child was Lehman. Pre-crisis, analysts focused on the asset side of its balance sheet. But the black hole in Lehman's balance sheet has proven to be way beyond anything that could be attributed to either the asset side items that everyone had been watching or the "disorderly collapse". While the derivatives counterparties grabbed collateral (as they are permitted to do), the bankruptcy judge can and has been contesting cases where the other side looked like it took more than it was entitled to. The open question is whether this sort of blowout was specific to Lehman (and the terrible mess in its derivatives books) or whether this is a more generalized phenomenon when a big trading firm crosses over the finance equivalent of an event horizon.

The point is that there is objectively a lot not to like about Bank of America. And now that investors have decided to start thinking critically, as opposed to blindly accepting bank equity as the faith-based paper that it is, one shouldn't be surprised that they are getting cold feet. And the fact that the authorities have undermined the limited value of bank balance sheets via allowing all sorts of rosy accounting treatments is a self inflicted wound.


This past week in gold

Posted: 22 Aug 2011 07:08 PM PDT

8/20/2011

GLD – on buy signal.
SLV – buy signal this week.

GDX – on buy signal.
XGD.TO – on buy signal.
CEF – buy signal this week.

Summary
Long term – on major buy signal.
Short term – on buy signals.
So far we have no set ups to re-enter this market and we will not chase momentum.

This past week  gold
By Jack Chan at www.simplyprofits.org

Disclosure
We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.

End of update

James McShirley talks with James Turk

Posted: 22 Aug 2011 07:00 PM PDT

James McShirley, President of the Allied Building Center, and James Turk, Director of the GoldMoney Foundation, talk about gold price manipulation and the statistically significant caps on daily gold ...

Will Hugo Chavez Touch Off an Epic Short Squeeze in Gold?

Posted: 22 Aug 2011 06:11 PM PDT

Taipan Publishing

India and China account for 52% of global gold demand

Posted: 22 Aug 2011 06:08 PM PDT

Gold Price Hits Yet More Records as QE3 Looms in US

Posted: 22 Aug 2011 05:38 PM PDT

The Black Market for Easy Money

Posted: 22 Aug 2011 05:05 PM PDT

--Gold finally cleared $1,900 in the futures market this morning. It's been a spectacular run. Gold has doubled since the beginning of the credit crisis in 2008. Or, more accurately, the US dollar has halved against gold as the Federal government ran up enormous deficits and the Federal Reserve created a black market in easy money.

--There's no doubt the Fed played a role in yesterday's gold move. That role began in the crisis days of 2008. The Fed made over $1.2 trillion in emergency loans to dozens of international banks, financial firms, and even a few industrial conglomerates over a period of three years. Over 29,000 pages of documents obtained by Bloomberg revealed the details.

--The details are indeed revealing. Morgan Stanley borrowed as much as $107 billion from the Fed at the peak of the crisis. At one point, Fed cash was the sole source of Morgan's profits. Citibank borrowed $99.5 billion. Bank of America borrowed $91.4 billion.

--If you ever needed proof that the Fed is run by and for its member banks, there you go. Just 10 banks received 56% of all the loans made by the Fed, a total of $669 billion. Without Fed backing, the American banking sector would have collapsed under the weight of its own liabilities and bad risks. The Fed saved Wall Street's bacon.

--There were dozens of other firms that needed Fed cash in order to survive. National Australia Bank put its hand out for $1.5 billion at one point. Westpac received $1 billion. These are modest numbers compared to the amounts required for survival by American banks. But if anything, yesterday's report shows just how thoroughly monetary policy is being run entirely for the benefit of the banking sector.

--Of course, you might counter that it's a good thing the banking sector didn't implode. That would lead to a general worldwide implosion. Isn't it better to have prevented that? Didn't the Fed save the world?

--What investors are starting to realise is that the Fed habit of bailing out bad risk takers is precisely what's created such an unbalanced, unstable financial system. Now the whole system is so heavily encumbered by debt that it's too big to survive without more loans from the Fed or the European Central Bank. That doesn't seem like a long-term survival strategy.

--And you wonder why the gold price is making record highs.

--The gold price would have to be making Ben Bernanke nervous. Gold is telling everyone that it thinks monetary policy is bad and getting worse. It's reminding everyone that fiscal policy - huge government deficits as a percentage of GDP in the Western World - aren't much better. Gold's price communicates this information.

--Will central bankers try to silence gold? Central bankers have been net buyers of gold so far this year, adding 198 tonnes to their vaults. What they do is more important than what they say. But watch out for what they say.

--The annual Fed confab in Jackson Hole, Wyoming takes place this week. Poor old Bernanke. He knows that investors are desperate to hear what he's going to do next. Is he going to buy more bonds? Maybe longer-term bonds? Maybe corporate bonds? Is he going to buy stocks? Is he going to buy gold mines? What is he going to do to get the unemployment rate down and GDP growth back up?

--Our guess is that anyone who thinks the Fed may have a real plan is going to be bitterly disappointed. Markets rallied in New York for no apparent reason. If we were a betting man we'd expect to see another two to three days of 4-5% losses in financial markets, once everyone realises the Fed has no plan.

--One note of caution if gold has you excited: it can correct too. Gold's recent run is pretty breathtaking. And given the revelations about how close the financial system was to a meltdown in 2008, the appetite for gold isn't surprising. But keep in mind a great deal of liquidity in the gold market comes from the various exchange traded funds (ETFs) that now own over 2,000 tonnes of gold.

--Institutional gold buyers can become sellers in the blink of an eye. So prepare yourself. A 15% correction in gold from these levels would see it back around $1600. It wouldn't surprise us to see that. And we'd absolutely love a chance to buy down there again.

--In such an unbalanced financial system - huge amounts of debt on one side, with unreliable counterparties, and real assets like precious metals and energy on the other side - you'd think having an institutional bias toward growth would be a big liability. At least we'd think that. But hey, what do we know?

--Nonetheless, most Aussies who own the default balanced fund option via Super are still heavily biased toward growth. We wrote on the dangers of owning what you don't know last week. Adele Ferguson reports in today's Age:

'Most people think a balanced fund is 50 per cent growth (shares, property, alternatives, private equity, infrastructure) and 50 per cent defensive (cash, fixed interest, bonds).Some funds masquerade as balanced but they are 85 per cent growth and 15 per cent defensive, according to financial adviser Matthew Ross from Roskow Independent Advisory.

'Ross cites a few super funds that he believes are not offering balanced options, but say they are. "This is an issue that really gets under my skin ... Australian Super's balanced fund is 85 per cent growth, 15 per cent defensive. This is not balanced. Host Plus balanced fund is 76 per cent growth. REST Core Strategy is 75 per cent growth and Catholic Super is 68 per cent growth," he says. "They're high-growth funds, calling themselves balanced. Higher risk equals higher reward. So the more risk they take in the balanced fund, the more return they can boast about - but they're taking risks consumers aren't aware of."

'But even the defensive category might not be as conservative as some funds claim. When it comes to cash, some funds that invest in cash-plus and cash-enhanced funds, are investing in things other than cash. Such funds offer better returns than straight cash by investing in shares and property as well as bank bills and fixed-interest securities, but they are much higher risk - and some investors don't realise this.

'Fixed interest can also be deceptive. While some fixed interest products might be AAA-rated Australian government bonds, others are junk bonds, including insurance linked securities, which are a euphemism for catastrophe bonds.'

--Did someone say catastrophe? More on how to survive one tomorrow.

Dan Denning
for The Daily Reckoning Australia

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