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- COMEX: THE MARCH TO IRRELEVANCE
- Buying & Selling Gold Using Momentum Indicators Generated a 39.6% Return in 2011! Here’s How
- Energy and Commodities: 2011 And 2012
- Rhetoric versus Reality at the ECB
- Gold “Does Not Offer Comfort in Liquidity Crunch”, European Banks “Could Not Refuse” ECB’s “Free Money” Offer
- Argentina's Lessons for a Crisis-Ridden Europe
- Wray: Krugman has shined the headlights on the crucial currency issuer-currency user difference
- 2012 Outlook for Gold – Positive Fundamentals Remain and Crucial Diversification
- It's official: European Central Bank agrees to massive bailout... Money-printing is sure to follow
- Philipp Bagus and Alasdair Macleod on Europe, inflation, and gold
- Morning Outlook from the Trade Desk - 12/21/11
- Casey Research: It could be a great time to buy more gold and silver
- Gold the protector as democracies move towards totalitarianism
- Euro crisis: the end of the beginning?
- There are Tremendous Silver Shortages
- Are You Tempted to Sell, or Eager to Buy?
- Gold and silver prices rise with the euro
- Silver Update: “Pension Bomb”
- An outlook for the dollar and gold as money
- We are Witnessing a Historic Bottom in Gold: London Trader
- Expect Bank Holidays in Europe & Higher Gold: Chris Whalen
- Will the Europeans have to sell their gold?
- Markets Lack Confidence In Europe. Despair Spreads Faster
- Philip Mirowski: The Seekers, or How Mainstream Economists Have Defended Their Discipline Since 2008 – Part III
- Trading Comments, 21 December 2011 (posted 10h00 CET):
- The dollar may be the reason of the falling prices of Gold and Silver
- Dave Skarica 12-20
- British Prepare Evacuation Plans Ahead of Spain and Portugal Collapse
- Welcome To The Third World, Part 4: Boomers Reap What Theyve Sown
- Will 2012 Be The Return of Gold Stocks?
| COMEX: THE MARCH TO IRRELEVANCE Posted: 21 Dec 2011 05:36 AM PST December 21, 2011 home: Golden Jackass website Divergence between paper gold and physical gold price is happening, the process begun. Actual physical shortages have kept the price up. The naked shorting of futures has kept the paper price down. The fraud cases and lawsuits, with no hint of prosecution, provide the levered force to create much wider divergence, as traders and entire firms depart the tainted crime scene that is the COMEX. Trust has vanished along with private accounts. At the center of the backdrop for the divergence, apart from the criminal events, is the economic deterioration and asset market downdraft. It leads to margin calls, loan payment obligations, fading investor confidence, negative sentiment, and a desire to avoid loss. Hence the huge liquidity concerns, selling of good assets that command a strong price, and central bank encouragement of gold sales even with lease. These forces conspire to push down the gold futures price from the discovery process, called the paper gold price. These forces, although real, are exaggerated by the Syndicate to explain all. On the other side is the desperation among central bankers to cover debt securities up for sale or rollover funding. They resort to utter hyper inflation by monetizing the many types of government bonds. They are obligated to aid their banker cohorts, and thus purchase truckloads of badly impaired sovereign bonds and other collateralized bonds. Over time these sovereign bonds have proved toxic. The compelling need to stimulate economies, to redeem toxic bonds, and to recapitalize and nationalize the big banks adds to the monetary inflation outcome. Therefore, two sides are in opposition in a battle to the death of one or the other. No middle ground can be achieved, not any longer. It is the quintessential battle between monetary hyper inflation and restoring bank system integrity to avert collapse. The insolvency has recently met illiquidity. The battle features strong forces on each side. The divergence between physical and paper gold price is widening. The incurable speculator junkies committed to the addictive leveraged game rigged by the Forces of Evil seem stuck at the casino tables, where fingers are lost, finally entire hands and arms. If their practice was to purchase physical, they could benefit from the paper price swoon, and join the Forces of Good team, rather than fighting the evil side on their dominated turf. To be sure, many aware analysts in the news maintain a small gold position in COMEX that is rolled over constantly. Many have physical positions but keep with the paper trades as a hobby, better described as an addition to the juice. Leverage cuts both ways. Their continued activity has left them exposed to theft, while knowing the criminality was widespread within the arena. So many players and firms are departing the arena altogether like Ann Barnhardt of BCM Capital. The divergence between physical and paper gold price is widening. The desperation of the bad team is growing. The gold cartel has benefited significantly from the fresh Libyan gold supply (144 metric tons) and Greek gold supply (111 metric tons), not to mention the ample Dollar Swap Facility. It is the bankers New Gold, as reported by intrepid Jeff Neilson. In a fresh sign of bankster desperation, the lease rates for gold have been pushed down to net negative levels. The fresh supply from the two broken nations has greatly aided the COMEX, providing new cannon fodder. Perhaps more wars to liberate the oppressed can be conjured up, to release more tyrant wealth. It is not a coincidence that negative gold lease rates came when Libyan gold was made available (heisted) and when Italian sovereign bonds went into critical DEFCON mode. The gold supply helped to aid the lack of bond demand. The gold lease story is analyzed more fully in the December Hat Trick Letter. INELASTICITY BLEMISH ILLICIT USAGE OF CLIENT FUNDS AS COLLATERAL The redemptions are the largest for the hedge fund industry since July 2009, when $17.8 billion was returned. The Barclay Hedge office put lipstick on the corrupt pig by commenting on how investors have lost patience with lackluster investor returns. To be sure, the average hedge fund is down by about 4% this year. The global hedge fund industry size has been reduced to $1.66 trillion, still sizeable. It is always interesting, if not amusing, to read the spin from the isolated corners. Hedge funds are seeing capital depart for the simple reason of moving away from crime centers. In the process the COMEX is being isolated. With increased isolation comes the easily recognized fraud. Look for some major stories soon about the raids to the GLD and SLV inventories by their custodians engaged in naked shorting. The Exchange Traded Fund fraud story is analyzed more fully in the December Hat Trick Letter. The divergence between physical and paper gold price is widening. DYNAMICS OF PAPER VERSUS PHYSICAL BASIS Ann Barnhardt explained how the COMEX will fade away into oblivion. Its final chapter will be marred by a grand price divergence, where the futures market price declines from shunned avoidance, while the cash physical market price holds steady then rises. Many including the Jackass had thought that a slew of delivery demands would force a drain in their gold & silver inventory, eventually leading to a slew of lawsuits, together to shut them down as a corrupt enterprise arena. The MF Global theft reveals the alternative route that seems more clear. The gold cartel led by JPMorgan and secretly by the USFed will not go quietly. They have resorted to theft of private accounts on the open stage. The money is not missing. That is the lie. It is held in JPMorgan accounts in London, where fraud laws are more relaxed. We have seen this Madoff movie before, but it will be shown on the silver screen again. The divergence between physical and paper gold price is widening. The backlash has begun and will gain strength. Barnhardt offered many cogent arguments with detail on how the COMEX will be ignored from distrust and suspicion of further thefts, as clients remove funds and close accounts. Here are her main points. They apply to Gold & Silver. She has the Barnhardt weblog: http://barnhardt.biz/ THE GREAT SHUN BY MINERS See the Ashanti story as typical. The COMEX is seeing reduced supply lines, reduced operations, more criminal implications, horrible publicity, and fewer clients. Criminal fraud does that, as lawsuits will follow like cold rain. The trend shapes up well for higher gold & silver prices. Mark Cutifani is CEO of AngloGold Ashanti, a $16 billion mining firm. He said, "Major [asset management fund] buyers are finding it is hard to get physical gold. People are coming directly to us [for large gold purchases,] people who want tonnes of physical gold, people with serious financial muscle, because they are finding it is very difficult to secure the volume of gold they want. That is something we have noticed over the last 18 months, and it has been increasing in the last six months. People are finding its hard to get physical gold." The clear message is that the COMEX has no spare available metal at all. Cutifani has good insights into the commodities and precious metals markets, and describes a fascination new trend regarding the global picture. He pointed out that major gold buyers are emerging from the Middle East and Asia. See the Bull Market Thinking article (CLICK HERE). NEW MARKETS FLOWERING October imports into China from Hong Kong rose 50% over September, and up 40-fold from last year. The more attractive fair price paid in Shanghai reached $50 above the corrupt controlled London price. The arbitrage has been very active. Chinese gold imports from Hong Kong hit a record. The Financial Times reported Chinese gold imports from Hong Kong hit a record high in October and astoundingly, they accounted for more than one quarter of the entire global demand. Data showed that China imported 85.7 tonnes of gold from Hong Kong in October, up 50% from the previous month and up more than 40 times from October of last year. It marks the fourth consecutive month that China's gold flows from Hong Kong have hit new highs. The article noted that the price arbitrage between London and Shanghai was favorable for Chinese imports during late September and early October, giving astute clever traders an edge. Gold on the Shanghai Exchange traded up to $50 per ounce above the main global market based in London, a record price difference. Purchases from China have fallen since October, as the recent strength in the USDollar has made gold more expensive. Also, considerable new strain has been felt inside China in recent weeks. Conclude that price arbitrage has begun to show itself across international boundaries. The divergence between physical and paper gold price is widening. ONE GOLD EVENT, THE BIG SQUEEZE The other side of Agent2000 is where additional intrigue lies. He (they) have buyers lined up on the physical side some deals ready to close at $1900 per ounce. Later the price will push over the $2000 mark. The buyers are ready. One must infer that the buyers have a great deal of money ready to devote to the battle. Maybe some is piled up to escape the clutches of the cartel, removed from the system. Maybe some is piled up at a major new slush fund to do battle with the cartel at their own game. Maybe some is piled up and kept out of sight from greedy hands in government officials, like off-shore in the Caribbean or sequestered in the Persian Gulf. This story might be perplexing to many in the gold community since the Good Guyz are pushing down the Gold price in order to facilitate a gigantic order that will work toward crushing the cartel by draining their gold. Their gold cannot be drained without the completion of a great many orders. It is only natural to attempt to achieve the lowest possible price. If the gold cartel insists on pushing the price down, then they open the door for major volume sales at the artificially low and very much bargain price. It is happening, but the gold community does not enjoy the symptoms of the process. So a huge huge huge buyer of gold is busy, and a multi-$billion order is working through. The buyer demands a $1600 price, while on the other side of the table Agent2000 has a sale lined up for the same metal at a $1900 price on physical. The trade will take gold bullion from the Bad Boyz hands and put it into the Good Guyz hands. In the process, the COMEX supply lines will be drained more. This is consistent with mining firms removing supply lines to the COMEX. The Agent2000 buyer is pushing price down, squeezing some evil parties hard, crushing testicalia along the way. He (they) describe to the distressed seller at $1600 that pressures will continue until the deal is closed. The seller is in tremendous pain with open distress showing. So many assume the Bad Powerz are pushing down the Gold price. Not so!! This event and transaction displays how some pain comes in many isolated cases of Good Guyz pushing the Gold price down to empty the Bad Powerz vaults. My source would not reveal the identity of Agent2000 or the location of the squeeze. It seemed like London. The money is not exclusively coming from China. Word has it that Russia is also applying the pressure, with some Chinese teamwork. The Competing Currency War has a new major flank. The divergence between physical and paper gold price is widening. LONDON TRADER DISCUSSES THE GREAT RAID 'The Chinese have continued to take delivery of both physical gold and silver directly from the ETF's GLD and SLV. They are also going directly to producers. Entities are bypassing the COMEX altogether and going straight to gold mining companies. Every single month producers have a certain amount of gold and silver they sell. Normally they sell it to the bullion banks and the bullion banks, of course, leverage this gold and sell up to 100 times that in paper markets to control prices. The bullion banks hold that little bit of physical gold and claim they are backed up on their position to the CFTC. I have all my large buyers now going to producers and saying to them, 'Look, don't sell it to the bullion banks, we will buy it from you.' So we are buying directly from the producers and this includes some sovereign entities which are doing the same thing. We are struggling to get the physical out of these producers because they have so many people banging on their door, saying, 'Sell it to us Direct.' What these buyers are doing is essentially taking gold out of the system, which means the bullion banks cannot leverage that gold anymore. So this is a huge, dynamic shift that was not there before. These buyers are now cutting off future gold supply from the bullion banks. This is a huge tectonic shift in price dynamics going forward because it is taking price discovery away from the bullion banks. These large Chinese buyers and sovereign entities which are doing this are going to have a massive impact on the market. Interestingly, so many people are bearish on gold right now and looking for a collapse in the price of gold. They do not understand what is happening in the physical market. The bullish fundamentals just described to you have enormous implications. We are making a historic bottom right now. The paper gold, or virtual gold market, has diverged so far from the physical market that it is no longer a credible marketplace. That is the key thing that came out of a very important meeting I was in yesterday where we had some serious players. The people I was meeting with are all on the buy side and have been since the lows last week. There are massive physical orders, sitting, waiting for any more discounts, and yet everyone else seems to be short. So you have huge fuel for a rally here. You have to keep in mind this recent plunge was |
| Buying & Selling Gold Using Momentum Indicators Generated a 39.6% Return in 2011! Here’s How Posted: 21 Dec 2011 05:30 AM PST www.preciousmetalswarrants.com Assessing the relative levels of greed and fear in the market at a given point in time is an effective way of timing the market. This article outlines the 6 most popular momentum indicators and concludes that trading gold using just 3 of the indicators would have generated an annual return of 39.6% compared to the YTD buy-and-hold return of only about 13%! Let me explain how, why and where they should be used and examine their specific application relative to the price movements in gold and the HUI. The above 3 indicators do not yet suggest that you get back into gold – yet. Nevertheless, trading gold using the above 3 indicators would have generated a profit of $525 for an annual return on your gold investment of 39.6% over just 132 days – compared to a YTD buy-and-hold return of only about 13%! (Perhaps I should have titled this article "How to Triple Your Returns in Gold".) As with gold the above 3 indicators do not yet suggest that you get back into the gold and silver mining stocks – yet. Nevertheless, trading such stocks using the above 3 indicators, and the HUI as a proxy, would have generated an annual return on your investment of approx. 27% over just 190 days – compared to a YTD buy-and-hold return of about -11% !
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| Energy and Commodities: 2011 And 2012 Posted: 21 Dec 2011 05:29 AM PST By David Fessler: As my colleagues have done earlier this week, I'm now putting myself in the hot seat with regards to my prognostications from a year ago. Around this time last year, I opined that commodities like gold, silver, fertilizers, coal and oil were in increasingly short supply. Prices for these and other commodities were approaching 10-year highs, and would keep on rising. How did that statement pan out? Let's take a look. Precious Metals According to data from Kitco, gold started the year around $1,400 per ounce, and is currently trading at just over $1,600 per ounce. Silver, on the other hand, started the year at $30.70 per ounce, and now trades a tad lower in the $29.50-per-ounce range. It was what silver did during the year that made all the headlines. Back in April, it hit a high of $48.70 per ounce. The scale and speed of the decline after Complete Story » |
| Rhetoric versus Reality at the ECB Posted: 21 Dec 2011 05:28 AM PST Wednesday 21 December 2011 This week, the gap between what the European Central Bank says and what it does became very noticeable indeed… I know they're stolen, but I don't feel bad. THROUGHOUT THIS CRISIS, the European Central Bank has stuck to the mantra that its job is to ensure price stability above all else. It has, for example, objected to suggestions that it might fund the European Financial Stability Facility, the Eurozone's 'temporary' bailout mechanism that now looks like it may hang around a bit longer than first anticipated (whether it will have much money to lend to troubled Eurozone governments is another matter). There are signs, though, that its attitude may be changing. A considerable gap has opened up between the ECB's rhetoric and its action, with central bankers talking tough on inflation while pursuing ever looser policies. This disconnect was plain to see on Monday when ECB president Mario Draghi addressed the European Parliament in Brussels. "The Governing Council of the ECB," said Draghi, "is determined to ensure that inflation expectations continue to be firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term." So far, so anti-inflationary. "The latest monetary data reflect the heightened uncertainty in financial markets. Looking beyond short-term volatility, the monetary analysis indicates that the underlying pace of monetary expansion remains moderate." Draghi is not wrong. The chart below looks at money supply in the Eurozone, the UK and the US over the last two years. The vagaries of money supply data mean the comparisons are not exactly like-for-like. The US Federal Reserve, for example, stopped publishing its M3 broad money measure in 2006. The Bank of England meantime does publish an estimate of M3 for the UK, following the methodology used to calculate Eurozone M3, but by necessity it involves a degree of estimation. Nonetheless, if we index each series we can see that Eurozone money supply (the blue line) has been more stable than that of both the US (green line) and Britain (red line): US money supply appears to have merrily grown throughout the period, while the effects of the UK's first dabble with quantitative easing in March 2009 can be seen coming through nine months later (and, of course, though the effects are not known yet the Bank in October expanded its QE program, and may do so again if the latest Monetary Policy Committee minutes are anything to go by). The problem for the ECB and its pursuit of price stability is that its "moderate" pace of monetary expansion may well be a key reason why the Eurozone has ended up as the epicenter of the global financial crisis. Because while the Fed and the Bank of England have gone to historic lengths to get funds to where they are desperately needed – the banking sector and (whisper it) government – the ECB has lagged behind. There is a phrase we use here at BullionVault to sum up what we believe to be the most likely ways out of the ongoing crisis: Default or Devalue. In the absence of meaningful economic growth, existing debt burdens will either be defaulted on, or they will be repaid once their real values have been sufficiently eroded by inflation. By standing in the way of the latter, the ECB has arguably made the former seem much more likely – hence the Eurozone debt crisis. But things have changed. Now that Old Man Trichet has shuffled off into retirement, Super Mario can finally open the spigots and (he hopes) prevent liquidity-starved Europe from collapsing into a morass of sovereign defaults and bank failures. This would explain why, as well as restating the ECB's anti-inflation priorities, Draghi was keen to tell the European Parliament about "the latest non-standard measures" from the ECB. These include a €40 billion covered bond purchase program, a reduction in the amount of cash banks are required to hold at the ECB and a "temporary expansion" of the list of collateral that banks can put up when borrowing from the ECB (banks, it would seem, are running low on decent assets – or else they just don't want to risk them. So the ECB will accept collateral of ever-more questionable value, including the very Eurozone government bonds that have caused it – and its balance sheet – such grief already). And, on Wednesday, we had the Big One. The first of the ECB's three year Longer Term Refinancing Operations (LTROs) – whereby Europe's banks could borrow money for three years at interest rates of 1%, and against iffy collateral to boot. "This is basically free money," one banker in Germany said before the result of the LTRO was announced. "The conditions are unbeatable. Everybody who can will try to get a piece of this cake." The announcement saw stock markets sell off – possibly because it is an indication of just how bad a state Europe's banking system is in. The Euro's recent rally against the Dollar also went into reverse, while gold prices – which have moved closely with the Euro in recent days – also fell from their week's high. It seems very much as if Europe's central bankers are now looking to catch up with their Anglo-Saxon peers, choosing (whether consciously or otherwise) the Devalue option rather than run the risk of Default. But it will probably be a while until the rhetoric changes. Earlier this week, Germany's Bundesbank grudgingly agreed to contribute an additional €41.5 billion to the International Monetary Fund, but only on condition that the money was not earmarked for Europe. The Bundesbank is fooling no one. It must realize there's a very good chance that, some time in 2012, a phone will ring at the IMF's Washington headquarters: "The Lagarde residence, the lady of the house speaking…Oh it's you Spain, how can I help…Hang on one moment, I've got Italy on the other line…" Still, the central bankers get to say, with as straight a face as they can manage, that they are not directly financing government debt. If it turns out that the world does become awash with fresh Euro liquidity then, unless gold decouples from the single currency, this could be a bearish development for the yellow metal. Eventually, though, investors must surely realize that there is a world of difference between a tangible asset value for thousands of years and a political project that looks like it could come undone after little more than ten years. The debt crisis shows little sign of coming to an end. And history shows us that when debt crises are eventually resolved, it tends not to be good news for the creditors. Ben Traynor Gold value calculator | Buy gold online at live prices Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. (c) BullionVault 2011 Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
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| Posted: 21 Dec 2011 05:11 AM PST Wednesday 21 December, 08:45 EST U.S. DOLLAR gold bullion prices dropped to $1609 an ounce Wednesday lunchtime in London – 1.9% down from the high for the week so far, set less than three hours earlier. Stocks and commodities also traded lower following an announcement by the European Central Bank about its latest liquidity operation. "We don't see much fresh [gold] buying from investors as the year end nears," says Dick Poon, Hong Kong-based manager at precious metals group Heraeus. Silver bullion fell to $29.29 per ounce – having briefly passing the $30 mark – as the Euro fell against the Dollar following news that European banks borrowed a total of €489 billion at the ECB's 3-Year Longer Term Refinancing Operation, which settled Wednesday morning. The LTRO – through which the ECB offered to lend to banks for three years against collateral that includes distressed Eurozone government debt – saw 523 bidders. The ECB offered the loans at a rate of 1%. "It was obviously an offer the banks could not refuse," says Laurent Fransolet, head of fixed income strategy at Barclays Capital in London. "It shows the ECB is not out of ammunition and it gives banks security on liquidity for a few years. On the other hand it means banks will rely on the ECB for longer." "This is basically free money," said Jens-Oliver Niklasch, Stuttgart-based strategist at Landesbank Baden-Wuerttemberg, speaking before the ECB announced the LTRO results. "The conditions are unbeatable. Everybody who can will try to get a piece of this cake." "It remains to be seen [however]," warns ING economist Carsten Brzeski, "whether the money will filter through to the real economy as the ECB hopes. Many banks still have to increase their capital ratios." "The cash could be used simply to shore up [banks'] balance sheets," agrees Kit Juckes, currency strategist at Societe Generale. "Or some of it could go into assets, including but not exclusively higher-yielding peripheral debt." The Euro fell 0.9% against the Dollar immediately following the ECB's announcement, breaking a rally that began early on Tuesday and continuing to fall throughout the rest of the morning. European stock markets also fell, while Dollar gold bullion prices dropped more than 1% in an hour from $1640 per ounce, their high for the week so far. In the same period, the gold price in Euros fell 0.6% to €39,847 per kilogram (€1239 per ounce), while the Sterling Price of gold bullion also dropped 0.6%, hitting £1033 per ounce. Despite rallying for most of this week (until the ECB announcement), the Dollar price of gold bullion remains 5.6% down on the start of last week. "Gold is not the asset of choice on a search for liquidity," says Dominic Schnider, head of commodity research at UBS Wealth Management. "It gives you comfort against currency risks, inflation, sovereign debt problems, but not liquidity crunch…[however] holdings of gold ETFs are still holding up despite the recent sell-off, which is a good sign." The volume of gold bullion held to back shares in the SPDR Gold Trust (ticker: GLD) – the world's largest gold ETF – fell by around 15 tonnes last week, but on Tuesday remained more than 40 tonnes above its 2011 average. Here in Britain, minutes from the Bank of England's Monetary Policy Committee meeting earlier this month show all nine MPC members were unanimous in voting to keep the bank's main interest rate at 0.5% – where it has stayed since March 2009. The MPC was also unanimous in maintaining the size of the Bank's quantitative easing program at £275 billion – to which it was increased in October. "The Committee agreed that a decision to change policy was not warranted at this meeting," the minutes record. "Some members [though] continued to note that the balance of risks to inflation…[means] that a further expansion of the asset purchase programme might well become warranted in due course." Over in the US, the Federal Reserve Tuesday proposed new rules aimed at curbing US banks' risk-taking activities. The plan calls for banks to assess their liquidity needs at least once a month. It stops short, however, of mandating minimum levels of liquid capital, with the Fed saying it will wait to hear the recommendations of the Basel Committee on Banking Supervision. Analysts meantime expect US banks to post worse results for the fourth quarter of 2011 than they did in Q3, newswire Bloomberg reports. Ben Traynor Gold value calculator | Buy gold online at live prices Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. (c) BullionVault 2011 Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
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| Argentina's Lessons for a Crisis-Ridden Europe Posted: 21 Dec 2011 03:35 AM PST Ten years ago, Argentina's economy was in a shambles, the victim of vast sovereign debt, a peso that was pegged to the US dollar and rigid IMF austerity measures. A decade later, Europe is facing many of the same problems. Argentina's recovery has plenty of lessons for the euro zone -- if only it would listen... Read |
| Wray: Krugman has shined the headlights on the crucial currency issuer-currency user difference Posted: 21 Dec 2011 01:37 AM PST Edward Harrison here. The post by Randall Wray below is an interesting one because it points out how the world has changed since the end of the gold standard and why the sovereign debt crisis is centered in the euro zone. While I have an Austrian bias overall, for me, MMT is the best way to think about nonconvertible floating exchange rate systems as distinct from fixed exchange rate, currency board, pegged and convertible systems. The difference is policy space and what I would call the bond vigilante relief valve. In the old gold convertible system, the Central Bank had to jack up rates to prevent an outflow of gold. In the old days, only by adjusting the gold peg could countries under attack get away with low rates once the vigilantes were on to them. That's what happened during the Great Depression. Once the conversion was broken, the currency depreciated and depression lessened immediately. Today the release valve is the currency because there is no gold tether. So the currency gives way, not interest rates. And to the degree that interest rates would increase, the Central Bank can print. The currency revulsion question then is always currency depreciation, inflation and even hyperinflation (when and under what preconditions) not interest rate spikes. Sovereigns with significant foreign currency liabilities face the same issues – as we saw in Iceland in 2008. In the Russia and Argentina defaults last decade, those countries had foreign currency liabilities and a currency peg. This was the problem. It's different for nonconvertible floating exchange rate currencies issued by a sovereign with no foreign currency obligations. Where the bond vigilante story is usually flawed is in thinking that the bond vigilantes have power. Shorting government bonds when the central bank is politically aligned with the Treasury is a sure-fire way to lose lots of money. The consolidated government's balance sheet consists of IOU liabilities that it can manufacture in infinite quantities. Why would anyone think they can win that game? It's like my writing Yves IOUs for blog points. Maybe I write more than I can ever cover her for. But I create the points. I can always create more. if I write too many, their value depreciates. The Europeans are currency users with a Central Bank that is not politically aligned. This is a very different institutional arrangement to the US. The Fed can 'financially repress' all it wants. They control rates. Long-term, the result will be currency depreciation relative to other CB's not repressing. But if everyone is engaged in financial repression i.e forcing negative real interest rates across the curve – and I think they all will be – then clearly its only hard currency that wins: gold, land, etc. After an initial bond vigilante run, Bill Gross has got religion on this too. Paul Krugman gets it too. I didn't always think this was the case. But now Krugman is way out in front on this one as Randy attests in the post below. From an investing standpoint you have to get this one right. The bond vigilante paradigm has been false in Japan and now in the US as well. If you had seen rates in Japan at 2% and shorted them saying they would come up, you would have lost your shirt. Conversely, if one uses the currency sovereignty paradigm, the short-JGBs trade is one that one would have avoided. What a cautious investors should do is shun repressed assets and seek next best alternatives in similar assets classes or in different currencies – corporate over government bonds, Canadian over US, etc. Indonesia, for example is an opportunity. One last note: Bill Gross had a good piece in the FT about what I have dubbed 'permanent zero'. He called it the ugly side of ultra-cheap money. I think he's onto something that worries me as well. It's the same sort of thing we saw in Japan and it means, critically, that when the economy hits recession, the yield curve flattens even more and banks get savaged by this while the asset side of their balance sheet falls apart. They are then forced to sell good assets to delever and that causes a negative spiral. For the US, the next recession will be like this – and it will be nasty for risk assets as a result. That's my piece. Randall Wray's post is below. This post first appeared at "Great Leap Forward", Randall Wray's EconoMonitor blog. As Mae Moore says, "It's a Funny World" (2002). Let's try to make sense of two news reports. Help me if you can. 1. Republicans reject the payroll tax holiday because it does not go far enough. To complicate matters, the Senate has already gone on its Xmas holiday and is refusing to come back. That leaves the Republicans in a bit of a pickle—they are going to raise taxes on the average American by $1000 per year because they refuse to support a 2 month holiday extension. Right. Congress wants its long holiday from work, but does not want to give Americans a holiday from paying a regressive tax—the payroll tax—that for the bottom 70% of American workers takes away more income than the Federal Income tax. It is a job killer, too—as it raises the cost of employing Americans over the cost of employing workers just about anywhere on earth (few other countries tax work and employment the way we do—our payroll tax makes American workers more than 12% more expensive). So Republicans want to take away the payroll tax holiday and kill jobs. That is a rather nice election strategy. And it is bad enough that they're mainly running clowns for President. With the exception of Ron Paul, is there any serious candidate in the running? No, I didn't think so. What, they actually WANT President Obama for 4 more years? Why? To continue to bail-out Wall Street? To continue to look the other way while banksters trash the economy? Apparently the Republicans are hold-outs because they want two noxious additions to the payroll tax holiday legislation. First, they want an environment-killing Keystone pipeline—so they want that linked to the extension of the payroll tax holiday. The wording they prefer forces the President to forego any reasoned analysis of the wisdom of the pipeline by rushing a decision within 60 days. Second, they want to end the extended unemployment compensation benefits—to kill any jobs that the payroll tax holiday created. Right. We've been too kind to the environment and to the workers who lost their jobs because of Wall Street's excesses, so let's take away the payroll tax holiday and kill as many jobs as we can. The logic escapes me. Extending the payroll tax holiday while reducing the time unemployed workers can collect benefits is a zero sum game. Do Republicans really want to fiddle while the economy slips into Great Depression 2.0? Yes they do. They see that as a win-win. They'll run some Bozo the Clown, lose the election, and then stick Obama with the coming depression. And they hope to also stick him with an environmental nightmare to hasten the end of life as we know it. Oh, sure, there will be life after Keystone. You've seen some of the science fiction movies that attempt to divine it. I'd put my money on the dystopian Mad Max or A Boy and His Dog. I expect that is a future that many of the current Republican candidates would embrace: one with insignificant, ineffectual governmental constraint on unbridled pursuit of macho self-interest. Newt! It's your party platform. 2. The World Discovers Modern Money Theory. Who wuddavthought? The problem with the Euro is that formerly sovereign nations gave up their currencies to adopt a foreign currency called the Euro. Now, MMT followers have been saying that since the Euro was proposed. It was a system designed to fail, and like all systems designed to fail the only question was when. We now know the "when" is January 2012—when the Euro banks fail and Italy leaves the union. But we were ignored for a decade and a half, while economists and policymakers celebrated the glorious "Union". Heck, the union was so great that the EMU invited every Tom, Dick, and Harry nation to join up. They added nations with wages and living standards that were barely above subsistence level—indeed, nations that were willing to reduce living standards below subsistence if only they could join and reap the supposed benefits of joining the most dysfunctional empire ever constructed. And they let Germany add cheap workers within its eastern half and then extend its reach to those low cost new additions as it came to account for 75% to 80% of all European exports. There has never been any international arrangement, anywhere, at any time in human history, that so-favored a nation. And when things went predictably bad for all of Germany's neighbors, Germany pointed its finger at its victims and insisted that they were at fault for Germany's success. No more porridge for them! As evidence that the world is coming around (finally) to the MMT view, take a look at Dean Baker's excellent piece. Now here's the ironic thing. It seems to have been none other than Paul Krugman who made it safe for others to adopt MMT. He shined his headlights on the obvious: the reason why interest rates on government debt are not exploding in countries like Japan, the US, and the UK is because they issue their own currencies. Japan is the champion nation in terms of budget deficits and government debt relative to GDP. Many have long argued (wrongly) that this is because holders happen to have addresses in Japan. Nonsense. A sovereign government that issues its own currency makes interest payments on its debt in exactly the same manner whether the holder has an address at the South Pole or on Mars: a keystroke to a savings deposit at the central bank. What matters is whether the country issues its own currency. That is why the little spat between the UK and France—with France insisting that credit agencies ought to down-grade the UK before they downgrade France—is so silly. France can have a debt ratio under 15% of GDP and still be forced to default. The UK can have a debt ratio above Japan's 200% and still face no chance of involuntary default. That is the beauty and utility of issuing your own currency. France is a currency user and its fate depends on Germany—which is busy sucking up every spare Euro it can lay its greedy hands on. France is no better off than the panhandler on the street corner begging for pocket change—a user of currency, not an issuer. So, Krugman shined the headlights on the difference between a currency issuer and a currency user. It is now time for everyone to follow Dean Baker—to look for the car keys under those MMT headlights. 3. Olly Olly Oxen Free: it is safe to come out of the dark. A sovereign government faces no financial constraints. We can have payroll tax holiday extensions and unemployment benefit extension. Heck why don't we go whole-hog and actually create jobs for the unemployed? We need 25 million of them. We can afford them. All we need to do is to find useful things for them to do. That ain't hard.
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| 2012 Outlook for Gold – Positive Fundamentals Remain and Crucial Diversification Posted: 21 Dec 2011 01:37 AM PST |
| It's official: European Central Bank agrees to massive bailout... Money-printing is sure to follow Posted: 21 Dec 2011 12:39 AM PST From The Reformed Broker: If you've been paying attention, you've heard for nigh on three months about how the ECB did not want to "act like the Federal Reserve" and become the "lender of last resort" to the eurozone banks. You've heard how it is not in the ECB's mandate to do so and how the 17 different countries had all different prerogatives and the Germans don't really care about the Hungarians, and on, and on, and on. But today, they've accepted the fact that the crisis has grown ever more expensive to clean up with every passing, dawdling week. And so finally, the ECB (de facto Germany) has taken on the mantle of lender of last resort. They will accept the toxic debt of the banks as collateral and throw money and anyone who needs it, just like the Fed did in 2008 after much hemming and hawing. Just like we all knew they eventually would. This is the Bazooka, and it's actually bigger than most expected it would be. From MarketWatch... LONDON (MarketWatch) — The European Central Bank on Wednesday attempted to send a strong signal to financial markets by offering to loan $641 billion to 523 euro-area banks in... Read full article... More on the euro crisis: A brilliant Op-Ed on the ongoing euro crisis stupidity Why gold selloffs could become much more frequent OUTRAGE: The Federal Reserve could soon inject $1 TRILLION to bail out Europe |
| Philipp Bagus and Alasdair Macleod on Europe, inflation, and gold Posted: 21 Dec 2011 12:30 AM PST In this video Philipp Bagus, Assistant professor of Economics at Madrid's Universidad Rey Juan Carlos and author of The Tragedy of the Euro, and Alasdair Macleod of the GoldMoney Foundation talk ... |
| Morning Outlook from the Trade Desk - 12/21/11 Posted: 21 Dec 2011 12:19 AM PST They clawed all the way back to test the 200 MA yesterday and blew through the level this morning. Euphoria returned and Santa arrived as the long awaited traditional Christmas rally may have come. The reason; the ECB has made available unlimted three year loans to European banks at 1 per cent. The banks can now buy three year Sovereign debt at 6.5 and re-build their balance sheets. TARPE has arrived. If the Sovereigns default it will literally be over. For now $1,622 becomes support and euphoria reigns. Santa Claus was great as a kid. As an adult we all know you got to pay for the Fat Man's visit in the New Year. Expecting higher volumes today as retail investors may think they missed their chance at cheap metal prices. |
| Casey Research: It could be a great time to buy more gold and silver Posted: 21 Dec 2011 12:08 AM PST From Jeff Clark, Senior Precious Metals Analyst, Casey Research: It wasn't a fun week for gold. By the close on Friday, the metal was down 6.7% (based on London PM fix prices), the biggest weekly decline since September. It got downright irritating when the mainstream media seemingly rejoiced at gold's decline. Economist Nouriel Roubini poked fun at gold bugs in a Tweet. Über investor Dennis Gartman said he sold his holdings. CNBC ran an article proclaiming gold was no longer a safe-haven asset (talk about an overreaction). While the worry may have been real, let's focus on facts. Have the reasons for gold's bull market changed in any material way such that we should consider exiting? Instead of me providing an answer, ask yourself some basic questions: Is the current support for the U.S. dollar an honest indication of its health? Are the sovereign debt problems in Europe solved? How will the U.S. repay its $15 trillion debt load without some level of currency dilution? Is there likely to be more money-printing in the future or less? Are real interest rates positive yet? Has gold really lost its safe haven status as a result of one bad week? And one more: What is the mainstream media's record on forecasting precious metal prices? Our take won't surprise you: not one fact relating to the trend for gold changed last week. We remain strongly bullish. So why did gold, silver, and related stocks fall so hard? The reasons outlined in this month's BIG GOLD are still in play (the MF Global fallout, a rising dollar, year-end tax-loss selling, and the need for cash and liquidity to meet margin calls or redemption requests). Last Wednesday's 3.5% fall took on a life of its own, selling begetting selling, fear adding to fear (especially the case with gold stocks). None of these reasons, however, have anything to do with the fundamental factors that ultimately drive this market. Once those issues shift, we'll talk about exiting. So should we buy now? Read full article... More on precious metals: Read this if you're worried about gold What the coming gold mania could do to your gold stocks Casey Research: Move these gold stocks to the top of your buy list |
| Gold the protector as democracies move towards totalitarianism Posted: 20 Dec 2011 11:54 PM PST Gold the protector as democracies move towards totalitarianism Gold, and perhaps silver, are still in a bull market phase which is likely to continue as governments print money, spin figures, manipulate markets and erode basic liberties. Author: Lawrence Williams Posted: Wednesday , 21 Dec 2011 LONDON - How much is movement in the markets - gold, the dollar, the stock market - for real or illusory, maybe generated by the politicians and bankers trying to put a positive spin on the global economy? As we've pointed out many times before, market movement depends on perception, while government feels it is its duty to make us lemmings feel good about the world so economies don't collapse. Let's look at the realities. Governments can release trillions of dollars into the markets to try, mostly unsuccessfully so far, to stimulate growth, mitigate unemployment and keep the general population's 'feel-good' factor short of being suicidal. In this context it is hardly beyond likelihood that the relatively tiny sums (in comparison with all the money being printed under quantitative easing programmes) needed to keep stock markets appearing at least reasonably healthy - on the grounds that a healthy stock market gives the impression that the economy in general remains sound - may be being deployed. Likewise dollar, or other currency, strength - or weakness - is indeed often manipulated by governments as perhaps can be the price of gold (effectively a currency in its own right) where a rising gold price is a flag that all is not well with the mighty dollar or, indeed, with the global economy in general. One is not necessarily saying that this is actually the case but the possibility is worth considering. Governments have a vested interest in making things look as though they are all hunky dory. They can win elections and stave off economic collapse by so doing. While long term market rigging may actually be beyond them at the moment given the true scale of government and bank debt in the West, the more they can convince the public that things are at least partially under control the better as far as they are concerned. Organisations such as GATA have been suggesting that gold and silver prices are manipulated by governments and banks - and the way the silver price was hit back in May does certainly suggest that the huge fall in a matter of minutes at a time virtually no-one would have been at work has to be suspicious to say the least. If gold and silver might be subject to external manipulation then it is not beyond the bounds of possibility that stock markets can be too with concerted buying or selling at key moments. Certainly inflation figures are massaged to protect confidence and the suspicion is that many other government statistics are too. This is, of course, pure conjecture, but with so-called democracies seemingly moving ever further into totalitarian territory as basic liberties are taken away from us, in the name of counter-terrorism or economic necessity, it is difficult to judge to what purpose some of the huge, and ever-growing, debt may be being applied. For the investor, a benign manipulation of markets through government intervention may seem to be a comfort, but history suggests it is unlikely to be successful, if indeed it is occurring, in the long term. Likewise, the long-held GATA view that the gold price has been suppressed, if that has been happening, is also clearly unable to keep the price down, although GATA would argue that without suppression the price would be far higher. But what of the gold price in the here and now? In August, pro-gold sentiment among analysts was rife - and the price collapsed. Currently sentiment has been distinctly negative (see Weaker gold prices likely to continue into Q1 2012 - poll) and the price seems to be recovering. Make of that what you will. The writer reiterates his view that all the drivers which have been responsible for gold hitting its highs are still intact and there is likely further upside ahead. However the fall back from the August $1920 peak, in dollar terms at least, will have hurt sentiment so prices may not advance as fast as they did in the summer until the nervousness is taken out of the markets. Silver is still suffering even more than gold from the even bigger fallout (in percentage terms) in May, and then again in September, which dented investor confidence - and with signs that the global economy is not pulling out of recession, and that any future growth will be strictly limited for years to come as austerity programmes make their impact, silver's industrial demand element may hold back rises. However, overall, we would still expect it to track gold and the thinness of the market could lead to some considerable volatility. Apparent dollar strength tends to mean weak gold prices in dollar terms, although not necessarily in other currencies. For example the fall in the rupee against the dollar means that gold remains at or near record levels still in the Indian currency which has had a short term adverse effect on gold buying in the world's largest gold market. But bear in mind also that dollar strength is relative - and illusory. It is just doing better on the way down than many other recession hit currencies - notably the Euro. It will inevitably be hit by rising inflation from the printing of all that additional money from QE and other stimulus programmes. Overall, the writer views gold at the moment in a positive light and as remaining in a bull market phase as the global economy continues to collapse around us. The Eurozone crisis is not played out yet and debt levels within and outside the common currency area, and in the USA, continue to cause major concerns and it is difficult to see any certain way out of the current crisis. Maybe we will muddle through, but living standards are set to fall - drastically in some areas. Gold, and by association silver, have tended to stand the test of time as offering at least some wealth protection. History, which does tend to repeat itself over and over, is on their side. http://www.mineweb.com/mineweb/view/...ail&id=110649 |
| Euro crisis: the end of the beginning? Posted: 20 Dec 2011 11:30 PM PST A slew of better-than-expected US economic statistics and improved German economic data resulted in a boost for stocks and commodities yesterday. Gold and silver prices also rose as demand for the US ... |
| There are Tremendous Silver Shortages Posted: 20 Dec 2011 11:16 PM PST from King World News:
Continue reading @ KingWorldNews.com |
| Are You Tempted to Sell, or Eager to Buy? Posted: 20 Dec 2011 11:12 PM PST
It wasn't a fun week for gold. By the close on Friday, the metal was down 6.7% (based on London PM fix prices), the biggest weekly decline since September. It got downright irritating when the mainstream media seemingly rejoiced at gold's decline. Economist Nouriel Roubini poked fun at gold bugs in a Tweet. Über investor Dennis Gartman said he sold his holdings. CNBC ran an article proclaiming gold was no longer a safe-haven asset (talk about an overreaction). While the worry may have been real, let's focus on facts. Have the reasons for gold's bull market changed in any material way such that we should consider exiting? Instead of me providing an answer, ask yourself some basic questions: Is the current support for the US dollar an honest indication of its health? Are the sovereign debt problems in Europe solved? How will the US repay its $15 trillion debt load without some level of currency dilution? Is there likely to be more money printing in the future, or less? Are real interest rates positive yet? Has gold really lost its safe haven status as a result of one bad week? Read More @ CaseyResearch.com |
| Gold and silver prices rise with the euro Posted: 20 Dec 2011 10:45 PM PST This morning gold future contracts climbed on news of a big uptake in loans from the European Central Bank to Europe's banks. It is hoped that these loans will help stabilise the banking system and ... |
| Silver Update: “Pension Bomb” Posted: 20 Dec 2011 10:38 PM PST from BrotherJohnF:
~TVR |
| An outlook for the dollar and gold as money Posted: 20 Dec 2011 09:45 PM PST In this video Philipp Bagus, Assistant professor of Economics at Madrid's Universidad Rey Juan Carlos and author of The Tragedy of the Euro, and Alasdair Macleod of the GoldMoney Foundation talk ... |
| We are Witnessing a Historic Bottom in Gold: London Trader Posted: 20 Dec 2011 09:07 PM PST ¤ Yesterday in Gold and SilverOnce the gold price broke through the $1,600 level shortly after the London open yesterday morning, it never looked back. The rally moved along in fits and starts until 11:15 a.m. Eastern time. Then it more or less traded sideways for the rest of the New York trading session. Gold closed at $1,615.20 spot...up $21.30 on the day. Volume was pretty light...around 107,000 contracts.
The silver price basically followed the same type of trading pattern as the gold price. Silver closed the day at $29.56 spot...up 76 cents. After a monstrous 50,000 contract volume day on Monday, silver's volume on Tuesday was a much more subdued 23,500 contracts.
For a change, the precious metals prices followed the lead of the dollar...which had developed a negative bias right from the open of Far East trading during their Tuesday. But the real decline didn't start until 3:00 a.m. Eastern time...which is 8:00 a.m. in London...and the time that the gold price broke through the $1,600 mark. The gold and silver prices didn't follow the dollar move exactly, but it was close enough. The dollar index lost about 75 basis points from the top to the bottom...which came around 9:40 a.m. Eastern time. Then the dollar recovered about 25 basis points of that loss by 11:30 a.m...and then traded flat for the rest of the day.
The gold stocks gapped up more than three percent at the open of trading in New York...and proceeded to trade sideways for the rest of the day. I found this rather unusual considering the fact that gold continued to climb in price as the morning wore on. But the Dow chart from yesterday bore a strikingly similar pattern to the HUI, as both gapped up, and then traded mostly flat...so what happened with the gold stocks was only partly related to what was going on with the gold price itself. The HUI finished up 3.60%...erasing all of Monday's loses.
The silver stocks did very well for themselves yesterday as well...and a lot of the junior producers were on fire. Nick Laird's Silver Sentiment Index closed up a chunky 5.10%.
(Click on image to enlarge) The CME's Daily Delivery Report showed that 96 gold and 17 silver contracts were posted for delivery on Thursday. It was mostly the 'usual suspects' as issuers and stoppers...and the link to the 'action' is here. There were no reported changes in either GLD or SLV yesterday...and the U.S. Mint reported selling 1,500 one-ounce 24K gold buffaloes. The Comex-approved depositories reported receiving 371,077 ounces of silver on Monday...and shipped 598,435 troy ounces out the door. The link to the action is here. Here are three charts courtesy of Nick Laird. The first is a 5-year chart of 5,10 and 30-year U.S. bond yields. I wouldn't want to be holding this paper when interest rates do finally turn up.
(Click on image to enlarge) This second chart shows the total precious metals held in all know repositories...plotted against the total value in billions of US dollars. As Nick pointed out, there's been very little selling so far.
(Click on image to enlarge) Since yesterday was the 20th of the month, The Central Bank of the Russian Federation updated their website with November's data. The bank purchased another 100,000 ounces of gold for their reserves, which now sit at 28.1 million ounces. Nick Laird provides his usual excellent chart.
(Click on image to enlarge) Reader Scott Pluschau sent me this quick Technical Analysis data on yesterday's gold market. This is what he had to say in his covering e-mail..."Here is the chart of gold with the rising 200 day moving average. You can see the price has rallied back to the MA. Should it re-take it with authority, it is a perfect setup for a squeeze. One cause for concern for me is the "Bear Flag" pattern that is forming as well. Bulls don't want to see this pattern fulfilled as the target would be about 1450." The link to Scott's very short commentary [along with an excellent chart] is here. It was a pretty quiet day in the news department yesterday...and even more quiet after I got through the editing process, as I only have a handful of stories today. I was quite happy to see both gold and silver rising on very light volume on Tuesday, as they had all the hallmarks of short-covering rallies. Expect Bank Holidays in Europe & Higher Gold: Chris Whalen. Will the Europeans have to sell their gold? Britain, the IMF, and the world's richest beggar. ¤ Critical ReadsSubscribeFed Proposes New Capital Rules for BanksThe Federal Reserve on Tuesday proposed rules that would require the largest American banks to hold more capital — and to keep it more easily accessible — to protect against another financial crisis. But the Fed, the nation's chief banking regulator, added that the final capital rules were unlikely to be more stringent than international limits that were still under development. That is a small victory for banks who warned that they would be severely disadvantaged if capital requirements here were stricter than those governing overseas banks. Bank representatives are still wary about details that remain to be worked out, however, including how much of an extra capital cushion would be imposed on the biggest of the big institutions like Bank of America, JPMorgan Chase and Citigroup. This story showed up in The New York Times yesterday...and reader Phil Barlett was the first one through the door with it. The link is here.  Britain, the IMF, and the world's richest beggarEuro rage is reaching new heights over Britain's latest outrage. Our refusal to pony up a further €31bn we cannot afford, to prop up a monetary union that was created against our wishes and better judgment, and launched with the malevolent purpose of accelerating the great leap forward to a European state that is inherently undemocratic. It is being presented as treachery, Anglo-Saxon perfidy, and the naked pursuit of national self-interest. This story was posted in The Telegraph late Monday night...and is Ambrose Evans-Pritchard at his finest. He takes no prisoners here...and it's a must read from beginning to end. I thank Roy Stephens for this...and the link is here.  Resistance in London: Britain Refuses to Boost IMF Aid for Euro CrisisEU finance ministers wanted to raise 200 billion euros to boost the International Monetary Fund's firepower in the euro crisis, but they only raised 150 billion on Monday, largely due to resistance from Britain. Germany, meanwhile, will have to rework its 2012 budget to help finance the new permanent euro rescue fund. This is the story on the same IMF issue as the previous story posted in The Telegraph. However, this one is through German eyes in Berlin. It's another Roy Stephens offering...and it's posted over at the spiegel.de website. The link is here.  Expect Bank Holidays in Europe & Higher Gold: Chris WhalenHere's a King World News blog that Eric sent me yesterday. Whalen, in part, says this..."Well, I think the dollar continues to muddle along. So I see the dollar continuing as the means of exchange for global commerce, but it's definitely not a store of value. Nor has it ever been. Hayek wrote this very well in The Road to Serfdom, that in a democracy, no government could resist the temptation of inflation." The link to this rather short KWN blog is here.  Will the Europeans have to sell their gold?If the Italians can't persuade the bond markets to keep them in business, they have another card up their sleeve. Few people realize it, but Italy holds the world's fourth biggest stockpile of gold, at 2,452 tonnes. That's even more than France, and more than twice as much as China. Only the U.S., Germany and the International Monetary Fund hold more. The question here is whether some of the troubled European countries — such as Italy and France — are going to have to start selling off the national gold pile to meet their bills. This story was posted over at marketwatch.com...and filed from London yesterday. I lifted it from a GATA release...and the link is here.  We are Witnessing a Historic Bottom in Gold: London TraderBig gold and silver buyers increasingly are bypassing the rigged futures markets and the bullion banks that rig them...and instead buying metal from the major gold and silver exchange-traded funds and from miners directly, the London trader source of King World News remarked yesterday. These remarks echo those made two weeks ago by AngloGold Ashanti CEO Mark Cutifani to Takoa Da Silva of Bull Market Thinking. But the London trader told King World News a lot more -- including that the new kind of buying is transforming the precious metals market, cutting off supply from the bullion banks and diminishing their ability to leverage their short positions in the futures market. "We're making an historic bottom right now" in the gold market, he says. Let's hope he's right...and from my perspective, that's where we are. I thank Chris Powell for wordsmithing all of the above two paragraphs of introduction...and the link to this must read KWN blog is here.  |
| Expect Bank Holidays in Europe & Higher Gold: Chris Whalen Posted: 20 Dec 2011 09:07 PM PST  Here's a King World News blog that Eric sent me yesterday. Whalen, in part, says this..."Well, I think the dollar continues to muddle along. So I see the dollar continuing as the means of exchange for global commerce, but it's definitely not a store of value. Nor has it ever been. Hayek wrote this very well in The Road to Serfdom, that in a democracy, no government could resist the temptation of inflation." The link to this rather short KWN blog is here. |
| Will the Europeans have to sell their gold? Posted: 20 Dec 2011 09:07 PM PST  If the Italians can't persuade the bond markets to keep them in business, they have another card up their sleeve. Few people realize it, but Italy holds the world's fourth biggest stockpile of gold, at 2,452 tonnes. That's even more than France, and more than twice as much as China. Only the U.S., Germany and the International Monetary Fund hold more. The question here is whether some of the troubled European countries — such as Italy and France — are going to have to start selling off the national gold pile to meet their bills. |
| Markets Lack Confidence In Europe. Despair Spreads Faster Posted: 20 Dec 2011 08:19 PM PST A flurry of European banker and politico meetings last week provided literally nothing but a lot smashed hopes. No one could agree on anything and the purported "Agreement to Agree" was a very bad joke. We have news for them…the world can plainly see these mammoth failures coupled with a lack of good planning and discipline. By not coming to any solid agreement, the mess is thrown directly back onto the United States taxpayers via the IMF, and Federal Reserve. The Federal Reserve provided $200 Billion in loans to European bankers that were literally frozen in time. They lacked US Dollars for trading and loans to corporations threatening payrolls and accounts receiveable and payable on lack of commerical paper flow. Europe remains a basket case but the $200 Billion eased some pressures for the very shorter term. Europe's New Game Of Economic Chicken. We are beginning to think the following: By not doing anything of merit on this crisis, Europeans tossed the mess back to the USA in a and new and scarier game of chicken. They are daring the USA to let European economies crash and burn. They are forcing Timmy the G and Chopper Ben to immediately pull out all stops to save America's stock and bond markets and all of Europe. Why not? New York global bankers made the whole mess, world-wide in the first place. They dumped crappy, toxic derivatives on Europe's banks and then Benny had to return to the crime scene with USA taxpayer money to reliqify those big banks of Euro-land. The Next New Big Thing Will Be More Stealth Jamming Of QE-3 On The Sly. This won't produce results so then, in a near final Hail Mary Pass, Benny formally announces introduction of a new QE-3. And, when that one runs its course and flames out, they go to special Drawing rights (SDR's) followed by a major US dollar devaluation. Super-imposed over this folly will be more insidious capital controls (in place and on-going) with a proposed theft of all American pension plans in an attempt to convert them to USA 30-year bonds, AKA paper for the stool. In our view, anyone allegedly in charge of this nightmare could easily make a mistake or small mis-step followed by a flock of Black Swans alighting on central bankers like vultures. We do not wish them ill-will but as many would say, it would serve them right. This agony can be extended for years Ala Japan-style malaise despite fears of imminent markets' conflagration. The larger question of all; a bottom line so to speak is this: When does the global bond market crash on lack of buyers and system confidence? If I knew exactly when this occurs and to what degree I could be an overnight zillionaire. Unfortunately for us little dogs, that ain't gonna happen. Play trends with the best risk control you can muster. Grit your teeth and take one day at a time. If you're personally perpared to withstand forthcoming gales and tragedies you win. As the old saying goes, the guy and gals who lose the least and can mitigate damages will be the standing winners at the end.         This posting includes an audio/video/photo media file: Download Now |
| Posted: 20 Dec 2011 07:40 PM PST By Philip Mirowski, Carl Koch Professor of Economics and the History and Philosophy of Science University of Notre Dame. Professor Mirowski has written numerous books including More Heat than Light, Machine Dreams and, most recently Science-Mart Edited and with an introduction by Philip Pilkington, a journalist and writer living in Dublin, Ireland The previous parts of the series can be found here and here, while a bibliography can be found here Perhaps the best defence for a failed set of ideas is to have critics that will engage in only superficial critiques. This provides the audience – in this case, the educated general public – with a spectacle by which they can console themselves that the edifice is being shaken up by brave and innovating insiders. The critiques of the Efficient Markets Hypothesis (EMH) currently pouring out of the discipline and into the mediasphere is precisely such a spectacle. (A spectacle which, I must admit, I have partaken in to some degree). The prize-fighters that step into the public arena in this regard are none other than Paul Krugman and Joseph Stiglitz, both of whom have won the Nobel Prize in Economics – a sort of official sanction by the profession that these are people worth listening to on the state of economics. Their critiques, which attack some of the outlandish excesses of neoclassical thought, merely tiptoe around the edges of the neoclassical research program and do not take on the more fundamental issues. The EMH is thus set up as a sort of arch-villain of the Bond film variety which, by some readings, led directly to the financial excesses and collapse that we have witnessed. Thus all it needs is a suave hero to do away with it and all will be right with the world once more. And that is how the critics become the system's best defenders. By insulating the research program from any real, fundamental criticism (such as, for example, a charge that, pace Hyman Minsky, capitalism is inherently unstable and lacking in equilibrium) such critics limit the scope of serious debate – all the while giving the audience the impression that they are, in fact, watching a serious debate unfold. As Mirowski writes, such a spectacle "constitutes the very definition of an 'empty gesture' in orthodox economics." – Philip Pilkington ======================= Part III: Microirrationalities – A Critic's Defence of The System For those living through the roller-coaster of 2008, and retrospectively searching for previous wrong turns, it seemed obvious to focus on the sector wherefrom disasters cascaded one after another like clowns piling out of an auto: namely, Wall Street. Not only had finance become the 400 pound gorilla of the US economy, accounting for 41 of all corporate profits in 2007 (Stiglitz, 2010a, p. 7), but it was also the arena where economic theory had seemed to matter to a greater degree than elsewhere, given recourse to formal models to 'justify' all manner of activities, from securitization and options pricing to risk management.[14] Thus it was fairly predictable that some economists would look to finance theory as the locus of error, and rapidly settled upon a single doctrine to scapegoat, the one dubbed the 'efficient-markets hypothesis' [EMH]. Paul Krugman became a prominent spokesperson for this option in his notorious 'How Did Economists Get it so Wrong?' (2009):
Journalists found the EMH irresistibly seductive to ridicule, with John Cassidy and Justin Fox attacking it at length. The journalist Roger Lowenstein declared: 'The upside of the current Great Recession is that it could drive a stake through the heart of the academic nostrum known as the efficient-market hypothesis.'[15] There was more than sufficient ammunition to choose from to rain fire down on the EMH, not least because it had been the subject of repeated criticism from within the economics profession since the 1980s. But what the journalists like Cassidy, Fox and Lowenstein, and commentators like Krugman, neglected to inform their readers was that the back and forth, the intellectual thrust and empirical parry had ground to a stand-off more than a decade before the crisis, as admirably explained in Lo and MacKinlay (1999):
This imperviousness of an isolated hypothesis to empirical rejection, and the crucial role of auxiliary hypotheses in serving as a protective barrier, is familiar in the philosophy of science literature as 'Duhem's thesis'. The mere fact of deflecting disconfirmation off onto harmless auxiliary hypotheses is not prima facie an illegitimate ploy; it occurs in all the natural sciences. The issue was not that immunizing stratagems had been resorted to in this instance; rather, it was that the EMH had proven so rabidly tenacious within orthodox economics and in business schools, occupying pride of place for decades within both macroeconomics and finance, that economists had begun to ignore most modern attempts to disprove it. Perhaps it was not the localized cancer that its detractors had portrayed; maybe it was more akin to a symbiotic parasite that actually helped orthodox economics thrive. The lesson for crisis-watchers that I shall explore is that the EMH cannot be killed easily and maybe not at all within the parameters of the current economics profession. That is one reason why non-economists need to be suspicious of claims like the pronunciation of the economist most famous for the 'reject the EMH' option, Joseph Stiglitz:
Pace Stiglitz, each blow just seemed to leave it stronger. One of the characteristics of the EMH which rendered it impervious to refutation was the fact that both proponents and critics were sometimes extremely cavalier about the meaning and referent of the adjective 'efficient'. Both Krugman and Stiglitz, for instance, in the above quotes simply conflate two major connotations of efficiency, namely, 'informational efficiency' and 'allocative efficiency'. The former is a proposition about the efficacy and exactitude of markets as information conveyance devices; the latter is a proposition that market prices correctly capture the 'fundamentals' and maximize the benefits to market participants by always representing the unique arbitrage-free equilibrium. It is sometimes taken for granted that the former implies the latter; this is the gist of the comment that one will never find loose $100 bills on the sidewalk. However, if one rephrased the claim to state that no one will ever find valuable unused information on the sidewalk, then the fallacy starts to become apparent.16 In order to respect the significance of that distinction, in this section I deal with those who propose that the orthodoxy shed the information-processing version of the EMH in reaction to the crisis; while in the next I consider those who seek to dispense with allocative efficiency altogether. The journalist and blogger Felix Salmon posed the critical question during the crisis: why did the EMH become the destructive love affair which the economics profession seemed unable to shake off? [17] To understand where the orthodox economics goes awry, one must become acquainted with a little bit of history. The role of the EMH should be situated within the broader context of the ways that neoclassical economics has changed over time. [18] In a nutshell, neoclassical economics looks very different now than it did at its inception in the 1870s. From thenceforth until World War II, it was largely a theory of the allocation of scarce means to given ends. Although trade was supposed to enhance 'utility', very little consideration was given to what people knew about commodities, or how they came to know it, or indeed, about how they knew much of anything else. The Socialist Calculation Controversy, running from the Great Depression until the fall of the Wall, tended to change all that. In particular, Friedrich Hayek argued that the true function of The Market was to serve as the greatest information processor known to mankind. Although Hayek was not initially accorded very much respect within the American economics profession before the 1980s, nonetheless, the 'information processing' model of The Market progressively displaced the earlier 'static allocation' approach in the preponderance of neoclassical theory over the second half of the twentieth century. As one can appreciate, this profoundly changed the meaning of what it meant to assert that 'the market works just fine', at least within the confines of economics. [19] 'Efficiency', a slippery term in the best of circumstances, had come increasingly to connote the proposition that the market could package and convey knowledge on a 'need-to-know' basis in a manner which could never be matched by any human planner. Once one recognizes this distinct trend, then the appearance of the EMH in Samuelson (1965) and Fama (1965) and its rapid exfoliation throughout finance theory and macroeconomics (Mehrling, 2010; Bernstein, 1992) becomes something more than just a fluke. The notion that all relevant information is adequately embodied in price data was one incarnation of what was fast becoming one of the core commitments of the neoclassical approach to markets. Of course, the fact that numerous ineffectual attempts were made along the way to refute the doctrine in specific instances (variance bounds violations, the end-of-the month effect, January effect, small cap effects, mean reversion, and a host of others) did not impugn the EMH so much as quibble over just how far the horizon would be extended. The EMH spawned lots of econometric empiricism, but surprisingly little alteration in the base proposition. The massive number of papers published on the EMH merely testified to the protean character of the idol of 'market efficiency', which grew to the status of obsession within the American profession. In the Odyssey, Proteus assumed a plethora of shapes to escape Menelaus; in the EMF, 'information' had to be gripped tight by neoclassical theory, because it kept squirming and changing shape whenever anyone tried to confine it within the framework of a standard neoclassical model. Few have been sensitive enough to the struggle to attend to its twists and turns, but for present purposes it will be sufficient that three major categories of cages to tame the beast have been: information portrayed as 'thing' or object, information reified as inductive index, and information as the input to symbolic computation (Mirowski, 2009). For numerous considerations here bypassed, they cannot in general be reduced one to another. The reason this matters to journalists' convictions that the crisis has invalidated the EMH is that the detractors mostly conform to the literature which treats information like a commodity, whereas the defenders repulse them from battlements of legitimation built largely from information as an inductive index. This may seem a distinction that only a pedant could love, but once clarified it goes a long way to demonstrating that the crisis will never induce the majority of neoclassical economists to give up on the EMH. The standard-bearer for the denial of the Kenntnisnahme über alles EMH has been Joseph Stiglitz. Here it is important to acknowledge that Stiglitz deserves the respect of the Left because he has repeatedly taken political positions that have not ingratiated him with those in power, and often has been steadfast in his pessimistic evaluations of the crisis, when all the journalists wanted to hear was how the crisis was done, dusted and under control. He has been right more often about the gravity of problems that the crisis revealed than the thundering herd of economists claiming that they had sagely prophesied disasters.20 And, in stark contrast to most of the figures encountered in this chapter, he has repeatedly gone on record stating that economists should bear some responsibility for the crisis. By these lights, Stiglitz has been an exemplary contrarian economist. Nonetheless, Stiglitz has simultaneously been a major defender of neoclassical economics, suggesting that the EMH is not all that central to the core doctrines of orthodoxy:
This is what Krugman has called 'flaws-and-frictions' economics, and it comes perilously close to the standard response) that 'we already had models that told us the crisis was coming'. It follows that our first hesitation should be the one previously broached: so why weren't these models well represented in macro or micro textbooks and graduate pedagogy? Stiglitz is fully aware that there exists a tradition of oxymoronic 'New Keynesianism' which reprised a boring old story of sticky wages and prices in a neoclassical equilibrium, but he wants to suggest that there exists something else on offer which is more compelling. In Stiglitz's case, there is a special caveat: the models he has in mind are found mostly in his own previous publications. While there could be no academic prohibition against tooting your own horn, there is something less than compelling about claiming a generality for some idiosyncratic models where the novelty quotient is distinctly low. While Stiglitz has certainly earned the Nobel, he has not effectively staunched the intellectual trend of treating markets as prodigious information processors; nor has he provided a knock-down refutation of the EMH. This has led to the distressing spectacle of Stiglitz, the great hope of the Left, openly defending the neoclassical approach to the crisis, while not really changing it all that much. Stiglitz has admitted that his mission all along was to undermine free market fundamentalism from within:
The way he has chosen to do this is to produce little stripped-down models which maximize standard utility or production functions, with a glitch or two inserted up front in the set-up. He has been especially partial to portraying 'information' as a concrete thing to be purchased, and 'risk' as standard density function with known parameters. There is no canonical Stiglitz 'general model', but rather a number of specialized dedicated exercises, one for each flaw and/or friction explored. Macroeconomics then simply becomes microeconomics with the subscripts dropped. This distinguishes Stiglitz from the small cadre of researchers in section 20.3.3 below, who are convinced that this 'representative agent' trick does not constitute serious macroeconomic theory. In Stiglitz's academic writings, he stakes his claim to have refuted the EMH primarily on two papers, one co-authored with Sanford Grossman in 1980, and another co-authored with Bruce Greenwald in 1993.[21] The take-away lesson of the first was summarized in his Nobel lecture:
The second is proffered as the fundamental cause of the crisis in his (2010b):
Both of his crucial 'findings' are in fact based upon very narrow versions of what is a much more diversified neoclassical orthodoxy. It would indeed have been noteworthy if Stiglitz or his co-workers had provided a general impossibility theorem, say, along the lines of Gödel's incompleteness theorem or Turing's computability theorem, but Stiglitz has explicitly rejected working with full Walrasian general equilibrium (2003, pp. 580, 620), or Chicago's resort to transactions costs (p. 573), and does not seriously consider the game theorists' versions of strategic cognition. Indeed, it seems a rather heroic task to derive any general propositions from any one of his individual 'toy' models. Stiglitz himself admits this in when he is not engaged in wholesale promotion of his information program.[22] Instead, it is possible that 'simple' models serve mainly to cloud the issues that beset the half-century quest for a consensus economics of information. Take, for instance, the Grossman–Stiglitz model (1980). The text starts out by positing information as a commodity that needs to be arbitraged (p. 393), but claims in a footnote (p. 397) that the model of knowledge therein is tantamount to the portrayal of information as inductive index, which is not strictly true, and then defines its idiosyncratic notion of 'equilibrium' as equivalence of plain vanilla rational expected utilities of informed and uninformed agents. Of course, 'for simplicity' all the agents are posited identical; how this is supposed to relate to any vernacular notions of divergences in knowledge is something most economists have never been poised to address. Many economists of a different political persuasion simply ignored the model, because they deemed that Stiglitz was not taking into account their (inductive, computational) version of 'information'. When Grossman offered his own interpretation of their joint effort, he took the position that the rational expectations model was identical to the approach in Hayek (1945), that: 'when the efficient markets hypothesis is true and information is costly, competitive markets break down', and that, 'We are attempting to redefine the Efficient Markets notion, not destroy it' (Grossman, 1989, p. 108). That seems closer to the median in |
| Trading Comments, 21 December 2011 (posted 10h00 CET): Posted: 20 Dec 2011 07:00 PM PST As I suspected, December 14th was indeed a selling climax. It marks the bottom of this correction. Gold and silver are now starting the long climb back, but then again, this climb back toward |
| The dollar may be the reason of the falling prices of Gold and Silver Posted: 20 Dec 2011 05:00 PM PST |
| Posted: 20 Dec 2011 04:37 PM PST Dave Skarica and I discuss the potential bottom in the gold equities.
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| British Prepare Evacuation Plans Ahead of Spain and Portugal Collapse Posted: 20 Dec 2011 04:30 PM PST shtfplan |
| Welcome To The Third World, Part 4: Boomers Reap What Theyve Sown Posted: 20 Dec 2011 04:26 PM PST Dollar Collapse |
| Will 2012 Be The Return of Gold Stocks? Posted: 20 Dec 2011 04:18 PM PST Even gold stocks are getting in on the act. Mineweb reports that gold producers are now paying dividends in order to attract the punters. Who says gold doesn't pay a dividend?! Now if we could just get them to pay it...in gold! The fact that gold producers are paying a dividend is worth exploring. First, it means gold producers have cash flow. Now whether or not the best use of free cash flow is to return it to shareholders instead of pouring it into new exploration is for the punters to decide. But the fact is, gold is set to finish higher for the 11th straight year. Higher prices are boosting cash flow for producers. Producers are paying dividends partly because they have the cash, but also because they have competition. Exchange Traded Funds (ETFs) have become a popular vehicle for precious metals investors to hitch a ride on rising prices. Low-cost ETFs have generally been bullish for gold bullion prices. But they may have also sucked out liquidity that in the past would have gone into gold stocks. One further note to all this. The scandal at MF Global will turn out to be incredibly bullish for gold and silver shares in 2012. That's small consolation for the investors at MF Global who've seen their assets disappear. But a recent article at Barron's explains why confidence in the "paper" gold and silver market may be the biggest casualty of MF Global's collapse. Barron's reports:
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets - gold, silver, cash, options, futures and commodities - into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver - and hold "warehouse receipts" to prove it - they'll have to forfeit 28% of the value. Imagine leaving your car to be valet parked while you go eat dinner with your wife. You eat a pleasant holiday meal, perhaps a Wagyu beef steak from the Margaret River, washed down with a 2007 Forrest Hill Cab Sav. When the valet comes back with your car, 28% of it - all of the boot and most of the rear tires - are gone. That would ruin your dinner. It's possible that no one but the paranoid and the idle are going to take note of what happens to MF's customers. But it's also possible that investors in gold may return to the share market in order to get exposure to precious metals. Keep an eye on that for 2012 - the return of gold stocks! Gold stocks carry their own risks, of course. But a small reallocation by investors from ETFs and futures and to share could be a big boost for shares, which have lagged the bullion price this year. And of course all of this assumes bullion prices are not in a bear market but on the verge of a mania phase. Let's not beat around the bush, though. The MF liquidators are on the verge of ruining the whole idea of property rights. This is why we've repeatedly told our readers at Australian Wealth Gameplan that if you don't own it, it's not yours. This goes for gold, for cash, for anything really. Confidence that you can get what's yours from a trustee or custodian is what prevents bank runs. What do you think could happen when ordinary people realise that what's theirs may not really be theirs when they need it? Definancialising your life - extracting the value of your labour from the financial system and converting into a permanent store of value - is what we've been banging on about for years now. It's not too late. But you might want to hurry. Dan Denning |
King World News is receiving reports of significant waits for delivery of silver. Today King World News interviewed the "London Trader" to get his take on the situation. The source stated, "It is so tight, the silver market is so tight that we've been waiting three weeks plus, before this takedown, for deliveries of size to arrive. I'm talking about tonnage orders. This is also key, most of the silver being delivered was refined after the orders had been placed, and again, that was before the takedown. You can just imagine how long the wait times will be going forward."
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